Question

Indicate whether each of the following is either: A True

B False

1) An S Corporation is a taxpaying entity.

2) If shareholders elect S Corporation status, the corporation generally pays no tax.

3) Stock received by a transferor in exchange for services does not count in determining

whether the 80% control test has been met.

4) Under Sec. 351, no gain or loss is recognized by those who exchange property solely for

stock of the recipient corporation.

5) When boot is received by a taxpayer transferring assets in a Sec. 351 exchange, gain must be recognized to the extent of the smaller of the realized gain or the FMV of the boot received.

Answer 1

The answers are as follows,

1. False, s corporation is a pass through entity which means all the income of the s corporation will be transferred to shareholders and the tax is to be paid by the shareholders and not the s corporation.
2. True, as per the same explanation above you can conclude this.
3. False, stock received on whichever method will be included for calculation purpose.
4. True, the gain or loss is only recognised when the transfer is not for sole purpose.
5. True.