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T-F. S-Corporation: built-in gain, officer salary, year end

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T-F

1. S corporations who chose to be taxable C corporations may have to pay a 35 percent tax on certain built-in gains.

2. Revenue agents who audit S corporations are on the alert for shareholder/employee salaries that are unreasonably low.

3. An S corporation can use any taxable year it wishes.

4. A taxable C corporation cannot be a shareholder in an S corporation.

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Solution Summary

Four T-F questions address some technical issues relating to the election and treatment of S-Corporations including the built-in gain, audit of unreasonably low shareholder salaries, the selection of a year end and the qualifications for shareholders.

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T-F questions about S Corporations

1. S corporations who chose to be taxable C corporations may have to pay a 35 percent tax on certain built-in gains.

False: It is C corporations who elect S status who have the 10 year built-in gain issue. The issue concerns the contribution of appreciated and untaxed assets from the C corporation. The built-in gain tax will come into play for any assets in the pool ...

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