P2-U15 · PART 2 · SOURCE CYCLE 2026-2027
S Corporations
How to complete this unit
This unit uses 19 source-gated recall cards and 19 admissible practice questions. Complete the sequence in order; the unreleased wiki prose remains outside the learner path.
- 1 · LearnBuild the rule
Answer each recall prompt before opening it. Then learn the exact rule, test the controlling facts through four quick challenges, explore common questions, and finish with one own-words teach-back.
- 2 · ApplyUse it in context
Complete at least 19 mapped questions over two sessions. Review the explanation even when the answer is correct.
- 3 · ProveTest readiness
Use the Part 2 mock under time pressure. Return here for every flagged or missed concept before the next attempt.
Verified recall questions
Only cards whose complete question and answer were checked against exact primary-authority evidence appear here. Stable unit ownership gathers this lesson across 1 textbook collection.
Q1.Alder S corporation pays its officer-shareholder for services. To the extent the payment is reasonable compensation, how must it be treated?
As wages
Q2.Which entity-year does Form 1120-S cover under its filing instructions?
A domestic corporation or other eligible entity for a year covered by an effective S election
Q3.Which election form must an eligible corporation file or attach before filing Form 1120-S?
Form 2553
Q4.How are section 1366(a)(1) items from an S corporation activity presented on its attached activity statement?
They are detailed as separately stated items using the Schedule K-1 box numbers
Q5.Does an S corporation shareholder generally wait for a cash distribution before including a distributive share of income?
No; the shareholder includes the share whether or not it is distributed
Q6.What is the stock-basis effect of an S corporation income item governed by section 1367(a)(1)(A)?
Increase the shareholder’s stock basis by the item
Q7.What shareholder consent is required to revoke an S election?
Consent from holders of more than 50% of issued and outstanding shares, including nonvoting shares
Q8.Which form is referenced for an S corporation debt discharge arising in title 11 bankruptcy or insolvency?
Form 982
Q9.Which statement best describes the IRS’s enforcement approach regarding S corporation "reasonable compensation?"
The IRS requires reasonable compensation to employee-shareholders to be paid
Q10.Seaboard Trading, Inc. is an S corporation with four shareholders. The corporation has 10,000 shares outstanding. The shareholders have the following ownership: Shareholder: Ownership Jordan: 4,500 shares Mai-Lin: 2,000 shares Simon: 2,000 shares Nora: 1,500 shares Total: 10,000 shares Nora and Jordan wish to terminate the S election, but Mai-Lin and Simon do not. Which of the following statements is correct?
Nora and Jordan have enough stock ownership to terminate the election.
Q11.On January 1, 2025, Gloria, Kristin, and Nancy are all equal shareholders in Fairview Heights Corporation, a calendar-year C corporation that has been in existence for four years. On January 7, 2025, Gloria sells her entire stock interest in the corporation to an unrelated party, Akash. Akash immediately wants to convert the corporation to an S corporation (retroactively) effective January 1, 2025. Whose consent is required for Fairview Heights to convert to S status in 2025?
Gloria must also consent to the election, along with Kristin and Nancy.
Q12.Which of the following events would cause the immediate termination of an S corporation's status?
An S corporation that issues one share of stock to a C corporation.
Q13.What is the tax rate on excess net passive income earned by S corporations?
21%
Q14.S corporations are generally not subject to taxation and are primarily pass-through entities. But in certain cases, S corporations are subject to taxes. Which of the following taxes do not apply to S corporations?
Self-employment tax.
Q15.Omar and Evelyn are shareholders in Centex Inc., an S corporation that has been in existence for three years. Omar owns 65% of the corporate stock, and Evelyn owns the remainder. Omar decides that he wants to convert Centex, Inc. to a C corporation. Which of the following statements is correct regarding the conversion?
Omar may choose to convert to a C corporation because he owns more than 50% of the stock. He does not need Evelyn's consent.
Q16.Which of the following is not a terminating event for an S corporation?
The S corporation has non-voting and voting stock.
Q17.Westland Nursing, Inc. received its corporate charter and was officially formed on November 8, 2025. Westland Nursing would like to make an initial election to become an S corporation, effective from its incorporation date. What is the deadline for the company to file Form 2553?
January 22, 2026
Q18.In which circumstance is a C corporation unable to elect to become an S corporation?
The corporation is incorporated in Canada and operates an import/export business in the U.S.
Q19.Jacinta transferred an office building to an S corporation, Nura Biotech, Inc. in exchange for stock, and immediately after the transfer, she owns 90% of the corporation. She received stock with a fair market value of $155,000 plus a cash distribution of $60,000. Nura Biotech also assumed an existing $30,000 mortgage on the building for which Jacinta was personally liable. Her basis in the building was $175,000 immediately before the transfer. Nura Biotech will do business out of the building, so there was a bona fide business purpose for the transfer. What amount of gain must Jacinta recognize, if any?
$60,000
Ready to move on?
- ▸ Explain at least 80% of these 19 rules without opening the answer, twice on different days.
- ▸ Score 80% across 19 or more mapped questions over two sessions, not one memorized round.
- ▸ Complete a timed Part 2 mock and return to this unit if its concepts remain flagged or missed.
Use these checks to choose your next study action. They do not predict a PSI scaled score.