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P2-U15 · PART 2 · SOURCE CYCLE 2026-2027
S Corporations
Only cards whose complete question and answer were checked against exact primary-authority evidence appear here.
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?" A. The IRS requires reasonable compensation to employee-shareholders to be paid B. The IRS allows S corporations to decide freely as long as distributions are reasonable C. The IRS exempts very small S corporations from payroll taxes D. The IRS always taxes distributions the same way as wages
The IRS requires reasonable compensation to employee-shareholders to be paid