Krause Corporation Makes an S Election, Believing That It Has

question 4

Multiple Choice

Krause Corporation makes an S election, believing that it has no current or accumulated E&P. However, after an IRS audit, Krause is found to have failed the passive investment income test for three consecutive years and also to have a Subchapter C E&P balance from its three pre-election tax years. The IRS will

• A)automatically terminate the election and Krause cannot reelect for a 5-year time period.
• B)retroactively revoke the election to the first day on which it was effective and Krause will not be able to reelect.
• C)treat the error as such and allow the election to continue unbroken.
• D)likely treat the termination as inadvertent and will probably approve a continued S election if the corporation distributes the Subchapter C E&P.

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Definitions:

Malnutrition

A condition resulting from eating a diet in which one or more nutrients are either not enough or are too much, causing health problems.

Obesity

A medical condition characterized by excessive body fat that increases the risk of health problems such as heart disease and diabetes.

Grams

A metric unit of mass equal to one thousandth of a kilogram, used commonly in science and everyday life for measuring weight.

Very Low

typically describes a significantly reduced quantity, level, or intensity of something when compared to a standard or expected value.