If an S Corporation Inadvertently Terminates Its Election, the IRS

question 34

Multiple Choice

If an S corporation inadvertently terminates its election, the IRS

• A) will permit restoration of the S election only if the event causing the termination was not within the control of the corporation.
• B) may permit the corporation to report as an S corporation even for the period that includes the termination date.
• C) will not permit the corporation to restore its S election until the completion of a five- year waiting period.
• D) will permit restoration of the S election if a majority of the shareholders consent to the reinstatement.

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Definitions:

Acid-Test Ratio

A liquidity ratio that measures a company's ability to pay off its current liabilities with quick assets, excluding inventory.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations by comparing current assets to current liabilities.

Interim Income Statements

Financial statements reporting a corporation's financial performance for a period shorter than a fiscal year, often quarterly.

Expenses

Costs incurred in the process of earning revenue, including operational costs, salaries, and utilities, among others.