Which of the Following S Corporations Would Be Subject to the Excess

question 130

Multiple Choice

Which of the following S corporations would be subject to the excess net passive income tax?

• A)An S corporation that never operated as a C corporation.
• B)An S corporation that has previously distributed all earnings and profits from prior C corporation years.
• C)An S corporation with no earnings and profits from prior C corporation years and with passive investment income that exceeds 30percent of its gross receipts.
• D)An S corporation with $2,000 of earnings and profits from prior C corporation years and with passive investment income that equals 22percent of its gross receipts.
• E)None of the choices are correct.

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Definitions:

Minimum Efficient Scale

The smallest level of production a firm can achieve while still taking full advantage of economies of scale regarding costs per unit.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, leading to a reduction in average costs with increased output.

Total Fixed Cost

Total Fixed Cost is the sum of all costs that remain constant regardless of the level of production or business activity.