If an S Corporation Inadvertently Terminates Its Election, the IRS

question 33

Multiple Choice

If an S corporation inadvertently terminates its election, the IRS

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

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Definitions:

Bankers' Acceptance

A short-term debt instrument issued by a company that is guaranteed by a commercial bank, commonly used in international trade.

Securitization

The process whereby financial instruments that were previously thinly traded are converted to a form that creates greater liquidity. Securitization also applies to the situation where specific assets are pledged as collateral for securities, and hence asset-backed securities are created. One example of the former is junk bonds; an example of the latter is mortgage-backed securities.

Warrants

Financial instruments that give the holder the right, but not the obligation, to buy shares of a stock at a specified price before the warrant expires.

Convertibles

Securities, such as bonds or preferred shares, that can be converted into a specified number of common shares at the holder's discretion.