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:

Sacral Hiatus

An opening at the base of the sacral bone in the back, through which nerves and membranes can pass.

Superior Articular Facet

Superior articular facets are the upper pair of articulating surfaces found on the vertebrae, which connect with an adjacent vertebra to facilitate spinal movement.

Median Sacral Crest

A ridge on the posterior surface of the sacrum formed by the fusion of spinous processes, serving as an attachment for muscles.

Zygomatic

Referring to the cheekbone or zygoma, a bone that shapes the face and forms the orbit of the eye.