ABC Corp Elected to Be Taxed as an S Corporation When

question 130

Essay

ABC Corp. elected to be taxed as an S Corporation when it was initially formed. During its first three years of existence, it reported passive investment income in excess of 25 percent of its gross receipts. Is ABC's S election terminated under the excess passive investment income test? If so, what is the effective date of the termination? If not, why not?

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Definitions:

Motivation Factors

Elements that influence an individual's level of motivation, including intrinsic rewards, recognition, and personal goals.

Herzberg's Two-Factor Theory

A motivational theory that divides factors in the workplace into two categories: hygiene factors, which if inadequate cause dissatisfaction, and motivators, which can lead to satisfaction.

Expectancy Theory

A motivational theory suggesting that people are motivated to perform behaviors if they believe that such behaviors will lead to desired outcomes.

Individualism

A social theory favoring freedom of action for individuals over collective or state control.