Solutions Manual for McGraw Hill's
Essentials of Federal Taxation 2025 By
Spilker, Ayers, Robinson, Outslay,
Worsham, Barrick, Weaver (All
Chapters 1-17, 100% Original Verified,
A+ Grade)
All Chapters Arranged Reverse:
Chapter 17-1.
All Supplement Files Download Link is
available at the end of PDF file.
This is the Original Solutions
Manual for 2025 Edition, All
Other Files in the
Market are Wrong/Old
Questions.
, Solutions Manual –Essentials of Federal Taxation by Spilker et al.
Chapter 17 S Corporations
Solutions Manual
Discussion Questions
1. [LO 1] In general terms, how are C corporations different from and similar to S corporations?
S corporations either are incorporated under state law, have the same legal protections as C
corporations, and have elected S corporation status, or they are non-corporate business
entities who have elected to be treated as a corporation, and then elected S corporation
status. S corporations are governed by the same corporate tax rules that apply in the
organization, liquidation, and reorganization of C corporations. Unlike a C corporation, an
S corporation is a flow-through entity and shares many tax similarities with partnerships.
For example, basis calculations for S corporation shareholders and partners are similar, the
income or loss of an S corporation flows through to its owners, and distributions are
generally not taxed to the extent of the owner’s basis.
2. [LO 1] What are the limitations on the number and type of shareholders an S corporation
may have? How are these limitations different from restrictions on the number and type of
shareholders C corporations or partnerships may have?
Only U.S. citizens or residents, certain trusts, and certain tax-exempt organizations may be
shareholders, no corporations or partnerships. In addition, S corporations may have no
more than 100 shareholders; family members and their estates count as one shareholder for
purposes of the shareholder limit test. Family members include a common ancestor (not
more than 6 generations removed) and their lineal descendants and their spouses (or former
spouses). C corporations and partnerships do not have a limit on the amount or type of
shareholders or partners.
3. [LO 1] Why can’t large, publicly traded corporations be treated as S corporations?
A publicly traded corporation could not elect S corporation status because it would not likely
satisfy the maximum 100-shareholder limit required of S corporations.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, Solutions Manual –Essentials of Federal Taxation by Spilker et al.
4. [LO 1] How do the tax laws treat family members for purposes of limiting the number of
owners an S corporation may have?
Family members and their estates count as one shareholder for the 100-shareholder limit.
Family members include a common ancestor (not more than 6 generations removed) and
their lineal descendants and their spouses (or former spouses). Under this broad definition,
great-grandparents, grandparents, parents, children, brothers and sisters, grandchildren,
great-grandchildren, aunts, uncles, cousins and the respective spouses are family members
for this purpose.
5. [LO 1] Super Corp. was organized under the laws of the state of Montana. It issued common
voting stock and common nonvoting stock to its two shareholders. Is Super Corp. eligible to
elect S corporation status? Why or why not?
Assuming that the voting and nonvoting stock shares have equal distribution and liquidation
rights, Super Corp. may elect S corporation status. While the law specifies that S
corporations can have only one class of stock, differences in voting power are permitted as
long as distribution and liquidation rights are identical.
6. [LO 1] Karen is the sole shareholder of a calendar-year-end C corporation she formed last
year. If she elects S corporation status this year on February 20, when will the election
become effective and why? What if she had made the election on March 20?
January 1, current year; since the election was made on or before the 15th day of the third
month of the year the status can take effect as of the beginning of the year. If Karen had
waited until March 20th, the election would not take effect until the beginning of the next
year.
7. [LO 1] JB Corporation is a C corporation owned 80 percent by Jacob and 20 percent by
Bauer. Jacob would like JB to make an S election, but Bauer is opposed to the idea. Can JB
elect to be taxed as an S corporation without Bauer’s consent? Explain.
No, JB will not be able to make the S election unless all the owners, including Bauer, consent
to become an S corporation.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, Solutions Manual –Essentials of Federal Taxation by Spilker et al.
8. [LO 1] In what circumstances could a calendar-year C corporation make an election on
February 1, year 1, to be taxed as an S corporation in year 1 but not have the election
effective until year 2?
If the corporation did not meet all the S corporation requirements for each day of the current
year before it made the S election, the election would not be effective until the subsequent
year. Likewise, if one or more shareholders who held the stock in the corporation during the
current year and before the S corporation election was made did not consent to the election
(e.g., a shareholder disposes of his stock in the corporation in the election year before the
election is made and fails to consent to the S election), the election would not be effective
until the following year.
9. [LO 2] Theodore, Alvin, and Simon are equal shareholders of Timeless Corp. (an S
corporation). Simon wants to terminate the S election, but Theodore and Alvin disagree. Can
Simon unilaterally elect to have the S election terminated? If not, what would Simon need to
do to have the S election terminated?
Simon cannot unilaterally terminate the S election because he does not own more than 50
percent of the corporation. However, Simon could have the S election “involuntarily”
terminated by selling some of his stock to an ineligible shareholder (such as a corporation,
partnership or nonresident alien) or by contributing his stock to a partnership.
10. [LO 2] Juanita is the sole shareholder of Belize Corporation (a calendar-year S corporation).
She is considering revoking the S election. It is February 1, year 1. What options does
Juanita have for timing the effective date of the S election revocation?
Juanita can choose to have the election terminated as of the beginning of year 1 as long as
the termination is made by March 15th (calendar year S corporation). If the election is made
after March 15th the effective date would be the beginning of the following year; however,
she can choose a specific termination date as long as it is on or after the election date.
11. [LO 2] Describe the circumstances in which an S election may be involuntarily terminated.
A failure to meet the S corporation requirements will result in the termination of the S
election. This includes exceeding the 100-shareholder limit or ownership by ineligible
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Essentials of Federal Taxation 2025 By
Spilker, Ayers, Robinson, Outslay,
Worsham, Barrick, Weaver (All
Chapters 1-17, 100% Original Verified,
A+ Grade)
All Chapters Arranged Reverse:
Chapter 17-1.
All Supplement Files Download Link is
available at the end of PDF file.
This is the Original Solutions
Manual for 2025 Edition, All
Other Files in the
Market are Wrong/Old
Questions.
, Solutions Manual –Essentials of Federal Taxation by Spilker et al.
Chapter 17 S Corporations
Solutions Manual
Discussion Questions
1. [LO 1] In general terms, how are C corporations different from and similar to S corporations?
S corporations either are incorporated under state law, have the same legal protections as C
corporations, and have elected S corporation status, or they are non-corporate business
entities who have elected to be treated as a corporation, and then elected S corporation
status. S corporations are governed by the same corporate tax rules that apply in the
organization, liquidation, and reorganization of C corporations. Unlike a C corporation, an
S corporation is a flow-through entity and shares many tax similarities with partnerships.
For example, basis calculations for S corporation shareholders and partners are similar, the
income or loss of an S corporation flows through to its owners, and distributions are
generally not taxed to the extent of the owner’s basis.
2. [LO 1] What are the limitations on the number and type of shareholders an S corporation
may have? How are these limitations different from restrictions on the number and type of
shareholders C corporations or partnerships may have?
Only U.S. citizens or residents, certain trusts, and certain tax-exempt organizations may be
shareholders, no corporations or partnerships. In addition, S corporations may have no
more than 100 shareholders; family members and their estates count as one shareholder for
purposes of the shareholder limit test. Family members include a common ancestor (not
more than 6 generations removed) and their lineal descendants and their spouses (or former
spouses). C corporations and partnerships do not have a limit on the amount or type of
shareholders or partners.
3. [LO 1] Why can’t large, publicly traded corporations be treated as S corporations?
A publicly traded corporation could not elect S corporation status because it would not likely
satisfy the maximum 100-shareholder limit required of S corporations.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, Solutions Manual –Essentials of Federal Taxation by Spilker et al.
4. [LO 1] How do the tax laws treat family members for purposes of limiting the number of
owners an S corporation may have?
Family members and their estates count as one shareholder for the 100-shareholder limit.
Family members include a common ancestor (not more than 6 generations removed) and
their lineal descendants and their spouses (or former spouses). Under this broad definition,
great-grandparents, grandparents, parents, children, brothers and sisters, grandchildren,
great-grandchildren, aunts, uncles, cousins and the respective spouses are family members
for this purpose.
5. [LO 1] Super Corp. was organized under the laws of the state of Montana. It issued common
voting stock and common nonvoting stock to its two shareholders. Is Super Corp. eligible to
elect S corporation status? Why or why not?
Assuming that the voting and nonvoting stock shares have equal distribution and liquidation
rights, Super Corp. may elect S corporation status. While the law specifies that S
corporations can have only one class of stock, differences in voting power are permitted as
long as distribution and liquidation rights are identical.
6. [LO 1] Karen is the sole shareholder of a calendar-year-end C corporation she formed last
year. If she elects S corporation status this year on February 20, when will the election
become effective and why? What if she had made the election on March 20?
January 1, current year; since the election was made on or before the 15th day of the third
month of the year the status can take effect as of the beginning of the year. If Karen had
waited until March 20th, the election would not take effect until the beginning of the next
year.
7. [LO 1] JB Corporation is a C corporation owned 80 percent by Jacob and 20 percent by
Bauer. Jacob would like JB to make an S election, but Bauer is opposed to the idea. Can JB
elect to be taxed as an S corporation without Bauer’s consent? Explain.
No, JB will not be able to make the S election unless all the owners, including Bauer, consent
to become an S corporation.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, Solutions Manual –Essentials of Federal Taxation by Spilker et al.
8. [LO 1] In what circumstances could a calendar-year C corporation make an election on
February 1, year 1, to be taxed as an S corporation in year 1 but not have the election
effective until year 2?
If the corporation did not meet all the S corporation requirements for each day of the current
year before it made the S election, the election would not be effective until the subsequent
year. Likewise, if one or more shareholders who held the stock in the corporation during the
current year and before the S corporation election was made did not consent to the election
(e.g., a shareholder disposes of his stock in the corporation in the election year before the
election is made and fails to consent to the S election), the election would not be effective
until the following year.
9. [LO 2] Theodore, Alvin, and Simon are equal shareholders of Timeless Corp. (an S
corporation). Simon wants to terminate the S election, but Theodore and Alvin disagree. Can
Simon unilaterally elect to have the S election terminated? If not, what would Simon need to
do to have the S election terminated?
Simon cannot unilaterally terminate the S election because he does not own more than 50
percent of the corporation. However, Simon could have the S election “involuntarily”
terminated by selling some of his stock to an ineligible shareholder (such as a corporation,
partnership or nonresident alien) or by contributing his stock to a partnership.
10. [LO 2] Juanita is the sole shareholder of Belize Corporation (a calendar-year S corporation).
She is considering revoking the S election. It is February 1, year 1. What options does
Juanita have for timing the effective date of the S election revocation?
Juanita can choose to have the election terminated as of the beginning of year 1 as long as
the termination is made by March 15th (calendar year S corporation). If the election is made
after March 15th the effective date would be the beginning of the following year; however,
she can choose a specific termination date as long as it is on or after the election date.
11. [LO 2] Describe the circumstances in which an S election may be involuntarily terminated.
A failure to meet the S corporation requirements will result in the termination of the S
election. This includes exceeding the 100-shareholder limit or ownership by ineligible
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
