Section 2: 30–40%T6
S Corporation Compliance and Basis
Exam Insight
S corporations are pass-through entities, so the TCP exam tests eligibility, the per-share per-day allocation of income, and the strict stock-then-debt basis ordering that limits loss deductions. Distributions interacting with AAA and C-corporation E&P, plus the built-in gains tax, are perennial high-value testing points.
CPA Exam Lab is an independent study resource and is not affiliated with, endorsed by, or sponsored by the AICPA® or NASBA. Practice questions are original content created for study purposes. “CPA” is a registered trademark of the AICPA.
What AICPA Wants You to Know
- 1State the S corporation eligibility requirements and the mechanics and timing of the election.
- 2Allocate separately and non-separately stated items using the per-share, per-day method.
- 3Adjust shareholder stock basis and apply the stock-then-debt loss limitation ordering.
- 4Track the Accumulated Adjustments Account (AAA) and characterize distributions when C-corporation E&P exists.
- 5Compute the built-in gains tax on appreciated assets held at conversion from a C corporation.