Question

1- An S corporation may select any tax year as long as it ends on the last day of a month.

a. True

b. False

2- A positive § 481 adjustments from a change in the method of accounting initiated by the taxpayer is spread equally over the year of change and the three following years.

a.True

b. False

3- In the case of a sale reported under the installment method, the gain is recognized in each year the seller collects on the installment contract.

1. True
2. False

Answer 1

Answer to Q#1 (First question in the list): TRUE Reason: When a business is proposed to be started and continued, there are many forms of business such as Sole proprietorship, Partnership, Limited partnership for general partners only, Limited partnership for limited partners only, Corporation, etc. One of the main charecteristics that distinguishes each type of business is the extent of liability of the business becomes liability of the owners or partners or shareholders as the case may be. For shareholders of a Corporation, liability is limited only to the extent of share capital contributed to the Corporation. Corporations pay income taxes, on same income earned, in two phases. That is, when a firm earns net income, corporation has to pay tax on such net income. In turn, when dividends are declared to shareholders, those shareholders who receive dividend income from the corporation have to pay tax on such dividend income. As a result, there is a double taxation on single income earned by the firm.

A corporation can raise funds required for its working capital or capital investment decision or expansion plans from general public at large by way of share capital by issuing share certificate or debt capital by issuing bonds, etc. It is not possible to raise funds from general public in case of other forms of business listed above. Corporations are formed with the basic assumption of perpetual succession of its business operation. As a result, all stakeholders associated with corporation have confident on corporations to earn decent return on investment they make with the corporations in terms of services, products, monetory benefits, etc. For tax purpose, a corporation is allowed to elect 'S' status, whereby it is called as SMALL BUSINESS CORPORATION. It must file properly completed Form 2553 under Section 1362 of the Internal Revenue Code. Simultaneously, S corporation is allowed to apply for a tax year by filling month and day in the "selected tax year” space provided on Form 2553. The tax year requested by S corporation formally through space provided on Form 2553 shall end on the last day of that month. So, given statement is true.