CPA REG Practice Test

CPA REG S Corps, Partnerships, LLCs & Exempt Orgs Practice Questions

S Corps, Partnerships, LLCs & Exempt Orgs makes up 8 of every 50 questions on a Tigertest CPA REG practice test. Here are 10 of the 32 questions on it, each with the answer and the reason.

Updated 2026-11-10 by the Tigertest team. Based on the AICPA's 2026 REG blueprint. Original multiple-choice questions; 50 per test, weighted like the real section's five areas, 75% target. Not affiliated with the AICPA or NASBA.

1. 1. Which shareholder would make a corporation ineligible for S status?

   • A.A 501(c)(3) charity
   • B.A partnership
   • C.An estate
   • D.A U.S. citizen living abroad

   Answer: B. Eligible S shareholders include individuals who are U.S. citizens or residents, estates, certain trusts and 501(c)(3) organizations. Partnerships and corporations are not eligible.

2. 2. Counting family members as one shareholder, an S corporation may have at most how many shareholders?

   • A.35
   • B.500
   • C.75
   • D.100

   Answer: D. An S corporation may have no more than 100 shareholders, and members of a family may elect to be counted as one.

3. 3. Which difference among shares does NOT create a second class of stock for an S corporation?

   • A.Voting rights
   • B.Dividend preferences
   • C.Distribution rights
   • D.Liquidation rights

   Answer: A. An S corporation may have only one class of stock, judged by identical rights to distributions and liquidation proceeds. Voting and nonvoting shares are allowed.

4. 4. For a calendar-year corporation, an S election to be effective for the current year must generally be filed by:

   • A.June 15
   • B.January 31
   • C.March 15
   • D.April 15

   Answer: C. An election filed within 2 months and 15 days after the year begins (March 15 for a calendar year) is effective for that year.

5. 5. An S election requires the consent of:

   • A.The board of directors only
   • B.Holders of two thirds of shares
   • C.Every shareholder on that date
   • D.Holders of over 50% of shares

   Answer: C. All shareholders on the date of election must consent. Shareholders earlier in the year must also consent for the election to cover that year.

6. 6. A voluntary revocation of S status requires the consent of shareholders holding:

   • A.More than half of the shares
   • B.Two thirds of the shares
   • C.At least 25% of the shares
   • D.All of the shares

   Answer: A. A revocation needs shareholders owning more than half of the outstanding shares, voting and nonvoting, on the day it is made.

7. 7. An S corporation with accumulated C corporation earnings and profits loses S status if passive investment income exceeds 25% of gross receipts for:

   • A.Five consecutive years
   • B.Any single year
   • C.Two consecutive years
   • D.Three consecutive years

   Answer: D. Excess passive investment income for three consecutive years, while the corporation has accumulated E&P, terminates the election at the start of the fourth year.

8. 8. An S corporation has sales of $500,000, cost of goods sold $300,000, salaries $80,000, charitable gifts $10,000, long-term capital gain $20,000 and municipal interest $5,000. Its ordinary business income is:

   • A.$135,000
   • B.$120,000
   • C.$110,000
   • D.$140,000

   Answer: B. Ordinary income is $500,000 - $300,000 - $80,000 = $120,000. Charitable gifts, capital gains and tax-exempt interest are separately stated.

9. 9. Ben's S corporation stock basis at the start of the year is $10,000. His share of ordinary income is $6,000, and he receives a $12,000 cash distribution. His year-end stock basis is:

   • A.$2,000
   • B.$4,000
   • C.$0
   • D.$16,000

   Answer: B. Basis rises for income before it falls for distributions: $10,000 + $6,000 - $12,000 = $4,000. No gain arises, since the distribution does not exceed basis.

10. 10. Cara's stock basis is $5,000 after this year's income. Her S corporation, which has no earnings and profits, distributes $8,000 to her. Cara recognizes:

    • A.$3,000 of ordinary income
    • B.No gain or loss
    • C.$8,000 of dividend income
    • D.A $3,000 capital gain

    Answer: D. Distributions from an S corporation without E&P reduce basis first. The $3,000 in excess of basis is treated as gain from the sale of stock.