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True or false: An S corporation with no prior history as a C corporation will never fail the excess passive investment income test and lose its S status?

User Vrrathod
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Final answer:

True. An S corporation with no prior history as a C corporation will never fail the excess passive investment income test and lose its S status.So the statement is ture.

Step-by-step explanation:

An S corporation with no prior history as a C corporation will never fail the excess passive investment income test and lose its S status.

To maintain S corporation status, a corporation must satisfy certain criteria, one of which is the passive investment income test.

This test limits the amount of passive income an S corporation can have in relation to its gross receipts.

However, for a corporation that has never been a C corporation, there is no prior excess passive investment income to be compared against, so it will automatically meet this test.

In simpler terms, because a corporation that starts off as an S corporation has never been a C corporation, there is no risk of it failing the excess passive investment income test and losing its S status.

So the statement is ture.

User Rowan Gontier
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