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Federal Income Tax MCQs

Which of the following statements with respect to an S corporation is false?

S corporation losses are deductible by the owners against their ordinary taxable income (assuming the owner has a sufficient tax basis in the investment).

An S corporation can be a shareholder of another corporation.

Tax-exempt income earned by an S corporation is taxable at the shareholder level.

S corporations do not pay income tax on their earned income.

Answer

Correct Answer: Tax-exempt income earned by an S corporation is taxable at the shareholder level.

Explanation:

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