Indicate whether each statement is true or false:

1. Although an S corporation is taxed much like a partnership, it is subject to many of the C corporation rules regarding formation, liquidation, redemption, etc.

2. For determining the number of shareholders in an S corporation, stock owned by a husband and wife is treated as owned by one shareholder.

3. An S corporation issues two classes of common stock: class A voting and class B nonvoting stock. The rights of both classes of stock are identical except for voting rights. The S corporation election will not be valid because more than one class of stock is outstanding.

4. An S corporation election is disqualified if its passive investment income exceeds 25 percent of its gross receipts during any taxable year.

5. H Company, an S corporation owned by A, B, and C, voluntarily terminated its S election and became a C corporation. One year later, A sold his one-third interest in the corporation to D. B, C, and D may re-elect S corporation status at this time, without permission from the IRS, since there has been a partial change in ownership.

6. When an owners share of S corporation losses exceeds the owners basis in the corporation, all ordinary losses flow through to the owner before capital losses flow through.

7. Even though an S corporation was formerly a C corporation, all of its cash distributions can be confidently treated as nontaxable if there is no AE&P from its C corporation years and the distribution does not exceed the shareholders basis in the S stock.

8. Reasonable employee benefits provided by an S corporation for a shareholder who owns more than 2% of the S corporation and is an employee are deductible business expenses by the S corporation and are excluded from the income of the shareholder.

9. Stock of an S corporation may be owned by a partnership.

10. In addition to the restriction on the number of shareholders, there are also restrictions on the amount of income and net assets an S corporation can have.