Which of the following statements concerning potential disadvantages of S Corporations is (are) correct?
(1) If the business continues to produce losses after the start-up period, the shareholders’ basis in their stock might become exhausted and then additional losses would not be tax-deductible.
(2) The receipt of significant amounts of passive income by an S Corporation that was formerly a C Corporation, which had accumulated earnings and profits, might lead to termination of the S Corporation election.
(3) S Corporations can no longer provide tax-free owner-employee benefits, such as group life insurance.
- (1) only
- (2) only
- (3) only
- (1) and (2) only
- (1), (2), and (3)