Question 1

Techniques are available that may permit a C corporation to avoid double taxation.

Accepted Answer

A) True 
 B)False

Question 2

Match the following statements:
-C corporations

Accepted Answer

A) Usually subject to single taxation even if the entity is incorporated. 
B) Not making distributions to shareholders. 
C) Rate for a corporate taxpayer is 20%. 
D) Subject to double taxation. 
E) Eligible for special allocations. 
A) Usually subject to single taxation even if the entity is incorporated. 
B) Not making distributions to shareholders. 
C) Rate for a corporate taxpayer is 20%. 
D) Subject to double taxation. 
E) Eligible for special allocations.

Question 3

A limited liability company (LLC) cannot elect under the check-the-box rules to be taxed as an S corporation.

Accepted Answer

A) True 
 B)False

Question 4

Walter wants to sell his wholly-owned C corporation, Cream, Inc. The fair market value of his stock exceeds the corporation's adjusted basis for the assets. Should Walter sell his stock or have Cream sell its assets and make a liquidating distribution to him?

Accepted Answer

Selling the stock will result in single

Question 5

In its first year of operations (2014), Lavender, Inc. (a C corporation) has gross receipts of $8 million and net income of $2 million. Lavender is not subject to the AMT for 2014.

Accepted Answer

A) True 
 B)False

Question 6

The profits of a business owned by Taylor (60%) and Maggie (40%) for the current tax year are $100,000. If the business is a C corporation or an S corporation, there is no effect on Taylor's basis in her stock. If the business is a partnership or an LLC, Taylor's basis in her partnership interest or basis in her stock is increased by $60,000.

Accepted Answer

A) True 
 B)False

Question 7

A C corporation offers greater flexibility in terms of the types of owners and capital structure than an S corporation.

Accepted Answer

A) True 
 B)False

Question 8

If the IRS reclassifies debt as equity under § 385, the repayment of the debt by the corporation to the shareholder automatically is treated as a dividend.

Accepted Answer

A) True 
 B)False

Question 9

If lease rental payments to a noncorporate shareholder-lessor are classified as unreasonable, the taxable income of a C corporation increases and the gross income of the shareholder increases.

Accepted Answer

A) True 
 B)False

Question 10

John wants to buy a business whose assets have appreciated in value. If the business is operated as a C corporation, it does not matter to John whether he purchases the assets or the stock.

Accepted Answer

A) True 
 B)False

Question 11

A limited liability company (LLC) is a hybrid business form that combines the corporate characteristic of limited liability for the owners with the tax characteristics of a partnership.

Accepted Answer

A) True 
 B)False

Question 12

Match the following statements:
-Technique for minimizing double taxation

Accepted Answer

A) Usually subject to single taxation even if the entity is incorporated. 
B) Not making distributions to shareholders. 
C) Rate for a corporate taxpayer is 20%. 
D) Subject to double taxation. 
E) Eligible for special allocations. 
A) Usually subject to single taxation even if the entity is incorporated. 
B) Not making distributions to shareholders. 
C) Rate for a corporate taxpayer is 20%. 
D) Subject to double taxation. 
E) Eligible for special allocations.

Question 13

Match the following statements:
-Net capital loss

Accepted Answer

A) For the corporate taxpayer, are taxed using the regular tax rates. 
B) Must be capitalized, but can be amortized over 180 months. 
C) For the corporate taxpayer, the rate is 20%. 
D) For the corporate taxpayer, cannot be deducted at all in the current tax year. 
E) For the corporate taxpayer, limited to 10% of taxable income before certain deductions. 
A) For the corporate taxpayer, are taxed using the regular tax rates. 
B) Must be capitalized, but can be amortized over 180 months. 
C) For the corporate taxpayer, the rate is 20%. 
D) For the corporate taxpayer, cannot be deducted at all in the current tax year. 
E) For the corporate taxpayer, limited to 10% of taxable income before certain deductions.

Question 14

Mr. and Ms. Smith's partnership owns the following assets:   * Potential § 1245 recapture of $45,000.
** Straight-line depreciation was used.
Mr) and Ms. Smith each have a basis for their partnership interest of $135,000. Calculate their combined recognized gain or loss and classify it as capital or ordinary if they sell their partnership interests for $500,000.

Accepted Answer

A)  $230,000 ordinary income. 
B)  $230,000 capital gain. 
C)  $115,000 ordinary income and $115,000 capital gain. 
D)  $110,000 ordinary income and $120,000 capital gain. 
E)  None of the above. 
A)  $230,000 ordinary income. 
B)  $230,000 capital gain. 
C)  $115,000 ordinary income and $115,000 capital gain. 
D)  $110,000 ordinary income and $120,000 capital gain. 
E)  None of the above.

Question 15

If an individual contributes an appreciated personal use asset to a C corporation in a transaction which qualifies for nonrecognition treatment under § 351, the corporation's basis in the asset is the same as was the shareholder's adjusted basis.

Accepted Answer

A) True 
 B)False

Question 16

An S corporation election for Federal income tax purposes also is effective for all states' income tax purposes.

Accepted Answer

A) True 
 B)False

Question 17

Actual dividends paid to shareholders result in double taxation. Likewise, deemed dividends (e.g., free use of corporate assets by a shareholder) result in double taxation.

Accepted Answer

A) True 
 B)False

Question 18

Techniques that can be used to minimize the current period tax liability include:

Accepted Answer

A)  Recognizing the interaction between the regular income tax liability and the alternative minimum tax liability. 
B)  Utilization of special allocations. 
C)  Favorable treatment of certain fringe benefits. 
D)  Minimizing double taxation. 
E)  All of the above. 
A)  Recognizing the interaction between the regular income tax liability and the alternative minimum tax liability. 
B)  Utilization of special allocations. 
C)  Favorable treatment of certain fringe benefits. 
D)  Minimizing double taxation. 
E)  All of the above.

Question 19

Daniel, who is single, estimates that the profits of his business for the current tax year will be $100,000. Since the highest tax rate (34%) applicable to corporate taxable income of $100,000 is greater than the highest tax rate (28%) applicable to individual taxable income of $100,000, the Federal income tax liability will be less if Daniel conducts his business as a sole proprietorship rather than as a C corporation.

Accepted Answer

A) True 
 B)False

Question 20

A benefit of an S corporation when compared with a C corporation is that it is subject to Federal income tax only in limited circumstances.

Accepted Answer

A) True 
 B)False

Techniques are available that may permit a C corporation to avoid double taxation.

Match the following statements: -C corporations

A limited liability company (LLC) cannot elect under the check-the-box rules to be taxed as an S corporation.

Walter wants to sell his wholly-owned C corporation, Cream, Inc. The fair market value of his stock exceeds the corporation's adjusted basis for the assets. Should Walter sell his stock or have Cream sell its assets and make a liquidating distribution to him?

In its first year of operations (2014), Lavender, Inc. (a C corporation) has gross receipts of $8 million and net income of $2 million. Lavender is not subject to the AMT for 2014.

A C corporation offers greater flexibility in terms of the types of owners and capital structure than an S corporation.

If the IRS reclassifies debt as equity under § 385, the repayment of the debt by the corporation to the shareholder automatically is treated as a dividend.

If lease rental payments to a noncorporate shareholder-lessor are classified as unreasonable, the taxable income of a C corporation increases and the gross income of the shareholder increases.

John wants to buy a business whose assets have appreciated in value. If the business is operated as a C corporation, it does not matter to John whether he purchases the assets or the stock.

A limited liability company (LLC) is a hybrid business form that combines the corporate characteristic of limited liability for the owners with the tax characteristics of a partnership.

Match the following statements: -Technique for minimizing double taxation

Match the following statements: -Net capital loss

If an individual contributes an appreciated personal use asset to a C corporation in a transaction which qualifies for nonrecognition treatment under § 351, the corporation's basis in the asset is the same as was the shareholder's adjusted basis.

An S corporation election for Federal income tax purposes also is effective for all states' income tax purposes.

Actual dividends paid to shareholders result in double taxation. Likewise, deemed dividends (e.g., free use of corporate assets by a shareholder) result in double taxation.

Techniques that can be used to minimize the current period tax liability include:

A benefit of an S corporation when compared with a C corporation is that it is subject to Federal income tax only in limited circumstances.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S Corporations

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 13: Comparative Forms of Doing Business

Techniques are available that may permit a C corporation to avoid double taxation.

Match the following statements: -C corporations

A limited liability company (LLC) cannot elect under the check-the-box rules to be taxed as an S corporation.

Walter wants to sell his wholly-owned C corporation, Cream, Inc. The fair market value of his stock exceeds the corporation's adjusted basis for the assets. Should Walter sell his stock or have Cream sell its assets and make a liquidating distribution to him?

In its first year of operations (2014), Lavender, Inc. (a C corporation) has gross receipts of $8 million and net income of $2 million. Lavender is not subject to the AMT for 2014.

A C corporation offers greater flexibility in terms of the types of owners and capital structure than an S corporation.

If the IRS reclassifies debt as equity under § 385, the repayment of the debt by the corporation to the shareholder automatically is treated as a dividend.

If lease rental payments to a noncorporate shareholder-lessor are classified as unreasonable, the taxable income of a C corporation increases and the gross income of the shareholder increases.

John wants to buy a business whose assets have appreciated in value. If the business is operated as a C corporation, it does not matter to John whether he purchases the assets or the stock.

A limited liability company (LLC) is a hybrid business form that combines the corporate characteristic of limited liability for the owners with the tax characteristics of a partnership.

Match the following statements: -Technique for minimizing double taxation

Match the following statements: -Net capital loss

If an individual contributes an appreciated personal use asset to a C corporation in a transaction which qualifies for nonrecognition treatment under § 351, the corporation's basis in the asset is the same as was the shareholder's adjusted basis.

An S corporation election for Federal income tax purposes also is effective for all states' income tax purposes.

Actual dividends paid to shareholders result in double taxation. Likewise, deemed dividends (e.g., free use of corporate assets by a shareholder) result in double taxation.

Techniques that can be used to minimize the current period tax liability include:

A benefit of an S corporation when compared with a C corporation is that it is subject to Federal income tax only in limited circumstances.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S Corporations

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters