Question 1

An effective way for all C corporations to avoid double taxation is not to make dividend distributions.

Accepted Answer

A) True 
 B)False

Question 2

When compared to a partnership, what additional requirement applies to keep a contribution of appreciated property to a corporation from causing recognized gain?

Accepted Answer

Section 351 applies for contributions to

Question 3

Roger owns 40% of the stock of Gold, Inc. (adjusted basis of $800,000). Silver redeems 60% of Roger's shares for $900,000. If the stock redemption qualifies for return of capital treatment, Roger's recognized gain is $100,000.

Accepted Answer

A) True 
 B)False

Question 4

The AMT tax rate for a C corporation is greater than the regular tax rate for C corporations.

Accepted Answer

A) True 
 B)False

Question 5

C corporations and S corporations can generate an AMT adjustment known as Adjusted Current Earnings (ACE).

Accepted Answer

A) True 
 B)False

Question 6

The tax treatment of S corporation shareholders with respect to fringe benefits is not the same as the tax treatment for C corporation shareholders but is the same as the fringe benefit treatment for partners.

Accepted Answer

A) True 
 B)False

Question 7

Some fringe benefits always provide a double benefit-a deduction for the employer and an exclusion for the employee.

Accepted Answer

A) True 
 B)False

Question 8

Bev and Cabel each have 50% ownership in Finch Partnership. Bev's partnership interest has a basis of $225,000. Finch's taxable income for the current year is $100,000, and it distributes $180,000 to each partner. Bev's partnership interest basis at the end of the year is:

Accepted Answer

A)  $0. 
B)  $45,000. 
C)  $95,000. 
D)  $100,000. 
E)  None of the above. 
A)  $0. 
B)  $45,000. 
C)  $95,000. 
D)  $100,000. 
E)  None of the above.

Question 9

Match the following:
-C corporation

Accepted Answer

A) Contribution of appreciated property to the business entity by an owner is never subject to taxation. 
B) Realized gains on the contribution of appreciated property to the entity are not recognized by the contributor when an 80% control requirement is satisfied. 
C) Realized losses on the contribution of loss property to the entity are never recognized by the contributor. 
D) Realized losses on the contribution of loss property to the entity are recognized by the contributor unless an 80% control requirement is satisfied. 
E) Basis of ownership interest to the owner is dependent on whether gain or loss is recognized to the owner on the contribution of assets to the business entity. 
A) Contribution of appreciated property to the business entity by an owner is never subject to taxation. 
B) Realized gains on the contribution of appreciated property to the entity are not recognized by the contributor when an 80% control requirement is satisfied. 
C) Realized losses on the contribution of loss property to the entity are never recognized by the contributor. 
D) Realized losses on the contribution of loss property to the entity are recognized by the contributor unless an 80% control requirement is satisfied. 
E) Basis of ownership interest to the owner is dependent on whether gain or loss is recognized to the owner on the contribution of assets to the business entity.

Question 10

A limited partnership can indirectly avoid unlimited liability of the general partner if the general partner is a corporation.

Accepted Answer

A) True 
 B)False

Question 11

Only C corporations are subject to the accumulated earnings tax (i.e., S corporations are not).

Accepted Answer

A) True 
 B)False

Question 12

Lime, Inc., has taxable income of $334,000. If Lime is a C corporation, its tax liability must be either $113,510 [($50,000 × 15%) + ($25,000 × 25%) + ($25,000 × 34%) + ($234,000 × 39%)] or $116,900.

Accepted Answer

A) True 
 B)False

Question 13

Match the following statements:
-Sale of the individual assets of an unincorporated sole proprietorship by the owner.

Accepted Answer

A) Transaction in this form enables double taxation to be avoided. 
B) Gain or loss is calculated separately for each asset and is subject to single taxation. 
C) Subject to double taxation. 
D) The sale is treated as the sale of a capital asset under § 741 subject to ordinary income potential under § 751. 
E) Not subject to double taxation on the sale of corporate stock. 
A) Transaction in this form enables double taxation to be avoided. 
B) Gain or loss is calculated separately for each asset and is subject to single taxation. 
C) Subject to double taxation. 
D) The sale is treated as the sale of a capital asset under § 741 subject to ordinary income potential under § 751. 
E) Not subject to double taxation on the sale of corporate stock.

Question 14

If a business entity has a majority of corporate characteristics, it is taxed as a corporation.

Accepted Answer

A) True 
 B)False

Question 15

Match the following statements:
-Partnerships

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 16

A shareholder's basis in the stock of an S corporation is increased by corporate profits and decreased by losses.

Accepted Answer

A) True 
 B)False

Question 17

Section 1244 ordinary loss treatment is available to shareholders in a C corporation but not to those in an S corporation.

Accepted Answer

A) True 
 B)False

Question 18

Fred and Ella are going to establish a business. They expect the business to be very successful in the long-run, but project losses of approximately $100,000 for each of the first five years. Due to potential environmental concerns, limited liability is a requisite for the owners. Which form of business entity should they select?

Accepted Answer

A)  General partnership. 
B)  Limited partnership. 
C)  C corporation. 
D)  S corporation. 
E)  Any of the above should satisfy Fred and Ella. 
A)  General partnership. 
B)  Limited partnership. 
C)  C corporation. 
D)  S corporation. 
E)  Any of the above should satisfy Fred and Ella.

Question 19

If a C corporation has earnings and profits at least equal to the amount of a distribution, the tax consequences to the shareholders are the same, regardless of whether the distribution is classified as a dividend or as a stock redemption.

Accepted Answer

A) True 
 B)False

Question 20

Alice contributes equipment (fair market value of $82,000; adjusted basis of $20,000), subject to a $14,000 liability, to form Orange Partnership, a general partnership. Mary contributes $68,000 cash. Alice and Mary share equally in partnership profits and losses. What is Alice's and Mary's basis for their partnership interests?

Accepted Answer

A)  $6,000 to Alice, $68,000 to Mary. 
B)  $6,000 to Alice, $75,000 to Mary. 
C)  $13,000 to Alice, $75,000 to Mary. 
D)  $20,000 to Alice, $68,000 to Mary. 
E)  None of the above. 
A)  $6,000 to Alice, $68,000 to Mary. 
B)  $6,000 to Alice, $75,000 to Mary. 
C)  $13,000 to Alice, $75,000 to Mary. 
D)  $20,000 to Alice, $68,000 to Mary. 
E)  None of the above.

An effective way for all C corporations to avoid double taxation is not to make dividend distributions.

When compared to a partnership, what additional requirement applies to keep a contribution of appreciated property to a corporation from causing recognized gain?

Roger owns 40% of the stock of Gold, Inc. (adjusted basis of $800,000). Silver redeems 60% of Roger's shares for $900,000. If the stock redemption qualifies for return of capital treatment, Roger's recognized gain is $100,000.

The AMT tax rate for a C corporation is greater than the regular tax rate for C corporations.

C corporations and S corporations can generate an AMT adjustment known as Adjusted Current Earnings (ACE).

The tax treatment of S corporation shareholders with respect to fringe benefits is not the same as the tax treatment for C corporation shareholders but is the same as the fringe benefit treatment for partners.

Some fringe benefits always provide a double benefit-a deduction for the employer and an exclusion for the employee.

Bev and Cabel each have 50% ownership in Finch Partnership. Bev's partnership interest has a basis of $225,000. Finch's taxable income for the current year is $100,000, and it distributes $180,000 to each partner. Bev's partnership interest basis at the end of the year is:

Match the following: -C corporation

A limited partnership can indirectly avoid unlimited liability of the general partner if the general partner is a corporation.

Only C corporations are subject to the accumulated earnings tax (i.e., S corporations are not).

Lime, Inc., has taxable income of $334,000. If Lime is a C corporation, its tax liability must be either $113,510 [($50,000 × 15%) + ($25,000 × 25%) + ($25,000 × 34%) + ($234,000 × 39%)] or $116,900.

Match the following statements: -Sale of the individual assets of an unincorporated sole proprietorship by the owner.

If a business entity has a majority of corporate characteristics, it is taxed as a corporation.

Match the following statements: -Partnerships

A shareholder's basis in the stock of an S corporation is increased by corporate profits and decreased by losses.

Section 1244 ordinary loss treatment is available to shareholders in a C corporation but not to those in an S corporation.

If a C corporation has earnings and profits at least equal to the amount of a distribution, the tax consequences to the shareholders are the same, regardless of whether the distribution is classified as a dividend or as a stock redemption.

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

An effective way for all C corporations to avoid double taxation is not to make dividend distributions.

When compared to a partnership, what additional requirement applies to keep a contribution of appreciated property to a corporation from causing recognized gain?

Roger owns 40% of the stock of Gold, Inc. (adjusted basis of $800,000). Silver redeems 60% of Roger's shares for $900,000. If the stock redemption qualifies for return of capital treatment, Roger's recognized gain is $100,000.

The AMT tax rate for a C corporation is greater than the regular tax rate for C corporations.

C corporations and S corporations can generate an AMT adjustment known as Adjusted Current Earnings (ACE).

The tax treatment of S corporation shareholders with respect to fringe benefits is not the same as the tax treatment for C corporation shareholders but is the same as the fringe benefit treatment for partners.

Some fringe benefits always provide a double benefit-a deduction for the employer and an exclusion for the employee.

Bev and Cabel each have 50% ownership in Finch Partnership. Bev's partnership interest has a basis of $225,000. Finch's taxable income for the current year is $100,000, and it distributes $180,000 to each partner. Bev's partnership interest basis at the end of the year is:

Match the following: -C corporation

A limited partnership can indirectly avoid unlimited liability of the general partner if the general partner is a corporation.

Only C corporations are subject to the accumulated earnings tax (i.e., S corporations are not).

Lime, Inc., has taxable income of $334,000. If Lime is a C corporation, its tax liability must be either $113,510 [($50,000 × 15%) + ($25,000 × 25%) + ($25,000 × 34%) + ($234,000 × 39%)] or $116,900.

Match the following statements: -Sale of the individual assets of an unincorporated sole proprietorship by the owner.

If a business entity has a majority of corporate characteristics, it is taxed as a corporation.

Match the following statements: -Partnerships

A shareholder's basis in the stock of an S corporation is increased by corporate profits and decreased by losses.

Section 1244 ordinary loss treatment is available to shareholders in a C corporation but not to those in an S corporation.

If a C corporation has earnings and profits at least equal to the amount of a distribution, the tax consequences to the shareholders are the same, regardless of whether the distribution is classified as a dividend or as a stock redemption.

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