Exam 13: Comparative Forms of Doing Business

Arthur is the sole shareholder of Purple, Inc. Purple's taxable income before the payment of Arthur's salary is $300,000. Based on this information, Arthur has the corporation pay him a salary of $200,000 and a bonus of $100,000. A reasonable salary and bonus would be $175,000. Which of the following is correct?

Mercedes owns a 30% interest in Magenta Partnership (basis of $52,000) which she sells to Calvin for $65,000. Mercedes' recognized gain of $13,000 will be classified as capital gain.

Match the following statements: -AMT

Match the following statements: -Sale of the corporate assets by the C corporation.

The § 469 passive activity loss rules apply to S corporations but not to C corporations.

A corporation can avoid the accumulated earnings tax by demonstrating that it has plans to distribute earnings at a later date.

With respect to special allocations, is the S corporation treated more like a partnership or a C corporation?

In its first year of operations, a corporation projects losses of $400,000. Since losses are involved, the corporation definitely should elect S corporation status.

Transferring funds to shareholders, that are deductible by the C corporation, can reduce or eliminate double taxation.

Each of the following can pass profits and losses through to the owners: general partnership, limited partnership, S corporation, and limited liability company.

The AMT statutory rate for C corporations and for S corporation shareholders on the AMT base is 20%.

Match the following statements: -Net capital gain

For Federal income tax purposes, a business entity with two or more owners may be conducted as a partnership, C corporation, S corporation, or limited liability company.

Molly transfers land with an adjusted basis of $28,000 and a fair market value of $65,000 to the Sand Partnership for a 30% ownership interest. The land is encumbered by a mortgage of $18,000 which the partnership assumes. Her basis for her ownership interest is $10,000 ($28,000 - $18,000).

Match the following attributes with the different forms. A particular attribute may apply to more than one entity form -Limited partnership

If an S corporation distributes appreciated property as a dividend, it must recognize gain as to the appreciation.

Beige, Inc., has 3,000 shares of stock authorized and 1,000 shares outstanding. The shares are owned by Sam (700 shares) and Lois (300 shares). Sam's adjusted basis for his stock is $100,000 and Lois' adjusted basis for her stock is $90,000. Beige's earnings and profits are $500,000. Beige redeems 200 of Lois' shares for $150,000. Determine the amount of Lois' recognized gain (1) if she is Sam's mother and (2) if they are unrelated.

​The Net Investment Income Tax (NIIT) is owed by both high income individuals and corporations.

A sole proprietorship files Schedule C of Form 1040, a partnership files Form 1065, a C corporation files Form 1120, and an S corporation files Form 1120S.

Match the following statements: -S corporations