Exam 13: Comparative Forms of Doing Business

The legal form of Edith and Fran's business entity is an LLC. Under the check-the-box Regulations, what options are available to them for Federal income tax purposes? Which option would you normally recommend?

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

Amos contributes land with an adjusted basis of $150,000 and a fair market value of $200,000 to White, Inc., an S corporation, in exchange for 50% of the stock of White, Inc. Carol contributes cash of $200,000 for the other 50% of the stock. If White later sells the land for $225,000, $62,500 [$50,000 + 50%($25,000)] is allocated to Amos and $12,500 ($25,000 × 50%) is allocated to Carol.

Match the following: -C corporation

For a C corporation to be classified as a personal service corporation (PSC) for § 469 purposes, what requirements must be satisfied?

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

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

A longstanding focus of the IRS when examining a return of an S corporation is whether reasonable compensation was paid to the S corporation shareholders who work for the corporation. S corporations and their shareholders are inclined to pay too little of compensation in order to reduce payroll taxes. Why might the auditors of a state tax agency be more concerned that an S corporation paid too much compensation to the shareholders?

The corporation has a greater potential for raising capital than does the partnership.

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.

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

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

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

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.

Match the following: -S corporation

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

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.

The special allocation opportunities that are available to partnerships are available to S corporations only if affected shareholders elect to do so.