Question 1

Aaron purchases a building for $500,000 which is going to be used by his wholly-owned corporation.Which of the following statements are correct?

Accepted Answer

A) If Aaron contributes the building to the corporation, there will be no recognition under § 351 and a carryover basis of $500,000. 
B) If Aaron leases the building to the corporation, lease-rental payments of $30,000 per year to Aaron will result in a $30,000 deduction for the corporation. 
C) If Aaron leases the building to the corporation, lease-rental payments of $30,000 per year to Aaron will result in $30,000 of gross income for Aaron. 
D) Leasing the building to the corporation will contribute to the tax avoidance objective of minimizing double taxation. 
E) All of the above are correct. 
A) If Aaron contributes the building to the corporation, there will be no recognition under § 351 and a carryover basis of $500,000. 
B) If Aaron leases the building to the corporation, lease-rental payments of $30,000 per year to Aaron will result in a $30,000 deduction for the corporation. 
C) If Aaron leases the building to the corporation, lease-rental payments of $30,000 per year to Aaron will result in $30,000 of gross income for Aaron. 
D) Leasing the building to the corporation will contribute to the tax avoidance objective of minimizing double taxation. 
E) All of the above are correct.

Question 2

Owners make contributions to an entity in exchange for an ownership interest.Less stringent statutory requirements must be satisfied in the case of a limited liability company (LLC)than for an S corporation in order to postpone the recognition of a realized gain.

Accepted Answer

A) True 
 B)False

Question 3

Match the following tax attributes with the different forms. A particular attribute may apply to more than one entity form.
a.Ability of all owners to have limited liability.
b.Ability to pass tax attributes through to the owners.
c.Right of all owners to participate in the management of the business.
d.Number of owners is limited.
e.Ability to have multiple owners.
-S corporation.

Accepted Answer

The answer of Match the following tax attributes with the...

Question 4

Match the following tax attributes with the different forms. A particular attribute may apply to more than one entity form.
a.Ability of all owners to have limited liability.
b.Ability to pass tax attributes through to the owners.
c.Right of all owners to participate in the management of the business.
d.Number of owners is limited.
e.Ability to have multiple owners.
-Sole proprietorship.

Accepted Answer

The answer of Match the following tax attributes with the...

Question 5

If the IRS reclassifies debt as equity under § 385,the repayment of the debt by the corporation to the shareholder is treated as a dividend,assuming adequate E & P.

Accepted Answer

A) True 
 B)False

Question 6

Match the following statements:
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.
-Net capital loss.

Accepted Answer

The answer of Match the following statements:
a.For the corporate taxpayer,...

Question 7

Bev and Cabel each own one-half of the stock of Finch,Inc.,a C corporation.Each shareholder has a stock basis of $225,000.Finch has accumulated E & P of $600,000.Finch's taxable income for the current year is $100,000,and it distributes $180,000 to each shareholder.Bev's stock 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 8

Steve and Karen are going to establish a business entity.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 Steve and Karen. 
A) General partnership. 
B) Limited partnership. 
C) C corporation. 
D) S corporation. 
E) Any of the above should satisfy Steve and Karen.

Question 9

Bev and Cabel each own one-half of the stock of Finch,Inc.,an S Corporation.Each shareholder has a stock basis of $225,000.Finch has no accumulated E & P.Finch's taxable income for the current year is $100,000,and it distributes $180,000 to each shareholder.Bev's stock 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 10

Thrush,Inc.,provides group-term life insurance of $50,000 for all of its employees.The total cost of such coverage is $15,000.Wren,Inc.,does not provide such coverage.Instead,it increases the employees' salaries by $15,000 so the employees can purchase such coverage if they choose to do so.The corporations are in the 34% tax bracket,and the shareholders are in the 28% tax bracket.Compare the effects of the two different fringe benefit policies on the corporations and on the employees.

Accepted Answer

The group-term life insurance is a favor

Question 11

An S corporation is not subject to the AMT,but its shareholders are in that the S corporation's AMT adjustments and preferences are passed through to them.

Accepted Answer

A) True 
 B)False

Question 12

Rebecca and Stan each own a 50% interest in a business entity.Rebecca contributed $200,000 for her ownership interest and Stan contributed land worth $200,000 (adjusted basis of $150,000).Several months after the formation of the entity,the land is sold for $220,000.

Accepted Answer

A) If the entity is a partnership, Stan's share of the recognized gain on the sale of the land is $35,000. 
B) If the entity is an S corporation, Stan's share of the recognized gain on the sale of the land is $60,000. 
C) If the entity is a C corporation, Stan's share of the recognized gain on the sale of the land is $10,000. 
D) If the entity is a limited liability company, Stan's share of the recognized gain on the sale of the land is $60,000. 
E) None of the above. 
A) If the entity is a partnership, Stan's share of the recognized gain on the sale of the land is $35,000. 
B) If the entity is an S corporation, Stan's share of the recognized gain on the sale of the land is $60,000. 
C) If the entity is a C corporation, Stan's share of the recognized gain on the sale of the land is $10,000. 
D) If the entity is a limited liability company, Stan's share of the recognized gain on the sale of the land is $60,000. 
E) None of the above.

Question 13

Match the following statements:
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.
-Net capital gain.

Accepted Answer

The answer of Match the following statements:
a.For the corporate taxpayer,...

Question 14

Alanna contributes property with an adjusted basis of $80,000 and a fair market value of $100,000 to a newly formed business entity.If the entity is a partnership and the transaction qualifies under § 721,the partnership's basis for the property and the partner's basis for the partnership interest are:

Accepted Answer

C
Under § 721 the carryover ba

Question 15

The legal form of Amy and Beth'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?

Accepted Answer

Under the check-the-box Regulations,the

Question 16

A disadvantage of corporations (both C corporations and S corporations)is that they are subject to double taxation on their earnings.

Accepted Answer

A) True 
 B)False

Question 17

Match the following statements:
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.
-Organization costs.

Accepted Answer

The answer of Match the following statements:
a.For the corporate taxpayer,...

Question 18

Beige,Inc.,has 3,000 shares of stock authorized and 1,000 shares outstanding.The shares are owned by Sam (600 shares)and Lois (400 shares).Sam's adjusted basis for his stock is $60,000 and Lois' adjusted basis for her stock is $40,000.Beige's earnings and profits are $300,000.Beige redeems 200 of Lois' shares for $100,000.Determine the amount of Lois' recognized gain (1)if she is Sam's mother and (2)if they are unrelated.

Accepted Answer

A) $0 and $0. 
B) $100,000 and $60,000. 
C) $100,000 and $80,000. 
D) $100,000 and $100,000. 
E) None of the above. 
A) $0 and $0. 
B) $100,000 and $60,000. 
C) $100,000 and $80,000. 
D) $100,000 and $100,000. 
E) None of the above.

Question 19

Lisa is considering investing $25,000 in a limited partnership which is raising additional capital.According to the prospectus,for the past 10-year period the average earnings have been 15% and for the past 5-year period the average earnings have been 8%.Lisa is in the 33% tax bracket.
a. List some factors Lisa should consider in making a decision on the potential investment.
b. Assuming the partnership finances its activities with equity rather than debt, what is the maximum cash flow benefit Lisa can receive if the partnership generates losses?

Accepted Answer

a.Above all,the investment should make e

Aaron purchases a building for $500,000 which is going to be used by his wholly-owned corporation.Which of the following statements are correct?

Owners make contributions to an entity in exchange for an ownership interest.Less stringent statutory requirements must be satisfied in the case of a limited liability company (LLC)than for an S corporation in order to postpone the recognition of a realized gain.

If the IRS reclassifies debt as equity under § 385,the repayment of the debt by the corporation to the shareholder is treated as a dividend,assuming adequate E & P.

An S corporation is not subject to the AMT,but its shareholders are in that the S corporation's AMT adjustments and preferences are passed through to them.

Rebecca and Stan each own a 50% interest in a business entity.Rebecca contributed $200,000 for her ownership interest and Stan contributed land worth $200,000 (adjusted basis of $150,000).Several months after the formation of the entity,the land is sold for $220,000.

The legal form of Amy and Beth'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?

A disadvantage of corporations (both C corporations and S corporations)is that they are subject to double taxation on their earnings.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings and 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

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

Aaron purchases a building for $500,000 which is going to be used by his wholly-owned corporation.Which of the following statements are correct?

Owners make contributions to an entity in exchange for an ownership interest.Less stringent statutory requirements must be satisfied in the case of a limited liability company (LLC)than for an S corporation in order to postpone the recognition of a realized gain.

If the IRS reclassifies debt as equity under § 385,the repayment of the debt by the corporation to the shareholder is treated as a dividend,assuming adequate E & P.

An S corporation is not subject to the AMT,but its shareholders are in that the S corporation's AMT adjustments and preferences are passed through to them.

Rebecca and Stan each own a 50% interest in a business entity.Rebecca contributed $200,000 for her ownership interest and Stan contributed land worth $200,000 (adjusted basis of $150,000).Several months after the formation of the entity,the land is sold for $220,000.

The legal form of Amy and Beth'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?

A disadvantage of corporations (both C corporations and S corporations)is that they are subject to double taxation on their earnings.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings and 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

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