Question 1

Which of the following statements is true for a C corporation incurring a net operating loss (NOL) for a tax year that begins in 2018?

Accepted Answer

A)  It may carry the NOL back two years and forward 20 years. 
B)  It may not carry the NOL back to prior years but it may carry it forward 20 years. 
C)  It may not carry the NOL back to prior years but it can carry the loss forward indefinitely. 
D)  It may carry the loss back two years and carry the loss forward indefinitely. 
E)  None of the choices are correct. 
A)  It may carry the NOL back two years and forward 20 years. 
B)  It may not carry the NOL back to prior years but it may carry it forward 20 years. 
C)  It may not carry the NOL back to prior years but it can carry the loss forward indefinitely. 
D)  It may carry the loss back two years and carry the loss forward indefinitely. 
E)  None of the choices are correct.

Question 2

Robert is seeking additional capital to expand ABC Inc. In order to qualify ABC as an S corporation, which type of investor group could Robert obtain capital from?

Accepted Answer

A)  30 different partnerships. 
B)  10 different C corporations. 
C)  90 nonresident individuals. 
D)  120 unrelated resident individuals. 
E)  None of the choices are correct. 
A)  30 different partnerships. 
B)  10 different C corporations. 
C)  90 nonresident individuals. 
D)  120 unrelated resident individuals. 
E)  None of the choices are correct.

Question 3

An S corporation shareholder who is not a passive investor is allowed to deduct a business loss allocation from the S corporation to the extent of the shareholder's basis in the stock no matter how large the loss.

Accepted Answer

A) True 
 B)False

Question 4

Both tax and nontax objectives should be considered when choosing the entity type for a new business.

Accepted Answer

A) True 
 B)False

Question 5

In its first year of existence, BYC Corporation (a C corporation) reported a loss for tax purposes of ($40,000). How much tax will BYC pay in year 2 if it reports taxable income from operations of $35,000 in year 2 before any loss carryovers?

Accepted Answer

None. BYC's loss in year 1 of ($40,000)

Question 6

S corporation shareholders are subject to self-employment tax on business income allocations from the S corporation if they are actively involved in the S corporation's business.

Accepted Answer

A) True 
 B)False

Question 7

If individual taxpayers are the shareholders of PST Corporation and PST corporation is a shareholder of MNO Corporation, how many levels of tax is MNO's pre-tax income potentially exposed to?

Accepted Answer

A)  No taxation. 
B)  Single taxation. 
C)  Double taxation. 
D)  Triple taxation. 
A)  No taxation. 
B)  Single taxation. 
C)  Double taxation. 
D)  Triple taxation.

Question 8

In certain circumstances, C corporation shareholders can elect to change the entity to a flow-through entity for tax purposes.

Accepted Answer

A) True 
 B)False

Question 9

Generally, which of the following flow-through entities can elect to be treated as a C corporation?

Accepted Answer

A)  Limited partnership. 
B)  Limited Liability Company. 
C)  General partnership. 
D)  All of the choices are correct. 
A)  Limited partnership. 
B)  Limited Liability Company. 
C)  General partnership. 
D)  All of the choices are correct.

Question 10

Jorge is a 60 percent owner of JJ LLC (taxed as a partnership). He is a passive investor in JJ (he doesn't perform any work for JJ) and his marginal ordinary tax rate is 37 percent. Which of the following statements is true regarding Jorge's tax treatment of business income allocated to him from JJ?

Accepted Answer

A)  Business income allocations are not subject to self-employment tax. 
B)  Business income allocations are not subject to the net investment income tax. 
C)  Business income allocations are subject to the additional Medicare tax. 
D)  Business income allocations are taxed at a maximum 23.8 percent tax rate. 
A)  Business income allocations are not subject to self-employment tax. 
B)  Business income allocations are not subject to the net investment income tax. 
C)  Business income allocations are subject to the additional Medicare tax. 
D)  Business income allocations are taxed at a maximum 23.8 percent tax rate.

Question 11

Sole proprietors are subject to self-employment taxes on net income from their sole proprietorships.

Accepted Answer

A) True 
 B)False

Question 12

Logan, a 50 percent shareholder in Military Gear Inc. (MG), is comparing the tax consequences of losses from C corporations with losses from S corporations. Assume MG has a $100,000 tax loss for the year, Logan's tax basis in his MG stock was $150,000 at the beginning of the year, and he received $75,000 ordinary income from other sources during the year. Assuming Logan's marginal tax rate is 24%, how much more tax will Logan pay currently if MG is a C corporation compared to the tax he would pay if it were an S corporation?

Accepted Answer

A)  $0 
B)  $6,000 
C)  $12,000 
D)  $18,000 
A)  $0 
B)  $6,000 
C)  $12,000 
D)  $18,000

Question 13

From a tax perspective, which entity choice is preferred when a liquidating distribution occurs and the entity has appreciated assets?

Accepted Answer

A)  Partnership. 
B)  S corporation. 
C)  C corporation. 
D)  S corporation and C corporation. 
A)  Partnership. 
B)  S corporation. 
C)  C corporation. 
D)  S corporation and C corporation.

Question 14

Losses from C corporations are never available to offset a shareholder's personal income.

Accepted Answer

A) True 
 B)False

Question 15

Stacy would like to have SST (a business entity) organized as either an LLC (taxed as a partnership) or as a corporation (taxed as a C corporation) generating a 10 percent annual before-tax return on a $600,000 investment. Stacy's marginal tax rate on ordinary income is 37 percent. Stacy's marginal tax rate on individual capital gains and dividends is 23.8 percent, including the net investment income tax. SST will pay out its after-tax earnings every year to either its members or its shareholders. If SST is taxed as a partnership, Stacy would be subject to a 2.9 percent self-employment tax rate and a .9 percent additional Medicare tax. Assume that SST's income is not qualified business income for purposes of the qualified business income deduction. How much would Stacy have after taxes if SST is organized as either an LLC or a C corporation?

Accepted Answer

The answer of Stacy would like to have SST (a...

Question 16

Rodger owns 100% of the shares in Trevor Inc., a C corporation. Assume the following for the current year:
   Given these assumptions, how much cash does Rodger have from the dividend after all taxes have been paid?

Accepted Answer

The answer of Rodger owns 100% of the shares in...

Question 17

On which form is income from a single member LLC with one corporate (C corporation) owner reported?

Accepted Answer

A)  Form 1120 used by C corporations to report their income. 
B)  Form 1120S used by S corporations to report their income. 
C)  Form 1065 used by partnerships to report their income. 
D)  Form 1040, Schedule C used by sole proprietorships to report their income. 
E)  None of the choices are correct. 
A)  Form 1120 used by C corporations to report their income. 
B)  Form 1120S used by S corporations to report their income. 
C)  Form 1065 used by partnerships to report their income. 
D)  Form 1040, Schedule C used by sole proprietorships to report their income. 
E)  None of the choices are correct.

Question 18

From a tax perspective, which entity choice is preferred when a liquidating distribution occurs and the entity has assets that have declined in value?

Accepted Answer

A)  Partnership. 
B)  S corporation. 
C)  LLC. 
D)  Partnership and S corporation. 
E)  S corporation and LLC. 
A)  Partnership. 
B)  S corporation. 
C)  LLC. 
D)  Partnership and S corporation. 
E)  S corporation and LLC.

Question 19

LLC members have more flexibility than corporate shareholders to alter their legal arrangements with respect to one another, the entity, and with outsiders.

Accepted Answer

A) True 
 B)False

Question 20

For which type of entity does the entity not pay compensation to an owner who is working for the entity?

Accepted Answer

A)  S corporation. 
B)  C corporation. 
C)  Entity taxed as a partnership. 
D)  None of the choices are correct. 
A)  S corporation. 
B)  C corporation. 
C)  Entity taxed as a partnership. 
D)  None of the choices are correct.

Exam 15: Entities Overview

Which of the following statements is true for a C corporation incurring a net operating loss (NOL) for a tax year that begins in 2018?

Robert is seeking additional capital to expand ABC Inc. In order to qualify ABC as an S corporation, which type of investor group could Robert obtain capital from?

An S corporation shareholder who is not a passive investor is allowed to deduct a business loss allocation from the S corporation to the extent of the shareholder's basis in the stock no matter how large the loss.

Both tax and nontax objectives should be considered when choosing the entity type for a new business.

In its first year of existence, BYC Corporation (a C corporation) reported a loss for tax purposes of ($40,000). How much tax will BYC pay in year 2 if it reports taxable income from operations of $35,000 in year 2 before any loss carryovers?

S corporation shareholders are subject to self-employment tax on business income allocations from the S corporation if they are actively involved in the S corporation's business.

If individual taxpayers are the shareholders of PST Corporation and PST corporation is a shareholder of MNO Corporation, how many levels of tax is MNO's pre-tax income potentially exposed to?

In certain circumstances, C corporation shareholders can elect to change the entity to a flow-through entity for tax purposes.

Generally, which of the following flow-through entities can elect to be treated as a C corporation?

Sole proprietors are subject to self-employment taxes on net income from their sole proprietorships.

From a tax perspective, which entity choice is preferred when a liquidating distribution occurs and the entity has appreciated assets?

Losses from C corporations are never available to offset a shareholder's personal income.

Rodger owns 100% of the shares in Trevor Inc., a C corporation. Assume the following for the current year: Given these assumptions, how much cash does Rodger have from the dividend after all taxes have been paid?

On which form is income from a single member LLC with one corporate (C corporation) owner reported?

From a tax perspective, which entity choice is preferred when a liquidating distribution occurs and the entity has assets that have declined in value?

LLC members have more flexibility than corporate shareholders to alter their legal arrangements with respect to one another, the entity, and with outsiders.

For which type of entity does the entity not pay compensation to an owner who is working for the entity?

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters