Question 1

Which tax classifications can potentially apply to LLCs?

Accepted Answer

A) Partnership. 
B) Partnership and sole proprietorship. 
C) S corporation. 
D) C corporation. 
E) All of these choices are correct. 
A) Partnership. 
B) Partnership and sole proprietorship. 
C) S corporation. 
D) C corporation. 
E) All of these choices are correct.

Question 2

Shareholders of C corporations receiving property distributions must recognize dividend income equal to the fair market value of the distributed property if the distributing corporation has sufficient earnings and profits.

Accepted Answer

A) True 
 B)False

Question 3

If C corporations retain their after-tax earnings,when will their shareholders who are individuals be taxed on the retained earnings?

Accepted Answer

A) Shareholders will be taxed when they sell their shares at a gain. 
B) Shareholders will be taxed in the year they elect to be taxed on undistributed retained earnings. 
C) Shareholders will be taxed on undistributed retained earnings in the year the corporation files its tax return. 
D) None of the choices are correct. 
A) Shareholders will be taxed when they sell their shares at a gain. 
B) Shareholders will be taxed in the year they elect to be taxed on undistributed retained earnings. 
C) Shareholders will be taxed on undistributed retained earnings in the year the corporation files its tax return. 
D) None of the choices are correct.

Question 4

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 5

If a C corporation incurs a net operating loss in 2019,it may carry the loss back two years and forward 20 years to offset income in those years.

Accepted Answer

A) True 
 B)False

Question 6

Corporations are legally better suited for taking a business public compared with LLCs and general partnerships.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is false for a C corporation that incurred a net operating loss for a tax year ending in 2017?

Accepted Answer

A) If it carries back the NOL and/or carries it forward,it may offset up to 80 percent of the taxable income (before the NOL deduction)in those years. 
B) It may carry the NOL forward for up to 20 years and offset up to 100 percent of the taxable income (before the NOL deduction)in those years. 
C) It may carry the NOL back two years and offset up to 100 percent of the taxable income (before the NOL deduction)in those years. 
D) None of these (selecting this option means you believe all of the other responses are true). 
A) If it carries back the NOL and/or carries it forward,it may offset up to 80 percent of the taxable income (before the NOL deduction)in those years. 
B) It may carry the NOL forward for up to 20 years and offset up to 100 percent of the taxable income (before the NOL deduction)in those years. 
C) It may carry the NOL back two years and offset up to 100 percent of the taxable income (before the NOL deduction)in those years. 
D) None of these (selecting this option means you believe all of the other responses are true).

Question 9

If a C corporation incurs a net operating loss in 2019 and carries the loss forward to 2020,the NOL carryover is not allowed to offset 100 percent of the corporation's taxable income (before the net operating loss deduction).

Accepted Answer

A) True 
 B)False

Question 10

The C corporation tax rate is significantly lower than the top individual marginal tax rate.

Accepted Answer

A) True 
 B)False

Question 11

Entities taxed as partnerships can use special allocations to reward owners based on their responsibilities,contributions,and individual needs.

Accepted Answer

A) True 
 B)False

Question 12

David would like to organize HOS (a business entity)as either an S corporation or as a corporation (taxed as a C corporation)generating a 12 percent annual before-tax return on a $300,000 investment.David's marginal tax rate is 24 percent and the corporate tax rate is 21 percent.David's marginal tax rate on individual capital gains and dividends is 15 percent.HOS will pay out its after-tax earnings every year to either its members or its shareholders.If HOS is taxed as an S corporation,David's business income allocation would be subject to a 3.8 percent net investment income tax (he is a passive investor in the business),and the business income allocation would qualify for the deduction for qualified business income.
a.How much would David keep after taxes if HOS is organized as either an S corporation or a C corporation?
b.What are the overall tax rates (combined owner and entity level)if HOS is organized as either an S corporation or a C corporation?

Accepted Answer

The answer of David would like to organize HOS (a...

Question 13

If a C corporation incurred a net operating loss in 2017,it could carry the loss back two years and forward 20 years to offset income in those years.However,it may offset only 80 percent of the taxable income before the NOL deduction in those years.

Accepted Answer

A) True 
 B)False

Question 14

C corporations and S corporations are separate taxpaying entities that pay tax on their own income.

Accepted Answer

A) True 
 B)False

Question 15

When an employee/shareholder receives a business income allocation from an S corporation,what taxes apply to the business income allocation?

Accepted Answer

A) FICA tax only. 
B) Self-employment tax only. 
C) FICA and self-employment tax. 
D) Regular income tax. 
E) None of the choices are correct. 
A) FICA tax only. 
B) Self-employment tax only. 
C) FICA and self-employment tax. 
D) Regular income tax. 
E) None of the choices are correct.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

The deduction for qualified business income applies to income of all but which of the following tax entity types?

Accepted Answer

A) Sole proprietorship. 
B) Entity taxed as a partnership. 
C) S corporation. 
D) C corporation. 
A) Sole proprietorship. 
B) Entity taxed as a partnership. 
C) S corporation. 
D) C corporation.

Question 18

Corporation A owns 10 percent of Corporation C.The marginal tax rate on nondividend income for both A and C is 21 percent.Corporation C earns a total of $200 million before taxes in the current year,pays corporate tax on this income,and distributes the remainder proportionately to its shareholders as a dividend.In addition,Corporation A owns 40 percent of Partnership P,which earns $500 million in the current year.Given this fact pattern,answer the following questions:
a.How much cash from the Corporation C dividend remains after Corporation A pays the tax on the dividend,assuming Corporation A is eligible for the 50 percent dividends received deduction?
b.If Partnership P distributes all of its current-year earnings in proportion to the partner's ownership percentages,how much cash from Partnership P does Corporation A have after paying taxes on its share of income from the partnership?
c.If you were to replace Corporation A with Individual A [her marginal tax rate on ordinary income is 37 percent and on qualified dividends is 23.8 percent (including the net investment income tax)] in the original fact pattern above,how much cash does Individual A have from the Corporation C dividend after all taxes,assuming the dividends are qualified dividends? Consistent with the original facts,assume that Corporation C distributes all of its after-tax income to its shareholders.

Accepted Answer

The answer of Corporation A owns 10 percent of Corporation...

Question 19

What tax year-end must an unincorporated entity with only one owner adopt?

Accepted Answer

A) The entity is free to adopt any tax year-end. 
B) The entity must adopt the same year-end as its owner. 
C) The entity must adopt a calendar year-end. 
D) The entity may adopt any year-end except for a calendar year-end. 
A) The entity is free to adopt any tax year-end. 
B) The entity must adopt the same year-end as its owner. 
C) The entity must adopt a calendar year-end. 
D) The entity may adopt any year-end except for a calendar year-end.

Question 20

Unincorporated entities are typically treated as flow-through entities for tax purposes.

Accepted Answer

A) True 
 B)False

Exam 15: Entities Overview

Which tax classifications can potentially apply to LLCs?

Shareholders of C corporations receiving property distributions must recognize dividend income equal to the fair market value of the distributed property if the distributing corporation has sufficient earnings and profits.

If C corporations retain their after-tax earnings,when will their shareholders who are individuals be taxed on the retained earnings?

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

If a C corporation incurs a net operating loss in 2019,it may carry the loss back two years and forward 20 years to offset income in those years.

Corporations are legally better suited for taking a business public compared with LLCs and general partnerships.

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

Which of the following statements is false for a C corporation that incurred a net operating loss for a tax year ending in 2017?

If a C corporation incurs a net operating loss in 2019 and carries the loss forward to 2020,the NOL carryover is not allowed to offset 100 percent of the corporation's taxable income (before the net operating loss deduction).

The C corporation tax rate is significantly lower than the top individual marginal tax rate.

Entities taxed as partnerships can use special allocations to reward owners based on their responsibilities,contributions,and individual needs.

If a C corporation incurred a net operating loss in 2017,it could carry the loss back two years and forward 20 years to offset income in those years.However,it may offset only 80 percent of the taxable income before the NOL deduction in those years.

C corporations and S corporations are separate taxpaying entities that pay tax on their own income.

When an employee/shareholder receives a business income allocation from an S corporation,what taxes apply to the business income allocation?

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

The deduction for qualified business income applies to income of all but which of the following tax entity types?

What tax year-end must an unincorporated entity with only one owner adopt?

Unincorporated entities are typically treated as flow-through entities for tax purposes.

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 Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters