Question 1

Match the following statements.
-Sale of corporate stock by the S corporation shareholders.

Accepted Answer

A) Transaction in this form enables double taxation to be avoided. 
B) Gain or loss is calculated separately for each asset and is subject to single taxation. 
C) Subject to double taxation. 
D) The sale is treated as the sale of a capital asset under § 741, but subject to ordinary income potential under § 751. 
E) Not subject to double taxation on the sale of corporate stock. 
A) Transaction in this form enables double taxation to be avoided. 
B) Gain or loss is calculated separately for each asset and is subject to single taxation. 
C) Subject to double taxation. 
D) The sale is treated as the sale of a capital asset under § 741, but subject to ordinary income potential under § 751. 
E) Not subject to double taxation on the sale of corporate stock.

Question 2

Match the following.
-C corporation

Accepted Answer

A) Contribution of appreciated property to the business entity by an owner is never subject to taxation. 
B) Realized gains on the contribution of appreciated property to the entity are not recognized by the contributor when an 80% control requirement is satisfied. 
C) Realized losses on the contribution of loss property to the entity are never recognized by the contributor. 
D) Realized losses on the contribution of loss property to the entity are recognized by the contributor unless an 80% control requirement is satisfied. 
E) Basis of ownership interest to the owner is dependent on whether gain or loss is recognized to the owner on the contribution of assets to the business entity. 
A) Contribution of appreciated property to the business entity by an owner is never subject to taxation. 
B) Realized gains on the contribution of appreciated property to the entity are not recognized by the contributor when an 80% control requirement is satisfied. 
C) Realized losses on the contribution of loss property to the entity are never recognized by the contributor. 
D) Realized losses on the contribution of loss property to the entity are recognized by the contributor unless an 80% control requirement is satisfied. 
E) Basis of ownership interest to the owner is dependent on whether gain or loss is recognized to the owner on the contribution of assets to the business entity.

Question 3

If the IRS reclassifies debt as equity, the repayment of the debt by the corporation to the shareholder automatically is treated as a dividend.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

A shareholder's basis in the stock of an S corporation is increased by corporate profits and decreased by losses.

Accepted Answer

A) True 
 B)False

Question 8

Candace, who is in the 32% tax bracket, is establishing a business which could have potential environmental liability problems.Therefore, she is trying to decide between the C corporation form and the S corporation form.She projects that the business will generate earnings of about $75,000 each year.Advise Candace on the tax consequences of each entity form.

Accepted Answer

If the form selected is an S corporation

Question 9

Match the following statements.
-Organization costs

Accepted Answer

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 21%. 
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. 
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 21%. 
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.

Question 10

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

Accepted Answer

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. 
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.

Question 11

The profits of a business owned by Taylor 60%) and Maggie 40%) for the current tax year are $100,000.If the business is a C corporation or an S corporation, there is no effect on Taylor's basis in her stock.If the business is a partnership or an LLC, Taylor's basis in her partnership interest or basis in her stock is increased by $60,000.

Accepted Answer

A) True 
 B)False

Question 12

Under what circumstances, if any, do the passive activity loss rules apply to C corporations?

Accepted Answer

The general passive activity loss rules

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Kirk is establishing a business in year 1 which could have potential environmental liability problems.Therefore, he is trying to decide between the C corporation form and the S corporation form.He projects that the business will generate losses of approximately $100,000 each year for the first 3 years and then will generate profits of at least
$200,000 each year thereafter.All profits will be reinvested in the growth of the business.Kirk projects he will be in the 35% bracket for all tax years.Advise Kirk on which tax form he should select.

Accepted Answer

If the business operates as a C corporat

Question 15

Malcomb and Sandra shareholders) each loan Crow Corporation $50,000 at the market rate of 6% interest.Which of the following statements are false?

Accepted Answer

A) Crow may deduct the interest expense, and the interest income is taxable to Malcomb and Sandra. 
B) When the note principal is repaid, neither Malcomb nor Sandra recognizes gross income from the repayment. 
C) If the IRS were successful in reclassifying the notes as equity, the interest payments would not be deductible by Crow, and Malcomb and Sandra would still recognize income. 
D) If the IRS were successful in reclassifying the notes as equity, repayment of the note principal to Malcomb and Sandra would not qualify for return of capital treatment and would most likely result in dividend income treatment for Malcomb and Sandra. 
E) All of the above are true. 
A) Crow may deduct the interest expense, and the interest income is taxable to Malcomb and Sandra. 
B) When the note principal is repaid, neither Malcomb nor Sandra recognizes gross income from the repayment. 
C) If the IRS were successful in reclassifying the notes as equity, the interest payments would not be deductible by Crow, and Malcomb and Sandra would still recognize income. 
D) If the IRS were successful in reclassifying the notes as equity, repayment of the note principal to Malcomb and Sandra would not qualify for return of capital treatment and would most likely result in dividend income treatment for Malcomb and Sandra. 
E) All of the above are true.

Question 16

Wally contributes land adjusted basis of $30,000; fair market value of $100,000) to an S corporation in a transaction which qualifies under § 351.The corporation subsequently sells the land for $120,000, recognizing a gain of $90,000 $120,000 - $30,000).If Wally owns 30% of the stock, $76,000 [$70,000 + 30%$20,000)] of the $90,000 recognized gain is allocated to Wally.

Accepted Answer

A) True 
 B)False

Question 17

Techniques are available that may permit a C corporation to avoid double taxation.

Accepted Answer

A) True 
 B)False

Match the following statements. -Sale of corporate stock by the S corporation shareholders.

Match the following. -C corporation

If the IRS reclassifies debt as equity, the repayment of the debt by the corporation to the shareholder automatically is treated as a dividend.

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

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

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

A shareholder's basis in the stock of an S corporation is increased by corporate profits and decreased by losses.

Match the following statements. -Organization costs

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

Under what circumstances, if any, do the passive activity loss rules apply to C corporations?

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

Malcomb and Sandra shareholders) each loan Crow Corporation $50,000 at the market rate of 6% interest.Which of the following statements are false?

Techniques are available that may permit a C corporation to avoid double taxation.

Introduction to Taxation

Working With the Tax Law

Taxes on the Financial Statements

Gross Income

Business Deductions

Losses and Loss Limitations

Property Transactions: Basis, Gain and Loss, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses

Individuals As the Taxpayer

Individuals: Income, Deductions, and Credits

Individuals As Employees and Proprietors

Corporations: Organization, Capital Structure, and Operating Rules

Corporations: Earnings and Profits and Distributions

Partnerships and Limited Liability Entities

S Corporations

Multijurisdictional Taxation

Business Tax Credits and the Alternative Minimum Tax

Filters

Exam 18: Comparative Forms of Doing Business

Match the following statements. -Sale of corporate stock by the S corporation shareholders.

Match the following. -C corporation

If the IRS reclassifies debt as equity, the repayment of the debt by the corporation to the shareholder automatically is treated as a dividend.

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

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

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

A shareholder's basis in the stock of an S corporation is increased by corporate profits and decreased by losses.

Match the following statements. -Organization costs

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

Under what circumstances, if any, do the passive activity loss rules apply to C corporations?

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

Malcomb and Sandra shareholders) each loan Crow Corporation $50,000 at the market rate of 6% interest.Which of the following statements are false?

Techniques are available that may permit a C corporation to avoid double taxation.

Introduction to Taxation

Working With the Tax Law

Taxes on the Financial Statements

Gross Income

Business Deductions

Losses and Loss Limitations

Property Transactions: Basis, Gain and Loss, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses

Individuals As the Taxpayer

Individuals: Income, Deductions, and Credits

Individuals As Employees and Proprietors

Corporations: Organization, Capital Structure, and Operating Rules

Corporations: Earnings and Profits and Distributions

Partnerships and Limited Liability Entities

S Corporations

Multijurisdictional Taxation

Business Tax Credits and the Alternative Minimum Tax

Filters