Question 1

For tax purposes, only unincorporated entities can be considered to be disregarded entities.

Accepted Answer

A) True 
 B)False

Question 2

Owners who work for entities taxed as a partnership receive guaranteed payments as compensation. The guaranteed payments are not self-employment income.

Accepted Answer

A) True 
 B)False

Question 3

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

Question 4

Robert is seeking additional capital to expand ABC Incorporated. 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 is correct. 
A) 30 different partnerships. 
B) 10 different C corporations. 
C) 90 nonresident individuals. 
D) 120 unrelated resident individuals. 
E) None of the choices is correct.

Question 5

A Corporation owns 10 percent of D Corporation. D Corporation 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, A Corporation owns 40 percent of Partnership P. Partnership P earns $500 million in the current year. Given this fact pattern, answer the following questions:
a. How much cash from the D Corporation dividend remains for A Corporation after A pays the tax on the dividend, assuming A Corporation 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 A Corporation have after paying taxes on its share of income from the partnership?
c. If you were to replace A Corporation with Individual A [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 D Corporation dividend after all taxes, assuming the dividends are qualified dividends? Consistent with the original facts, assume that D Corporation distributes all of its after-tax income to its shareholders.

Accepted Answer

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

Question 6

P corporation owns 60 percent of the stock of S corporation. If S corporation distributes a dividend to P corporation, what is the tax rate on the dividend after the dividends received deduction (DRD)if P is entitled to a 65 percent DRD?

Accepted Answer

7.35 perce

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

The deduction for qualified business income applies to owners of C corporations but not to flow-through entity owners.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Roberto and Reagan are both 25-percent owner/managers for Bright Light Incorporated. Roberto runs the retail store in Sacramento, California, and Reagan runs the retail store in San Francisco, California. Bright Light generated a $125,000 profit companywide made up of a $75,000 profit from the Sacramento store, a ($25,000)loss from the San Francisco store, and a combined $75,000 profit from the remaining stores. If Bright Light is taxed as a partnership and it is decided that both Roberto and Reagan will be allocated 70 percent of his own store's profit, with the remaining profits allocated pro rata among all the owners, how much income will be allocated to Reagan in total?

Accepted Answer

A) ($25,000) 
B) ($17,500) 
C) $5,000 
D) $20,000 
A) ($25,000) 
B) ($17,500) 
C) $5,000 
D) $20,000

Question 11

Tax rules require that entities be classified the same way for tax purposes as they are classified for legal purposes.

Accepted Answer

A) True 
 B)False

Question 12

The excess loss limitations apply to owners of all of the following entities except which of the following (answer for tax years other than 2020)?

Accepted Answer

A) C corporations 
B) S corporations 
C) Entities taxed as partnerships 
D) Single-member LLCs (owned by an individual taxpayer) 
A) C corporations 
B) S corporations 
C) Entities taxed as partnerships 
D) Single-member LLCs (owned by an individual taxpayer)

Question 13

Roberto and Reagan are both 25-percent owner/managers for Bright Light Incorporated. Roberto runs the retail store in Sacramento, California, and Reagan runs the retail store in San Francisco, California. Bright Light generated a $126,050 profit companywide made up of a $75,300 profit from the Sacramento store, a ($25,750)loss from the San Francisco store, and a combined $76,500 profit from the remaining stores. If Bright Light is taxed as a partnership and it is decided that both Roberto and Reagan will be allocated 70 percent of his own store's profit, with the remaining profits allocated pro rata among all the owners, how much income will be allocated to Reagan in total?

Accepted Answer

A) ($25,052.50). 
B) ($18,025.00). 
C) $4,816.25. 
D) $20,236.25. 
A) ($25,052.50). 
B) ($18,025.00). 
C) $4,816.25. 
D) $20,236.25.

Question 14

If a C corporation incurs a net operating loss in 2020, 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 15

Jorge is a 100-percent owner of JJ LLC (taxed as an S corporation). He works full time 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 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 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 16

In 2020, Aspen Corporation reported $120,000 of taxable income before the net operating loss (NOL)deduction. It had an NOL carryover of $60,000 from 2018 and an NOL carryover from 2019 of $40,000. How much tax will Aspen Corporation pay on its 2020 tax return?

Accepted Answer

The answer of In 2020, Aspen Corporation reported $120,000 of...

Question 17

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 these choices are correct. 
A) Limited partnership. 
B) Limited liability company. 
C) General partnership. 
D) All of these choices are correct.

Question 18

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 19

Which of the following statements is true regarding compensation paid to an owner of an entity taxed as a partnership who works for the entity?

Accepted Answer

A) The compensation is deductible by the entity. 
B) The compensation is self-employment income to the owner-worker. 
C) The entity is not required to withhold FICA tax on the compensation it pays to the owner. 
D) All of these choices are correct. 
A) The compensation is deductible by the entity. 
B) The compensation is self-employment income to the owner-worker. 
C) The entity is not required to withhold FICA tax on the compensation it pays to the owner. 
D) All of these choices are correct.

Question 20

If C corporations retain their after-tax earnings, when will their individual shareholders 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 is 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 is correct.

Exam 15: Entities Overview

For tax purposes, only unincorporated entities can be considered to be disregarded entities.

Owners who work for entities taxed as a partnership receive guaranteed payments as compensation. The guaranteed payments are not self-employment income.

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

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

P corporation owns 60 percent of the stock of S corporation. If S corporation distributes a dividend to P corporation, what is the tax rate on the dividend after the dividends received deduction (DRD)if P is entitled to a 65 percent DRD?

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

The deduction for qualified business income applies to owners of C corporations but not to flow-through entity owners.

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

Tax rules require that entities be classified the same way for tax purposes as they are classified for legal purposes.

The excess loss limitations apply to owners of all of the following entities except which of the following (answer for tax years other than 2020)?

If a C corporation incurs a net operating loss in 2020, it may carry the loss back two years and forward 20 years to offset income in those years.

Jorge is a 100-percent owner of JJ LLC (taxed as an S corporation). He works full time 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?

In 2020, Aspen Corporation reported $120,000 of taxable income before the net operating loss (NOL)deduction. It had an NOL carryover of $60,000 from 2018 and an NOL carryover from 2019 of $40,000. How much tax will Aspen Corporation pay on its 2020 tax return?

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

Which tax classifications can potentially apply to LLCs?

Which of the following statements is true regarding compensation paid to an owner of an entity taxed as a partnership who works for the entity?

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

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