Question 1

Which legal entity provides the least flexible legal arrangement for owners?

Accepted Answer

A)  Corporation 
B)  LLC 
C)  Partnership 
D)  Sole Proprietorship 
A)  Corporation 
B)  LLC 
C)  Partnership 
D)  Sole Proprietorship A

Question 2

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. 
A)  Limited partnership 
B)  Limited Liability Company 
C)  General partnership 
D)  All of these. D

Question 3

Corporations are legally formed by filing articles of organization with the state in which the corporation will be created.

Accepted Answer

A) True 
 B)False  False

Question 4

On which tax form does a single member LLCs with one individual owner report its income and losses?

Accepted Answer

A)  Form 1120 
B)  Form 1120S 
C)  Form 1065 
D)  Form 1040, Schedule C 
A)  Form 1120 
B)  Form 1120S 
C)  Form 1065 
D)  Form 1040, Schedule C

Question 5

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

Accepted Answer

A)  FICA tax only. 
B)  Self-employment tax only. 
C)  FICA and self-employment tax. 
D)  None of these. This income will never be taxed. 
E)  None of these. This income will be taxed, but another type of tax will apply. 
A)  FICA tax only. 
B)  Self-employment tax only. 
C)  FICA and self-employment tax. 
D)  None of these. This income will never be taxed. 
E)  None of these. This income will be taxed, but another type of tax will apply.

Question 6

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 7

Jaron would like to organize TMZ as either an LLC or as a C corporation generating a 6 percent annual before-tax rate of return on a $200,000 investment. Individual and corporate tax rates are both 40 percent and individual capital gains and dividends tax rates are 10 percent. TMZ will distribute its earnings annually to either its members or shareholders.
a. Ignoring self-employment taxes (and the additional Medicare Tax), how much would Jaron keep after taxes if TMZ is organized as either an LLC or a C corporation?
b. Ignoring self-employment taxes (and the additional Medicare Tax), what are the overall tax rates (combined overall and entity level) if TMZ is organized as either an LLC or as a C corporation?

Accepted Answer

Answer to parts a and b: \[\begin{array}

Question 8

Jerry would like to organize FBC as either an LLC or as a C corporation generating an 8 percent annual before-tax rate of return on a $400,000 investment. Individual and corporate tax rates are both 35 percent and individual capital gains and dividends tax rates are 15 percent. FBC will pay out its after-tax earnings every year to either its members or its shareholders.
a. How much would Jerry keep after taxes if FBC is organized as either an LLC or as a C corporation (ignore self-employment taxes)?
b. Ignoring self-employment taxes, what are the overall tax rates (combined owner and entity level) tax rates if FBC is organized as either an LLC or as a C corporation?

Accepted Answer

\[\begin{array} { | l | r | l | r | l |

Question 9

S corporations have more restrictive ownership requirements than other entities.

Accepted Answer

A) True 
 B)False

Question 10

Rodger owns 100% of the shares in Trevor Inc., a C corporation. Assume the following for the current year: Trevor Inc.'s pre-tax income $= \$ 16,000$
Trevor Corp's marginal tax rate $= \mathbf { 3 5 \% }$
Percentage of after-tax earnings retained by Trevor Corp $= 0 \%$ (i.e., all after-tax earnings distributed)
Rodger's dividend tax rate $= \mathbf { 5 } \%$ Given these assumptions, how much cash does Rodger have from the dividend after all taxes have been paid?

Accepted Answer

\[\begin{array} { | l | r | l | } 
\hlin

Question 11

What document must LLCs file with the state to organize their business?

Accepted Answer

A)  Articles of incorporation 
B)  Certificate of LLC 
C)  Articles of organization 
D)  Partnership agreement 
E)  None of these. LLCs do not have to file with the state to organize their business. 
A)  Articles of incorporation 
B)  Certificate of LLC 
C)  Articles of organization 
D)  Partnership agreement 
E)  None of these. LLCs do not have to file with the state to organize their business.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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 14

Which legal entity is generally best suited for going public?

Accepted Answer

A)  Corporation 
B)  LLC 
C)  Limited Liability Partnership 
D)  General Partnership 
E)  All of these entities are equally suited for going public. 
A)  Corporation 
B)  LLC 
C)  Limited Liability Partnership 
D)  General Partnership 
E)  All of these entities are equally suited for going public.

Question 15

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 16

What is the tax impact to a C corporation or an S corporation when it makes a property distribution to a shareholder?

Accepted Answer

A)  Recognizes either gain or loss 
B)  Does not recognize gain or loss 
C)  Recognizes gain but not loss 
D)  Recognizes loss only 
A)  Recognizes either gain or loss 
B)  Does not recognize gain or loss 
C)  Recognizes gain but not loss 
D)  Recognizes loss only

Question 17

If 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 18

Corporation A owns 10% of CorporationC. The marginal tax rate on non-dividend income for both A and C is 34%. 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 20% of partnership P that 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 70 percent dividends received deduction?
 $\begin{array}{|l|c|l|}
\hline {\text { Description }} & \text { Amount } & {\text { Explanation }} \
\hline \begin{array}{l}
\text { (1) Dividend from } \
\text { Corporation C }
\end{array} & \$ 13,200,000 & \begin{array}{l}
\$ 200,000,000 \times(1-.34) \times \
10 \%
\end{array} \
\hline \begin{array}{l}
\text { (2) Tax on dividend from } \
\text { Corporation C }
\end{array} & \$ 1,346,400 & (1) \times 34 \% \times 30 \% \
\hline \begin{array}{l}
\text { (3) Cash remaining after } \
\text { tax on dividend }
\end{array} & \$ 11,853,600 & (1)-(2) \
\hline
\end{array}$ $$\begin{array} { | l | c | c | } 
\hline { \text { Description } } & \text { Amount } & \text { Explanation } \
\hline \begin{array} { l } 
\text { (1) Cash received from } \
\text { Partnership P }
\end{array} & \mathbf { \$ 1 0 0 , 0 0 0 , 0 0 0 } & \mathbf { \$ 5 0 0 , 0 0 0 , 0 0 0 } \times \mathbf { 2 0 } \% \
\hline \begin{array} { l } 
\text { (2) Tax on share of income } \
\text { from Partnership P }
\end{array} & \mathbf { \$ 3 4 , 0 0 0 , 0 0 0 } & ( 1 ) \times \mathbf { 3 4 \% } \
\hline \begin{array} { l } 
\text { (3) Cash remaining from } \
\text { distribution after taxes }
\end{array} & \mathbf { \$ 6 6 , 0 0 0 , 0 0 0 } & ( 1 ) - ( 2 ) \
\hline
\end{array}$$ $\begin{array}{|l|c|l|}
\hline {\text { Description }} & \text { Amount } & {\text { Explanation }} \
\hline \begin{array}{l}
\text { (1) Dividend from } \
\text { Corporation C }
\end{array} & \$ 13,200,000 & \begin{array}{l}
\$ 200,000,000 \times(1-.34) \
\times \mathbf{1 0 \%}
\end{array} \
\hline \begin{array}{l}
\text { (2) Tax on dividend from } \
\text { Corporation C }
\end{array} & \$ 1,980,000 & (1) \times 15 \% \
\hline \begin{array}{l}
\text { (3) Cash remaining after } \
\text { tax on dividend }
\end{array} & \$ 11,220,000 & (1)-(2) \
\hline
\end{array}$

Accepted Answer

None

Question 19

On which tax form do LLCs with more than one owner report their income and losses?

Accepted Answer

A)  Form 1120 
B)  Form 1120S 
C)  Form 1065 
D)  Form 1040, Schedule C 
A)  Form 1120 
B)  Form 1120S 
C)  Form 1065 
D)  Form 1040, Schedule C

Question 20

If you were seeking an entity with the most favorable tax treatment regarding (1) the number of owners allowed, (2) the flexibility to select your accounting period, and (3) the availability of preferential capital gains rates when selling your ownership interest, which entity should you decide to use?

Accepted Answer

A)  C corporation 
B)  S corporation 
C)  Partnership 
D)  Sole proprietorship 
A)  C corporation 
B)  S corporation 
C)  Partnership 
D)  Sole proprietorship

Which legal entity provides the least flexible legal arrangement for owners?

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

Corporations are legally formed by filing articles of organization with the state in which the corporation will be created.

On which tax form does a single member LLCs with one individual owner report its income and losses?

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

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

S corporations have more restrictive ownership requirements than other entities.

What document must LLCs file with the state to organize their business?

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

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

Which legal entity is generally best suited for going public?

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

What is the tax impact to a C corporation or an S corporation when it makes a property distribution to a shareholder?

If PST Corporation is a shareholder of MNO Corporation, how many levels of tax is MNO's pre-tax income potentially exposed to?

On which tax form do LLCs with more than one owner report their income and losses?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

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 of the Cfa Institute

Filters

Exam 15: Entities Overview

Which legal entity provides the least flexible legal arrangement for owners?

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

Corporations are legally formed by filing articles of organization with the state in which the corporation will be created.

On which tax form does a single member LLCs with one individual owner report its income and losses?

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

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

S corporations have more restrictive ownership requirements than other entities.

What document must LLCs file with the state to organize their business?

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

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

Which legal entity is generally best suited for going public?

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

What is the tax impact to a C corporation or an S corporation when it makes a property distribution to a shareholder?

If PST Corporation is a shareholder of MNO Corporation, how many levels of tax is MNO's pre-tax income potentially exposed to?

On which tax form do LLCs with more than one owner report their income and losses?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

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 of the Cfa Institute

Filters