Question 1

What is the major pitfall associated with attempting to reduce and/or avoid double taxation by a corporation not making distributions to shareholders?

Accepted Answer

The major pitfall in this case

Question 2

Shania, Taylor, and Kelly form a corporation with the following contributions.

Accepted Answer

A)  If the corporation is a C corporation, Taylor has a recognized gain of $40,000, a stock basis of $100,000, and the corporation has a basis for the land of $100,000. 
B)  If the corporation is an S corporation, Kelly has a recognized gain or loss of $0, a stock basis of $110,000, and the corporation has a basis for the building of $110,000. 
C)  If the corporation is a C corporation, Shania has a recognized gain or loss of $0, a stock basis of $100,000, and the corporation has a basis for the cash of $100,000. 
D)  Only a. and c. are correct. 
E)  Only b. and c. are correct. 
A)  If the corporation is a C corporation, Taylor has a recognized gain of $40,000, a stock basis of $100,000, and the corporation has a basis for the land of $100,000. 
B)  If the corporation is an S corporation, Kelly has a recognized gain or loss of $0, a stock basis of $110,000, and the corporation has a basis for the building of $110,000. 
C)  If the corporation is a C corporation, Shania has a recognized gain or loss of $0, a stock basis of $100,000, and the corporation has a basis for the cash of $100,000. 
D)  Only a. and c. are correct. 
E)  Only b. and c. are correct.

Question 3

Which of the following special allocations are mandatory for the partners in a partnership?

Accepted Answer

A)  Section 704(a) special allocation requiring limited partners to share losses in accordance with their capital interests in the partnership. 
B)  Section 704(c) special allocation for the difference between the adjusted basis and fair market value of contributed property. 
C)  Section 734 (optional adjustment to basis) special allocation for distributions to partners when the partnership does have a § 754 election in effect or does make a § 754 election. 
D)  Only b. and c. are mandatory. 
E)  a., b., and c. are mandatory. 
A)  Section 704(a) special allocation requiring limited partners to share losses in accordance with their capital interests in the partnership. 
B)  Section 704(c) special allocation for the difference between the adjusted basis and fair market value of contributed property. 
C)  Section 734 (optional adjustment to basis) special allocation for distributions to partners when the partnership does have a § 754 election in effect or does make a § 754 election. 
D)  Only b. and c. are mandatory. 
E)  a., b., and c. are mandatory.

Question 4

Eagle, Inc., a C corporation, distributes $250,000 to its shareholder, Jean, and land worth $250,000 (adjusted basis of $190,000) to its shareholder, Pam. Eagle has earnings and profits of $700,000. Determine the tax consequences to Eagle, Jean, and Pam.

Accepted Answer

The distribution of the appreciated land

Question 5

Brenda contributes appreciated property to her business entity in a transaction which qualifies for nonrecognition of gain. Brenda's ownership interest is 60%. The business entity later sells the appreciated property for $110,000. The property is not depreciable. Which of the following statement(s) is correct?

Accepted Answer

A)  If the entity is a partnership, Brenda's gross income is increased by $41,000 [($35,000 ´ 100%) + ($10,000 ´ 60%)] in the year of the sale of the property by the partnership. 
B)  If the entity is a C corporation, the corporation's gross income is increased by $10,000 in the year of the sale of the property by the corporation. 
C)  If the entity is an S corporation, the S corporation's gross income is increased by $10,000 in the year of the sale of the property by the S corporation and Brenda's gross income is increased by $6,000 ($10,000 ´ 60%). 
D)  All of the above. 
E)  None of the above. 
A)  If the entity is a partnership, Brenda's gross income is increased by $41,000 [($35,000 ´ 100%) + ($10,000 ´ 60%)] in the year of the sale of the property by the partnership. 
B)  If the entity is a C corporation, the corporation's gross income is increased by $10,000 in the year of the sale of the property by the corporation. 
C)  If the entity is an S corporation, the S corporation's gross income is increased by $10,000 in the year of the sale of the property by the S corporation and Brenda's gross income is increased by $6,000 ($10,000 ´ 60%). 
D)  All of the above. 
E)  None of the above.

Question 6

If an S corporation distributes appreciated property as a dividend, it must recognize gain as to the appreciation.

Accepted Answer

A) True 
 B)False

Question 7

Kirby, the sole shareholder of Falcon, Inc., leases a building to the corporation. The taxable income of the corporation for 2011, before deducting the lease payments, is projected to be $300,000.

Accepted Answer

The answer of Kirby, the sole shareholder of Falcon, Inc.,...

Question 8

Marsha is going to contribute the following assets to a business entity in exchange for an ownership interest.
   What are the tax consequences of the contribution to Marsha if the business entity is a(n):

Accepted Answer

The answer of Marsha is going to contribute the following...

Question 9

Mr. and Ms. Smith's partnership owns the following assets:   * Potential § 1245 recapture of $45,000.
** Straight-line depreciation was used.
Mr) and Ms. Smith each have a basis for their partnership interest of $135,000. Calculate their combined recognized gain or loss and classify it as capital or ordinary if they sell their partnership interests for $500,000.

Accepted Answer

A)  $230,000 ordinary income. 
B)  $230,000 capital gain. 
C)  $115,000 ordinary income and $115,000 capital gain. 
D)  $110,000 ordinary income and $120,000 capital gain. 
E)  None of the above. 
A)  $230,000 ordinary income. 
B)  $230,000 capital gain. 
C)  $115,000 ordinary income and $115,000 capital gain. 
D)  $110,000 ordinary income and $120,000 capital gain. 
E)  None of the above.

Question 10

Beige, Inc., has 3,000 shares of stock authorized and 1,000 shares outstanding. The shares are owned by Sam (700 shares) and Lois (300 shares). Sam's adjusted basis for his stock is $100,000 and Lois' adjusted basis for her stock is $90,000. Beige's earnings and profits are $500,000. Beige redeems 200 of Lois' shares for $150,000. Determine the amount of Lois' recognized gain (1) if she is Sam's mother and (2) if they are unrelated.

Accepted Answer

A)  $0 and $0. 
B)  $150,000 and $60,000. 
C)  $150,000 and $90,000. 
D)  $50,000 and $150,000. 
E)  None of the above. 
A)  $0 and $0. 
B)  $150,000 and $60,000. 
C)  $150,000 and $90,000. 
D)  $50,000 and $150,000. 
E)  None of the above.

Question 11

If the amounts are reasonable, salary payments to shareholder-employees can reduce or avoid the double taxation result of a C corporation.

Accepted Answer

A) True 
 B)False

Question 12

For a limited liability company with 100 owners,

Accepted Answer

A)  An election can be made to be taxed as a C corporation. 
B)  An election can be made to be taxed as an S corporation. 
C)  An election can be made to be taxed as a partnership. 
D)  Only a. and c. are correct. 
E)  a., b., and c. are correct. 
A)  An election can be made to be taxed as a C corporation. 
B)  An election can be made to be taxed as an S corporation. 
C)  An election can be made to be taxed as a partnership. 
D)  Only a. and c. are correct. 
E)  a., b., and c. are correct.

Question 13

Blue, Inc., has taxable income before salary payments to its president of $700,000 in 2011. Blue is in the 34% tax bracket, and the president is in the 35% tax bracket.

Accepted Answer

The answer of Blue, Inc., has taxable income before salary...

Question 14

Colin and Reed formed a business entity several years ago. At that date, Colin's basis for his ownership interest was $40,000 and Reed's basis for his ownership interest was $50,000. Colin's profit and loss percentage is 40% and Reed's profit and loss percentage is 60%. During the intervening period, the entity has reported profits of $200,000. At the beginning of the current year, the entity had liabilities (all recourse) of $50,000. At the end of the current year, the liabilities (all recourse) had increased to $70,000. Determine Colin and Reed's basis for their ownership interest if the entity is:

Accepted Answer

The answer of Colin and Reed formed a business entity...

Question 15

Factors that should be considered in making the S corporation election for the current tax year include the following:

Accepted Answer

A)  Are greater than 50% of the shareholders willing to consent to the election? 
B)  Can the requirements for qualification be satisfied by the 15th day of the third month of the tax year and also for the period of the tax year that precedes this date? 
C)  Will the corporation have total capital not in excess of $1 million? 
D)  Only b. and c. 
E)  a., b., and c. 
A)  Are greater than 50% of the shareholders willing to consent to the election? 
B)  Can the requirements for qualification be satisfied by the 15th day of the third month of the tax year and also for the period of the tax year that precedes this date? 
C)  Will the corporation have total capital not in excess of $1 million? 
D)  Only b. and c. 
E)  a., b., and c.

Question 16

Daisy, Inc., has taxable income of $850,000 during 2011, its first year of operations. Daisy distributes dividends of $200,000 to its 10 shareholders (i.e., $20,000 each). Daisy earmarks $361,000 of its earnings for potential future expansion into other cities.

Accepted Answer

The answer of Daisy, Inc., has taxable income of $850,000...

Question 17

Which of the following is correct regarding the form for filing the annual Federal income tax return? Business entity form Tax form

Accepted Answer

A)  Sole proprietorship Form 1040-Schedule C 
B)  Partnership Form 1065P 
C)  C corporation Form 1120C 
D)  LLC Form 1120S 
E)  S corporation Form 1120 
A)  Sole proprietorship Form 1040-Schedule C 
B)  Partnership Form 1065P 
C)  C corporation Form 1120C 
D)  LLC Form 1120S 
E)  S corporation Form 1120

Question 18

Melba contributes land (basis of $190,000; fair market value of $250,000) to a business entity in exchange for 100% of the stock. During the first year of operations, the entity earns a profit of $75,000. At the end of the first year, the entity has outstanding liabilities of $30,000 ($20,000 recourse and $10,000 nonrecourse).

Accepted Answer

A)  If the entity is a C corporation, Melba's basis for her stock at the end of the first year is $265,000 ($190,000 + $75,000) and her at-risk basis is $265,000. 
B)  If the entity is a partnership, Melba's basis for her partnership interest (outside basis) at the end of the first year is $355,000 ($250,000 + $75,000 + $30,000) and her at-risk basis is $345,000 ($250,000 + $75,000 + $20,000). 
C)  If the entity is an S corporation, Melba's basis for her stock at the end of the first year is $345,000 ($250,000 + $75,000 + $20,000) and her at-risk basis is $345,000. 
D)  Only a. and c. are correct. 
E)  a., b., and c. are incorrect. 
A)  If the entity is a C corporation, Melba's basis for her stock at the end of the first year is $265,000 ($190,000 + $75,000) and her at-risk basis is $265,000. 
B)  If the entity is a partnership, Melba's basis for her partnership interest (outside basis) at the end of the first year is $355,000 ($250,000 + $75,000 + $30,000) and her at-risk basis is $345,000 ($250,000 + $75,000 + $20,000). 
C)  If the entity is an S corporation, Melba's basis for her stock at the end of the first year is $345,000 ($250,000 + $75,000 + $20,000) and her at-risk basis is $345,000. 
D)  Only a. and c. are correct. 
E)  a., b., and c. are incorrect.

Question 19

A corporation may alternate between S corporation and C corporation status each year, depending on which results in more tax savings.

Accepted Answer

A) True 
 B)False

Question 20

Alanna contributes property with an adjusted basis of $80,000 and a fair market value of $100,000 to a newly formed business entity. If the entity is a partnership and the transaction qualifies under § 721, the partnership's basis for the property and the partner's basis for the partnership interest are: Asset Basis Stock Basis

Accepted Answer

A)  $ 80,000 $100,000 
B)  $100,000 $ 80,000 
C)  $ 80,000 $ 80,000 
D)  $100,000 $100,000 
E)  None of the above. 
A)  $ 80,000 $100,000 
B)  $100,000 $ 80,000 
C)  $ 80,000 $ 80,000 
D)  $100,000 $100,000 
E)  None of the above.

What is the major pitfall associated with attempting to reduce and/or avoid double taxation by a corporation not making distributions to shareholders?

Shania, Taylor, and Kelly form a corporation with the following contributions.

Which of the following special allocations are mandatory for the partners in a partnership?

Eagle, Inc., a C corporation, distributes $250,000 to its shareholder, Jean, and land worth $250,000 (adjusted basis of $190,000) to its shareholder, Pam. Eagle has earnings and profits of $700,000. Determine the tax consequences to Eagle, Jean, and Pam.

If an S corporation distributes appreciated property as a dividend, it must recognize gain as to the appreciation.

Kirby, the sole shareholder of Falcon, Inc., leases a building to the corporation. The taxable income of the corporation for 2011, before deducting the lease payments, is projected to be $300,000.

Marsha is going to contribute the following assets to a business entity in exchange for an ownership interest. What are the tax consequences of the contribution to Marsha if the business entity is a(n):

If the amounts are reasonable, salary payments to shareholder-employees can reduce or avoid the double taxation result of a C corporation.

For a limited liability company with 100 owners,

Blue, Inc., has taxable income before salary payments to its president of $700,000 in 2011. Blue is in the 34% tax bracket, and the president is in the 35% tax bracket.

Factors that should be considered in making the S corporation election for the current tax year include the following:

Daisy, Inc., has taxable income of $850,000 during 2011, its first year of operations. Daisy distributes dividends of $200,000 to its 10 shareholders (i.e., $20,000 each). Daisy earmarks $361,000 of its earnings for potential future expansion into other cities.

Which of the following is correct regarding the form for filing the annual Federal income tax return? Business entity form Tax form

A corporation may alternate between S corporation and C corporation status each year, depending on which results in more tax savings.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S: Corporations

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 13: Comparative Forms of Doing Business

What is the major pitfall associated with attempting to reduce and/or avoid double taxation by a corporation not making distributions to shareholders?

Shania, Taylor, and Kelly form a corporation with the following contributions.

Which of the following special allocations are mandatory for the partners in a partnership?

Eagle, Inc., a C corporation, distributes $250,000 to its shareholder, Jean, and land worth $250,000 (adjusted basis of $190,000) to its shareholder, Pam. Eagle has earnings and profits of $700,000. Determine the tax consequences to Eagle, Jean, and Pam.

If an S corporation distributes appreciated property as a dividend, it must recognize gain as to the appreciation.

Kirby, the sole shareholder of Falcon, Inc., leases a building to the corporation. The taxable income of the corporation for 2011, before deducting the lease payments, is projected to be $300,000.

Marsha is going to contribute the following assets to a business entity in exchange for an ownership interest. What are the tax consequences of the contribution to Marsha if the business entity is a(n):

If the amounts are reasonable, salary payments to shareholder-employees can reduce or avoid the double taxation result of a C corporation.

For a limited liability company with 100 owners,

Blue, Inc., has taxable income before salary payments to its president of $700,000 in 2011. Blue is in the 34% tax bracket, and the president is in the 35% tax bracket.

Factors that should be considered in making the S corporation election for the current tax year include the following:

Daisy, Inc., has taxable income of $850,000 during 2011, its first year of operations. Daisy distributes dividends of $200,000 to its 10 shareholders (i.e., $20,000 each). Daisy earmarks $361,000 of its earnings for potential future expansion into other cities.

Which of the following is correct regarding the form for filing the annual Federal income tax return? Business entity form Tax form

A corporation may alternate between S corporation and C corporation status each year, depending on which results in more tax savings.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operation, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

S: Corporations

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters