Exam 13: Comparative Forms of Doing Business

If a C corporation has earnings and profits at least equal to the amount of a distribution, the tax consequences to the shareholders are the same, regardless of whether the distribution is classified as a dividend or as a stock redemption.

Match the following statements:

C corporations and S corporations can generate an AMT adjustment known as Adjusted Current Earnings (ACE).

A limited liability company (LLC) can elect under the check-the-box rules to be taxed as an S corporation.

A corporation can avoid the accumulated earnings tax by demonstrating that it has plans to distribute earnings at a later date.

The AMT tax rate for a C corporation is less than the regular tax rate for C corporations.

In calculating the owner's initial basis for an ownership interest, which of the following business entity forms have a carryover basis and which have a stepped-up or stepped-down basis associated with its formation?

The accumulated earnings tax rate in 2011 is the same as the highest tax rate for a C corporation.

Section 1244 ordinary loss treatment is available to shareholders in a C corporation but not to those in an S corporation.

A business organized as a C corporation will always encounter lower tax rates than a business organized as a sole proprietorship or as a partnership.

Do the § 465 at-risk rules treat recourse debt and nonrecourse debt differently?

To which of the following entities does the AMT apply?

Obtaining a deduction on payments made by a C corporation to shareholders is a technique for reducing double taxation.

Walter wants to sell his wholly-owned C corporation, Cream, Inc. The fair market value of his stock exceeds the corporation's adjusted basis for the assets. Should Walter sell his stock or have Cream sell its assets and make a liquidating distribution to him?

The check-the-box Regulations have made it easier for a business entity to be classified as a partnership for Federal income tax purposes.

If the IRS reclassifies debt as equity under § 385, the repayment of the debt by the corporation to the shareholder automatically is treated as a dividend.

A limited liability company (LLC) is a hybrid business form that combines the corporate characteristic of limited liability for the owners with the tax characteristics of a partnership.

The special allocation opportunities that are available to partnerships are available to S corporations only if a majority of the corporate shareholders elect to do so.

A benefit of an S corporation when compared with a C corporation is that it is subject to Federal income tax only in limited circumstances.

Dave contributes land (adjusted basis of $30,000; fair market value of $100,000) to Tan, Inc., in exchange for all of its stock. The land is encumbered by a mortgage of $27,000 which Tan assumes. Since the transaction qualifies for nonrecognition treatment under § 351, Tan's adjusted basis for the land is $73,000 ($100,000 - $27,000) and Dave's adjusted basis for the stock is $3,000 ($30,000 - $27,000).