Question 1

The ACE adjustment associated with the C corporation AMT can be either positive or negative.

Accepted Answer

A) True 
 B)False

Question 2

Meg has an adjusted basis of $150,000 for her 40% ownership interest. During the year, the entity earns a profit of $100,000 and liabilities increased by $70,000. Determine Meg's adjusted basis for her ownership interest.
a. If the entity is a partnership.
b. If the entity is a C corporation.
c. If the entity is an S corporation.

Accepted Answer

Partnership C Corporation S Corporation

Question 3

Fred and Ella are going to establish a business. They expect the business to be very successful in the long-run, but project losses of approximately $100,000 for each of the first five years. Due to potential environmental concerns, limited liability is a requisite for the owners. Which form of business entity should they select?

Accepted Answer

A)  General partnership. 
B)  Limited partnership. 
C)  C corporation. 
D)  S corporation. 
E)  Any of the above should satisfy Fred and Ella. 
A)  General partnership. 
B)  Limited partnership. 
C)  C corporation. 
D)  S corporation. 
E)  Any of the above should satisfy Fred and Ella.

Question 4

Bev and Cabel each own one­half of the stock of Finch, Inc., an S corporation with no accumulated E & P. Bev's basis in the Finch stock is $225,000. Finch's taxable income for the current year is $100,000, and it distributes $180,000 to each shareholder. Bev's stock basis at the end of the year is:

Accepted Answer

A)  $0. 
B)  $45,000. 
C)  $95,000. 
D)  $100,000. 
E)  None of the above. 
A)  $0. 
B)  $45,000. 
C)  $95,000. 
D)  $100,000. 
E)  None of the above.

Question 5

Aubrey has been operating his business as a C corporation for the past 5 years. The corporation pays him a reasonable salary. The profits of the corporation, after paying Federal income tax, are distributed to him each year as a dividend. He is considering electing S status for his corporation in order to avoid double taxation. What factors should he consider assuming after-tax earnings will continue to be distributed to him?

Accepted Answer

Normally, one needs to consider the foll

Question 6

Trolette 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 C corporation and the transaction qualifies under § 351, the corporation's basis for the property and the shareholder's basis for the stock are:  
E) None of the above.

Accepted Answer

The answer of Trolette contributes property with an adjusted basis...

Question 7

Ralph wants to purchase either the stock or the assets of Red, Inc., a C corporation.
a. Under what circumstances would Ralph prefer to purchase the stock from the shareholders?
b. Under what circumstances would Ralph prefer to purchase the assets from the corporation?

Accepted Answer

. If the fair market value of the corpo

Question 8

What special adjustment is required in calculating the AMT of a C corporation that does not apply in calculating the AMT of an individual taxpayer?

Accepted Answer

In calculating the AMT of a C corporatio

Question 9

Arthur is the sole shareholder of Purple, Inc. Purple's taxable income before the payment of Arthur's salary is $300,000. Based on this information, Arthur has the corporation pay him a salary of $200,000 and a bonus of $100,000. A reasonable salary and bonus would be $175,000. Which of the following is correct?

Accepted Answer

A)  The taxable income of Purple, Inc., is $0 ($300,000 - $300,000 salary and bonus). 
B)  The taxable income of Purple, Inc., is $100,000 ($300,000 - $200,000). 
C)  Arthur has salary and bonus income of $300,000. 
D)  Arthur has salary and bonus income of $175,000 and dividend income of $125,000. 
E)  None of the above. 
A)  The taxable income of Purple, Inc., is $0 ($300,000 - $300,000 salary and bonus). 
B)  The taxable income of Purple, Inc., is $100,000 ($300,000 - $200,000). 
C)  Arthur has salary and bonus income of $300,000. 
D)  Arthur has salary and bonus income of $175,000 and dividend income of $125,000. 
E)  None of the above.

Question 10

For a limited liability company with 100 unrelated 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 11

Mr. and Ms. Smith's partnership owns the following assets:   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 12

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.

Accepted Answer

A) True 
 B)False

Question 13

Agnes owns a sole proprietorship for which the assets have appreciated in value. If she is going to sell the business to Abner, should she structure the sale as (1) a sale of the individual assets or (2) a sale of the sole proprietorship?

Accepted Answer

The form of the sale does not matter to

Question 14

Of the corporate types of entities, all are subject to double taxation on current earnings.

Accepted Answer

A) True 
 B)False

Question 15

S corporation status always avoids double taxation.

Accepted Answer

A) True 
 B)False

Question 16

A limited partner in a limited partnership has limited liability whereas a general partner in a limited partnership has unlimited liability unless the limited partners agree that the general partner will have limited liability.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Kirk is establishing a business in 2014 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 in 2013 and thereafter. Advise Kirk on which tax form he should select.

Accepted Answer

If the business operates as a C corporat

Question 19

Why are S corporations not subject to the accumulated earnings tax?

Accepted Answer

The purpose of the accumulated earnings

Question 20

Match the following statements:
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 20%.
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.
-Charitable contributions

Accepted Answer

The answer of Match the following statements:
a. For the corporate...

The ACE adjustment associated with the C corporation AMT can be either positive or negative.

Bev and Cabel each own onehalf of the stock of Finch, Inc., an S corporation with no accumulated E & P. Bev's basis in the Finch stock is $225,000. Finch's taxable income for the current year is $100,000, and it distributes $180,000 to each shareholder. Bev's stock basis at the end of the year is:

Ralph wants to purchase either the stock or the assets of Red, Inc., a C corporation. a. Under what circumstances would Ralph prefer to purchase the stock from the shareholders? b. Under what circumstances would Ralph prefer to purchase the assets from the corporation?

What special adjustment is required in calculating the AMT of a C corporation that does not apply in calculating the AMT of an individual taxpayer?

For a limited liability company with 100 unrelated owners:

Mr. and Ms. Smith's partnership owns the following assets: 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.

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.

Agnes owns a sole proprietorship for which the assets have appreciated in value. If she is going to sell the business to Abner, should she structure the sale as (1) a sale of the individual assets or (2) a sale of the sole proprietorship?

Of the corporate types of entities, all are subject to double taxation on current earnings.

S corporation status always avoids double taxation.

A limited partner in a limited partnership has limited liability whereas a general partner in a limited partnership has unlimited liability unless the limited partners agree that the general partner will have limited liability.

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

Why are S corporations not subject to the accumulated earnings tax?

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

The ACE adjustment associated with the C corporation AMT can be either positive or negative.

Ralph wants to purchase either the stock or the assets of Red, Inc., a C corporation. a. Under what circumstances would Ralph prefer to purchase the stock from the shareholders? b. Under what circumstances would Ralph prefer to purchase the assets from the corporation?

What special adjustment is required in calculating the AMT of a C corporation that does not apply in calculating the AMT of an individual taxpayer?

For a limited liability company with 100 unrelated owners:

Mr. and Ms. Smith's partnership owns the following assets: 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.

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.

Agnes owns a sole proprietorship for which the assets have appreciated in value. If she is going to sell the business to Abner, should she structure the sale as (1) a sale of the individual assets or (2) a sale of the sole proprietorship?

Of the corporate types of entities, all are subject to double taxation on current earnings.

S corporation status always avoids double taxation.

A limited partner in a limited partnership has limited liability whereas a general partner in a limited partnership has unlimited liability unless the limited partners agree that the general partner will have limited liability.

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

Why are S corporations not subject to the accumulated earnings tax?

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