Question 1

Nontax factors that affect the choice of business entity include:

Accepted Answer

A) Ease of capital formation. 
B) Limited liability. 
C) Single versus double taxation. 
D) Only a.and b. 
E) a. ,b. ,and c. 
A) Ease of capital formation. 
B) Limited liability. 
C) Single versus double taxation. 
D) Only a.and b. 
E) a. ,b. ,and c.

Question 2

A shareholder's basis in the stock of an S corporation is increased by corporate profits and decreased by losses.

Accepted Answer

A) True 
 B)False

Question 3

Wally contributes land (adjusted basis of $30,000;fair market value of $100,000)to an S corporation in a transaction which qualifies under § 351.The corporation subsequently sells the land for $120,000,recognizing a gain of $90,000 ($120,000 - $30,000).If Wally owns 30% of the stock,$76,000 [$70,000 + 30%($20,000)] of the $90,000 recognized gain is allocated to Wally.

Accepted Answer

A) True 
 B)False

Question 4

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 5

A limited liability company (LLC)cannot elect under the check-the-box rules to be taxed as an S corporation.

Accepted Answer

A) True 
 B)False

Question 6

In the sale of a partnership,does the way the sale is structured (i.e. ,sale of the partnership interests versus the sale of the assets)produce different tax consequences?

Accepted Answer

The sale of the assets is treated as the

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

Techniques that can be used to minimize the current period tax liability include:

Accepted Answer

A) Recognizing the interaction between the regular income tax liability and the alternative minimum tax liability. 
B) Utilization of special allocations. 
C) Favorable treatment of certain fringe benefits. 
D) Minimizing double taxation. 
E) All of the above. 
A) Recognizing the interaction between the regular income tax liability and the alternative minimum tax liability. 
B) Utilization of special allocations. 
C) Favorable treatment of certain fringe benefits. 
D) Minimizing double taxation. 
E) All of the above.

Question 9

Which of the following statements is correct?

Accepted Answer

A) The AMT applies to both the individual taxpayer and the C corporation. 
B) The individual AMT rates are 26% and 28%. 
C) The C corporation AMT rate is 25%. 
D) Only a.and b.are correct. 
E) a. ,b. ,and c.are correct. 
A) The AMT applies to both the individual taxpayer and the C corporation. 
B) The individual AMT rates are 26% and 28%. 
C) The C corporation AMT rate is 25%. 
D) Only a.and b.are correct. 
E) a. ,b. ,and c.are correct.

Question 10

Tonya contributes $150,000 to Swan,Inc. ,for 80% of the stock.In addition,she loans Swan $600,000.The maturity date on the loan is 5 years and the interest rate is 6%,the same as the Federal rate.Which of the following statements are correct?

Accepted Answer

A) If the loan is reclassified as equity under § 385,Swan qualifies for a deduction of $600,000 when the loan is repaid,and Tonya receives dividend income of $600,000 (assuming that Swan's earnings and profits are at least $600,000). 
B) If the loan is not reclassified as equity under § 385,Swan can deduct interest expense annually of $36,000,and Tonya includes in gross income annually interest income of $36,000. 
C) If the loan is reclassified as equity under § 385,Swan claims no interest deduction,and Tonya recognizes no income. 
D) Only a.and b. 
E) a. ,b. ,and c. 
A) If the loan is reclassified as equity under § 385,Swan qualifies for a deduction of $600,000 when the loan is repaid,and Tonya receives dividend income of $600,000 (assuming that Swan's earnings and profits are at least $600,000). 
B) If the loan is not reclassified as equity under § 385,Swan can deduct interest expense annually of $36,000,and Tonya includes in gross income annually interest income of $36,000. 
C) If the loan is reclassified as equity under § 385,Swan claims no interest deduction,and Tonya recognizes no income. 
D) Only a.and b. 
E) a. ,b. ,and c.

Question 11

A business entity has appreciated land (basis of $50,000 and fair market value of $75,000)which it is going to distribute to Craig,one of its owners.The entity has earned substantial profits during its 15 years of operations and has reinvested most of them in the business.What are the tax consequences of the distribution to the business entity and to Craig if the business entity is a(n):

Accepted Answer

The answer of A business entity has appreciated land (basis...

Question 12

Melanie and Sonny form Bird Enterprises.Sonny contributes cash of $100,000 and land worth $50,000 (adjusted basis of $30,000).Melanie contributes land and building worth $280,000 (adjusted basis of $200,000)and performs services worth $20,000 associated with the formation of the entity.Melanie receives a two-thirds ownership interest and Sonny receives a one-third ownership interest.Determine the tax consequences of the contributions to Melanie,Sonny,and Bird if the business is:

Accepted Answer

The answer of Melanie and Sonny form Bird Enterprises.Sonny contributes...

Question 13

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 14

An S corporation has a lesser degree of limited liability than a C corporation.

Accepted Answer

A) True 
 B)False

Question 15

The accumulated earnings tax rate in 2012 is greater than the highest tax rate for a C corporation.

Accepted Answer

A) True 
 B)False

Question 16

Amber,Inc. ,has taxable income of $212,000.In addition,Amber accumulates the following information which may affect its AMT.   What is Amber's AMTI?

Accepted Answer

A) $212,000. 
B) $233,000. 
C) $238,000. 
D) $249,000. 
E) None of the above 
A) $212,000. 
B) $233,000. 
C) $238,000. 
D) $249,000. 
E) None of the above

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Blue,Inc. ,has taxable income before salary payments to its president of $700,000 in 2012.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 payments...

Question 19

Catfish,Inc. ,a closely held corporation which is not a PSC,owns a 45% interest in Trout Partnership,which is classified as a passive activity.Trout's taxable loss for the current year is $250,000.During the year,Catfish receives a $60,000 cash distribution from Trout.Other relevant data for Catfish are as follows:   How much of Catfish's share of Trout's loss may it deduct in calculating its taxable income?

Accepted Answer

A) $0. 
B) $20,000. 
C) $45,000. 
D) $112,500. 
E) None of the above. 
A) $0. 
B) $20,000. 
C) $45,000. 
D) $112,500. 
E) None of the above.

Question 20

Actual dividends paid to shareholders result in double taxation.However,deemed dividends (e.g. ,free use of corporate assets by a shareholder)do not result in double taxation.

Accepted Answer

A) True 
 B)False

Nontax factors that affect the choice of business entity include:

A shareholder's basis in the stock of an S corporation is increased by corporate profits and decreased by losses.

A limited liability company (LLC)cannot elect under the check-the-box rules to be taxed as an S corporation.

In the sale of a partnership,does the way the sale is structured (i.e. ,sale of the partnership interests versus the sale of the assets)produce different tax consequences?

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.

Techniques that can be used to minimize the current period tax liability include:

Which of the following statements is correct?

Tonya contributes $150,000 to Swan,Inc. ,for 80% of the stock.In addition,she loans Swan $600,000.The maturity date on the loan is 5 years and the interest rate is 6%,the same as the Federal rate.Which of the following statements are correct?

An S corporation has a lesser degree of limited liability than a C corporation.

The accumulated earnings tax rate in 2012 is greater than the highest tax rate for a C corporation.

Amber,Inc. ,has taxable income of $212,000.In addition,Amber accumulates the following information which may affect its AMT. What is Amber's AMTI?

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

Blue,Inc. ,has taxable income before salary payments to its president of $700,000 in 2012.Blue is in the 34% tax bracket,and the president is in the 35% tax bracket.

Actual dividends paid to shareholders result in double taxation.However,deemed dividends (e.g. ,free use of corporate assets by a shareholder)do not result in double taxation.

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

Nontax factors that affect the choice of business entity include:

A shareholder's basis in the stock of an S corporation is increased by corporate profits and decreased by losses.

A limited liability company (LLC)cannot elect under the check-the-box rules to be taxed as an S corporation.

In the sale of a partnership,does the way the sale is structured (i.e. ,sale of the partnership interests versus the sale of the assets)produce different tax consequences?

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.

Techniques that can be used to minimize the current period tax liability include:

Which of the following statements is correct?

Tonya contributes $150,000 to Swan,Inc. ,for 80% of the stock.In addition,she loans Swan $600,000.The maturity date on the loan is 5 years and the interest rate is 6%,the same as the Federal rate.Which of the following statements are correct?

An S corporation has a lesser degree of limited liability than a C corporation.

The accumulated earnings tax rate in 2012 is greater than the highest tax rate for a C corporation.

Amber,Inc. ,has taxable income of $212,000.In addition,Amber accumulates the following information which may affect its AMT. What is Amber's AMTI?

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

Blue,Inc. ,has taxable income before salary payments to its president of $700,000 in 2012.Blue is in the 34% tax bracket,and the president is in the 35% tax bracket.

Actual dividends paid to shareholders result in double taxation.However,deemed dividends (e.g. ,free use of corporate assets by a shareholder)do not result in double taxation.

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