Question 1

How can double taxation be avoided or reduced by owning assets outside a C corporation?

Accepted Answer

The answer of How can double taxation be avoided or...

Question 2

Albert's sole proprietorship owns the following assets:  * Potential § 1245 recapture of $45,000.
** Straight-line depreciation was used.
Albert sells his sole proprietorship for $500,000. Calculate Albert's recognized gain or loss and classify it as capital or ordinary.

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.

Question 3

Devon owns 40% of the Agate Company for which his basis is $300,000. He sells one-fourth of his ownership interest to Bernice for $100,000. Which of the following statements is correct?

Accepted Answer

A)  If Agate is an S corporation, Devon has a recognized gain of $25,000, some of which may be capital and some of which may be ordinary income. 
B)  If Agate is a C corporation, Devon has a recognized capital gain of $25,000. 
C)  If Agate is a partnership, Devon has a recognized capital gain of $25,000. 
D)  Only b. and c. are correct. 
E)  a., b., and c. are correct.

Question 4

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.

Question 5

Which of the following statements regarding the accumulated earnings tax is correct in 2011?

Accepted Answer

A)  If Blue, Inc.'s accumulated taxable income for 2011 is $180,000, the calculated accumulated earnings tax liability would be $53,450 [($50,000 ´ 15%) + ($25,000 ´ 25%) + ($25,000 ´ 34%) + ($80,000 ´ 39%)]. 
B)  Blue, Inc., calculates accumulated taxable income for 2011 of $100,000. Therefore, it should increase the amount paid to the IRS for 2011 by $15,000 ($100,000 ´ 15%). 
C)  The accumulated earnings tax applies to C corporations, but applies to S corporations at only the shareholder level. 
D)  The tax rate for the accumulated earnings tax of 35% is the same as the highest tax bracket for the corporate taxpayer. 
E)  None of the above.

Question 6

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 answer of Agnes owns a sole proprietorship for which...

Question 7

Roger owns 40% of the stock of Silver, Inc. (adjusted basis of $500,000). Silver redeems 75% of his shares for $650,000. If the stock redemption qualifies for return of capital treatment, Roger's recognized gain is $150,000.

Accepted Answer

A) True 
 B)False

Question 8

If an individual contributes an appreciated personal use asset to a C corporation in a transaction which qualifies for nonrecognition treatment under § 351, the corporation's basis in the asset is the same as was the shareholder's adjusted basis.

Accepted Answer

A) True 
 B)False

Question 9

The tax treatment of S corporation shareholders with respect to fringe benefits is not the same as the tax treatment for C corporation shareholders but is the same as the fringe benefit treatment for partners.

Accepted Answer

A) True 
 B)False

Question 10

Aaron purchases a building for $500,000 which is going to be used by his wholly-owned corporation. Which of the following statements are correct?

Accepted Answer

A)  If Aaron contributes the building to the corporation, there will be no recognition under § 351 and a carryover basis of $500,000. 
B)  If Aaron leases the building to the corporation, lease-rental payments of $30,000 per year to Aaron will result in a $30,000 deduction for the corporation. 
C)  If Aaron leases the building to the corporation, lease-rental payments of $30,000 per year to Aaron will result in $30,000 of gross income for Aaron. 
D)  Leasing the building to the corporation will contribute to the tax avoidance objective of minimizing double taxation. 
E)  All of the above are correct.

Question 11

Each of the following can pass profits and losses through to the owners: general partnership, limited partnership, S corporation, and limited liability company.

Accepted Answer

A) True 
 B)False

Question 12

Lee owns all the stock of Vireo, Inc., a C corporation for which he has an adjusted basis of $150,000. The assets of Vireo, Inc., are as follows:
  Lee sells his stock to Katrina for $200,000.

Accepted Answer

The answer of Lee owns all the stock of Vireo,...

Question 13

Do the § 465 at-risk rules apply to partnerships, LLCs, and S corporations?

Accepted Answer

The answer of Do the § 465 at-risk rules apply...

Question 14

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 20%. 
D)  Only a. and b. are correct. 
E)  a., b., and c. are correct.

Question 15

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.

Question 16

It is easier to satisfy the § 721 requirements for the nonrecognition of gain or loss on partner contributions than it is to satisfy the § 351 requirements for the nonrecognition of gain or loss on shareholder contributions.

Accepted Answer

A) True 
 B)False

Question 17

An effective way for all C corporations to avoid double taxation is not to make dividend distributions.

Accepted Answer

A) True 
 B)False

Question 18

Robin Company has $100,000 of income before payment of $100,000 of reasonable salaries to its owners/employees (who are in the 33% bracket). Which form of business results in the least amount of combined tax being paid by the company and its owners?

Accepted Answer

A)  Partnership. 
B)  C corporation. 
C)  S corporation. 
D)  a., b., and c. all result in the same amount of tax. 
E)  a. and c. result in the least amount of tax.

Question 19

With respect to special allocations, is the S corporation treated more like a partnership or a C corporation?

Accepted Answer

The answer of With respect to special allocations, is the...

Question 20

A major benefit of the S corporation election is the general avoidance of double taxation.

Accepted Answer

A) True 
 B)False

Exam 13: Comparative Forms of Doing Business

How can double taxation be avoided or reduced by owning assets outside a C corporation?

Albert's sole proprietorship owns the following assets: * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used. Albert sells his sole proprietorship for $500,000. Calculate Albert's recognized gain or loss and classify it as capital or ordinary.

Devon owns 40% of the Agate Company for which his basis is $300,000. He sells one-fourth of his ownership interest to Bernice for $100,000. Which of the following statements is correct?

Which of the following statements regarding the accumulated earnings tax is correct in 2011?

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?

Roger owns 40% of the stock of Silver, Inc. (adjusted basis of $500,000). Silver redeems 75% of his shares for $650,000. If the stock redemption qualifies for return of capital treatment, Roger's recognized gain is $150,000.

If an individual contributes an appreciated personal use asset to a C corporation in a transaction which qualifies for nonrecognition treatment under § 351, the corporation's basis in the asset is the same as was the shareholder's adjusted basis.

The tax treatment of S corporation shareholders with respect to fringe benefits is not the same as the tax treatment for C corporation shareholders but is the same as the fringe benefit treatment for partners.

Aaron purchases a building for $500,000 which is going to be used by his wholly-owned corporation. Which of the following statements are correct?

Each of the following can pass profits and losses through to the owners: general partnership, limited partnership, S corporation, and limited liability company.

Lee owns all the stock of Vireo, Inc., a C corporation for which he has an adjusted basis of $150,000. The assets of Vireo, Inc., are as follows: Lee sells his stock to Katrina for $200,000.

Do the § 465 at-risk rules apply to partnerships, LLCs, and S corporations?

Which of the following statements is correct?

Nontax factors that affect the choice of business entity include:

It is easier to satisfy the § 721 requirements for the nonrecognition of gain or loss on partner contributions than it is to satisfy the § 351 requirements for the nonrecognition of gain or loss on shareholder contributions.

An effective way for all C corporations to avoid double taxation is not to make dividend distributions.

Robin Company has $100,000 of income before payment of $100,000 of reasonable salaries to its owners/employees (who are in the 33% bracket) . Which form of business results in the least amount of combined tax being paid by the company and its owners?

With respect to special allocations, is the S corporation treated more like a partnership or a C corporation?

A major benefit of the S corporation election is the general avoidance of double taxation.