Question 1

Included among the factors that influence the choice of the form of a business entity are the following:
Evaluate the validity of the statement.

Accepted Answer

All of these factors...

Question 2

To the extent of built-in gain or built-in loss at the time of contribution, partnerships may choose to allocate or not allocate this built-in gain or loss to the contributing partner on the sale of the contributed property by the partnership.

Accepted Answer

A) True 
 B)False

Question 3

Match the following statements:
-Alternative minimum tax

Accepted Answer

A)  Transaction in this form enables double taxation to be avoided.
B)  Gain or loss is calculated separately for each asset and is subject to single taxation.
C)  Subject to double taxation.
D)  The sale is treated as the sale of a capital asset under § 741 subject to ordinary income potential under § 751.
E)  Not subject to double taxation on the sale of corporate stock.F) A) and D)
G) C) and D)

Question 4

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 partnership assets) produce different tax consequences for the sellers?

Accepted Answer

The sale of the partnership assets is tr...

Question 5

Melinda's basis for her partnership interest is $250,000. If she receives a cash distribution of $290,000, her recognized gain is $40,000 and her basis for her partnership interest is reduced to $0. Melinda is still a partner after the distribution.

Accepted Answer

A) True 
 B)False  True

Question 6

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 following factors:
  An analysis of Aubrey's situation indicates that none of the above factors should deter him from electing S status for his corporation. A factor normally considered that is not present for Aubrey is the existence of NOLs for the C corporation. An S corporation cannot offset C corporation NOLs against S corporation profits [except for the built-in-gains tax (§ 1374) and the passive investment income tax (§ 1375)], but the 20-year time period does run.
Another benefit of electing S corporation status is that the corporation is not subject to the Accumulated Earnings Tax or Personal Holding Company Tax.

Question 7

Match the following:
-C corporation

Accepted Answer

A)  Contribution of appreciated property to the business entity by an owner is never subject to taxation.
B)  Realized gains on the contribution of appreciated property to the entity are not recognized by the contributor when an 80% control requirement is satisfied.
C)  Realized losses on the contribution of loss property to the entity are never recognized by the contributor.
D)  Realized losses on the contribution of loss property to the entity are recognized by the contributor unless an 80% control requirement is satisfied.
E)  Basis of ownership interest to the owner is dependent on whether gain or loss is recognized to the owner on the contribution of assets to the business entity.F) C) and D)
G) All of the above B

Question 8

Malcomb and Sandra (shareholders)  each loan Crow Corporation $50,000 at the market rate of 6% interest. Which of the following statements are false?

Accepted Answer

A)  Crow may deduct the interest expense, and the interest income is taxable to Malcomb and Sandra.
B)  When the note principal is repaid, neither Malcomb nor Sandra recognizes gross income from the repayment.
C)  If the IRS were successful in reclassifying the notes as equity, the interest payments would not be deductible by Crow, and Malcomb and Sandra would still recognize income.
D)  If the IRS were successful in reclassifying the notes as equity, repayment of the note principal to Malcomb and Sandra would not qualify for return of capital treatment and would most likely result in dividend income treatment for Malcomb and Sandra.
E)  All of the above are true.F) C) and D)
G) A) and E)

Question 9

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 10

To which of the following entities does the AMT apply?

Accepted Answer

The AMT applies directly to a sole propr...

Question 11

A C corporation offers greater flexibility in terms of the types of owners and capital structure than an S corporation.

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following are "reasonable needs" that will help a corporation in avoiding the accumulated earnings tax?

Accepted Answer

A)  The corporation is opening locations in neighboring cities.
B)  Funds are used to make a loan to a major shareholder.
C)  The corporation uses funds for the redemption of the stock of a disgruntled shareholder.
D)  Not making distributions helps to minimize the combined shareholder/corporation tax liabilities.
E)  All of the above.F) D) and E)
G) C) and E)

Question 14

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 15

Mercedes owns a 30% interest in Magenta Partnership (basis of $52,000) which she sells to Calvin for $65,000. Mercedes' recognized gain of $13,000 will be classified as capital gain.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Doris is going to invest $90,000 in a business entity. She will manage the business entity. Her projected share of the loss for the first year is $36,000. Doris' marginal tax rate is 33%. Determine the cash flow benefit of the loss to Doris if the business form is:
a.A general partnership.
b.An S corporation.
c.An LLC.
d.A C corporation.

Accepted Answer

The answer of Doris is going to invest $90,000 in...

Question 18

The corporation has a greater potential for raising capital than does the partnership.

Accepted Answer

A) True 
 B)False

Question 19

Match the following statements:
-Charitable contributions

Accepted Answer

A)  Transaction in this form enables double taxation to be avoided.
B)  Gain or loss is calculated separately for each asset and is subject to single taxation.
C)  Subject to double taxation.
D)  The sale is treated as the sale of a capital asset under § 741 subject to ordinary income potential under § 751.
E)  Not subject to double taxation on the sale of corporate stock.F) B) and E)
G) A) and C)

Question 20

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.F) A) and E)
G) C) and D)

Exam 18: Comparative Forms of Doing Business

Included among the factors that influence the choice of the form of a business entity are the following: Evaluate the validity of the statement.

Correct Answer
verified
All of these factors...
View Answer

To the extent of built-in gain or built-in loss at the time of contribution, partnerships may choose to allocate or not allocate this built-in gain or loss to the contributing partner on the sale of the contributed property by the partnership.

Correct Answer
verified

Match the following statements: -Alternative minimum tax

Correct Answer
verified

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 partnership assets) produce different tax consequences for the sellers?

Correct Answer
verified
The sale of the partnership assets is tr...
View Answer

Melinda's basis for her partnership interest is $250,000. If she receives a cash distribution of $290,000, her recognized gain is $40,000 and her basis for her partnership interest is reduced to $0. Melinda is still a partner after the distribution.

Correct Answer
verified
True

Match the following: -C corporation

Correct Answer
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B

Malcomb and Sandra (shareholders) each loan Crow Corporation $50,000 at the market rate of 6% interest. Which of the following statements are false?

Correct Answer
verified

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.

Correct Answer
verified

To which of the following entities does the AMT apply?

Correct Answer
verified
The AMT applies directly to a sole propr...
View Answer

A C corporation offers greater flexibility in terms of the types of owners and capital structure than an S corporation.

Correct Answer
verified

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.

Correct Answer
verified

Which of the following are "reasonable needs" that will help a corporation in avoiding the accumulated earnings tax?

Correct Answer
verified

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

Correct Answer
verified

Mercedes owns a 30% interest in Magenta Partnership (basis of $52,000) which she sells to Calvin for $65,000. Mercedes' recognized gain of $13,000 will be classified as capital gain.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
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The corporation has a greater potential for raising capital than does the partnership.

Correct Answer
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Match the following statements: -Charitable contributions

Correct Answer
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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?

Correct Answer
verified

Exam 18: Comparative Forms of Doing Business

Included among the factors that influence the choice of the form of a business entity are the following: Evaluate the validity of the statement.

Correct AnswerverifiedAll of these factors...View AnswerShow Answer

To the extent of built-in gain or built-in loss at the time of contribution, partnerships may choose to allocate or not allocate this built-in gain or loss to the contributing partner on the sale of the contributed property by the partnership.

Correct AnswerverifiedShow Answer

Match the following statements: -Alternative minimum tax

Correct AnswerverifiedShow Answer

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 partnership assets) produce different tax consequences for the sellers?

Correct AnswerverifiedThe sale of the partnership assets is tr...View AnswerShow Answer

Melinda's basis for her partnership interest is $250,000. If she receives a cash distribution of $290,000, her recognized gain is $40,000 and her basis for her partnership interest is reduced to $0. Melinda is still a partner after the distribution.

Correct AnswerverifiedTrue

Match the following: -C corporation

Correct AnswerverifiedB

Malcomb and Sandra (shareholders) each loan Crow Corporation $50,000 at the market rate of 6% interest. Which of the following statements are false?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

To which of the following entities does the AMT apply?

Correct AnswerverifiedThe AMT applies directly to a sole propr...View AnswerShow Answer

A C corporation offers greater flexibility in terms of the types of owners and capital structure than an S corporation.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Which of the following are "reasonable needs" that will help a corporation in avoiding the accumulated earnings tax?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Mercedes owns a 30% interest in Magenta Partnership (basis of $52,000) which she sells to Calvin for $65,000. Mercedes' recognized gain of $13,000 will be classified as capital gain.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The corporation has a greater potential for raising capital than does the partnership.

Correct AnswerverifiedShow Answer

Match the following statements: -Charitable contributions

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct Answer
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All of these factors...
View Answer

Correct Answer
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Correct Answer
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The sale of the partnership assets is tr...
View Answer

Correct Answer
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True

Correct Answer
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B

Correct Answer
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Correct Answer
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Correct Answer
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The AMT applies directly to a sole propr...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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