Law question data bank Law question data bank Question 1394. TF #1 A business entity is not always taxed the same way as its legal form. a. True b. False Save your time! Proper editing and formatting Free revision, title page, and bibliography Flexible prices and money-back guarantee ORDER NOW 1395. TF #2 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. a. True b. False Make sure you submit a unique essay Our writers will provide you with an essay sample written from scratch: any topic, any deadline, any instructions. 100% ORIGINAL ORDER NOW 1396. TF #3 The check-the-box Regulations have made it easier for a business entity to be classified as a partnership for Federal income tax purposes. a. True b. False 1397. TF #4 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. a. True b. False 1398. TF #5 A limited liability company (LLC) can elect under the check-the-box rules to be taxed as an S corporation. a. True b. False 1399. TF #6 Depending on the election made under the check-the-box provisions, a limited liability company (LLC) with two or more owners might have to file a Form 1065 or a Form 1120. a. True b. False 1400. TF #7 Each of the following can pass profits and losses through to the owners: general partnership, limited partnership, S corporation, and limited liability company. a. True b. False 1401. TF #8 Nontax factors are less important than tax factors in making a business decision. a. True b. False 1402. TF #9 The § 465 at-risk provision and the § 469 passive activity loss provision have decreased the tax attractiveness of investments in real estate for partnerships and for limited liability companies. a. True b. False 1403. TF #10 A C corporation offers greater flexibility in terms of the types of owners and capital structure than an S corporation. a. True b. False 1404. TF #11 An S corporation has a lesser degree of limited liability than a C corporation. a. True b. False 1405. TF #12 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. a. True b. False 1406. TF #13 A limited partnership can indirectly avoid unlimited liability of the general partner if the general partner is a corporation. a. True b. False 1407. TF #14 C corporations and their shareholders are subject to double taxation. S corporations and their shareholders typically are subject to single taxation. Therefore, for any given amount of corporate taxable income, the combined tax liability of a C corporation and its shareholders will exceed that of an S corporation and its shareholders. a. True b. False 1408. TF #15 Lime, Inc., has taxable income of $330,000. If Lime is a C corporation, its tax liability must be either $111,950 [($50,000 ´ 15%) + ($25,000 ´ 25%) + ($25,000 ´ 34%) + ($230,000 ´ 39%)] or $115,500. a. True b. False 1409. TF #16 A major benefit of the S corporation election is the general avoidance of double taxation. a. True b. False 1410. TF #17 Obtaining a deduction on payments made by a C corporation to shareholders is a technique for reducing double taxation. a. True b. False 1411. TF #18 A corporation may alternate between S corporation and C corporation status each year, depending on which results in more tax savings. a. True b. False 1412. TF #19 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. a. True b. False 1413. TF #20 When a C corporation is classified as a small corporation for AMT purposes, both the corporation and its shareholders are exempt from the AMT. a. True b. False 1414. TF #21 An S corporation is notsubject to the AMT, but its shareholders are in that the S corporation’s AMT adjustments and preferences are passed through to them. a. True b. False 1415. TF #22 The AMT statutory rate for C corporations and for S corporation shareholders on the AMT base is 20%. a. True b. False 1416. TF #23 The AMT tax rate for a C corporation is less than the regular tax rate for C corporations. a. True b. False 1417. TF #24 C corporations and S corporations can generate an AMT adjustment known as Adjusted Current Earnings (ACE). a. True b. False 1418. TF #25 The ACE adjustment associated with the C corporation AMT can only be positive. a. True b. False 1419. TF #26 An S corporation election for Federal income tax purposes also is effective for all states’ income tax purposes. a. True b. False 1420. TF #27 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. a. True b. False 1421. TF #28 Some fringe benefits always provide a deduction for the employer and are always excluded from the gross income of the employee. a. True b. False 1422. TF #29 Of the corporate types of entities, all are subject to double taxation on current earnings. a. True b. False 1423. TF #30 If the amounts are reasonable, salary payments to shareholder-employees can reduce or avoid the double taxation result of a C corporation. a. True b. False 1424. TF #31 If lease rental payments to a noncorporate shareholder-lessor are classified as unreasonable, the taxable income of a C corporation remains the same and the gross income of the shareholder increases. a. True b. False 1425. TF #32 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. True b. False 1426. TF #33 Actual dividends paid to shareholders result in double taxation. Likewise, deemed dividends (e.g., free use of corporate assets by a shareholder) result in double taxation. a. True b. False 1427. TF #34 An effective way for all C corporations to avoid double taxation is not to make dividend distributions. a. True b. False 1428. TF #35 The accumulated earnings tax rate in 2011 is the same as the highest tax rate for a C corporation. a. True b. False 1429. TF #36 A corporation can avoid the accumulated earnings tax by demonstrating that it has plans to distribute earnings at a later date. a. True b. False 1430. TF #37 Only C corporations are subject to the accumulated earnings tax (i.e., S corporations are not). a. True b. False 1431. TF #38 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. a. True b. False 1432. TF #39 In its first year of operations, a corporation projects losses of $200,000. Since losses are involved, the corporation definitely should elect S corporation status. a. True b. False 1433. TF #40 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). a. True b. False 1434. TF #41 Amos contributes land with an adjusted basis of $70,000 and a fair market value of $100,000 to White, Inc., an S corporation, in exchange for 50% of the stock of White, Inc. Carol contributes cash of $100,000 for the other 50% of the stock. If White later sells the land for $110,000, $35,000 [$30,000 + 50%($10,000)] is allocated to Amos and $5,000 ($10,000 ´ 50%) is allocated to Carol. a. True b. False 1435. TF #42 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. a. True b. False 1436. TF #43 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. a. True b. False 1437. TF #44 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. a. True b. False 1438. TF #45 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. a. True b. False 1439. TF #46 The profits of a business owned by Taylor (60%) and Maggie (40%) for the current tax year are $100,000. If the business is a C corporation or an S corporation, there is no effect on Taylor’s basis in her stock. If the business is a partnership or an LLC, Taylor’s basis in her partnership interest or basis in her stock is increased by $60,000. a. True b. False 1440. TF #47 Carol is a 60% owner of a business entity and has an adjusted basis in such interest of $60,000. For the current tax year, the entity has profits of $50,000. If the entity is a C corporation, the corporate profits have no effect on Carol’s basis in her stock. However, if the entity is an S corporation, Carol’s basis increases to $90,000 [$60,000 + (60% ´ $50,000)]. a. True b. False 1441. TF #48 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. a. True b. False 1442. TF #49 If an S corporation distributes appreciated property as a dividend, it must recognize gain as to the appreciation. a. True b. False 1443. TF #50 Samantha’s basis for her partnership interest is $85,000. If she receives a cash distribution of $95,000, her recognized gain is $10,000 and her basis for her partnership interest is reduced to $0. Samantha is still a partner after the distribution. a. True b. False 1444. TF #51 Personal service corporations can offset passive activity losses against active income, but not against portfolio income. a. True b. False 1445. TF #52 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. True b. False 1446. TF #53 From the perspective of the seller of a C corporation business whose assets have appreciated, the seller prefers to sell the assets. a. True b. False 1447. TF #54 Mercedes owns a 40% interest in Teal Partnership (basis of $35,000) which she sells to Eric for $60,000. Mercedes’ recognized gain of $25,000 will be classified as capital gain. a. True b. False 1448. TF #55 Section 1244 ordinary loss treatment is available to shareholders in a C corporation but not to those in an S corporation. a. True b. False