Question 1

Income of a C corporation is subject to an initial tax at the corporate level and the shareholders are subject to a second tax if the corporation pays dividends from its earnings and profits.

Accepted Answer

This is true. C corporations are subject to corporate income tax on their profits, and if they distribute those profits as dividends to shareholders, those dividends are also subject to individual income tax. This is commonly referred to as "double taxation."

Question 2

Except for certain lines of business such as farming, C corporations can choose between the cash method and accrual method of accounting.

Accepted Answer

The answer of Except for certain lines of business such...

Question 3

Dori and Matt will be equal owners of a new business and will be making cash contributions to start up the business. They expect substantial losses in the early years so the business will take out a loan from the bank which Dori and Matt will have to guarantee. For tax purposes, the preferred business form for these early years will be

Accepted Answer

An LLC taxed as a partnership allows Dori and Matt to pass through the substantial losses to their personal tax returns, potentially offsetting other income. This is beneficial in the early years when losses are expected.

Question 4

Discuss whether a C corporation, a partnership, or an S corporation form of organization would be preferred if net operating losses are anticipated in the initial years of operation.

Accepted Answer

The answer of Discuss whether a C corporation, a partnership,...

Question 5

New business owners expecting losses in the early years will generally prefer the partnership (or LLC) form of business over the C and S corporation forms.

Accepted Answer

Partnerships and LLCs offer flexibility in tax reporting and allow for losses to be passed through to the owners to offset other income. C and S corporations have more strict tax rules and may not be as beneficial for businesses experiencing losses in their early years.

Question 6

Corporations may be taxed on less than 100% of dividends received due to the dividends- received deduction, while individuals are taxed on all of their dividend income.

Accepted Answer

This is true. Corporations are allowed to deduct a portion of the dividends they receive from other corporations, while individuals do not have this deduction.

Question 7

Discuss whether a C corporation or a pass- through entity form of organization would be preferred if taxable income is anticipated to be earned by the business.

Accepted Answer

The answer of Discuss whether a C corporation or a...

Question 8

For each of the following independent cases below, indicate whether the entity will be taxed as an S corporation corporation for the respective period.
a. Richards Corporation, uses the calendar year as its tax year. It files an S election on March 31, 2018. If no reas cause is shown, how will Richards Corporation be treated for tax purposes in 2018?
b. Shareholders owning more than 50% of the stock of Harper Corporation, a qualifying calendar- year S corporation, consent to a voluntary revocation statement filed by the corporation on March 12, 2018. How will H Corporation be treated for tax purposes in 2018?
c. Shareholders owning more than 50% of the stock of Hazelwood Corporation, a qualifying calendar- year S corporation, consent to a voluntary revocation statement filed by the corporation on March 12, 2018. The prospec termination date is July 1, 2018. How will Hazelwood Corporation be treated for tax purposes in 2018?
d. One of the shareholders of Omni Corporation, a calendar- year S corporation, sells his stock to a Canadian individual on July 8, 2018.

Accepted Answer

The answer of For each of the following independent cases...

Question 9

Discuss how the partnership form of organization or the S corporation form may be used to shift income.

Accepted Answer

The answer of Discuss how the partnership form of organization...

Question 10

Which of the following statements is correct, assuming that an extension is not requested?

Accepted Answer

A partnership must file Form 1065 by the 15th day of the third month after the close of the partnership's tax year.

Question 11

Partnerships, limited liability partnerships, limited liability companies, and C corporations are considered flow- through entities for tax purposes.

Accepted Answer

The answer of Partnerships, limited liability partnerships, limited liability companies,...

Question 12

Corporations must divide their deductions between deductions for and deductions from AGI.

Accepted Answer

The answer of Corporations must divide their deductions between deductions...

Question 13

Realto LLC is a tax partnership which has four equal partners. The LLC holds highly appreciated real estate in midtown Manhattan. Trina is about to purchase a 20% ownership interest in the LLC. To minimize her future tax burden as a partner, she should negotiate a Sec. 754 election with the current partners.

Accepted Answer

By negotiating a Sec. 754 election with the current partners, Trina will be able to receive a stepped-up basis in her share of the LLC's assets, which will reduce her future tax burden. Without a Sec. 754 election, Trina would only receive a proportional share of the LLC's existing basis in its assets, which could cause her to pay higher taxes in the future if the LLC sells its appreciated real estate.

Question 14

Shelley owns a 25% interest in a qualifying S corporation. Shelley's basis in the stock was $15,000 at the beginnin year. Shelley made no capital contributions and received no distributions during the year. Shelley loaned the S corporation $20,000 this year. The S corporation incurred a $160,000 ordinary loss this year.
a. What are the amounts of Shelley's deduction and carryover of the unused loss for the year?
b. What is the amount of Shelley's basis in the stock at the end of year one?
c. If the S Corporation earned net income of $200,000 in year two, what is the amount of Shelley's stock basis at end of year two?

Accepted Answer

The answer of Shelley owns a 25% interest in a...

Question 15

A business distributes land to one of its owners. The business purchased the land a few years ago for $15,000, but it is now worth $35,000. Compare the treatment of this distribution when made by a partnership as opposed to an S corporation. Consider the impact on the business and the partner/shareholder and the determination of basis in the property.

Accepted Answer

The answer of A business distributes land to one of...

Question 16

Corporate charitable contributions are limited in any given year to 50% of taxable income.

Accepted Answer

The answer of Corporate charitable contributions are limited in any...

Question 17

Assuming extensions are not filed, tax returns for calendar- year S corporations and partnerships are both due on April 15.

Accepted Answer

Tax returns for calendar-year S corporations and partnerships are due on March 15, unless an extension is filed.

Question 18

Minna is a 50% owner of a calendar- year S corporation. During the current year, the S corporation had ordinary income of $400,000, short- term capital gain of $150,000 and a charitable contribution of $30,000. What does Minna report for the year from the S corporation?

Accepted Answer

The answer of Minna is a 50% owner of a...

Question 19

The partnership will make all of the elections affecting the computation of partnership income listed below except

Accepted Answer

The election of deduction or credit for foreign income taxes is made by individual partners, not the partnership.

Question 20

Eva is the sole shareholder of an S corporation. Eva gifts half of her S corporation stock to Adam, her newborn son. The S corporation is a highly profitable manufacturing company. The pass- through of the ordinary income to Adam can be subject to tax at his parents' marginal rate.

Accepted Answer

Since Adam is a minor, his income will be subject to tax at his parents' marginal rate through the "kiddie tax" rules. Therefore, the pass-through of the S corporation's income to Adam will be taxable at his parents' rate.

Quiz 16: Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals