Question 1

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.

Accepted Answer

False

Question 2

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

Accepted Answer

A corporation must choose a tax status when it is formed and generally cannot switch back and forth between S corporation and C corporation status each year. There are specific requirements and limitations for each type of corporation.

Question 3

For Federal income tax purposes,a business entity with two or more owners may be conducted as a partnership,C corporation,S corporation,or limited liability company.

Accepted Answer

This statement is true, according to the IRS. A business entity with two or more owners can choose to be structured as a partnership, C corporation, S corporation, or limited liability company (LLC) for federal income tax purposes. Each structure has its own tax implications and requirements.

Question 4

A limited partnership can indirectly avoid unlimited liability of the general partner if the general partner is a corporation.

Accepted Answer

If the general partner is a corporation, it would have limited liability, which would indirectly limit the liability of the limited partnership. However, if the general partner is an individual, they would have unlimited liability even if the limited partner is a corporation.

Question 5

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.

Accepted Answer

If the distribution is classified as a dividend, it will be subject to taxation at the individual shareholder level, while if it is classified as a stock redemption, it may be treated as a sale of stock with potential tax consequences for both the corporation and the shareholder.

Question 6

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

Accepted Answer

C corporations can have unlimited shareholders of any type (individuals, other corporations, etc.) and can have multiple classes of stock with different voting rights and dividends. S corporations, on the other hand, have strict limitations on ownership (no more than 100 shareholders who must be individuals or certain types of trusts) and must have only one class of stock.

Question 7

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

All four entities have the option to pass profits and losses through to the owners. In a general partnership, both partners share in the profits and losses. In a limited partnership, the general partner manages the business and is personally liable, while limited partners have limited liability and share in the profits and losses. In an S corporation, profits and losses pass through to shareholders based on their percentage of ownership. In a limited liability company (LLC), profits and losses can be allocated among members in whatever manner they agree upon in the operating agreement.

Question 8

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.

Accepted Answer

The answer of C corporations and their shareholders are subject...

Question 9

Lime,Inc. ,has taxable income of $334,000.If Lime is a C corporation,its tax liability must be either $113,510 [($50,000 × 15%)+ ($25,000 × 25%)+ ($25,000 × 34%)+ ($234,000 × 39%)] or $116,900.

Accepted Answer

This is because a C corporation follows a graduated tax bracket system, and the tax liability calculation provided in the question is accurate according to the tax brackets for the given taxable income.

Question 10

Techniques are available that may permit a C corporation to avoid double taxation.

Accepted Answer

It is true that there are techniques, such as electing S corporation status or utilizing certain deductions and credits, that may allow a C corporation to avoid or minimize double taxation.

Question 11

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

Accepted Answer

Corporations can raise capital through the sale of stocks and bonds, while partnerships are limited to their partners' contributions or loans.

Question 12

In its first year of operations (2014),Lavender,Inc.(a C corporation)has gross receipts of $8 million and net income of $2 million.Lavender is not subject to the AMT for 2014.

Accepted Answer

The information provided indicates that Lavender, Inc. is not subject to the Alternative Minimum Tax (AMT) for 2014.

Question 13

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

Accepted Answer

The answer of A limited liability company (LLC)cannot elect under...

Question 14

All of the shareholders of an S corporation have limited liability with respect to their ownership interests in the corporation,whereas only limited partners in a limited partnership have such limited liability.

Accepted Answer

This statement is true. In an S corporation, all shareholders have limited liability, which means that their personal assets are protected from the liabilities of the corporation. In a limited partnership, only the limited partners have limited liability, while the general partner(s) have unlimited liability.

Question 15

Daniel,who is single,estimates that the profits of his business for the current tax year will be $100,000.Since the highest tax rate (34%)applicable to corporate taxable income of $100,000 is greater than the highest tax rate (28%)applicable to individual taxable income of $100,000,the Federal income tax liability will be less if Daniel conducts his business as a sole proprietorship rather than as a C corporation.

Accepted Answer

The answer of Daniel,who is single,estimates that the profits of...

Question 16

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.

Accepted Answer

Both the § 465 and § 469 provisions limit the ability of partnerships and LLCs to deduct losses from real estate investments, making them less tax attractive.

Question 17

A sole proprietorship files Schedule C of Form 1040,a partnership files Form 1065,a C corporation files Form 1120,and an S corporation files Form 1120S.

Accepted Answer

These are the correct forms for each type of business entity to file their federal income tax returns.

Question 18

If a business entity has a majority of corporate characteristics,it is taxed as a corporation.

Accepted Answer

The answer of If a business entity has a majority...

Question 19

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

An LLC offers limited liability to its owners, similar to a corporation, but is taxed like a partnership.

Question 20

S corporation status always avoids double taxation.

Accepted Answer

The answer of S corporation status always avoids double taxation....

Quiz 18: Comparative Forms of Doing Business