Becca Franklin and Suzanne Peterson formed an LLC as co-owners and managers.The LLC made $275,000 after expenses last year.There are no provisions in their operating agreement on how profits are to be split.
-What amount would Becca declare on her income tax returnif Becca and Suzanne had formed aSubchapter S corporationand there was no provision in theiragreement on how profits are to be split?
A)$137,500
B)the full $275,000
C)nothing, because theSubchapter S corporationreports that income and pays the taxes
D)theSubchapter S corporationmust retain at least half of the $275,000 and Becca reports half of $137,500

Question

Becca Franklin and Suzanne Peterson formed an LLC as co-owners and managers.The LLC made $275,000 after expenses last year.There are no provisions in their operating agreement on how profits are to be split.​
-What amount would Becca declare on her income tax returnif Becca and Suzanne had formed aSubchapter S corporationand there was no provision in theiragreement on how profits are to be split?
A)​$137,500
B)​the full $275,000
C)nothing, because theSubchapter S corporationreports that income and pays the taxes
D)theSubchapter S corporationmust retain at least half of the $275,000 and Becca reports half of $137,500

Quizplus · Accepted Answer

In a Subchapter S corporation, profits and losses are passed through to the shareholders in proportion to their ownership percentage. Since there is no provision in their operating agreement on how profits are to be split, we assume that Becca and Suzanne have an equal ownership percentage. Therefore, Becca would declare $137,500 (50% of $275,000) on her income tax return.

Becca Franklin and Suzanne Peterson Formed an LLC as Co-Owners