Question 1

A business entity is not always taxed the same way as its legal form.

Accepted Answer

The tax treatment of a business entity depends on several factors, including its legal form, the nature of its business, and the tax laws in its jurisdiction. For example, a corporation is generally taxed as a separate entity from its owners, while a partnership is typically taxed as a pass-through entity, with its income and expenses flowing through to the individual partners' tax returns. Similarly, a limited liability company (LLC) can be taxed as a partnership, corporation, or sole proprietorship, depending on how it is structured and how its owners choose to be taxed. Therefore, the legal form of a business entity does not necessarily determine its tax treatment.

Question 2

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

Accepted Answer

True

Question 3

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

Each of these business structures allows for the profits and losses to pass through to the owners, also known as pass-through taxation.

Question 4

A major benefit of the S corporation election is the general avoidance of double taxation.

Accepted Answer

An S corporation is a pass-through entity where profit and losses flow through to the owners' personal tax returns, thus avoiding double taxation at both the corporate and individual level. Therefore, the statement is true.

Question 5

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

Accepted Answer

C corporations are allowed to have multiple classes of stock, can have more than 100 shareholders, and can have non-US citizens or entities as shareholders, while S corporations must meet strict eligibility requirements such as having only one class of stock and limited number of shareholders.

Question 6

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

The answer of A limited partner in a limited partnership...

Question 7

Obtaining a deduction on payments made by a C corporation to shareholders is a technique for reducing double taxation.

Accepted Answer

C corporations are subject to double taxation, which means that the corporation's profits are taxed at the corporate level, and then again at the individual level when paid out to shareholders as dividends. One way to reduce this double taxation is by obtaining a deduction on payments made to shareholders, typically in the form of salaries or bonuses. This reduces the corporation's taxable income, and therefore the amount of taxes it owes at the corporate level. It also allows shareholders to receive income without being subject to additional taxes at the individual level.

Question 8

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

The tax liability calculation provided is correct for a C corporation with taxable income of $334,000. The tax liability will either be $113,510 (using the corporate tax rate schedule) or $116,900 (using the alternative minimum tax calculation).

Question 9

When a C corporation is classified as a small corporation for AMT purposes,both the corporation and its shareholders are exempt from the AMT.

Accepted Answer

When a C corporation is classified as a small corporation for AMT purposes, only the corporation is exempt from the AMT, not the shareholders. The shareholders may still be subject to the AMT on their individual tax returns.

Question 10

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.

Accepted Answer

Depending on whether the LLC is classified as a partnership or a corporation, it will have to file either Form 1065 or Form 1120 respectively. This determination is made using the check-the-box provisions.

Question 11

An S corporation has a lesser degree of limited liability than a C corporation.

Accepted Answer

Both S corporations and C corporations offer the same level of limited liability protection to their shareholders, meaning shareholders are not personally liable for the corporation's debts and liabilities.

Question 12

Nontax factors are less important than tax factors in making a business decision.

Accepted Answer

This statement is not always true. Non-tax factors such as market demand, competition, availability of resources, and overall economic conditions can have a significant impact on a business decision. While tax factors play an important role, they are not the only consideration when making a business decision.

Question 13

The check-the-box Regulations have made it easier for a business entity to be classified as a partnership for Federal income tax purposes.

Accepted Answer

The check-the-box Regulations provide greater flexibility in classifying a business entity for Federal income tax purposes, and have made it easier for entities to be classified as partnerships. This is because the default classification under the Regulations is based on the number of owners, and most types of entities with two or more owners will generally be classified as partnerships by default. However, it is important to note that an entity may elect to be classified differently, and that the Regulations may also impose certain requirements or limitations on the ability to elect certain classifications.

Question 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.

Accepted Answer

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

Question 15

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 stock redemption, it may be treated as a sale or exchange of the shareholder's stock, resulting in capital gains or losses, while a dividend is taxed as ordinary income.

Question 16

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 meet specific IRS requirements to qualify for S corporation status and cannot freely alternate between S and C corporation status each year due to IRS restrictions and the requirement to wait five years before re-electing S status after terminating it.

Question 17

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 18

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

The § 465 at-risk provision and the § 469 passive activity loss provision have added certain limitations and requirements for deducting losses from real estate investments, which has decreased the tax attractiveness of such investments for partnerships and limited liability companies.

Question 19

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 of a limited partnership is a corporation, it can only be liable up to the amount of its investment, while the limited partners are only liable for the amount of their investment. Therefore, the general partner's liability is limited, and the partnership can indirectly avoid unlimited liability.

Question 20

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

The statement accurately describes the characteristics of an LLC.

Quiz 13: Comparative Forms of Doing Business