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Exam 18: Comparative Forms of Doing Business

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Question 41

True/False

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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

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Question 42

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Match the following statements. -Sale of the corporate assets by the C corporation.

A) Transaction in this form enables double taxation to be avoided.
B) Gain or loss is calculated separately for each asset and is subject to single taxation.
C) Subject to double taxation.
D) The sale is treated as the sale of a capital asset under § 741, but subject to ordinary income potential under § 751.
E) Not subject to double taxation on the sale of corporate stock.

F) A) and B)
G) B) and E)

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Question 43

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Match the following. -Limited partnership

List some techniques which can be used to avoid and/or reduce double taxation for a C corporation.

Lime, Inc., has taxable income of $334,000.If Lime is a C corporation, its tax liability is $66,800.

S corporations can generate an AMT adjustment known as Adjusted Current Earnings ACE).

Do the at-risk rules apply to partnerships, LLCs, and S corporations?

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

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

Mercedes owns a 30% interest in Magenta Partnership basis of $52,000) which she sells to Calvin for $65,000.Mercedes' recognized gain of $13,000 will be classified as capital gain.

Match the following statements. -Net capital gain

List some techniques for reducing and/or avoiding double taxation by transferring funds to the shareholders that are deductible to the corporation.

If an S corporation distributes appreciated property as a dividend, it must recognize gain as to the appreciation.

When compared to a partnership, what additional requirement applies to keep a contribution of appreciated property to a corporation from causing recognized gain?

Catfish, Inc., a closely held corporation which is not a PSC, owns a 45% interest in Trout Partnership, which is classified as a passive activity.Trout's taxable loss for the current year is $250,000.During the year, Catfish receives a $60,000 cash distribution from Trout.Other relevant data for Catfish are as follows. How much of Catfish's share of Trout's loss may it deduct in calculating its taxable income?

The AMT tax rate for a C corporation is greater than the regular tax rate for C corporations.

Match the following statements. -Net capital loss

After an asset contribution by a partner to a partnership, the partner's basis for his or her ownership interest is the same as the basis of the assets contributed no liabilities are involved).

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.

Tuan and Ella are going to establish a business.They expect the business to be very successful in the long-run, but project losses of approximately $100,000 for each of the first five years.Due to potential environmental concerns, limited liability is a requisite for the owners.Which form of business entity should they select?