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Exam 18: Comparative Forms of Doing Business

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Question 31

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Match the following statements. -Net capital gain

A) For the corporate taxpayer, are taxed using the regular tax rates.
B) Must be capitalized, but can be amortized over 180 months.
C) For the corporate taxpayer, the rate is 20%.
D) For the corporate taxpayer, cannot be deducted at all in the current tax year.
E) For the corporate taxpayer, limited to 10% of taxable income before certain deductions.

F) A) and B)
G) None of the above

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Question 32

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Match the following statements. -Alternative minimum tax

A) For the corporate taxpayer, are taxed using the regular tax rates.
B) Must be capitalized, but can be amortized over 180 months.
C) For the corporate taxpayer, the rate is 20%.
D) For the corporate taxpayer, cannot be deducted at all in the current tax year.
E) For the corporate taxpayer, limited to 10% of taxable income before certain deductions.

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

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Question 33

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Match the following statements. -Sale of an ownership interest by a partner.

If lease rental payments to a noncorporate shareholder-lessor are classified as unreasonable, the taxable income of a C corporation increases and the gross income of the shareholder increases.

In the sale of a partnership, how does the way the sale is structured (i.e., sale of the partnership interests versus the sale of the partnership assets) produce different tax consequences for the sellers?

Amber, Inc., reports taxable income of $212,000.In addition, Amber records the following information which may affect its AMT. .Depreciation on buildings was $52,000.ADS would have been $41,000. ) ​The president of Amber exercised stock options on Amber stock.She paid $30,000 for the stock, which had a fair market value at exercise date of $49,000.At the end of the year, the stock was worth $54,000. ) Amber deducted percentage depletion of $65,000.The adjusted basis of the natural resource at the beginning of the year was $39,000. ) Amber contributed CSX stock worth $20,000 to the Red Cross.Amber purchased the stock four months ago for $19,000. What is Amber's AMTI?

Which of the following is correct regarding the form for filing the annual Federal income tax return? $\begin{array}{ll}\text { Business entity form }&\text { Tax form }\\a.\text { Sole proprietorship } & \text { Form 1040-Schedule C } \\b.\text { Partnership } & \text { Form 1065P } \\c.\text { C corporation } & \text { Form 1120C } \\d.\text { LLC } & \text { Form 1120S } \\e.\text { S corporation } & \text { Form 1120 }\end{array}$

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.

Corey is going to purchase the assets of Kahlyn's sole proprietorship.The assets of Kahlyn's sole proprietorship have appreciated in value.From Corey's perspective, does it matter whether the purchase is structured as (1) the purchase of the individual assets or (2) the purchase of the sole proprietorship?

In the purchase of a partnership, how does the way the purchase is structured (i.e., purchase of the partnership interests or purchase of the partnership assets) produce different tax consequences for the purchasers?

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

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).

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

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

Aubrey has been operating his business as a C corporation for the past 5 years.The corporation pays him a reasonable salary.The profits of the corporation, after paying Federal income tax, are distributed to him each year as a dividend.He is considering electing S status for his corporation in order to avoid double taxation.What factors should he consider assuming after-tax earnings will continue to be distributed to him?

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.

The passive activity loss rules apply to S corporations but not to C corporations.

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.

S corporation status always avoids double taxation.

Bart contributes $100,000 to the Fish Partnership for a 40% interest.During the first year of operations, Fish has a profit of $20,000.At the end of the first year, Fish has outstanding loans from the following banks. $\begin{array} { l r } \text { First Bank (recourse) } & \$ 10,000 \\\text { Second Bank (nonrecourse) } & 30,000\end{array}$ What is Bart's at-risk basis in Fish at the end of the first year?