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Exam 4: Entities Overview

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Question 21

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Rodger owns 100 percent of the shares in Trevor Inc., a C corporation. Assume the following for the current year: Given these assumptions, how much cash does Rodger have from the dividend after all taxes have been paid?

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Question 22

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Which of the following statements is true for a C corporation incurring a net operating loss (NOL) for a tax year that begins in 2019?

A) It may carry the NOL back two years and forward 20 years.
B) It may not carry the NOL back to prior years but it may carry it forward 20 years.
C) It may not carry the NOL back to prior years but it can carry the loss forward indefinitely.
D) It may carry the loss back two years and carry the loss forward indefinitely.
E) None of the choices are correct.

F) B) and C)
G) All of the above

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Question 23

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Shareholders of C corporations receiving property distributions must recognize dividend income equal to the fair market value of the distributed property if the distributing corporation has sufficient earnings and profits.

If an individual forms a sole proprietorship, which nontax factor will be of greatest benefit to the sole proprietor?

Corporations are legally formed by filing articles of organization with the state in which the corporation will be created.

In 2019, BYC Corporation (a C corporation) had an NOL carryover from 2017 in the amount of $40,000. How much tax will BYC pay in 2019 if it reports taxable income from operations of $35,000 in 2019 before the NOL deduction?

Losses from C corporations are never available to offset a shareholder's personal income.

S corporation shareholders are legally responsible for paying the S corporation's debts because S corporations are treated as flow-through entities for tax purposes.

Which of the following legal entities files documents with the state to be formally recognized by the state?

A single-member LLC is taxed as a partnership.

Jorge is a 100-percent owner of JJ LLC (taxed as an S corporation) . He works full time for JJ and his marginal ordinary tax rate is 37 percent. Which of the following statements is true regarding Jorge's tax treatment of business income allocated to him from JJ?

An unincorporated entity with more than one owner is, by default, taxed as a partnership.

If individual taxpayers are the shareholders of PST Corporation and PST Corporation is a shareholder of MNO Corporation, how many levels of tax is MNO's pretax income potentially exposed to?

Jorge is a 60-percent owner of JJ LLC (taxed as a partnership) . He is a passive investor in JJ (he doesn't perform any work for JJ) and his marginal ordinary tax rate is 37 percent. Which of the following statements is true regarding Jorge's tax treatment of business income allocated to him from JJ?

Logan, a 50-percent shareholder in Military Gear Inc. (MG) , is comparing the tax consequences of losses from C corporations with losses from S corporations. Assume MG has a $100,000 tax loss for the year, Logan's tax basis in his MG stock was $150,000 at the beginning of the year, and he received $75,000 ordinary income from other sources during the year. Assuming Logan's marginal tax rate is 24 percent, how much more tax will Logan pay currently if MG is a C corporation compared to the tax he would pay if it were an S corporation?

In certain circumstances, C corporation shareholders can elect to change the entity to a flow-through entity for tax purposes.

Which legal entity provides the least flexible legal arrangement for owners?

Sole proprietors are subject to self-employment taxes on net income from their sole proprietorships.

What document must an LLC file with the state to organize its business?

Which of the following legal entities are generally classified as C corporations for tax purposes?