TRUE/FALSE. Write 'T' If the Statement Is True and 'F' If the Statement Is False

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TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

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A sole proprietor is required to use the same reporting period for both business and individual tax information.

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______

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S corporations are flow-through entities, in which S income is allocated to shareholders.

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______

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S corporations must allocate income to shareholders based on their proportionate stock.

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______

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The check-the-box regulations permit an LLC to be taxed as a C corporation.

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______

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There are no tax consequences of a partnership converting to a C corporation.

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______

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Sec. 351 applies to an exchange if the contributing shareholders own more than 50% of a corporation's stock after the transfer.

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______

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The transferor's basis for any noncash boot property received in a Sec. 351 transaction is the boot's FMV reduced by any unrecognized gain.

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______

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A corporation must recognize a loss when transferring noncash boot property that has declined in value and its stock to a transferor as part of a Sec. 351 exchange.

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______

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If a corporation's total adjusted bases for all properties transferred exceed the total FMV of the properties, the corporation's bases in the property is limited to FMV if no election is made.

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______

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10)

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The assignment of income doctrine does not apply if the transferor in a Sec. 351 exchange in which no gain is otherwise recognized transfers substantially all the assets and liabilities of the transferor's trade or business to the controlled corporation.

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10)

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______

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11)

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Any losses on the sale of Section 1244 stock are ordinary.

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11)

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______

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12)

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Upon formation of a corporation, its assets have the same basis for book and tax purposes.

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12)

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______

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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

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13)

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Business assets of a sole proprietorship are owned by

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13)

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______

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a member.

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a stockholder.

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an individual.

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a partner.

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14)

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Identify which of the following statements is false.

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14)

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______

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A sole proprietorship is a separate taxable entity.

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A solely-owned corporation is a sole proprietorship.

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A sole proprietor is considered to be an employee of the business.

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All are false.

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15)

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Which of the following is an advantage of a sole proprietorship over other business forms?

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15)

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______

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ease of formation

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the deduction for compensation paid to the owner

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tax-exempt treatment of fringe benefits

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low tax rates on dividends

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16)

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Which of the following statements about a partnership is true?

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16)

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______

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Partners are taxed on their allocable share of income whether it is distributed or not.

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Partners are taxed on distributions from a partnership.

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A partnership is a taxpaying entity.

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Partners are considered employees of the partnership.

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17)

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Demarcus is a 50% partner in the DJ partner. DJ has taxable income for the year of $200,000. Demarcus received a $75,000 distribution from the partnership. What amount of income related to DJ must Demarcus recognize?

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17)

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______

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$75,000

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$37,500

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$100,000

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$200,000

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18)

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Which of the following statements is incorrect?

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18)

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______

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Limited partners' liability for partnership debt is limited to their amount of investment.

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In a limited partnership, all partners participate in managerial decision-making.

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In a general partnership, all partners have unlimited liability for partnership debts.

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All of the above are correct.

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19)

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Identify which of the following statements is true.

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19)

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______

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A partner is generally considered to be an employee of the partnership.

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Regular corporation and C corporation are synonymous terms.

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Regular corporation and S corporation are synonymous terms.

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All are false.

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20)

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Which of the following statements is correct?

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20)

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______

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S shareholders are taxed on their proportionate share of earnings whether or not

distributed.

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S shareholders are taxed on their proportionate share of earnings that are distributed.

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An owner of a C corporation is taxed on his or her proportionate share of earnings.

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S shareholders are only taxed on distributions.

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21)

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Identify which of the following statements is true.

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21)

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______

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If a C corporation does not distribute its income to its shareholders annually, double taxation cannot occur.

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Capital losses incurred by a C corporation can be used to offset the corporation's ordinary income.

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C corporation operating losses are deductible by the individual shareholders.

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All are false.

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22)

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Bread Corporation is a C corporation with earnings of $100,000. It paid $20,000 in dividends to its sole shareholder, Gerald. Gerald also owns 100% of Butter, an S corporation. Butter had net taxable income of $80,000 and made a $15,000 distribution to Gerald. What income will Gerald report from Bread and Butter's activities?

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22)

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______

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$35,000

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$180,000

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$100,000

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$95,000

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23)

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Which of the following statements is incorrect?

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23)

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______

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S corporation losses can offset shareholder income from other sources.

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S corporation income is taxed to shareholders when earned.

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S corporations must allocate income and expenses to their shareholders based on their proportionate ownership interest.

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The number of S corporation shareholders is unlimited.

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24)

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Which of the following statements is true?

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24)

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______

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C corporation losses remain in the C corporation and can offset income from other years.

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C corporation shareholders are taxed based on their proportionate share of income.

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Shareholders in a C corporation can use C corporation losses to offset shareholder income from other sources.

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Distributions of C corporation income are not taxable.

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25)

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Identify which of the following statements is false.

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25)

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______

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A business need not be incorporated under state or federal law to be taxed as a corporation.

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The check-the-box regulations permit an LLC to be taxed as a C corporation.

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Once an election is made to change its classification, an entity cannot change again for 60 months.

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Under the check-the-box regulations, an LLC that has only two members (owners) must be taxed as a partnership.

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26)

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Identify which of the following statements is true.

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26)

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______

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An unincorporated business may not be taxed as a corporation.

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A new LLC that is owned by four members elects to be taxed under its default classification (as a partnership) in its first year of operations. The entity is prohibited from changing its tax classification at any time in the future.

Full file at http://TestbankCollege.eu/Test-Bank-Prentice-Halls-Federal-Tax-2010-23rd-Edition-Pope

Under the check-the-box regulations, an LLC that has one member (owner) may be disregarded as an entity separate from its owner.

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All are false.

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27)

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Three members form an LLC in the current year. Which of the following statements is incorrect?

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27)

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______

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The LLC can elect to have its default classification ignored.

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The LLC's default classification under the check-the-box rules is as a partnership.

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If the LLC elects to use its default classification, it can elect to change its status to being taxed as a C corporation beginning with the third tax year after the initial classification.

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The LLC can elect to be taxed as a C corporation with no special tax consequences.

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28)