Corporation, partnerships and Other Business Entities Flashcards
- When two or more taxpayers form a partnership, each partner contributes to some or all aspects of the business, including money, property, labor, or skill. In return for his or her contribution, each partner:
a. shares in the profits of the business only
b. is exempt from income tax on the profits of the partnership
c. shares in both the profits and losses of the business
d. is liable only for his or her own actions
My Answer:
c. shares in both the profits and losses of the business
Which of the following statements regarding a taxpayer who forms an unincorporated sole proprietorship is not true?
(Search Chapter 1)
a. The taxpayer is not required to report his business activities on his tax return.
b. Income and expenses are reported on the taxpayer’s Form 1040, using Schedule C.
c. The net profit or loss from the activities of the business passes through to the taxpayer’s personal tax return.
d. The taxpayer can be held personally liable for the debts and obligations of the business.
My Answer:
a. The taxpayer is not required to report his business activities on his tax return.
Mitch is a partner in a calendar-year partnership that made a profit last year. How should Mitch expect to receive official notification of his share of the profits, and when should he expect to receive this notice?
(Search Chapter 2)
a. The details will be on Form W-2, due by January 31.
b. The details will be on Schedule K-1, due by the date Form 1065 is required to be filed, including extensions.
c. The details will be on Form W-2, due by the date Form 1065 is required to be filed, including extensions.
d. The details will be on Schedule K-1, due by January 31.
My answer: The details will be on Schedule K-1, due by the date Form 1065 is required to be filed, including extensions.
How many partners are required for a partnership to be eligible to elect to be treated as a large partnership?
(Search Chapter 2)
a. at least 5
b. more than 50
c. 100 or more
d. more than 75
my answer: More than 100
Acorn Appliances is a C corporation with ten shareholders. The corporation wants to change its classification to become an S corporation. Assuming there are no other time constraints involved, how many shareholders are required to approve the change?
(Search Chapter 4)
a. at least one
b. three or more
c. two or more
d. all ten shareholders
My Answer: d. all ten shareholders
Max and Helen are a married couple who have both been invited by their neighbor to become shareholders in an S corporation that currently has a total of 99 shareholders. What are the implications for the corporation of this invitation?
(Search Chapter 4)
a. The corporation will no longer be eligible for S status because husbands and wives are not allowed to be shareholders in the same S corporation.
b. As a married couple, Max and Helen can be treated as one shareholder, and the corporation will now have 100 shareholders.
c. Only one of the couple can become a shareholder; otherwise, the corporation will exceed 100 shareholders.
d. If either one of the couple becomes a shareholder, the corporation will no longer be eligible for S status.
My answer: As a married couple, Max and Helen can be treated as one shareholder, and the corporation will now have 100 shareholders.
What taxes, if any, may a single-member LLC classified as a disregarded entity be responsible for paying on behalf of its owner and employees?
(Search Chapter 5)
a. only Medicare taxes on wages paid to its employees
b. all employment taxes on wages paid to its employees
c. only Social Security taxes on wages paid to its employees
d. none
My answer: b. all employment taxes on wages paid to its employees
How are single-member and multiple-member LLCs classified for tax purposes if they have made no election to change their default status?
(Search Chapter 5)
a. as a corporation and a partnership, respectively
b. as a partnership and a corporation, respectively
c. as a disregarded entity and a partnership, respectively
d. both as disregarded entities
My answer: c. as a disregarded entity and a partnership, respectively
C9. After an organization has filed an application for tax-exempt status, what may be the response from the IRS if not all of the required information was included with the application?
(Search Chapter 6)
a. The IRS will destroy the application without notifying the organization.
b. The IRS will send a letter requesting more information.
c. The IRS will return the incomplete application to the sender.
d. either b or c
My answer: either b or c
Judging by its name, which one of the following organizations would likely not qualify for tax-exempt status under Internal Revenue Code section 501(a)?
(Search Chapter 6)
a. Bob Jones Presidential Campaign
b. Leaco Red Cross Society
c. Veterans of Foreign Wars, Post 8235
d. Woodville South Lions Club
My answer : Bob Jones Presidential Campaign
