Exam 3 Quizzes Flashcards
T/F:
S corporations have more restrictive ownership requirements than other entities.
True
T/F:
C corporations and S corporations are separate taxpaying entities that pay tax on their own income.
False.
S corporations are flow-through entities whose income “flows through” to their owners who are responsible for paying tax on the income.
T/F:
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.
False
This is how it is in partnerships
Assume you plan to start a new enterprise; you know the probability of having losses for the first three years of operations is almost 90 percent, and you know you will report a substantial amount of income from other sources during those same three years. From a tax perspective, which of the following entity choices would be least favorable?
- C corporation
- LLC
- General partnership
- S corporation
C corporation
A C corporation is the least favorable entity choice because the losses from the first three years of operations will not flow-through to you and be available to offset income from other sources.
T/F:
Corporations are legally better suited for taking a business public compared with LLCs and general partnerships.
True
T/F:
In contrast to an individual, a corporation may deduct the entire amount of a net capital loss.
False
A corporate capital loss can only be deducted against capital gains.
T/F:
Net operating losses generally create permanent book-tax differences.
False
NOLs are treated as deductible temporary differences.
T/F:
The dividends received deduction cannot cause a net operating loss. The deduction can reduce income to zero but not below zero.
False
A dividends received deduction is limited to 70% or 80% of taxable income unless it creates or increases a net operating loss deduction, in which case the full amount is allowed.
T/F:
In general, a corporation can elect to use either the accrual or cash method of accounting no matter how large the corporation.
False Large corps ( avg gross receipts exceeding $5 million over the prior three years) are required to use the accrual method
T/F:
Although a corporation may report a temporary book-tax difference for an item of income or deduction for a given year, over the long term the total amount of income or deduction it reports with respect to that item will be the same for both book and tax purposes.
True
T/F:
Partnerships tax rules incorporate both the entity and aggregate approaches.
True
T/F:
Income earned by flow-through entities is usually taxed once at the entity level.
False
Income is taxed only once at the owner level.
Which of the follow does not adjust a partner’s basis?
- Ordinary business income (loss)
- Tax-exempt income
- Change in amount of partnership debt
- All of these adjust a partner’s basis
All of these adjust a partner’s basis.
A partner’s initial tax basis is adjusted at least annually by the partner’s share of any income or expense items, the partner’s share of any change in the amount of partnership debt, or by a contribution from or a distribution to the partner.
Which of the following would not be classified as a separately-stated item?
- Charitable contributions
- Short-term capital gains
- Guaranteed payments
- Regular MACRS depreciation expense
Regular MACRS depreciation expense
Section 179 is treated as a separately-stated item; however, MACRS depreciation expense is included in the computation of a partnership’s ordinary business income (loss). Additionally, while guaranteed payments are deducted when computing a partnership’s ordinary business income (loss), it must also be separately stated to the partner who receives the guaranteed payment.
T/F:
The term “outside basis” refers to the partnership’s basis in its assets; whereas, the term “inside basis” refers an individual partner’s basis in her partnership interest.
False
