Similarities and Distinctions in Tax Treatment Among Business Entities: Operations

Question 1

What are the two tests that must be met to determine if a company is a personal holding company (PHC)

Answer 1

stock ownership and income test

Generally more than 50% of the stock must be owned by five or fewer individuals and at least 60% of the corporate income must be personal holding company income

Question 2

A qualified personal service corporation

Answer 2

is allowed to use the cash basis of accounting

Question 3

The passive activity loss rules are applicable to

Answer 3

individuals 
estates 
trusts 
closely held C corporations 
personal service corporations

Question 4

The passive activity loss rules are not applicable to

Answer 4

partnerships
widely held C corporations
S corporations

For partnerships and S corporations, the passive activity loss rules apply at the partner/shareholder level

Question 5

Fringe Benefits

Answer 5

Sole proprietors may not deduct the cost of fringe benefits. The entity does not exist separately from the person for taxation purposes.

Partnerships may deduct the benefits but the partners must include the amount in income.

A more than 2% shareholder of an S corporation must include the benefits in income.

Question 6

income that qualifies as PHC income is

Answer 6

dividends
annuities,
mineral,
oil, and gas royalties