SU 1

Question 1

Sole Proprietorship

Answer 1

• most common business entity
• reported on Sch C
• unlimited liability
• easy to establish, no forms required
• business CANNOT be transferred
• spouses filing a joint return may elect out of pship treatment by choosing to be a qualified joint venture

Question 2

Corporations

Answer 2

• created to limit liability of owners
• double taxation - first on income as it is earned, second on dividend distributions

Question 3

Closely Held C-Corps

Answer 3

both of the following must apply:

• not a personal service corp
• any time during last half of tax year, 50% or more of outstanding stock value is owned (directly OR indirectly) by five or less individuals or certain foundations/trusts

Question 4

S Corporations

Answer 4

• over 1/2 of all corps are s-corps
• required to have calendar tax year
• limited liability of a c-corp but more ownership restrictions

Question 5

Partnerships - advantage and disadvantage

Answer 5

• advantage - income only taxed once
• disadvantage - owners can be liable if not enough pship assets to cover liabilities (general pship)

Question 6

Limited Partnership

Answer 6

• created in the 70s to allow for the limited liability feature of a corporation while still retaining the singled form of taxation
• owners are either general or limited partners - only limited partners have the limited liability feature (duh)
• limited parner cannot participate in business operations

Question 7

Limited Liability Partnership

(LLP)

Answer 7

• primarily used by personal service taxpayers
• several states require that the owners remain personally liable for debt

Question 8

LLC

Answer 8

• noncorporate hybrid structure that combines the limited liability of a corp with the tax advantages of a general pship
• for fed tax purposes, treated as a pship UNLESS you check the box to be treated as a corp

Question 9

LLCs are the only business entities that allow… (4)

Answer 9

1. pass-through advantages and operational flexibility of a pship
2. corporation-style limited liability under state law
3. no restriction on # or type of members
4. management participation by all members. all members are owners.

Question 10

Single-Member LLCs

Answer 10

• treated as disregarded entities unless electing otherwise
• Individuals - report on 1040 sch C along with sch SE
• Rental RE - report on sch E
• All other businesses -income reported as part of the owner’s return (ex. Cherry Hill on BREP)

Question 11

Unless an election is made on form 8832, a domestic eligible entity is

(2)

Answer 11

1. a partnership if 2+ members and at least one member does not have limited liability
2. disregarded entity if only 1 owner

Question 12

Unless an election is made on Form 8832, a foreign eligible entity is

(3)

Answer 12

1. a pship if 2+ members and at least one member does not have limited liability
2. taxable as a corp if all members have limited liability
3. disregarded entity if single owner

Question 13

Cash Method taxpayer accounts for income when one of the following occurs

(3)

Answer 13

1. Cash is actually received
2. Cash equivalent is actually received
3. Cash or equivalent is constructively received

NOTE: if value of property received cannot be determined, the value of what was given in exchange for it is treated as the amount of income received. if NEITHER can be determined, no income recognized until value is determined

Question 14

Constructive Receipt (define)

Answer 14

an item is included in income when a person has an unqualified right to immediate position

includes ability to use on demand. does not include a mere promise to pay. deferring a check does not defer income!!