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Exam 15: Entities Overview

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Question 31

True/False

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If a C corporation incurs a net operating loss in 2020, it may carry the loss back two years and forward 20 years to offset income in those years.

A) True
B) False

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Question 32

Multiple Choice

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The excess loss limitations apply to owners of all of the following entities except which of the following (answer for tax years other than 2020) ?

A) C corporations
B) S corporations
C) Entities taxed as partnerships
D) Single-member LLCs (owned by an individual taxpayer)

E) B) and D)
F) None of the above

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Question 33

Multiple Choice

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From a tax perspective, which entity choice is preferred when a liquidating distribution occurs and the entity has appreciated assets?

For tax purposes, only unincorporated entities can be considered to be disregarded entities.

Which tax classifications can potentially apply to LLCs?

In 2020, Aspen Corporation reported $120,000 of taxable income before the net operating loss (NOL)deduction. It had an NOL carryover of $60,000 from 2018 and an NOL carryover from 2019 of $40,000. How much tax will Aspen Corporation pay on its 2020 tax return?

A Corporation owns 10 percent of D Corporation. D Corporation earns a total of $200 million before taxes in the current year, pays corporate tax on this income, and distributes the remainder proportionately to its shareholders as a dividend. In addition, A Corporation owns 40 percent of Partnership P. Partnership P earns $500 million in the current year. Given this fact pattern, answer the following questions: a. How much cash from the D Corporation dividend remains for A Corporation after A pays the tax on the dividend, assuming A Corporation is eligible for the 50 percent dividends received deduction? b. If Partnership P distributes all of its current-year earnings in proportion to the partner's ownership percentages, how much cash from Partnership P does A Corporation have after paying taxes on its share of income from the partnership? c. If you were to replace A Corporation with Individual A [marginal tax rate on ordinary income is 37 percent and on qualified dividends is 23.8 percent (including the net investment income tax)] in the original fact pattern above, how much cash does Individual A have from the D Corporation dividend after all taxes, assuming the dividends are qualified dividends? Consistent with the original facts, assume that D Corporation distributes all of its after-tax income to its shareholders.

Roberto and Reagan are both 25-percent owner/managers for Bright Light Incorporated. Roberto runs the retail store in Sacramento, California, and Reagan runs the retail store in San Francisco, California. Bright Light generated a $125,000 profit companywide made up of a $75,000 profit from the Sacramento store, a ($25,000) loss from the San Francisco store, and a combined $75,000 profit from the remaining stores. If Bright Light is taxed as a partnership and it is decided that both Roberto and Reagan will be allocated 70 percent of his own store's profit, with the remaining profits allocated pro rata among all the owners, how much income will be allocated to Reagan in total?

The deduction for qualified business income applies to owners of C corporations but not to flow-through entity owners.

Unincorporated entities are typically treated as flow-through entities for tax purposes.

Robert is seeking additional capital to expand ABC Incorporated. In order to qualify ABC as an S corporation, which type of investor group could Robert obtain capital from?

P corporation owns 60 percent of the stock of S corporation. If S corporation distributes a dividend to P corporation, what is the tax rate on the dividend after the dividends received deduction (DRD)if P is entitled to a 65 percent DRD?

Roberto and Reagan are both 25-percent owner/managers for Bright Light Incorporated. Roberto runs the retail store in Sacramento, California, and Reagan runs the retail store in San Francisco, California. Bright Light generated a $126,050 profit companywide made up of a $75,300 profit from the Sacramento store, a ($25,750) loss from the San Francisco store, and a combined $76,500 profit from the remaining stores. If Bright Light is taxed as a partnership and it is decided that both Roberto and Reagan will be allocated 70 percent of his own store's profit, with the remaining profits allocated pro rata among all the owners, how much income will be allocated to Reagan in total?

Jorge is a 100-percent owner of JJ LLC (taxed as an S corporation) . He works full time for JJ and his marginal ordinary tax rate is 37 percent. Which of the following statements is true regarding Jorge's tax treatment of business income allocated to him from JJ?

If C corporations retain their after-tax earnings, when will their individual shareholders be taxed on the retained earnings?

Tax rules require that entities be classified the same way for tax purposes as they are classified for legal purposes.

On which form is income from a single-member LLC with one corporate (C corporation) owner reported?

Owners who work for entities taxed as a partnership receive guaranteed payments as compensation. The guaranteed payments are not self-employment income.

Which of the following statements is true regarding compensation paid to an owner of an entity taxed as a partnership who works for the entity?

Generally, which of the following flow-through entities can elect to be treated as a C corporation?