QUESTION 1

Money Corporation has the following income and expenses for the tax year:

Gross profit on sales:	$200,000
Expenses:	700,000
Dividends received from less-than-20%-owned domestic corporations:	20,000

What is Money's net operating loss?

	$220,000
	$480,000
	$520,000
	$494,000

2 points

QUESTION 2

On January 1, Helmut pays $2,000 for a 10% capital, profits, and loss interest in a partnership, which has recourse liabilities of $20,000. The partners share economic risk of loss from recourse liabilities in the same way they share partnership losses. In the same year, the partnership incurs losses of $6,000, and the recourse liabilities increase by $5,000. Helmut and the partnership use a calendar tax year-end. Helmut's basis at year-end is:

	$1,500
	$3,500
	$3,900
	$2,000

2 points

QUESTION 3

Identify which of the following statements is true.

	Payment of deficiency dividends will prevent the imposition of the accumulated earnings tax.
	A health service corporation can claim an accumulated earnings credit of $250,000.
	All corporations are exempt from the accumulated earnings tax on their first $250,000 of accumulated earnings.
	All of the above are false.

2 points

QUESTION 4

What is an important aspect of a limited-liability partnership?

	It is the same as a limited partnership where the general partner has unlimited liability.
	All partners have unlimited liability.
	All partners have limited liability regarding all partnership activities.
	Partners have unlimited liability arising from his or her own acts of negligence or misconduct or similar acts of any person under his or her direct supervision.

2 points

QUESTION 5

Identify which of the following statements is true.

	The NOL deduction claimed by a corporation must be taken after the dividends-received deduction.
	The charitable contribution deduction is computed after the deduction for an NOL.
	The charitable contribution deduction is computed after the dividends-received deduction.
	All of the above are false.

2 points

QUESTION 6

A corporation cannot reasonably accumulate earnings to:

	Fund an employee retirement plan
	Protect against pending litigation
	Redeem stock of an elderly shareholder where such accumulation occurs prior to the shareholder's death
	Self-insure

2 points

QUESTION 7

The recipient of a taxable stock dividend includes the value of the stock received in gross income, and that amount becomes the basis for the stock received.

True

False

2 points

QUESTION 8

All of the following statements are true except:

	The net income of an S corporation is subject to double taxation because it is taxed at the entity level, and dividends paid from the S corporation to individual shareholders are also taxed.
	LLCs are generally taxed as partnerships.
	The net income of a C corporation is subject to double taxation because it is taxed at the entity level, and dividends paid from the C corporation to individual shareholders is also taxed.
	The net income earned by a sole proprietorship is reported on the owner's individual income tax return.

2 points

QUESTION 9

When computing the accumulated earnings tax, the dividends-paid deduction is not available for:

	Throwback dividends
	Dividends paid during the tax year
	Stock dividends
	All of the above are deductible.

2 points

QUESTION 10

Which of the following is not permitted an accumulated earnings credit based on reasonable needs of the business?

	An incorporated engineer
	An operating company
	An investment company
	All of the above are permitted a credit based on reasonable business needs.

2 points

QUESTION 11

Limited-liability company members (owners) are responsible for the liabilities of their limited-liability company.

True

False

2 points

QUESTION 12

Identify which of the following statements is true.

	The terms "regular corporation" and "C corporation" are synonymous.
	A corporation is a separate taxpaying entity that must file a tax return annually.
	A newly formed corporation must select its basic accounting method.
	All of the above are true.

2 points

QUESTION 13

Identify which of the following statements is true.

	The accumulated earnings tax is not levied on the corporation's total accumulated earnings balance, but only on its current-year addition to the balance.
	A corporation can be subject to both the accumulated earnings tax and the personal holding company tax in the same year.
	The accumulated earnings tax is applied to a corporation's earnings. If the earnings are not subsequently distributed, the earnings will be taxed again under the accumulated earnings tax the next year.
	All of the above are false.

2 points

QUESTION 14

Erin, Sarah, and Timmy are equal partners in EST Partnership. Sarah also owns 40% of Elton Corporation. The remaining 60% is owned 40% by Erin and 60% by Sarah's uncle. What percent ownership does Sarah directly or constructively own in Elton Corporation?

	80%
	64%
	40%
	100%

2 points

QUESTION 15

Identify which of the following statements is false.

	Members of an affiliated group can claim a 90% dividends-received deduction for dividends received from other group members that is not subject to a taxable income limitation.
	A corporate dividends-received deduction is not allowed for dividends received on stock held for 40 days.
	The 70% dividends-received deduction is limited to 70% of the taxable income of the corporation without regard to any NOL deduction, any capital loss carryback, and the dividends-received deduction itself unless the dividends-received deduction produces an NOL.
	All of the above are false.

2 points

QUESTION 16

There are no tax consequences of a partnership converting to a C corporation.

True

False

2 points

QUESTION 17

Which of the following is not an advantage of a limited-liability company (LLC)?

	Ability to choose between taxation as a partnership or corporation
	Limited liability for all members of an LLC
	Double taxation
	All of the above are advantages of an LLC.

2 points

QUESTION 18

A Canadian subsidiary cannot file as part of the consolidated group with its U.S. parent.

True

False

2 points

QUESTION 19

Jeremy, an American citizen, earned $200,000 during 2011 while employed in Saudi Arabia. Jeremy is entitled to the maximum foreign-earned income exclusion. Jeremy also incurred $40,000 of deductible expenses attributable to the foreign-earned income. Jeremy may deduct how much in expenses?

	$0
	$40,000
	$21,420
	$18,580

2 points

QUESTION 20

Bart has a partnership interest with a $32,000 basis. He receives a current distribution of $6,000 cash, unrealized receivables (FMV $9,000, basis $10,000), inventory (FMV $8,000, basis $4,000), investment land (FMV $7,000, basis $4,000), and a building (FMV $20,000, basis $8,000). No depreciation recapture applies with respect to the building. The partners' relative interests in the Sec. 751 assets do not change as a result of the current distribution. Bart?s basis in the building is:

	$4,000
	$3,000
	$8,000
	$6,000

2 points

QUESTION 21

Identify which of the following statements is true.

	A corporation's net capital gain (minus any federal income taxes paid with respect to such gain) increases the tax base for the accumulated earnings tax.
	A corporation accumulates earnings to fund a buy-sell agreement. Such an accumulation of earnings is a reasonable business need.
	A corporation accumulates earnings to fund the redemption of a shareholder's stock following her death so as to provide her estate with liquidity to pay death taxes. Such an accumulation of earnings is a reasonable business need.
	All of the above are false.

2 points

QUESTION 22

For 2011, the maximum foreign-earned income exclusion is

	$95,000
	$91,500
	$92,900
	None of the above

2 points

QUESTION 23

Which of the following statements about a partnership is true?

	Partners are taxed on their allocable share of income whether it is distributed or not.
	Partners are considered employees of the partnership.
	Partners are taxed on distributions from a partnership.
	A partnership is a taxpaying entity.

2 points

QUESTION 24

Tia owns 2,000 shares of Bass Corporation common stock with an $80,000 basis. Bass distributes a nontaxable preferred stock dividend. When the preferred stock is distributed, it has an FMV of $60,000, and the FMV of the 2,000 common stock shares is $180,000. The basis of the preferred stock is:

	$20,000
	$0
	$80,000
	$60,000

2 points

QUESTION 25

Which of the following actions cannot be used to eliminate a potential accumulated earnings tax liability situation involving a corporation owned by a mother and a father?

	Make a cash distribution within 2.5 months after the end of the tax year.
	Create plans to invest retained earnings in a plant expansion.
	Liquidate the corporation.
	Make a deficiency distribution within 90 days of the date on which the IRS determines that an accumulated earnings tax liability is owed.

2 points

QUESTION 26

The accumulated earnings tax does not apply to corporations that:

	Are closely held corporations
	Are personal holding companies
	Are members of a controlled group
	Have more than one class of stock

2 points

QUESTION 27

Ashley, a calendar year taxpayer, owns 400 shares of Yale Corporation stock that she purchased 2 years ago for $4,000. In the current year, Ashley sells all 400 shares of the Yale Corporation stock for $2,400 on December 27. On January 4 of the following year, Ashley purchases 300 shares of Yale Corporation stock for $800. Ashley's recognized loss and her basis in the newly purchased 300 shares of Yale Corporation stock are:

Recognized Loss	Basis
$0	$3,200

Recognized Loss	Basis
$1,600	$800

Recognized Loss	Basis
$400	$2,000

Recognized Loss	Basis
$1,200	$2,000

2 points

QUESTION 28

A corporation can be subject to both the accumulated earnings tax and the personal holding company tax in the same year.

True

False

2 points

QUESTION 29

Glacier Corporation, a large retail sales company, has a taxable income of $20,000,000. What is Glacier Corporation's tax?

	$7,200,000
	$7,800,000
	$7,000,000
	$6,800,000

2 points

QUESTION 30

To avoid the accumulated earnings tax, a corporation needs to have a definite plan for expending the accumulated earnings.

True

False

2 points

QUESTION 31

Melanie, a U.S. citizen living in Paris, France, for the last 3 years, earns a salary of $110,000 in 2011. Melanie's housing costs are $24,000 per year, which is reasonable. How much can Melanie exclude from income?

	$92,900
	$24,000
	$102,036
	$134,000

2 points

QUESTION 32

Distributions from corporations to the shareholders in a nonliquidating distribution will usually be classified as a dividend up to the amount of the corporation?s:

	Retained earnings
	Earnings and profits
	Stock basis
	Taxable income for the year

2 points

QUESTION 33

Identify which of the following statements is false.

	The check-the-box regulations permit an LLC to be taxed as a C corporation.
	Under the check-the-box regulations, an LLC that has only two members (owners) must be taxed as a partnership.
	Once an election is made to change its classification, an entity cannot change again for 60 months.
	A business need not be incorporated under state or federal law to be taxed as a corporation.

2 points

QUESTION 34

Corporations recognize gains and losses on the distribution of property to shareholders if the property's fair market value differs from its basis.

True

False

2 points

QUESTION 35

All of the following are recognized as reasons for accumulating earnings except:

	Working capital needs
	Redemption of stock of deceased shareholder
	Product liability loss reserves
	All of the above are recognized reasons for accumulating earnings

2 points

QUESTION 36

Identify which of the following statements is true.

	If a corporation receives dividends eligible for the 80% dividends-received deduction and the 70% dividends-received deduction, the 70% dividends-received deduction reduces taxable income prior to the 80% deduction.
	The dividends-received deduction is designed to reduce double taxation of corporate dividends.
	The full 80% dividends-received deduction is available without restriction.
	All of the above are false.

2 points

QUESTION 37

Identify which of the following statements is false.

	The distribution of stock rights is generally tax free under Sec. 305.
	The distribution of stock rights will be taxable if the value of the stock rights is more than 15% of the value of the underlying stock.
	The holding period for stock rights includes the holding period for the underlying stock.
	If the value of stock rights is less than 15% of the value of the underlying stock, the basis of the rights is zero unless the shareholder elects to allocate basis to the rights.

2 points

QUESTION 38

An election to forgo an NOL carryback must be made on or before the return due date (including extensions) for the year in which the NOL is incurred.

True

False

2 points

QUESTION 39

In a taxable distribution of stock, the recipient shareholder takes a basis equal to the FMV of the stock received.

True

False

2 points

QUESTION 40

In an S corporation, shareholders

	May allocate income among themselves in order to consider special contributions
	Are taxed on their proportionate share of earnings
	Are only taxed on salaries
	Are taxed only on dividends

2 points

QUESTION 41

Distributions in excess of a corporation's current and accumulated earnings and profits are treated as a nontaxable recovery of capital unless they exceed the basis of the stock.

True

False

2 points

QUESTION 42

Three members form an LLC in the current year. Which of the following statements is incorrect?

	If the LLC elects to use its default classification, it can elect to change its status to being taxed as a C corporation beginning with the third tax year after the initial classification.
	The LLC's default classification under the check-the-box rules is as a partnership.
	The LLC can elect to be taxed as a C corporation with no special tax consequences.
	The LLC can elect to have its default classification ignored.

2 points

QUESTION 43

Identify which of the following statements is true.

	An election to forgo an NOL carryback must be made on or before the return due date (including extensions) for the year in which the NOL is incurred.
	In computing an NOL for the current year, a deduction is allowed for NOLs from previous years.
	A corporate NOL can be carried back two years and forward 15 years.
	All of the above are false.

2 points

QUESTION 44

S corporations must allocate income to shareholders based on their proportionate stock.

True

False

2 points

QUESTION 45

In a limited-liability partnership, a partner is liable for his or her own acts of negligence or misconduct.

True

False

2 points

QUESTION 46

In September of 2011, Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000. She had held the stock for 7 months. Forty-five days after the sale, she purchased other qualified small business stock for $1,100,000. How much of the gain will she recognize?

	$800,000
	$-0-
	$100,000
	$900,000

2 points

QUESTION 47

Which of following generally does not indicate an unreasonable earnings accumulation?

	Expenditure of corporate funds for the personal benefit of the shareholders
	Investments in properties or securities unrelated to the activities of the corporation
	Loans to shareholders
	Planned expansion of business facilities

2 points

QUESTION 48

When computing the accumulated earnings tax, which of the following is not a reduction to arrive at accumulated taxable income?

	Accrued federal income taxes
	Dividends-paid deduction
	Accumulated earnings credit
	NOL deduction claimed

2 points

QUESTION 49

An individual shareholder owns 3,000 shares of Baxter Corporation common stock with a basis of $10 per share. She receives a nontaxable 5% stock dividend. The basis per share of the common stock after the stock dividend is:

	$9.52
	$10.00
	$9.00
	$9.50

2 points

QUESTION 50

All of the following are classified as flow-through entities for tax purposes except:

	S corporations
	Limited-liability companies
	C corporations
	Partnerships

2 points

1. QUESTION 1 Money Corporation has the following income and expenses for the tax year: Gross profit on sales: Expenses: Dividends received from less-than-20%-owned domestic corporations: $200,0 00 700,00 0 20,000 2. What is Money's net operating loss? $220,0 00 $480,0 00 $520,0 00 $494,0 00 2 points 1. QUESTION 2 On January 1, Helmut pays $2,000 for a 10% capital, profits, and loss interest in a partnership, which has recourse liabilities of $20,000. The partners share economic risk of loss from recourse liabilities in the same way they share partnership losses. In the same year, the partnership incurs losses of $6,000, and the recourse liabilities increase by $5,000. Helmut and the partnership use a calendar tax year-end. Helmut's basis at year-end is: $1,5 00 $3,5 00 $3,9 00 $2,0 00 2 points QUESTION 3 1. Identify which of the following statements is true. Payment of deficiency dividends will prevent the imposition of the accumulated earnings tax. A health service corporation can claim an accumulated earnings credit of $250,000. All corporations are exempt from the accumulated earnings tax on their first $250,000 of accumulated earnings. All of the above are false. 2 points QUESTION 4 1. What is an important aspect of a limited-liability partnership? It is the same as a limited partnership where the general partner has unlimited liability. All partners have unlimited liability. All partners have limited liability regarding all partnership activities. Partners have unlimited liability arising from his or her own acts of negligence or misconduct or similar acts of any person under his or her direct supervision. 2 points 1. QUESTION 5 Identify which of the following statements is true. The NOL deduction claimed by a corporation must be taken after the dividends-received deduction. The charitable contribution deduction is computed after the deduction for an NOL. The charitable contribution deduction is computed after the dividendsreceived deduction. All of the above are false. 2 points 1. QUESTION 6 A corporation cannot reasonably accumulate earnings to: Fund an employee retirement plan Protect against pending litigation Redeem stock of an elderly shareholder where such accumulation occurs prior to the shareholder's death Self-insure 2 points 1. QUESTION 7 The recipient of a taxable stock dividend includes the value of the stock received in gross income, and that amount becomes the basis for the stock received. True False 2 points 1. QUESTION 8 All of the following statements are true except: The net income of an S corporation is subject to double taxation because it is taxed at the entity level, and dividends paid from the S corporation to individual shareholders are also taxed. LLCs are generally taxed as partnerships. The net income of a C corporation is subject to double taxation because it is taxed at the entity level, and dividends paid from the C corporation to individual shareholders is also taxed. The net income earned by a sole proprietorship is reported on the owner's individual income tax return. 2 points 1. QUESTION 9 When computing the accumulated earnings tax, the dividends-paid deduction is not available for: Throwback dividends Dividends paid during the tax year Stock dividends All of the above are deductible. 2 points QUESTION 10 1. Which of the following is not permitted an accumulated earnings credit based on reasonable needs of the business? An incorporated engineer An operating company An investment company All of the above are permitted a credit based on reasonable business needs. 2 points QUESTION 11 1. Limited-liability company members (owners) are responsible for the liabilities of their limited-liability company. True False 2 points QUESTION 12 1. Identify which of the following statements is true. The terms "regular corporation" and "C corporation" are synonymous. A corporation is a separate taxpaying entity that must file a tax return annually. A newly formed corporation must select its basic accounting method. All of the above are true. 2 points QUESTION 13 1. Identify which of the following statements is true. The accumulated earnings tax is not levied on the corporation's total accumulated earnings balance, but only on its current-year addition to the balance. A corporation can be subject to both the accumulated earnings tax and the personal holding company tax in the same year. The accumulated earnings tax is applied to a corporation's earnings. If the earnings are not subsequently distributed, the earnings will be taxed again under the accumulated earnings tax the next year. All of the above are false. 2 points QUESTION 14 1. Erin, Sarah, and Timmy are equal partners in EST Partnership. Sarah also owns 40% of Elton Corporation. The remaining 60% is owned 40% by Erin and 60% by Sarah's uncle. What percent ownership does Sarah directly or constructively own in Elton Corporation? 80% 64% 40% 100 % 2 points QUESTION 15 1. Identify which of the following statements is false. Members of an affiliated group can claim a 90% dividends-received deduction for dividends received from other group members that is not subject to a taxable income limitation. A corporate dividends-received deduction is not allowed for dividends received on stock held for 40 days. The 70% dividends-received deduction is limited to 70% of the taxable income of the corporation without regard to any NOL deduction, any capital loss carryback, and the dividends-received deduction itself unless the dividends-received deduction produces an NOL. All of the above are false. 2 points QUESTION 16 1. There are no tax consequences of a partnership converting to a C corporation. True False 2 points QUESTION 17 1. Which of the following is not an advantage of a limited-liability company (LLC)? Ability to choose between taxation as a partnership or corporation Limited liability for all members of an LLC Double taxation All of the above are advantages of an LLC. 2 points QUESTION 18 1. A Canadian subsidiary cannot file as part of the consolidated group with its U.S. parent. True False 2 points QUESTION 19 1. Jeremy, an American citizen, earned $200,000 during 2011 while employed in Saudi Arabia. Jeremy is entitled to the maximum foreign-earned income exclusion. Jeremy also incurred $40,000 of deductible expenses attributable to the foreign-earned income. Jeremy may deduct how much in expenses? $0 $40,0 00 $21,4 20 $18,5 80 2 points 1. QUESTION 20 Bart has a partnership interest with a $32,000 basis. He receives a current distribution of $6,000 cash, unrealized receivables (FMV $9,000, basis $10,000), inventory (FMV $8,000, basis $4,000), investment land (FMV $7,000, basis $4,000), and a building (FMV $20,000, basis $8,000). No depreciation recapture applies with respect to the building. The partners' relative interests in the Sec. 751 assets do not change as a result of the current distribution. Bart's basis in the building is: $4,0 00 $3,0 00 $8,0 00 $6,0 00 2 points QUESTION 21 1. Identify which of the following statements is true. A corporation's net capital gain (minus any federal income taxes paid with respect to such gain) increases the tax base for the accumulated earnings tax. A corporation accumulates earnings to fund a buy-sell agreement. Such an accumulation of earnings is a reasonable business need. A corporation accumulates earnings to fund the redemption of a shareholder's stock following her death so as to provide her estate with liquidity to pay death taxes. Such an accumulation of earnings is a reasonable business need. All of the above are false. 2 points QUESTION 22 1. For 2011, the maximum foreign-earned income exclusion is $95,000 $91,500 $92,900 None of the above 2 points QUESTION 23 1. Which of the following statements about a partnership is true? Partners are taxed on their allocable share of income whether it is distributed or not. Partners are considered employees of the partnership. Partners are taxed on distributions from a partnership. A partnership is a taxpaying entity. 2 points QUESTION 24 1. Tia owns 2,000 shares of Bass Corporation common stock with an $80,000 basis. Bass distributes a nontaxable preferred stock dividend. When the preferred stock is distributed, it has an FMV of $60,000, and the FMV of the 2,000 common stock shares is $180,000. The basis of the preferred stock is: $20,0 00 $0 $80,0 00 $60,0 00 2 points QUESTION 25 1. Which of the following actions cannot be used to eliminate a potential accumulated earnings tax liability situation involving a corporation owned by a mother and a father? Make a cash distribution within 2.5 months after the end of the tax year. Create plans to invest retained earnings in a plant expansion. Liquidate the corporation. Make a deficiency distribution within 90 days of the date on which the IRS determines that an accumulated earnings tax liability is owed. 2 points QUESTION 26 1. The accumulated earnings tax does not apply to corporations that: Are closely held corporations Are personal holding companies Are members of a controlled group Have more than one class of stock 2 points 1. QUESTION 27 Ashley, a calendar year taxpayer, owns 400 shares of Yale Corporation stock that she purchased 2 years ago for $4,000. In the current year, Ashley sells all 400 shares of the Yale Corporation stock for $2,400 on December 27. On January 4 of the following year, Ashley purchases 300 shares of Yale Corporation stock for $800. Ashley's recognized loss and her basis in the newly purchased 300 shares of Yale Corporation stock are: Recognized Loss $0 Recognized Loss $1,600 Basis $3,20 0 Basi s $80 0 Recognized Loss Basis $400 $2,00 0 Recognized Loss Basis $1,200 $2,00 0 2 points QUESTION 28 1. A corporation can be subject to both the accumulated earnings tax and the personal holding company tax in the same year. True False 2 points QUESTION 29 1. Glacier Corporation, a large retail sales company, has a taxable income of $20,000,000. What is Glacier Corporation's tax? $7,200,0 00 $7,800,0 00 $7,000,0 00 $6,800,0 00 2 points 1. QUESTION 30 To avoid the accumulated earnings tax, a corporation needs to have a definite plan for expending the accumulated earnings. True False 2 points 1. QUESTION 31 Melanie, a U.S. citizen living in Paris, France, for the last 3 years, earns a salary of $110,000 in 2011. Melanie's housing costs are $24,000 per year, which is reasonable. How much can Melanie exclude from income? $92,90 0 $24,00 0 $102,0 36 $134,0 00 2 points QUESTION 32 1. Distributions from corporations to the shareholders in a nonliquidating distribution will usually be classified as a dividend up to the amount of the corporation's: Retained earnings Earnings and profits Stock basis Taxable income for the year 2 points QUESTION 33 1. Identify which of the following statements is false. The check-the-box regulations permit an LLC to be taxed as a C corporation. Under the check-the-box regulations, an LLC that has only two members (owners) must be taxed as a partnership. Once an election is made to change its classification, an entity cannot change again for 60 months. A business need not be incorporated under state or federal law to be taxed as a corporation. 2 points 1. QUESTION 34 Corporations recognize gains and losses on the distribution of property to shareholders if the property's fair market value differs from its basis. True False 2 points 1. QUESTION 35 All of the following are recognized as reasons for accumulating earnings except: Working capital needs Redemption of stock of deceased shareholder Product liability loss reserves All of the above are recognized reasons for accumulating earnings 2 points 1. QUESTION 36 Identify which of the following statements is true. If a corporation receives dividends eligible for the 80% dividends-received deduction and the 70% dividends-received deduction, the 70% dividendsreceived deduction reduces taxable income prior to the 80% deduction. The dividends-received deduction is designed to reduce double taxation of corporate dividends. The full 80% dividends-received deduction is available without restriction. All of the above are false. 2 points QUESTION 37 1. Identify which of the following statements is false. The distribution of stock rights is generally tax free under Sec. 305. The distribution of stock rights will be taxable if the value of the stock rights is more than 15% of the value of the underlying stock. The holding period for stock rights includes the holding period for the underlying stock. If the value of stock rights is less than 15% of the value of the underlying stock, the basis of the rights is zero unless the shareholder elects to allocate basis to the rights. 2 points 1. QUESTION 38 An election to forgo an NOL carryback must be made on or before the return due date (including extensions) for the year in which the NOL is incurred. True False 2 points 1. QUESTION 39 In a taxable distribution of stock, the recipient shareholder takes a basis equal to the FMV of the stock received. True False 2 points 1. QUESTION 40 In an S corporation, shareholders May allocate income among themselves in order to consider special contributions Are taxed on their proportionate share of earnings Are only taxed on salaries Are taxed only on dividends 2 points 1. QUESTION 41 Distributions in excess of a corporation's current and accumulated earnings and profits are treated as a nontaxable recovery of capital unless they exceed the basis of the stock. True False 2 points 1. QUESTION 42 Three members form an LLC in the current year. Which of the following statements is incorrect? If the LLC elects to use its default classification, it can elect to change its status to being taxed as a C corporation beginning with the third tax year after the initial classification. The LLC's default classification under the check-the-box rules is as a partnership. The LLC can elect to be taxed as a C corporation with no special tax consequences. The LLC can elect to have its default classification ignored. 2 points QUESTION 43 1. Identify which of the following statements is true. An election to forgo an NOL carryback must be made on or before the return due date (including extensions) for the year in which the NOL is incurred. In computing an NOL for the current year, a deduction is allowed for NOLs from previous years. A corporate NOL can be carried back two years and forward 15 years. All of the above are false. 2 points 1. QUESTION 44 S corporations must allocate income to shareholders based on their proportionate stock. True False 2 points 1. QUESTION 45 In a limited-liability partnership, a partner is liable for his or her own acts of negligence or misconduct. True False 2 points 1. QUESTION 46 In September of 2011, Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000. She had held the stock for 7 months. Forty-five days after the sale, she purchased other qualified small business stock for $1,100,000. How much of the gain will she recognize? $800,0 00 $-0$100,0 00 $900,0 00 2 points 1. QUESTION 47 Which of following generally does not indicate an unreasonable earnings accumulation? Expenditure of corporate funds for the personal benefit of the shareholders Investments in properties or securities unrelated to the activities of the corporation Loans to shareholders Planned expansion of business facilities 2 points QUESTION 48 1. When computing the accumulated earnings tax, which of the following is not a reduction to arrive at accumulated taxable income? Accrued federal income taxes Dividends-paid deduction Accumulated earnings credit NOL deduction claimed 2 points QUESTION 49 1. An individual shareholder owns 3,000 shares of Baxter Corporation common stock with a basis of $10 per share. She receives a nontaxable 5% stock dividend. The basis per share of the common stock after the stock dividend is: $9.5 2 $10. 00 $9.0 0 $9.5 0 2 points QUESTION 50 1. All of the following are classified as flow-through entities for tax purposes except: S corporations Limited-liability companies C corporations Partnerships 2 points