CFC Business Financial Planning

Question 1

Which business entity structure provides limited liability to all owners while allowing profits and losses to pass through to personal tax returns?

Accepted Answer

Limited liability company (LLC)

Answer

C corporation

Answer

Sole proprietorship

Answer

General partnership

Question 2

A CFC advises a business owner on a Section 1031 exchange. This provision allows deferral of capital gains tax when:

Accepted Answer

Exchanging like-kind real property for other qualifying real property

Answer

Selling appreciated stock and buying index funds

Answer

Converting a C corp to an S corp

Answer

Selling a business and reinvesting in an IRA

Question 3

Which business succession strategy allows a departing owner to receive installment payments over time while the business transfers to a buyer?

Accepted Answer

Installment sale

Answer

Leveraged buyout

Answer

ESOP leveraged buyout

Answer

Charitable lead trust

Question 4

An Employee Stock Ownership Plan (ESOP) allows a business owner to sell shares to the ESOP and, if certain conditions are met under Section 1042, defer capital gains by:

Accepted Answer

Reinvesting into qualifying replacement property (QRP) like stocks and bonds

Answer

Reinvesting proceeds into a Roth IRA

Answer

Donating shares to a charitable foundation

Answer

Converting to an S corporation simultaneously

Question 5

A closely held business using the 'family limited partnership' (FLP) structure can transfer wealth by leveraging:

Accepted Answer

Valuation discounts for lack of control and lack of marketability

Answer

Stepped-up basis for all transferred assets

Answer

Annual gift tax exclusions only

Answer

S corporation election rules

Question 6

Which financial planning consideration is most critical when a CFC advises a client on switching from a C corporation to an S corporation?

Accepted Answer

Built-in gains tax on appreciated C corp assets during a 5-year recognition period

Answer

The S corp must have exactly 100 shareholders on Day 1

Answer

Loss of limited liability protection upon conversion

Answer

S corps cannot issue any class of stock