CTC Business Taxation & Entity Structures 3

Question 1

When a corporation distributes appreciated property to its shareholders, what is the tax consequence to the corporation?

Accepted Answer

The corporation recognizes gain as if it sold the property at fair market value

Answer

Under IRC Section 311, a corporation must recognize gain when it distributes appreciated property as if it had sold it at fair market value.

Question 2

What happens to a partner's outside basis when the partnership takes on additional recourse debt?

Accepted Answer

Outside basis increases by the partner's share of the new debt

Answer

A partner's outside basis increases by their allocable share of any new partnership recourse debt under IRC Section 752.

Question 3

Which corporate formation requirement under IRC Section 351 must be met to defer gain recognition?

Accepted Answer

The transferors must control at least 80% of the corporation immediately after the transfer

Answer

IRC Section 351 requires that the transferors own at least 80% of the total combined voting power and 80% of all other classes of stock immediately after the exchange.

Question 4

For federal income tax purposes, how is a single-member LLC treated by default?

Accepted Answer

As a disregarded entity (sole proprietorship)

Answer

A single-member LLC is treated as a disregarded entity by default, meaning its activities are reported on the owner's individual tax return as a sole proprietorship.

Question 5

What is the primary tax benefit of making a qualified subchapter S subsidiary (QSub) election?

Accepted Answer

The subsidiary is treated as a disregarded entity, simplifying consolidated reporting

Answer

A QSub election causes the subsidiary to be treated as a disregarded entity owned by the parent S corporation, eliminating a separate filing requirement.

(CTC) Chartered Tax Consultant Practice Test

(CTC) Chartered Tax Consultant Practice Test

CTC Business Taxation & Entity Structures 3