CTP Business Taxation & Entity Structures Flashcards

Under IRC §1244, a loss on the sale of qualifying small business stock may be treated as:

Answer: Ordinary loss up to $50,000 ($100,000 MFJ) per year

IRC §1244 allows individual shareholders to treat losses on qualifying small business stock as ordinary losses, up to $50,000 ($100,000 on a joint return) annually.

A C Corporation's dividends-received deduction (DRD) for dividends received from a 20%-owned domestic corporation is:

Answer: 65%

A C Corporation that owns at least 20% but less than 80% of another domestic corporation may deduct 65% of dividends received under IRC §243.

Which of the following is NOT a requirement for a corporation to elect S Corporation status?

Answer: The corporation must have at least one class of preferred stock

S Corporations are only permitted to have one class of stock; having preferred stock would disqualify the election under IRC §1361.

For a partner to have a basis in a partnership interest, which item increases the partner's outside basis?

Answer: The partner's share of partnership liabilities

Under IRC §752, a partner's outside basis is increased by their share of partnership liabilities, including recourse and nonrecourse debt.

Which entity type is most commonly used for professional service firms (e.g., law, accounting) to limit individual liability while maintaining pass-through taxation?

Answer: Limited Liability Partnership (LLP)

LLPs allow professional service firm partners to benefit from pass-through taxation while limiting personal liability for the malpractice of other partners.

When a C Corporation liquidates and distributes property to shareholders, the corporation generally recognizes:

Answer: Gain or loss as if the property were sold at fair market value

Under IRC §336, a corporation recognizes gain or loss on property distributed in a complete liquidation as if the property had been sold at its fair market value.