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CTP Business Taxation & Entity Structures Flashcards

6 cards from real CTP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. Which business entity type is subject to double taxation in the United States?

    Answer: C Corporation

    C Corporations pay corporate-level income tax, and shareholders also pay tax on dividends received, resulting in double taxation.

  2. An S Corporation shareholder must meet which requirement to avoid paying self-employment tax on their share of business income?

    Answer: The shareholder must be an active employee receiving reasonable compensation

    S Corporation shareholders who are employees must receive reasonable compensation subject to payroll taxes; remaining pass-through income is not subject to self-employment tax.

  3. A partnership's basis in property contributed by a partner is generally equal to:

    Answer: The contributing partner's adjusted basis in the property

    Under IRC §723, a partnership takes a carryover basis equal to the contributing partner's adjusted basis in the contributed property.

  4. Which IRS form is used by a C Corporation to file its annual federal income tax return?

    Answer: Form 1120

    C Corporations file Form 1120 to report their income, deductions, and tax liability to the IRS each year.

  5. Under the check-the-box regulations, a single-member LLC is treated as which entity by default for federal tax purposes?

    Answer: Disregarded entity (sole proprietorship)

    By default under Treas. Reg. §301.7701-3, a single-member LLC is disregarded and its activity is reported on the owner's personal return.

  6. Which of the following best describes the accumulated earnings tax?

    Answer: A tax imposed on C Corporations that retain earnings beyond reasonable business needs to avoid dividend taxation

    The accumulated earnings tax under IRC §531 penalizes C Corporations that accumulate earnings beyond reasonable business needs to shield shareholders from dividend tax.