CTP CTP Business Taxation & Entity Structures

Question 1

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

Accepted Answer

C Corporation

Answer

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

Question 2

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

Accepted Answer

The shareholder must be an active employee receiving reasonable compensation

Answer

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.

Question 3

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

Accepted Answer

The contributing partner's adjusted basis in the property

Answer

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

Question 4

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

Accepted Answer

Form 1120

Answer

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

Question 5

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

Accepted Answer

Disregarded entity (sole proprietorship)

Answer

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.

(CTP) Certified Tax Professional Practice Test

(CTP) Certified Tax Professional Practice Test

CTP CTP Business Taxation & Entity Structures