Question

Bread Corporation is a C corporation with earnings of $100,000. It paid $20,000 in dividends to its sole shareholder, Gerald. Gerald also owns 100% of Butter Corporation, an S corporation. Butter had net taxable income of $80,000 and made a $15,000 distribution to Gerald. What income will Gerald report from Bread and Butter's activities? A) $35,000 B) $95,000 C) $100,000 D) $180,000 4. Identify which of the following statements is false. A) The check-the-box regulations permit an LLC to be taxed as a C corporation. B) Under the check-the-box regulations, an LLC that has only two members (owners) must be taxed as a partnership. C) A business need not be incorporated under state or federal law to be taxed as a corporation. D) Once an election is made to change its classification, an entity cannot change again for 60 months. 5. Identify which of the following statements is true. A) The exchange of stock for services rendered is not a taxable transaction. B) The repeal of Sec. 351 would result in more existing businesses being incorporated. C) Section 351 was enacted to allow taxpayers to incorporate without incurring adverse tax consequences. D) All of the above are false.

Answer 1

Question - (3)

Answer -

Gerald's income -

= Butter's net taxable income + Dividends

= $80000 + $20000

= $100000.

Hence, Option - (C) is Correct.

.

Question - (4)

Answer -

Option - (B) - Under the check-the-box regulations, an LLC that has only two members (owners) must be taxed as a partnership, is Correct, because the given statement is false.

.

Question - (5)

Answer -

Option - (C) - Section 351 was enacted to allow taxpayers to incorporate without incurring adverse tax consequences, is Correct, because the given statement is true.