BUL 3310 BAILEY EXAM 4 FSU 2026
Questions and Answers
Which of the following statements about LLC's is false?
LLC's are a relatively new form of business organization.
There is an extensive body of law based on court decisions governing LLC's.
Shareholders have no personal liability for the debts of the LLC.
The LLC is not a taxable entity. - Correct answer-There is an extensive body of
law based on court decisions governing LLC's.
Investors favor using Limited Partnerships to invest in commercial real estate
because they can use the depreciation of the property as a tax loss.
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,T or F - Correct answer-True
Professional corporations are business entities organized under state law.
T/F? - Correct answer-True
Allfam is a closely held family corporation, many of whose shareholders are
employees of the corporation. In an attempt to reduce its taxes, Allfam paid its
shareholder-employees enormous salaries and deducted the salaries as a corporate
expense. Is Allfam permitted to do this?
Yes, this is a legitimate way for closely held corporations to reduce their taxes.
No, the IRS will disallow the deductions for unreasonably high salaries and tax
them as dividends.
No, the shareholder-employees will have do return the excess portion of their
salaries to the corporation.
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,No, the IRS will disallow the deductions for this year, but will allow the
corporation to treat them as carry-forward losses for next year. - Correct answer-
No, the IRS will disallow the deductions for unreasonably high salaries and tax
them as dividends
Which of the following statements about the limited partner in a limited
partnership is FALSE?
Limited partners may participate fully in the management of the partnership.
There must be at least one limited partner.
Limited partners must approve any changes to the partnership agreement.
Limited partnerships that invest in real estate are typically good tax shelters for the
limited partners. - Correct answer-Limited partners may participate fully in the
management of the partnership.
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, Vic and Thom bought an antique Corvette at auction with the intent of restoring it
and selling it for a profit, which they will share equally. Vic and Thom have formed
a professional association.
T/F? - Correct answer-False
Members of professional associations and professional corporations are eligible
under the Tax Code to participate in pension and profit-sharing plans.
T/F? - Correct answer-True
In a Limited Liability Company, the losses and profits pass through to the
shareholders.
T/F? - Correct answer-True
The partnership must pay interest each year on the capital contributions of the
partners.
False - Correct answer-False
©COPYRIGHT 2025, ALL RIGHTS RESERVED 4
Questions and Answers
Which of the following statements about LLC's is false?
LLC's are a relatively new form of business organization.
There is an extensive body of law based on court decisions governing LLC's.
Shareholders have no personal liability for the debts of the LLC.
The LLC is not a taxable entity. - Correct answer-There is an extensive body of
law based on court decisions governing LLC's.
Investors favor using Limited Partnerships to invest in commercial real estate
because they can use the depreciation of the property as a tax loss.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,T or F - Correct answer-True
Professional corporations are business entities organized under state law.
T/F? - Correct answer-True
Allfam is a closely held family corporation, many of whose shareholders are
employees of the corporation. In an attempt to reduce its taxes, Allfam paid its
shareholder-employees enormous salaries and deducted the salaries as a corporate
expense. Is Allfam permitted to do this?
Yes, this is a legitimate way for closely held corporations to reduce their taxes.
No, the IRS will disallow the deductions for unreasonably high salaries and tax
them as dividends.
No, the shareholder-employees will have do return the excess portion of their
salaries to the corporation.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
,No, the IRS will disallow the deductions for this year, but will allow the
corporation to treat them as carry-forward losses for next year. - Correct answer-
No, the IRS will disallow the deductions for unreasonably high salaries and tax
them as dividends
Which of the following statements about the limited partner in a limited
partnership is FALSE?
Limited partners may participate fully in the management of the partnership.
There must be at least one limited partner.
Limited partners must approve any changes to the partnership agreement.
Limited partnerships that invest in real estate are typically good tax shelters for the
limited partners. - Correct answer-Limited partners may participate fully in the
management of the partnership.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
, Vic and Thom bought an antique Corvette at auction with the intent of restoring it
and selling it for a profit, which they will share equally. Vic and Thom have formed
a professional association.
T/F? - Correct answer-False
Members of professional associations and professional corporations are eligible
under the Tax Code to participate in pension and profit-sharing plans.
T/F? - Correct answer-True
In a Limited Liability Company, the losses and profits pass through to the
shareholders.
T/F? - Correct answer-True
The partnership must pay interest each year on the capital contributions of the
partners.
False - Correct answer-False
©COPYRIGHT 2025, ALL RIGHTS RESERVED 4
