SOUTH WESTERN FEDERAL TAXATION FINAL
PAPER 2026 QUESTIONS WITH ANSWERS
GRADED A+
◉ partnerships. Answer: - unlimited liability, partners' personal assets at
risk
- business reports income on a Form 1065
- not subject to Federal income tax
- must file separately
- most income/expenses aggregated on 1065
- some separately stated items include interest, dividend income, and
long-term capital gains
- partnership income/loss flows to partners and is taxable at individual
level
◉ S corporations. Answer: - governed by Subchapter S of IRC
- files on Form 1120
- generally don't pay Federal income tax
- similar to partnerships, income/loss flows to shareholders
◉ C corporations. Answer: - governed by Subchapter C of IRC
- separate business entity
, - files on Form 1120
- subject to entity-level Federal income tax
- results in double-taxation effect
- dividends distributed to shareholders are taxable at the individual level
- easy to raise large amounts of capital through widespread stock
ownership
◉ regular corporations. Answer: C corporations are considered regular
corporations
◉ limited liability company (LLC). Answer: - avoids unlimited liability
exposure
- may qualify to be taxed as proprietorships or partnerships
- some states allow centralized management
- some states allow continuity of life and/or free transferability of
interests
◉ continuity of life. Answer: death or withdrawal of shareholders does
not result in dissolution of corporation, distinct advantage of corporate
form of business
◉ unlimited liability. Answer: creditors may file claims not only against
business assets but also against personal assets of proprietors or partners
PAPER 2026 QUESTIONS WITH ANSWERS
GRADED A+
◉ partnerships. Answer: - unlimited liability, partners' personal assets at
risk
- business reports income on a Form 1065
- not subject to Federal income tax
- must file separately
- most income/expenses aggregated on 1065
- some separately stated items include interest, dividend income, and
long-term capital gains
- partnership income/loss flows to partners and is taxable at individual
level
◉ S corporations. Answer: - governed by Subchapter S of IRC
- files on Form 1120
- generally don't pay Federal income tax
- similar to partnerships, income/loss flows to shareholders
◉ C corporations. Answer: - governed by Subchapter C of IRC
- separate business entity
, - files on Form 1120
- subject to entity-level Federal income tax
- results in double-taxation effect
- dividends distributed to shareholders are taxable at the individual level
- easy to raise large amounts of capital through widespread stock
ownership
◉ regular corporations. Answer: C corporations are considered regular
corporations
◉ limited liability company (LLC). Answer: - avoids unlimited liability
exposure
- may qualify to be taxed as proprietorships or partnerships
- some states allow centralized management
- some states allow continuity of life and/or free transferability of
interests
◉ continuity of life. Answer: death or withdrawal of shareholders does
not result in dissolution of corporation, distinct advantage of corporate
form of business
◉ unlimited liability. Answer: creditors may file claims not only against
business assets but also against personal assets of proprietors or partners
