BUS-A 339 Advanced Income Tax
BUS-A 339 - ADVANCED INCOME TAX | EXAM QUESTIONS AND
CORRECT ANSWERS | VERIFIED EXAM LATEST VERSION
BUS-A 339 Advanced Income Tax
1. Under the check-the-box regulations, a newly formed domestic LLC
with two members that does not file an election is classified for federal
tax purposes as a:
A. Partnership
B. S corporation
C. C corporation
D. Disregarded entity
A. Partnership
A domestic eligible entity with two or more owners defaults to
partnership status unless it elects to be taxed as an association.
Page 1 of 68
, BUS-A 339 Advanced Income Tax
2. A domestic single-member LLC that never files Form 8832 is treated
by default as a:
A. Disregarded entity
B. Simple trust
C. C corporation
D. Partnership
A. Disregarded entity
An eligible entity with one owner is disregarded by default, so its activity
is reported directly by the owner.
3. Which of the following entities is NOT permitted to elect its
classification under the check-the-box regulations?
A. A two-member LLC
B. A limited liability partnership
C. A single-member LLC
D. A business incorporated under a state corporation statute
D. A business incorporated under a state corporation statute
A state-law corporation is a per se corporation and is always taxed as a
corporation; only eligible entities may choose.
4. A C corporation earns $100,000 of taxable income and distributes all
of its after-tax earnings to an individual shareholder who pays 20% on
qualified dividends. Ignoring the net investment income tax, the
combined federal income tax on these earnings is:
A. $41,000
B. $21,000
C. $36,800
D. $20,000
C. $36,800
Corporate tax is $21,000; the $79,000 dividend is taxed at 20% ($15,800),
for a total of $36,800.
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, BUS-A 339 Advanced Income Tax
5. Which of the following is generally NOT subject to federal income tax
at the entity level?
A. A personal service corporation
B. A C corporation
C. A partnership
D. A personal holding company
C. A partnership
Partnerships are flow-through entities; income and deductions pass to the
partners, who report them on their own returns.
6. After an eligible entity changes its classification by election, it
generally may not make another classification change for:
A. 36 months
B. 12 months
C. 24 months
D. 60 months
D. 60 months
The regulations bar a new election for 60 months after an elective change
unless the IRS grants permission.
7. Which owner's share of ordinary business income is generally
subject to self-employment tax?
A. A C corporation shareholder's dividends
B. A general partner's distributive share
C. A limited partner's distributive share other than guaranteed payments
for services
D. An S corporation shareholder's pro rata share
B. A general partner's distributive share
A general partner's distributive share of trade or business income is net
earnings from self-employment.
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, BUS-A 339 Advanced Income Tax
8. Under current law, a qualified personal service corporation is taxed
at:
A. A flat 21% rate
B. A flat 35% rate
C. Graduated rates from 15% to 35%
D. The top individual rate of 37%
A. A flat 21% rate
Since 2018, all C corporations, including personal service corporations,
pay a single 21% rate.
9. A frequently cited tax advantage of operating as a C corporation is
that:
A. Distributions to shareholders are never taxed
B. Retained earnings are taxed at a flat 21%, which may be lower than the
owners' individual rates
C. The corporation is exempt from state income taxes
D. Operating losses flow through to the shareholders
B. Retained earnings are taxed at a flat 21%, which may be lower
than the owners' individual rates
Earnings kept in the business bear only the 21% corporate rate until they
are distributed.
10. The qualified business income deduction under §199A may be
claimed by:
A. Only corporations with gross receipts under $25 million
B. Individual owners of partnerships, S corporations and sole
proprietorships
C. Only partnerships with more than 100 partners
D. C corporations
B. Individual owners of partnerships, S corporations and sole
proprietorships
The §199A deduction is a noncorporate deduction claimed by individuals,
trusts and estates on pass-through business income.
Section B: Corporate Formation Under §351
Page 4 of 68
BUS-A 339 - ADVANCED INCOME TAX | EXAM QUESTIONS AND
CORRECT ANSWERS | VERIFIED EXAM LATEST VERSION
BUS-A 339 Advanced Income Tax
1. Under the check-the-box regulations, a newly formed domestic LLC
with two members that does not file an election is classified for federal
tax purposes as a:
A. Partnership
B. S corporation
C. C corporation
D. Disregarded entity
A. Partnership
A domestic eligible entity with two or more owners defaults to
partnership status unless it elects to be taxed as an association.
Page 1 of 68
, BUS-A 339 Advanced Income Tax
2. A domestic single-member LLC that never files Form 8832 is treated
by default as a:
A. Disregarded entity
B. Simple trust
C. C corporation
D. Partnership
A. Disregarded entity
An eligible entity with one owner is disregarded by default, so its activity
is reported directly by the owner.
3. Which of the following entities is NOT permitted to elect its
classification under the check-the-box regulations?
A. A two-member LLC
B. A limited liability partnership
C. A single-member LLC
D. A business incorporated under a state corporation statute
D. A business incorporated under a state corporation statute
A state-law corporation is a per se corporation and is always taxed as a
corporation; only eligible entities may choose.
4. A C corporation earns $100,000 of taxable income and distributes all
of its after-tax earnings to an individual shareholder who pays 20% on
qualified dividends. Ignoring the net investment income tax, the
combined federal income tax on these earnings is:
A. $41,000
B. $21,000
C. $36,800
D. $20,000
C. $36,800
Corporate tax is $21,000; the $79,000 dividend is taxed at 20% ($15,800),
for a total of $36,800.
Page 2 of 68
, BUS-A 339 Advanced Income Tax
5. Which of the following is generally NOT subject to federal income tax
at the entity level?
A. A personal service corporation
B. A C corporation
C. A partnership
D. A personal holding company
C. A partnership
Partnerships are flow-through entities; income and deductions pass to the
partners, who report them on their own returns.
6. After an eligible entity changes its classification by election, it
generally may not make another classification change for:
A. 36 months
B. 12 months
C. 24 months
D. 60 months
D. 60 months
The regulations bar a new election for 60 months after an elective change
unless the IRS grants permission.
7. Which owner's share of ordinary business income is generally
subject to self-employment tax?
A. A C corporation shareholder's dividends
B. A general partner's distributive share
C. A limited partner's distributive share other than guaranteed payments
for services
D. An S corporation shareholder's pro rata share
B. A general partner's distributive share
A general partner's distributive share of trade or business income is net
earnings from self-employment.
Page 3 of 68
, BUS-A 339 Advanced Income Tax
8. Under current law, a qualified personal service corporation is taxed
at:
A. A flat 21% rate
B. A flat 35% rate
C. Graduated rates from 15% to 35%
D. The top individual rate of 37%
A. A flat 21% rate
Since 2018, all C corporations, including personal service corporations,
pay a single 21% rate.
9. A frequently cited tax advantage of operating as a C corporation is
that:
A. Distributions to shareholders are never taxed
B. Retained earnings are taxed at a flat 21%, which may be lower than the
owners' individual rates
C. The corporation is exempt from state income taxes
D. Operating losses flow through to the shareholders
B. Retained earnings are taxed at a flat 21%, which may be lower
than the owners' individual rates
Earnings kept in the business bear only the 21% corporate rate until they
are distributed.
10. The qualified business income deduction under §199A may be
claimed by:
A. Only corporations with gross receipts under $25 million
B. Individual owners of partnerships, S corporations and sole
proprietorships
C. Only partnerships with more than 100 partners
D. C corporations
B. Individual owners of partnerships, S corporations and sole
proprietorships
The §199A deduction is a noncorporate deduction claimed by individuals,
trusts and estates on pass-through business income.
Section B: Corporate Formation Under §351
Page 4 of 68
