WGU - C237 - TAXATION 2 EXAM
QUESTIONS WITH OUTLINED
ANSWERS
\.Corporations are legally formed - Answer- by filing articles of incorporation with the state in
which the corporation will be created.
\.General partnerships may be formed - Answer- by written agreement among the partners,
called a partnership agreement, or may be formed informally without a written agreement
when two or more owners join together in an activity to generate profits.
\.Limited partnerships are legally formed - Answer- by filing a certificate of limited
partnership with the state in which the partnership will be organized.
\.LLC members have - Answer- more flexibility than corporate shareholders to alter their legal
arrangements with respect to one another, the entity, and with outsiders.
\.S corporations are - Answer- flow-through entities whose income "flows through" to their
owners who are responsible for paying tax on the income.
\.An unincorporated entity with more than one owner is - Answer- by default, taxed as a
partnership.
\.LLC's - Answer- file documents with the state to be formally recognized by the state
,\.Corporations provide - Answer- the least flexible legal arrangement for owners
\.LLCs are legally formed - Answer- by filing articles of organization with the state the LLC
desires to organize its business in.
\.LLCs with one single individual owner - Answer- follow the same filing guidelines as sole
proprietorships. Thus, their income is reported on Form 1040, Schedule C.
\.LLCs with more than one owner - Answer- are taxed as partnerships and report their
income on Form 1065.
\.S corporations have - Answer- more restrictive ownership requirements than other entities.
\.Sole proprietors are - Answer- subject to self-employment taxes on net income from their
sole proprietorships.
\.Shareholders of C corporations receiving property distributions - Answer- must recognize
dividend income equal to the fair market value of the distributed property if the distributing
corporation has sufficient earnings and profits.
\.The C corporation tax rate is - Answer- significantly lower than the top individual marginal
tax rate.
\.Owners who work for entities taxed as a partnership receive guaranteed payments as
compensation. The guaranteed payments - Answer- are self-employment income.
\.The deduction for qualified business income - Answer- does not apply to the income of C
Corporations
, \.C corporations NOL may - Answer- not be carried back but may be carried forward
indefinitely
\.qualified business income deduction is - Answer- a from AGI deduction but is not an
itemized deduction.
\.a business income allocation from an S corporation distributed to an employee/shareholder -
Answer- will only be subject to the regular income tax at the shareholder's marginal ordinary
income tax rate.
\.A C corporation's losses must - Answer- be used at the entity level. That is, the losses don't
flow-through to owners to offset their income from other sources.
\.Partnerships and their owners - Answer- generally don't recognize any gain during a
liquidating distribution, giving them a better tax position than C and S corps
\.C corporations are most favorable in regards to tax treatment because - Answer- There is no
limit to the number of owners allowed, no restrictions on what accounting period to use, and all
of the gains from selling shares in a C corporation are capital gains.
\.An S corporation is - Answer- the only type of entity that has a limit on the maximum
number of owners it may have. S corporations may have up to 100 unrelated shareholders.
\.Tax rules allow entities to - Answer- be classified differently for tax purposes than they are
classified for legal purposes.
\.Unincorporated entities are - Answer- typically treated as flow-through entities for tax
purposes.
QUESTIONS WITH OUTLINED
ANSWERS
\.Corporations are legally formed - Answer- by filing articles of incorporation with the state in
which the corporation will be created.
\.General partnerships may be formed - Answer- by written agreement among the partners,
called a partnership agreement, or may be formed informally without a written agreement
when two or more owners join together in an activity to generate profits.
\.Limited partnerships are legally formed - Answer- by filing a certificate of limited
partnership with the state in which the partnership will be organized.
\.LLC members have - Answer- more flexibility than corporate shareholders to alter their legal
arrangements with respect to one another, the entity, and with outsiders.
\.S corporations are - Answer- flow-through entities whose income "flows through" to their
owners who are responsible for paying tax on the income.
\.An unincorporated entity with more than one owner is - Answer- by default, taxed as a
partnership.
\.LLC's - Answer- file documents with the state to be formally recognized by the state
,\.Corporations provide - Answer- the least flexible legal arrangement for owners
\.LLCs are legally formed - Answer- by filing articles of organization with the state the LLC
desires to organize its business in.
\.LLCs with one single individual owner - Answer- follow the same filing guidelines as sole
proprietorships. Thus, their income is reported on Form 1040, Schedule C.
\.LLCs with more than one owner - Answer- are taxed as partnerships and report their
income on Form 1065.
\.S corporations have - Answer- more restrictive ownership requirements than other entities.
\.Sole proprietors are - Answer- subject to self-employment taxes on net income from their
sole proprietorships.
\.Shareholders of C corporations receiving property distributions - Answer- must recognize
dividend income equal to the fair market value of the distributed property if the distributing
corporation has sufficient earnings and profits.
\.The C corporation tax rate is - Answer- significantly lower than the top individual marginal
tax rate.
\.Owners who work for entities taxed as a partnership receive guaranteed payments as
compensation. The guaranteed payments - Answer- are self-employment income.
\.The deduction for qualified business income - Answer- does not apply to the income of C
Corporations
, \.C corporations NOL may - Answer- not be carried back but may be carried forward
indefinitely
\.qualified business income deduction is - Answer- a from AGI deduction but is not an
itemized deduction.
\.a business income allocation from an S corporation distributed to an employee/shareholder -
Answer- will only be subject to the regular income tax at the shareholder's marginal ordinary
income tax rate.
\.A C corporation's losses must - Answer- be used at the entity level. That is, the losses don't
flow-through to owners to offset their income from other sources.
\.Partnerships and their owners - Answer- generally don't recognize any gain during a
liquidating distribution, giving them a better tax position than C and S corps
\.C corporations are most favorable in regards to tax treatment because - Answer- There is no
limit to the number of owners allowed, no restrictions on what accounting period to use, and all
of the gains from selling shares in a C corporation are capital gains.
\.An S corporation is - Answer- the only type of entity that has a limit on the maximum
number of owners it may have. S corporations may have up to 100 unrelated shareholders.
\.Tax rules allow entities to - Answer- be classified differently for tax purposes than they are
classified for legal purposes.
\.Unincorporated entities are - Answer- typically treated as flow-through entities for tax
purposes.
