WGU D557 Section 1 | Questions and Answers | Latest
2025/26 Update | 100% Correct.
Correct
Incorrect
WGU D557 Section 1
97 Correct terms
Questions and answers
, ✔ Before 2018 → NOLs carried back 2 years and forward 20 years. ✔ After 2017 →
NOLs cannot be carried back, only forward indefinitely. ✔ Losses may not reduce
taxable income by more than 80% in the year applied.
If loans relate to: ✔ Trade or business activities rather than passive investment. ✔
Lending, buying, or selling corporations as a business.
✦ Losses on intercompany sales are deferred until the asset is sold to a non-
group member at a gain. ✦ Gain on depreciable property sales within a
controlled group is ordinary income.
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2 of 97
Term
How are corporate debt or securities treated in a § 351 transaction?
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Corporate debt can be converted
Corporate debt is ignored and does
into stock without any tax
not affect the transaction.
implications.
Corporate debt or securities
(e.g., bonds) are considered
Corporate securities are treated as a
boot, meaning shareholders
liability for shareholders.
may need to recognize gain on
contribution.
, Don't know?
3 of 97
Term
What happens to a member's NOL when they leave a consolidated
group?
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NOLs are only available to the
NOLs are combined into a single
remaining members and cannot be
group NOL that cannot be separated
utilized by the departing Member at
after a member departs.
all.
NOLs are apportioned among
group members who generated NOLs are permanently lost when a
the loss, meaning departing member leaves the group, with no
members take their NOL with carryover options available.
them.
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, 4 of 97
Term
How does the IRS treat a thinly capitalized corporation?
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The IRS can reclassify debt as equity, denying tax advantages of debt
financing. ✦ Principal and interest payments may be treated as non-
deductible dividends.
The IRS encourages thinly capitalized corporations by offering tax breaks.
The IRS requires thinly capitalized corporations to pay higher taxes on profits.
The IRS allows thinly capitalized corporations to convert equity into debt easily.
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5 of 97
Term
What is the third factor the IRS considers under Code § 385 to classify
debt or equity?
Give this one a try later!
2025/26 Update | 100% Correct.
Correct
Incorrect
WGU D557 Section 1
97 Correct terms
Questions and answers
, ✔ Before 2018 → NOLs carried back 2 years and forward 20 years. ✔ After 2017 →
NOLs cannot be carried back, only forward indefinitely. ✔ Losses may not reduce
taxable income by more than 80% in the year applied.
If loans relate to: ✔ Trade or business activities rather than passive investment. ✔
Lending, buying, or selling corporations as a business.
✦ Losses on intercompany sales are deferred until the asset is sold to a non-
group member at a gain. ✦ Gain on depreciable property sales within a
controlled group is ordinary income.
Don't know?
2 of 97
Term
How are corporate debt or securities treated in a § 351 transaction?
Give this one a try later!
Corporate debt can be converted
Corporate debt is ignored and does
into stock without any tax
not affect the transaction.
implications.
Corporate debt or securities
(e.g., bonds) are considered
Corporate securities are treated as a
boot, meaning shareholders
liability for shareholders.
may need to recognize gain on
contribution.
, Don't know?
3 of 97
Term
What happens to a member's NOL when they leave a consolidated
group?
Give this one a try later!
NOLs are only available to the
NOLs are combined into a single
remaining members and cannot be
group NOL that cannot be separated
utilized by the departing Member at
after a member departs.
all.
NOLs are apportioned among
group members who generated NOLs are permanently lost when a
the loss, meaning departing member leaves the group, with no
members take their NOL with carryover options available.
them.
Don't know?
, 4 of 97
Term
How does the IRS treat a thinly capitalized corporation?
Give this one a try later!
The IRS can reclassify debt as equity, denying tax advantages of debt
financing. ✦ Principal and interest payments may be treated as non-
deductible dividends.
The IRS encourages thinly capitalized corporations by offering tax breaks.
The IRS requires thinly capitalized corporations to pay higher taxes on profits.
The IRS allows thinly capitalized corporations to convert equity into debt easily.
Don't know?
5 of 97
Term
What is the third factor the IRS considers under Code § 385 to classify
debt or equity?
Give this one a try later!
