SECTION 1 D557 WGU | 2026 UPDATE | QUESTIONS
AND ANSWERS | WITH COMPLETE SOLUTION!!
Conduit Perspective Answer - Business is viewed as an extension of its owners
rather than a separate entity.
Entity Perspective Answer - Business is considered an independent legal entity,
separate from its owners, with its own rights and responsibilities.
What is a key characteristic of a corporation regarding its existence? Answer -
Continuity of Life - A corporation's existence does not depend on the life of its
owner.
Who controls the management of a corporation? Answer - Management is
controlled by the Board of Directors.
What does free transferability of interests in a corporation mean? Answer -
Stock can be transferred freely without approval.
What is the liability status of owners in a corporation? Answer - Limited
Liability - The corporation is responsible for its own liabilities, protecting
owners.
Limited Partnership (LP) Answer - A partnership where some partners are
limited and cannot participate in management. Their liability is restricted to
their investment.
, Limited Liability Partnership (LLP) Answer - Protects all partners from
partnership liabilities, but only for negligence, fraud, or malpractice of other
partners.
Publicly Traded Partnership (PTP) Answer - A partnership whose interests are
traded publicly on a securities market. It is generally treated as a corporation
for tax purposes unless the income is passive or related to natural resources.
Limited Liability Company (LLC) Answer - A legal entity where all owners are
protected from debts, but may lack corporate characteristics like centralized
management. LLCs are taxed as partnerships unless they elect otherwise.
Single Member LLC Election Answer - Can file Form 8832 to be taxed as a
corporation.
Sole Proprietorship Tax Calculation Answer - Taxable income = Business Net
Income - Qualified Business Income (QBI) Deduction - Standard Deduction
Transfer of Property to a Corporation Answer - Taxable transaction where
gain/loss is recognized based on: ✦ Fair Market Value of stock received ✦ Tax
basis of the property transferred
Section 351 - Transfer of Property to a Controlled Corporation Answer - Defers
gain/loss recognition when transferring property to a controlled corporation.
No immediate tax cost if only stock is received. Boot received triggers gain
recognition, but does not trigger a loss.
Nonrecognition of Gain or Loss - Section 351 Requirements Answer - 1️⃣
Property is transferred 2️⃣ In exchange for stock 3️⃣ Transferor(s) control the
corporation after the exchange
AND ANSWERS | WITH COMPLETE SOLUTION!!
Conduit Perspective Answer - Business is viewed as an extension of its owners
rather than a separate entity.
Entity Perspective Answer - Business is considered an independent legal entity,
separate from its owners, with its own rights and responsibilities.
What is a key characteristic of a corporation regarding its existence? Answer -
Continuity of Life - A corporation's existence does not depend on the life of its
owner.
Who controls the management of a corporation? Answer - Management is
controlled by the Board of Directors.
What does free transferability of interests in a corporation mean? Answer -
Stock can be transferred freely without approval.
What is the liability status of owners in a corporation? Answer - Limited
Liability - The corporation is responsible for its own liabilities, protecting
owners.
Limited Partnership (LP) Answer - A partnership where some partners are
limited and cannot participate in management. Their liability is restricted to
their investment.
, Limited Liability Partnership (LLP) Answer - Protects all partners from
partnership liabilities, but only for negligence, fraud, or malpractice of other
partners.
Publicly Traded Partnership (PTP) Answer - A partnership whose interests are
traded publicly on a securities market. It is generally treated as a corporation
for tax purposes unless the income is passive or related to natural resources.
Limited Liability Company (LLC) Answer - A legal entity where all owners are
protected from debts, but may lack corporate characteristics like centralized
management. LLCs are taxed as partnerships unless they elect otherwise.
Single Member LLC Election Answer - Can file Form 8832 to be taxed as a
corporation.
Sole Proprietorship Tax Calculation Answer - Taxable income = Business Net
Income - Qualified Business Income (QBI) Deduction - Standard Deduction
Transfer of Property to a Corporation Answer - Taxable transaction where
gain/loss is recognized based on: ✦ Fair Market Value of stock received ✦ Tax
basis of the property transferred
Section 351 - Transfer of Property to a Controlled Corporation Answer - Defers
gain/loss recognition when transferring property to a controlled corporation.
No immediate tax cost if only stock is received. Boot received triggers gain
recognition, but does not trigger a loss.
Nonrecognition of Gain or Loss - Section 351 Requirements Answer - 1️⃣
Property is transferred 2️⃣ In exchange for stock 3️⃣ Transferor(s) control the
corporation after the exchange
