1.  An S corporation cannot incur a tax liability at the corporation level. a.  True b.  False 2.  S corporation status allows shareholders to realize tax benefits from corporate losses immediately (assuming sufficient stock basis). a.  True b.  False 3.  An estate may be a shareholder of an S corporation. a.  True b.  False 4.  An S corporation cannot be a shareholder in another corporation. a.  True b.  False 5.  If a resident alien shareholder moves outside the U.S., the S election is terminated. a.  True b.  False 6.  An S election is made on the shareholder’s Form 2553. a.  True b.  False 7.  An S election made before becoming a corporation is valid only beginning with the first 12-month tax year. a.  True b.  False 8.  For Federal income tax purposes, a business entity with two or more owners may be conducted as a partnership, C corporation, S corporation, or limited liability company. a.  True b.  False 9.  If a business entity has a majority of corporate characteristics, it is taxed as a corporation. a.  True b.  False 10.  A limited liability company (LLC) is a hybrid business form that combines the corporate characteristic of limited liability for the owners with the tax characteristics of a partnership. a.  True b.  False 11.  A sole proprietorship files Schedule C of Form 1040, a partnership files Form 1065, a C corporation files Form 1120, and an S corporation files Form 1120S. a.  True b.  False 12.  Each of the following can pass profits and losses through to the owners: general partnership, limited partnership, S corporation, and limited liability company. a.  True b.  False 13.  A C corporation offers greater flexibility in terms of the types of owners and capital structure than an S corporation. a.  True b.  False 14.  All of the shareholders of an S corporation have limited liability with respect to their ownership interests in the corporation, whereas  only  limited partners in a limited partnership have such limited liability. a.  True b.  False 15.  In general, the purpose of ASC 740 (SFAS 109) is to compute and disclose the taxes payable by a business entity to state, local, Federal, and foreign governments, for the current year and all future years. a.  True b.  False 16.  A deferred tax asset is the expected future tax benefit (savings) associated with income reported in the current year GAAP financial statements. a.  True b.  False 17.  All organizations that are exempt from Federal income tax are exempt under § 501(c)(3). a.  True b.  False 18.  An exempt entity in no circumstance is subject to Federal income tax. a.  True b.  False 19.  Most states begin the computation of corporate taxable income with an amount from the Federal income tax return. a.  True b.  False 20.  A state can levy an income tax on a business only if the business was incorporated in the state. a.  True b.  Fa.

1. 1.
An S corporation cannot incur a tax liability at the corporation
level.
a.
True
b.
False
2.
S corporation status allows shareholders to realize tax benefits
from corporate losses immediately (assuming sufficient stock
basis).
a.
True
b.
False
3.
An estate may be a shareholder of an S corporation.

2. a.
True
b.
False
4.
An S corporation cannot be a shareholder in another
corporation.
a.
True
b.
False
5.
If a resident alien shareholder moves outside the U.S., the S
election is terminated.
a.
True
b.
False
6.

3. An S election is made on the shareholder’s Form 2553.
a.
True
b.
False
7.
An S election made before becoming a corporation is valid only
beginning with the first 12-month tax year.
a.
True
b.
False
8.
For Federal income tax purposes, a business entity with two or
more owners may be conducted as a partnership, C corporation,
S corporation, or limited liability company.
a.
True

4. b.
False
9.
If a business entity has a majority of corporate characteristics,
it is taxed as a corporation.
a.
True
b.
False
10.
A limited liability company (LLC) is a hybrid business form
that combines the corporate characteristic of limited liability for
the owners with the tax characteristics of a partnership.
a.
True
b.
False
11.
A sole proprietorship files Schedule C of Form 1040, a
partnership files Form 1065, a C corporation files Form 1120,

5. and an S corporation files Form 1120S.
a.
True
b.
False
12.
Each of the following can pass profits and losses through to the
owners: general partnership, limited partnership, S corporation,
and limited liability company.
a.
True
b.
False
13.
A C corporation offers greater flexibility in terms of the types
of owners and capital structure than an S corporation.
a.
True
b.
False

6. 14.
All of the shareholders of an S corporation have limited liability
with respect to their ownership interests in the corporation,
whereas
only
limited partners in a limited partnership have such limited
liability.
a.
True
b.
False
15.
In general, the purpose of ASC 740 (SFAS 109) is to compute
and disclose the taxes payable by a business entity to state,
local, Federal, and foreign governments, for the current year
and all future years.
a.
True
b.
False

7. 16.
A deferred tax asset is the expected future tax benefit (savings)
associated with income reported in the current year GAAP
financial statements.
a.
True
b.
False
17.
All organizations that are exempt from Federal income tax are
exempt under § 501(c)(3).
a.
True
b.
False
18.
An exempt entity in no circumstance is subject to Federal
income tax.
a.
True
b.

8. False
19.
Most states begin the computation of corporate taxable income
with an amount from the Federal income tax return.
a.
True
b.
False
20.
A state can levy an income tax on a business only if the
business was incorporated in the state.
a.
True
b.
False

9. 21.
Typical indicators of income-tax nexus include the presence of
customers in the state.
a.
True
b.
False
22.
In most states, a taxpayer’s income is
apportioned
on the basis of a formula measuring the extent of business
contact, and
allocated
according to the location of property owned or used.
a.
True
b.
False
23.
All of the U.S. states use an apportionment formula based on
the sales, property, and payroll factors.

10. a.
True
b.
False
24.
At one point, the tax rates applicable to transfers by gift were
different than those applying to transfers by death.
a.
True
b.
False
25.
Some states impose inheritance taxes, but the Federal tax
system does not.
a.
True
b.
False

11. 26.
For Federal estate and gift tax purposes, the
exemption equivalent
is the same thing as the
exclusion amount
.
a.
True
b.
False
27.
If the value of the gross estate is lower on the alternate
valuation date than on the date of death, the date of death
valuation cannot be used.
a.
True
b.
False
28.
One of the objectives of family tax planning is to minimize
income taxes on transfers of property within the family unit.
a.
True

12. b.
False
29.
A complex trust pays tax on the income that it accumulates (i.e.,
that it does not distribute).
a.
True
b.
False
30.
The first step in computing an estate’s taxable income is the
determination of its fiduciary accounting income for the year.
a.
True
b.
False