Chapter 13 - Comparative Forms of Doing Business

Techniques are available that may permit a C corporation to avoid double taxation.

True

The 465 at-risk provision and the 469 passive activity loss provision have decreased the tax attractiveness of investments in real estate for partnerships and for limited liability companies.

True

The corporation has a greater potential for raising capital than does the partnership.

True

Transferring funds to shareholders, that are deductible by the C corporation, can reduce or eliminate double taxation.

True

After a 721 contribution by a partner to a partnership, the partner's basis for his or her ownership interest is the same as the basis of the assets contributed (no liabilities are involved).

True If a partner contributes property to a partnership in exchange for an ownership interest, any realized gain or loss is not recognized. So a partner's basis for his or her ownership interest is a carryover basis.

Lime, Inc., has taxable income of $334,000. If Lime is a C corporation, its tax liability must be either $113,510 ($50,000 X15%) + ($25,000 X 25%) + ($234,000 X 39%) or $116,900.

True The $113,510 is the appropriate tax liability unless Lime is a personal service corporation. However, if Lime is a PSC, the tax liability is $116,900 ($334,000 × 35%).

Alice and Joe are going to form a business entity. Alice will contribute cash of $200,000 for a 40% ownership interest and Joe will contribute land worth $300,000 (basis of $180,000) for a 60% ownership interest. Which of the following statements is correct? a. If the entity is a C corporation, Alice has $0 recognized gain and a basis for her stock of $200,000, and Joe has a recognized gain of $120,000 and a basis for his stock of $300,000. b. If the entity is an S corporation, Alice has $0 recognized gain and a basis for her stock of $200,000, and Joe has $0 recognized gain and a basis for his stock of $180,000. c. If the entity is a general partnership, Alice has $0 recognized gain and a basis for her partnership interest of $152,000 ($380,000 × 40%), and Joe has $0 recognized gain and a basis for his partnership interest of $228,000 ($380,000 × 60%). d. Only a. and c. are correct. e. a., b., and c. are correct.

ANSWER: b RATIONALE: Regardless of whether the entity is a C corporation, an S corporation, or a partnership, Alice has a $0 recognized gain and a basis for her ownership interest of $200,000. Joe has a $0 recognized gain and a basis for his ownership interest of $180,000.

Khalid contributes land (fair market value of $700,000; adjusted basis of $200,000) and Dan contributes $700,000 cash to form Teal Partnership. Khalid and Dan each own a 50% interest. One year later, Teal sells the land for $800,000. How much gain is recognized by each partner? a. $600,000 to Khalid, $0 to Dan. b. $550,000 to Khalid, $50,000 to Dan. c. $300,000 to Khalid, $300,000 to Dan. d. $50,000 to Khalid, $50,000 to Dan. e. None of the above.

ANSWER: b RATIONALE: The § 704(c) special allocation provision applies as the entity is a partnership. The recognized gain of $600,000 ($800,000 - $200,000) is allocated to the partners as follows: ​ Khalid: $500,000 + (100,000 x 50%) = $550,000 Dan: 0 + (100,000 x 50%) = $50,000

Alice contributes equipment (fair market value of $82,000; adjusted basis of $20,000), subject to a $14,000 liability, to form Orange Partnership, a general partnership. Mary contributes $68,000 cash. Alice and Mary share equally in partnership profits and losses. What is Alice's and Mary's basis for their partnership interests? a. $6,000 to Alice, $68,000 to Mary. b. $6,000 to Alice, $75,000 to Mary. c. $13,000 to Alice, $75,000 to Mary. d. $20,000 to Alice, $68,000 to Mary. e. None of the above.

ANSWER: c RATIONALE: Alice's basis for the partnership interest is $13,000. Adjusted basis of equipment $20,000 - Share of liability decrease (7,000) Alice's basis $13,000 ​ Mary's basis for the partnership interest is $75,000. Cash contributed $68,000 + Share of liability increase 7,000 Mary's basis $75,000

Martin contributes property with an adjusted basis of $100,000 and a fair market value of $140,000 to a newly formed business entity. If the entity is an S corporation and the transaction qualifies under § 351, the S corporation's basis for the property and the shareholder's basis for the stock are: Asset Basis Stock Basis a. $100,000 $140,000 b. $140,000 $100,000 c. $100,000 $100,000 d. $140,000 $140,000 e. None of the above.

ANSWER: c RATIONALE: As § 351 nonrecognition applies to both S corporations and regular C corporations, the carryover basis rules apply. Therefore, the S corporation's basis for the asset is $100,000, and the shareholder's basis for the stock is $100,000.

Bev and Cabel each have 50% ownership in Finch Partnership. Bev's partnership interest has a basis of $225,000. Finch's taxable income for the current year is $100,000, and it distributes $180,000 to each partner. Bev's partnership interest basis at the end of the year is: a. $0. b. $45,000. c. $95,000. d. $100,000. e. None of the above.

ANSWER: c RATIONALE: Bev's partnership basis is increased by her share of taxable income and is decreased by the distribution she receives. ​ Initial basis $225,000 Share of taxable income 50,000 Distribution (180,000) Ending partnership interest basis $ 95,000

Alanna contributes property with an adjusted basis of $80,000 and a fair market value of $100,000 to a newly formed business entity. If the entity is a partnership and the transaction qualifies under § 721, the partnership's basis for the property and the partner's basis for the partnership interest are: Asset Basis Stock Basis a. $ 80,000 $100,000 b. $100,000 $ 80,000 c. $ 80,000 $ 80,000 d. $100,000 $100,000 e. None of the above.

ANSWER: c RATIONALE: Under § 721 the carryover basis rules apply. Therefore, the partnership's basis for the asset is $80,000, and the partner's basis for the partnership interest is $80,000.

Catfish, Inc., a closely held corporation which is not a PSC, owns a 45% interest in Trout Partnership, which is classified as a passive activity. Trout's taxable loss for the current year is $250,000. During the year, Catfish receives a $60,000 cash distribution from Trout. Other relevant data for Catfish are as follows: Net income from operations $800,000 Dividend income 25,000 Rent income 20,000 How much of Catfish's share of Trout's loss may it deduct in calculating its taxable income? a. $0 b. $20,000 c. $45,000 d. $112,500 e. None of the above

ANSWER: d RATIONALE: Catfish's share of Trout's taxable loss of $250,000 is $112,500 ($250,000 × 45%). However, since Catfish's investment in Trout is classified as a passive activity and Catfish is a closely held corporation, the passive activity rules apply. The passive activity loss cannot be offset against Catfish's portfolio income of $45,000 ($25,000 + $20,000), but since Catfish is a closely held corporation (but not a PSC) the passive activity loss can be offset against the active income of $800,000. Thus, Catfish can deduct all of its $112,500 share of Trout's loss.

Fred and Ella are going to establish a business. They expect the business to be very successful in the long-run, but project losses of approximately $100,000 for each of the first five years. Due to potential environmental concerns, limited liability is a requisite for the owners. Which form of business entity should they select? a. General partnership. b. Limited partnership. c. C corporation. d. S corporation. e. Any of the above should satisfy Fred and Ella.

ANSWER: d RATIONALE: The S corporation permits the losses of $100,000 to be passed through to the shareholders and satisfies the limited liability requirement. The general or limited partnership permits the losses to be passed through to the partners, but does not satisfy the limited liability requirement (i.e., unlimited liability for all partners in a general partnership and unlimited liability for the general partners in a limited partnership). The C corporation satisfies the limited liability requirement, but does not permit the losses to be passed through to the shareholders.

Bev and Cabel each own one-half of the stock of Finch, Inc., an S corporation with no accumulated E & P. Bev's basis in the Finch stock is $225,000. Finch's taxable income for the current year is $100,000, and it distributes $180,000 to each shareholder. Bev's stock basis at the end of the year is: a. $0. b. $45,000. c. $95,000. d. $100,000. e. None of the above.

C Bev's stock basis is increased by her share of taxable income and is decreased by the distribution she receives. ​ Initial basis $225,000 Share of taxable income 50,000 Distribution (180,000) Ending stock basis = $ 95,000

Which of the following statements is correct? a. An S corporation has a greater opportunity to raise capital than does an C corporation. b. A general partnership has a greater opportunity to raise capital than does a limited partnership. c. A partnership has a greater opportunity to raise capital than does a sole proprietorship. d. Only a. and b. are correct. e. a., b., and c. are correct.

C The greater the number of potential owners results in the greater ability to raise capital. An S corporation is subject to a statutory limit of 100 unrelated shareholders. There is no limit on the number of shareholders for a C corporation (choice a.). A partnership can have more owners than a sole proprietorship (choice c.). A limited partnership can have more owners than a general partnership (choice b.).

Melba contributes land (basis of $190,000; fair market value of $250,000) to a business entity in exchange for 100% of the stock. During the first year of operations, the entity earns a profit of $75,000. At the end of the first year, the entity has outstanding liabilities of $30,000 ($20,000 recourse and $10,000 nonrecourse). a. If the entity is a C corporation, Melba's basis for her stock at the end of the first year is $265,000 ($190,000 + $75,000) and her at-risk basis is $265,000. b. If the entity is a partnership, Melba's basis for her partnership interest (outside basis) at the end of the first year is $355,000 ($250,000 + $75,000 + $30,000) and her at-risk basis is $345,000 ($250,000 + $75,000 + $20,000). c. If the entity is an S corporation, Melba's basis for her stock at the end of the first year is $345,000 ($250,000 + $75,000 + $20,000) and her at-risk basis is $345,000. d. Only a. and c. are correct. e. a., b., and c. are incorrect.

E

A corporation may alternate between S corporations and C corporation status each year, depending on which results in more tax savings.

False

C corporations and their shareholders are subject to double taxation. S Corporations and their shareholders are typically subject to single taxation. Therefore, any given amount of corporate taxable income, the combined tax liability of a C corporation and its shareholders will exceed that of an S Corporation and its shareholders.

False

In its first year of operations, a corporation projects losses of $400,000. Since losses are involved, the corporation definitely should elect S corporation status.

False

S corporation status always avoids double taxation.

False

The profits of a business owned by Taylor (60%) and Maggie (40%) for the current tax year are $100,000. If the business is a C corporation or an S corporation, there is no effect on Taylor's basis in her stock. If the business is a partnership or an LLC, Taylor's basis in her partnership interest or basis in her stock is increased by $60,000.

False If the business is a C corporation, the corporate profits have no effect on a shareholder's basis in the stock. However, if the business is a partnership, LLC, or S corporation, Taylor's basis for her ownership interest will increase.

Mercedes owns a 30% interest in Magenta Partnership (basis of $52,000) which she sells to Calvin for $65,000. Mercedes' recognized gain of $13,000 will be classified as capital gain.

False If the entity has unrealized receivables or substantially appreciated inventory, some or all of the recognized gain may be classified as ordinary income under § 751.

C corporations and S corporations can generate AMT adjustment known as Adjusted Current Earnings (ACE).

False Only C corporations have an AMT adjustment for adjusted current earnings (ACE).

Amos contributes land with an adjusted basis of $150,000 and a FMV of $200,000 to White, Inc., an S corporation, in exchange for 50% of the stock of White, Inc. Carol contributes cash of $200,000 for the other 50% of the stock. If White later sells the land for $225,000 $62,500 is allocated to Amos and $12,500 is allocated to Carol.

False Special allocations apply to partnerships and not to S corporations. The $75,000 recognized gain is allocated based on stock ownership; that is, $37,500 to Amos and $37,500 to Carol.

Molly transfers land with an adjusted basis of $28,000 and a FMV of $65,000 to the Sand Partnership for a 30% ownership interest. The land is encumbered by a mortgage of $18,000 which the partnership assumes. Her basis for her ownership interest is $10,000 (28 - 18).

False The partner's basis is a carryover basis reduced by the share of the liabilities transferred to other partners. ​ Carryover basis for land $28,000 Liability transferred to other partners ($18,000 × 70%) (12,600) Molly's basis for her partnership interest $15,400

A limited partner in a limited partnership has limited liability whereas a general partner in a limited partnership has unlimited liability unless the limited partners agree that the general partner will have limited liability.

False General partner must have unlimited liability.

The Net Investment Income Tax (NIIT) is owed by both high income individuals and corporations.

False Only applies to high income individuals, estates, and trusts.

If a business entity has a majority of corporate characteristics, it is taxed as a corporation.

False This was the case prior to the issuance of the check-the-box Regulations. The check-in-the-box Regulations provide an elective procedure that enables certain entities to be classified as partnerships for Federal income tax purposes even though they have corporate characteristics.

Daniel, who is single, estimates that the profits of his business for the current tax year will be $100,000. Since the highest tax rate (34%) applicable to corporate taxable income of $100,000 is greater than the highest tax rate (28%) applicable to individual taxable income of $100,000, the Federal income tax liability will be less if Daniel conducts his business as a sole proprietorship rather than as a C corporation.

False - either one could produce the lower liability, but you would have to do the math with more information.

Of the corporate types of entities, all are subject to double taxation on current earnings.

False.

Section 1244 ordinary loss treatment is available to shareholders in a C Corporation but not to those in an S corporation.

False.

The special allocation opportunities that are available to partnerships are available to S corporations only if affected shareholders elect to do so.

False.

Wally contributes land (AB of $30,000; FMV of $100,000) to an S corporation in a transaction which qualifies under 351. The corporation subsequently sells the land for $120,000, recognizing a gain of $90,000. If Wally owns 30% of the stock, $76,000 of the $90,000 recognized gain is allocated to Wally.

False. The $90,000 gain is calculated at the S corporation level. The $90,000 gain flows through to the shareholders based on stock ownership (i.e., for Wally, 30% × $90,000 = $27,000) since the entity is an S corporation. If the transaction were a contribution to a partnership under § 721, there is a special allocation of the $90,000 gain under § 704 (c) with $76,000 going to Wally, the contributing partner.

The AMT statutory rate for C corporations and for S corporation shareholders on the AMT base is 20%.

False. The AMT rate for a C corporation is 20%. For an S corporation, all AMT adjustments and preferences pass through to the shareholders. For shareholders who are individuals, the AMT rates are 26% and 28%.

An individual who owes the NIIT cannot also be subject to the additional Medicare tax.

False. The NIIT and additional Medicare tax are different taxes applied to different bases. An individual above the threshold amounts can easily owe both taxes.

If a C corporation has earnings and profits at least equal to the amount of a distribution, the tax consequences to the shareholders are the same, regardless of whether the distribution is classified as a dividend or as a stock redemption.

False. The full amount of the dividend is included in the shareholder's gross income, whereas only part of the stock redemption (i.e., return of capital concept applies to stock redeemed) is included in the shareholder's gross income.

If lease rental payments to a non corporate shareholder-lessor are classified as unreasonable, the taxable income of a C corporation increases and the gross income of the shareholder increases.

False. The unreasonable amount of the lease rental payment is classified as a dividend rather than as a rental expense for the C corporation. Therefore, the taxable income of the corporation increases. From the perspective of the shareholder, gross income does not change. The unreasonable amount of the lease rental is classified as dividend income rather than as lease rental income. Note, however, that there is a beneficial effect on the shareholder from the reclassification to a dividend due to the beneficial tax rate on qualified dividends (i.e.,

The AMT tax rate for a C corporation is greater than the regular tax rate for C corporations.

False. AMT = 20%

To the extent of built-in gain or built-in loss at the time of contribution, partnerships may choose to allocate or not allocate this built-in gain or loss to the contributing partner on the sale of the contributed property by the partnership.

False. Allocation is required under 704(c).

The 469 passive activity loss rules apply to S corporations but not to C corporations.

False. RATIONALE: The § 469 passive activity loss rules do apply to the S corporation but at the shareholder level. Only in limited circumstances do they apply to C corporations—when personal service corporations or closely held corporations are involved.

An S corporation election for Federal income tax purposes also is effective for all states' income tax purposes.

False. Some states do not permit an S election.

A C corporation offers greater flexibility in terms of the types of owners and capital structure than an S corporation.

True

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.

True

A shareholder's basis in the stock of an S corporation is increased by corporate profits and decreased by losses.

True

Each of the following can pass profits and losses through to the owners: general partnership, limited partnership, S corporation, and limited liability company.

True

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.

True

Some fringe benefits always provide a double benefit - a deduction for the employer and an exclusion for the employee.

True

A limited partnership can indirectly avoid unlimited liability of the general partner if the general partner is a corporation.

True The limited partnership form provides limited liability for the limited partners. However, there must be at least one general partner who has unlimited liability. Such liability protection would be available only if the general partner is a corporation.

A benefit of an S corporation when compared with a C corporation is that it is subject to Federal income tax only in limited circumstances.

True.

A sole proprietorship files Schedule C of Form 1040, a partnership files Form 1065, a C Corporation files From 1120, and an S corporation files Form 1120S.

True.

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.

True.

If an S corporation distributes appreciated property as a dividend, it myst recognize gain as to the appreciation.

True.

If an S corporation is not subject to the AMT, but its shareholders are in that the S corporation's AMT adjustments and preferences are passed through to them.

True.

Melinda's basis for her partnership interest is $250,000. If she receives a cash distribution of $290,000, her recognized gain is $40,000 and her basis for her partnership interest is reduced to $0. Melinda is still a partner after the distribution.

True.

A limited liability company (LLC) cannot elect under the check-the-box rules to be taxed as an S corporation.

True. A limited liability company (LLC) can choose under the check-the-box provisions to be taxed as a partnership or as a C corporation but not as an S corporation.

The tax treatment of S corporation shareholders with respect to fringe benefits is not the same as the tax treatment for C corporation shareholders but is the same as the fringe benefit treatment for partners.

True. For certain fringe benefits, the recipient must be an "employee." For this purpose, partners are not treated as employees, whereas shareholders of a C corporation who are employed by the corporation are treated as employees. For these fringe benefit purposes, an S corporation is treated as a partnership and a greater than 2% shareholder is treated as a partner.

The ACE adjustment associated with the C corporation AMT can be either positive or negative.

True. The ACE adjustment can be either positive or negative. Note, however, that the total negative adjustments for ACE cannot exceed the total positive adjustments.

Which of the following statements is incorrect? a. the number of owners of an LLC is not limited. b. if the LLC has three or more corporate characteristics, it will be taxed as a C Corporation. c. an LLC can elect to be taxed as a C Corporation or as a partnership. d. only a and c e. a, b, and c are incorrect.

b

Which of the following statements is incorrect? a. The purchase of an unincorporated sole proprietorship is always treated as the purchase of its assets. b. A taxpayer purchasing a corporation in which the assets are appreciated would prefer to purchase the stock of the corporation. c. The purchase of a corporation is always treated as the purchase of the corporate stock. d. Only a. and b. are correct. e. a., b., and c. are correct.

b

Factors that should be considered in making the S corporation election for the current tax year include the following: a. Are greater than 50% of the shareholders willing to consent to the election? b. Can the requirements for qualification be satisfied by the 15th day of the third month of the tax year and also for the period of the tax year that precedes this date? c. Will the corporation have total capital not in excess of $1 million? d. Only b. and c. e. a., b., and c.

b All of the shareholders are required to consent to the S corporation election (choice a.). The qualification requirements must be satisfied by the tax return due date (15th day of third month of tax year and for the period of the tax year which precedes this date which is choice b.). Since the qualification requirements become maintenance requirements, these requirements must continue to be satisfied. The not in excess of $1 million capital requirement is associated with § 1244 treatment rather than a requirement for an S corporation election (choice c.).

A limited liability company: a. is normally subject to double taxation. b. is normally taxed as a partnership. c. is normally taxed as a corporation. d. none of the above. e. only a and c

b A limited liability company is a hybrid business form which combines the corporate characteristics of limited liability for the owners with the tax characteristics of the partnership.

Devon owns 40% of the Agate Company for which his basis is $100,000. He sells one-half of his ownership interest to Bernice for $80,000. Which of the following statements is correct? a. If Agate is an S corporation, Devon has a recognized gain of $30,000, some of which may be capital and some of which may be ordinary income. b. If Agate is a C corporation, Devon has a recognized capital gain of $30,000. c. If Agate is a partnership, Devon has a recognized capital gain of $30,000. d. Only b. and c. are correct. e. a., b., and c. are correct.

b In choice a., Devon has a recognized capital gain of $30,000. In choice c., Devon's recognized gain of $30,000 may be classified as a capital gain under § 741. However, if the partnership has unrealized receivables or substantially appreciated inventory, some or all of the $30,000 recognized gain may be classified as ordinary under § 751.

Bart contributes $100,000 to the Fish Partnership for a 40% interest. During the first year of operations, Fish has a profit of $20,000. At the end of the first year, Fish has outstanding loans from the following banks. First Bank (recourse) $10,000 Second Bank (nonrecourse) 30,000 What is Bart's at-risk basis in Fish at the end of the first year? a. $100,000 b. $108,000 c. $112,000 d. $124,000 e. None of the above

c Bart's at-risk basis at the end of the first year is: ​ Original contribution $100,000 Share of profits ($20,000 × 40%) 8,000 Share of recourse debt ($10,000 × 40%) 4,000 At-risk basis $112,000 ​ Bart's share of the nonrecourse debt of $12,000 ($30,000 × 40%) is not included in his at-risk basis.

Which of the following special allocations are mandatory for the partners in a partnership? a. Section 704(a) special allocation requiring limited partners to share losses in accordance with their capital interests in the partnership. b. Section 704(c) special allocation for the difference between the adjusted basis and fair market value of contributed property. c. Section 734 (optional adjustment to basis) special allocation for distributions to partners when the partnership does have a § 754 election in effect or does make a § 754 election. d. Only b. and c. are mandatory. e. a., b., and c. are mandatory.

d

Nontax factors that affect the choice of business entity include: a. Ease of capital formation. b. Limited liability. c. Single versus double taxation. d. Only a. and b. e. a., b., and c.

d Single versus double taxation is a tax factor.

Audry has an ownership interest in a business entity. She is in the 28% tax bracket. The entity incurs $30,000 of meals and lodging expense for Audry, which she believes qualify for exclusion treatment under § 119. Which of the following statements are correct? a. If the entity is a partnership and Audry has a 60% interest, the effect of the $30,000 expenditure by the partnership on Audry's tax liability is an increase of $5,040. b. If the entity is a sole proprietorship, the effect of the $30,000 expenditure by the sole proprietorship on Audry's tax liability is $8,400. c. If the entity is a C corporation, the effect of the $30,000 expenditure by the corporation on Audry's tax liability is $0. d. Only b. and c. are correct. e. a., b., and c. are correct.

d To qualify for exclusion treatment under § 119, Audry must be an employee. Thus, the exclusion is not available if the business entity is a partnership or a sole proprietorship. The full $30,000 is income under choice a.—tax of $8,400 results. Under choice b., no deduction is allowed the entity so the net effect is to make the $30,000 taxable to Audry.

Mr. and Ms. Smith's partnership owns the following assets: Adjusted Basis Fair Market Value Accounts receivable $ -0- $ 60,000 Inventory 20,000 30,000 Machinery 50,000 90,000 Buildings** 120,000 170,000 Land 80,000 140,000 $270,000 $490,000 * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used. Mr. and Ms. Smith each have a basis for their partnership interest of $135,000. Calculate their combined recognized gain or loss and classify it as capital or ordinary if they sell their partnership interests for $500,000. a. $230,000 ordinary income. b. $230,000 capital gain. c. $115,000 ordinary income and $115,000 capital gain. d. $110,000 ordinary income and $120,000 capital gain. e. None of the above.

d The sale of a partnership interest is treated as the sale of a capital asset under § 741, subject to ordinary income treatment for unrealized receivables and substantially appreciated inventory under § 751. The recognized gain on the unrealized receivables and substantially appreciated inventory is as follows: ​ Accounts receivable (UR) $ 60,000 Machinery and equipment (UR for depreciation recapture) 40,000 Inventory (SAI)* 10,000 = $110,000 ​ *Inventory also includes the unrealized receivables in determining whether the inventory is substantially appreciated. The remaining gain of $120,000 (which includes $10,000 for goodwill) is gain from the sale of a capital asset, which is classified as a capital gain.

For a limited liability company with 100 unrelated owners: a. an election can be made to be taxed as a C Corporation. b. an election can be made to be taxed as an S corporation. c. an election can be made to be taxed as a partnership. d. only a and c are correct e. a,b, and c are correct

d. A limited liability company is a hybrid business form that combines the corporate characteristic of limited liability for the owners with the tax characteristics of the partnership. The LLC can elect under the check-the-box procedure to be taxed as a partnership or as a C corporation. If no election is made, it will be taxed as a partnership.

Which of the following statements is correct? a. The sale of an unincorporated sole proprietorship is always treated as the sale of the individual business assets. b. The sale of a partnership is treated as the sale of the individual assets only if the sales transaction is structured as the sale of the individual assets. c. The sale of a corporation is either treated as the sale of the corporate stock or as the sale of the individual assets. d. Only a. and b. are correct. e. a., b., and c. are correct.

e

Techniques that can be used to minimize the current period tax liability include: a. Recognizing the interaction between the regular income tax liability and the alternative minimum tax liability. b. Utilization of special allocations. c. Favorable treatment of certain fringe benefits. d. Minimizing double taxation. e. All of the above.

e.