Choice of Entity. Course Instructions and Final Examination. The CPE Store 819 Village Square Drive Tomball, TX

Transcription

1 Choice of Entity Course Instructions and Final Examination Choice of Entity 2nd Edition Danny Santucci CPE Edition Distributed by The CPE Store The CPE Store 819 Village Square Drive Tomball, TX

2 Choice of Entity Table of Contents Page Course Objectives... 3 Course Instructions... 4 Final Examination... 7

3 COPYRIGHT 2014 The CPE Store ALL RIGHTS RESERVED. No portion of this material may be reprinted, reproduced, transmitted, stored in a retrieval system, or otherwise utilized, in any form or by any means, electronic or mechanical, including photocopying or recording, now existing or hereinafter invented, nor may any part of this course be used for teaching without written permission from the publisher and the author

4 Course Objectives After completing this course, you will be able to: Recognize a situation where a business owner can be considered a sole proprietor Determine which form the owner of a sole proprietorship would use for tax reporting Pinpoint which section of the IRS code defines "ordinary and necessary" expenses Ascertain which deductions a not-for-profit activity should take first Discern how individual tax rates compare to corporate rates Identify a situation where a limited liability company might wish to switch to a C corporation Choose how often estimated taxes must be paid Determine how to figure gain or loss if a sole proprietor sells an entire business as a going concern Recognize how a sole proprietor's business assets would be handled upon his death Identify a benefit available if a family limited partnership qualifies as a partnership for tax purposes Recognize where the potential for abuse comes from with family partnerships Discern how a publicly traded partnership is treated for tax purposes Pinpoint the timeframe during which a partnership must submit a request to the IRS to elect partial exclusion from partnership treatment Recognize how a partner can increase his outside basis in the partnership Identify the penalty for late filing of a partnership return Ascertain the time limit for allocating partnership income and deductions to the partners Determine the tax treatment of non-partner sales and exchanges with the partnership Recognize the term used for a partnership's basis for contributed assets Discern what could decrease a partner's basis for his partnership interest Pinpoint the limits which apply to deducting partnership losses Ascertain how to treat a partnership interest under the general rule of 741 Recognize a benefit of organizing a business as a limited liability company (LLC) Identify the parties who can make property contributions to an LLC Pinpoint the item on which C corporations are exposed to a double tax Recognize an advantage that limited liability companies have over limited partnerships Identify what will occur if an LLC transfers property to a corporation and there is also debt relief Discern what an LLC offers which makes it more attractive to a venture capitalist when compared to a corporation or limited partnership Recognize an entity which is permitted to use the cash method of accounting Identify an unnecessary predicament created when converting from an S corporation to an LLC Pinpoint a characteristic of corporations under 7701(a)(3) Determine how a trade association would need to file for federal income tax purposes Identify how a C corporation can possibly reduce overall tax rates Pinpoint an organization which would be subject to the 469 passive activity rules Recognize the impact on both the corporation and shareholders if a firm issues stock in discharge of an outstanding debt Discern the amount of capital loss an individual is permitted to deduct under 1244 Ascertain the holding period required for preferential treatment on the sale of 1202 stock Identify what must be deducted from regular tax when calculating the alternative minimum tax (AMT) Select the correct carryback period for net capital losses for a small incorporated business Recognize the portion of dividends received from another domestic corporation that a corporation may deduct under 243 Determine the consequences of failing to distribute personal holding company income to a company's shareholders Identify the tax consequences of accumulated earnings under 531 Discern the effect on a corporation of receiving tax-free income in the form of life insurance proceeds Spot the type of entity which is permitted to change its tax year without first getting the IRS's consent Recognize a special method of accounting Recognize a consideration when selecting S corporation status for a start-up firm Determine which type of entity the taxation of an S corporation most closely resembles Identify a tax consequence of strong profits realized by an S corporation Pinpoint a requirement an S corporation must satisfy Discern what would be created if an S corporation terminates its S status and becomes a regular corporation on a date other than January 1st of the tax year Ascertain which two categories into which an S corporation must divide its items of income, loss, expense, and credits Identify when an S corporation is required to make estimated tax payments - 3 -

5 Determine which accounting method an S corporation would use to deduct business expenses and interest owed to a related party from whom the corporation borrowed money Recognize the type of business which is permitted to use the so-called "chameleon rule" when filing federal income taxes Course Instructions To fully benefit from this course, please follow all of the steps below. 1. Read each chapter in the text to get a good understanding of the material. 2. Answer the study guide problems which appear at the end of each chapter. After answering the problems, compare your answers with the correct answers to ensure that you understand the material. 3. When you feel that you have a good understanding of the material contained in the chapter, answer the questions on the final examination. 4. When you have completed the final examination, record your answers on the answer sheet provided and submit it for grading. A score of 70% or better is required to pass. Please also complete the course evaluation and submit it to us along with your answer sheet. Upon passing you will receive a Certificate of Completion stating that you have successfully completed the course and earned the continuing education credit. Prerequisites and Advance Preparation No prerequisites or advance preparation are required for this course. CPE Credit This course is recommended for 13 CPE credits. Final Exam Grading Online: By Mail: By Fax: Our fastest option, with instant results. Simply go to and click the link for online grading. Just follow the instructions from there. When you finish entering your answers, you ll receive instant test results and a Certificate of Completion to print. Mail your test and course evaluation to us. We grade the tests the day we receive them and mail the results and Certificate of Completion to you the following business day. Just fax your answer sheet to If you need us to fax the Certificate of Completion back to you, please provide us with your fax number and write please fax back on your answer sheet. If you don t need the Certificate faxed back, please write no fax needed on your answer sheet. Refunds The CPE Store guarantees your satisfaction. If, for any reason, you are not completely satisfied with your purchase, return it to us unused within 30 days for a prompt refund, no questions asked. (Sorry, but shipping fees are not refundable.) - 4 -

6 Customer Service The CPE Store holds itself to the highest standards. If we have not met your expectations, something is missing, or you just have a question please contact us at or customerservice@cpestore.com. About Our Courses The CPE Store s courses are developed to satisfy the continuing education requirements of the American Institute of Certified Public Accountants, each state s Board of Accountancy and the National Association of State Boards of Accountancy (NASBA). If your state requires registration of sponsors, our sponsor number will appear on your Certificate of Completion. Our courses are designed to meet the continuing education requirements of accounting professionals. A great deal of care has been taken to ensure that the course material is both interesting and relevant to the practice of accounting. The information presented is, to the best of our knowledge, current and accurate. However, The CPE Store is not in the business of rendering legal, accounting or other professional advice and as such, the material presented in our courses is intended as an overview. If legal advice or other expert assistance is required, the services of a competent professional should be sought

7 - 6 -

8 Choice of Entity 13-Credit Course Final Examination A score of 70% or higher is required to pass the exam. If you score less than 70% on your first attempt, we will allow you to take the test a second time. Chapter 1 Sole Proprietorship 1. Fiona has gone into business as a career transmissions consultant and coach. For tax and legal purposes, she may be considered the sole proprietor of her business, since: A. She solely owns an unincorporated association B. She solely owns an unincorporated business C. She meets with clients outside her home D. She solely owns a C corporation 2. Jane is preparing her taxes and, as owner of a sole proprietorship, must report all her business transactions. She would need to report these on: A. Her own individual income tax return B. Form 1065 C. Form 1120 D. Form 1120S 3. Diane wants to take all available business deductions on her income taxes. However, her advisor points out that, as a sole proprietor, she is allowed general business deductions subject to the ordinary and necessary test of: A. 83 B. 104 C. 162 D Donald's part-time business has been held to be a not-for-profit activity. In helping Donald prepare his taxes, you should explain that deductions for such activities must be taken in a particular order, beginning with: A. All nonbusiness deductions B. Deductions for insurance premiums and wages C. Deductions resulting in an adjustment to the basis of property D. Business deductions for depreciation and amortization 5. Mark is the sole proprietor of a photography studio. You inform him that his choice of the sole proprietorship format determines the tax rates which apply to the business. What tax rates apply because of Mark's decision to use a sole proprietorship? A. Individual income tax rates B. Trust income tax rates C. Alternative minimum tax rates D. Limited liability company tax rates 6. Laura meets with her advisor to discuss choice of entity for her software business. She anticipates her earnings will be substantial and wishes to know how the top individual rates compare to the top corporate rates. Her advisor should state that the top rates are: A. Higher B. Lower C. Sometimes higher, sometimes lower, but competitive D. The same 7. Gary had initially formed his business as a limited liability company, but is thinking about incorporating. Under what particular condition would Gary want to organize as a C corporation instead? A. If he plans to put the profits back into the business B. If he wants individual tax rates to apply to his business C. If he does not like writing minutes and issuing stock D. If he wants to be tax exempt - 7 -

9 Final Exam 8. As a result of his sole proprietorship, you inform Ken that he must now pay estimated taxes. In addition, you warn Ken that these taxes must be paid periodically throughout the year. How frequently must Ken make these payments? A. Monthly B. Quarterly C. Biannually D. Annually 9. Teresa is the sole proprietor of a yarn shop and has an offer to buy her business. If she sells the entire business as a going concern, how would she figure gain or loss? A. On an aggregate basis B. On the installment method C. Separately on each asset D. Using the income forecast method 10. Dennis is a sole proprietor of an art gallery and is acquiring the assets of a frame shop corporation. He would like to consolidate these two businesses and also take this opportunity change the business form of his sole proprietorship. How would he do this? A. Incorporate the sole proprietorship into a partnership B. Keep the sole proprietorship but have more than one owner C. Sell all assets and form a new entity D. Form a separate entity and transfer assets to it 11. John is the sole proprietor of a bakery and splits income by employing his son and his spouse. In what other way might he split sole proprietor income? A. Sell assets to family members B. Lease assets to the business by family members C. Lease assets to the public D. Convert assets to personal use 12. Loren is the sole proprietor of a shoe repair business and meets with his advisor to discuss how his business will be handled upon his death. His advisor should explain that, upon Loren s death, his business assets would: A. Pass under the terms of the business owner s will B. Pass through a trust C. Be mostly escheated to the state with family receiving the remainder D. Receive no step up in basis Chapter 2 Partnerships 13. Sam meets with his advisor to discuss reducing taxes by forming a family limited partnership. His advisor should explain that if such an entity qualifies as a partnership for tax purposes, it would be able to: A. Split income B. Avoid the alternative minimum tax for its partners C. Reduce excise taxes D. Reduce property taxes 14. Sam s advisor explains that the tax treatment of family partnerships is unique due to the potential for abuse. Sam wants to know why this potential exists. His advisor should explain that, in most cases, this abuse comes mainly from: A. The inherent defective nature of the tax concept B. The lack of statutory authority for family limited partnerships C. The familiarity of the partners D. Fraudulent capitalization and operation 15. Devon participates in a partnership whose interests are traded in the securities market and, therefore, has been held to be a publicly traded partnership. Devon s advisor explains that, under 7704, his partnership would be, for tax purposes, treated as a: A. Sole proprietorship B. Corporation C. Private foundation D. Limited liability company - 8 -

10 Final Exam 16. Sally would like to elect partial exclusion from partnership treatment for her partnership business. Her advisor should explain that in submitting a request to the IRS for such treatment, her partnership would have: A. No more than 90 days after the start of the first exclusion tax year B. Until the end of the taxable year C. No more than 75 days after the end of the exclusion taxable year D. No more than 75 days after the start of the first exclusion tax year 17. Paul needs to pay some partnership expenses out of his personal funds; but, his advisor explains that such payments are generally disallowed. However, the advisor should point out that there is an exception when: A. The partners agree that a partner may do it B. The partnership makes a special election C. The partnership agreement requires it D. The IRS makes an exception 18. A distributive share of income recently increased Jack's outside partnership basis. However, he needs additional basis to fully absorb certain losses. What else could increase his outside basis? A. His portion of syndication expenses B. His portion of tax credits C. His portion of start-up expenditures D. His portion of tax-exempt income 19. Triple Tree is a consulting business with three partners - Bob, Judy, and Kendra. This year the business was one month late in filing its partnership return. As a result, Triple Tree will be assessed a penalty of: A. $150 B. $195 C. $585 D. $ As a partnership, you have explained that Triple Tree must allocate various items of income and deduction to its partners Bob, Judy, and Kendra. You should also warn that this allocation must occur by: A. March 15th of the tax year B. The first day of the partnership s taxable year C. April 15th of the tax year D. The last day of the partnership s taxable year 21. Evergreen Software would like to defer income to its partners by establishing a tax year that is different from the calendar year. In outlining Evergreen s choices, how would you characterize their options? A. Restricted B. Boundless C. Redundant D. Debatable 22. Sarah, who is partner with Leroy and Erika in a real estate business, has engaged in certain non-partner sales and exchanges with the partnership. How would such transactions be treated for tax purposes? A. As related party transactions B. As prohibited transactions C. As transactions with a stranger D. As guaranteed payments 23. At an in-house staff training seminar, confusion has arisen concerning a partner s basis for their interest and a partnership's basis in contributed assets. You should explain that 723 covers a partnership's basis for contributed assets and the term used for such basis is: A. Carryover basis B. Substituted basis C. Outside basis D. Inside basis - 9 -

11 Final Exam 24. A substantial contribution of property to his business partnership has resulted in Alan obtaining a large outside basis for his partnership interest. However, his advisor warns that his basis is subject to later adjustment. Which of the following could decrease Alan's basis? A. A distributive share of capital losses B. A subsequent contribution C. Nondeductible capital expenditures D. A share of an investment credit recapture adjustment 25. Kent and Frank have experienced losses in their home construction partnership. When they meet with their advisor, Joe, he pointed out there are multiple limits on the deduction of partnership losses, for example, if 465 applies, partnership losses can be deducted only to: A. The amount of the partner s adjusted gross income B. The amount of the partner s inside basis C. The amount of the partner s adjusted basis D. The at-risk amount 26. Tom and Kent are engaged in the sale of a partnership interest in some commercial property which has been held or number of years. Under general rule of 741, such a partnership interest would be treated as: A. A capital asset B. Inventory C. An unrealized receivable D. A hot asset Chapter 3 Limited Liability Companies 27. Jerry and Kelly own a small distributing business in Moses Lake, Washington, and would like to organize it as a limited liability company (LLC). They meet with their business advisor, Harmon, to discuss their choice and would like to know what an LLC would offer to its members. Harmon replies that it would offer them: A. The choice to actively manage the LLC B. The ability to deduct personal use automobiles C. Numerous fringe benefits D. No state income tax 28. Ted wants to consolidate his family's assets by having family members gradually contribute assets to a closely held corporation. However, his advisor points out that 351 tax-free property contributions to a corporation must be made by controlling shareholders. Instead he suggests considering an LLC since it would be able to receive property contributions from: A. Any member B. Any member provided they are not a trust C. Partnerships only D. Anyone except nonresident aliens 29. Alice would like to know an advantage limited liability companies (LLCs) offer over C corporations. Her advisor explains, for example, that, unlike LLCs, C corporations are exposed to a double tax on: A. Formation B. Capitalization C. Issuing stock D. Liquidation 30. Your assignment at an in-house staff training seminar is to discuss the advantages that limited liability companies (LLCs) have over limited partnerships. As a result, which of the following statements of advantage would be important to emphasize in your presentation? A. LLCs are not subject to a 1.5% net income tax B. LLCs do not need to have a general partner C. LLCs can have nonresident alien members D. LLCs can have any form of entity as a member

12 Final Exam 31. Kyle owns an LLC which has recently borrowed heavily on property it now intends to transfer to a corporation. Meeting with his advisor, Kyle has learned that a debt related tax issue, stemming from the debt share advantage of LLCs, is discharge of indebtedness income. If his LLC transfers property to a corporation and there is also debt relief, what will occur? A. A taxable disposition B. A liquidation C. A capitalization D. A reorganization 32. Allen is a venture capitalist who would like to invest in an LLC rather than in a corporation or a limited partnership. Allen should find an LLC a more attractive alternative because it offers: A. Freedom from eligibility requirements B. Less risk of reclassification of debt instruments C. Management control D. Transference of ownership interests 33. Ricardo intends to use his limited liability company (LLC) for a leveraged buyout. However, you should caution him that one disadvantage of using this entity for such a purpose would be that: A. Members are limited when transferring interests B. The LLC member manager could end up with decreased voting rights C. Lenders have minimal control of management D. The LLC could be forced into bankruptcy 34. Sandra is involved a corporation that currently files a consolidated return and wonders whether an LLC might serve her better. What would be eliminated if a LLC was used instead of the corporation? A. The benefit that is available to corporate investors B. The limited liability C. The complications involved with filing D. The 754 election to step up inside and outside basis 35. George believes that the at-risk rules are inapplicable to the real property activities of his business because it only uses nonrecourse debt. However, you should warn him that such debt can be subject to the at-risk rules when: A. Someone is held personally liable for repayment of the loan B. The lender and the taxpayer are related C. A commercial lender loans the money D. The debt is secured by real estate 36. Your client, Cindy, is pondering choice of entity for her growing bath products business but is insistent on using the cash method of accounting. You should explain to her that an entity permitted to use the cash method is a(n): A. C corporation B. S corporation C. Partnership with a C corporation as a partner D. Tax sheltered business trust 37. Brian, Ken, and Julie are members of a limited partnership and are interested in re-organizing as an LLC. As their advisor, you should explain to them that they could make this conversion free of tax if: A. The LLC continues to use the installment method B. The LLC continues to use the same accounting method C. The LLC continues to use the accrual method D. The members keep the same interest in ownership 38. Your client, Sam, owns a major interest in a business organized as an S corporation. Sam would like the company to reorganize as an LLC. You indicate to him that switching to an LLC would create an unnecessary predicament, since such a conversion would result in: A. A double tax B. No step-up in the shareholder s basis C. A sales tax D. A risk of reassessment of real property values

13 Final Exam Chapter 4 Corporations 39. While presenting a seminar on choice of entity to colleagues at his firm, a participant asks Richard how a corporation is defined for tax purposes. Richard explains that, under 7701(a)(3), a corporation is defined: A. To exclude associations B. To include insurance companies C. Narrowly under 7701(a)(3) D. As having decentralized management 40. Your client, Gary, is the principal of an unincorporated organization that will serve as a trade association for the medical profession. You should inform him that, for federal income tax purposes, his organization would need to file as a(n): A. Corporation B. Private foundation C. Tax exempt organization D. REIT 41. Your client, Janet, who is selecting an entity for a family business, would like to know how a C corporation can possibly reduce overall tax rates. You explain to her that this could be accomplished by: A. Splitting income between the entity and its owners B. Adopting a calendar tax year C. Having multiple classes of equity D. Consolidating returns 42. Which of the following entities is subject to the 469 passive activity rules? A. Veritas Distribution, a wine distributor organized as an S corporation B. Poole & Steiner Accountants, Inc., a personal service corporation C. High Line, Inc., a new company that manufactured farm implements during the testing period D. Stockman, Inc., a trucking firm whose owners own less than 10% FMV of stock 43. Barry is considering the incorporation of a small electronics manufacturing firm. Under 351, he needs to be aware that as he capitalizes the corporation by transferring assets, nonrecognition of gain or loss requires that: A. A transferor-shareholder receive only stock B. A transferor-shareholder receive cash C. A transferor-shareholder receive only debt relief D. A transferor-shareholder receive securities 44. Sherpa, Inc., an imports distributing firm, decided to issue stock in discharge of an outstanding debt. In this case, both the corporation and the shareholders can: A. Qualify for a tax credit B. Get a tax deduction C. Have income D. Have tax-exempt income 45. Jerry experienced a $500,000 stock loss during the most recent tax year, Under 1244, which allows a limited ordinary loss on qualifying stock, how much would Jerry, who is married, need to take as a capital loss on his joint federal income tax return? A. $50,000 B. $100,000 C. $350,000 D. $450, When Lisa sold some 1202 small business stock she owned, she learned she would pay tax on only 50% of the gain, since she was a noncorporate stockholder. Her advisor confirmed this treatment but only if Lisa had held the stock for at least: A. Five years B. Six years C. Seven years D. Eight years

14 Final Exam 47. Rimrock Technologies reported taxable income of $294,735 during the most recent tax year. As a result, the corporation would currently be taxed at the marginal rate of: A. 34% B. 35% C. 38% D. 39% 48. You are explaining the alternative minimum tax (AMT) to the office techie as he designs a digital spreadsheet to estimate the tax. You have emphasized that determining the AMT is a multiple step process. In this calculation, what must be deducted from the regular tax? A. Foreign taxes B. Tax preferences under 57 C. Tentative minimum tax D. The alternative minimum tax base 49. Nancy has net capital losses for her small incorporated business, Amiable Soaps and Fragrances, Inc., and would like carry them forward to future years. Her advisor affirms that she can do this. However, he should also explain that she would first need to carry these losses back: A. One tax year B. Three tax years C. Two tax years D. Four tax years 50. Way Out There Technologies, Inc., owns a 15% interest in another domestic corporation and, during the most recent tax year, received dividends from that corporation. Under 243, what portion of these dividends may Way Out There Technologies deduct? A. 70% B. 80% C. 90% D. 100% 51. During the most recent tax year, Smith & Warren, Inc. an accounting firm, realized personal holding company income and failed to distribute this income to its shareholders. As a result, under 541, the company would be subject to: A. Deduction limitations B. A tax penalty of 15% C. The ordinary corporate income tax D. Carryover of the excess income. 52. Your incorporated engineering firm has accumulated earnings of $225,000. You consult with your tax advisor as to the tax consequences of such accumulated earnings. Your advisor should explain that, under 531, you would: A. Avoid the accumulated earnings penalty since the firm is below the applicable exclusion amount for small corporations B. Not be subject to the 531 penalty because of the minimum accumulated earnings credit C. Be subject to the 531 penalty since your earnings are above the limit for a personal service corporation D. Not be subject to the penalty because of the minimum accumulated earnings deduction 53. During an internal audit, the audit team reported that NorCal Systems, Inc., received substantial tax-free income in the form of life insurance proceeds. For a corporation, the presence of such proceeds means that: A. Earnings and profits would increase B. Tax rates would decrease C. Shareholders can receive tax-free dividends D. The company would be assessed an accumulated earnings tax 54. Jacob s business is in an industry which is quickly becoming seasonal and, as he considers reorganization, he would like an entity that would be allowed to change its tax year without first getting the IRS s consent. You explain that, provided certain conditions are met, he could do so if he organized as a(n): A. S corporation B. Regular corporation C. Personal service corporation D. Personal holding company

15 Final Exam 55. At an in-house staff training seminar, you are discussing standard methods of accounting. However, your presentation would not be complete without identifying several special methods of accounting that may be used to determine when and how to report certain income expenses. What would be one of the special methods? A. Accrual B. Cash C. Hybrid D. Installment sales 56. Because of recent stock ownership changes, several of Fred's corporations have been held to be members of an affiliated group. You should advise Fred that these corporations may now file a consolidated return instead of: A. A Form 706 B. A Schedule C C. A Schedule D D. Separate returns for each Chapter 5 S Corporations 57. Alan is considering S corporation status for his start-up electronics firm. In making this decision, he should consider that: A. All income and deductions pass through to individual shareholders B. Shareholders would be unable to deduct any losses C. Distributions of profits to shareholders would be subject to the self-employment tax D. He would be unable to elect S corporation status for the initial year of his business 58. To assist a client s understanding of S corporations, you should find it helpful to analogize S corporation taxation as being like, but not exactly the same as: A. Personal holding companies B. Private foundations C. Partnerships D. Complex trusts 59. John formed an S corporation and the business realized a strong profit in its third year. When the business distributed such profits to its shareholders, one of the tax consequences would be: A. A single tax B. Tax-free distributions C. Tax-deferred distributions D. Tax-sheltered distributions 60. Trevor organized his business as a corporation and properly elected to be taxed under subchapter S. Another requirement his company must satisfy to continue as an S corporation would be that: A. The company s status as an S corporation must not be terminated B. A majority of the company s shareholders must consent C. The company must use the accrual method for the first year D. The company must file the 444 election 61. Since Ken s corporation has become very profitable, he wants to terminate its S corporation status and become a regular corporation. What would be created if Ken terminates its status on date other than January 1st of the tax year? A. An S termination year B. A revocation date C. An inadvertent termination D. A violation of termination 62. Mario is the owner of a small machine parts manufacturer organized as an S corporation. In order to determine his business s income, he needs to divide its items of income, loss, expense, and credit into two categories of income and expense, which would be: A. Deductible items and nondeductible items B. Single taxable items and double taxable items C. Pass-through items and remainder items D. Separately stated items and nonseparately stated items

16 Final Exam 63. Your client, Fred, is amazed to learn that his S corporation may be required to pay estimated tax payments. Although somewhat rare, you should warn Fred that such payments are required when the S corporation s tax liability equals: A. At least $500 B. At least $600 C. At least $700 D. At least $ Newman Industries, an S corporation, borrowed money from a related party. Since the related party uses the cash method of accounting, which of the following accounting methods would Newman Industries use to deduct business expenses and interest owed to the related party? A. The accrual method B. The cash method C. A hybrid method D. Any method it chooses 65. At a staff training seminar, you discuss how each type of entity files their federal income taxes differently. A participant asks if any type of entity would give some options when filing. You should explain that several options are permitted, under the so-called chameleon rule, when the business is a(n): A. LLC B. S corporation C. Partnership D. Sole proprietorship Thank you for taking our course. We hope you enjoyed it

17 Choice of Entity Course Number: TAX IRS Course Number: BSND7-T S Qualifies for 13 hours of CPE credit Name as it should appear on your Certificate: License State(s): License Number: Date Course Completed: PTIN: If you are mailing or faxing your test to us for grading, please fill in Member ID and Validation number. Where should we send your results? * Note: If you are registered with the IRS as a tax preparer, you must provide your PTIN in order for us to report this course completion to the IRS. * Answer each question A, B, C, or D as appropriate. * Be sure you are answering questions from the Final Examination, not from the Study Guide * For instant online grading, go to and click the link for Online Services Page 1 of 1

18 The CPE Store 819 Village Square Drive Tomball, TX Phone Fax Course Evaluation Course # Your Name About the Service Course Were the stated learning objectives met? m 1 - Not at all m 2 - Marginally m 3 - Somewhat m 4 - Mostly m 5 - Absolutely If applicable, were prerequisite requirements appropriate and sufficient? m 1 - Not at all m 2 - Marginally m 3 - Somewhat m 4 - Mostly m 5 - Absolutely m N/A Was the text well-written, accurate and easy to understand? m 1 - Not at all m 2 - Marginally m 3 - Somewhat m 4 - Mostly m 5 - Absolutely Was the final exam well-written, accurate and easy to understand? m 1 - Not at all m 2 - Marginally m 3 - Somewhat m 4 - Mostly m 5 - Absolutely Were course materials relevant and did they contribute to the achievement of the learning objectives? m 1 - Not at all m 2 - Marginally m 3 - Somewhat m 4 - Mostly m 5 - Absolutely Was the time allotted to the learning activity appropriate? m 1 - Not at all m 2 - Marginally m 3 - Somewhat m 4 - Mostly m 5 - Absolutely If applicable, were the individual instructors effective? m 1 - Not at all m 2 - Marginally m 3 - Somewhat m 4 - Mostly m 5 - Absolutely m N/A About the Service Were you satisfied with the ordering process? m 1 - Not at all m 2 - Marginally m 3 - Somewhat m 4 - Mostly m 5 - Absolutely Were your course materials in good condition when they arrived? m 1 - Not at all m 2 - Marginally m 3 - Somewhat m 4 - Mostly m 5 - Absolutely Did you receive your materials in a timely manner? m 1 - Not at all m 2 - Marginally m 3 - Somewhat m 4 - Mostly m 5 - Absolutely About You What is your preferred method for completing your CPE? m Textbook m PDF materials downloaded from the internet m Online courses m Live seminars Would you like us to notify you by of our weekly specials and new courses? m No m Yes, my address is m Already receiving Comments Please Are there any particular topics you would like to see covered in a CPE course or any additional services you would like to see us provide? Please provide any additional feedback, either positive or negative, regarding our products or our service: