21. Which of the following is true regarding taxation of losses of a C corporati

Question

21. Which of the following is true regarding taxation of losses of a C corporation? a. The operating loss is passed on to shareholders, but the corporation itself does not realize any benefit. b. The operating loss is recognized at the corporate level, and shareholders also receive a tax benefit. c. Th e operating loss will be recognized at the corporate level, shareholders receive no tax benefit, and the corporation receives no benefit until it has operating income against which its prior losses can be deducted. d. Th e operating loss is not recognized at the corporate level; and although shareholders may receive a deduction, they must wait until they receive some amount of profit from the corporation at which point they can deduct up to 10% of the losses per year. 22. What does the term "reverse piercing" reference in regard to a corporation and its shareholders? a. Holding a corporation liable for debts of a shareholder b. Holding a shareholder liable for debts of a corporation c. Holding a corporation liable for debts of a shareholder and holding a shareholder liable for debts of a corporation d. Holding a corporation liable for debts of a shareholder, holding a shareholder liable for debts of a corporation, and holding officers liable for debts of a corporation. 23. Which of the following statements is NOT true regarding the advantages and disadvantages of a sole proprietorship? a. A sole proprietorship can be created without formal agreements or state filings. b. The proprietor reports income from the business on a personal tax return. c. The proprietor alone bears liability for the losses. d. It is usually easy for sole proprietorships to raise capital.

Explanation / Answer

Ans21) C is the correct option. The operating loss will be recognized at the corporate level shareholders recieve no tax benefit and the corporations receive no benefit until it has operating income against which its prior losses can be deducted

Ans22) A is the correct option. Holding a corporation liable for debts of a shareholder.

Ans23) D is the correct option. It is usually easy for sole proprietorships to raise capital.

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