Free IRS Enrolled Agent SEE Part 2 (Businesses) Business Entities and Considerations Practice Questions
Business Entities and Considerations on the IRS SEE Part 2 covers entity formation and classification (sole proprietorship, partnership, C corporation, S corporation, LLC), partner / shareholder basis rules, distributions, and the consequences of liquidation, redemption, and §351 / §721 contributions.
Sample Questions
Question 1
Easy
Which IRS form is filed to elect S corporation status under §1362(a)?
Solution
§1362(a) and the Form 2553 instructions require the election to be made by filing Form 2553, Election by a Small Business Corporation, signed by all shareholders. Form 8832 is the entity classification election (check-the-box) and Form 1120-S is the annual income tax return filed after the election is in place.
Question 2
Medium
Form W-4 is used to:
Solution
Form W-4, Employee's Withholding Certificate, is completed by an employee at hire (and updated as circumstances change) so the employer can compute the correct amount of federal income tax to withhold from each paycheck under §3402 and the related Treas. Reg. §31.3402(f)(2)-1. The redesigned 2020-and-later Form W-4 replaced the old withholding allowance system with dollar-amount adjustments.
Question 3
Hard
A §501(c)(3) public charity and a §501(c)(4) social welfare organization differ in which of the following respects?
Solution
Under §170(c)(2), only contributions to organizations described in §170(c) — which includes §501(c)(3) organizations — qualify as deductible charitable contributions for the donor. Contributions to a §501(c)(4) social welfare organization are generally not deductible as charitable contributions, although they may be deductible as ordinary and necessary business expenses under §162 in narrow circumstances (subject to the §162(e) lobbying limitations).