Chapter 1: Entity Types and Their Formation

COURSE MAP
Business
Entity
Types &
Formn
\

Federal Tax
System and
its
Implications

Business
Entity
Characterist
ics

\
/

Taxation of
Investment
Earnings &
Expenses
\

Tax Cost Recovery

(Depr)

\ /
Taxation of
Operating
Asset Dispositions

Accrual Tax
Accounting

What we need
to learn about

Taxn of
Corp.
Operations

Taxn of
Corp.
Distribution
s

State
and

\
/

Taxn of
PassThru
Entity

\
/

Operatio
ns

Key BookTax
Differences

Accounting
for
Income
Taxes

Business
Entities

Foundational Tax Knowledge

come
Taxa-

Taxn of

PassThru
Entity

State

Cash
Distribution
s

Local

and

Sales
Taxa-

Certain Business
Dedns
What we need to know
about
business income and
deductions

Local
In-

tion

Taxn of Investment
Sales
\

tion
What we need to
know
about corporation
taxation,
operations
and distributions

What we need
to
know about
passthrough
entity
operations
and
distributions

State
taxatio
n
we
need
to
learn

Advanced Tax Knowledge

OVERVIEW OF CHAPTER 1
HOW DOES THIS CHAPTER (BUSINESS ENTITY TYPES)
FIT IN THE FLOW OF A BUSINESS ENTITY TAX RETURN?
We must know the business entity typecorporation or
partnership
in order to determine what tax return it must file with the
IRS.
MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 1

Chapter 1: Entity Types and Their Formation

THERE ARE ONLY THREE DIFFERENT TAX RETURNS

THAT BUSINESS ENTITIES CAN FILE WITH THE IRS.

LETS LOOK AT THEM.

MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 2

Chapter 1: Entity Types and Their Formation

Form

U.S. Corporation Income Tax Return

1120

A Check if
1 Consolidated return
2 Personal holding co.
3 Personal service crop.
4 Schedule M-3 required
E Check if: (1)

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2013

For calendar year 2013 or the year begin______, and end______

Name of corporation

B Employer Id number

Number, street, and room or suite

C Date incorporated

City or town, state, and ZIP code

D Total assets (see instr)

Initial return (2)

Final Return (3)

Name Change (4)

a. Gross receipts or sales

1a
b. Returns and allowances
1b
Cost of goods sold (attach Form 1125-A)
Gross Profit. Subtract line 2 from line 1c
Dividends (Gross amount)
Interest......
Gross rents....
Gross Royalties.
Capital gain net income (attach Schedule D (Form 1120))..
Net gain (loss) from Form 4797, Part II, line 17 (attach Form 4797)..
Other income (attach statement)..
Total Income (loss). Add lines 3 through 10.
Compensation of officers (see instructionsattach Form 1125-E)
Salaries and Wages (less employment credits)
Repairs and maintenance.
Bad debts.....
Rent.....
Taxes and licenses...
Interest.....
Charitable contribution (see instructions)
Depreciation not claimed on Form 1125-A or elsewhere on rtrn (attach Form 4562)

Depletion... .....
Advertising...
Pension, profit-sharing, etc. plans....
Employee benefits programs....
Domestic production activities deduction (attach Form 8903)
Other deductions (attach statement).
Total deductions. Add lines 12 through 26
Taxable income before NOL and special deductions. Subtract line 27 from line 11
a. Net operating loss deduction (see instructions). 29a
b. Special deductions (Schedule C line 20) .. 29b
Taxable income. Subtract line 29c from line 28 (see instructions)..
Total tax (Schedule J, Part I, Line 11)..
Total payments and refundable credits (Schedule J, Part II, Line 21).
Estimate tax penalty (see instructions).
Amount owed. If line 32 is smaller than the total of lines 31 and 33.
Overpayment. If line 32 is larger than the total of lines 31 and 33...
Enter amt from ln 35 you want: Crd to 2014 estd tax

Refunded

Address change

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MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 3

Chapter 1: Entity Types and Their Formation

Form

1120S

U.S. Income Tax Income for an S Corporation

2013

For calendar year 2013 or the year begin_____, and end_____

A S election effective date

Name of corporation

D Employer Id number

B. Business activity code

number (see instructions)

Number, street, and room or suite

E Date incorporated

City or town, state, and ZIP code

F Total assets (see instr)

C.

Check if Sch M-3 attached

G.

Is the corporation electing to be an S corporation beginning with this year?

Check if (1)

Final rtrn (2)

Name change (3)

Yes

Address change (4)

No

If yes attach Form 2553 if not already filed .

Amended rtrn (5)

S election termination or revocation

I Enter the number of shareholders who were shareholders during any part of the tax year
Caution. Include only trade or business income and expenses on lines 1a through 22 below. See instructions for more information.

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Sign

a. Gross receipts or sales... 1a

b. Returns and allowances 1b
c. Balance. Subtract line 1b from line 1a
Cost of goods sold (attach Form 1125-A)...
Gross Profit. Subtract line 2 from line 1c..
Net gain (loss) from Form 4797, Part II, line 17 (attach Form 4797).
Other income (attach statement).
Total Income (loss). Add lines 3 through 5...
Compensation of officers (see instructionsattach Form 1125-E)
Salaries and Wages (less employment credits)
Repairs and maintenance.
Bad debts.....
Rent.....
Taxes and licenses...
Interest.....
Depreciation not claimed on Form 1125-A or elsewhere on return (attach Form 4562)
Depletion (Do not deduct oil and gas depletion).
Advertising......
Retirements plans, etc.....
Employee benefits programs...
Other deductions (attach statement)....
Total deductions. Add lines 12 through 26...
Ordinary business income (loss). Subtract line 20 from line 6..

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Under penalties of perjury, I declare that I have examined this return and accompanying schedules and
statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration
of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

Here
Signature of officer

Date

Title of officer
Form 1120S

MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 4

Chapter 1: Entity Types and Their Formation

Form

U.S. Return of Partnership Income

1065

2013

For calendar year 2013 or the year begin_______, and end_______

A Principle business activity

Name of Partnership

D Employer Id number

B Principle product or srvc

Number, street, and room or suite

E Date business started

C Business code number

City or town, state, and ZIP code

F Total assets (see instr)

Initial return (2)

Check applicable boxes (1)

(6)

H Accounting method: (1)

Final Return (3)

Name Change (4)

Address Change (5)

Amended Return

Technical termination also check (1) or (2)

Cash (2)

Accrual (3)

Other (specify)

I Number of Schedules K-1. Attach one for each person who was a partner during the year.
J Check if Schedules C and M-3 are attached
Caution. Include only trade or business income and expenses on lines 1a through 22 below. See instructions for more information.

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Sign

Gross receipts or sales 1a

Returns and allowances.. 1b
Balance. Subtract line 1b from line 1a..
Cost of goods sold (attach Form 1125-A)..
Gross Profit. Subtract line 2 from line 1c..
Ordinary income (loss) from other partnerships, estates and trusts. (attach statement).

Net farm profit (loss) [attach Schedule F (Form 1040)].

Net gain (loss) from Form 4797, Part II, line 17 (attach Form 4797)
Other income (attach statement).
Total Income (loss). Add lines 3 through 7.
Salaries and wages (other than to partners)....
Guaranteed payments to partners...
Repairs and maintenance....
Bad debts....
Rent....
Taxes and licenses......
Interest....
Depreciation (if required, attach Form 4562).
16a
Less Depreciation reported on Form 1125-A and elsewhere on return
16b
Depletion (Do not deduct oil and gas depletion).
Retirements plans, etc.....
Employee benefits programs......
Other deductions (attach statement)...
Total Deductions. Add the amounts in the far right column for lines 9 through 20
Ordinary business income (loss). Subtract lines 21 from line 8.

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Under penalties of perjury, I declare that I have examined this return and accompanying schedules and
statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration
of preparer (other than general partner) is based on all information of which preparer has any knowledge.

Here
Signature of general partner or limited liability company member

Date
Form 1065

MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 5

Chapter 1: Entity Types and Their Formation

CHAPTER 1, CONTENTS: ENTITY TYPES AND FORMATION

\ /

\ /

\ /

\ /

Topic 11: Types

of
Business
Entities

Topic 1-2:
Corporation
Formation and Rules
Encouraging
Investments in
Corporations

Topic 1-3:
Partnership
Formation and
Rules Encouraging
Investments in
Partnerships

Topic 1-4:
Requireme
nts to
Become an
S
corporation

OVERVIEW OF TOPIC 1-1

A.
B.

THE OBJECTIVES OF THIS TOPIC ARE TWOFOLD:

Describe the state law classifications of business
entities
Describe the tax law classifications of business
entities

WHY IS OBJECTIVE A IMPORTANT?

Every business entity we will study in this course
must first be organized under state law.
WHY IS OBJECTIVE B IMPORTANT?
Every business entity recognized by state law must file
one of the three tax return we have just reviewed.
An outline of the content and organization of Topic 01-1 is as
follows:
Part A: Business Forms from a State Law Perspective
I.

List the entities Recognized by State Law.

II.

Define and/or describe the Entities Recognized by State Law

Part B: Business Forms from A Tax Perspective

I.

Describe the tax law process for entity classification.

II.

Default Rules and Positive Elections to be a Corporation

MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 6

Chapter 1: Entity Types and Their Formation

III. Discuss Taxable Entities versus Pass-Through Entities
IV.

Discuss the second level election available to all corporations

V.

Course Assumptions and Various Summaries

MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 7

Chapter 1: Entity Types and Their Formation

PART A: VARIOUS BUSINESS FORMS FROM A LEGAL
PERSPECTIVE
(Text pages 15-2)
LO
1

Describe the state law classifications of business entities.

OVERVIEW OF ENTITIES RECOGNIZED BY STATE LAW

Entities recognized
by
state law that do
not have
any filing
requirements
\ /
Sole
Propriet
orship
(SP)

\ /
Genera
l
Partner
ship
(GP)

Entities that must file with a state agency to be

recognized
\ /

\ /

Entities that file Articles

of
Organization

Entities that file

Articles
of Incorporation

\ /

\ /

\ /

Limited

Limited
Liability
Limited Part-

Corporation

Liabilit
y
Compa
ny

nership
(LLLP)

\ /
There are two types of Limited Liability Companies recognized by state
law
\ /
Single member Limited Liability
Company (SMLLC)

I.

\ /
Multiple member Limited
Liability Company (LLC)

DESCRIBE THE STATE LAW PROCESS FOR

RECOGNITION OT BUSINESS ENTITIES.
A. FIRST THERE ARE SOME ENTITIES THAT ARE
RECOGNIZED BY STATE BASED ON STATE COMMON
LAW. They are

MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 8

Chapter 1: Entity Types and Their Formation

1. Sole Proprietorship (SP). This is a business
formed by an individual with an objective to carry
on a trade or business for profit.
2. General Partnership (GP). This is a business
formed by two or more partners with an objective to
carry on a trade or business for profit.
The partners should document their business
arrangement with written agreement called a
partnership agreement.
B. SECOND THERE ARE OTHER ENTITIES THAT ARE
RECOGNIZED BY STATE BASED ON STATE LAW
ENABLING ACTS. There are two overall categories as
follows:
1. Entities required to file Articles of Organization.
2. Entities required to file Articles of
Incorporation.

MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 9

Chapter 1: Entity Types and Their Formation

C. ENTITIES FILING ARTICLES OF ORGANIZATION.
Most states recognize may different types of these
entities. For the purposes of this course we are only
concerned with the following two types:
1. Limited Liability Company (LLC). This entity will
be defined below.
2. Limited Liability Limited Partnership (LLLP).
This entity will be defined below.
D. ENTITIES FILING ARTICLES OF INCORPORATION.
This entity is recognized as a corporation.
II.

DEFINE/DESCRIBE ENTITIES RECOGNIZED BY STATE

LAW
A. SOLE PROPRIETORSHIP (SP)
1. Definition. This is an entity formed by an individual
with an objective to carry on a trade or business for
profit.
Individuals are not required to formally organize
their business with a state.
B. GENERAL PARTNERSHIPS (GP)
1. Definition. This is an entity formed by two or more
partners with an objective to carry on a trade or
business for profit.
The partners should document their business
arrangement with written agreement called a
partnership agreement..
The partners are not required to formally
organize their business with a state.
C. LIMITED LIABILITY COMPANIES
1. Organization Requirements. These are entities
created by filing LLC Articles of Organization
with a state in which the owner(s) are organizing a
business.
Owner(s) are called member(s).
2. Types of LLCs. Most state allow LLCs to have only
one memberthis distinction is important for tax
purposes as explained below
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Chapter 1: Entity Types and Their Formation

a Single member limited liability companies
. (SMLLC). This entity cannot be considered a
partnership (If the sole member is an individual,
the SMLLC is taxed as a proprietorship.)
b Limited liability companies (LLC). This entity
. is assumed to have two or more members. (The
LLC is taxed as a partnership.)

MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 11

Chapter 1: Entity Types and Their Formation

D. LIMITED LIABILITY LIMITED PARTNERSHIP (LLLP)
1. Definition. This entity consists of a general
member who manages the business and limited
members who are investors, all of whom are not
responsible for the liabilities of the entity; and are
not permitted to have any management functions.
Having two classes of members is an
attractive feature for joint ventures where the
person with a plan and talent to carry it out
needs venture capital from investors.
2. Organization Requirements. To operate in this
form the owners (typically the general member) files
a LLLP Articles of Organiza-tion with the state in
which the business is being organized.
Owner(s) are called member(s).
E. CORPORATIONS
1. Definition. Corporations are entities which are
allowed to be created by state law whose business
activities are accounted for separate and apart from
the owner(s).
2. Organization Requirements. To be recognized as
a corporation for state law purposes the owner(s)
must file Articles of Incorporation with the state
in which the business is being organized.
PART B: VARIOUS BUSINESS FORMS FROM A TAX
PERSPECTIVE
(Text pages 15-5 to 15-7)
LO
2

Describe the tax law classifications of business entities.

OVERVIEW OF THE TAX LAW PROCESS

First:

Every entity recognized by state law is recognized for

federal tax purposes

Secon
d:

Every recognized entity is required to be classified for tax

purposes.

MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 12

Chapter 1: Entity Types and Their Formation

Third:

Election available to non-corporate entities

Fourth
:

Election available to ALL corporations

I.

DESCRIBE THE TAX LAW PROCESS FOR ENTITY

CLASSIFICATION.

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Chapter 1: Entity Types and Their Formation

OVERVIEW OF ENTITY TAX CLASSIFICATION
EVERY LEGAL ENTITY IS CLASSIFIED AS ONE OF THE FOLLOWING
(FOR TAX PURPOSES)
\ /
Disregarded Entity
\ /
Sole
Proprietor
-ship

\ /
Single
Member
Limited
Liability
Company

\ /
Gener
al
Partn
ership

\ /
Partnership

\ /
Corporation

\ /
Limited

\ /
Corps which
have
not yet made
any tax
elections

Liabilit
y
Compa
ny

\ /
Limited
Liability
Limited
Partnershi
p

A. OVERVIEW.
1. First every entity recognized by state law is
recognized for federal tax purposes.
2. Second because of filing requirements tax law
required every entity is required to be classified.
3. Third every non-corporate entity can elect to be
treated as a corporation for tax purposes.
3. Fourth all corporation can elect to taxed as a passthrough entity (as defined in Paragraph III below)
B. FEDERAL TAX LAW CLASSIFICATION. For Federal
income tax purposes there are three overall types of
entities
1. Disregarded entities.
2. Partnerships.
3. Corporations.
C. DISREGARDED ENTITIES. This is a business which
has only one owner and which is considered to be the
same entity as the ownertax law recognizes two types
1. Sole Proprietorship (SP). This is a business
operated by an individual with an objective to carry
on a trade or business for profit.
This entity files a Schedule C.
2. Single Member LLC (SMLLC). This is limited
MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 14

Chapter 1: Entity Types and Their Formation

liability company owned by a one member.
If the owner is an individual, the entity is
considered a sole proprietorshipindividuals can
file multiple Schedule Cs
If the owner is, a corporation for example, the
income or loss from the SMLLC is reported on the
corporate tax return, probably, Form 1120, line 10

MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 15

Chapter 1: Entity Types and Their Formation

D. PARTNERSHIPS. Tax law defines partnerships are as an
association of two or more partners with an objective
to carry on a business for profit and a plan for joint
division of profits. These entities file a Form 1065.
1. General Partnership (GP). Entities formed by
written partnership agreement among the partners
2. Limited Liability Limited Partnership (LLC).
Entity formed by filing LLC Articles of Organization
with a state.
3. Limited Liability Limited Partnership (LLLP).
.
Entity formed by filing LLLP Articles of Organization
with a state.
C.

II.

CORPORATIONS. Can have as few as one owner.

For now these are entities that have filed Articles of
Incorporation, who have not yet made any tax
elections

LIST THE DEFAULT RULES AND POSITIVE

ELECTIONS PROVIDED BY THE CHECK-THE-BOX
REGULATIONS
OVERVIEW OF THE FIRST LEVEL OF TAX ELECTIONS
EVERY NON-CORPORATE ENTITY CAN ELECT TO BE A
CORPORATION
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Disregarded Entity

\ /
Sole Proprietorsh
ip

\ /
Single Member
Limited Liability
Company

\ /
Partnership
\ /
General
Partners
hip

\ /
Limited
Liability
Company

\ /
Limited
Liability
Limited
Partnership

\ /
\ /
\ /
\ /
\ /
All Can Elect to be Treated as a Corporation for Tax Purposes

A. BACKGROUND. The IRS has issued its so-called checkthe-box regulations, which enables businesses to choose
the tax status of the entity in which it operates without
MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 16

Chapter 1: Entity Types and Their Formation

regard to its corporate or non-corporate
characteristics..
B. ENTITIES WHICH CANNOT MAKE AN ELECTION.
Entities that have filed articles of incorporation with
a state to be a corporation (i.e., Fixed Status
Corporations).
All other entities subject to default rules and can
make a positive election to be taxed as a corporation.

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Chapter 1: Entity Types and Their Formation

C. THE DEFAULT RULES AND POSITIVE ELECTION FOR
SINGLE MEMBER ENTITIES.
Proprietorship
Single member
LLC

Default Rule
Disregarded
entity
Disregarded
entity

Positive Election
Elect corporate status
Elect corporate status

D. THE DEFAULT RULES AND POSITIVE ELECTION FOR

MULTIPLE MEMBER ENTITIES.
General
partnership
Multiple member
LLC
LLLP

III.

Default Rule
Considered a
partnership
Considered a
partnership
Considered a
partnership

Positive Election
Elect corporate status
Elect corporate status
Elect corporate status

BECOMING A CORPORATION FOR FEDERAL TAX LAW.

1. For tax purposes, an entity can become a
corporation by two different means.
a. Fixed status. These are entities that have filed
articles of incorporation with a state
b. Elective status. These entities that have NOT
filed articles of incorporation with a state; but
have elected to be considered a corporation
for tax purposes
2. The primary entity which might choose to be a
corporation is the Limited Liability Company
(LLC).
a. Proprietorships, general partnerships, and
limited liability limited partnerships rarely elect
corporate status
b. Further discussion. See Topic 1-4

DEFINE TAXABLE VERSUS PASS-THROUGH ENTITIES

A. FOR TAX PURPOSES EVERY ENTITY IS EITHER A
TAXABLE ENTITY OR A PASS-THROUGH ENTY.

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Chapter 1: Entity Types and Their Formation

1. Taxable entities. Separate tax paying entities (1)
calculate their taxable income; (2) determine their
tax liability; and (3) pay taxes to federal
government.
2. Pass-through entities. Pass-through entities (1)
determine their items of income and deduction (2)
pass these items through to their owner(s); and (3)
the owners are responsible for paying taxes on the
net earnings reported to them.

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Chapter 1: Entity Types and Their Formation

IV.

DISCUSS THE SECOND LEVEL ELECTION AVAILABLE

TO ALL CORPORATIONS.

OVERVIEW OF THE SECOND LEVEL OF TAX ELECTIONS

EVERY CORPORATION CAN
\ /
Make an S election

\ /
Do nothing (do not make an S
election)

\ /
If an S election is made, the
corporation becomes a passthrough entity

\ /
If an S election is NOT made, the
corporation is a taxable
corporation

A. TAXABLE CORPORTION.
Corporations which have NOT made an S election.
Also known as a C Corporation.
B. PASS-THROUGH CORPORATION.
S Corporations. Corporations which have made an
S election.
C. COMMENT ABOUT OTHER PASS-THROUGH ENTITIES.
These are entities which have NOT made a (Level One)
election to be taxed as a corporations. They are:
1. Limited Liability Company
2. Limited Liability Limited Partnership.
3. General Partnership.
4. Sole Proprietorship
V.

DISCUSS THE COURSE ASSUPTIONS AND VARIOUS

SUMMARIES
A. COURSE ASSUMPTIONS.
1. For the purposes of this course, we will assume that
ALL non-corporate entities DO NOT elect to be
considered a corporation for tax purposes.
2. For the purposes of this course, we will assume that
Limited Liability Companies (LLCs) have at least two
members.
MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 20

Chapter 1: Entity Types and Their Formation

B. SUMMARY OF ENTITY TAX CLASSIFICTIONS AND
FILING REQUIREMENTS. See next page.
C. SUMMARY OF ENTITIES TO BE SDUDIED. See next
page.

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Chapter 1: Entity Types and Their Formation

SUMMARY OF ENTITY TAX CLASSIFICATIONS
AND FILING REQUIREMENTS
Did the entity file Articles of Incorporation to become a legal
corporation?
No
\ /
Does the entity elect
to be
treated as a
corporation
for tax purposes?

Yes

/
File Form
8852

No
\ /
Does the entity have
more than one owner?

Yes

No
\ /
C
corporatio
n
for tax
purposes
File From
1120

No

\ /
Partnershi
p
for tax
purposes
File From
1065

\ /
Is the
owner
an
individual?
Yes

Yes
\ /
Does the entity
qualify
for, and elect, S
corp.?
File Form 2553

No

\ /
Sole proprietorship for tax
purposes
File Form 1040, Schedule C

Yes
\ /
S
corporation
for tax
purposes
File From
1120S

Disregarded entity

/ Treated the same as the

owner
(not a separate entity
from
the owner). Income or
loss
is reported on the
owners tax return

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Chapter 1: Entity Types and Their Formation

SUMMARY OF TAX ENTITIES TO BE STUDIED
Entities that file Articles of
Organization with a State

Entities that file Articles

of Incorporation with a
State

\ /
Limited
Liability
Company

\ /
Limited Liability

\ /
S Corpora-

\ /
Taxable

Limited
Partnership
Files Form 1065

tion Files

Corporation

Form
1120S

Files Form
1120

\ /

\ /
Taxable
Entity

Files Form
1065
\ /

\ /
Pass-Through Entities

MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 23

Chapter 1: Entity Types and Their Formation

TOPIC 1-1: CONCEPT QUESTIONS
1.1 Which of the following entity(ies) is(are) not required to
formally organize its (their) business with a state?
A.
Proprietorship.
B.
Corporations.
C.
Limited liability companies.
D. Partnerships.
E.
Proprietorships and partnerships.
Answer to Question E
1.1
Corporations and LLCs are required to file articles with a
state.
1.2 Which of the following is not a disregarded entity?
A.
Proprietorship.
B.
Single member limited liability company.
C.
Partnerships
D. They all are disregarded entities.
Answer to Question C.
1.2
1.3 Which of the following is the positive election for check-thebox regulations?
A.
Elect proprietorship status
B.
Elect partnership status
C.
Elect corporation status
Answer to Question C.
1.3

MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 24

Chapter 1: Entity Types and Their Formation

TOPIC 1-1:
TYPES OF BUSINESS ENTITIES
LEARNING EXPECTATIONS
Now that Topic 1-1 is complete you should be able to
A. Describe the state law classifications of business
entities
1. List the entities recognized by state law.
2. Define and/or describe the entities recognized by state
law.
3. Describe the two subtypes of corporations.
B. Describe
entities

the

tax

law

classifications

of

business

1. Describe the tax law process for entity classification.

2. List the default rules and positive elections provided by
the check-the-box regulations.
3. Discuss taxable versus pass-through entities.
4. Discuss the second level election available to all
corporations.
5. Summarize the various business forms from a tax
perspective.
We have completed the contents of Topic 1-1 and are ready to
move on to Topic 1-2.

MAIN IDEAS IN CHAPTER 1, TOPIC 1, Kermit Keeling: Solution PAGE 25