Three Members Form an LLC in the Current Year

question 37

Multiple Choice

Three members form an LLC in the current year. Which of the following statements is incorrect?

• A)The LLC's default classification under the check-the-box rules is as a partnership.
• B)The LLC can elect to have its default classification ignored.
• C)The LLC can elect to be taxed as a C corporation with no special tax consequences.
• D)If the LLC elects to use its default classification, it can elect to change its status to being taxed as a C corporation beginning with the third tax year after the initial classification.

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Definitions:

Stock Options

Contracts that grant the holder the right, but not the obligation, to buy or sell a stock at a predetermined price within a specific time frame.

Available-for-Sale

Available-for-sale refers to financial assets that are not classified as held-for-trading or held-to-maturity, and are recorded at fair value with changes recognized in other comprehensive income.

Market Values

The current price at which an asset or service can be bought or sold in a competitive marketplace.

Unrealized Increase/Decrease

Refers to the change in value of an investment that has not been sold, affecting the company’s balance sheet but not its income statement.