Which of the Following Statements Regarding the Use of a Corporation

question 25

Multiple Choice

Which of the following statements regarding the use of a corporation as a tax shelter is false?

• A) In years in which the individual tax rates were significantly higher than the corporate rates, individuals could reduce the tax on business income by operating as a regular corporation rather than as a passthrough entity.
• B) The combination of deferral of individual tax and conversion of ordinary income into capital gain enhanced the attractiveness of corporations as tax shelters.
• C) When the top corporate and individual tax rates are equal, the opportunity for individuals to exploit differences between the individual and corporate rate structures is significant.
• D) When the top corporate and individual tax rates are equal, corporations are effective tax shelters only if business income is very small and the owners are willing to forgo dividends for a long period of time.

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Definitions:

Constitution

The system of fundamental principles or established precedents according to which a state or other organization is governed.

Economic Interests

The financial stakes or concerns in a policy, project, or action that motivates individuals, groups, or nations.

Popular Sovereignty

The idea that a state's power and governance are established and upheld with the approval of its citizens, via their chosen delegates.

Articles of Confederation

The first constitution of the United States, ratified in 1781, which established a weak federal government and was eventually replaced by the current U.S. Constitution in 1789.