To "Fail" the Passive Income Test and Thereby Avoid Personal

question 2

Multiple Choice

To "fail" the passive income test and thereby avoid personal holding company status, a corporation can do any of the following except

• A)Generate less adjusted ordinary gross income.
• B)Switch investments from dividend-paying stocks to growth stocks.
• C)Increase shareholder compensation by the amounts that otherwise would be invested to generate personal holding company income.
• D)Replace personal holding company income with tax-exempt income, capital gains, or § 1231 gains.
• E)Increase operating income without increasing passive income.

---

Definitions:

Annual Rate of Return

The percentage return expected on an investment over a one year period.

Decision Rule

A decision rule is a guideline or criterion established for making decisions under conditions of uncertainty, aiming to achieve the best result based on available information.

Incremental Costs

Costs that change with the decision to produce more or less product or to undertake one action over another.

Incremental Processing

A method or process that involves analyzing the additional costs or benefits that arise from producing one additional unit of a product or offering one additional unit of service.