Which of the Following Allocations Is Most Likely to Meet

question 72

Multiple Choice

Which of the following allocations is most likely to meet the substantial test in the substantial economic effect rules? (Assume all economic effect tests are met.)

• A) The ROY LLC specially allocates $20,000 of income each year to partner Red with no offsetting loss allocations in other years.
• B) The YGB LLC specially allocates $30,000 of ordinary income this year to partner Green with an offsetting allocation of loss in that same amount next year.
• C) The BPV LLC specially allocates $10,000 of capital gains to Violet and $10,000 of interest income to Purple because Purple is in a lower tax bracket.
• D) The PIR LLC specially allocates $60,000 of income to Indigo with no offsetting allocations. Indigo has expiring net operating losses.

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Definitions:

Cognitive Representations

Mental models or mental images that individuals form about objects, events, or people, based on their knowledge and experiences, which guide their interactions with the external world.

Physiological Responses

The body's automatic reactions to a stimulus, including changes in heart rate, breathing, and muscle tension, among others.

Emotions

Intricate mental conditions that encompass a trio of distinct elements: an individual's personal experience, a physical reaction, and an action or demonstrative response.

Automatic

Referring to processes or behaviors that occur spontaneously, without conscious thought or intention.