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:

Economic Outcome

The result of economic activities, often measured by metrics such as GDP growth, unemployment rates, and inflation.

Marginal Rate Of Technical Substitution

The rate at which one input can be reduced per additional unit of another input, while maintaining the same level of output.

Efficiency

The optimal use of resources to achieve the desired ends, minimizing waste and maximizing output.

General Equilibrium Prices

The set of prices for all goods and services in an economy at which supply and demand across all markets are in balance.