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:

Security Interest

A financial mechanism that gives a lender priority over the borrower's assets or property in the case of default.

Financing Statement

A document filed by a creditor to indicate a security interest in the personal property of a debtor, used to perfect a lien.

Perfection

In the context of securing interests in property, it is the process of completing all required legal steps to enforce a security interest against third parties.

Chattel Paper

A document or records indicating both a monetary obligation and a security interest in or lease of specific goods.