Three Members Form an LLC in the Current Year

question 37

Multiple Choice

Three members form an LLC in the current year. Which of the following statements is incorrect?

• A)The LLC's default classification under the check-the-box rules is as a partnership.
• B)The LLC can elect to have its default classification ignored.
• C)The LLC can elect to be taxed as a C corporation with no special tax consequences.
• D)If the LLC elects to use its default classification, it can elect to change its status to being taxed as a C corporation beginning with the third tax year after the initial classification.

Calculate and interpret the changes to the acquisition differential over time.

Identify and compute unrealized intercompany profits and their tax effects.

Analyze and adjust financial statements for intercompany transactions.

Determine the impact of subsidiary transactions on the non-controlling interest.

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Definitions:

At-risk Amount

The maximum amount of money an investor could lose in an investment, often used in the context of limiting losses in tax sheltered investments.

Passive Activity

Economic activities in which the taxpayer does not materially participate, often associated with rental properties or certain business investments.

Ordinary Loss

A loss incurred in the normal operation of a business, which can be used to reduce other taxable income on an owner's tax return.

Itemized Deductions

Expenses that taxpayers can subtract from their taxable income, detailed on Schedule A of the tax return.