ExpertHard1 markMultiple Choice
CPA · Question 21 · Area 2: Business Law
Which of the following is a key advantage of a Limited Liability Company (LLC) over an S Corporation?
Which of the following is a key advantage of a Limited Liability Company (LLC) over an S Corporation?
Answer options:
A.
LLC members are not subject to self-employment tax.
B.
An LLC can distribute appreciated property to members tax-free (in many cases), whereas an S Corporation recognizes gain on the distribution of appreciated property.
C.
An LLC can have an unlimited number of members, but cannot have foreign members.
D.
LLCs are not flow-through entities.
How to approach this question
Compare Entity Taxation: S Corp = Corp rules (Gain on distribution). LLC = Partnership rules (No gain on distribution usually). This is a huge tax difference.
Full Answer
B.An LLC can distribute appreciated property to members tax-free (in many cases), whereas an S Corporation recognizes gain on the distribution of appreciated property.✓ Correct
An LLC can distribute appreciated property to members tax-free (in many cases), whereas an S Corporation recognizes gain on the distribution of appreciated property.
Under IRC §311(b), S Corporations recognize gain on the distribution of appreciated property. Partnerships and LLCs (taxed as partnerships) generally do not recognize gain on distributions under IRC §731.
Common mistakes
Thinking S Corps and LLCs are taxed identically because they are both 'pass-throughs'.
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