ExpertMedium1 markMultiple Choice
CPA · Question 49 · Area III: Entity Tax Planning
Compare the liquidation of a C Corporation vs. a Partnership. Both entities distribute appreciated property to their owners. Which statement is true?
Compare the liquidation of a C Corporation vs. a Partnership. Both entities distribute appreciated property to their owners. Which statement is true?
Answer options:
A.
C Corp recognizes gain; Partnership generally does not.
B.
Both recognize gain.
C.
Neither recognizes gain.
D.
Partnership recognizes gain; C Corp does not.
How to approach this question
C Corp = Double Tax (Gain inside, Gain outside). Partnership = Single Tax (No gain inside usually, basis adjustment outside).
Full Answer
A.C Corp recognizes gain; Partnership generally does not.✓ Correct
IRC §336 (C Corp) requires gain recognition on distribution of appreciated property. IRC §731 (Partnership) generally provides for nonrecognition of gain on distribution of property.
Common mistakes
Assuming flow-through treatment for C Corps.
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