Question

From a tax perspective, which entity choice is preferred when a liquidating distribution occurs and the entity has appreciated assets?

1) Partnership
2) S corporation
3) LLC
4) Partnership and LLC
5) S corporation and LLC

Answer 1

The preferred entity choice from a tax perspective when a liquidating distribution occurs with appreciated assets is an S corporation and LLC.

Step-by-step explanation:

When a liquidating distribution occurs and the entity has appreciated assets, the preferred entity choice from a tax perspective would be an S corporation and LLC.

Both S corporations and LLCs offer pass-through taxation, meaning that the income or losses of the entity pass through to the individual owners and are reported on their personal tax returns.

This can be advantageous when there are appreciated assets, as it allows the owners to potentially benefit from the lower capital gains tax rates when the assets are sold.

Additionally, both S corporations and LLCs offer limited liability protection to their owners.