Question

Which of the following is true of a C Corporation?

A) It does not pay taxes at the corporate level.
B) Shareholders of such a corporation are not required to pay taxes on their dividends.
C) Any corporation with more than 100 shareholders is automatically a C corporation for federal income tax purposes.
D) Nonresident aliens cannot be shareholders unless they demonstrate due diligence in meeting federal requirements for residency status.

Answer 1

A C Corporation is subject to corporate income taxes, shareholders also have to pay taxes on dividends, and the number of shareholders alone does not determine a corporation's tax status.

Step-by-step explanation:

A C Corporation is a type of corporation that is subject to certain taxes at the corporate level. Therefore, option A) It does not pay taxes at the corporate level, is not true.

C Corporations are required to pay corporate income taxes based on the profits they earn. Additionally, shareholders of a C Corporation are also subject to taxes on their dividends, so option B) Shareholders of such a corporation are not required to pay taxes on their dividends, is not true.

As for option C) Any corporation with more than 100 shareholders is automatically a C corporation for federal income tax purposes, this is also not true.

The number of shareholders alone does not determine a corporation's tax status. A corporation must elect to be treated as a C Corporation for federal income tax purposes.

Lastly, option D) Nonresident aliens cannot be shareholders unless they demonstrate due diligence in meeting federal requirements for residency status, is not true.

Nonresident aliens can be shareholders of a C Corporation, but they may be subject to certain withholding requirements.