Question

Partners, LLC members and S Corporation shareholders are not taxed on the amount they withdraw from the entity in a nonliquidating distribution when they have sufficient basis (disregarding any other limitation).
a. True
b. False

Answer 1

Answer:

Partners: True

LLC: True

S Corporation: False

Explanation:

When dividends are withdrawn from a business tax is only due on a S Corporation because the tax paid for the profits of an organization is not by the stockholder withdrawing the dividends which is why when dividend is withdrawn the tax is to be paid.

When dividends are withdrawn in a partnership or and LLC then no tax is payable as tax is already paid on the profits made by the business that is why dividends are not taxable when withdrawn.