FINRA Investment Banking Representative Practice Exam

C corporations and S corporations do indeed face capital gains taxes, but the application varies based on the structure of the ownership and the duration the shares are held. For C corporations, capital gains are typically taxed at the corporate level when the gains are realized, and if those gains are distributed to shareholders as dividends, they can be subject to tax again at the individual level, known as double taxation.

In the case of S corporations, which are pass-through entities, capital gains tax is ultimately reflected on individual shareholders' tax returns. Shareholders of S corporations can take advantage of the long-term capital gains tax rates if they hold their shares for more than one year. This lower tax rate applies to the capital gains that the corporation realizes on the sale of assets, which then passes through to the shareholders.

Therefore, the statement that there is a capital gains tax rate applicable if the shares are held for more than one year accurately reflects the tax treatment for both types of corporations when considering how long an asset is held before a sale. This is essential for investors to recognize as it directly impacts their tax obligations and financial strategies regarding the timing of sales and distributions.