Arizona Real Estate License Practice Exam 2026 – All-in-One Resource to Pass with Confidence!

Double taxation primarily affects C corporations because these entities are taxed at the corporate level on their profits. When the corporation distributes dividends to its shareholders, those dividends are taxed again on the individual tax returns of the shareholders. This two-tiered taxation is what defines double taxation.

In contrast, S corporations, sole proprietorships, and limited liability companies (LLCs) typically bypass this issue. S corporations allow profits to be passed directly to shareholders, who report the income on their personal tax returns without an additional corporate tax. Similarly, sole proprietorships and LLCs are taxed as pass-through entities, meaning their profits are reported on the owners' individual tax returns, avoiding the corporate tax level altogether.

Thus, the correct answer points to C corporations being uniquely subjected to double taxation due to their structure, making them distinct from other types of business ownership forms.