Advanced Federal Taxation
Mock Exam
Course Introduction
Advanced Federal Taxation builds upon foundational tax concepts to explore complex issues faced by individuals, corporations, and partnerships within the U.S. federal tax system. The course covers topics such as corporate reorganizations, consolidated tax returns, multinational taxation, tax planning for mergers and acquisitions, and IRS procedures. Emphasis is placed on analyzing tax strategies, interpreting the Internal Revenue Code, and applying relevant tax laws and regulations through practical case studies. Students will develop a deeper understanding of tax compliance and ethical responsibilities while gaining the analytical skills necessary to address advanced tax issues in professional practice.
Recommended Textbook
South Western Federal Taxation 2011 Comprehensive 34th Edition by William H. Hoffman
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Page 2
Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Sample Questions
Q1) For individual taxpayers,the interest rate for income tax refunds (overpayments)is the same as that applicable to assessments (underpayments).
A)True
B)False
Answer: True
Q2) If the tax deficiency is attributable to fraud,the negligence penalty will not be imposed.
A)True
B)False
Answer: True
Q3) A characteristic of FUTA is that:
A)It is imposed on both employer and employee.
B)It is imposed solely on the employee.
C)Compliance requires following guidelines issued by both state and Federal regulatory authorities.
D)It is applicable to spouses of employees but not to any children under age 18.
E)None of the above.
Answer: C
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Chapter 2: Working With the Tax Law
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Q1) The granting of a Writ of Certiorari indicates that at least five members of the Supreme Court believe that an issue is of sufficient importance to be heard by the full court.
A)True
B)False
Answer: False
Q2) A Revenue Procedure is an administrative source of Federal tax law.
A)True
B)False
Answer: True
Q3) A U.S.District Court decision carries less weight than a decision issued by the Fifth Circuit Court of Appeals.
A)True
B)False
Answer: True
Q4) Some Regulations are arranged in different sequence than the Code.
A)True
B)False Answer: False
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Chapter 3: Computing the Tax
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Sample Questions
Q1) Gain on the sale of collectibles held for more than 12 months is subject to tax at a rate no higher than 28%.
A)True
B)False
Answer: True
Q2) Darren,age 20 and not disabled,earns $4,500 during 2010.Darren's parents cannot claim him as a dependent unless he is a full-time student.
A)True
B)False
Answer: True
Q3) Using borrowed funds from a mortgage on her home,Leah provides 52% of her own support,while her sons furnished the rest.Leah can be claimed as a dependent under a multiple support agreement.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Gross Income: Concepts and Inclusions
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Q1) Jessica is a cash basis taxpayer.When Jessica failed to repay a loan,the bank garnished her salary.Each week $40 was withheld from Jessica's salary and paid to the bank.Jessica is not required to include the $40 each week in her gross income because she does not have the ability to pay tax on money she did not receive.
A)True
B)False
Q2) Under the original issue discount (OID)rules as applied to a three-year certificate of deposit:
A)All of the income must be recognized in the year of purchase.
B)The OID will not be included in gross income until the end of the third year.
C)The interest income for the first year will be greater than the interest income for the second year.
D)The original issue discount must be amortized using the effective interest method.
E)None of the above is correct.
Q3) In some foreign countries,the tax law specifically designates the types of income items that are includible in gross income.How does this approach compare with the U.S.Internal Revenue Code (§ 61)? What is a major advantage to the approach used in the U.S.tax law?
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Chapter 5: Gross Income: Exclusions
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Sample Questions
Q1) Amber received a scholarship to be used as follows: tuition $6,000;room and board
$4,000;and books and laboratory supplies $1,000.Amber is required to include only $4,000 in her gross income.
A)True
B)False
Q2) Emily is in the 35% marginal tax bracket.She can purchase a York County school bond yielding 5% interest,but she is interested in earning a higher return for comparable risk.
A)If she buys a corporate bond that pays 8% interest,her after-tax rate of return will be greater than if she purchased the York County school bond.
B)If she buys a U.S.government bond paying 6%,her after-tax rate of return will be less than if she purchased the York County school bond.
C)If she buys a common stock paying 6% dividend,her after-tax rate of return will be higher than if she purchased the York County school bond.
D)All of the above are correct.
E)None of the above are correct.
Q3) What Federal income tax benefits are provided for college students?
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Page 7
Chapter 6: Deductions and Losses: in General
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Q1) How can an individual's consultation with a lawyer be classified as a deduction for AGI in some cases and a deduction from AGI in other instances?
Q2) During the year,Larry rented his vacation home for 180 days and lived in it for 16 days.During the remaining days,the vacation home was available for rental use.Is the vacation home subject to the limitation on the deductions of a personal/rental vacation home?
Q3) Fines paid in the course of carrying on a trade or business generally are deductible if there is a related business purpose.
A)True
B)False
Q4) In order to protect against rent increases on the building in which she operates a dance studio,Mella signs an 18-month lease for $18,000.The lease commences on November 1,2010.How much of the $18,000 payment can she deduct in 2010 and 2011?
Q5) If a vacation home is classified as primarily rental use,a deduction for all of the rental expenses is allowed.
A)True
B)False
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Page 8
Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) Jed is an electrician.Jed and his wife are cash basis taxpayers and file a joint return.Jed wired a new house for Alison and billed her $15,000.Alison paid Jed $10,000 and refused to pay the remainder of the bill,claiming the fee to be exorbitant.Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgement.Jed was never able to collect the judgement nor the remainder of the bill from Alison.What amount of loss may Jed deduct in the current year?
A)$0.
B)$2,000.
C)$3,000.
D)$5,000.
E)None of the above.
Q2) Several years ago,John purchased 2,000 shares of § 1244 stock from Red Corporation for $40,000.Last year,John sold one-half of his Red Corporation stock to Mike for $12,000.During the current year,Mike sold the Red Corporation stock for $3,000.Mike has a $9,000 ($3,000 - $12,000)ordinary loss for the current year.
A)True
B)False
Q3) How is qualified production activities income (QPAI)calculated?
Q4) Why was the domestic production activities deduction (DPAD)enacted by Congress?
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Chapter 8: Depreciation,cost Recovery,amortization,and Depletion
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Sample Questions
Q1) In a farming business,if an election is made to not have the uniform capitalization rules apply,cost is recovered using the ADS straight-line method.
A)True
B)False
Q2) James purchased a new business asset (three-year personality)on July 23,2010,at a cost of $50,000.He did not elect to expense any of the asset under § 179,nor did he elect straight-line cost recovery.If Congress reenacts additional first-year depreciation for 2010,James did elect not to take additional first-year depreciation.Determine the cost recovery deduction for 2010.
A)$8,333.
B)$16,665.
C)$33,333.
D)$41,665.
E)None of the above.
Q3) The costs of leasehold improvements owned by the lessee on residential rental real estate are recovered over a 27.5-year MACRS recovery period.
A)True
B)False
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Sample Questions
Q1) The § 222 deduction for tuition and related expenses is available:
A)Regardless of the amount of a taxpayer's AGI.
B)To cover room and board expenses to attend college.
C)To a married taxpayer filing a separate return.
D)Even if a taxpayer does claim the standard deduction.
E)None of the above.
Q2) The maximum annual elective contribution for a participant who is age 40 in a § 401(k)plan is $16,500 for 2010.
A)True
B)False
Q3) Which,if any,of the following expenses is subject to the 2%-of-AGI floor?
A)Qualified tuition expenses under § 222.
B)Contribution to traditional IRA.
C)Cost of a CPA exam review course-taxpayer just began employment with an accounting firm.
D)Office in the home deduction for a statutory employee.
E)None of the above.
Q4) How are combined business/pleasure trips treated for travel within the United States as opposed to foreign travel?
Page 11
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Q1) Upon the recommendation of a physician,Ed has a swimming pool installed at his residence because of a heart condition.If he is allowed to deduct all or part of the cost of the pool,Ed's increase in utility bills due to the operation of the pool qualifies as a medical expense.
A)True
B)False
Q2) Diane contributed a parcel of land to the United Way.In addition,she contributed Bibles and song books from her proprietorship's book store inventory to First Church,a qualified charitable organization.Should Diane's charitable contribution deduction for these contributions be determined by the basis or fair market value of the contributed items?
Q3) Harry and Sally were divorced three years ago.In July of the current year,their son,Joe,broke his arm falling out of a tree.Joe lives with Sally and Sally claims him as a dependent on her tax return.Harry paid for the medical expenses related to Joe's injury.Can Harry claim the medical expenses he paid for Joe on his tax return?
Q4) Linda borrowed $60,000 from her parents for a down payment on a condominium.She paid interest of $5,500 in 2008,$0 in 2009,and $9,000 in 2010.The IRS disallowed the deduction.Can you offer any explanation for the disallowance?
Page 12
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Chapter 11: Investor Losses
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Sample Questions
Q1) Individuals can deduct from active or portfolio income losses of up to $25,000 from real estate rental activities in which they actively participate.
A)True
B)False
Q2) Paul owns and actively participates in the operations of an apartment building which produces a $40,000 loss during the year.He has AGI of $150,000 from an active business.He may not deduct any of the loss.
A)True
B)False
Q3) In 2009,Kelly,who earns a salary of $200,000,invests $40,000 for a 20% interest in a partnership not subject to the passive loss rules.Through the use of $800,000 of nonrecourse financing,the partnership acquires assets worth $1 million.Depreciation,interest,and other deductions related to the activity produce a loss of $150,000,of which Kelly's share is $30,000.In 2010,Kelly's share of the loss from the partnership is $15,000.How much of the loss from the partnership can Kelly deduct?
Q4) When a taxpayer disposes of a passive activity by gift,what happens to any unused passive losses?
Q5) What special passive loss treatment is available to real estate activities?
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Chapter 12: Tax Credits and Payments
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Sample Questions
Q1) Income tax withheld on wages is an example of a refundable credit.
A)True
B)False
Q2) Nonrefundable credits are those that reduce the taxpayer's tax liability but are not paid when the amount of the credit (or credits)exceeds the taxpayer's tax liability.
A)True
B)False
Q3) How does the FICA tax compare to the self-employment tax? How are these two taxes similar and how do they differ?
Q4) The calculation of FICA and the self-employment tax both involve two components: the Social Security portion and the Medicare portion,each portion of which is imposed on the same base amounts.
A)True
B)False
Q5) Describe the withholding requirements applicable to employers.
Q6) The earned income credit,a form of a negative income tax,is a refundable credit.
A)True
B)False
Q7) Discuss the treatment of unused general business credits.
Page 14
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Chapter 13: Part 1--Property Transactions: Determination of
Gain or Loss,basis Considerations,and Nontaxable Exchanges
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Sample Questions
Q1) Latisha owns a warehouse with an adjusted basis of $112,000.She exchanges it for a strip mall building worth $150,000.Which of the following statements is correct?
A)If the warehouse was used in Latisha's business to store inventory and the strip mall building is to be rented to tenants,her recognized gain is $38,000 and her basis for the strip mall building is $150,000.
B)If the warehouse was used in Latisha's business to store inventory and the strip mall building is to be used as a retail outlet for her business,her recognized gain is $0 and her basis for the strip mall building is $112,000.
C)If the warehouse is used by Latisha to store personal use items such as excess furniture and the strip mall building is to be rented to tenants,her recognized gain is $38,000 and her basis for the strip mall building is $150,000.
D)Only b.and c.are correct.
E)a. ,b. ,and c.are correct.
Q2) If Wal-Mart stock increases in value during the tax year by $4,500,the amount realized is a positive $4,500.
A)True
B)False
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Chapter 13: Part 2--Property Transactions: Determination of
Gain or Loss,basis Considerations,and Nontaxable Exchanges
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Sample Questions
Q1) Distinguish between a direct involuntary conversion and an indirect involuntary conversion.
Q2) Joseph converts a building (adjusted basis of $50,000 and fair market value of $40,000)from personal use to business use.Justin receives a building with a $40,000 fair market value ($50,000 donor's adjusted basis)from his mother as a gift.Discuss the tax consequences with respect to Joseph's and Justin's adjusted basis.
Q3) What effect does a deductible casualty loss have on the adjusted basis of property?
Q4) What is the difference between the depreciation (or cost recovery)allowed and the depreciation (or cost recovery)allowable and what effect does each have on the adjusted basis of property?
Q5) Ollie owns a personal use car for which he originally paid $42,000.He trades the car in on a sports utility vehicle (SUV)paying the automobile dealer cash of $24,000.If the negotiated price of the SUV is $45,000,what is Ollie's recognized gain or loss and his adjusted basis for the SUV?
Q6) Why is it generally undesirable to pass property by death when its fair market value is less than basis?
Page 16
Q7) For disallowed losses on related-party transactions,who has the right of offset?
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Page 17
Chapter 14: Property Transactions: Capital Gains and Losses,1231,and
Recapure Provisions
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Q1) An individual taxpayer with 2009 net short-term capital loss of $5,000 generally can deduct up to $3,000 for AGI and carry the balance forward to 2010.
A)True
B)False
Q2) An individual had the following gains and losses during 2010 on property held for the long-term holding period: sale of Orange common stock ($8,000 gain);sale of real property used in the taxpayer's business ($1,800 loss);destruction of real property used in the taxpayer's business by fire ($1,000 loss).Which of the following is correct?
A)The fire loss would reduce the real property sale loss.
B)The fire loss would reduce the stock sale gain.
C)The sale of real property loss would be netted against the stock sale gain.
D)The sale of real property is a § 1231 loss.
E)None of the above.
Q3) What characteristics must the seller of a patent have in order to be classified as a holder?
Q4) Section 1231 property generally does not include musical compositions.
A)True
B)False
Page 18
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Chapter 15: Alternative Minimum Tax
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Q1) In 2010,Ray incurs $60,000 of mining exploration expenditures,and deducts the entire amount for regular income tax purposes.Which of the following statements is incorrect?
A)For AMT purposes,Ray will have a positive adjustment of $54,000 in 2010.
B)Ray will have a negative AMT adjustment of $6,000 in 2015.
C)Over a 10-year period,positive and negative adjustments will net to zero.
D)The AMT adjustment for mining exploration expenditures cannot be avoided if the taxpayer elects to write the expenditures off over a 10-year period.
E)All of the above are correct.
Q2) Why is there no AMT adjustment for charitable contributions?
Q3) All of a corporation's AMT is available for carryover as a minimum tax credit regardless of whether the adjustments and preferences originate from timing differences or AMT exclusions.
A)True
B)False
Q4) Identify an AMT adjustment that applies for the individual taxpayer that does not apply for the corporate taxpayer and identify an AMT adjustment that applies for the corporate taxpayer that does not apply for the individual taxpayer.
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Chapter 16: Accounting Periods and Methods
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Q1) In the case of a small home construction company that builds under long-term contracts,generally:
A)The percentage of completion method must be used.
B)The percentage of completion method should be used to defer income.
C)The completed contract method must be used.
D)The completed contract method defers income recognition.
E)None of the above is true.
Q2) In the case of an accrual basis taxpayer,an item of income:
A)Is not recognized until cash is received.
B)From services is never recognized until the services are performed.
C)Is not recognized if the customer can return the goods.
D)Is recognized when all the events have occurred to fix the taxpayer's right to receive the income and the amount of the income can be determined with reasonable accuracy.
E)None of the above.
Q3) A partnership can elect to use a tax year other than a calendar year if the partnership's CPA is too busy to prepare a calendar year return.
A)True
B)False
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Page 20
Chapter 17: Corporations: Introduction and Operating Rules
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Q1) Juanita owns 45% of the stock in a C corporation that had a profit of $120,000 in 2010.Carlos owns a 45% interest in a partnership that had a profit of $120,000 during the year.The corporation distributed $20,000 to Juanita,and the partnership distributed $20,000 to Carlos.Which of the following statements relating to 2010 is incorrect?
A)Juanita must report $20,000 of income from the corporation.
B)The corporation must pay corporate tax on $120,000 of income.
C)Carlos must report $20,000 of income from the partnership.
D)The partnership is not subject to a Federal entity-level income tax.
E)None of the above.
Q2) Jessica,a cash basis individual,is the sole shareholder of Crow Corporation,a regular corporation.On January 1,2010,Jessica loaned Crow $500,000,with the principal due in 10 years and 10% interest due each January 1.Crow,an accrual method,calendar year taxpayer,accrued $50,000 of interest expense on the loan on December 31,2010,and paid the $50,000 to Jessica on January 1,2011.How much is Crow's deduction for interest on this loan for 2010? Would your answer change if Jessica was a 45% shareholder of Crow?
Q3) Describe the Federal tax treatment of entities formed as limited liability companies.
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Chapter 18: Corporations: Organization and Capital Structure
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Q1) Hunter and Warren form Tan Corporation.Hunter transfers equipment (basis of $210,000 and fair market value of $180,000)while Warren transfers land (basis of $15,000 and fair market value of $150,000)and $30,000 of cash.Each receives 50% of Tan's stock.As a result of these transfers:
A)Hunter has a recognized loss of $30,000;Warren has a recognized gain of $135,000.
B)Neither Hunter nor Warren has any recognized gain or loss.
C)Hunter has no recognized loss;Warren has a recognized gain of $30,000.
D)Tan Corporation has a basis in the land of $45,000.
E)None of the above.
Q2) Adam transfers cash of $300,000 and land worth $200,000 to Camel Corporation for 100% of the stock in Camel.In the first year of operation,Camel has net taxable income of $70,000.If Camel distributes $50,000 to Adam:
A)Adam has taxable income of $50,000.
B)Camel Corporation has a tax deduction of $50,000.
C)Adam has no taxable income from the distribution.
D)Camel Corporation reduces its basis in the land to $150,000.
E)None of the above.
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Page 22
Chapter 19: Corporations: Distributions Not in Complete
Liquidation
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Q1) Betty's adjusted gross estate is $7 million.The death taxes and funeral and administration expenses of her estate total $800,000.Included in Betty's gross estate is stock in Heron Corporation,valued at $2.1 million as of the date of her death in 2009.Betty had acquired the stock six years ago at a cost of $410,000.If Heron Corporation redeems $800,000 of Heron stock from the estate,the transaction will qualify under § 303 as a redemption to pay death taxes and receive sale or exchange treatment.
A)True
B)False
Q2) Stacey and Andrew each own one-half of the stock in Parakeet Corporation,a calendar year taxpayer.Cash distributions from Parakeet are: $350,000 to Stacey on April 1 and $150,000 to Andrew on May 1.If Parakeet's current E & P is $60,000,how much is allocated to Andrew's distribution?
A)$5,000.
B)$10,000.
C)$18,000.
D)$30,000.
E)None of the above.
Q3) What are the tax consequences of a qualifying stock redemption to the distributing corporation?
Page 23
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Chapter 20: Distributions in Complete Liquidation and an Overview of Reorganizations
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Q1) All of the following statements are true about gains recognized in a corporate reorganization except:
A)Taxable amounts in a reorganization are classified as a dividend or capital gain.
B)Corporate shareholders would prefer taxable amounts in a reorganization be classified as a capital gain.
C)Individuals are taxed at the same rate for dividends and capital gains.
D)Capital gains and dividend income can be totally eliminated in a corporate reorganization with careful tax planning.
E)All of the above statements are true.
Q2) One advantage of acquiring a corporation via a stock purchase instead of an asset purchase is that a stock purchase avoids the transfer of the acquired corporation's liabilities.
A)True
B)False
Q3) In a corporate liquidation governed by § 332,what considerations should be given in the distribution of property to a minority shareholder?
Q4) Describe the requirements for and tax consequences of a § 338 election.
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Chapter 21: Partnerships
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Questions
Q1) In a proportionate liquidating distribution,Lina receives a distribution of $10,000 cash,accounts receivable (basis of $0 and fair market value of $12,000),and inventory (basis of $30,000 and fair market value of $40,000).Lina's basis in the entity immediately before the distribution was $80,000.As a result of the distribution,what is Lina's basis in the accounts receivable and inventory,and how much gain or loss does she recognize?
A)$0 basis in accounts receivable;$30,000 basis in inventory;$40,000 loss.
B)$0 basis in accounts receivable;$70,000 basis in inventory;$0 gain or loss.
C)$0 basis in accounts receivable;$40,000 basis in inventory;$50,000 loss.
D)$12,000 basis in accounts receivable;$30,000 basis in inventory;$28,000 gain.
E)$12,000 basis in accounts receivable;$40,000 basis in inventory;$18,000 gain.
Q2) A distribution from a partnership to a partner is not generally taxable to the partner. A)True
B)False
Q3) The "inside basis" is defined as a partner's basis in the partnership interest. A)True
B)False
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Page 25
Chapter 22: S Corporations
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Q1) Excess net passive income of an S corporation is $40,000 and taxable income is $32,000.Assuming that there is $50,000 of accumulated earnings and profits from a C corporation year,calculate any passive income penalty tax.
A)$0.
B)$4,500.
C)$10,500.
D)$11,200.
E)Some other amount.
Q2) An item that appears in the "Other Adjustments Account" affects stock basis,but not AAA,such as tax-exempt life insurance proceeds.
A)True
B)False
Q3) Any distribution of cash or property by a corporation that does not exceed the balance of AAA with respect to the stock during a post-termination transition period of approximately one year is applied against and reduces the adjusted basis of the stock.
A)True
B)False
Q4) S corporations are treated much like ____________________ for tax purposes.
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Chapter 23: Exempt Entities
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Q1) Is there a materiality exception associated with the unrelated business income tax?
Q2) Join,Inc. ,a § 501(c)(3)exempt organization,engages in an excess benefit transaction.The amount of the excess benefit is $200,000.Calculate the amount of the excise tax (first-level tax)imposed under the intermediate sanctions provision.
Q3) Watch,Inc. ,a § 501(c)(3)exempt organization,solicits contributions through a mail campaign.An executive,who recently completed an executive MBA degree program,recommends that personal address labels be included as an additional way to motivate the potential donor to contribute.The value of these labels is $9.00 per potential donor.What is the effect of the inclusion of the address labels on Watch's unrelated business income?
Q4) Which of the following qualify as exempt organizations?
A)Federal and related agencies.
B)Religious,charitable,and educational organizations.
C)Civic leagues.
D)Social clubs.
E)All of the above can be exempt from tax.
Q5) Is the taxation of a feeder organization influenced by the percentage of its earnings that it remits to an exempt organization?
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Chapter 24: Multistate Corporate Taxation
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Q1) The property factor includes real property and construction in progress.
A)True
B)False
Q2) In the apportionment formula,most states assign more than a one-third weight to the ____________________ factor.
Q3) Under P.L.86-272,which of the following transactions by itself would create nexus with a state?
A)Inspection by a sales employee of the customer's inventory for specific product lines.
B)Using an independent contractor who acts as a manufacturer's representative for the taxpayer through a sales office in the state.
C)Executing a sales campaign,using an advertising agency acting as an independent contractor for the taxpayer.
D)Maintenance of inventory in the state by an independent contractor under a consignment plan.
Q4) In determining the numerator of the sales factor,most states follow UDITPA's ____________________ concept,whereunder sales are assumed to take place at the point of delivery,as opposed to the location at which the shipment originates.
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Chapter 25: Taxation of International Transactions
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Q1) Which of the following statements regarding a foreign person's U.S.tax consequences is true?
A)Foreign persons are subject to U.S.income or withholding tax only if they are engaged in a U.S.-trade or business.
B)Foreign persons may be subject to withholding tax on U.S.-source investment income even if not engaged in a U.S.trade or business.
C)Foreign persons are not taxed on gains from U.S.real property as long as such property is not used in a U.S.trade or business.
D)Once a foreign person is engaged in a U.S.trade or business,the foreign person's worldwide income is subject to U.S.taxation.
Q2) Without the foreign tax credit,double taxation would result when:
A)The United States taxes the U.S.-source income of a U.S.resident.
B)The United States and a foreign country both tax the foreign-source income of a U.S.resident.
C)A foreign country taxes the foreign-source income of a nonresident alien.
D)Only the United States taxes the foreign-source income of a U.S.resident (e.g. ,a treaty prevents foreign taxation).
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Chapter 26: Tax Practice and Ethics
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Q1) Does the tax preparer enjoy an "attorney-client privilege" of confidentiality with his or her clients?
Q2) In the case of bad debts and worthless securities,the statute of limitations on claims for refund is seven years.
A)True
B)False
Q3) Circular 230 applies to all tax practitioners other than attorneys,CPAs,and enrolled agents,who are exempt because this group have their own codes of conduct.
A)True
B)False
Q4) The privilege of confidentiality applies to a CPA tax preparer concerning the client's information relative to:
A)Financial accounting tax accrual workpapers.
B)A tax research memo used to determine an amount reported on the tax return.
C)Building a defense against a penalty assessed for the use of a tax shelter.
D)Building a defense against a charge brought by the SEC.
Q5) A taxpayer can take a dispute to the Small Cases Division of the Tax Court when the disputed amounts do not exceed $____________________.
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Chapter 27: The Federal Gift and Estate Taxes
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Q1) The deemed paid credit allowed for past taxable gifts can be more than the tax actually paid.
A)True
B)False
Q2) Manfredo makes a donation of $50,000 to the church where he was baptized in Mexico City.The gift does not qualify as a charitable contribution for Federal income tax purposes.
A)True
B)False
Q3) In 2007,Katherine made some taxable gifts upon which she paid a Federal gift tax of $96,000.If Katherine dies in 2009,the $96,000 is included in her gross estate under the "gross up" rule.
A)True
B)False
Q4) Frank owns an insurance policy on the life of Cynthia,with Leon as the designated beneficiary.Upon Cynthia's prior death,Frank is treated as making a gift of the insurance proceeds to Leon.
A)True
B)False
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Chapter 28: Income Taxation of Trusts and Estates
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Q1) The unextended due date for a calendar-year trust to file its Form 1041 is March 15.
A)True
B)False
Q2) The grantor of a trust generally designates both ____________________ and ____________________ beneficiaries under the controlling agreement.
Q3) The Jain Trust is required to pay its entire annual accounting income to the Daytona Museum,a qualifying charity.The trust's personal exemption is:
A)$600.
B)$300.
C)$100.
D)$0.
Q4) Which of the following is a typical duty of a trustee?
A)Take title to the assets belonging to the entity.
B)File the entity's tax returns.
C)Invest the assets that comprise the corpus of the entity.
D)Distribute trust income of the beneficiaries in accordance with the provisions of the trust instrument.
E)All of the above.
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