Advanced Federal Taxation Practice Exam
Course Introduction
Advanced Federal Taxation delves into the complex and evolving landscape of U.S. federal tax law, building upon foundational taxation concepts. The course covers topics such as partnership and corporate taxation, S corporations, tax planning strategies, tax research, and compliance requirements for complex entities. Students analyze case law, IRS rulings, and code provisions, honing their skills in interpreting tax regulations and preparing relevant filings. Practical application of advanced tax concepts is emphasized through case studies and real-world scenarios, preparing students for careers in accounting, tax consulting, or law with a strong understanding of contemporary federal tax issues.
Recommended Textbook
Prentice Halls Federal Taxation 2014 Comprehensive 27th Edition by Timothy J. Rupert
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Chapter 1: Tax Research
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Q1) Investigation of a tax problem that involves a closed-fact situation means that A)the client's transactions have already occurred and the tax questions must now be resolved.
B)the client's tax return has yet to be filed.
C)future events may be planned and controlled.
D)research is primarily concerned with applying the law to the facts as they exist.
Answer: A
Q2) Which regulation deals with the gift tax?
A)Reg.Sec.1.165-5
B)Reg.Sec.20.2014-5
C)Reg.Sec.25.2518-5
D)Reg.Sec.301.7002-5
Answer: C
Q3) The Senate equivalent of the House Ways and Means Committee is the Senate
A)Finance Committee.
B)Ways and Means Committee.
C)Tax Committee.
D)Joint Conference Committee.
Answer: A
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Page 3
Chapter 2: an Introduction to Taxation
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Q1) A progressive tax rate structure is one where the rate of tax increases as the tax base increases.
A)True
B)False
Answer: True
Q2) The term "tax law" includes
A)Internal Revenue Code.
B)Treasury Regulations.
C)judicial decisions.
D)all of the above.
Answer: D
Q3) Which of the following serves as the highest authority for tax research,planning,and compliance activities?
A)Internal Revenue Code
B)Income Tax Regulations
C)Revenue Rulings
D)Revenue Procedures
Answer: A
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4
Chapter 3: Corporate Formations and Capital Structure
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Q1) A medical doctor incorporates her medical practice,which is operated as a sole proprietorship.The proprietorship uses the cash method of accounting.Among the assets contributed to the new corporation are unrealized receivables worth $40,000.The receivables are collected by the corporation.Which of the following statements is correct?
A)The $40,000 of receivables is included as ordinary income on the doctor's personal income tax return when collected by the corporation.
B)The doctor must include the $40,000 as ordinary income in her personal income tax return at the time of incorporation.
C)The $40,000 of receivables is included as ordinary income in the corporation's income tax return at the time of incorporation.
D)The $40,000 of receivables is included as ordinary income in the corporation's income tax return when collected.
Answer: D
Q2) Any losses on the sale of Section 1244 stock are ordinary.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Determination of Tax
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Q1) Kelly is age 23 and a full-time student with interest and dividend income of $2,600 in the current year.The total cost of her support for the year is $19,000.She is not subject to the kiddie tax.
A)True
B)False
Q2) A qualifying child of the taxpayer must meet the gross income test.
A)True
B)False
Q3) If an individual with a marginal tax rate of 15% has a long-term capital gain,it is taxed at
A)0%.
B)20%.
C)10%.
D)15%.
Q4) Which of the following credits is considered a refundable credit?
A)child and dependent care credit
B)earned income credit
C)adoption expense credit
D)lifetime learning credit
Q5) Discuss reasons why a married couple may choose not to file a joint return.
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Chapter 5: The Corporate Income Tax
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Q1) Super Corporation gives a painting to a museum for public display on August 6.The painting was purchased on April 3 of the same year for $20,000 and is worth $30,000 at the date of gift.Also,Super accrues a charitable contribution on December 30 and pays the $12,000 contribution on February 1 of the next year.Super Corporation is a calendar-year corporation that uses the accrual method of accounting.Before considering the 10% limitation rule,the maximum deduction for the current year is A)$12,000.
B)$20,000.
C)$30,000.
D)$32,000.
Q2) Organizational expenses incurred after 2004 are amortized over five years. A)True
B)False
Q3) Baxter Corporation is a personal service corporation.Baxter Corporation has taxable income of $10,000.Baxter Corporation's tax is
A)$1,500.
B)$3,400.
C)$3,500.
D)$3,900.
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Page 7
Chapter 6: Gross Income: Inclusions
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Q1) Under the terms of their divorce agreement,Humphrey transferred Corporation H stock to his former wife,Greta as a property settlement.At the time of the transfer,the stock had a basis to Humphrey of $40,000 and a fair market value of $55,000.What is the tax consequence of this transaction to Humphrey,and what is Greta's basis in the Corporation H stock?
A)Humphrey has no gain or loss; Greta's basis is $55,000.
B)Humphrey has no gain or loss; Greta's basis is $40,000.
C)Humphrey has a gain of $15,000; Greta's basis is $55,000.
D)Humphrey has a gain of $15,000; Greta's basis is $40,000.
Q2) Norah,who gives music lessons,is a calendar year taxpayer using the cash basis method of accounting.On October 1 of this year,she received $1,200 for a one-year contract beginning on that date to provide 10 lessons.She gave 6 lessons this year.How much should Norah include in income this year?
A)$0
B)$360
C)$720
D)$1,200
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Page 8
Chapter 7: Corporate Nonliquidating Distributions
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Q1) A shareholder's basis in property distributed as a dividend is its fair market value.
A)True
B)False
Q2) Splash Corporation has $50,000 of taxable income before any charitable contribution deduction.Splash contributed $20,000 to a qualified charitable organization.Due to the 10% of taxable income limitation on charitable contribution deductions,Splash's contribution deduction is limited to $5,000.What effect does the charitable contribution have on current and future E&P?
Q3) Crossroads Corporation distributes $60,000 to its sole shareholder Harley.Crossroads has earnings and profits of $55,000 and Harley's basis in her stock is $20,000.After the distribution,Harley's basis is
A)$5,000.
B)$15,000.
C)$20,000.
D)$60,000.
Q4) Why are stock dividends generally nontaxable? Under what circumstances are stock dividends taxable?
Q5) How does a shareholder classify a distribution for tax purposes?
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Chapter 8: Gross Income: Exclusions
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Q1) Over the years Rianna paid $65,000 in premiums on a life insurance policy with a face value of $100,000.Upon reaching 65,while still in good health,Rianna surrendered the policy and collected $95,000.In the year of collection,Rianna will report A)no income.
B)$30,000 of taxable income.
C)$5,000 of tax loss.
D)$95,000 of taxable income.
Q2) Jan has been assigned to the Rome office of ABC Corporation.She arrives in Rome on November 1,2011 and does not return to the U.S.until March 5,2014.During her stay in Rome,Jan earned $102,000 in 2013.Jan may exclude A)$0.
B)$4,400.
C)$97,600.
D)$102,000.
Q3) Kelly was sent by her employer to work on a special assignment in Paris for six months.Kelly will be able to exclude some of her income earned in Paris.
A)True
B)False
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Page 10
Chapter 9: Other Corporate Tax Levies
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Q1) The ACE adjustment always increases alternative minimum taxable income (AMTI).
A)True
B)False
Q2) What are the four general rules that provide a framework for the ACE calculation?
Q3) The general business credit can be used to offset the alternative minimum tax.
A)True
B)False
Q4) Identify which of the following statements is true.
A)A deficiency dividend is included in the shareholder's gross income for his/her tax year that includes the last day of the tax year in which the personal holding company claims a dividends-paid deduction.
B)A shareholder who receives a deficiency dividend must report the dividend as gross income for the tax year that includes the last day of the distributing corporation's tax year on which it was a PHC.
C)A personal holding company's payment of a deficiency dividend eliminates its need to pay the personal holding company tax as well as any interest and underpayment penalties on the tax deficiency.
D)All of the above are false.
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Chapter 10: Property Transactions: Capital Gains and Losses
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Q1) Jordan paid $30,000 for equipment two years ago and has claimed total depreciation deductions of $15,600 for the two years.The cost of repairs during the same time period was $2,000 while a major overhaul which extended the life of the equipment cost $7,000.What is Jordan's adjusted basis in the equipment at the end of the two-year period?
A)$14,400
B)$16,400
C)$21,400
D)$30,000
Q2) If a capital asset held for one year or more is sold at a gain,the gain is classified as long-term capital gain.
A)True
B)False
Q3) The holding period of property received from a decedent is based on the actual time the property is held by the decedent.
A)True
B)False
Q4) Distinguish between the Corn Products doctrine and the ruling in the Arkansas Best Corporation case.
Page 12
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Chapter 11: Corporate Liquidating Distributions
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Q1) Dexer Corporation is owned 70% by Amy and 30% by Brad.Dexer Corporation owns Eagle Corporation stock with a $50,000 adjusted basis and a $30,000 FMV.The stock is not disqualified property.As part of a complete liquidation,the Eagle Corporation stock is distributed to Amy.Amy's basis in her Dexer stock is $40,000.Dexer Corporation will recognize A)no loss.
B)a $10,000 loss.
C)a $20,000 loss.
D)none of the above
Q2) Riverwalk Corporation is liquidated,with Juan receiving $5,000 in money and other property having a $6,000 FMV.Juan's basis in his Riverwalk stock is $8,000.Upon liquidation,Juan must recognize a gain of A)0.
B)$2,000.
C)$3,000.
D)$11,000.
Q3) What basis do both the parent and minority shareholders take in the assets received in a Sec.332 liquidation?
Q4) Are liquidation and dissolution the same? Explain your answer.
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Chapter 12: Deductions and Losses
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Q1) An expense is considered necessary if it is "appropriate and helpful" in the taxpayer's business.
A)True B)False
Q2) Points paid to refinance a mortgage on a principal residence are fully deductible in the year paid.
A)True B)False
Q3) American Healthcare (AH),an insurance company,is trying to persuade Congress to enact nationwide anti-smoking legislation.As part of this effort,AH paid $500,000 to hire a lobbying firm to discuss its concerns with members of Congress.AH also contributed $100,000 to candidates for political office who support limiting public smoking.What amount of these expenditures can AH deduct?
A)$0
B)$100,000
C)$500,000
D)$600,000
Q4) What must a taxpayer do to properly document a deductible travel or entertainment expense?
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Chapter 13: Corporate Acquisitions and Reorganizations
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Q1) Baxter Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $500,000 to Duke Corporation for 90% of Duke's single class of stock worth $500,000.The Duke stock is then exchanged for Frank's 50% interest in Baxter Corporation.Frank's basis in the Baxter stock he surrenders is $120,000.What is Frank's basis in the Duke stock he receives?
Q2) Axle Corporation acquires 100% of Drexel Corporation's stock from Drexel's shareholders for $500,000 cash.Drexel Corporation has assets with a $600,000 adjusted basis and an $800,000 FMV.The assets are subject to $200,000 in liabilities.Drexel Corporation shareholders purchased their stock eight years ago for $300,000.Axle Corporation's basis in the Drexel Corporation stock is
A)$800,000.
B)$600,000.
C)$500,000.
D)$300,000.
Q3) Martha owns Gator Corporation stock having an adjusted basis of $21,000.As part of a tax-free reorganization involving Gator and Baker Corporations,Martha exchanges her Gator stock for $18,000 of Baker stock and $6,000 (face amount and FMV)of Baker securities.What is Martha's basis in the Baker stock?
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Chapter 14: Itemized Deductions
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Q1) Capital expenditures for medical care which permanently improve or better the taxpayer's property are deductible to the extent the cost exceeds the increase in fair market value to the property attributable to the capital expenditure.
A)True
B)False
Q2) Patrick's records for the current year contain the following information.He donated stock having a fair market value of $5,000 to a qualified charitable organization.Patrick acquired the stock two years ago at a cost of $3,000.He paid $1,000 for membership in an athletic scholarship program maintained by the university.The only benefit of the membership is that Patrick is entitled to purchase a season ticket to the university's home football games.He also donated $7,500 cash to a qualified charitable organization.Patrick's adjusted gross income for the year is $100,000.What is the amount of his charitable contribution deduction?
A)$11,300
B)$11,500
C)$13,300
D)$13,500
Q3) Discuss what circumstances must be met for personal property taxes to be deductible.
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Page 16
Chapter 15: Consolidated Tax Returns
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Q1) Intercompany sales between members of an affiliated group filing separate returns cause deferred tax assets to be recognized by both buyer and seller.
A)True
B)False
Q2) Identify which of the following statements is true.
A)Rules for carryforward and carryback of a consolidated net capital loss and a consolidated NOL are the same with the exception of the carryforward period.
B)Capital loss carrybacks and carryforwards are all treated as short-term capital losses.
C)A member leaving an affiliated group cannot use capital loss carryovers that originated in one of its previous separate return years.
D)All of the above are false.
Q3) The treatment of capital loss carrybacks and carryovers is similar to NOLs.
A)True
B)False
Q4) Why are other intercompany transactions not given any special treatment?
Q5) What is the consequence of having losses subject to the SRLY limitations?
Q6) What issues determine whether an affiliated group exists?
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Page 17
Chapter 16: Losses and Bad Debts
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Q1) The sale of inventory at a loss results in an ordinary loss.
A)True
B)False
Q2) The destruction of a capital asset by a casualty gives rise to a capital rather than ordinary loss.
A)True
B)False
Q3) Last year,Abby loaned Pat $10,000 as a gesture of their friendship.Although Pat had signed a note payable that contained interest payments and a maturity date,the loan had not been repaid this year when Pat died insolvent.For this year,assuming that the loan was bona fide,Abby should account for nonpayment of the loan as a(n)
A)itemized deduction.
B)ordinary loss.
C)long-term capital loss.
D)short-term capital loss.
Q4) If an NOL is incurred,when would a taxpayer elect to forgo the carryback period and only carry the loss deduction forward?
Q5) What are some factors which indicate that a debt may be worthless?
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Chapter 17: Partnership Formation and Operation
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Q1) Clark and Lewis are partners who share the profits and losses of the C&L Partnership 60% and 40%,respectively.The tax basis of each partner's interest in the partnership as of December 31 of last year was as follows: Clark,$14,000; Lewis,$12,000.During the current year,the partnership had ordinary income of $20,000 and a long-term capital loss of $10,000 from the sale of securities.The partnership made cash distributions proportionately to the two partners during this year totaling $20,000.What is the amount of Lewis's tax basis of his partnership interest on December 31 of the current year?
Q2) Miguel has a 50% interest in partnership capital,profits,and losses.The basis for his partnership interest is $50,000.The partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.Miguel receives a distribution of land that has an FMV of $40,000 and an adjusted basis of $30,000.The land is subject to a $15,000 liability,which Miguel assumes.His basis in the partnership interest following the land distribution is
A)$12,500.
B)$20,000.
C)$27,500.
D)$35,000.
Q3) What is included in partnership taxable income?
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Page 19
Chapter 18: Employee Expenses and Deferred Compensation
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Q1) If an individual is not "away from home," expenses related to local transportation are never deductible.
A)True B)False
Q2) In addition to the general requirements for in-home office expenses,employees must also prove that the exclusive use of the office is for the convenience of the employer.
A)True B)False
Q3) Josiah is a human resources manager of a large software company.He is considering asking for a leave of absence to pursue an MBA degree.Josiah will pay for his MBA tuition of $45,000 a year without any employer assistance.Josiah will incur a large debt if he pursues an MBA.Upon completing his MBA,he would want to consider various job opportunities.Discuss the tax issues affecting Josiah's decision?
Q4) Gina is an instructor at State University in Birmingham.Her university has asked her if she would be interested in taking a temporary assignment at their Montgomery campus.In addition to her salary,the University would pay her living expenses while in Montgomery.What should Gina consider with regard to taxes in deciding whether or not to accept the offer?
Page 20
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Chapter 19: Special Partnership Issues
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Q1) Jerry has a $50,000 basis for his interest in JJ Partnership before receiving a current distribution consisting of $8,000 in money,accounts receivable having a zero basis to the partnership,and land having a $28,000 basis to the partnership.What will Jerry's basis be in these assets?
Q2) For tax purposes,a partner who receives retirement payments ceases to be regarded as a partner
A)on the last day of the taxable year in which the partner retires.
B)on the last day of the month in which the partner retires.
C)on the day on which the partner retires.
D)only after the partner's last payment is received.
Q3) What are some advantages and disadvantages of making a Section 754 election?
Q4) Rod owns a 65% interest in the RRR Partnership,a general partnership,which he sells to the two remaining partners - Roger and Regis.The three partners have agreed that Rod will receive $160,000 in cash from the sale.Rod's basis in the partnership interest before the sale is $125,000,which includes his $35,000 share of partnership recourse liabilities.The partnership has assets with a $310,000 FMV and a $210,000 adjusted basis.What issues should Rod,Roger,and Regis consider before this sale takes place?
Q5) What is included in the definition of unrealized receivables?
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Chapter 20: Depreciation cost Recovery amortization and Depletion
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Q1) In calculating depletion of natural resources each period, A)cost depletion must be used.
B)percentage depletion must be used.
C)the greater of cost depletion or percentage depletion must be used.
D)the smaller of cost depletion or percentage depletion must be used.
Q2) In the current year George,a college professor,acquired a computer system (5-year property)for $1,000 and used the computer 80% for teaching and research-related activities and the remaining 20% for personal use.Because George's employer provides him with a computer in his office at the university,the employer does not require him to have a computer at home.No election was made regarding Sec.179.The maximum depreciation deduction is A)$0.
B)$200.
C)$160.
D)$800.
Q3) Eduardo is planning to purchase some new pizza ovens for his business.He knows that there are various incentives in the tax law to acquire new assets in 2013.Discuss the tax incentives available and the issues to consider in deciding whether to elect them.
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Chapter 21: S Corporations
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Q1) Jeff owns 50% of an S corporation's stock with a basis in his stock of $50,000 on January 1.In addition,the S corporation owes Jeff $30,000 on January 1.The debt has a basis of $30,000 and is evidenced by a note.The S corporation reports an ordinary loss of $150,000 for the current year.The next year,it reports ordinary income of $20,000.On January 1 of the third year,the note is repaid.Due to the repayment of the note,Jeff must report what?
Q2) Identify which of the following statements is true.
A)Beach Corporation,an S corporation,has gross receipts of $240,000; taxable income of $120,000; passive investment income of $100,000; and expenses directly attributable to the passive investment income of $20,000.The corporation's excess net passive income is $32,000.
B)The built-in gains tax applicable to S corporations can be avoided if the property is held for ten years.
C)An S corporation generally will not owe the built-in gains tax if the corporation has never been a C corporation.
D)All of the above are true.
Q3) What is a permitted year?
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Chapter 22: Accounting Periods and Methods
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Q1) A new business is established.It is not a seasonal business.All of the following are acceptable accounting tax years with the exception of
A)an S corporation year ending October 31.
B)a C corporation (not a personal service corporation)tax year ending on February 15.
C)a C corporation (not a personal service corporation)tax year ending on April 30.
D)a partnership tax year ending on October 31 with three equal partners whose tax years end on September 30,October 31,and November 30.
Q2) Emma,a single taxpayer,obtains permission to change from a calendar year to a fiscal year ending June 30,2013.During the six months ending June 30,2013,she earns $40,000 and has $8,000 of itemized deductions.What is the amount of her annualized income?
A)$32,150
B)$30,050
C)$60,100
D)$64,300
Q3) What is the significance of the Thor Power Tool Co.case?
Q4) Discuss the purpose of the imputed interest rules.
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Chapter 23: The Gift Tax
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Q1) Ward and June decide to divorce after 30 years of marriage.Ward transfers $500,000 to June in settlement of her property rights.What are the gift tax consequences of this transfer?
Q2) Tia funds an irrevocable trust with $100,000,naming Vonda to receive income for life.Tia also grants Vonda a general power of appointment during her life.During the next year,Vonda directs the trustee to give $100,000 to Rick.Which of the following statements is not correct?
A)Tia made a $100,000 gift to Rick.
B)Vonda makes a $100,000 gift to Rick.
C)Tia has made a gift of $100,000 to Vonda.
D)Exercising a general power of appointment constitutes a gift.
Q3) A qualified disclaimer must be made within nine months after (a)the day the property is transferred,or (b)the day the person receiving the property becomes age 21,whichever is later.
A)True
B)False
Q4) Gift tax returns are filed on a calendar-year basis.
A)True
B)False
Q5) Discuss the statutory exemptions from the gift tax.
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Chapter 24: Property Transactions: Nontaxable Exchanges
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Q1) All of the following are true except:
A)A nonsimultaneous exchange may never qualify as a like-kind exchange.
B)Nonrecognition of gains and losses is mandatory if the exchange is a like-kind exchange.
C)A loss may be recognized on non-like-kind property (boot)if the taxpayer transfers the boot in an otherwise like-kind exchange.
D)The holding period of like-kind property received includes the holding period of the property exchanged.
Q2) Summer exchanges an office building used in her business for another office building.Summer's office building has a FMV of $250,000 (basis of $180,000).The FMV of the new building is $300,000,and it is subject to a mortgage of $60,000,which is assumed by Summer.Summer also pays the other party $40,000 cash.
a.What is the amount of gain realized by Summer?
b.What is the amount of gain recognized by Summer?
c.What is the basis of the new building to Summer?
Q3) Real property exchanged for personal property qualifies as a like-kind exchange. A)True
B)False
Q4) Discuss the basis rules of property received in a nontaxable like-kind exchange.
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Chapter 25: The Estate Tax
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Q1) Mary Johnson dies early in the current year.All her property passes subject to her will,which states that all of her property is to go to a QTIP trust for Dan for life with the remainder to their children.Mary's gross estate is about $5 million,and her Sec.2053 deductions are very small.Dan,who is in poor health,already owns about $3 million of property.What tax issues should Dan Johnson and the estate's executor consider with respect to the property that passes to the QTIP trust?
Q2) Compare the tax treatment of administration expenses with that of the decedent's debts.
Q3) Denise died April 1 and owned several bonds that paid interest March 31 and September 30.Also,she owned stock that paid dividends quarterly on March 31,June 30,September 30,and December 31.Denise's estate received the interest and dividends on the payment dates.What should be included in Denise's gross estate?
A)all interest and dividends received in the year of death
B)only interest and dividends received prior to the date of death
C)only interest and dividends received after the date of death
D)none of the interest and dividends received
Q4) Discuss the transferor provisions relating to the estate tax,and provide three examples of transactions governed by the transferor provisions.
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Chapter 26: Property Transactions: Section 1231 and Recapture
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Q1) Marta purchased residential rental property for $600,000 on January 1,1985.Total ACRS deductions for 1985 through the date of sale amounted to $600,000.If the straight-line method of depreciation had been used,depreciation would have been $600,000.The property is sold for $750,000 on January 1 of the current year.The amount and character of the gain is
A)$750,000 Sec.1231 gain.
B)$150,000 Sec.1231 gain and $600,000 ordinary income.
C)$750,000 ordinary gain due to Sec 1245.
D)$750,000 ordinary gain due to Sec.1250.
Q2) In addition to the normal recapture rules of Sec.1250,corporations which sell depreciable real estate are subject to additional recapture rules of Sec.291.
A)True
B)False
Q3) Installment sales of depreciable property which result in recaptured income under Secs.1245 or 1250 require that the recaptured income be recognized in the year of sale.
A)True
B)False
Q4) What is the purpose of Sec.1245 and what is its significance?
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Chapter 27: Income Taxation of Trusts and Estates
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Q1) The exemption amount for an estate is
A)$0.
B)$100.
C)$300.
D)$600.
Q2) Identify which of the following statements is true.
A)Tax-exempt income is allocated among beneficiaries in the proportion that total tax-exempt income bears to total distributable net income (DNI).
B)Both income required to be distributed currently and discretionary income distributions are included in tier-1 distributions.
C)Under the tier system,tier-2 beneficiaries are the first to absorb income.
D)All are false.
Q3) Distributable net income (DNI)does not include capital gains allocated to principal. A)True
B)False
Q4) A trust receives no standard deduction when computing taxable income.
A)True
B)False
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Chapter 28: Special Tax Computation Methods tax Credits and
Payment of Tax
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Q1) Brad and Shelly's daughter is starting her freshman year of college.Brad and Shelly will be able to claim the American Opportunity Tax Credit for a percentage of the cost of tuition and room and board.
A)True
B)False
Q2) Bud and Stella are married,file a joint return,and have one child,age 3.Their combined AGI is $35,000.Bud and Stella incur $3,500 of child-care expenses during the current year.The child and dependent care credit is A)$600.
B)$700.
C)$750.
D)$875.
Q3) Harley's tentative minimum tax is computed by multiplying the AMT tax rates by her A)taxable income.
B)alternative minimum tax base.
C)alternative minimum taxable income.
D)tentative alternative taxable income.
Q4) Discuss when Form 6251,Alternative Minimum Tax,must be filed.
Page 30
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Chapter 29: Administrative Procedures
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Q1) If Brad files his last year's individual tax return on July 5 of the current year after having requested an extension,what is the amount of his failure-to-pay penalty if his total tax is $10,000 and he paid $9,500 through timely withholding and $500 with the return?
A)$0
B)$6
C)$60
D)none of the above
Q2) Explain accountant-client privilege.What are the similarities and differences between it and attorney-client privilege?
Q3) Anyone who prepares a tax return is subject to the provisions of Circular 230.
A)True
B)False
Q4) If the taxpayer has credible evidence,the IRS bears the burden of proof in a tax dispute.
A)True
B)False
Q5) The statute of limitations is unlimited for a tax return that is never filed.
A)True
B)False
31
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Chapter 30: Tax Research
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Q1) The Tax Court departs from its general policy of ruling uniformly for all taxpayers where
A)a U.S.District Court has ruled differently on the issue in the taxpayer's jurisdiction.
B)the U.S.Court of Federal Claims has ruled differently on the issue in the taxpayer's jurisdiction.
C)the Court of Appeals in the circuit to which the Tax Court decision would be appealed has ruled differently on the issue.
D)the IRS has indicated that it will acquiesce.
Q2) The Internal Revenue Code of 1986 contains the current version of the tax law.
A)True
B)False
Q3) A citator enables tax researchers to locate authorities (e.g.,cases and IRS pronouncements)that have cited a particular case.
A)True
B)False
Q4) Explain the difference between a closed-fact and open-fact situation.
Q5) What is the purpose of a citator?
Q6) Are letter rulings of precedential value to third parties?
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Chapter 31: Ustaxation of Foreign-Related Transactions
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Q1) A foreign corporation is owned by five unrelated individuals.John,Sam,and David are U.S.citizens who own 30%,18% and 9%,respectively,of the foreign corporation's single class of stock.Alberto and Manuel are nonresident aliens who own 37% and 6%,respectively,of the foreign corporation's stock.Which of the following statements is true?
A)There are three "U.S.shareholders" and the foreign corporation is a controlled foreign corporation (CFC).
B)There are three "U.S.shareholders" and the foreign corporation is not a controlled foreign corporation (CFC).
C)There are two "U.S.shareholders" and the foreign corporation is not a controlled foreign corporation (CFC).
D)There are two "U.S.shareholders" and the foreign corporation is a controlled foreign corporation (CFC).
Q2) Jose,a U.S.citizen,has taxable income from U.S.sources of $15,000 and taxable income from a foreign country of $35,000.Assume the U.S.tax rate is 25% and Jose paid $12,000 in taxes to the foreign country.What foreign tax credit can be claimed by Jose?
Q3) Describe the financial statement implications of the foreign tax credit and a foreign subsidiary.
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Chapter 32: Corporations
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Q1) Ron transfers assets with a $100,000 FMV (basis $60,000)and $70,000 of liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $30,000.The corporation assumes the $70,000 mortgage.The transfer qualifies under Sec.351.What is the adjusted basis of the stock received?
A)$0
B)$30,000
C)$60,000
D)$70,000
Q2) A shareholder receives a distribution from a corporation in complete liquidation.The distribution will be taxed as a dividend to the extent of current or accumulated E&P.
A)True
B)False
Q3) In general,net operating losses of a corporation are carried back 3 years and forward for 20 years.
A)True
B)False
Q4) How does the treatment of a liquidation of a subsidiary into its parent corporation differ from the general rule?
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Chapter 33: Partnerships and S Corporations
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Q1) Emma contributes property having a $24,000 FMV and a $15,000 adjusted basis and also renders legal services valued at $22,000 in exchange for a 30% interest in the capital and profits of the ABC partnership.The tax results to Emma will be
A)no income is recognized and a partnership basis of $37,000.
B)ordinary income of $22,000 and a partnership basis of $37,000.
C)ordinary income of $22,000 and a partnership basis of $46,000.
D)no income is recognized and a partnership basis of $46,000.
Q2) The partnership's assumption of a liability from a partner is treated as a cash distribution to the partner whose liability is assumed,which decreases his basis in the partnership.
A)True
B)False
Q3) Under the "check-the-box" Treasury Regulations,an LLC with more than one member is treated as a partnership unless the LLC affirmatively elects to be classified as a corporation.
A)True
B)False
Q4) Discuss the concept of partnership guaranteed payments.
Q5) Why are some partnership items separately stated?
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Chapter 34: Taxes and Investment Planning
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Q1) A single taxpayer earns a salary of $6,000.If he is taxed with a 10% flat rate,he has $5,400 of after-tax dollars available to invest.
A)True
B)False
Q2) Investments conforming to the Current Model provide no deferral advantages because earnings are taxed currently.
A)True
B)False
Q3) One characteristic of the Exempt Model is the fact that,like the Current and Deferred Models,only after-tax dollars are invested.
A)True
B)False
Q4) Savings accounts and money market funds are examples of investments taxed under the Current Model.
A)True B)False
Q5) The nondeductible traditional IRA is a classic example of the Pension Model. A)True B)False
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