Advanced Taxation
Chapter Exam Questions
Course Introduction
Advanced Taxation explores the intricate principles and practices governing the taxation of individuals, partnerships, corporations, estates, and trusts. The course examines complex tax issues, including corporate reorganizations, international tax considerations, tax planning strategies, and the interpretation of tax legislation and case law. Through analysis of current tax statutes and regulations, students develop critical skills in identifying tax issues, optimizing tax outcomes, ensuring compliance, and advising on tax-related matters in both domestic and global contexts. The course prepares students for advanced professional roles in tax consultancy, advisory, and policy analysis.
Recommended Textbook
Pearsons Federal Taxation 2017 Corporations Partnerships Estates and Trusts 30th Edition Thomas
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Chapter 1: Tax Research
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Q1) Compare and contrast "interpretative" and "statutory" regulations.
Answer: Both types of regulations are issued by the Treasury Department.Interpretative regulations make the statutory language easier to understand and apply.Statutory regulations are issued when Congress delegates its rule-making authority to the Treasury Department.This delegation of authority is made explicitly in the legislation. The courts are less likely to invalidate a statutory regulation than an interpretative regulation.The reluctance of the court to invalidate a statutory regulation is based on the recognition that Congress has abdicated its rule-making authority to the Treasury Department.
Q2) Title 26 of the U.S.Code includes
A)income tax legislation only.
B)gift tax and estate tax legislation only.
C)alcohol and tobacco tax legislation only.
D)all of the tax legislation mentioned above.
Answer: D
Q3) Explain how committee reports can be used in tax research.What do they indicate?
Answer: Committee reports can help resolve ambiguities in statutory language by revealing Congressional intent.They are indicative of this intent.
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Chapter 2: Corporate Formations and Capital Structure
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Q1) The transferee corporation's basis in property received in a Sec.351 exchange is
A)the FMV of the property received.
B)the transferee corporation's basis in the stock exchanged.
C)the transferor's basis for the property plus gain recognized by the transferor.
D)the transferor's basis for the property plus gain recognized by the transferee corporation.
Answer: C
Q2) Ra Corporation issues a twenty-year obligation at its $1,000 face amount.Rames purchases the obligation for $1,000 on the issue date.Due to a decline in interest rates,Ra calls the obligation by paying $1,010 to each of the holders of the twenty-year obligations.What is the tax treatment of the $1,010 by Ra and Rames?
Answer: Ra will recognize a $10 capital gain on the repayment of the debt instrument.Rames will deduct the $10 premium paid as interest expense.
Q3) The check-the-box regulations permit an LLC to be taxed as a C corporation.
A)True
B)False
Answer: True
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Chapter 3: The Corporate Income Tax
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Q1) What are start-up expenditures?
Answer: Start-up expenditures usually occur before the actual operation of a trade or business and involve the costs incurred in investigating and creating an active trade or business.
Q2) Identify which of the following statements is false.
A)Brown Corporation owns 60% of Clark Corporation and 65% of Davis Corporation.Davis Corporation owns 10% of Clark Corporation,and Clark Corporation owns 10% of Davis Corporation.The remaining stock is owned by an individual shareholder.Brown,Davis,and Clark Corporations are a parent-subsidiary controlled group.
B)There are three categories of control groups: parent-subsidiary,brother-sister,and combined.
C)The controlled group test is applied on December 31.
D)A controlled group must apportion certain tax benefits among its members.
Answer: A
Q3) Corporations may carry charitable contributions in excess of the income limitation forward for five years.
A)True
B)False
Answer: True
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Chapter 4: Corporate Nonliquidating Distributions
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Q1) Gould Corporation distributes land (a capital asset)worth $90,000 to Gerry,a shareholder.The land has a $30,000 basis to Gould.What is the amount and character of the gain or loss recognized by Gould?
Q2) The gross estate of a decedent contains $2,000,000 cash and 100% of Davis Corporation stock worth $600,000.Funeral and administrative expenses and state death taxes allowable as estate tax deductions amount to $400,000.The estate owes no other liabilities.The decedent's Davis stock can be
A)redeemed to the extent of the death taxes and the estate's funeral and administrative costs with sale or exchange treatment.
B)redeemed with dividend treatment.
C)redeemed in full with sale or exchange treatment only if the proceeds are used to pay the death taxes and funeral and administrative costs.
D)redeemed to the extent of the death taxes and the funeral and administrative costs with sale or exchange treatment only if the proceeds are used to pay the death taxes and funeral and administrative costs.
Q3) What is a stock redemption? What are some of the reasons for making a stock redemption? Why are some redemptions treated as sales and others as dividends?
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Chapter 5: Other Corporate Tax Levies
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Q1) Identify which of the following statements is false.
A)The corporate AMT produces relatively little tax revenue.
B)The small corporation AMT exemption exempts 95% of all corporations from the AMT.
C)The corporate AMT is similar to the AMT for individuals.
D)The starting point for computing a corporation's AMT is book income.
Q2) Which of the following items are tax preference items for purposes of arriving at alternative minimum taxable income?
A)excess intangible drilling costs on oil and gas properties
B)interest income earned on federal obligations
C)all depreciation claimed on pre-1987 real property acquisitions
D)excess of net long-term capital gains over short-term capital losses
Q3) How is alternative minimum taxable income computed?
Q4) The courts and the Treasury Regulations have mentioned a number of reasonable needs that allow a corporation to accrue earnings and avoid the accumulated earnings tax.What are these reasons?
Q5) What are the four general rules that provide a framework for the ACE calculation?
Q6) Define personal holding company income.
Q7) What is a personal holding company?
Page 7
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Chapter 6: Corporate Liquidating Distributions
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Q1) Identify which of the following statements is false.
A)Liquidating distributions made to minority shareholders in the tax-free liquidation of a controlled subsidiary corporation are treated by the liquidating corporation in the same way as nonliquidating distributions.
B)Sec.337(a)provides that the liquidating corporation recognizes no gain or loss on the distribution of property to the 80% distributee in a complete Sec.332 liquidation.
C)The depreciation recapture provisions in Secs.1245 and 1250 override the Sec.337(a)nonrecognition rule if a controlled subsidiary corporation is liquidated into its parent corporation.
D)A corporation that distributes the stock of a subsidiary may elect to treat the distribution as a sale of the subsidiary's assets.
Q2) In a complete liquidation,a liability assumed by a shareholder reduces the shareholder's amount realized.
A)True
B)False
Q3) What attributes of a controlled subsidiary corporation are carried over to the parent when the subsidiary is liquidated?
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Chapter 7: Corporate Acquisitions and Reorganizations
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Q1) In a Type B reorganization,the target corporation exchange their stock for the acquiring corporation's voting stock,and the target corporation remains in existence as the acquiring corporation's subsidiary.
A)True
B)False
Q2) Melon Corporation makes its first purchase of 30% of Hill Corporation stock on July 31 of this year.Melon Corporation uses a calendar tax year.To use the Sec.338 election,Melon Corporation must purchase
A)an additional 50% of Hill Corporation stock by December 31 of this year.
B)an additional 50% of Hill Corporation stock by July 30 of next year.
C)an additional 51% of Hill Corporation stock by December 31 of this year.
D)an additional 51% of Hill Corporation stock by July 30 of next year.
Q3) In a triangular Type A merger,the acquiring subsidiary corporation must obtain substantially all of the target corporation's assets.
A)True
B)False
Q4) Why would an acquiring corporation want an acquisition to be tax-free if it gets only a substituted basis rather than a step-up basis for the acquired assets?
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Chapter 8: Consolidated Tax Returns
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Q1) Identify which of the following statements is false.
A)A corresponding item includes the income,gain,deduction,or loss amount reported by the buyer from an intercompany transaction,or from property acquired in an intercompany transaction.
B)Affiliated groups of corporations filing a consolidated tax return are not eligible for the small corporation exemption from the corporate alternative minimum tax.
C)An intercompany transaction generally results in the selling member and buying member in a property transaction being treated as divisions of a single corporation.
D)Intercompany dividends and undistributed subsidiary earnings do not create temporary differences for affiliated companies filing a consolidated return.
Q2) An advantage of filing a consolidated return is that losses of one affiliated group member may be offset against the taxable income of other group members in the same tax year.
A)True
B)False
Q3) What are the differences between a controlled group and an affiliated group?
Q4) Define intercompany transactions and explain the two types of transactions.
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Chapter 9: Partnership Formation and Operation
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Q1) A partner's share of nonrecourse debt increases that partner's share of basis.
A)True
B)False
Q2) David contributes investment land with a basis of $24,000 and an FMV of $40,000 to a partnership for a 10% interest in partnership capital,profits,and losses.The land is subject to a $30,000 recourse liability,which is assumed by the partnership.The partnership has other recourse liabilities of $18,000.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.David must recognize a
A)$3,000 capital gain.
B)$3,000 capital loss.
C)$1,200 capital gain.
D)$1,200 capital loss.
Q3) Identify which of the following statements is true.
A)All of the partners in a limited partnership have limited liability.
B)A limited partnership must have at least two general partners.
C)A limited partnership cannot have a corporate general partner.
D)All of the above are false.
Q4) What is included in partnership taxable income?
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Chapter 10: Special Partnership Issues
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Q1) Which of the following is valid reason for making a 754 election?
A)An incoming partner pays more for a partnership interest that his or her proportionate share of partnership assets.
B)Partners are able to increase their basis in the partnership interest upon the sale of a partnership interest.
C)Partnerships can increase,but not decrease,their basis in partnership assets.
D)A partnership can reduce its basis in assets upon cash distributions to partners.
Q2) If a partnership chooses to form an LLC,under the check-the-box rules,and assuming no elections are made,the entity will be taxed as
A)a partnership if it has more than one member.
B)an S corporation.
C)a C corporation.
D)Unable to determine from the facts presented.
Q3) The sale of a partnership interest always results in capital gain or loss rather than ordinary income.
A)True
B)False
Q4) What is included in the definition of unrealized receivables?
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Page 12
Chapter 11: US Corporations
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Questions
Q1) April Corporation's Subchapter S election was voluntarily terminated for 2010.The first year that April would be eligible to reelect S corporation status is A)2012.
B)2013.
C)2014. D)2015.
Q2) Gofer Corporation,an S corporation,is owned equally by Mahmoud and Kwame.The corporation had long-term capital gains of $100,000 and ordinary income of $90,000 for the current year and made no distributions.What is the amount of ordinary income from S corporation activities that Mahmoud must report?
Q3) An electing S corporation has a $30,000 ordinary loss for the non-leap year.On January 1,Beverly and Sonya own equally all of the S corporation stock.On the 146th day of the year,Beverly gives her one-half of the S corporation stock to her daughter Becky.How much of the $30,000 ordinary loss is allocated to Sonya?
A)$25,000
B)$15,000
C)$10,000
D)$6,000
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Chapter 12: The Gift Tax
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Q1) Marilyn and Earl establish a trust benefiting their grandchild,Courtney,age 4.Courtney is to receive the accumulated income and corpus when she reaches age 30.In the year of the transfer,Courtney has a two-week period in which to request distributions.This trust is a
A)2503(c)trust.
B)Clifford trust.
C)Crummey trust.
D)none of the above
Q2) A gift-splitting election
A)requires each spouse to give property.
B)may reduce the amount of the taxable gifts of the donor-decedent.
C)results in a $6,500 per donee annual exclusion for each spouse.
D)is binding on future years.
Q3) On April 1,Martha opens a joint bank account with Ned and deposits $1,000.Ned deposits $500 into the account on April 2.On May 2,Martha withdraws $750.Two days later,Ned withdraws $600.
A)Martha has made a gift to Ned of $100.
B)Ned has made a gift to Martha of $500.
C)Martha has made a gift to Ned of $600.
D)Martha has made a gift to Ned of $1,000.
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Chapter 13: The Estate Tax
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Q1) On March 1,Sue transfers stock worth $20,000 to Frank.How long must Sue live to avoid inclusion of the $20,000 of stock in her gross estate?
A)six months
B)one year
C)three years
D)No minimum time period exists,but she must be alive at transfer of ownership.
Q2) Martin transfers stock to an irrevocable trust and names himself to receive the trust income for life with the remainder interest gifted to his son.When Martin dies, A)none of the stock will be included in Martin's estate.
B)the stock's value at the time of transfer to the trust will be included in Martin's estate. C)the value of the stock less the present value of the income receivable by Martin will be included in Martin's estate.
D)the value of the stock at death will be included in Martin's estate.
Q3) In 2001,Clara made taxable gifts of $2 million.This year,Clara dies with a taxable estate of $4 million.At the time of her death,the FMV of the property Clara gifted in 2001 is $8 million.What is the amount of the estate tax base?
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Chapter 14: Income Taxation of Trusts and Estates
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Q1) The $3,000 limitation on deducting net capital losses does not apply to a trust. A)True
B)False
Q2) A client asks about the relevance of state law in classifying items as principal or income.Explain the relevance.
Q3) A trust that is required to distribute all of its income annually receives a personal exemption for the year of
A)$0,because it retains no income.
B)$100.
C)$300.
D)$600.
Q4) Little Trust,whose trust instrument is silent with respect to depreciation,collects rental income of $20,000 and pays property taxes of $1,000.Depreciation expense is $5,000. Little Trust is in a state where all depreciation is charged to principal.What is the trust's net accounting income?
Q5) Grantor trusts are taxed as complex trusts.
A)True B)False
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Chapter 15: Administrative Procedures
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Q1) The majority of the individual tax returns that are audited are selected under the DIF program.
A)True B)False
Q2) The 90-day letter (Statutory Notice of Deficiency)gives the taxpayer 90 days to file a petition with the Tax Court or to pay the disputed tax.
A)True B)False
Q3) For innocent spouse relief to apply,five conditions must be met.Explain them.
Q4) Treasury Department Circular 230 regulates the practice of attorneys,CPAs,enrolled agents,and enrolled actuaries before the IRS.
A)True B)False
Q5) The statute of limitations is unlimited for a tax return that is never filed. A)True B)False
Q6) Explain one of the two exceptions to imposing interest from the original due date of the tax return until the date the tax deficiency is paid.
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Chapter 16: Us Taxation of Foreign-Related Transactions
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Q1) A foreign corporation with a single class of stock is owned equally by Jericho Corporation,a U.S.corporation,and Joshua,a nonresident alien.Joshua owns no Alpha Corporation stock.Is the foreign corporation a controlled foreign corporation (CFC)?
Q2) Identify which of the following statements is true.
A)The foreign income taxes withheld from a dividend remittance made by a foreign corporation are translated into U.S.dollars at the current exchange rate in effect for the date the dividend is paid.
B)A U.S.subsidiary that is used by a foreign parent corporation to conduct its U.S.business activities is required to withhold 30% of dividends paid to the foreign corporation unless a treaty provides for a lower withholding rate.
C)A foreign corporation that conducts a U.S.trade or business may be required to pay the corporate income tax,the corporate alternative minimum tax,and the branch profits in a single year.
D)All of the above are false.
Q3) Explain the alternatives available to individual taxpayers for reporting foreign income taxes that have been paid or accrued.
Q4) What is a corporate inversion and why was this provision enacted?
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