Advanced Topics in Taxation Final
Exam Questions
Course Introduction
Advanced Topics in Taxation provides an in-depth exploration of complex issues in domestic and international tax systems. The course examines advanced tax planning strategies, tax policy considerations, recent legislative changes, and the implications of tax treaties. Core topics include corporate taxation, transfer pricing, taxation of partnerships and LLCs, and tax issues related to mergers and acquisitions. Students will analyze case studies and current developments, enhancing their ability to apply sophisticated tax concepts in real-world scenarios and critically assess evolving tax frameworks.
Recommended Textbook
Pearsons Federal Taxation 2018 Corporations Partnerships Estates Trusts 31st Edition by Kenneth
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Page 2
Chapter 1: Tax Research
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Q1) Is it possible for the Tax Court to intentionally issue conflicting decisions?
Answer: Yes.If the Tax Court is issuing two decisions that are appealable to different circuit courts and these circuit courts have previously reached different conclusions on the issue,the Tax Court follows the respective precedent in each circuit and issues conflicting decisions.This is a result of the Golsen rule.
Q2) When a court discusses issues not raised by the facts,the comments
A) are excluded from the formal court opinion.
B) may be referenced by the parties in other cases having the same facts.
C) are not dicta.
D) will cause the court's decision to be declared invalid.
Answer: B
Q3) When Congress passes a statute with language such as,"The Secretary shall prescribe such regulations as he may deem necessary," the regulations ultimately issued for that statute are
A) congressional regulations.
B) statutory regulations.
C) interpretative regulations.
D) legislative regulations.
Answer: D
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Page 3
Chapter 2: Corporate Formations and Capital Structure
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Q1) Identify which of the following statements is true.
A) A transferor's gain or loss that goes unrecognized when Sec. 351 applies is permanently exempt from taxation.
B) If a taxpayer transfers property and services as part of a transaction meeting the Sec. 351 requirements, all of the stock received is counted in determining whether the property transferors have acquired control.
C) If a taxpayer transfers property and services as part of a transaction meeting the Sec. 351 requirements, the nonrecognition of gain or loss will apply to the services.
D) All of the above are false.
Answer: B
Q2) On January 20 of the current year,a group of ten individuals organize an LLC to conduct an ink-making business in Florida.This year,the LLC is an eligible entity under the check-the-box regulations.How will the LLC be taxed?
Answer: The owners may elect to have the LLC taxed as a corporation.However,if they do not make the election,the LLC will be taxed as a partnership.
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4
Chapter 3: The Corporate Income Tax
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Q1) Organizational expenses incurred after 2004 are amortized over five years.
A)True
B)False
Answer: False
Q2) Zerotech Corporation donates the following property to an elementary school:
Computer printer purchased three years ago for $1,000.The printer has a $500 FMV and $0 adjusted basis on contribution date.
Computer equipment acquired one year ago at a cost of $5,000.The equipment has an $8,000 FMV and $0 adjusted basis on contribution date.
Computer software acquired two months ago at a cost of $10,000.The software will be used in a prekindergarten program.Its FMV on the contribution date is $10,000 and it has an adjusted basis of $0.
a)Identify any donation qualifying for special treatment.
b)What is Zerotech's charitable contribution deduction?
Answer: a)None of the equipment qualifies for a special deduction.
b)There is no charitable deduction.
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Page 5
Chapter 4: Corporate Nonliquidating Distributions
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Q1) For purposes of determining current E&P,which of the following items cannot be deducted in the year incurred?
A) charitable contribution in excess of the 10% limitation
B) capital losses in excess of capital gains
C) life insurance premiums (in excess of the increase in cash surrender value for the policy) paid on the lives of key employees
D) dividends-received deduction
Q2) River Corporation's taxable income is $25,000,after deducting a $5,000 NOL carryover from last year and after claiming a $10,000 dividends-received deduction.What is the current E&P?
Q3) Tia owns 2,000 shares of Bass Corporation common stock with an $80,000 basis.Bass distributes a nontaxable preferred stock dividend.When the preferred stock is distributed,it has an FMV of $60,000 and the FMV of the 2,000 common stock shares is $180,000.The basis of the preferred stock is
A) $0.
B) $20,000.
C) $60,000.
D) $80,000.
Q4) Define Sec.306 stock.
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Chapter 5: Other Corporate Tax Levies
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Q1) Identify which of the following statements is true.
A) The corporate alternative minimum tax rate is 35%.
B) No credits are allowed when computing the tentative minimum tax.
C) Tax preference items always increase alternative minimum taxable income.
D) All of the above are false.
Q2) Life insurance proceeds are a positive adjustment for adjusted current earnings (ACE),but not alternative minimum taxable income (AMTI).
A)True
B)False
Q3) Which of the following actions cannot be used to eliminate a potential accumulated earnings tax liability situation involving a corporation owned by a mother and a father?
A) Create plans to invest retained earnings in a plant expansion.
B) Make a cash distribution within 2 1/2 months after the end of the tax year.
C) Make a deficiency distribution within 90 days of the date on which the IRS determines that an accumulated earnings tax liability is owed.
D) Liquidate the corporation.
Q4) What are the four general rules that provide a framework for the ACE calculation?
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Chapter 6: Corporate Liquidating Distributions
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Q1) A corporation is required to file Form 966 within 30 days after the adoption of a plan of liquidation.
A)True
B)False
Q2) In a complete liquidation of a corporation,which of the following is false?
A) All stock of the liquidating corporation is canceled or redeemed.
B) The corporation ceases to be a going concern.
C) The corporation divests itself of substantially all its properties.
D) The liquidation of a corporation means it has undergone dissolution.
Q3) Hope Corporation was liquidated four years ago.Teresa reported a $40,000 long-term capital gain due to the liquidation on her individual tax return.This year,Teresa pays $6,000 as part of the settlement of a lawsuit against Hope.Due to the $6,000 payment,Teresa recognizes a
A) $6,000 long-term capital loss.
B) $6,000 short-term capital loss.
C) $6,000 ordinary loss.
D) none of the above
Q4) In a Sec.332 liquidation,can a subsidiary corporation recognize losses on distributions to either the parent corporation or minority shareholders?
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Chapter 7: Corporate Acquisitions and Reorganizations
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Q1) The Supreme Court has held that literal compliance with the statutory requirements for a reorganization transaction is not enough for a transaction to receive tax-free treatment.The courts have placed four primary restrictions on reorganization transactions.What are they?
Q2) Identify which of the following statements is true.
A) Both a Type B reorganization or a reverse triangular merger will not allow the target corporation to remain in existence.
B) Andrews Corporation gives 10% of its stock worth $200,000 and Andrews notes worth $10,000 in exchange for 80% of Baxter Corporation's stock. The exchange qualifies as a Type B reorganization.
C) In a Type B reorganization, with minor exceptions only voting stock can be used by the acquiring corporation to acquire the target corporation's stock.
D) All of the above are false.
Q3) Marty is a party to a tax-free reorganization.He has a basis of $22,000 in his Van Corporation stock that has an FMV of $35,000.Marty exchanges the Van stock for Young Corporation stock worth $29,000 and Young securities with a face amount of $7,000 and an FMV of $6,000.What is Marty's basis in the Young securities?
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Chapter 8: Consolidated Tax Returns
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Q1) Which of the following statements is incorrect with respect to the consolidated alternative minimum tax?
A) The starting point for the consolidated alternative minimum taxable income computation is consolidated taxable income before the NOL deduction.
B) The difference between the consolidated ACE amount and the consolidated preadjustment AMTI is an adjustment to consolidated taxable income in arriving at AMTI.
C) Each corporation is permitted its own $40,000 statutory exemption.
D) If the consolidated tentative minimum tax is smaller than the consolidated regular tax, there is no alternative minimum tax liability.
Q2) To be an affiliated group,the parent corporation must directly own at least 80% of another group member.
A)True
B)False
Q3) A member's portion of a consolidated NOL may be carried back against that member's taxable income from the preceding two separate return years.
A)True
B)False
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Chapter 9: Partnership Formation and Operation
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Q1) Albert contributes a Sec.1231 asset to a partnership on June 1 of this year in exchange for a 10% partnership interest.He had purchased the asset on March 1,2002.His holding period for the partnership interest begins
A) March 1, 2002.
B) March 2, 2002.
C) June 1 of the current year.
D) June 2 of the current year.
Q2) Explain the three different limitation provisions that a partner must satisfy before a loss can be deducted.
Q3) Identify which of the following statements is true.
A) The contribution of Sec. 1245 property to a partnership triggers recognition of ordinary income by the contributor at the time of the transfer.
B) A partner may not recognize ordinary income when receiving a capital and profits interest in a partnership in exchange for services.
C) When a partnership interest is given to a partner in exchange for services, the partnership can deduct or capitalize the FMV of the services, depending on the nature of the services.
D) All of the above are false.
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11
Chapter 10: Special Partnership Issues
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Q1) What are the advantages of a firm being formed as a limited liability company (LLC)instead of as a limited partnership?
Q2) Can a partner recognize both a gain and a loss on the sale of a partnership interest? If so,under what conditions?
Q3) The STU Partnership,an electing Large Partnership,has no passive activities and reports the following transactions for the year: net long-term capital losses
$50,000,Sec.1231 gain $60,000,ordinary income $20,000,charitable contributions
$15,000,and tax-exempt income $2,000.How much will be reported as ordinary income to its partners?
A) $5,000
B) $17,000
C) $20,000
D) $22,000
Q4) When must a partnership make mandatory basis adjustments?
A) on any sale of a 20% or greater partnership interest
B) on any sale of a partnership interest for $250,000 or more
C) on any distribution of assets with a value of $250,000 or more
D) on any sale of a partnership interest where the partnership's adjusted basis in its assets exceeds their fair market value by $250,000 or more
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Chapter 11: US Corporations
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Q1) Swamp Corporation,a calendar-year taxpayer,has been an S corporation for several years.However,the corporation has become quite profitable,and management feels that it would be advantageous to make a public stock offering.What are Swamp Corporation's options concerning the date of revocation of the S election?
Q2) Cactus Corporation,an S Corporation,had accumulated earnings and profits of $100,000 at the beginning of 2011.Tex and Shirley each own 50% of the stock.Cactus does not make any distributions during 2011,but had $200,000 of ordinary income.In 2012,ordinary income was $100,000 and distributions were $100,000.What is Tex's ordinary income for 2012?
A) $0
B) $50,000
C) $100,000
D) $200,000
Q3) For an S corporation to elect to use a fiscal year other than a permitted year,the fiscal year elected must have a maximum deferral period of
A) one month.
B) two months.
C) three months.
D) six months.
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Page 13
Chapter 12: The Gift Tax
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Q1) What is a "net gift" and what is the potential income tax problem associated with making a net gift?
Q2) Identify which of the following statements is true.
A) The creation of a joint bank account constitutes a taxable gift.
B) The creation of a joint tenancy by one person will result in a gift equal to the other joint tenant's pro rata interest in the property.
C) The naming of a life insurance policy beneficiary constitutes a gift for transfer tax purposes.
D) Since municipal bond interest is exempt from federal income taxation, gifting the bonds escapes the gift tax.
Q3) Bryce pays $10,000 for his adult grandson's tuition at medical school and $8,000 for the grandson's room and board in the medical school's dormitory.All payments are made directly to the medical school.Do these payments by Bryce qualify as gifts?
Q4) On March 1,Bruce transfers $300,000 to a revocable trust with Sprint Bank as trustee.The trustee must pay out all the income to Sam during Sam's lifetime.At Sam's death,the property is to be paid to Sam Jr.On December 31,the trustee distributes $40,000 of income to Sam.What date did a gift occur? What was the amount of the gift?
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Chapter 13: The Estate Tax
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Q1) Identify which of the following statements is true.
A) The period for payment of estate taxes may be extended if the executor shows "reasonable cause" for not being able to pay some, or all, of the estate tax liability on the regular due date.
B) The estate tax on interests in certain closely held businesses may be paid in installments over a 15-year period if elected.
C) An executor may elect to postpone payment of the estate tax attributable to a remainder or reversionary interest until eight months after the interests of the other person(s) terminate.
D) All of the above are false.
Q2) Compare the tax treatment of administration expenses with that of the decedent's debts.
Q3) Which of the following credits is available for estate tax purposes?
A) investment tax credit
B) credit for income taxes paid on decedent's final return
C) credit for estate taxes paid on certain prior transfers
D) All of the above are available.
Q4) Outline and briefly describe the estate tax computation,beginning with the gross estate.
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Chapter 14: Income Taxation of Trusts and Estates
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Q1) 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 of the above are false.
Q2) A simple trust
A) may make charitable distributions.
B) may make discretionary distributions of principal.
C) may accumulate income.
D) is required to distribute all of its income currently.
Q3) Explain the three functions of distributable net income (DNI).
Q4) What is the basis of inherited IRD items to the beneficiary?
Q5) Outline the classification of principal and income under the Revised Uniform Principal and Income Act.
Q6) A trust receives no standard deduction when computing taxable income.
A)True
B)False
Page 16
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Chapter 15: Administrative Procedures
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Q1) Identify which of the following statements is false.
A) So-called private letter rulings are made public after confidential information is eliminated.
B) A letter ruling is a written statement issued to a taxpayer by the IRS that interprets and applies the tax laws to that taxpayer's specific set of facts.
C) Only the taxpayer can appeal the decision of a court of original jurisdiction to the next higher court.
D) If the Supreme Court decides to hear a case, it grants certiorari.
Q2) What is the requirement for a substantial understatement of tax for individuals?
A) The understatement exceeds 10% of the tax required to be shown on the return.
B) The understatement exceeds $5,000.
C) The understatement exceeds the lesser of 10% of the tax required to be shown on the return or $5,000.
D) The understatement exceeds the greater of 10% of the tax required to be shown on the return or $5,000.
Q3) Pablo,a bachelor,owes $80,000 of additional taxes,all due to fraud.What is the amount of the civil fraud penalty? What criminal fraud penalty might be imposed under Sec.7201?
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Chapter 16: US Taxation of Foreign-Related Transactions
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Q1) U.S.Corporation,a domestic corporation,owns all of Foreign Corporation's stock.Foreign Corporation is incorporated in France.This year,Foreign Corporation suffers a $100,000 net operating loss (NOL)in France.What amount of the $100,000 NOL can U.S.Corporation use to reduce its current-year U.S.taxable income?
A) $100,000
B) $50,000
C) $0
D) none of the above
Q2) U.S.citizens and resident aliens working abroad may qualify for the foreign-earned income exclusion of $101,300 in 2016.
A)True
B)False
Q3) Zeta Corporation,incorporated in Country Z,is 100% owned by Zelda Corporation,a U.S.corporation.Zelda purchases some machines from an unrelated corporation,for use in Country A.The portion of the sales contract covering installation and maintenance of the machines is assigned by Zelda to Zeta.Zeta is to be paid for these services by Zelda.Does this qualify as foreign base company services income?
Q4) What is a corporate inversion and why was this provision enacted?
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Page 18