Business Law and Taxation
Textbook Exam Questions
Course Introduction
Business Law and Taxation provides an essential overview of the legal and regulatory framework governing business activities, focusing on the principles of contract law, company law, and the various forms of business organizations. The course also explores the fundamental concepts and applications of taxation, including income tax, value-added tax (VAT), corporate tax, and the obligations and rights of businesses and individuals under tax law. Through case studies and practical examples, students will learn to identify legal issues in business scenarios, comply with statutory and regulatory requirements, and understand the implications of taxation on business decisions, ensuring responsible and informed management in both local and international contexts.
Recommended Textbook
Prentice Halls Federal Taxation 2014 Comprehensive 27th Edition by
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Page 2
Timothy J. Rupert
Chapter 1: Tax Research
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Q1) Where must a tax researcher look to access all Tax Court cases?
Answer: The regular opinions are found in the Tax Court of the United States Reporter,published by the U.S.Government Printing Office,and the memo decisions are published by both RIA and CCH in their own court reporters.
Q2) The Internal Revenue Code of 1986 contains the current version of the tax law.
A)True
B)False Answer: True
Q3) The taxpayer need not pay the disputed tax in advance when the suit is initiated in A)U.S.Court of Federal Claims.
B)U.S.Tax Court.
C)U.S.District Court.
D)both A and B.
Answer: B
Q4) Describe the format of a client memo.
Answer: A client memo should include a statement of the facts,a list of issues,a discussion of relevant authority,analysis,and recommendations of appropriate actions to the client based on the research results.
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Page 3
Chapter 2: an Introduction to Taxation
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Q1) Larry and Ally are married and file a joint return.They are considering purchasing a personal residence that will generate two deductions: $10,000 in home mortgage interest and $8,000 in real estate taxes.Their marginal tax rate is 25%.What is the total tax savings if Larry and Ally purchase the residence?
Answer: ($10,000 + $8,000)× .25 = $4,500
Q2) Generally,tax legislation is introduced first in the Senate and referred to the Senate Finance Committee.
A)True
B)False
Answer: False
Q3) The IRS must pay interest on A)all tax refunds.
B)tax refunds paid later than 30 days after the due date.
C)tax refunds paid later than 45 days after the due date.
D)The IRS never pays interest on tax refunds.
Answer: C
Q4) Mia is self-employed as a consultant.During 2013,Mia earned $180,000 in self-employment income.What is Mia's self-employment tax?
Answer: 11ea8238_0cd1_d8cf_9591_b5b24569e4c1_TB5380_00_TB5380_00
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Chapter 3: Corporate Formations and Capital Structure
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Q1) Identify which of the following statements is true.
A)Section 351 provides for nonrecognition of gain for the transferee corporation when it distributes appreciated land that is boot property to a shareholder.
B)A corporation must recognize a loss when transferring noncash boot property that has declined in value and its stock to a transferor as part of a Sec.351 exchange.
C)The transferee corporation's holding period for assets acquired in an exchange meeting the Sec.351 requirements includes the transferor's holding period for the property.
D)All of the above are false.
Answer: C
Q2) The check-the-box regulations permit an LLC to be taxed as a C corporation.
A)True
B)False
Answer: True
Q3) There are no tax consequences of a partnership converting to a C corporation.
A)True
B)False
Answer: False
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5
Chapter 4: Determination of Tax
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Q1) The standard deduction is the maximum amount of itemized deductions which may be claimed by a taxpayer,and is based on an individual's filing status,age,and vision.
A)True
B)False
Q2) Sarah,who is single,maintains a home in which she,her 15-year old brother,and her 21-year-old niece live.Sarah provides the majority of the support for her brother,her niece,and her cousin,age 18,who is enrolled full-time at the university and lives in an apartment.While the niece and cousin have no income,her brother has a part-time job and earns $4,000 per year.How many personal and dependency exemptions may Sarah claim?
A)1
B)2
C)3
D)4
Q3) A taxpayer is able to change his filing status from married filing jointly to married filing separately by filing amended return.
A)True
B)False
Q4) 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) Cricket Corporation has a $50,000 NOL in the current year.Cricket's taxable income in each of the previous two years was $25,000.Cricket expects its taxable income for next year to exceed $400,000.What issues should be considered with respect to the use of the NOL?
Q2) Identify which of the following statements is true.
A)The charitable contribution deduction is computed after the deduction for an NOL.
B)The charitable contribution deduction is computed after the dividends-received deduction.
C)The NOL deduction claimed by a corporation must be taken after the dividends-received deduction.
D)All of the above are false.
Q3) Which of the following types of evidence indicate that a valuation allowance is needed to reduce the deferred tax asset?
A)history of profits
B)excess of appreciated asset values over basis
C)existing contracts or sales backlogs,which will generate significant future income
D)short carryback or carryover periods
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Chapter 6: Gross Income: Inclusions
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Q1) Social Security benefits are excluded from taxation for all taxpayers.
A)True
B)False
Q2) A cash-basis taxpayer can defer income recognition by refusing to accept payment.
A)True
B)False
Q3) Rocky owns The Palms Apartments.During the year,Molly Ann,a tenant,moved to another state.Molly Ann paid Rocky $1,500 to cancel the two-year lease she had signed.Rocky then rented the apartment to Elvis who paid the first and last months' rents of $500 each and a security deposit of $800.Rocky also owns a building used as a dance club.The owner of the club requested that Rocky add on another room to be used for private parties.Rocky refused but allowed the club owner to make the addition at a cost of $20,000.What amount should be included in Rocky's income with regard to these items?
Q4) Under the cash method of accounting,income is reported in the year the taxpayer actually or constructively receives the income.
A)True
B)False
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Chapter 7: Corporate Nonliquidating Distributions
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Q1) When computing E & P,Section 179 property must be expensed ratably over a five-year period,starting with the month in which it is expensed for Sec.179 purposes.
A)True
B)False
Q2) Grant Corporation sells land (a noninventory item)with a basis of $57,000 for $100,000.Nichole will be paid on an installment basis in five equal annual payments,starting in the current year.The E&P for the year of sale will be increased as a result of the sale (excluding federal income taxes)by A)$0.
B)$8,600.
C)$43,000.
D)$100,000.
Q3) A partial liquidation of a corporation is treated as a dividend in the case of a corporate shareholder.
A)True
B)False
Q4) When computing E&P and taxable income,different depreciation methods are often used.What happens when the taxpayer sells such assets?
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Chapter 8: Gross Income: Exclusions
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Q1) A business provides $45,000 of group-term life insurance to all workers,including the partners who work in the business.All of the workers can exclude the value of this fringe benefits from their gross income.
A)True
B)False
Q2) Punitive damages are taxable unless they are awarded for physical injuries.
A)True
B)False
Q3) Lindsay Corporation made the following payments to the family of Luke Marshall,an employee who died during the year. $5,000 for Luke's final paycheck that he failed to collect
$10,000 for accrued vacation days as required by the employment contract
$25,000 in admiration of Luke's outstanding service to the community What is the total amount that Luke's family must include in income?
A)$0
B)$5,000
C)$15,000
D)$40,000
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Chapter 9: Other Corporate Tax Levies
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Q1) The personal holding company penalty tax rate is A)15%.
B)10%.
C)20%.
D)35%.
Q2) Becky places five-year property in service during June 2014 using the half-year convention.Depreciation is $1,500 under the 150% declining balance method and $2,000 under 200% declining balance.Becky uses the 150% declining balance method for regular income tax purposes.What is the amount of Becky's AMT adjustment?
A)$0
B)$1,500 positive adjustment
C)$500 positive adjustment
D)$500 negative adjustment
Q3) How is the accumulated earnings tax liability computed?
Q4) The accumulated earnings tax does not apply to corporations that A)have more than one class of stock.
B)are personal holding companies.
C)are members of a controlled group.
D)are closely held corporations.
Q5) How is alternative minimum taxable income computed?
Page 11
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Chapter 10: Property Transactions: Capital Gains and Losses
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Q1) On January 31 of this year,Jennifer pays $700 for an option to acquire 100 shares of Lifetime Corporation common stock for $70 per share.Jennifer exercises the option on June 2.Jennifer sells the stock on April 30 of next year for $10,000.Jennifer's basis for the stock immediately before the sale is
A)$-0-.
B)$700.
C)$7,000.
D)$7,700.
Q2) During the current year,Don's aunt Natalie gave him a house.At the time of the gift,the house had a FMV of $144,000 and his aunt's adjusted basis was $133,000.After deducting the annual exclusion,the amount of the gift was $130,000.His aunt paid a gift tax of $20,000 on the house.What is Don's basis in the house for purposes of determining gain?
A)$130,000
B)$133,000
C)$134,692
D)$144,000
Q3) 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) Under Illinois Corporation's plan of liquidation,the corporation distributes land to one of its shareholders,Springer.The land,which is used in Illinois trade or business,has a $20,000 adjusted basis and a $60,000 FMV on the distribution date.What are the tax consequences of this distribution to Illinois and Springer?
Q2) Under the general liquidation rules,Kansas Corporation is liquidated,with Sam Topeka receiving $20,000 in cash plus other property having a $24,000 FMV.Sam Topeka's basis in his Kansas stock is $32,000.What is Sam Topeka's amount realized and gain recognized on the liquidation?
Q3) John and June,husband and wife,have owned Ruby Corporation for a number of years.Their basis in the Ruby stock,which they own jointly,is $200,000.The Ruby stock is Sec.1244 stock.Ruby Corporation liquidates,and John and June receive the following from the corporation: accounts receivable,$30,000 FMV; a car,$21,000 FMV; office furniture,$11,000 FMV; and $25,000 in cash.What is the amount and character of their gain or loss?
Q4) A plan of liquidation
A)must be written.
B)details the steps to be undertaken in carrying out the liquidation.
C)must be a formal plan.
D)must be completed in one year.
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Chapter 12: Deductions and Losses
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Q1) A deduction will be allowed for an expenditure unless the Internal Revenue Code specifically disallows it.
A)True
B)False
Q2) Super Development Company purchased land in the current year from Riverside Chemicals,Inc.The land was contaminated with harmful pollutants,so Super Development paid $1,000,000 to remove the contaminants.What tax issue(s)should be considered before Super files its current year tax return?
Q3) Bart operates a sole proprietorship for which he uses the accrual method of accounting.Bart's sister Samantha,a cash method taxpayer,did some advertising work for Bart's business in November 2013.In December,Bart received a billing statement from Samantha for $5,000.Bart paid Samantha the $5,000 in January 2014.Samantha is a calendar year taxpayer.When may Bart deduct the $5,000?
A)2013
B)2014
C)Either 2013 or 2014
D)The expense is not deductible since Samantha is Bart's sister.
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) Identify which of the following statements is false.
A)Taxable acquisition transactions can either be a purchase of assets or a purchase of stock.
B)The tax-free reorganization rules are an example of the wherewithal to pay concept.
C)A taxable acquisition of a target corporation's assets results in the nonrecognition of gain or loss on the disposition of each individual asset.
D)Sales of depreciable assets as part of a taxable acquisition result in depreciation recapture.
Q2) In a nontaxable reorganization,the acquiring corporation has a holding period for the acquired assets that begins on the day after the transaction date.
A)True
B)False
Q3) 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 Duke Corporation's basis in the assets it receives?
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Chapter 14: Itemized Deductions
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Q1) May an individual deduct a charitable contribution for services rendered to a charitable organization?
Q2) In general,the deductibility of interest depends on the purpose for which the indebtedness is incurred.
A)True
B)False
Q3) 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
Q4) Explain why interest expense on investments is limited to net investment income.
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Chapter 15: Consolidated Tax Returns
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Questions
Q1) The Alto-Baxter affiliated group filed a consolidated return for the first time last year.The group does not come under the "large" corporation rules.For last year,the group reports a tax liability of $60,000.Cooper Corporation has a $30,000 tax liability last year.This year,the Alto-Baxter affiliated group purchased all of the Cooper stock.This year,the Alto-Baxter-Cooper group reports an $110,000 consolidated tax liability.To avoid penalties for the current year,the group must make timely estimated tax payments of how much during the year?
A)$60,000
B)$90,000
C)$110,000
D)No estimated tax payments are required.
Q2) What are the five steps in calculating consolidated taxable income?
Q3) Which of the following intercompany transactions creates temporary book/tax differences when a parent corporation owns 100% of a subsidiary's stock and the companies file a consolidated return?
A)intercompany dividends
B)undistributed subsidiary earnings
C)intercompany sale
D)None of the above items create temporary differences.
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Chapter 16: Losses and Bad Debts
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Q1) If a taxpayer suffers a loss attributable to a disaster in an area subsequently declared a disaster area,the casualty loss may be deducted in the year preceding the year in which the loss actually occurs.
A)True
B)False
Q2) How is a claim for refund of taxes filed by an individual who carries an NOL deduction back to a prior year?
Q3) Hope sustained a $3,600 casualty loss due to a severe storm.She also incurred a $800 loss from a theft in the same year.Both the casualty and theft involved personal-use property.Hope's AGI for the year is $25,000 and she does not have insurance coverage.Hope's deductible casualty loss is
A)$1,700.
B)$1,800.
C)$4,200.
D)$4,300.
Q4) A closely-held C Corporation's passive losses may offset its active income.
A)True
B)False
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) Identify which of the following statements is true.
A)Bob gives his 16-year-old daughter Michelle a 20% capital and profits interest in his accounting practice.She does no work for the partnership and is not involved at all with the operations of the partnership.In fact,she does not know that her dad transferred the interest in the partnership to her.If the partnership allocates an $8,000 distributive share of ordinary income to her,it is properly reported on Michelle's individual tax return. B)Valid family partnership partners may be subject to the "kiddie tax."
C)Joan gives her daughter,Sarah,a 25% interest in a partnership that operates a steel mill.Sarah,age 19,was allocated $20,000 from the partnership as her share of the partnership ordinary income.The IRS will require the income to be included on Sarah's return.
D)All of the above are false.
Q2) At the beginning of the current year,Terry has a $40,000 basis for his general partnership interest in the TKE Partnership.He materially participates in the business activities of the partnership.On November 1,he receives a $4,000 distribution.His distributive share of TKE's current items is a $5,000 net long-term capital gain and a $50,000 ordinary loss.What amount will he include in his current year's tax return?
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Chapter 18: Employee Expenses and Deferred Compensation
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Q1) What two conditions are necessary for moving expenses to be deductible?
Q2) Under a qualified pension plan,the employer's deduction is usually deferred until the employee recognizes income.
A)True
B)False
Q3) If a meeting takes place at a sporting event or night club,the entertainment can not be "directly related" and,thus,can not be deductible.
A)True
B)False
Q4) Which of the following statements regarding Health Savings Accounts is incorrect?
A)Taxpayers are allowed to deduct contributions to a health savings account for AGI.
B)All taxpayers are eligible to establish a health savings account.
C)Distributions from a health savings account are excluded from gross income if used to pay qualified medical expenses.
D)Health savings account contributions are limited to the lesser of 100% of annual deductible under high deductible health plan or $3,250 for taxpayers without family coverage.
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Chapter 19: Special Partnership Issues
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Q1) Brown Company recently has been formed as a limited liability company (LLC).Brown Company is owned equally by three individuals-Gene,Susan,and Sandra-all of whom have substantial income from other sources.Brown is a manufacturing firm and expects to earn approximately $130,000 of ordinary income and $30,000 of long-term capital gain each year for the next several years.Gene will be a full-time manager and will receive a salary of $60,000 each year.What tax issues should the owners consider regarding the LLC's initial year of operations?
Q2) A partner can recognize gain,but not loss,on a liquidating distribution.
A)True
B)False
Q3) Identify which of the following statements is true.
A)If a partner sells property received in a partnership distribution for a gain and the property was inventory in the hands of the distributing partnership,the partner will always recognize ordinary income.
B)The primary purpose of Sec.751 is to prevent partnerships from converting capital gains into ordinary income.
C)Unrealized receivables include rights to payments on the sale of a capital asset.
D)All of the above are false.
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Chapter 20: Depreciation cost Recovery amortization and Depletion
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Q1) Lunar Corporation purchased and placed in service new five-year MACRS equipment costing $700,000 on January 5,2013.Lunar is the original user of this equipment.Assume Lunar had no other additions this year,has high taxable income and wishes to maximize the 2013 total cost recovery deduction.How much can it deduct this year?
A)$620,000
B)$350,000
C)$500,000
D)$140,000
Q2) On May 1,2011,Empire Properties Corp.,a calendar year taxpayer,purchased an office building for $1,000,000,of which $400,000 was allocable to the land.The corporation sold the property this year on September 23,2013.
a.What was the corporation's depreciation for the building,using statutory percentages under MACRS for 2011?
b.What was the corporation's depreciation for the building,using statutory percentages under MACRS for 2013?
Q3) Why would a taxpayer elect to use the alternative depreciation system rather than the MACRS rules?
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Chapter 21: S Corporations
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Q1) S shareholders are allocated shares of income,gain,loss,deduction,and credit based on their number of shares of stock and period of time for which the stock is held.
A)True
B)False
Q2) Identify which of the following statements is true.
A)Perry Corporation,an S corporation,receives $10,000 of dividends from a 25%-owned domestic corporation.Perry is allowed an 80% dividends-received deduction with respect to the distribution.
B)An NOL is incurred by a C corporation in the current tax year.The C corporation makes an S election for the following tax year.The entire C corporation NOL carryover can be passed through to the S corporation's shareholders at the end of the following tax year.
C)Tax-exempt interest earned by an S corporation is not reported to its shareholders because it is excluded from the shareholders' gross income.
D)All of the above are false.
Q3) All shareholders must consent to the revocation of S status.
A)True
B)False
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Chapter 22: Accounting Periods and Methods
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Q1) Which of the following conditions are required for the use of the installment method?
A)The taxpayer must realize a gain on the sale of the property.
B)The taxpayer cannot be on the cash method.
C)The value of the obligations received is determinable at the date of sale.
D)All of the above are required.
Q2) A taxpayer who uses the cash method in computing gross income from his or her business must use the cash method in computing expenses of such business.
A)True
B)False
Q3) Under UNICAP,all of the following overhead costs are included in inventory except
A)factory utilities,rent,insurance and depreciation.
B)officers' salaries and factory administration.
C)research and experimentation.
D)factory payroll,purchasing and warehouse costs.
Q4) All C corporations can elect a tax year other than a calendar year.
A)True
B)False
Q5) Discuss the purpose of the imputed interest rules.
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Chapter 23: The Gift Tax
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Q1) Elaine loaned her brother,Mike,$175,000 to purchase a new home.Elaine does not charge Mike any interest on the loan.What are the tax consequences to Elaine and Mike?
A)Elaine is treated as having made a gift of the forgone interest on the $175,000 loan to Mike.
B)Elaine only has to impute interest on $75,000 of the loan to Mike.
C)If Mike has no net investment income,Elaine does not have to treat the forgone interest as a gift.
D)Mike can deduct the interest that he is deemed to have paid Elaine.
Q2) Identify which of the following statements is true.
A)The trustee of a Sec.2503(c)trust must distribute all of the corpus and accumulated income when the beneficiary reaches the age of 25.
B)The gift tax exclusion is available for a gift of a present or future interest.
C)A "Crummey demand power" in a trust document allows the donor to demand a distribution from the trust in years in which assets are transferred to the trust.
D)All of the above are true.
Q3) Discuss the purpose of the gift tax annual exclusion.
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Chapter 24: Property Transactions: Nontaxable Exchanges
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Q1) Yael exchanges an office building worth $150,000 for investment land worth $175,000.He also provided stock worth $25,000.Yael's adjusted basis in the building and stock is $180,000 and $11,000,respectively.How much gain or loss will Yael recognize on the exchange?
A)$-0-
B)($30,000)
C)($16,000)
D)$14,000
Q2) According to Sec.121,individuals who sell or exchange their personal residence may exclude part or all of the gain if the house was owned and occupied as a principal residence for
A)at least five years immediately before the sale date.
B)at least one year of the three-year period before the sale date.
C)at least two years of the five-year period before the sale date.
D)at least five years of the ten-year period before the sale date.
Q3) In the case of married taxpayers,an individual may claim the Sec.121 exclusion even if the individual's spouse used the exclusion within the past two years.
A)True
B)False
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Page 26
Chapter 25: The Estate Tax
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Q1) Guy died this year.His estate includes a closely held business interest valued at $400,000 and other property valued at $675,000.Guy's allowable Sec.2053 and 2054 deductions total $75,000.Within three years of death,partly in hopes of qualifying his estate for the installment payment allowed under Sec.6166 treatment,Guy made gifts of listed securities of $350,000 (at 2002 valuations)and paid no gift tax on the gift.Is Guy's estate eligible for Sec.6166 treatment?
Q2) Identify which of the following statements is false.
A)The "blockage" regulations allow the IRS to prevent the estate's executor from electing the alternate valuation date.
B)If the alternate valuation date is elected,changes in value that occur solely because of a "mere lapse of time" usually are to be ignored.
C)The alternate valuation date can be elected for estate tax purposes only if the election decreases the value of the gross estate and estate tax liability (after reduction for credits).
D)If property is sold within 6 months of the date of death,the alternative valuation date is the date of sale.
Q3) Explain why living trusts are popular tax-planning vehicles.
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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) If realized gain from disposition of business equipment exceeds total depreciation or cost recovery,a portion of the gain will receive Sec.1231 treatment if the equipment's holding period is more than one year.
A)True
B)False
Q3) Sec.1245 ordinary income recapture can apply to buildings placed in service prior to 1987.
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) 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.
Q2) If a state has adopted the Revised Uniform Principal and Income Act,which of the following statements is correct?
A)The state law definition of trust income will preempt any other definitions.
B)The definition of trust income in the trust document will preempt all other definitions.
C)Under state law,tax-exempt interest will not be allocated to income.
D)The definition of principal in the trust document must classify capital gains as principal.
Q3) Explain the three functions of distributable net income (DNI).
Q4) Describe the tier system for trust beneficiaries.
Q5) Briefly discuss some of the reasons for using a revocable trust.
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Chapter 28: Special Tax Computation Methods tax Credits and
Payment of Tax
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Q1) Dwayne has general business credits totaling $30,000 before limitation.His regular tax liability is $83,000 and his tentative minimum tax is $79,000.What amount of general business credit can Dwayne take this year?
A)$4,000
B)$14,500
C)$25,000
D)$30,000
Q2) Suzanne,a single taxpayer,has the following tax information for the current year. Charitable contribution of real property with a FMV of $25,000 (adjusted basis $20,000)for which a $25,000 deduction was taken.
Research and experimental expenses of $40,000 deducted in full for regular tax. Suzanne's total tax preferences and adjustments equals
A)$5,000.
B)$36,000.
C)$41,000.
D)$45,000.
Q3) Discuss the tax planning techniques available to a U.S.citizen who is on a foreign job assignment.
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Chapter 29: Administrative Procedures
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Q1) A taxpayer who fails to file and fails to pay taxes is subject to a combined 5% monthly penalty on the underpayment.
A)True
B)False
Q2) Which one of the following statements about letter rulings is false?
A)If a taxpayer requests and pays for a ruling,the IRS must respond to his request by issuing a ruling.
B)A ruling is a response to a taxpayer's specific set of facts.
C)Rulings become public information.
D)The IRS issues revenue procedures periodically,which prescribe the information that must be supplied with a ruling request.
Q3) Explain the four conditions that must be met in civil cases for the burden of proving any factual issue relevant to the determination of taxpayer liability to rest with the IRS.
Q4) Jayne and Jon jointly file a tax return this year.Jayne fraudulently reports two expenses on Schedule C: $2,000 and $2,500.The IRS audits the return,assesses a $1,050 deficiency,and begins collection efforts two years after the timely filing by Jayne and Jon.What must Jon do to be relieved of the $1,050 tax liability?
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Chapter 30: Tax Research
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Q1) A client wants to take a tax return position with less than a 10% probability of being upheld in court.The CPA should
A)take the client's desired position,but not sign the tax return.
B)inform the client that the position does not have a realistic possibility of success.
C)ask the client to sign a waiver of his right to sue the CPA in the event the IRS disallows the position.
D)take the client's desired position and sign the return as usual.
Q2) Under what circumstances might a tax advisor find the provisions of a tax treaty useful?
Q3) Which of the following statements regarding proposed regulations is not correct?
A)Proposed regulations expire after three years.
B)Practitioners and other interested parties may comment on proposed regulations.
C)Proposed and temporary regulations are generally issued simultaneously.
D)Proposed regulations do not provide any insight into the IRS's interpretation of the tax law.
Q4) What is "forum-shopping"?
Q5) Compare and contrast "interpretative" and "statutory" regulations.
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Chapter 31: Ustaxation 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 U.S.citizen.Joshua owns no Alpha Corporation stock.Is the foreign corporation a controlled foreign corporation (CFC)?
Q2) Under the Subpart F rules,controlled foreign corporations (CFCs)are required to distribute a certain portion of their income as dividends to their U.S.shareholders.
A)True
B)False
Q3) For the foreign credit limitation calculation,income derived from the sale of inventory which is produced by the seller,is considered earned
A)where production occurs.
B)where the sale occurs.
C)where the seller is a resident.
D)partially where produced and partially where sold.
Q4) Nonresident aliens are not allowed to claim the standard deduction.
A)True
B)False
Q5) What is the branch profits tax? Explain the Congressional intent behind its enactment.
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Chapter 32: Corporations
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Q1) Corporations that are members of a parent-subsidiary affiliated group may file a consolidated return if the proper election is made.
A)True
B)False
Q2) Chocolat Inc.is a U.S.chocolate manufacturer.Its domestic production income is $4,000,000.Taxable income before the domestic production deduction is $3,000,000.What is the amount of the production activities deduction?
A)$270,000
B)$360,000
C)$240,000
D)$180,000
Q3) Lafayette Corporation distributes $80,000 in cash along with land having a $40,000 adjusted basis and a $70,000 FMV to its shareholder,Gus.The corporation has accumulated substantial earnings and profits.
a.What are the tax consequences to Lafayette Corporation?
b.What are the tax consequences to the shareholder?
c.What is the shareholder's basis in the land?
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Chapter 33: Partnerships and S Corporations
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Q1) An S corporation recognizes gain or loss if it distributes property other than money to its shareholders.
A)True
B)False
Q2) Pass-through entities are taxed at only one level-the ownership level.
A)True
B)False
Q3) Hunter contributes property having a $75,000 FMV and a $65,000 adjusted basis which is subject to a $36,000 mortgage in exchange for a one-fourth interest in the ABC Partnership.The partnership owes no other debts,but does assume this mortgage.Profits and losses are shared equally and each partner has a one-fourth interest in partnership capital.Hunter's basis in the partnership is
A)$38,000.
B)$48,000.
C)$74,000.
D)$84,000.
Q4) Discuss whether a C corporation,a partnership,or an S corporation form of organization would be preferred if net operating losses are anticipated in the initial years of operation.
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Chapter 34: Taxes and Investment Planning
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Q1) In the Exempt Model,the earnings are exempt from tax until the end of the investment period.
A)True
B)False
Q2) If a fully-taxable bond yields a BTROR of 10% (R<sub>b</sub> = 10%)and a tax-exempt bond of similar risk earns a BTROR of 7.5% (R<sub>f</sub> = 7.5%),then the implicit tax rate is
A)25%.
B)75%.
C)10%.
D)None of the above.
Q3) In the Deferred Model,
A)investment earnings are taxed currently.
B)investment earnings are exempt from explicit taxation.
C)investment earnings are taxed at the end of the investment period.
D)the initial investment is deductible or excludable from gross income,and the investment earnings are taxed at the end of the investment period.
Q4) Discuss the decision rules for current salary versus deferred compensation.
Q5) Compare the characteristics of the Current and Deferred Models.
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