Business Tax Planning
Study Guide Questions
Course Introduction
Business Tax Planning provides students with a comprehensive understanding of the strategies and principles involved in minimizing tax liabilities for businesses while ensuring compliance with current tax laws and regulations. The course covers key topics such as tax structures for different business entities, income recognition, deductions, credits, tax planning for mergers and acquisitions, and international tax considerations. Through case studies and practical examples, students learn to apply tax planning techniques in real-world scenarios, develop effective tax strategies, and keep abreast of legislative changes that impact business taxation. The course equips future professionals with the knowledge and skills necessary to make informed tax-related decisions for businesses in a dynamic economic environment.
Recommended Textbook
McGraw Hills Taxation of Business Entities 2018 9th Edition by Brian C. Spilker
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14 Chapters
1506 Verified Questions
1506 Flashcards
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Page 2
Chapter 1: Business Income,Deductions,and Accounting Methods
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99 Verified Questions
99 Flashcards
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Sample Questions
Q1) Ronald is a cash method taxpayer who made the following expenditures this year.Which expenditure is completely deductible in this period as a business expense?
A) $4,000 for rent on his office that covers the next 24 months.
B) $3,000 for a new watch for the mayor to keep "good relations" with city hall.
C) $2,500 for professional hockey tickets distributed to a customer to generate "goodwill" for his business.
D) $55 to collect an account receivable from a customer who has failed to pay for services rendered.
E) None of the choices are completely deductible. Answer: D
Q2) Employees cannot deduct the cost of uniforms if the uniforms are also appropriate for normal wear.
A)True
B)False Answer: True
Q3) A fiscal tax year can end on the last day of any month other than December.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Property Acquisition and Cost Recovery
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107 Flashcards
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Sample Questions
Q1) Which of the following would be considered an improvement rather than a routine maintenance?
A) Oil change
B) Engine overhaul
C) Wiper blade replacement
D) Air filter change
Answer: B
Q2) Jasmine started a new business in the current year.She incurred $10,000 of start-up costs.How much of the start-up costs can be immediately expensed (excluding amounts amortized over 180 months)for the year?
A) $0
B) $2,500
C) $5,000
D) $10,000
E) None of the choices are correct.
Answer: C
Q3) All assets subject to amortization have the same recovery period.
A)True
B)False
Answer: False
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Chapter 3: Property Dispositions
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110 Flashcards
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Sample Questions
Q1) The sale of land held for investment results in the following type of gain or loss?
A) Capital.
B) Ordinary.
C) §1231.
D) §1245.
E) None of the choices are correct.
Answer: A
Q2) Boot is not like-kind property involved in a like-kind exchange.
A)True
B)False
Answer: True
Q3) Alexandra sold equipment that she uses in her business for $100,000.Alexandra bought the equipment two years ago for $90,000 and has claimed $25,000 of depreciation expense.What is the amount and character of Alexandra's gain or loss?
Answer: $25,000 ordinary gain,and $10,000 §1231 gain.
§1245 recaptures the lesser of depreciation taken ($25,000)or recognized gain ($35,000)as ordinary income.The remaining $10,000 gain would be §1231 gain.
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Page 5
Chapter 4: Entities Overview
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70 Flashcards
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Sample Questions
Q1) S corporation shareholders are legally responsible for paying the S corporation's debts because S corporations are treated as flow-through entities for tax purposes.
A)True
B)False
Q2) If individual taxpayers are the shareholders of PST Corporation and PST corporation is a shareholder of MNO Corporation,how many levels of tax is MNO's pre-tax income potentially exposed to?
A) No taxation.
B) Single taxation.
C) Double taxation.
D) Triple taxation.
Q3) An unincorporated entity with more than one owner is,by default,taxed as a partnership.
A)True
B)False
Q4) C corporations and S corporations are separate taxpaying entities that pay tax on their own income.
A)True B)False
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Chapter 5: Corporate Operations
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) Together,Kurt and Esmeralda own 60% of three corporations: RAZ,DVA,and TRE.The three corporations would be considered as what kind of controlled group for tax purposes?
A) Parent-subsidiary.
B) Brother-sister.
C) Combined.
D) The three corporations would not be considered to be a controlled group for tax purposes.
Q2) Corporations have a larger standard deduction than individual taxpayers because they generally have higher revenues.
A)True
B)False
Q3) Although a corporation may report a temporary book-tax difference for an item of income or deduction for a given year,over the long term the total amount of income or deduction it reports with respect to that item will be the same for both book and tax purposes.
A)True
B)False
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Chapter 6: Accounting for Income Taxes
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100 Verified Questions
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Sample
Questions
Q1) Smith Company reported pretax book income of $400,000.Included in the computation were favorable temporary differences of $50,000,unfavorable temporary differences of $20,000,and favorable permanent differences of $40,000.Using a tax rate of 34%,Smith's deferred income tax expense or benefit would be:
A) Net deferred tax expense of $10,200.
B) Net deferred tax benefit of $10,200.
C) Net deferred tax expense of $23,800.
D) Net deferred tax benefit of $23,800.
Q2) Tax-exempt interest from municipal bonds is an example of a permanent book to tax difference.
A)True
B)False
Q3) Stone Corporation reported pretax book income of $1,000,000 in 2017.Tax depreciation exceeded book depreciation by $300,000.In addition,the reserve for bad debts decreased by $50,000.Stone had a net deferred tax asset of $29,000 at the beginning of the year,representing a net deductible temporary difference of $100,000.During the year,the company's tax rate increased from 29% to 30%.Compute the Company's current and deferred income tax expense or benefit for 2017.
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Chapter 7: Corporate Taxation: Nonliquidating Distributions
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Sample Questions
Q1) A calendar-year corporation has positive current E&P of $500 and accumulated negative E&P of $1,200.The corporation makes a $400 distribution to its sole shareholder.Which of the following statements is true?
A) The distribution will not be a dividend because total earnings and profits is a negative $700.
B) The distribution may be a dividend, depending on whether total earnings and profits at the date of the distribution is positive.
C) The distribution will be a dividend because current earnings and profits are positive and exceed the distribution.
D) A distribution from a corporation to a shareholder is always a dividend, regardless of the balance in earnings and profits.
Q2) Compensation paid to a shareholder and subsequently recharacterized by the IRS as a dividend because it was considered "unreasonable" will affect only the income tax liability of the corporation paying the compensation and the receiving shareholder. A)True
B)False
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Chapter 8: Corporate Formation, Neorganization, and Liquidation
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Sample Questions
Q1) Sybil transfers property with a tax basis of $5,000 and a fair market value of $6,000 to a corporation in exchange for stock with a fair market value of $3,000 and $2,000 in cash in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $1,000 on the property transferred.What is Sybil's tax basis in the stock received in the exchange?
A) $6,000.
B) $5,000.
C) $4,000.
D) $3,000.
Q2) In December 2017,Jill incurred a $50,000 loss on the sale of Crown Corporation stock that she purchased in 2010.The stock satisfied all of the §1244 stock requirements at the time of issue.Jill is married to Jack and together they file a joint tax return.How much of the loss can Jack and Jill deduct in 2017,assuming they do not have capital gains in the current or prior years,and what is the character of the loss?
Q3) A taxpayer must receive voting common stock to be eligible for deferral in a section 351 exchange.
A)True
B)False
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Chapter 9: Forming and Operating Partnerships
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Sample Questions
Q1) Tax elections are rarely made at the partnership level.
A)True
B)False
Q2) Guaranteed payments are included in the calculation of a partnership's ordinary business income (loss)and are also treated as separately-stated items.
A)True
B)False
Q3) The character of each separately-stated item is determined at the partner level.
A)True
B)False
Q4) What is the difference between a partner's tax basis and at-risk amount?
Q5) Adjustments to a partner's outside basis are made annually to prevent double taxation on the sale of a partnership interest or at the time of a partnership distribution.
A)True
B)False
Q6) Explain why partners must increase their tax basis for their share of partnership taxable and nontaxable income or gain and reduce their basis by their share of partnership deductible and nondeductible expenses or losses?
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Chapter 10: Dispositions of Partnership Interests and Partnership Distributions
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Sample Questions
Q1) Randolph is a 30% partner in the RD Partnership.On January 1,RD distributes $15,000 cash and inventory with a fair value of $20,000 (inside basis of $10,000)to Randolph in complete liquidation of his interest.RD has no liabilities at the date of the distribution.Randolph's basis in RD is $27,000.What is the amount and character of Randolph's gain or loss on the distribution?
A) $0 gain or loss.
B) $8,000 capital gain.
C) $8,000 capital loss.
D) $2,000 capital loss.
Q2) Daniel acquires a 30% interest in the PPZ Partnership from Paolo,an existing partner for $39,000 of cash.The PPZ Partnership has borrowed $10,000 of recourse liabilities as of the date Daniel bought the interest.What is Daniel's basis in his partnership interest?
A) $39,000.
B) $42,000.
C) $46,000.
D) $49,000.
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Page 12
Chapter 11: S Corporations
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134 Flashcards
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Sample Questions
Q1) Which of the following is the correct order in which loss limitation rules are applied?
A) basis rules 1<sup>st</sup>, at-risk rules 2<sup>nd</sup>, passive loss rules 3<sup>rd</sup>.
B) passive loss rules 1<sup>st</sup>, at-risk rules 2<sup>nd</sup>, basis rules 3<sup>rd</sup>.
C) basis rules 1<sup>st</sup>, passive loss rules 2<sup>nd</sup>, at-risk rules 3<sup>rd</sup>.
D) passive loss rules 1<sup>st</sup>, basis rules 2<sup>nd</sup>, at-risk rules 3<sup>rd</sup>.
E) None of the choices are correct.
Q2) The built-in gains tax does not apply to S corporations that never operated as C corporations.
A)True
B)False
Q3) Like partnerships and C corporations,S corporations face the same restrictions on using the cash method of accounting.
A)True
B)False
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Chapter 12: State and Local Taxes
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Sample Questions
Q1) In Complete Auto Transit the court determined eight criteria for determining whether a state can tax a nondomiciliary company.
A)True
B)False
Q2) Businesses must collect sales tax only in states where it has sales and use tax nexus.
A)True
B)False
Q3) Which of the following statements regarding income tax commercial domicile is incorrect?
A) The location where a business is headquartered.
B) The location where a business is incorporated.
C) The location from which a business directs its operations.
D) None of the choices are correct.
Q4) The annual value of rented property is not included in the property factor.
A)True
B)False
Q5) List the steps necessary to determine an interstate business's state income tax liability.
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Page 14
Chapter 13: The Ustaxation of Multinational Transactions
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Sample Questions
Q1) Spartan Corporation,a U.S.company,manufactures widgets for sale in the United States and Europe.All manufacturing activities take place in the United States.During the current year,Spartan sold 100,000 widgets to European customers at a price of $5 each.Each widget costs $2 to produce.All of Spartan's production assets are located in the United States.For each independent scenario,determine the source of the gross profit from sale of the widgets using the 50/50 method.
A.Spartan ships its widgets F.O.B.,place of destination.
B.Spartan ships its widgets F.O.B.,place of shipment.
Q2) Before subpart F applies,a foreign corporation must be a CFC for how many consecutive days?
A) 1.
B) 30.
C) 183.
D) 365.
Q3) Once a U.S.corporation chooses a method to allocate interest expense,either fair market value or tax book value,that election cannot be changed without the permission of the commissioner of the Internal Revenue Service.
A)True
B)False
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Page 15
Chapter 14: Transfer Taxes and Wealth Planning
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Sample Questions
Q1) Which of the following is a true statement?
A) A fiduciary entity is a legal entity that takes possession of property for the benefit of a person.
B) An estate is a fiduciary that comes into existence upon a person's death to transfer the decedent's real and personal property.
C) A trust is also a fiduciary whose purpose is to hold and administer the corpus for other persons (beneficiaries).
D) An estate exists only temporarily, but a trust may have a prolonged or even indefinite existence.
E) All of the choices are true.
Q2) Adjusted taxable gifts are added to the taxable estate to accomplish which of the following objectives?
A) Prevent double taxation of previously taxed gifts.
B) Increase the marginal tax rate on previously taxed gifts.
C) Increase the marginal tax rate on the taxable estate.
D) Remove intervivos transfers from cumulative taxable transfers.
E) None of the choices are correct.
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