Business Taxation
Final Exam Questions
Course Introduction
Business Taxation explores the principles, laws, and practices governing how businesses are taxed. The course covers topics such as corporate income tax, partnership and sole proprietorship taxation, tax planning and compliance, and the impact of tax regulations on business decisions. Students will gain an understanding of tax structures, reporting requirements, deductions, credits, and current policy issues affecting business entities. The course also emphasizes practical applications, including case studies and the use of tax preparation tools, to prepare students for real-world tax decision-making in a business environment.
Recommended Textbook
South Western Federal Taxation 2013 Corporations Partnerships Estates and Trusts 36th Edition
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Page 2
Chapter 1: Understanding and Working With the Federal Tax Law
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Q1) Near the end of 2011,the national debt per person was approximately:
A)$15,200.
B)$21,700.
C)$32,750.
D)$47,000.
E)$62,800.
Answer: D
Q2) Revenue Procedures are published semiannually in the:
A)Cumulative Bulletin.
B)Federal Revenue Bulletin.
C)Internal Revenue Bulletin.
D)I.R.S.Digest.
E)None of the above.
Answer: A
Q3) A Revenue Ruling is a legislative source of Federal tax law.
A)True
B)False
Answer: False
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Chapter 2: Corporations: Introduction and Operating Rules
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Q1) Black Corporation,an accrual basis taxpayer,was formed and began operations on February 1,2012.During its first year of operations (February 1 - December 31,2012),Black incurred the following expenses: fee paid to state of incorporation of $2,000,accounting and legal services incident to organization of $9,000,and expenses related to the printing and sale of stock certificates of $10,000.Black has $11,000 of qualified organizational expenditures that it may elect to amortize.
A)True
B)False Answer: True
Q2) Because of the taxable income limitation,no dividends received deduction is allowed if a corporation has an NOL for the current taxable year.
A)True
B)False Answer: False
Q3) A corporation with $5 million or more in assets must file Schedule M-3 (instead of Schedule M-1).
A)True
B)False Answer: False
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Page 4
Chapter 3: Corporations: Special Situations
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Q1) Undistributed PHCI = Taxable Income - Adjustments - Dividends paid.
A)True
B)False
Answer: False
Q2) Which statement is false?
A)The stock ownership requirement for the EAG rules is 80%.
B)Members of an EAG are treated as a single taxpayer for purposes of the DPAD.
C)For an EAG,the DPAD is allocated among the members in proportion to each member's respective amount of QPAI.
D)The DPAD of a consolidated group must be allocated to the group's members in proportion to each member's QPAI.
E)None of the above is false.
Answer: A
Q3) What are some of the differences (at least three)between the application of the AMT for individuals and corporations?
Answer: 11ea86f8_672a_2d43_8b27_072ebe0e4de3_TB4128_00
Q4) A sole proprietor shows the DPAD as a deduction for adjusted gross income (DFOR)on Form 1040.
Answer: T RUE
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Chapter 4: Corporations: Organization and Capital Structure
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Q1) In order to encourage the development of an industrial park,a county donates land to Ecru Corporation.The donation does not result in gross income to Ecru.
A)True
B)False
Q2) Wren Corporation (a minority shareholder in Lark Corporation)has made loans to Lark Corporation that become worthless in the current year.
A)Wren Corporation is not permitted a deduction for the loans.
B)The loans result in a nonbusiness bad debt deduction to Wren Corporation.
C)The loans provide Wren Corporation with a business bad debt deduction.
D)Wren claims a capital loss due to the uncollectible loans.
E)None of the above.
Q3) Isabella and Marta form Pine Corporation.Isabella transfers land (basis of $40,000 and fair market value of $180,000)for 50 shares plus $20,000 cash,while Marta transfers $160,000 cash for the other 50 shares in Pine Corporation.Pine Corporation has a basis of $40,000 in the land it receives from Isabella.
A)True
B)False
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Page 6
Chapter 5: Corporations: Earnings Profits and Dividend
Distributions
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Q1) A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation's E & P.
A)True
B)False
Q2) Ashley and Andrew,equal shareholders in Parrot Corporation,receive $250,000 each in distributions on December 31 of the current year.During the current year,Parrot sold an appreciated asset for $500,000 (basis of $150,000).Payment for the sale of the asset will be made as follows: 50% next year and 50% in the following year,with interest payable at a rate of 7.5%.Before considering the effect of the asset sale,Parrot's current year E & P is $400,000 and it has no accumulated E & P.How much of Ashley's distribution will be taxed as a dividend?
A)$0.
B)$200,000.
C)$250,000.
D)$425,000.
E)None of the above.
Q3) Goldfinch Corporation distributes stock rights to its shareholders.How is the basis of the stock rights received by Goldfinch's shareholders determined?
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Chapter 6: Corporations: Redemptions and Liquidations
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Q1) During the current year,Goldfinch Corporation purchased 100% of the stock of Dove Corporation and made a qualified election under § 338.Which of the following statements is incorrect with respect to the § 338 election?
A)Dove is treated as a new corporation as of the day following the qualified stock purchase date.
B)If Dove is liquidated,Goldfinch will have a basis in the assets received equal to Dove's basis in the assets.
C)Goldfinch is treated as having bought all of Dove's assets on the qualified stock purchase date.
D)Dove can recognize gain or loss as a result of the § 338 election.
E)None of the above.
Q2) For purposes of the application of § 304 (redemptions through the use of related corporations),a shareholder must own (directly or indirectly)at least 50% of the stock of two more corporations.
A)True
B)False
Q3) When is a redemption to pay death taxes under § 303 most advantageous?
Q4) Explain the stock attribution rules that apply in the case of stock redemptions.
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Page 8
Chapter 7: Corporations: Reorganizations
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Q1) Which of the following is not a requirement for receiving tax-free treatment for a corporate reorganization?
A)The step transaction doctrine should apply.
B)The continuity of business enterprise test must be met.
C)There must be a sound business purpose for the restructuring.
D)There must be a plan of reorganization.
E)All of the above are requirements.
Q2) The "Type B" reorganization requires a continuity of business interest.Therefore,the acquiring corporation must obtain at least 40% of target corporation's stock through the reorganization.
A)True
B)False
Q3) Corporate shareholders would prefer to have a gain on a reorganization treated as a dividend rather than as a capital gain,because of the dividends received deduction.
A)True
B)False
Q4) A tax avoidance motive is essential in establishing a sound business purpose.
A)True
B)False
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Chapter 8: Consolidated Tax Returns
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Sample Questions
Q1) A Federal consolidated group reports a net operating loss for the year.How is this amount allocated to the various group members? Why is this allocation important?
Q2) How do the members of a consolidated group split among themselves the benefits of the lower tax brackets on the first $75,000 of taxable income?
A)According to their relative net asset holdings.
B)According to an internal tax-sharing agreement.
C)According to an internal tax-sharing agreement,which may be modified by the IRS upon audit.
D)According to a tax-sharing agreement that must be approved by the IRS by the end of the first quarter of the tax year.
Q3) In computing consolidated taxable income,compensation amounts are removed from the taxable incomes of the group members and determined on a group basis.
A)True B)False
Q4) In terms of the consolidated return rules,Telefono Sales of Uruguay is a(n)____________________ entity.
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Page 10
Chapter 9: Taxation of International Transactions
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Sample Questions
Q1) Losses and deductions,similar to income items,can be U.S.- or foreign-source.
A)True
B)False
Q2) WaterCo,a domestic corporation,purchases inventory for resale from unrelated distributors outside the United States and resells this inventory to customers inside the United States with title passing inside the United States.What is the source of WaterCo's inventory sales income?
A)100% U.S.source.
B)100% foreign source.
C)50% U.S.source and 50% foreign source.
D)50% foreign source and 50% sourced based on location of manufacturing assets.
Q3) A "U.S.shareholder" for purposes of CFC classification is any U.S.person who owns directly,indirectly,and constructively at least 50% of the voting power of a foreign corporation.
A)True
B)False
Q4) The United States has in force income tax treaties with about 70 countries.
A)True
B)False
Q5) Discuss the primary purposes of income tax treaties.
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Chapter 10: Partnerships: Formation, operation, and Basis
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Q1) In which of the following independent situations would the transaction most likely be characterized as a disguised sale?
A)Partner George contributes appreciated property to the GMVV Partnership,and three years later GMVV distributes $100,000 proportionately to all the partners.
B)Brianna contributes property with a basis of $20,000 and a fair market value of $50,000 to the BGB Partnership in exchange for a 20% interest therein.The partnership agrees to distribute $20,000 to Brianna in fifteen months,if partnership cash flows from operations exceed $100,000 at that time.The partnership does not expect to produce operating cash flows of over $100,000 for at least five years.
C)Luis contributes appreciated property to the BLP Partnership.Thirty months later,he receives a distribution from the partnership of $15,000 cash.None of the other partners received a distribution.There was no agreement that BLP would make the distribution,and Luis would have made the contribution whether or not the partnership made the distribution.
D)None of the above transactions will be treated as a disguised sale.
E)a. ,b. ,and c.are all treated as disguised sales.
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Chapter 11: Partnerships: Distributions, transfer of Interests, and Terminations
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Q1) Landon received $50,000 cash and a capital asset (basis of $70,000,fair market value of $80,000)in a proportionate liquidating distribution.His basis in his partnership interest was $100,000 prior to the distribution.How much gain or loss does Landon recognize and what is his basis in the asset received?
A)$0 gain or loss;$70,000 basis.
B)$0 gain or loss;$50,000 basis.
C)$20,000 gain;$70,000 basis.
D)$30,000 gain;$70,000 basis.
E)$30,000 gain;$80,000 basis.
Q2) If a partnership incorporates,it is always deemed to first distribute all of its assets and liabilities to the partners in complete liquidation.Then the partners are deemed to contribute those assets to the new corporation (with the corporation assuming the related liabilities)in a transaction that qualifies under § 351.
A)True
B)False
Q3) A property distribution from a partnership to a partner is generally taxable to the partner.
A)True
B)False
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Chapter 12: S: Corporations
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Sample Questions
Q1) Four unrelated individuals acquire assets on behalf of Jump Corporation on May 21,2012,purchased assets on June 5,2012,and begin doing business on June 15,2012.They subscribe to shares of stock,file articles of incorporation for Jump,and become shareholders on July 23,2012.The S election must be filed no later than 2 1/2 months after:
A)May 21,2012.
B)June 5,2012.
C)June 15,2012.
D)July 23,2012.
E)December 31,2012.
Q2) Distribution of appreciated property is taxable to an S corporation.
A)True
B)False
Q3) As a general rule,S corporation treatment is not advantageous when the individual tax rate far exceeds the applicable corporate tax rate.
A)True
B)False
Q4) Realized gain is recognized by an S corporation on its distribution of ____________________ property.
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14
Chapter 13: Comparative Forms of Doing Business
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Q1) After a § 721 contribution by a partner to a partnership,the partner's basis for his or her ownership interest is the same as the basis of the assets contributed (no liabilities are involved).
A)True
B)False
Q2) C corporations and S corporations can generate an AMT adjustment known as Adjusted Current Earnings (ACE).
A)True
B)False
Q3) Barb and Chuck each own one-half the stock of Wren,Inc. ,an S corporation.Each shareholder has a stock basis of $175,000.Wren has no accumulated E & P.Wren's taxable income for the current year is $100,000,and it distributes $75,000 to each shareholder.Barb's stock basis at the end of the year is:
A)$0.
B)$100,000.
C)$150,000.
D)$175,000.
E)None of the above.
Q4) Do the § 465 at-risk rules treat recourse debt and nonrecourse debt differently?
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Chapter 14: Taxes on the Financial Statements
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Sample Questions
Q1) Beach,Inc. ,a domestic corporation,owns 100% of Mountain,Ltd. ,a manufacturing facility in Ireland.Mountain has no operations or activities in the United States.The U.S.tax rate is 35% and the Irish tax rate is 10%.For the current year,Beach earns $500,000 in taxable income.Mountain earns $300,000 in taxable income from its operations,pays $30,000 in taxes to Ireland,and makes no distributions to Beach.What is Beach's effective tax rate for GAAP book purposes,assuming that Beach makes the permanent reinvestment assumption of ASC 740-30 (APB 23)?
A)38.75%.
B)35%.
C)31.25%.
D)25.63%.
Q2) You are the tax adviser to a publicly traded U.S.corporation.How might you use a "benchmarking" analysis to begin your review of the entity's tax situation and planning opportunities?
Q3) How does an auditor determine whether a valuation allowance is needed against an entity's deferred tax asset? List some of the factors than an auditor will consider in this regard.
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Chapter 15: Exempt Entities
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Q1) Define average acquisition indebtedness with respect to debt-financed property.
Q2) Which of the following requirements must be satisfied for a bingo game to be classified as not being an unrelated trade or business?
A)The bingo game is legal under both state and local law.
B)The bingo game is conducted by volunteers.
C)For-profit bingo games ordinarily are not permitted in the jurisdiction.
D)Only a.and b.must be satisfied.
E)Only a.and c.must be satisfied.
Q3) Which exempt organizations are not required to file an annual Federal tax return?
Q4) Which of the following are consequences of tax-exempt status?
A)Not necessary to file a Federal income tax return.
B)Generally exempt from Federal income tax.
C)Contributions to the exempt organization are deductible by the donor.
D)Only b.and c.
E)a. ,b. ,and c.
Q5) Define "trade or business" for purposes of the unrelated business income tax (UBIT).
Q6) If an exempt organization is required to file an annual information return,on what form is it filed?
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Chapter 16: Multistate Corporate Taxation
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Q1) Flint Corporation is subject to a corporate income tax only in State X.The starting point in computing X taxable income is Federal taxable income.Flint's Federal taxable income is $750,000,which includes a $50,000 deduction for state income taxes.During the year,Flint received $10,000 interest on Federal obligations.X tax law does not allow a deduction for state income tax payments. Flint's taxable income for X purposes is:
A)$810,000.
B)$800,000.
C)$790,000.
D)$750,000.
Q2) The property factor includes business assets that the taxpayer owns,but also those merely used under a lease agreement.
A)True
B)False
Q3) Bobby and Sally work for the same employer,Wooster Manufacturing.Bobby manages the company's speculative investment portfolio,and Sally is a foreman in the factory.How are the salaries paid to Bobby and Sally treated in computing Wooster's payroll factor? Apply the general UDITPA rules.
Q4) An ad valorem property tax is based on the asset's current
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Chapter 17: Tax Practice and Ethics
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Q1) The Treasury issues "private letter rulings" and other determinations,usually in response to a taxpayer request.What is the purpose of the rulings program? Answer from both the taxpayer and the government points of view.
Q2) Quon filed an amended return,claiming a $100,000 refund.The IRS disallowed the refund,and it can assess a penalty if there was no reasonable basis of support for the refund claim,in the amount of ____________________% of the disallowed amount. or
Q3) The tax ____________________ workpapers are not privileged communications that can be kept confidential from an IRS subpoena.
Q4) Currently,the IRS charges a ____________________% interest rate on taxes that the taxpayer underpays. or
Q5) In the context of civil tax fraud,the burden of proof is on the IRS to show by a "preponderance of the evidence" that the taxpayer had a specific intent to evade a tax. A)True B)False
Q6) To file for a tax refund,an individual generally uses Form
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Chapter 18: The Federal Gift and Estate Taxes
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Q1) Harry and Brenda are husband and wife.Using her funds,Brenda purchases real estate which she lists as: "Harry and Brenda,tenants by the entirety with right of survivorship." If Brenda dies first,all of the value of the real estate will be included in her gross estate.
A)True
B)False
Q2) If a donor has a fiscal year of July 1-June 30 for income tax purposes,this does not change the normal filing date for Form 709.
A)True
B)False
Q3) At the time of Dylan's death,he was a resident of Newark.He owns land located in a foreign country,which is subject to that country's death tax.This same land also can be subject to the Federal estate tax.
A)True
B)False
Q4) Transfers to political organizations are exempt from the application of the Federal gift tax.
A)True
B)False
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Chapter 19: Family Tax Planning
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Q1) How could the election of the alternate valuation date (§ 2032)increase a decedent's charitable deduction?
Q2) Which of the following procedures carried out will reduce both Mary's future gross estate and her probate estate?
A)Mary issues a timely disclaimer as to real estate that is willed to her by her grandfather.
B)Mary creates a revocable trust naming her children as the beneficiaries.
C)One year before her death,Mary gives an insurance policy on her life to her son,the designated beneficiary.
D)Mary purchases real estate as joint tenants with her sister.Mary predeceases her sister.
E)None of the above.
Q3) One of the objectives of family tax planning is to minimize income taxes on transfers of property within the family unit.
A)True
B)False
Q4) What is the major disadvantage of an estate freeze using common and preferred stock in a corporation? Major advantage?
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Chapter 20: Income Taxation of Trusts and Estates
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Q1) The Whitmer Trust operates a manufacturing business.When Whitmer incurs a net operating loss,the current-year deduction passes through to the income beneficiaries.
A)True
B)False
Q2) Three months after Brianna Timkin died,her executor received the final $40,000 installment from a sale of land that Brianna completed several years ago.Which of the following statements is true?
A)The $40,000 is both included in Brianna's gross estate,and subject to tax on her estate's income tax return.
B)The $40,000 is subject to neither income nor estate tax,because it was received after Brianna's death.
C)The $40,000 is subject to tax only on her estate's income tax return.
D)The $40,000 is included only in Brianna's gross estate.
Q3) Winston is classified as a grantor trust,because Harry,the donor,can revoke the trust.Consequently,Winston need not file an annual Form 1041,and Harry reports the trust items on his own Form 1040.
A)True
B)False
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