Corporate Taxation
Chapter Exam Questions
Course Introduction
Corporate Taxation explores the federal tax laws that apply to corporations and their shareholders, focusing on the formation, operation, and dissolution of corporate entities. The course examines tax consequences of corporate transactions such as formations, distributions, redemptions, liquidations, mergers, and acquisitions, with attention to both Subchapter C (regular corporations) and Subchapter S (S corporations) provisions of the Internal Revenue Code. Through case studies and problem-solving exercises, students learn to identify tax planning opportunities, recognize potential pitfalls, and understand the policy considerations underlying corporate tax rules. The course provides a foundation for advanced study in tax law and prepares students for practical applications in the business and legal professions.
Recommended Textbook
South Western Federal Taxation 2018 Comprehensive 41st Edition by William H. Hoffman
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Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Q1) Under the usual state inheritance tax,two heirs,a cousin and a son of the deceased,would not be taxed at the same rate.
A)True
B)False
Answer: True
Q2) "Pay-as-you-go" (paygo)
Answer: g
Q3) If more IRS audits are producing a greater number of no change results,this indicates increased compliance on the part of taxpayers.
A)True
B)False
Answer: False
Q4) A Federal excise tax is no longer imposed on admission to theaters.
A)True
B)False
Answer: True
Q5) More than 25% gross income omission and statute of limitations
Answer: h
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Chapter 2: Working With the Tax Law
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Q1) Which publisher offers the United States Tax Reporter?
A)Research Institute of America (Thomson Reuters)
B)Commerce Clearing House
C)LexisNexis
D)Tax Analysts
E)None of these
Answer: A
Q2) The IRS issues an acquiescence or nonacquiescence only for regular Tax Court decisions.
A)True
B)False
Answer: False
Q3) In addressing the importance of a Regulation,an IRS agent must:
A)Give equal weight to the Internal Revenue Code and the Regulations.
B)Give more weight to the Internal Revenue Code rather than to a Regulation.
C)Give more weight to the Regulation rather than to the Internal Revenue Code.
D)Give less weight to the Internal Revenue Code rather than to a Regulation.
E)None of these.
Answer: A
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Page 4
Chapter 3: Computing the Tax
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Q1) Using borrowed funds from a mortgage on her home,Leah provides 52% of her own support,while her sons furnished the rest.Leah can be claimed as a dependent under a multiple support agreement.
A)True
B)False Answer: False
Q2) A dependent cannot claim a personal exemption on his or her own return.
A)True
B)False
Answer: True
Q3) Once they reach age 65,many taxpayers will switch from itemizing their deductions from AGI and start claiming the standard deduction.
A)True
B)False
Answer: True
Q4) Stealth taxes are directed at lower income taxpayers.
A)True
B)False Answer: False
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Chapter 4: Gross Income: Concepts and Inclusions
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Q1) Mark a calendar year taxpayer,purchased an annuity for $50,000 in 2015.The annuity was to pay him $3,000 on the first day of each year,beginning in 2015,for the remainder of his life.Mark's life expectancy at the time he purchased the annuity was 20 years.In 2017 Mark developed a deadly disease,and doctors estimated that he would live for no more than 24 months.
A)If Mark dies in 2018, a loss can be claimed on his final return for his unrecovered cost of the annuity.
B)If Mark dies in 2018, his returns for the two previous years can be amended to allocate the entire cost of the annuity to the years in which he received payments and reported gross income.
C)If Mark is still alive at the end of 2017, he is not required to recognize any gross income because of his terminal illness.
D)If Mark is still alive in 2037, his recovery of capital for that year is $500.
E)None of these.
Q2) The financial accounting principle of conservatism is not well-suited to the task of measuring taxable income.
A)True
B)False
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Chapter 5: Gross Income: Exclusions
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Q1) Agnes receives a $5,000 scholarship which covers her tuition at Parochial High School.She may not exclude the $5,000 because the exclusion applies only to scholarships to attend college.
A)True
B)False
Q2) Matilda works for a company with 1,000 employees.The company has a hospitalization insurance plan that covers all employees.However,the employee must pay the first $3,000 of his or her medical expenses each year.Each year,the employer contributes $1,500 to each employee's health savings account (HSA).Matilda's employer made the contributions in 2016 and 2017,and the account earned $100 interest in 2017.At the end of 2017,Matilda withdrew $3,100 from the account to pay the deductible portion of her medical expenses for the year and other medical expenses not covered by the hospitalization insurance policy.As a result,Matilda must include in her 2017 gross income:
A)$0.
B)$100.
C)$1,600.
D)$3,100.
E)None of these.
Q3) What Federal income tax benefits are provided for college students?
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Chapter 6: Deductions and Losses: in General
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Q1) Abner contributes $2,000 to the campaign of the Tea Party candidate for governor,$1,000 to the campaign of the Tea Party candidate for senator,and $500 to the campaign of the Tea Party candidate for mayor.Can Abner deduct these political contributions?
Q2) If a vacation home is rented for less than 15 days during a year,the only expenses that can be deducted are mortgage interest,property taxes,and personal casualty losses.
A)True
B)False
Q3) Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?
Q4) Which of the following is incorrect?
A)Alimony is a deduction for AGI.
B)The expenses associated with royalty property are a deduction from AGI.
C)Contributions to a traditional IRA are a deduction for AGI.
D)Property taxes on taxpayer's personal residence are a deduction from AGI
E)All of the above are correct.
Q5) Can a trade or business expense be deductible if it is necessary but not ordinary?
Q6) Are all personal expenses disallowed as deductions?
Page 8
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Q1) Jim had a car accident in 2017 in which his car was completely destroyed.At the time of the accident,the car had a fair market value of $30,000 and an adjusted basis of $40,000.Jim used the car 100% of the time for business use.Jim received an insurance recovery of 70% of the value of the car at the time of the accident.If Jim's AGI for the year is $60,000,determine his deductible loss on the car.
A)$900
B)$2,900
C)$3,000
D)$9,000
E)None of the above
Q2) If qualified production activities income (QPAI) cannot be used in the calculation of the domestic production activities deduction because of the taxable income limitation,the product of the amount not allowed multiplied by the DPAD percentage rate (currently 9%) can be carried over for 5 years.
A)True
B)False
Q3) A loss from a worthless security is always treated as a short-term capital loss.
A)True
B)False
Page 9
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Chapter 8: Depreciation, cost Recovery, amortization, and Depletion
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Q1) On April 5,2017,Orange Corporation purchased,and placed in service,seven-year class assets costing $540,000 and five-year class assets costing $140,000.Orange elects to expense the maximum amount under § 179.Orange does not take additional first-year depreciation.Assume taxable income is not a limitation.Determine Orange Corporation's cost recovery with respect to the assets for 2017.
Q2) The maximum cost recovery method for all personal property under MACRS is 150% declining balance.
A)True
B)False
Q3) All personal property placed in service in 2017 and used in a trade or business qualifies for additional first-year depreciation.
A)True B)False
Q4) Discuss the requirements in order for startup expenditures to be amortized under § 195.
Q5) Discuss the reason for the inclusion amount with respect to leased automobiles.
Q6) Discuss the difference between the half-year convention and the mid-quarter convention.
Page 10
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Q1) Which,if any,of the following is subject to a cutback adjustment?
A)An airline pilot for an executive jet rental company who pays his own travel expenses.
B)Meals provided at cost to employees by a cafeteria funded by the employer.
C)Fourth of July company picnic for employees.
D)A trip to Bermuda awarded to the company's top salesperson.
E)None of these.
Q2) On their birthdays,Lily sends gift certificates (each valued at $25) to Caden (a key client) and to each of Caden's two minor children.Lily can deduct only $25 as to these gifts.
A)True
B)False
Q3) Sue has unreimbursed expenses.
Q4) Ethan,a bachelor with no immediate family,uses the Pine Shadows Country Club exclusively for his business entertaining.All of Ethan's annual dues for his club membership are deductible.
A)True
B)False
Q5) Sue was trained by Lynn.
Q6) Nondeductible moving expense
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Q1) During the year,Eve (a resident of Billings,Montana) spends three consecutive weeks in Louisville,Kentucky.One week is spent representing the Billings First Christian Church at the national convention,and two weeks are spent vacationing with relatives.One third of Eve's travel expenses will qualify as a charitable deduction.
A)True
B)False
Q2) Adrienne sustained serious facial injuries in a motorcycle accident.To restore her physical appearance,Adrienne had cosmetic surgery.She cannot deduct the cost of this procedure as a medical expense.
A)True
B)False
Q3) Charitable contributions that exceed the percentage limitations for the current year can be carried over for up to three years.
A)True
B)False
Q4) Linda borrowed $60,000 from her parents for a down payment on a condominium.She paid interest of $5,500 in 2015,$0 in 2016,and $9,000 in 2017.The IRS disallowed the deduction.Can you offer any explanation for the disallowance?
Page 12
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Chapter 11: Investor Losses
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Q1) Caroyl made a gift to Tim of a passive activity (adjusted basis of $50,000,suspended losses of $20,000,and a fair market value of $80,000).No gift tax resulted from the transfer.
A)Tim's adjusted basis is $80,000, and Tim can deduct the $20,000 of suspended losses in the future.
B)Tim's adjusted basis is $80,000.
C)Tim's adjusted basis is $50,000, and the suspended losses are lost.
D)Tim's adjusted basis is $50,000, and Tim can deduct the $20,000 of suspended losses in the future.
E)None of the above.
Q2) In the current year,Lucile,who has AGI of $70,000 before considering rental activities,is active in three separate real estate rental activities and is in the 28% tax bracket.She had $15,000 of losses from Activity A,$25,000 of losses from Activity B,and income of $20,000 from Activity C.She also had $3,100 of tax credits from Activity A.Calculate her deductions and credits currently allowed and the suspended losses and credits.
Q3) Describe the general rules that limit the deduction of investment interest expense.
Q4) Significant participation activity.
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Chapter 12: Tax Credits and Payments
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Q1) Refundable tax credits include the:
A)Foreign tax credit.
B)Tax credit for rehabilitation expenses.
C)Credit for certain retirement plan contributions.
D)Earned income credit.
E)None of the above.
Q2) If the cost of a building constructed and placed into service by an eligible small business in the current year includes the cost of a wheelchair ramp,the cost of the ramp qualifies for the disabled access credit.
A)True
B)False
Q3) The education tax credits (i.e.,the American Opportunity credit and the lifetime learning credit) are available to help defray the cost of higher education regardless of the income level of the taxpayer.
A)True
B)False
Q4) Explain the purpose of the disabled access credit and describe the general characteristics of its computation.
Q5) Describe the withholding requirements applicable to employers.
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Chapter 13: Property Transactions: Determination of Gain or
Loss, basis Considerations, and Nontaxable Exchanges
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Q1) Pedro borrowed $250,000 to purchase a machine costing $300,000.He later borrowed an additional $25,000 using the machine as collateral.Both notes are nonrecourse.Eight years later,the machine has an adjusted basis of zero and two outstanding note balances of $145,000 and $18,000.Pedro sells the machine subject to the two liabilities for $45,000.What is his realized gain or loss?
A)$0
B)$45,000
C)$163,000
D)$208,000
E)None of the above
Q2) What types of exchanges of insurance contracts are eligible for nonrecognition treatment under § 1035?
Q3) At a particular point in time,a taxpayer can have two principal residences for § 121 exclusion purposes.
A)True
B)False
Q4) Discuss the treatment of realized gains from involuntary conversions.
Q5) What effect does a deductible casualty loss have on the adjusted basis of property?
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Chapter 14: Property Transactions, capital Gains and
Losses, sec1231, and Recapture Provisions
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Q1) A business taxpayer sells depreciable business property with an adjusted basis of $40,000 for $32,000.The taxpayer held the property for more than a year.The taxpayer has an $8,000 capital loss.
A)True
B)False
Q2) Lease cancellation payments received by a lessor are always ordinary income because they are considered to be in lieu of rental payments.
A)True
B)False
Q3) Which of the following would be included in the netting of § 1231 gains and losses?
A)Personal use property net casualty gain.
B)Section 1231 loss.
C)Section 1231 gain.
D)All of the above.
E)b.and c.
Q4) Depreciable personal property was sold at a gain in 2016.On what 2016 form would this transaction be reported,where initially in that form,and what will the form most likely do with the gain?
Page 16
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Chapter 15: Alternative Minimum Tax
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Q1) The deduction for charitable contributions in calculating the regular income tax can differ from that in calculating the AMT,because the percentage limitations (20%,30%,and 50%) may be applied to a different base amount.
A)True
B)False
Q2) Negative AMT adjustments for the current year caused by timing differences are offset by the positive AMT adjustments in prior tax years also caused by timing differences.
A)True
B)False
Q3) Interest income on private activity bonds issued before 2009 and after 2010,reduced by expenses incurred in carrying the bonds,is a preference item that is included in computing AMTI.
A)True
B)False
Q4) Since most tax preferences are merely timing differences,they eventually will reverse and net to zero.
A)True
B)False
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Chapter 16: Accounting Periods and Methods
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Q1) Charlotte sold her unincorporated business for $600,000 in 2017.The sales contract allocated $120,000 to equipment,$300,000 to land,and $180,000 to goodwill.Charlotte had a $0 basis in the goodwill,the land cost $150,000,and the equipment originally cost $250,000 but it was fully depreciated.What is the amount of the gain eligible for installment sales treatment?
A)$0
B)$330,000
C)$450,000
D)$600,000
E)None of the above
Q2) A cash basis taxpayer sold investment land in 2017 for $200,000.He received $40,000 in the year of sale and $160,000 in 2018.The cost of the land was $80,000.Under the installment method,the taxpayer would report a $24,000 gain in 2017.
A)True
B)False
Q3) A C corporation's selection of a tax year,generally,is independent of the tax year of its principal shareholders.
A)True
B)False
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Chapter 17: Corporations: Introduction and Operating Rules
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Q1) Grackle Corporation,a personal service corporation,had $230,000 of net active income,$40,000 of portfolio income,and a $250,000 passive activity loss during the year.How much is Grackle's taxable income?
A)$20,000
B)$40,000
C)$270,000
D)$520,000
E)None of the above
Q2) Income that is included in net income per books but not included in taxable income is a subtraction item on Schedule M-1.
A)True
B)False
Q3) A corporation must file a Federal income tax return even if it has no taxable income for the year.
A)True
B)False
Q4) Briefly describe the charitable contribution deduction rules applicable to C corporations.
Q5) Briefly discuss the requirements for the dividends received deduction.
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Chapter 18: Corporations: Organization and Capital Structure
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Q1) If a shareholder owns stock received as a gift from her mother,it cannot be § 1244 stock.
A)True
B)False
Q2) Perry organized Cardinal Corporation 10 years ago by contributing property worth $2 million (basis of $450,000) for 2,500 shares of stock in Cardinal,representing 100% of the stock in the corporation.Perry later gave each of his children,Brittany and Julie,750 shares of stock in Cardinal Corporation.In the current year,Perry transfers property worth $600,000 (basis of $150,000) to Cardinal for 1,000 shares in the corporation.What gain,if any,will Perry recognize on the transfer?
Q3) Tan Corporation desires to set up a manufacturing facility in the western part of the United States.After considerable negotiations with Butte,Montana,Tan accepts the following offer: land (fair market value of $4.5 million) and cash of $1.5 million.
a.How much income, if any, must Tan recognize?
b.What basis will Tan Corporation have in the land?
c.Within one year of the contribution, Tan purchases equipment for $1.6 million. What basis will Tan have in the equipment?
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Chapter 19: Corporations: Distributions Not in Complete
Liquidation
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Q1) Regardless of any deficit in current E & P,distributions during the year are taxed as dividends to the extent of accumulated E & P.
A)True
B)False
Q2) Pheasant Corporation,a calendar year taxpayer,has $400,000 of current E & P and a deficit in accumulated E & P of $180,000.If Pheasant pays a $600,000 distribution to its shareholders on July 1,how much dividend income do the shareholders report?
A)$0
B)$20,000
C)$220,000
D)$400,000
E)None of the above
Q3) Briefly describe the reason a corporation might distribute a property dividend to a shareholder in lieu of a cash distribution.Describe the tax effects of the property distribution on the shareholder and on the corporation.
Q4) Charitable contribution carryforward deducted in the current year.
Q5) Intangible drilling costs deducted currently.
Q6) Excess capital loss in year incurred.
Page 21
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganization
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Q1) The built-in loss limitation in a complete liquidation does not apply to losses attributable to a decline in a property's fair market value after its transfer to the corporation.
A)True
B)False
Q2) For corporate restructurings,meeting the § 368 reorganization "Type" requirements is all that needs to be considered when planning the structure of the transaction.
A)True
B)False
Q3) Section 332 can apply to a parent-subsidiary liquidation even if the subsidiary corporation is insolvent on the date of the liquidation.
A)True
B)False
Q4) Compare the sale of a corporation's assets with a sale of its stock from the perspective of the seller.
Q5) Discuss the role of letter rulings in corporate reorganizations.
Q6) Explain why the antistuffing rules were enacted to limit the deductibility of losses realized by a corporation upon liquidation.
Page 22
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Chapter 21: Partnerships
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Q1) The sum of the partners' ending basis amounts on all Schedules K-1 equals the partners' ending capital account balance shown on the partnership's Schedule L.
A)True
B)False
Q2) Kristie is a 30% partner in the KKM Partnership.During the current year,KKM reported gross receipts of $280,000 and a charitable contribution of $30,000.The partnership paid office expenses of $80,000.In addition,KKM distributed $20,000 each to partners Kaylyn and Megan,and the partnership paid partner Kaylyn $20,000 for administrative services.Kristie reports the following income from KKM during the current tax year:
A)$54,000 ordinary income; $9,000 charitable contribution.
B)$60,000 ordinary income; $9,000 charitable contribution.
C)$36,000 ordinary income.
D)$54,000 ordinary income.
Q3) The taxable income of a partnership flows through to the partners,who report the income on their tax returns.
A)True
B)False
Q4) Entity concept
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Chapter 22: S Corporations
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Q1) Post-termination distributions that are charged against OAA are received tax-free.
A)True
B)False
Q2) Which statement is incorrect with respect to filing an S election?
A)Form 2553 must be filed.
B)All shareholders must consent.
C)The election may be filed in the previous year.
D)An extension of time is available for filing Form 2553.
E)None of the above is incorrect.
Q3) Tax-exempt income is not separately stated on Schedule K of Form 1120S.
A)True
B)False
Q4) Any distribution of cash or property by a corporation that does not exceed the balance of AAA with respect to S stock during a post-termination transition period of approximately one year is applied against and reduces the basis of the S stock.
A)True
B)False
Q5) Explain the OAA concept.
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Chapter 23: Exempt Entities
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Q1) Teal,Inc.,is a private foundation which failed to distribute an adequate amount of income for the exempt purpose of Teal.Which of the following statements is correct?
A)An excise tax in the form of an initial tax at the rate of 10% may be imposed on Teal.
B)An excise tax in the form of an initial tax at the rate of 5% may be imposed on the foundation manager.
C)An excise tax in the form of an additional tax at the rate of 100% may be imposed on Teal.
D)An excise tax in the form of an additional tax at the rate of 50% may be imposed on the foundation manager.
Q2) To satisfy the "not for profit" requirement for exempt status,the entity may not be engaged in a trade or business.
A)True
B)False
Q3) Form 990-PF
Q4) Are organizations that qualify for exempt organization status completely exempt from Federal income taxation?
Q5) Not an exempt organization
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Chapter 24: Multistate Corporate Taxation
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Q1) In most states,a consolidated corporate income tax return:
A)Is filed by a unitary group.
B)Is required by most of the states.
C)Both a.and b.
D)Neither a.nor b.
Q2) In determining state taxable income,all of the following are adjustments to Federal income except:
A)Federal net operating loss.
B)State income tax expense.
C)Fringe benefits paid to officers and executives.
D)Dividends received from other U.S. corporations.
Q3) ____________________ describe(s) the degree of business activity that must be present before a taxing jurisdiction has the right to impose a tax on an out-of-state entity's income.
Q4) For sales/use tax purposes,nexus usually requires that:
A)The seller has customers in the state.
B)The seller has a physical presence in the state.
C)The customer use the property in the state in which the sale took place.
D)The customer have a registration number with the state in which the property was sold.
Page 26
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Chapter 25: Taxation of International Transactions
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Q1) Individual who is not a U.S.citizen or resident.
Q2) Quest is organized and operates in the U.K.Its U.S.effectively connected earnings for the taxable year are $900,000 and its net U.S.equity has increased by $40,000.Quest's dividend equivalent amount for the tax year is $860,000.
A)True
B)False
Q3) GoldCo,a U.S.corporation,incorporates its foreign branch in a § 351 exchange,creating GreenCo,a wholly owned foreign corporation.GoldCo transfers $200 in inventory (basis = $50) and $900 in land (basis = $950) to GreenCo.GreenCo uses these assets in carrying on a trade or business outside the U.S.What gain or loss,if any,does GoldCo recognize as a result of this transaction?
A)($50)
B)$0
C)$100
D)$150
Q4) Ownership percentage required before a deemed paid foreign tax credit is allowed.
Q5) Maximum years for a foreign tax credit carryforward.
Q6) Treasury powers over transfer pricing.
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Chapter 26: Tax Practice and Ethics
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Q1) IRS computers use document matching programs for both individuals and business taxpayers to keep the audit rate low.
A)True
B)False
Q2) Substantial understatement of tax liability.
Q3) For purposes of tax penalties,a VITA volunteer is not classified as a tax return
Q4) In the context of civil tax fraud litigation,the burden of proof is on the taxpayer to show the court by a "preponderance of the evidence" that he or she was not acting with an intent to evade a tax.
A)True
B)False
Q5) Failure to pay a tax that is due.
Q6) The IRS processes about ____________________ million individual tax returns every year,about ____________________ percent of which are filed electronically.
Q7) A(n) $____________________ penalty applies if the tax preparer does not sign the client's tax return.
Q8) Preparer penalty for taking an unreasonable tax return position.
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Chapter 27: The Federal Gift and Estate Taxes
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167 Verified Questions
167 Flashcards
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Sample Questions
Q1) A timely issued disclaimer by an heir transfers the property to someone else without a Federal gift tax result.
A)True B)False
Q2) Transfers to political organizations are exempt from the application of the Federal gift tax.
A)True B)False
Q3) Mortgage on land included in gross estate and willed to decedent's children.
A)Deductible from the gross estate in arriving at the taxable estate.
B)Not deductible from the gross estate in arriving at the taxable estate.
Q4) Interest earned on state and local bonds is not subject to the Federal estate tax. A)True B)False
Q5) Pauline sells antique furniture to her daughter,Nicole,for $10,000.If the furniture is really worth $100,000,Pauline has made a gift to Nicole of $100,000.
A)True B)False
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Chapter 28: Income Taxation of Trusts and Estates
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167 Verified Questions
167 Flashcards
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Sample Questions
Q1) A complex trust is automatically exempt from the Federal AMT.
A)True
B)False
Q2) The Gable Trust reports $20,000 business income and $10,000 exempt interest income,and it paid a $3,000 fiduciary fee.Gable's distributable net income includes $10,000 for the interest income.
A)True
B)False
Q3) The Zhong Trust is a calendar-year taxpayer.Its Form 1041 is due on which date in the following year?
A)March 15.
B)April 15.
C)May 15.
D)September 15, if extended.
Q4) Generally,capital gains are allocated to fiduciary income,because they arise from current-year transactions as directed by the trustee.
A)True
B)False
Q5) The entity typically can choose any fiscal tax year.
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