Corporate Taxation Exam Bank
Course Introduction
Corporate Taxation examines the fundamental principles and practices of how corporations are taxed in the United States. The course covers topics such as corporate formation, capital structure, distributions, mergers and acquisitions, and liquidation, with attention to the Internal Revenue Code and relevant tax regulations. Students will explore the tax implications of various corporate transactions, strategies for tax planning, and compliance requirements. Emphasis is placed on practical applications, statutory interpretation, and current issues affecting corporate tax policy and administration.
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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Sample Questions
Q1) After a business meeting with a prospective client Holly took the client to dinner and the theatre.Holly paid $290 for the meal and $250 for the theatre tickets,amounts that were reasonable under the circumstances.What amount of these expenditures can Holly deduct as a business expense?
A) $540
B) $415
C) $270
D) None unless Holly discussed business with the client during the meal and the entertainment.
E) None-the meals and entertainment are not deductible except during travel.
Answer: C
Q2) According to the Internal Revenue Code §162,deductible trade or business expenses must be one of the following:
A) incurred for the production of investment income.
B) ordinary and necessary.
C) minimized.
D) appropriate and measurable.
E) personal and justifiable.
Answer: B
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Chapter 2: Property Acquisition and Cost Recovery
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Sample Questions
Q1) Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes.On November 10<sup>th</sup> of the current year,when the fair market value of the computer was $800,Jaussi converted it to business use.What is Jaussi's tax basis for the computer?
Answer: $800
When personal property is converted to business use,the basis is the lesser of the cost basis of the property or the fair market value on the date of the conversion.
Q2) Santa Fe purchased the rights to extract turquoise on a tract of land over a five-year period.Santa Fe paid $300,000 for extraction rights.A geologist estimated that Santa Fe will recover 5,000 pounds of turquoise.During the past several years,4,000 pounds were extracted.During the current year,Santa Fe extracted 1,500 pounds of turquoise,which it sold for $250,000.What is Santa Fe's cost depletion expense for the current year?
A) $60,000
B) $90,000
C) $190,000
D) $160,000
E) None of the choices are correct.
Answer: A
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Page 4
Chapter 3: Property Dispositions
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110 Flashcards
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Sample Questions
Q1) 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.
Q2) 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
Q3) The amount realized is the sale proceeds less the adjusted basis.
A)True
B)False
Answer: False
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Chapter 4: Entities Overview
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Sample Questions
Q1) For tax purposes,only unincorporated entities can be considered to be disregarded entities.
A)True
B)False
Q2) Which of the following is most effective in mitigating the double tax?
A) Shift income from high tax rate shareholders to low tax rate corporations.
B) Shift income from low tax rate shareholders to high tax rate corporations.
C) Shift income from high tax rate corporations to low tax rate shareholders.
D) Shift income from low tax rate corporations to high tax rate shareholders.
Q3) In its first year of existence,BYC Corporation (a C corporation)reported a loss for tax purposes of ($40,000).How much tax will BYC pay in year 2 if it reports taxable income from operations of $35,000 in year 2 before any loss carryovers?
Q4) Nancy purchased a building and then leased the building to ZML.Nancy is the sole shareholder of ZML.She leased the building to ZML for $2,500 per month.However,the IRS determined that the fair market value of the lease payment should only be $1,500 per month.How would the lease payment be treated with respect to both Nancy and ZML?
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Page 6
Chapter 5: Corporate Operations
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140 Flashcards
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Sample Questions
Q1) An affiliated group must file a consolidated tax return.
A)True
B)False
Q2) Which of the following describes the correct treatment of incentive stock options (ISOs)granted when ASC 718 applies?
A) Financial accounting-no expense; tax-no deduction.
B) Financial accounting-no expense; tax-deduct bargain element at exercise.
C) Financial-expense value over vesting period; tax-no deduction.
D) Financial-expense value over vesting period; tax-deduct bargain element at exercise.
Q3) Corporations may carry a net operating loss sustained in the current year back two years and forward 20 years.
A)True
B)False
Q4) A nonqualified stock option will create a permanent book-tax difference in a given year if it accrues during the year but is exercised in a later year.
A)True
B)False
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Chapter 6: Accounting for Income Taxes
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Sample Questions
Q1) Swordfish Corporation reported pretax book income of $1,000,000.During the current year,the net reserve for warranties increased by $25,000.In addition,book depreciation exceeded tax depreciation by $100,000.In prior years,tax depreciation exceeded book depreciation by a cumulative amount of $500,000.Finally,Swordfish subtracted a dividends received deduction of $15,000 in computing its current year taxable income.Using a tax rate of 34%,Swordfish's deferred income tax expense or benefit would be:
A) $25,500 net deferred tax expense.
B) $25,500 net deferred tax benefit.
C) $42,500 net deferred tax benefit.
D) $42,500 net deferred tax expense.
Q2) Which of the following items is NOT a reconciling item in the income tax footnote?
A) Compensation deduction related to incentive stock options.
B) Compensation deduction related to nonqualified stock options that were expensed for financial accounting purposes.
C) Domestic production activities deduction.
D) State and local income taxes.
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Page 8
Chapter 7: Corporate Taxation: Nonliquidating Distributions
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Sample Questions
Q1) Ozark Corporation reported taxable income of $500,000 from operations for 20X3.During the year,the company made a distribution of land to its sole shareholder,Marcus Twain.The land's fair market value was $100,000 and its tax and E&P basis to Ozark was $125,000.Marcus assumed a mortgage attached to the land of $25,000.Ozark's tax rate is 34%.The company had accumulated E&P of $850,000 at the beginning of the year.Compute Ozark's total taxable income and federal income tax paid because of the distribution.Using your solution,compute Ozark's accumulated E&P at January 1,20X4.
Q2) The recipient of a taxable stock dividend will have a tax basis in the stock equal to the fair market value of the stock received. A)True B)False
Q3) Houghton Company reports negative current E&P of ($500,000)and negative accumulated E&P of ($800,000).Houghton distributed $100,000 to its sole shareholder,Blossom Applegate,on December 31,20X3.Blossom's tax basis in her Houghton stock is $50,000.What is the tax treatment of the distribution to Blossom and what is her tax basis in Houghton stock after the distribution?
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Page 9
Chapter 8: Corporate Formation, Neorganization, and Liquidation
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Sample Questions
Q1) Jasmine transferred 100 percent of her stock in Emerald Company to Jade Corporation in a Type A merger.In exchange she received stock in Jade with a fair market value of $800,000 plus $1,200,000 in cash.Jasmine's tax basis in the Emerald stock was $900,000.What amount of gain does Jasmine recognize in the exchange and what is her basis in the Jade stock she receives?
Q2) Which of the following requirements do not have to be met in a section 351 transaction?
A) Each transferor of property must receive stock equal to at least 80 percent of the fair market value of the property transferred.
B) In the aggregate, the transferors of property to the corporation must collectively control the corporation immediately after the transfers.
C) Only property transferred to a corporation is eligible for deferral.
D) All transfers of property to a corporation must be made simultaneously to qualify for deferral.
Q3) A section 338 transaction is a stock acquisition treated as an asset acquisition based on an election made by the acquirer.
A)True
B)False
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Chapter 9: Forming and Operating Partnerships
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Sample Questions
Q1) Partnerships can use special allocations to shift built-in gains and built-in losses on contributed property from a partner who contributed the property to other partners.
A)True
B)False
Q2) 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?
Q3) If a partner participates in partnership activities on a regular,continuous,and substantial basis,then the partnership's activities with respect to this individual partner are not considered passive.
A)True
B)False
Q4) A partner's outside basis must first be decreased by any negative basis adjustments and then increased by any positive basis adjustments.
A)True
B)False
Q5) What is the difference between a partner's tax basis and at-risk amount?
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11
Chapter 10: Dispositions of Partnership Interests and Partnership Distributions
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Sample Questions
Q1) Which of the following is true concerning a partner's basis in assets (other than money)distributed in an operating distribution?
A) A partner's bases in the distributed assets will be greater than the partnership's bases in the assets.
B) A partner's bases in the distributed assets will be equal to the partnership's bases in the assets.
C) A partner's bases in the distributed assets will be less than or equal to the partnership's bases in the assets.
D) None of the statements are true.
Q2) Tyson is a 25% partner in the KT Partnership.On January 1,KT makes a proportionate distribution of $16,000 cash,inventory with a $16,000 fair value (inside basis $8,000),and land with a fair value of $8,000 (inside basis of $12,000)to Tyson.KT has no liabilities at the date of the distribution.Tyson's basis in KT is $24,000.What is Tyson's basis in the distributed inventory and land?
A) $8,000 inventory, $12,000 land.
B) $16,000 inventory, $8,000 land.
C) $0 inventory, $8,000 land.
D) $8,000 inventory, $0 land.
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Chapter 11: S Corporations
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Sample Questions
Q1) At the beginning of the year,Clampett,Inc.had $100,000 in its AAA,$60,000 of earnings and profits from prior C corporation years.During the year,Clampett,Inc.earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders.Assume that J.D.owns 25% of Clampett,Inc.,his basis in Clampett,Inc.at the beginning of the year is $10,000,and his share of the distribution was $50,000.How much income does J.D.recognize this year from these transactions?
A) $0.
B) $10,000.
C) $17,500.
D) $40,000.
E) None of the choices are correct.
Q2) An S corporation shareholder's allocable share of business income that is determined to be from a passive activity is considered net investment income for purposes of the Net Investment Income tax.
A)True
B)False
Q3) An S corporation election may be voluntarily or involuntarily terminated.
A)True
B)False
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Page 13
Chapter 12: State and Local Taxes
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Sample Questions
Q1) Failure to collect and remit sales taxes by a seller often results in a larger tax liability than failure to pay income taxes.
A)True
B)False
Q2) Which of the following sales is always subject to sales and use tax in a state that assesses a sales and use tax?
A) Tax preparation services.
B) Automobiles.
C) Inventory.
D) Food.
Q3) Separate return states require each member of a consolidated group with nexus to file their own state tax return.
A)True
B)False
Q4) Federal/state adjustments correct for differences between two states tax laws.
A)True
B)False
Q5) List the steps necessary to determine an interstate business's state income tax liability.
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Chapter 13: The Ustaxation of Multinational Transactions
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Sample Questions
Q1) Which of the following is not a benefit derived from an income tax treaty between the United States and another country?
A) Lower withholding tax rates imposed on cross border dividend and interest payments.
B) A higher threshold for determining when a person has nexus in the other country.
C) Lower statutory tax rates imposed on effectively connected income earned by a resident of one country in the other country.
D) A higher threshold before an individual is considered a resident of the other country for tax purposes.
Q2) The gross profit from a sale of inventory manufactured in the United States and sold in Spain will always be treated as 100 percent U.S.source income.
A)True
B)False
Q3) Deductible interest expense incurred by a U.S.corporation will always be treated as a U.S.source deduction.
A)True
B)False
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15
Chapter 14: Transfer Taxes and Wealth Planning
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Sample Questions
Q1) The gross estate includes the value of half of real property owned by a decedent and spouse in joint tenancy with the right of survivorship.
A)True
B)False
Q2) At her death,Tricia had an adjusted gross estate consisting of $8 million of property.Which of the following is a true statement about Tricia's estate or estate tax?
A) Tricia must have a taxable estate over $8 million.
B) Tricia's taxable estate will not exceed $8 million.
C) Tricia must have a probate estate tax of zero.
D) Tricia must have a gross estate tax of zero.
E) None of the choices are necessarily true.
Q3) Caleb transferred $115,000 to an irrevocable trust for Avery.The trustee has the discretion to distribute income or corpus for Avery's benefit but is required to distribute all assets to Avery (or his estate)not later than Avery's 21<sup>st</sup> birthday.What is the amount,if any,of the taxable gift?
Q4) Only complete gifts are subject to the Federal gift tax.
A)True
B)False
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Page 16