Corporate Taxation Exam Practice Tests
Course Introduction
Corporate Taxation explores the fundamental principles and regulations governing the taxation of corporations. The course covers essential topics such as the formation, operation, and dissolution of corporations, the determination and taxation of corporate income, dividend distributions, and the treatment of losses. Students will examine the Internal Revenue Code sections that pertain specifically to corporations, analyze tax planning strategies, and consider the impact of tax law on business decision-making. Through case studies and problem-solving exercises, learners will gain practical insights into corporate tax compliance, reporting requirements, and the evolving landscape of federal taxation as it applies to business entities.
Recommended Textbook
South Western Federal Taxation 2015 Corporations Partnerships Estates and Trusts 38th Edition
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20 Chapters
2958 Verified Questions
2958 Flashcards
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Chapter 1: Understanding and Working With the Federal Tax Law
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Sample Questions
Q1) Which of the following statements about an acquiescence is correct?
A) An acquiescence is issued in the Federal Register.
B) Acquiescences are published only for certain regular decisions of the U.S. Tax Court.
C) An acquiescence is published in the Internal Revenue Bulletin.
D) The IRS does not issue acquiescences to adverse decisions that are not appealed.
E) All of the above are correct.
Answer: C
Q2) Only one judge hears a trial in a U.S. District Court.
A)True
B)False
Answer: True
Q3) Which court decision is generally more authoritative?
A) A U.S. Tax Court decision.
B) Court of Federal Claims decision.
C) District Court decision.
D) U.S. Court of Appeals decision.
E) U.S. Tax Court Memorandum decision.
Answer: D
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Chapter 2: Corporations: Introduction and Operating Rules
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Sample Questions
Q1) Azul Corporation, a calendar year C corporation, received a dividend of $30,000 from Naranja Corporation. Azul owns 25% of the Naranja Corporation stock. Assuming it is not subject to the taxable income limitation, Azul's dividends received deduction is $21,000.
A)True
B)False Answer: False
Q2) For a corporation, the domestic production activities deduction is equal to 9% of the lesser of (1) qualified production activities income or (2) taxable income. However, the deduction cannot exceed 50% of the W-2 wages related to qualified production activities income.
A)True
B)False Answer: True
Q3) Albatross, a C corporation, had $140,000 net income from operations and a $25,000 short-term capital loss in the current year. Albatross Corporation's taxable income is $140,000.
A)True
B)False Answer: True
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Chapter 3: Corporations: Special Situations
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Sample Questions
Q1) Sweet Corporation, a new corporation, has gross receipts of $4.9 million, $6.9 million, and $8.6 million in 2012, 2013, and 2014, respectively. Is this corporation a small corporation with respect to the AMT in years 2012, 2013, 2014, and 2015?
Answer: Yes, Sweet is a small corporation in 2012, the first year, irrespectively of the gross receipts.
Yes, for year 2013, because the average gross receipts for the first year do not exceed $5 million.
Yes, for year 2014, because the average gross receipts for the first and second years do not exceed $7.5 million [($4.9 million + $6.9 million) = $11.8/2 = $5.9]
Yes, for year 2015, because the average gross receipts for the three prior years [($8.6 million + $6.9 million + $4.9 million) = $20.4/3 = $6.8] are less than $ 7.5 million.
Q2) Once a small corporation for AMT purposes, always a small corporation.
A)True
B)False
Answer: False
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Chapter 4: Corporations: Organization and Capital Structure
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Sample Questions
Q1) If a transaction qualifies under § 351, any recognized gain is equal to the value of the boot received.
A)True
B)False
Q2) What are the tax consequences if an individual investor incurs a loss on the following:
a. Stock that is not § 1244 stock.
b. Stock that is § 1244 stock.
c. Corporate bond.
d. An uncollectible loan made to a corporation.
Q3) 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
Q4) To help avoid the thin capitalization problem, it is advisable to make the repayment of the debt contingent upon the corporation's earnings.
A)True
B)False
Page 6
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Chapter 5: Corporations: Earnings Profits and Dividend
Distributions
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Sample Questions
Q1) On January 1, Gold Corporation (a calendar year taxpayer) has E & P of $30,000 and generates no additional E & P during the year. On March 31, the corporation distributes $40,000 to its sole shareholder, Wyatt (basis in stock of $8,000). Determine the effect of the distribution on Wyatt's taxable income and stock basis.
Q2) As of January 1, Cassowary Corporation has a deficit in accumulated E & P of $100,000. For the tax year, current E & P (accrued ratably) is $240,000 (prior to any distributions). On July 1, Cassowary Corporation distributes $275,000 to its sole shareholder. The amount of the distribution that is a dividend is:
A) $20,000.
B) $140,000.
C) $240,000.
D) $275,000.
E) None of the above.
Q3) Maria owns 75% and Christopher owns 25% of Cockatoo Corporation, a calendar year taxpayer. Cockatoo makes a $600,000 distribution to Maria on April 1 and a $200,000 distribution to Christopher on May 1. Cockatoo's current E & P is $120,000 and its accumulated E & P is $500,000. What are the tax implications of the distributions to Maria and Christopher?
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Chapter 6: Corporations: Redemptions and Liquidations
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Sample Questions
Q1) Legal dissolution under state law is required for a liquidation to be complete for tax purposes.
A)True
B)False
Q2) Mary and Jane, unrelated taxpayers, own Gray Corporation's stock equally. One year before the complete liquidation of Gray, Mary transfers land (basis of $200,000, fair market value of $130,000) to Gray Corporation as a contribution to capital. Assume that Mary also contributed other property in the same transaction having a basis of $20,000 and fair market value of $100,000. In liquidation, Gray distributes the land to Jane. At the time of the liquidation, the land is worth $110,000.
a. How much loss, if any, may Gray Corporation recognize on the distribution of the land to Jane?
b. Assume that the transfer of land to Gray Corporation was made so that the corporation could subdivide the land and build residential housing. However, a subsequent deterioration of the housing market forced Gray Corporation to abandon its plans. What amount of loss may Gray Corporation recognize on the distribution of the land to Jane?
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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Chapter 7: Corporations: Reorganizations
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Sample Questions
Q1) Apple Corporation transfers voting stock to Orange Corporation in exchange for substantially all of its assets and its liabilities associated with the plant and equipment. Its general liabilities are not acquired by Apple. Orange distributes the Apple stock to its shareholders in exchange for their Orange stock. Orange then liquidates.
Q2) Spoonbill Corporation has assets with a FMV of $800,000 and adjusted basis of $600,000. It has been manufacturing engineering equipment and laboratory tools for the last 8 years. Spoonbill forms a new corporation, Roseate Corporation, by acquiring all of its stock in exchange for the laboratory tool division of Spoonbill. Each of the Spoonbill shareholders receives 1 share of Roseate stock for each 50 shares they own in Spoonbill.
How will this transaction be treated for Federal income tax purposes?
A) As a splitoff "Type D" reorganization.
B) As a spinoff "Type D" reorganization.
C) As a spitup "Type D" reorganization.
D) This transaction is treated as a stock dividend.
E) None of the above.
Q3) Requires the computation of a deduction equivalent when determining its limitation.
Q4) Rate used to determine the § 382 limitation.
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Chapter 8: Consolidated Tax Returns
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Sample Questions
Q1) Certain tax return items are computed on a group basis when a Federal consolidated return election is in place. List five or more of these group-basis items.
Q2) Members of the ABCD Federal consolidated group conduct various transactions with each other during the tax year. These include the purchase/sale of land and depreciable assets, the licensing of intangible assets, and the conduct of service arrangements. How does the tax law account for these intercompany items? In your answer, be sure to use the terms matching rule and acceleration rule at least once each.
Q3) When the net accumulated taxable losses of a subsidiary exceed the parent's acquisition price, the parent's basis in the subsidiary's stock becomes negative. A)True B)False
Q4) List some of the non-tax reasons that groups of corporations form conglomerates and may be eligible also to file consolidated Federal income tax returns.
Q5) 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?
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Page 10
Chapter 9: Taxation of International Transactions
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Sample Questions
Q1) 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
Q2) Which of the following transactions by a U.S. corporation may result in taxation under § 367?
A) Incorporation of U.S branch as a U.S. corporation when the branch earns only foreign-source income.
B) Incorporation of a U.S. branch by a U.S. corporation when the branch earns only U.S.-source income.
C) Incorporation of a U.S. branch as a U.S. corporation if the new U.S. corporation also has foreign shareholders.
D) Incorporation of a U.S. branch as a U.S. corporation if the new U.S. corporation has no foreign shareholders.
Q3) A nonU.S. citizen who holds a "green card."
Q4) U.S. taxpayers earning income outside the United States.
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Chapter 10: Partnerships: Formation, Operation, and Basis
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Sample Questions
Q1) What are "syndication costs" and how are they treated for tax purposes?
Q2) William is a general partner in the WST partnership. During the current year, he receives a guaranteed payment of $10,000 for services he provides to the partnership, and his distributive share of partnership income is $30,000. William is required to pay self-employment tax on the $10,000 guaranteed payment, but not on his distributive share of partnership income.
A)True
B)False
Q3) Which one of the following statements regarding partnership taxation is incorrect?
A) A partnership is a taxable entity for Federal income tax purposes.
B) Partnership income is comprised of ordinary partnership income or loss and separately stated items.
C) A partnership is required to file a return with the IRS.
D) A partner's profitsharing percent may differ from the partner's losssharing percent.
E) All of these statements are correct.
Q4) § 179 deduction
Q5) Limited liability company
Q6) Domestic production activities deduction
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Chapter 11: Partnerships: Distributions, Transfer of Interests,
and Terminations
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Sample Questions
Q1) Inventory with a basis of $10,000 and a fair market value of $15,000.
Q2) Cash basis accounts receivable.
Q3) Liquidating distribution
Q4) Step up
Q5) Service providing partnership
Q6) Several years ago, the Jaymo Partnership purchased 2,000 shares of ABCO stock (publicly traded) for $40,000; the stock now has a fair market value of $90,000. If this stock is distributed to Jason in liquidation of his 30% partnership interest, it is treated as a cash distribution of $75,000 and a property distribution of $15,000. Assume Jaymo owns no other securities.
A)True B)False
Q7) Loss cannot be recognized on a distribution from a partnership unless cash, unrealized receivables and/or § 1231 assets are the only items distributed. A)True B)False
Q8) Inventory
Q9) Limited partner Page 13
Q10) Inventory with a basis of $10,000 and a fair market value of $10,500.
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Chapter 12: S: Corporations
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Sample Questions
Q1) An item that appears in the "Other Adjustments Account" affects stock basis, but not AAA, such as taxexempt interest.
A)True B)False
Q2) The carryover period for the NOLs of a C corporation does not continue to run during S corporation years.
A)True B)False
Q3) A capital loss allocated to a shareholder always reduces the Other Adjustments Account.
A)True B)False
Q4) Tax-exempt income at the corporate level flows through as exempt to S shareholders.
A)True B)False
Q5) If a resident alien shareholder moves outside the U.S., the S election is terminated. A)True B)False
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Chapter 13: Comparative Forms of Doing Business
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Sample Questions
Q1) Net capital loss
Q2) Arnold purchases a building for $750,000 which is going to be used by his wholly-owned corporation. Which of the following statements are correct?
A) If Arnold contributes the building to the corporation, there will be no recognition under § 351 and a carryover basis of $750,000.
B) If Arnold leases the building to the corporation, lease-rental payments of $30,000 per year to Arnold will result in a $30,000 deduction for the corporation.
C) If Arnold leases the building to the corporation, lease-rental payments of $30,000 per year to Arnold will result in $30,000 of gross income for Arnold.
D) Leasing the building to the corporation will contribute to the tax avoidance objective of minimizing double taxation.
E) All of the above are correct.
Q3) What tax rates apply for the AMT for an individual taxpayer and for a C corporation?
Q4) Why does stock redemption treatment for an individual shareholder produce more favorable tax consequences than a dividend?
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Chapter 14: Taxes on the Financial Statements
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Sample Questions
Q1) Which of the following items represents a temporary book-tax difference?
A) Municipal bond interest.
B) Federal income tax paid.
C) Addition to bad debt allowance.
D) Nondeductible penalties.
Q2) Yahr, Inc., is a domestic corporation with no subsidiaries. It operates in almost every U.S. state. Yahr records no permanent or temporary booktax differences this year. Yahr's tax expense on its GAAP financial statements and its tax liability reported on its Federal income tax return are identical.
A)True
B)False
Q3) The Jacobsen Corporation has determined the appropriate changes to its deferred tax accounts. The Jacobsen auditor now is discussing whether to place a valuation allowance against the deferred tax asset on the balance sheet. List some of the factors that the Jacobsen auditor will consider in this regard.
Q4) 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?
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Page 17
Chapter 15: Exempt Entities
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Sample Questions
Q1) Identify the components of the tax model for unrelated business taxable income.
Q2) Which of the following attributes are associated with exempt organizations?
A) Organization serves some type of common good.
B) Organization is not a for profit entity.
C) Net earnings do not benefit the members of the organization.
D) Organization does not exert political influence.
E) All of the above statements are true.
Q3) The excise taxes such as the tax on self-dealing and the tax on excess business holdings are imposed on exempt organizations classified as private foundations and are not imposed on exempt organizations classified as public charities.
A)True
B)False
Q4) Theater, Inc., an exempt organization, owns a printing company, Printers, Inc., which remits 85% of its profits to Theater, Inc. Since Printers remits at least 85% of its profits to Theater, neither Theater, Inc., nor Printers, Inc., must pay income tax on this $85,000 ($100,000 × 85%).
A)True
B)False
Q5) Define average acquisition indebtedness with respect to debt-financed property.
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Chapter 16: Multistate Corporate Taxation
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Sample Questions
Q1) Under the UDITPA's concept, sales are assumed to take place at the point of delivery, as opposed to the location at which the shipment originates.
Q2) Politicians frequently use tax credits and exemptions to create economic development incentives.
A)True
B)False
Q3) In some states, an S corporation must withhold Federal income tax for the proportionate flowthrough income of its shareholders who (are/are not) state residents.
Q4) Several states allow the S corporation to file a(n) income tax return, usually in the form of a state-by-state spreadsheet, on behalf of its out-of-state shareholders.
Q5) Typically exempt from the sales/use tax base is the purchase by a symphony orchestra of printed music for its players.
A)True
B)False
Q6) The tax usually is applied at the city or county level, as its main source of revenue.
Q7) Q adopts a sales-only apportionment formula.
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Chapter 17: Tax Practice and Ethics
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Sample Questions
Q1) Negligence in filing a return.
Q2) With respect to tax misconduct, a penalty usually involves only a fine, and a penalty also can include jail time.
Q3) In taking a dispute to the Appeals Division, a written protest is required of the taxpayer when the proposed deficiency exceeds $____________________.
Q4) After the completion of an audit, the taxpayer has 90 days to petition the Court to modify the proposed tax due.
Q5) Fraudulent failure to file a tax return.
Q6) Under Circular 230, tax preparer Winston cannot disclose to a mortgage banker the income level of her client Pickett, or other information acquired by preparing the return, without Pickett's permission.
A)True
B)False
Q7) A tax professional needs to know how the IRS is structured and how it works to carry out its mission. Evaluate this statement.
Q8) Failure to pay a tax.
Q9) Failure to deposit withholding tax.
Page 20
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Chapter 18: The Federal Gift and Estate Taxes
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Q1) At the time of Clint's death, part of his estate consists of the following.
-Roth IRA (value of $1,000,000) with Jennifer as the designated beneficiary.
-Land (worth $3,000,000) held in joint tenancy with Jennifer. Jennifer is Clint's wife and originally furnished the purchase price.
-Building (worth $3,000,000) held as equal tenants in common with Jennifer and Dana. Dana is Clint's mother, and she originally purchased the property.
Under Clint's will, all of his property passes to his wife, Jennifer. How much marital deduction is Clint's estate allowed? Clint and Jennifer live in Tennessee.
Q2) Which of the following is not a characteristic of both the Federal gift tax and the Federal estate tax?
A) A deduction for state death taxes may be available.
B) A charitable deduction is available.
C) A marital deduction is available.
D) An exclusion amount is available in computing the tax.
E) None of the above.
Q3) Inheritance tax
Q4) Federal gift tax
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Page 21
Chapter 19: Family Tax Planning
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Q1) Ramon sells a parcel of land (basis of $100,000; fair market value of $300,000) to his church. As long as the selling price does not exceed $100,000, Ramon recognizes no gain on the sale.
A)True
B)False
Q2) Even though it results in more estate tax liability, the executor of an estate uses date of death value (rather than § 2032 alternate valuation date).
a. Why?
b. Would it matter if community property is involved?
Q3) In an estate freeze, the preferred stock is taxed twice-first upon the gift, and second when the donor dies.
A)True
B)False
Q4) If a traditional IRA is subject to both estate and income taxes, a withdrawal by the heir constitutes income in respect of a decedent (IRD).
A)True
B)False
Q5) Deferral approach.
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Chapter 20: Income Taxation of Trusts and Estates
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Q1) Distributable net income (DNI) is the (maximum, minimum) amount that can be included in the beneficiaries' gross incomes from the fiduciary for the year.
Q2) The Code defines a "simple trust" as which of the following?
A) One which is allowed to file Form 1041-EZ.
B) One which has only one income beneficiary.
C) One whose grantor was an individual who still is alive.
D) One which must distribute its accounting income every year.
Q3) The Doyle Trust reports distributable net income for the year of $100,000 and no income from tax-exempt sources. Under the terms of the trust instrument, the trustee must distribute $30,000 to Roger and $30,000 to Sally. After payment of these amounts, the trustee is empowered to make additional distributions at its discretion. Exercising this authority, the trustee distributes an additional $25,000 to Roger and $25,000 to Sally. How much income from the trust must Sally recognize?
A) $25,000.
B) $30,000.
C) $50,000.
D) $55,000.
Q4) The entity has a legal identity separate from its beneficiaries.
Q5) In computing the Federal taxable income of a trust, a modified approach is used.
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