Corporate Taxation
Exam Questions
Course Introduction
Corporate Taxation provides a comprehensive overview of the U.S. federal income tax laws as they apply to corporations and their shareholders. The course covers key concepts such as corporate formation, capital structure, distributions, redemptions, liquidations, mergers, and acquisitions. Students will examine tax consequences of various corporate transactions, compliance requirements, and planning strategies to minimize tax liabilities. Emphasis is placed on understanding relevant statutes, IRS regulations, and landmark case law, equipping students with practical skills necessary for advising corporations on tax matters.
Recommended Textbook
Prentice Halls Federal Taxation 2014 Corporations Partnerships Estates and Trusts 27th Edition by
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Chapter 1: Tax Research
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Q1) Why does a researcher use a citator?
A) to check on authorities issued subsequent to a court decision
B) to determine whether a private letter ruling exists on the subject
C) for examples of the application of a tax provision
D) none of the above
Answer: A
Q2) Which of the following citations is the primary citation for a U.S.District Court case?
A) 43 AFTR 2d 79-1023
B) 79-1 USTC &9323
C) 55 F.2d 930
D) 40 F.Supp. 453
Answer: D
Q3) When a court discusses issues not raised by the facts, the comments
A) are excluded from the formal court opinion.
B) may be referenced by the parties in other cases having the same facts.
C) are not dicta.
D) will cause the court's decision to be declared invalid.
Answer: B
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3
Chapter 2: Corporate Formations and Capital Structure
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Q1) If an individual transfers an ongoing business to a corporation in a Sec.351 exchange, the individual must recognize any realized gain
A) only if the adjusted basis of the property transferred is less than the FMV of the stock received.
B) if the transferor receives property other than stock.
C) if the FMV of the property exchanged exceeds the FMV of the stock received.
D) both A and B above
Answer: B
Q2) Identify which of the following statements is true.
A) To qualify for Sec. 351 treatment, control is defined as more than 50% ownership of the voting stock, and more than 50% of all other classes of stock.
B) If a shareholder receives stock with an FMV greater than the FMV of the property exchanged in a Sec. 351 transaction, the excess FMV may be considered a gift from one shareholder to another shareholder.
C) Only transfers to newly created corporations qualify for Sec. 351 treatment.
D) All of the above are false.
Answer: B
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Chapter 3: The Corporate Income Tax
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Sample Questions
Q1) Identify which of the following statements is false.
A) The 70% dividends-received deduction is limited to 70% of the taxable income of the corporation without regard to any NOL deduction, any capital loss carryback, and the dividends-received deduction itself unless the dividends-received deduction produces an NOL.
B) Members of an affiliated group can claim a 90% dividends-received deduction for dividends received from other group members that is not subject to a taxable income limitation.
C) A corporate dividends-received deduction is not allowed for dividends received on stock held for 40 days.
D) All of the above are false.
Answer: B
Q2) For corporations, what happens to excess charitable contributions?
Answer: Corporations may not deduct charitable contributions in excess of 10% of adjusted taxable income.Excess charitable contributions are eligible for a five-year carryforward but cannot be carried back.Excess charitable contributions are subject to the same 10% limitation in the carryover years.
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Chapter 4: Corporate Nonliquidating Distributions
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Sample Questions
Q1) Maple Corporation distributes land to a noncorporate shareholder.Explain how the following items are computed:
a)The amount of the distribution.
b)The amount of the dividend.
c)The basis of the land to the shareholder.
d)The start of the holding period for the land. How would your answers change if the distribution was made to a corporate shareholder?
Q2) Identify which of the following statements is true.
A) If both the current and accumulated E&P have deficit balances, a corporate distribution cannot be characterized as a dividend.
B) The shareholder's basis in property received in a nonliquidating distribution is the property's FMV reduced by liabilities assumed by the shareholder.
C) A corporation recognizes gain when distributing money as a dividend to its shareholders.
D) All of the above are false.
Q3) What is a constructive dividend? Under what circumstances are constructive dividends most likely to arise?
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Chapter 5: Other Corporate Tax Levies
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Q1) A personal holding company cannot take a dividends-paid deduction for A) throwback dividends.
B) consent dividends.
C) deficiency dividends.
D) preferential dividends.
Q2) Identify which of the following statements is true.
A) The corporate alternative minimum tax rate is 35%.
B) No credits are allowed when computing the tentative minimum tax.
C) Tax preference items always increase alternative minimum taxable income.
D) All of the above are false.
Q3) What are the four general rules that provide a framework for the ACE calculation?
Q4) Becky places five-year property in service during June 2014 using the half-year convention.Depreciation is $1,500 under the 150% declining balance method and $2,000 under 200% declining balance.Becky uses the 200% declining balance method for regular income tax purposes.What is the amount of Becky's AMT adjustment?
A) $0
B) $1,500 positive adjustment
C) $500 positive adjustment
D) $500 negative adjustment
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Chapter 6: Corporate Liquidating Distributions
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Q1) Property received in a corporate liquidation by a noncorporate shareholder has
A) a basis equal to its basis on the liquidating corporation's books increased by any gain recognized by the shareholder upon receipt of the property. Its holding period includes the holding period of the shareholder's stock.
B) a basis equal to its basis on the liquidating corporation's books increased by any gain recognized by the shareholder upon receipt of the property. Its holding period commences on the day after the distribution date.
C) a basis equal to its FMV reduced by any liabilities assumed by the shareholder. Its holding period commences on the day after the distribution date.
D) a basis equal to its FMV. Its holding period commences on the day after the distribution date.
Q2) What is the IRS's position regarding whether a liquidating transaction will be considered open or closed?
Q3) The general rule for tax attributes of liquidating corporations is
A) they disappear when the liquidation is complete.
B) they carry over for five years.
C) they disappear only for controlled subsidiary corporations.
D) they carry over for an indefinite period of time.
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Chapter 7: Corporate Acquisitions and Reorganizations
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Q1) Acquiring Corporation acquires all of the assets of Target Corporation in exchange for $3,000,000 of Acquiring common stock and the assumption of $2,000,000 of Target's liabilities.The assets had a $2,300,000 adjusted basis to Target.Target's sole shareholder, Paula, had a $1,000,000 adjusted basis for her stock.Target Corporation had $600,000 of E&P on the acquisition date.Paula receives all of the Acquiring common stock in the liquidation of Target.What are the tax consequences of the acquisition to: Acquiring, Target, and Paula?
Q2) Identify which of the following statements is true.
A) Ann, Dewey Corporation's sole shareholder, exchanges her Dewey stock having a $400,000 FMV and a $175,000 adjusted basis for $350,000 of Heider Corporation stock and $50,000 cash. Ann realizes a $225,000 gain on the stock transfer, none of which is recognized.
B) A Type B reorganization can be accomplished without formal shareholder approval.
C) The target corporation's tax attributes are lost in a Type B reorganization.
D) All of the above are false.
Q3) Type A reorganizations include mergers and consolidations.
A)True
B)False
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Chapter 8: Consolidated Tax Returns
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Sample Questions
Q1) P and S are members of an affiliated group that has filed consolidated tax returns for a number of years.The sale of inventory by P that was acquired from S in an intercompany transaction outside the affiliated group triggers the recognition of gain by S.
A)True
B)False
Q2) Define intercompany transactions and explain the two types of transactions.
Q3) Identify which of the following statements is true.
A) If 100% of the stock of two corporations is owned by the same individual, the two corporations are eligible to file a consolidated return.
B) The check-the-box regulations permit partnership and LLCs to elect C corporation tax treatment.
C) A group of corporations that meets the parent-subsidiary controlled group requirements is always eligible to file a consolidated return.
D) All of the above are false.
Q4) What types of corporations are not includible corporations for purposes of determining whether or not an affiliated group exists?
Q5) Why are other intercompany transactions not given any special treatment?
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Chapter 9: Partnership Formation and Operation
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Q1) Identify which of the following statements is true.
A) Formation of a partnership requires legal documentation.
B) An individual engaged in the active conduct of a business must elect not to be taxed as a partnership.
C) A partnership exists as long as there are at least two individuals or entities engaged in the active conduct of a trade or business or a financial operation, and the business is not a trust or a corporation.
D) All of the above are false.
Q2) Jane contributes land with an FMV of $100,000 and a basis of $80,000 to the Green Partnership in exchange for a 25% partnership interest.The partnership assumes the $40,000 mortgage on the land.Mary has a 25% share of partnership liabilities.The Green Partnership has $8,000 in liabilities immediately before Jane's contribution.What is Jane's basis in her partnership interest?
Q3) Jason, a lawyer, provided legal services for the employees of the ABC Partnership during the first six months of the current year.In exchange, he received a 2% capital and profits interest in the partnership.The value of the interest is $5,000.What are the tax consequences to Jason, the ABC Partnership, and the employees of ABC?
Q4) What is included in partnership taxable income?
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Chapter 10: Special Partnership Issues
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Q1) Bart has a partnership interest with a $32,000 basis.He receives a current distribution of $6,000 cash, unrealized receivables (FMV $9,000, basis $10,000), inventory (FMV $8,000, basis $4,000), investment land (FMV $7,000, basis $4,000), and building (FMV $20,000, basis $8,000).No depreciation recapture applies with respect to the building.The partners' relative interests in the Sec.751 assets do not change as a result of the current distribution.Bart's basis in the building is
A) $3,000.
B) $4,000.
C) $6,000.
D) $8,000.
Q2) Joshua is a 40% partner in the XY Partnership when he sells his entire interest to Stanley for $60,000 cash.At the time of the sale, Joshua's basis is $36,000, which includes his $10,000 share of partnership liabilities.The partnership has no Sec.751 assets.Calculate Joshua's gain or loss on the sale.
Q3) Under Sec.751, unrealized receivables include potential Section 1245 or 1250 recapture on the partnership's depreciable property.
A)True
B)False
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Chapter 11: S Corporations
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Q1) Which one of the following is not one of the corporation-related requirements for S corporation status?
A) The corporation must be a domestic corporation.
B) The corporation must not have any foreign-sourced income.
C) The corporation must not be an "ineligible" corporation.
D) The corporation must have only one class of stock.
Q2) List and discuss five advantages and five disadvantages of electing to be taxed as an S corporation over a C corporation or a partnership.
Q3) Identify which of the following statements is true.
A) An S corporation should have a buy-sell agreement to guard itself against an ill-advised sale of its stock.
B) The terms "small business corporation" and "S corporation" are synonymous.
C) A regular corporation has common and preferred stock outstanding on January 1. On January 2, the preferred stock is canceled in a recapitalization, leaving only common stock outstanding. The corporation can make an S election for this tax year.
D) All of the above are false.
Q4) Can loss or credit carryforwards from a previous C corporation tax year help reduce the built-in gains tax?
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Chapter 12: The Gift Tax
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Q1) Roger makes a $1,000,000 cash gift on January 1 of the current year, and dies on February 1 of the current year.Roger's gift tax return is due
A) April 15 of the current year.
B) December 31 of the current year.
C) April 15 of the next year.
D) nine months after his date of death.
Q2) Interest-free or below-market loans
A) must always have interest imputed on them.
B) may result in treating the borrower as paying interest.
C) result in treating the entire loan proceeds as a gift.
D) will always result in at least $1,000 of interest income being imputed.
Q3) The purchase of a $15,000 engagement ring generates a taxable gift necessitating the filing of a gift tax return.
A)True
B)False
Q4) Bryce pays $10,000 for his adult grandson's tuition at medical school and $8,000 for the grandson's room and board in the medical school's dormitory.All payments are made directly to the medical school.Do these payments by Bryce qualify as gifts?
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Chapter 13: The Estate Tax
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Q1) The probate estate includes property that passes by will or an intestacy statute and does not include property that passes due to a beneficiary designation.
A)True
B)False
Q2) Identify which of the following statements is true.
A) The unified credit is the only credit common to both the gift and estate tax computation.
B) For estate tax purposes, publicly traded stocks are valued at their closing price on the date of death.
C) Stocks traded on a stock exchange are valued at the closing price for the date of death unless the alternate valuation date is elected.
D) All of the above are false.
Q3) The payment date for estate taxes may be extended by the IRS for all of the following reasons except
A) the estate includes a 40% interest in a closely held business.
B) the estate includes a relatively large remainder or reversionary interest.
C) the executor of the estate shows reasonable cause.
D) All are valid reasons.
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Chapter 14: Income Taxation of Trusts and Estates
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Q1) The conduit approach for fiduciary income tax means
A) the distributed income has the same character in the hands of the beneficiary as it has to the trust.
B) the distributed income goes to all beneficiaries proportionately.
C) the distributed income is determined by the trustee annually.
D) the distributed income of a remainder interest is determined by the property.
Q2) Identify which of the following statements is true.
A) Under the grantor trust rules, a grantor may be taxed on all or a portion of the trust's income even though the income is distributed to the named beneficiary or someone else.
B) An irrevocable trust cannot be a grantor trust.
C) Large amounts of income can be shifted to children under the age of 18 through the use of trusts that make distributions, and the income will be taxed at the lower rates of the children.
D) All of the above are false.
Q3) Revocable trusts means
A) the transferor may not demand the assets be returned.
B) income or estate tax savings for the grantor.
C) the assets in the trust avoid probate.
D) the grantor is always the beneficiary.
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Chapter 15: Administrative Procedures
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Q1) On July 25 of the following year, Joy files her current calendar- year tax return.She had requested extensions as required.On October 8, she pays the amount due.The tax shown on her return is $22,000.Her current-year withholding tax is $21,000.Joy pays no estimated taxes and does not claim any tax credits on her current-year return.Calculate the penalties that the IRS is likely to assess.Ignore the penalty for underpayment of estimated taxes.Assume she did not commit fraud.
Q2) What is the penalty for a tax return preparer who lacks substantial authority to take a return position?
A) $50
B) $250
C) $1,000
D) 20% of the understatement
Q3) The "automatic" extension period for filing an individual return is seven months. A)True
B)False
Q4) Anyone who prepares a tax return is subject to the provisions of Circular 230. A)True
B)False
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Chapter 16: US Taxation of Foreign-Related Transactions
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Q1) Identify which of the following statements is true.
A) When a cash-basis taxpayer elects to take a credit for accrued foreign income taxes, certain other income and expense items must likewise be accrued.
B) The taxpayer may revoke an election to exclude foreign-source earned income if a loss is incurred from foreign employment.
C) A nonresident alien can elect to be considered a resident alien if the nonresident alien is married to a U.S. citizen or a resident alien sometime during the tax year and both spouses consent.
D) All of the above are true.
Q2) Domestic corporation B owns 200 of the 400 outstanding shares of foreign corporation K's stock.U.S.citizen R owns the remaining K stock.The domestic corporation held the stock for 40 days two years ago, 365 days last year, and 80 days this year.None of K's income is Subpart F income.The foreign corporation has E&P of $50,000 for each of the three years in question.None of the years is a leap year.On the 80th day of the current year, the stock is sold by B to R in a transaction in which a $100,000 gain is recognized by B.What part of B's gain is capital gain?
Q3) What is a corporate inversion and why was this provision enacted?
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