Corporate Taxation Exam Review
Course Introduction
Corporate Taxation provides an in-depth examination of the federal income tax system as it applies to corporations and their shareholders. The course covers the formation, operation, and dissolution of corporations, focusing on issues such as income recognition, distributions, dividends, liquidations, and reorganizations. Students will analyze the tax consequences of various corporate transactions, including mergers and acquisitions, and gain an understanding of how tax considerations impact corporate decision-making. By exploring relevant statutes, regulations, and case law, the course equips students with the foundational knowledge necessary for practice in corporate, tax, and business law.
Recommended Textbook
South Western Federal Taxation 2018 Comprehensive 41st Edition by William H. Hoffman
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28 Chapters
4007 Verified Questions
4007 Flashcards
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Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Q1) When a state decouples from a Federal tax provision,it means that this provision will not apply for state income tax purposes.
A)True
B)False
Answer: True
Q2) Additional depreciation deduction allowed for the year the asset is acquired.
Answer: a
Q3) Both economic and social considerations can be used to justify:
A)Favorable tax treatment for accident and health plans provided for employees and financed by employers.
B)Disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g., fines, penalties, illegal kickbacks, bribes to government officials).
C)Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education.
D)Allowance of a deduction for state and local income taxes paid.
E)None of these.
Answer: C
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Page 3
Chapter 2: Working With the Tax Law
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Q1) In general,regulations are issued immediately after a statute is enacted.
A)True
B)False
Answer: False
Q2) The primary purpose of effective tax planning is to reduce or defer the tax in the current tax year.
A)True
B)False
Answer: False
Q3) Rules of tax law do not include Revenue Rulings and Revenue Procedures.
A)True
B)False
Answer: False
Q4) Which items tell taxpayers the IRS's reaction to certain court decisions?
A)Notices
B)Revenue Procedures
C)Revenue Rulings
D)Actions on Decisions
E)Legislative Regulations
Answer: D
Page 4
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Chapter 3: Computing the Tax
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Sample Questions
Q1) Territorial system of taxation
Answer: k
Q2) Which of the following characteristics correctly describes the procedure for the phaseout of exemptions?
A)The threshold amounts are different and depend on filing status (e.g., joint return, single).
B)The threshold amounts are indexed for inflation each year.
C)The phaseout procedure is known as a "stealth tax."
D)For the phaseout procedure to be applied, a taxpayer's AGI must exceed the threshold amount.
E)All of these.
Answer: E
Q3) An uncle who lives with taxpayer.
Answer: b
Q4) Additional standard deduction
Answer: a
Q5) Resident of Canada or Mexico
Answer: b
Q6) Multiple support agreement
Answer: j
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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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Sample Questions
Q1) 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.
Q2) Ben was hospitalized for back problems.While he was away from the job,he collected his regular salary from an employer-sponsored income protection insurance policy.Ben's employer-sponsored hospitalization insurance policy also paid for 90% of his medical expenses.Ben also collected on an income protection policy that he purchased.Which of the above sources of income are taxable? Explain the basis for excluding any item or items.
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Page 7
Chapter 6: Deductions and Losses: in General
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Q1) None of the prepaid rent paid on September 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.
A)True
B)False
Q2) Only under limited circumstances can a loss on the sale of a personal use asset be deducted.
A)True
B)False
Q3) Which of the following is not a related party for constructive ownership purposes under § 267?
A)The taxpayer's aunt.
B)The taxpayer's brother.
C)The taxpayer's grandmother.
D)A corporation owned more than 50% by the taxpayer.
E)None of the above.
Q4) Two-thirds of treble damage payments under the antitrust law are not deductible. A)True
B)False
Q5) What losses are deductible by an individual taxpayer?
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Q1) A nonbusiness bad debt can offset an unlimited amount of long-term capital gain.
A)True
B)False
Q2) Peggy is in the business of factoring accounts receivable.Last year,she purchased a $30,000 account receivable for $25,000.This year,the account was settled for $25,000.How much loss can Peggy deduct and in which year?
A)$5,000 for the current year.
B)$5,000 for the prior year and $5,000 for the current year.
C)$5,000 for the prior year.
D)$10,000 for the current year.
E)None of the above.
Q3) A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.
A)True
B)False
Q4) Discuss the treatment,including the carryback and carryforward periods,of casualty losses incurred with personal use property.
Q5) How is qualified production activities income (QPAI) calculated?
Page 9
Q6) Why was the domestic production activities deduction (DPAD) enacted by Congress?
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Page 10
Chapter 8: Depreciation, cost Recovery, amortization, and Depletion
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Q1) Martin is a sole proprietor of a sandwich business.On March 4,2017,Martin purchased and placed in service new seven-year class assets costing $570,000.Martin's business reports taxable income for the year,before any deductions associated with the purchased assets,of $160,000.Martin also received $30,000 of interest income for the year,which is not related to the business.Martin wants his adjusted gross income for the year to be as low as possible.With this objective in mind,determine how Martin should recover the cost of the acquired assets.
Q2) For real property,the ADS convention is the mid-month convention.
A)True
B)False
Q3) Discuss the criteria used to determine whether a building is residential or nonresidential realty.Also explain the tax consequences resulting from this determination if the property is placed in service in 2017.
Q4) Motel buildings have a cost recovery period of 27.5 years.
A)True
B)False
Q5) Taxpayers may elect to use the straight-line method under MACRS for personalty.
A)True
B)False
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Q1) A moving expense deduction is allowed even if at the time of the move the taxpayer did not have a job at the new location.
A)True
B)False
Q2) Sue uses her own tools.
Q3) Jake performs services for Maude.If Maude provides a helper and tools,this is indicative of independent contractor (rather than employee) status.
A)True
B)False
Q4) Myra's classification of those who work for her as independent contractors is being questioned by the IRS.It is the position of the IRS that these workers are really employees.What type of factors can Myra utilize to justify her classification?
Q5) Flamingo Corporation furnishes meals at cost to its employees by means of a cafeteria it maintains.The cost of operating the cafeteria is not subject to the cutback adjustment.
A)True
B)False
Q6) Sue files a Schedule SE with her Form 1040.
Page 12
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) In January 2018,Pam,a calendar year cash basis taxpayer,made an estimated state income tax payment for 2017.The payment is deductible in 2017.
A)True
B)False
Q2) Pedro's child attends a school operated by the church the family attends.Pedro made a donation of $1,000 to the church in lieu of the normal registration fee of $200.In addition,Pedro paid the regular tuition of $6,000 to the school.Based on this information,what is Pedro's charitable contribution?
A)$0
B)$800
C)$1,000
D)$6,800
E)$7,000
Q3) Ronaldo contributed stock worth $12,000 to the Children's Protective Agency,a qualified charity.He acquired the stock 20 months ago for $7,000.He may deduct $7,000 as a charitable contribution deduction (subject to percentage limitations).
A)True
B)False
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Chapter 11: Investor Losses
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Sample Questions
Q1) What special passive activity loss treatment is available to real estate activities?
Q2) Treatment of a sale of a passive activity where all of the realized gain or loss is recognized currently.
Q3) Which of the following factors should be considered in determining whether an activity is treated as an appropriate economic unit?
A)The similarities and differences in types of business.
B)The extent of common control.
C)The extent of common ownership.
D)The geographic location.
E)All of the above.
Q4) Purple Corporation,a personal service corporation,earns active income of $600,000.The corporation receives $60,000 in dividends and incurs a loss of $100,000 from an investment in a passive activity acquired three years ago.What is Purple's income after considering the passive investment?
Q5) Describe the types of activities and taxpayers that are subject to the at-risk rules.
Q6) Treatment of an installment sale of a passive activity.
Q7) Active participation.
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Chapter 12: Tax Credits and Payments
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Q1) Identify the statement below that is false.
A)If an employer is not required to withhold income taxes from an employee's wages, the wages are not taxable to the employee.
B)In certain situations, income tax withholding by an employer is voluntary.
C)An employer must deposit with the government an amount of FICA tax that is twice the amount withheld from the employee's salary (i.e., the employee's and employer's shares).
D)If an excess amount of FICA has been withheld for an employee because the employee has multiple jobs, the employee may claim a credit for the excess amount withheld on his or her income tax return.
E)None of the above statements are false.
Q2) Dabney and Nancy are married,both gainfully employed,and have two children who are 3 and 6 years old.Dabney's salary is $35,000 while Nancy's salary is $40,000.During the year,they spend $7,000 for child care expenses that are required so both of them can work outside of the home.Calculate the credit for child and dependent care expenses.
Q3) Describe the withholding requirements applicable to employers.
Q4) Discuss the treatment of unused general business credits.
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Chapter 13: Property Transactions: Determination of Gain or
Loss, basis Considerations, and Nontaxable Exchanges
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Q1) How does the replacement time period differ for the condemnation of real property used in a trade or business or held for investment when compared with that for other involuntary conversions?
Q2) Gene purchased an SUV for $45,000 which he uses 100% for personal purposes.When the SUV is worth $30,000,he contributes it to his business.The gain basis is $45,000,the loss basis is $30,000,and the basis for cost recovery is $45,000.
A)True
B)False
Q3) The amount received for a utility easement on land is included in the gross income of the taxpayer.
A)True
B)False
Q4) The basis of inherited property usually is its fair market value on the date of the decedent's death.
A)True
B)False
Q5) Libby's principal residence is destroyed by a tornado.She is single and her realized gain is $360,000.Is it possible for Libby's recognized gain to be $0?
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Chapter 14: Property Transactions, capital Gains and
Losses, sec1231, and Recapture Provisions
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Q1) Stanley operates a restaurant as a sole proprietorship.Which of the following items are capital assets in the hands of Stanley?
A)The restaurant's tables and chairs.
B)A portable sound system used to play "theme music" for the restaurant.
C)The restaurant building that is an asset of the sole proprietorship.
D)An interest-bearing savings account used to keep the restaurant's excess cash.
E)None of the above.
Q2) Robin Corporation has ordinary income from operations of $30,000,net long-term capital gain of $10,000,and net short-term capital loss of $15,000.What is the taxable income for 2017?
A)$25,000
B)$27,000
C)$28,500
D)$30,000
E)None of the above
Q3) Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.
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Page 17
Chapter 15: Alternative Minimum Tax
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Q1) Keosha acquires used 10-year personal property to use in her business in 2017 and uses MACRS depreciation for regular income tax purposes.As a result,Keosha will incur a positive AMT adjustment in 2017,because AMT depreciation is slower.
A)True
B)False
Q2) The deduction for personal and dependency exemptions is allowed for regular income tax purposes,but is disallowed for AMT purposes.This results in a positive AMT adjustment.
A)True
B)False
Q3) In 2017,Brenda has calculated her regular tax liability to be $32,500 and her tentative minimum tax (TMT) to be $36,300.Additionally,Brenda holds an alternative minimum tax credit of $6,200 from 2013. What is Brenda's total 2017 Federal income tax liability?
A)$26,300.
B)$30,100.
C)$32,500.
D)$36,300.
Q4) Do AMT adjustments and AMT preferences increase or decrease AMTI?
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Page 18
Chapter 16: Accounting Periods and Methods
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Q1) A calendar year,cash basis corporation began business on April 1,2017,and paid $2,400 for a 24-month liability insurance policy.An accrual basis,calendar year taxpayer also began business on April 1,2017,and purchased a 24-month liability insurance policy.The accrual basis taxpayer must amortize the premiums over 24 months but the cash basis taxpayer may deduct the total premiums in 2017.
A)True
B)False
Q2) If an installment sale contract does not charge interest on the sale of a capital asset,only capital gain will be recognized over the life of the contract.
A)True
B)False
Q3) Under the percentage of completion method,if the actual costs are ____ the estimated costs,the taxpayer must pay interest on the underpayment of prior years' taxes.
A)greater than B)less than C)equal to or greater than D)equal to E)None of the above
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Page 19
Chapter 17: Corporations: Introduction and Operating Rules
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Q1) In the current year,Plum Corporation,a computer manufacturer,donated 100 laptop computers to a local university (a qualified educational organization).The computers were constructed by Plum earlier this year,and the university will use the computers for research and research training.Plum's basis in the computers is $35,000,and their fair market value is $120,000.What is Plum's deduction for the contribution of the computers (ignoring the taxable income limitation)?
A)$35,000
B)$70,000
C)$77,500
D)$85,000
E)$120,000
Q2) Adrian is the president and sole shareholder of Pigeon Corporation.He also lends money and rents a building to the corporation.Discuss how these business relationships between Adrian and Pigeon Corporation can help avoid double taxation.What limitations are there on the use of such relationships?
Q3) Almond Corporation,a calendar year C corporation,had taxable income of $900,000,$1.1 million,and $1.2 million for 2014,2015,and 2016,respectively.Almond's taxable income is $2 million for 2017.Compute the minimum estimated tax payments for 2017 for Almond Corporation.
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Page 20
Chapter 18: Corporations: Organization and Capital Structure
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Q1) When a taxpayer transfers property subject to a mortgage to a controlled corporation in an exchange qualifying under § 351,the transferor shareholder's basis in stock received in the transferee corporation is increased by the amount of the mortgage on the property.
A)True
B)False
Q2) Eileen transfers property worth $200,000 (basis of $190,000) to Goldfinch Corporation.In return,she receives 80% of the stock in Goldfinch Corporation (fair market value of $180,000) and a long-term note (fair market value of $20,000) executed by Goldfinch and made payable to Eileen.Eileen recognizes gain on the transfer of:
A)$0.
B)$10,000.
C)$20,000.
D)$190,000.
E)None of the above.
Q3) In structuring the capitalization of a corporation,the tax law is neutral for the investor as to debt versus equity financing.
A)True
B)False
Page 21
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Chapter 19: Corporations: Distributions Not in Complete
Liquidation
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Q1) At the beginning of the current year,Doug and Alfred each own 50% of Amaryllis Corporation (a calendar year taxpayer).In July,Doug sold his stock to Kevin for $140,000.At the beginning of the year,Amaryllis Corporation had accumulated E & P of $240,000 and its current E & P is $280,000 (prior to any distributions).Amaryllis distributed $300,000 on February 15 ($150,000 to Doug and $150,000 to Alfred) and distributed another $300,000 on November 1 ($150,000 to Kevin and $150,000 to Alfred).Kevin has dividend income of:
A)$150,000.
B)$140,000.
C)$110,000.
D)$70,000.
E)None of the above.
Q2) For purposes of the waiver of the family attribution rules in a complete termination redemption,the former shareholder must notify the IRS within 30 days of acquiring a prohibited interest in the corporation during the 10-year period following the redemption.
A)True
B)False
Q3) Cash dividends distributed to shareholders in 2017.
Q4) Domestic production activities deduction claimed in 2017.
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganization
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Q1) Tax planning motivations usually predominate over other objectives in deciding whether to create a trust.
A)True
B)False
Q2) Discuss the role of letter rulings in corporate reorganizations.
Q3) During the current year,Ecru Corporation is liquidated and distributes its only asset,land,to Kena,the sole shareholder.On the date of distribution,the land has a basis of $250,000,a fair market value of $650,000,and is subject to a liability of $500,000.Kena,who takes the land subject to the liability,has a basis of $120,000 in the Ecru stock.With respect to the distribution of the land,which of the following statements is correct?
A)Kena recognizes a gain of $530,000.
B)Ecru Corporation recognizes a gain of $250,000.
C)Kena recognizes a gain of $30,000.
D)Kena has a basis of $250,000 in the land.
E)None of the above.
Q4) Compare the sale of a corporation's assets with a sale of its stock from the perspective of the seller.
Page 23
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Chapter 21: Partnerships
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Q1) George received a fully-vested 10% interest in partnership capital and a 20% interest in future partnership profits in exchange for services rendered to the GHP,LLC (not a publicly-traded partnership interest).The future profits of the partnership are subject to normal operating risks.George will report ordinary income equal to the fair market value of the profits interest,but the capital interest will not be currently taxed to him.
A)True
B)False
Q2) Which one of the following statements is TRUE regarding a partner's personal liability for partnership assets?
A)LLC members can never be liable for entity debts.
B)In a limited partnership, all partners have limited liability for partnership debts.
C)In a limited liability partnership, the partner might be subject to liability for other partners' malpractice.
D)In a general partnership, all partners are liable for entity debts
Q3) Limited partnership
Q4) Entity concept
Q5) Precontribution gain
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Page 24
Chapter 22: S Corporations
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Q1) An S shareholder's stock basis can be reduced below zero.
A)True
B)False
Q2) Mock Corporation converts to S corporation status in 2018.Mock used the LIFO inventory method in 2017 and had a LIFO inventory of $435,000 (FIFO value of $550,000) on the date of the S election.How much tax must be added to Mock's 2017 corporate tax liability,assuming that Mock is subject to a 35% tax rate.
A)$0
B)$10,063
C)$40,250
D)$115,000
E)Some other amount
Q3) An item that appears in the "Other Adjustments Account" affects stock basis,but not AAA,such as tax-exempt interest.
A)True
B)False
Q4) Depreciation recapture income is a Schedule K item on the Form 1120S.
A)True
B)False
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Chapter 23: Exempt Entities
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Q1) Which of the following statements regarding the unrelated business income tax is not correct?
A)Unrelated business income is income from activities not related to the exempt purpose of the organization.
B)The unrelated business income tax is levied because the exempt organization is engaging in substantial commercial activities.
C)If the unrelated business income tax were not levied, nonexempt organizations would be placed at a substantial disadvantage when trying to compete with the exempt organization.
D)The tax rate that is applied to unrelated business taxable income is the highest corporate tax rate.
E)All of the above statements are correct.
Q2) Certain § 501(c)(3) exempt organizations are permitted to engage in lobbying activities on a limited basis.Churches are allowed to make this election.
A)True
B)False
Q3) Why are some organizations exempt from Federal income tax?
Q4) Form 990-PF
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26
Chapter 24: Multistate Corporate Taxation
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Q1) The ____________________ tax usually is applied at the city or county level,as its main source of revenue.
Q2) Leased property,when included in the property factor,usually is valued at ____________________ times its annual rental,even though the taxpayer does not own the asset.
Q3) Most states' consumer sales taxes are to be paid by the final purchaser of the taxable asset.
A)True
B)False
Q4) General Corporation is taxable in a number of states.This year,General made a $100,000 sale from its A headquarters to a customer in B.This activity is not sufficient for General to create nexus with B.State A applies a throwback rule,but State B does not.In which state(s) will the sale be included in the sales factor numerator?
A)$0 in both A and B.
B)$100,000 in A.
C)$100,000 in B.
D)In both A and B, according to the apportionment formulas of each.
Q5) A new auto purchased in Europe and shipped by the driver to her home state in the U.S.
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Chapter 25: Taxation of International Transactions
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Q1) Olaf,a citizen of Norway with no trade or business activities in the United States,sells at a gain 200 shares of MicroShift,Inc.,a U.S.company.The sale takes place through Olaf's broker in Oslo.How is this gain treated for U.S.tax purposes?
A)It is foreign-source income subject to U.S. taxation.
B)It is foreign-source income not subject to U.S. taxation.
C)It is U.S.-source income subject to U.S. taxation.
D)It is U.S.-source income exempt from U.S. taxation.
Q2) 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
Q3) The purpose of the transfer pricing rules is to ensure that taxpayers have ultimate flexibility in shifting profits between related entities.
A)True
B)False
Q4) A deemed paid foreign tax credit is included in gross income.
Q5) Method for sourcing income and deductions.
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Chapter 26: Tax Practice and Ethics
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Q1) Carole,a CPA,feels that she cannot act as an aggressive advocate for tax clients in today's environment.What aspects of the ethical conduct of a tax practice might have influenced Carole's attitude?
Q2) Faye,a CPA,is preparing Judith's tax return.Last year,Judith's return included dividend income from the P&G Company.This year,Judith reports no such income.Faye should inquire as to whether Judith sold the P&G stock during the year.
A)True
B)False
Q3) The Statements on Standards for Tax Services are issued by the: A)IRS.
B)AICPA.
C)ABA.
D)SEC.
Q4) When a tax dispute is resolved,interest is paid by or to the government.How are IRS interest amounts determined? To which tax amounts do they apply?
Q5) In taking a dispute to the Appeals Division,a written protest is required of the taxpayer when the proposed deficiency exceeds $____________________.
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Page 29
Chapter 27: The Federal Gift and Estate Taxes
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167 Verified Questions
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Sample Questions
Q1) Concerning the Federal tax on generation-skipping transfers:
A)The tax applies in addition to any applicable gift or estate tax.
B)The tax applies in lieu of any applicable gift or estate tax.
C)The tax is applied at a flat 33 percent tax rate.
D)The annual gift tax exclusion cannot be used to reduce the tax.
Q2) Howard establishes a trust,life estate to his children,remainder to the grandchildren.Under its terms,the trust is revocable by Howard.Howard later relinquishes the right to revoke the trust.
A)No taxable transfer occurs
B)Gift tax applies
C)Estate tax applies
Q3) Under her father's will,Faith is to receive 10,000 shares of GE common stock.Eight months after her father's death,Faith disclaims the 10,000 shares.
Q4) In most cases,the gross estate of a decedent is larger than the probate estate.
A)True
B)False
Q5) 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.
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Chapter 28: Income Taxation of Trusts and Estates
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167 Verified Questions
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Sample Questions
Q1) Sixty percent of the income received by the Atom Trust this year constituted municipal bond interest.Atom's trustee also made a $100,000 gift to the United Fund,a qualifying charity.The charitable deduction associated with this gift is limited to $60,000.
A)True
B)False
Q2) In computing the Federal taxable income of a trust,a modified ____________________ approach is used.
Q3) A decedent's income in respect of a decedent is subject to the Federal income tax,but it is excluded from the estate tax.
A)True
B)False
Q4) A ____________________ (first,second,third) -tier distribution is one that the trust agreement requires to be made by the trustee to the income beneficiary.
Q5) "First-tier distributions" allowed by the will or trust document are made at the discretion of the executor or trustee.
A)True
B)False
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