Corporate Taxation Practice Exam
Course Introduction
Corporate Taxation explores the principles, laws, and regulations governing the taxation of corporations. The course covers the structure of the corporate income tax system, including the determination of gross income, deductions, tax credits, and taxable income. Students will examine the federal tax treatment of corporate formation, distributions, mergers, acquisitions, and liquidations, as well as the tax implications for shareholders and corporate entities. Emphasis is placed on tax planning strategies, compliance issues, and the impact of taxation on business decisions and organizational forms. Real-life case studies and current developments in U.S. corporate tax law provide practical context for theoretical concepts.
Recommended Textbook
Prentice Halls Federal Taxation 2015 Comprehensive 28th Edition by Timothy J. Rupert
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Chapter 1: Tax Research
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Q1) Identify which of the following statements is false.
A)When a court opinion discusses facts and issues on which the court does not rule,the comments are called dicta.
B)Dicta in a court opinion has no influence on other tax proceedings.
C)Published articles and tax services are examples of secondary sources of authority.
D)Dicta are not authoritative.
Answer: B
Q2) Which of the following is a true statement regarding primary authority of tax law?
A)Articles in The Journal of Taxation are viewed as primary authority.
B)Primary authority includes the Code,as well as administrative and judicial interpretations.
C)The Bloomberg BNA Daily Tax Reporter is a source of primary tax authority.
D)Tax services are sources of primary tax authority.
Answer: B
Q3) What are the purposes of citations in tax research?
Answer: Citations serve two purposes.First,they substantiate propositions,and second,they enable the reader to locate underlying authority.
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Chapter 2 an Introduction to Taxation
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Q1) Regressive tax rates decrease as the tax base increases.
A)True
B)False
Answer: True
Q2) What does the statute of limitations mean? Describe the different statutes of limitations that apply to tax returns.
Answer: The statute of limitations is the period of time in which the taxpayer and/or the IRS can revise a tax return.Typically the statute of limitations is three years from the later of the filing date or due date of the return.If 25% or more of income is omitted from the return,the statute of limitations is six years from the later of the date filed or return's due date.For a return that has not been filed or involves fraud,the statute of limitations is never closed.
Q3) Martha is self-employed in 2014.Her business profits are $140,000.What is her self-employment tax?
A)$21,420
B)$18,568
C)$18,159
D)None of the above.
Answer: B
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Chapter 3: Corporate Formations and Capital Structure
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Q1) Dan transfers property with an adjusted basis of $50,000 and an FMV of $100,000 to a newly formed Sun Corporation in exchange for 500 shares of Sun stock,which is one-half of the outstanding Sun stock.His daughter,Sylvia,transfers property with an adjusted basis of $25,000 and an FMV of $50,000 for the other 500 shares at the same time.What are the tax consequences of the two transfers,assuming all the requirements of Sec.351 are met?
Answer: No gain or loss is recognized by either Dan or Sylvia.However,since the stock was not received in proportion to the relative FMVs of the properties contributed,the IRS may attempt to reconstruct the transaction in the form that Dan has received 667 shares of stock and made a gift of 167 shares to his daughter Sylvia.Dan's basis in his 500 shares of stock is $37,538 [(500/667)Ă— $50,000 basis in property transferred].Sylvia's basis in her 500 shares is $37,462 [$25,000 basis in property transferred + ($50,000 - $37,538)basis in the shares received as a gift from Dan].
Q2) Discuss the impact of the contribution of cash as part of a Sec.351 exchange.
Answer: Cash is treated as property when it is contributed.No gain or loss is recognized by the transferor when a contribution of cash is made.Stock received by a transferor who contributes cash for the stock has his shares counted for purposes of the 80 % control test.
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Chapter 4: I: Determination of Tax
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Q1) Vincent,age 12,is a dependent of his parents.During 2014,Vincent's earned income from wages is $2,600 and Vincent received $3,000 of interest income.The parent's marginal rate is 28% and Vincent's marginal rate is 10%.Vincent's tax is A)$265.
B)$308.
C)$445.
D)none of the above.
Q2) Kate is single and a homeowner.In 2014,she has property taxes on her home of $3,000,makes charitable contributions of $2,000,and pays home mortgage interest of $7,000.Kate's adjusted gross income for 2014 is $77,000. Required: Compute her taxable income for 2014.
Q3) Form 4868,a six-month extension of time to file,allows a taxpayer to
A)avoid interest on underpayment of taxes due.
B)extend the filing date of the return as well as payment of the tax due.
C)extend the filing date of the return but the estimated amount of tax due must still be paid by the original due date of the return.
D)extend the filing date only at the discretion of the IRS.
Q4) Discuss reasons why a married couple may choose not to file a joint return.
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Chapter 5: The Corporate Income Tax
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Questions
Q1) James Corporation purchased residential real estate in 2007 for $225,000,of which $25,000 was allocated to land and $200,000 was allocated to the building.James Corporation took straight-line MACRS deductions of $30,000 during the years 2005-2009.In 2012,James corporation sold the property for $285,000,of which $60,000 is allocated to the land and $225,000 is allocated to the building.What are the amounts and character of James Corporation's recognized gain or loss on the sale?
Q2) For corporations,what happens to excess charitable contributions?
Q3) 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.
Q4) Describe the domestic production activities deduction.
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Chapter 6: Gross Income: Inclusions
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Q1) Becky wins a car and furniture on a television game show.The fair market value of these items is taxable to Becky.
A)True
B)False
Q2) Carolyn,who earns $400,000,is required to pay John,her ex-husband,$200,000 as part of the property settlement as a result of their divorce.In turn,John transfers stock worth $50,000 to Carolyn.What is the amount of Carolyn's adjusted gross income for the year?
A)$200,000
B)$250,000
C)$400,000
D)$450,000
Q3) Mike won $700 in a football pool.This amount is not taxable. A)True
B)False
Q4) A check received after banking hours is considered constructively received by the payee even though the check can not be converted to cash.
A)True
B)False
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Chapter 7: Corporate Nonliquidating Distributions
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Q1) A corporation distributes land and the related liability to Meg,its sole shareholder.The land has an FMV of $60,000 and is subject to a liability of $70,000.The corporation has current and accumulated E&P of $80,000.The corporation's adjusted basis for the property is $70,000.What effect does the transaction have on the corporation?
A)A recognized loss of $10,000; its E&P is reduced by $70,000.
B)A recognized loss of $10,000; its E&P is unchanged.
C)No recognized gain or loss; its E&P is reduced by $60,000.
D)No recognized gain or loss; its E&P is unchanged by the distribution.
Q2) A partial liquidation of a corporation is treated as a dividend in the case of a corporate shareholder.
A)True
B)False
Q3) Stone Corporation redeems 1,000 share of its stock from Steve for $100,000.Steve's basis in those shares is $80,000.What tax issues should Steve consider with respect to the transaction?
Q4) Corporate distributions that exceed earnings and profits are always capital gains. A)True
B)False
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Chapter 8: Gross Income: Exclusions
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Q1) In September of 2014,Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000.She had held the stock for 7 months.Forty-five days after the sale she purchased other qualified small business stock for $1,100,000.What is the basis in the new stock she purchased?
A)$200,000
B)$300,000
C)$800,000
D)$1,100,000
Q2) Healthwise Ambulance requires its employees to be on 24-hour call and consequently gives them $800 per month housing allowance and a $200 per month food allowance.Ron,an employee of Healthwise,receives a salary of $40,000 per year (this does not include the allowances).Ron will be taxed each year on
A)$40,000.
B)$42,400.
C)$49,600.
D)$52,000.
Q3) Discuss the requirements for meals provided by employers to be excluded from their employees' income.How is the de minimis rule distinguished from these requirements?
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Chapter 9: Other Corporate Tax Levies
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Q1) To avoid the accumulated earnings tax,a corporation needs to have a definite plan for expending the accumulated earnings.
A)True
B)False
Q2) Identify which of the following statements is false.
A)A corporation files a Schedule AE to report the amount of its accumulated earnings tax liability for the tax year.
B)A corporation that is subject to the accumulated earnings tax may also be subject to interest and underpayment penalties on the amount of the unpaid liability.
C)A corporation files a Schedule PH to report its PHC tax for the tax year.
D)The corporate AMT liability is reported on Form 4626.
Q3) Door Corporation's alternative minimum taxable income before the statutory exemption is $200,000.What is Door's tentative minimum tax before credits?
Q4) All corporations,except S corporations and small C corporations,must calculate the ACE adjustment.
A)True
B)False
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Chapter 10: Property Transactions: Capital Gains and Losses
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Q1) Which one of the following is a capital asset?
A)automobile held by car dealer for sale
B)automobile used for personal purposes
C)automobile used in taxpayer's trade or business
D)B and C only
Q2) Net long-term capital gains receive preferential tax treatment if they exceed net short-term capital losses.
A)True
B)False
Q3) Because of the locked-in effect,high capital gains tax rates may discourage taxpayer's from selling appreciated capital assets.
A)True
B)False
Q4) All of the following are capital assets with the exception of A)personal residence.
B)corporate stock held for investment.
C)equipment used in a trade or business.
D)a Rembrandt painting held in a private collection.
Q5) What are arguments for and against preferential treatment of capital gains?
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Chapter 1: Corporate Liquidating Distributions
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Q1) The stock of Cooper Corporation is 70% owned by Carole and 30% owned by Carole's brother,Chris.During 2013,Chris transferred property (basis of $100,000 and FMV of $120,000)as a contribution to the capital of Cooper.During February 2014,Cooper adopted a plan of liquidation and subsequently made a pro rata distribution of the property back to Carole and Chris.At the time of the liquidation,the property had an FMV of $80,000.What amount of loss can be recognized by Cooper on the distribution of property?
A)$0
B)$6,000
C)$12,000
D)$20,000
Q2) Lake City Corporation owns all the stock in Columbia Corporation.Pursuant to a plan of complete liquidation,Columbia distributes land having a $500,000 FMV and a $200,000 basis to Lake City.Columbia's gain with respect to the distribution will be A)no gain recognized.
B)$200,000.
C)$300,000.
D)$500,000.
Q3) Are liquidation and dissolution the same? Explain your answer.
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Chapter 12: Deductions and Losses
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Q1) Discuss when expenses are deductible under the accrual method of accounting.
Q2) Losses incurred on wash sales of stock or securities are generally disallowed in the year of sale.
A)True
B)False
Q3) A deduction will be allowed for an expenditure unless the Internal Revenue Code specifically disallows it.
A)True
B)False
Q4) Expenses related to a hobby are deductible only to the extent of the gross income from the hobby.
A)True
B)False
Q5) Ben is a well-known professional football quarterback. His team's owners expect him to be a role model for young people. Any endorsement contracts that he receives are based on his reputation. In the current year,Ben is charged with assault. Ben hires an attorney to represent him in this matter. Ultimately,the charges are dismissed. What tax issues should Ben consider?
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Chapter 13: Corporate Acquisitions and Reorganizations
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Q1) Identify which of the following statements is true.
A)A Type B reorganization must be accomplished in one transaction.
B)"Creeping acquisitions" are not allowed in a Type B reorganization.
C)Boxer Corporation acquires 81% of Excel Corporation's stock in a Type B reorganization.When Boxer Corporation acquires an additional 11% of Excel Corporation's stock two years later in exchange for Boxer stock,the second acquisition is also treated as a Type B reorganization.
D)All of the above are false.
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) What are the advantages and disadvantages of a Type C reorganization?
Q4) Briefly describe A,B,C,D,and G reorganization types.
Q5) What are the two steps of a Sec.338 deemed liquidation election?
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Chapter 14: Itemized Deductions
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Q1) For charitable contribution purposes,capital gain property includes property which,if sold,would produce a long-term capital gain.
A)True
B)False
Q2) Marcia,who is single,finished graduate school this year and began repaying her student loan.The proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to $3,000.What is the amount and classification of her student loan interest deduction if her AGI is $68,000?
A)$500 for AGI
B)$2,000 for AGI
C)$2,500 for AGI
D)$3,000 for AGI
Q3) Corporate charitable deductions are limited to 10% of the corporation's taxable income for the year.
A)True
B)False
Q4) Explain why interest expense on investments is limited to net investment income.
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Chapter 15: Consolidated Tax Returns
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Q1) The Alto-Baxter affiliated group filed a consolidated return for the first time last year.The group does not come under the "large" corporation rules.For last year,the group reports a tax liability of $60,000.Cooper Corporation has a $30,000 tax liability last year.This year,the Alto-Baxter affiliated group purchased all of the Cooper stock.This year,the Alto-Baxter-Cooper group reports an $110,000 consolidated tax liability.To avoid penalties for the current year,the group must make timely estimated tax payments of how much during the year?
A)$60,000
B)$90,000
C)$110,000
D)No estimated tax payments are required.
Q2) Ajak Corporation owns 85% of the single class of Utech Corporation stock.Utech Corporation owns 35% of Tech Corporation.Ajak Corporation also owns 50% of Tech Corporation,and Tech Corporation owns 75% of Baxter Corporation.
A)Ajak,Tech,Utech,and Baxter Corporations are an affiliated group.
B)Ajak,Tech,and Baxter Corporations are an affiliated group.
C)Ajak,Tech,and Utech Corporations are an affiliated group.
D)None of the above are correct.
Q3) What is the consequence of having losses subject to the SRLY limitations?
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Chapter 16: Losses and Bad Debts
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Q1) An individual is considered to materially participate in an activity if any of the following tests are met with the exception of
A)the individual participates in the activity for more than 500 hours during the year.
B)the individual participates in the activity for 75 hours during the year,and that participation is more than any other individual's participation for the year.
C)the individual has materially participated in the activity in any five years during the immediate preceding 10 taxable years.
D)the individual's participation in the activity for the year constitutes substantially all of the participation in the activity by all individuals.
Q2) No deduction is allowed for a partially worthless nonbusiness debt.
A)True
B)False
Q3) A loss incurred on the sale or exchange of property is deductible only if the property is used in a trade or business or held for investment.
A)True
B)False
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Chapter 17: Partnership Formation and Operation
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Q1) Martin is a limited partner in a card shop.At the end of the partnership's tax year,Martin's basis in the partnership interest is $25,000 ($5,000 cash investment plus a $20,000 share of nonqualified nonrecourse financing).Martin's distributive share of partnership losses for the tax year is $33,000.Martin has $30,000 of passive income this year from other activities.How much of the $33,000 partnership loss can be used by Martin in the year of the loss?
A)$5,000
B)$25,000
C)$30,000
D)$33,000
Q2) Identify which of the following statements is true.
A)A partner's relief of debt is treated as if the partner receives a cash distribution.
B)When a partnership assumes any liabilities of the transferor,the transferor has an increase in the basis of his or her partnership interest.
C)Gain recognized by a contributing partner because of the assumption of liabilities by the partnership increases the partnership's basis in the contributed property.
D)All of the above are false.
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Chapter 18: Employee Expenses and Deferred Compensation
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Q1) Johanna is single and self-employed as a technology consultant.She wants to set money aside for her retirement.What tax and financial issues should she consider?
Q2) Which statement is correct regarding SIMPLE retirement plans?
A)SIMPLE plans are not subject to nondiscrimination rules.
B)This plan can only be adopted by employers with 50 or fewer employees.
C)Only the employer can contribute to the plan.
D)Employer contributions must vest within three years.
Q3) A contributor may make a deductible contribution to a Coverdell Education Savings Account for a qualified designated beneficiary of up to $2,000.
A)True
B)False
Q4) If an employee incurs business-related entertainment expenses that are fully reimbursed,it is the employer who is subject to the 50% limitation.
A)True
B)False
Q5) Why did Congress establish Health Savings Accounts (HSAs)? How do HSAs operate?
Q6) When are home-office expenses deductible?
Q7) What two conditions are necessary for moving expenses to be deductible?
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Chapter 19: Special Partnership Issues
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Q1) Identify which of the following statements is true.
A)The basis for property distributed by a partnership cannot be increased above the carryover basis amount when it is received by a partner in a nonliquidating distribution.
B)A partner's partnership capital account balance cannot be less than zero.
C)The length of time a partner owns a partnership interest is relevant when determining the holding period for distributed property.
D)All of the above are false.
Q2) Can a partner recognize both a gain and a loss on the sale of a partnership interest? If so,under what conditions?
Q3) Brown Company recently has been formed as a limited liability company (LLC).Brown Company is owned equally by three individuals-Gene,Susan,and Sandra-all of whom have substantial income from other sources.Brown is a manufacturing firm and expects to earn approximately $130,000 of ordinary income and $30,000 of long-term capital gain each year for the next several years.Gene will be a full-time manager and will receive a salary of $60,000 each year.What tax issues should the owners consider regarding the LLC's initial year of operations?
Q4) What is included in the definition of unrealized receivables?
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Chapter 20: Depreciation cost Recovery amortization and Depletion
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Q1) Once the business use of listed property falls to 50% or below,the alternative depreciation system must be used for the current year and all subsequent years,even if the business use percentage increases to more than 50% in a subsequent year.
A)True
B)False
Q2) On its tax return,a corporation will use the same depreciation,amortization and depletion methods used in its financial statements issued to shareholders.
A)True
B)False
Q3) In November 2014,Kendall purchases a computer for $4,000.She does not use Sec.179 expensing.She only uses the most accelerated depreciation method possible.The computer is the only personal property which she places in service during the year.What is her total depreciation deduction for 2014?
A)$200
B)$572
C)$800
D)$1,000
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Page 22
Chapter 21: S Corporations
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Q1) Can loss or credit carryforwards from a previous C corporation tax year help reduce the built-in gains tax?
Q2) An electing S corporation has a $30,000 ordinary loss for the non-leap year.On January 1,Beverly and Sonya own equally all of the S corporation stock.On the 146th day of the year,Beverly gives her one-half of the S corporation stock to her daughter Becky.How much of the $30,000 ordinary loss is allocated to Sonya?
A)$25,000
B)$15,000
C)$10,000
D)$6,000
Q3) Identify which of the following statements is true.
A)Convertible debt issues might be considered "stock" for purposes of the S corporation single class of stock requirement.
B)The S election must be made no later than the fifteenth day of the fourth month of the tax year for which the election is to be effective.
C)A majority of shareholders must consent to the S corporation election.
D)All of the above are false.
Q4) What is a permitted year?
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Chapter 22: Accounting Periods and Methods
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Q1) This year,a contractor agrees to build a building for $2,000,000,which will be completed by the end of next year.The builder's cost is estimated to be $1,700,000.The actual costs this year are $800,000 and next year's actual costs are $800,000.If the tax rate is 20% and the interest rate is 10%,the look back interest for the percentage of completion method is
A)$ 0.
B)$1,176.
C)$2,000.
D)$6,000.
Q2) Generally,economic performance must occur before an expense may be deducted.In some cases,this requirement of economic performance may be waived.Discuss the conditions under which economic performance may be waived and an earlier deduction may be allowed.
Q3) Under the cash method of accounting,payment by credit card entitles the taxpayer to deduct the expenditure at the time the charge is made.
A)True
B)False
Q4) Discuss the purpose of the imputed interest rules.
Q5) What is the significance of the Thor Power Tool Co.case?
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Chapter 23: The Gift Tax
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Q1) Kenny is thinking of making a substantial gift of stock to his fiancée,Maria.The wedding is scheduled for October 1 of the current year.Kenny already has exhausted his unified credit.He also is considering giving $26,000 cash this year to each of his three children by a previous marriage.What tax issues should Kenny consider with respect to the gifts he plans to make to Maria and his three children?
Q2) Jack transfers property worth $250,000 to a revocable trust on January 1.Two-and-a-half years later,when the property is worth $300,000,the trust becomes irrevocable.Which of the following statements is correct?
A)A $300,000 gift occurs when the trust became irrevocable.
B)A $250,000 gift occurs when the original transfer was made.
C)A $250,000 gift occurs when the trust became irrevocable.
D)Jack may elect which amount to report as a gift.
Q3) Ward and June decide to divorce after 30 years of marriage.Ward transfers $500,000 to June in settlement of her property rights.What are the gift tax consequences of this transfer?
Q4) Abby transfers $10,000 to a political organization to promote her favorite candidate for president.Does Abby's transfer qualify as a gift?
Q5) Describe the penalties for undervaluing gifts on a gift tax return.
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Chapter 24: Property Transactions: Nontaxable Exchanges
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Q1) Where non-like-kind property other than cash is received as boot,the amount of the boot is the property's fair market value.
A)True
B)False
Q2) In an involuntary conversion,the basis of replacement property is its cost reduced by the gain deferred.
A)True
B)False
Q3) Bob owns a warehouse that is used in business while Rebecca owns land.Bob exchanges the warehouse for the land,which will be held for investment.The FMV of the warehouse is $440,000 (basis $240,000),but the warehouse is subject to a mortgage of $80,000,which is assumed by Rebecca.Bob receives $40,000 cash and the land,which has a FMV of $320,000. Bob realizes a gain (loss)on the exchange of
A)$80,000.
B)$120,000.
C)$190,000.
D)$200,000.
Q4) Discuss why a taxpayer would want to avoid like-kind exchange provisions.
Q5) Discuss the basis rules of property received in a nontaxable like-kind exchange.
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Chapter 25: The Estate Tax
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Q1) Identify which of the following statements is false.
A)Special use valuation is available for farmland to help alleviate liquidity problems.
B)The transferee is liable for the generation-skipping transfer tax (GSTT)in the case of a direct skip.
C)The generation-skipping transfer tax (GSTT)is imposed to assure that some form of transfer taxation is imposed once a generation.
D)A direct skip skips one or more generations.
Q2) Identify which of the following statements is false.
A)Every grantor is entitled to a $5.25 million exemption from the GSTT in 2011.
B)If Greg transfers assets directly to his grandson,this transaction would be an example of a direct skip.
C)If Shaad transfers property in trust to his son,with the remainder to his grandson,at the death of the son a taxable termination will result.
D)The GSTT is levied at a flat rate,which is higher than the top rate under the estate tax rate schedule.
Q3) Briefly discuss how inter vivos gifts can be used to reduce the size of the estate tax base.
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Chapter 26: Property Transactions: Section 1231 and Recapture
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Q1) Jacqueline dies while owning a building with a $1,000,000 FMV.The building is classified as Sec.1245 property acquired in 1985 for $850,000.Cost-recovery deductions of $850,000 have been claimed.Pam inherits the property.
a.What is the amount of Pam's basis in the property?
b.What is the amount of cost-recovery deductions that Pam must recover if she immediately sells the building?
Q2) The sale of inventory results in ordinary gain or loss.
A)True
B)False
Q3) Emily,whose tax rate is 28%,owns an office building which she purchased for $900,000 on March 18 of last year.The building is sold for $950,000 on February 20 of this year when the adjusted basis of the building was $876,000.The tax results to Emily are
A)$74,000 1231 gain taxed at 15%.
B)$74,000 ordinary income taxed at 28%.
C)$24,000 1250 unrecaptured gain taxed at 25% and $50,000 1231 gain taxed at 15%.
D)$24,000 1231 gain taxed at 15% and $50,000 ordinary income taxed at 28%.
Q4) What is the purpose of Sec.1245 and what is its significance?
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Chapter 27: Income Taxation of Trusts and Estates
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Q1) Explain how to determine the deductible portion of trustee's fees.
Q2) What is the basis of inherited IRD items to the beneficiary?
Q3) The distribution deduction for a complex trust is the lesser of the amount distributed or distributable net income,reduced by net tax-exempt income.
A)True
B)False
Q4) Income in respect of a decedent (IRD)is included in the decedent's final income tax return.
A)True
B)False
Q5) A complex trust permits accumulation of current income,provides for charitable contributions,or distributes principal during the taxable year.
A)True
B)False
Q6) 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 28: Special Tax Computation Methods, tax Credits, and Payment of Tax
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Q1) Medical expenses in excess of 10% of AGI are deductible when computing AMT.
A)True
B)False
Q2) In 2014 Charlton and Cindy have alternative minimum taxable income of $130,000 and file a joint return.For purposes of computing the alternative minimum tax,their exemption is
A)$0.
B)$7,900.
C)$52,800.
D)$82,100.
Q3) Marvin and Pamela are married,file a joint return,and have two children,ages 9 and 11.Their combined AGI is $65,000.Marvin's earned income is $40,000; Pamela's is $25,000.They incur $6,500 of child-care expenses to enable them to be employed during the current year.Their child and dependent care credit is
A)$1,200.
B)$1,300.
C)$1,800.
D)$6,000.
Q4) Discuss when Form 6251,Alternative Minimum Tax,must be filed.
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Chapter 29: Administrative Procedures
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Q1) Identify which of the following statements is true.
A)If a taxpayer fails to file a return,the statute of limitations is extended to 10 years.
B)If a couple files a joint return but only one spouse had income,only the spouse with income is responsible for paying any tax due.
C)Joint and several liability means that each spouse is potentially liable for the full amount of tax due.
D)All of the above are false.
Q2) What is the penalty for a tax return preparer who willfully attempts to understate taxes,or intentionally disregards the tax rules and regulations?
A)$50
B)$250
C)$5,000
D)20% of the understatement
Q3) Paul's tax liability for last year was $30,000.Paul projects that his tax for this year will be $40,000.Paul is self-employed and,thus,will have no withholding.His AGI for last year did not exceed $150,000.How much estimated tax should Paul pay for this year to avoid the penalty for underpayment of estimated taxes?
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