Corporate Taxation Practice Questions
Course Introduction
Corporate Taxation examines the principles and regulations governing the taxation of corporations at both federal and state levels. The course explores key topics including corporate income determination, tax treatment of dividends, deductions, credits, and the tax implications of various transactions such as mergers, acquisitions, liquidations, and reorganizations. Students will analyze tax planning strategies, compliance requirements, and recent legislative developments affecting corporate tax policy. Emphasis is placed on practical application, enabling students to understand how tax considerations impact corporate structure and business decisions.
Recommended Textbook
South Western Federal Taxation 2011 Corporations Partnerships Estates and T
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Page 2
Chapter 1: Understanding and Working With the Federal Tax Law
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Q1) Which of the following is an administrative source of tax law?
A)Rev.Proc.2009-3.
B)Joint Conference Committee Report.
C)Section 12(d)of the Internal Revenue Code.
D)All of the above.
E)None of the above.
Answer: A
Q2) Which tax service is owned by Thomson?
A)Tax Center.
B)Standard Federal Tax Reporter.
C)Tax Research Network.
D)Tax Management Portfolios.
E)None of the above.
Answer: E
Q3) Longer class lives for depreciable property and the required use of straight-line method of depreciation should dampen the tax incentive for purchasing capital assets.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Corporations: Introduction and Operating Rules
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Q1) Discuss the purpose of Schedule M-1.Give two examples of an addition and two examples of a subtraction that could be reported on Schedule M-1.
Answer: Schedule M-1 is used to reconcile the differences between net income per books with taxable income (before any dividends received deduction and NOL deduction).Examples of items that are additions include Federal income tax expense,excess of capital losses over capital gains,income subject to tax but not recognized for book purposes,book depreciation in excess of tax depreciation,and nondeductible expenditures (e.g. ,fines and penalties,meals and entertainment disallowance).Examples of items that are subtractions include tax-exempt income (e.g. ,life insurance proceeds),tax depreciation in excess of book depreciation,carryover amounts deductible in current year but expensed in prior year for book purposes (e.g. ,charitable contribution carryover deductible in current year),and domestic production activities deduction.
Q2) The corporate marginal tax rates range from 10% to 39%,while the individual marginal tax rates range from 15% to 35%.
A)True
B)False
Answer: True
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Chapter 3: Corporations: Special Situations
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Sample Questions
Q1) Which entity is subject to the ACE provisions?
A)S corporation.
B)Real estate investment trust (REITs).
C)Regulated investment companies.
D)Real estate mortgage investment conduits.
E)None of the above.
Answer: E
Q2) The exemption amount is phased out entirely when AMTI reaches:
A)$40,000.
B)$310,000.
C)$1,000,000.
D)$5,000,000.
E)Some other amount.
Answer: B
Q3) Fewer corporations are subject to the AMT than to the domestic production activities deduction.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Corporations: Organization and Capital Structure
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Sample Questions
Q1) Adam transfers cash of $300,000 and land worth $200,000 to Camel Corporation for 100% of the stock in Camel.In the first year of operation,Camel has net taxable income of $70,000.If Camel distributes $50,000 to Adam:
A)Adam has taxable income of $50,000.
B)Camel Corporation has a tax deduction of $50,000.
C)Adam has no taxable income from the distribution.
D)Camel Corporation reduces its basis in the land to $150,000.
E)None of the above.
Q2) Art,an unmarried individual,transfers property (basis of $130,000 and fair market value of $120,000)to Condor Corporation in exchange for § 1244 stock.The transfer qualifies as a nontaxable exchange under § 351.Five years later,Art sells the Condor stock for $50,000.With respect to the sale,Art has:
A)An ordinary loss of $80,000.
B)An ordinary loss of $70,000 and a capital loss of $10,000.
C)A capital loss of $80,000.
D)A capital loss of $30,000 and an ordinary loss of $50,000.
E)None of the above.
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Chapter 5: Corporations: Earnings Profits and Dividend
Distributions
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Q1) Distributions that are not dividends are a return of capital and cause the shareholder's capital account to increase.
A)True
B)False
Q2) The dividends received deduction is added back to taxable income to determine E & P.
A)True
B)False
Q3) If stock rights are taxable,the recipient has income to the extent of the fair market value of the rights.
A)True
B)False
Q4) During the year,White Corporation distributes land to its sole shareholder.If the fair market value of the land is more than its adjusted basis,White will not recognize gain on the distribution.
A)True
B)False
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Chapter 6: Corporations: Redemptions and Liquidations
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Q1) If a liquidation qualifies under § 332,any minority shareholder will recognize gain (but not loss)equal to the difference between the fair market value of assets received and the basis of the shareholder's stock.
A)True
B)False
Q2) Which of the following statements is correct with respect to a partial liquidation?
A)A stock redemption pursuant to a partial liquidation cannot be pro rata with respect to the shareholders.
B)The distribution of proceeds from the sale of marketable securities (held for investment)to shareholders in exchange for part of their stock will satisfy the not essentially equivalent to a dividend test.
C)The genuine contraction of a corporate business requirement is a subjective test that taxpayers cannot rely upon with certainty.
D)The termination of a business test requires that the distributing corporation actively conducted at least three trades or businesses for at least five years.
E)None of the above.
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Chapter 7: Corporations: Reorganizations
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Q1) Silver Corporation redeems all of Alluvia's 3,000 shares and distributes to her 1,000 shares of Gold Corporation stock plus $20,000 cash.Alluvia's basis in her 30% interest in Silver is $80,000 and the stock's market value is $120,000.At the time Silver is acquired by Gold,the accumulated earnings and profits of Silver are $100,000 and Gold's are $50,000.How does Alluvia treat this transaction for tax purposes?
A)No gain is recognized by Alluvia in this reorganization.
B)Alluvia reports a $20,000 recognized dividend.
C)Alluvia reports a $20,000 recognized capital gain.
D)Alluvia reports a $15,000 recognized dividend and a $5,000 capital gain.
E)None of the above.
Q2) The "Type B" reorganization requires that the acquiring corporation obtain at least 80% of target corporation's stock through the reorganization.
A)True
B)False
Q3) A "Type E" reorganization is a recapitalization that has tax significance for the shareholders,but not for the corporation involved.
A)True
B)False
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Page 9
Chapter 8: Consolidated Tax Returns
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Sample Questions
Q1) Outline the major advantages and disadvantages of filing Federal corporate income tax returns on a consolidated basis.Limit your comments to the income tax effects of the election.
Q2) In a Federal consolidated group,what is an excess loss account? How is it used?
Q3) How do the Federal consolidated return requirements differ in identifying an affiliated group rather than a parent-subsidiary controlled group?
Q4) ParentCo's separate taxable income was $200,000,and SubCo's was $50,000.Consolidated taxable income before contributions was $125,000.Charitable contributions made by the affiliated group included $60,000 by ParentCo and $30,000 by SubCo.Compute the group's maximum charitable contribution deduction.
A)$12,500.
B)$25,000.
C)$30,000.
D)$60,000.
E)$90,000.
Q5) Describe the general computational method used by a Federal consolidated group in computing taxable income.
Q6) List the filing requirements that must be met by a Federal consolidated group.
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Chapter 9: Taxation of International Transactions
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Sample Questions
Q1) Which of the following determinations does not require knowing the amounts of one's U.S.- versus foreign-source income?
A)Calculation of U.S.withholding tax on the FDAP income of foreign persons.
B)Calculation of a foreign person's income effectively connected with carrying on a U.S.trade or business.
C)Calculation of the § 911 exclusion.
D)Calculation of a U.S.person's total taxable income.
Q2) An advance pricing agreement (APA)is an agreement between:
A)The taxpayer and the IRS.
B)Two related taxpayers.
C)Two or more governments.
D)The IRS and U.S.taxing authorities.
Q3) An appropriate transfer price is one that considers the risks,assets,and functions of the persons to whom income is assigned.
A)True
B)False
Q4) Discuss the policy reasons for the § 367 cross-border transfer rules.Provide two examples of transactions to which § 367 would apply.
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Page 11
Chapter 10: Partnerships: Formation, operation, and Basis
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Sample Questions
Q1) Rhonda contributes land valued at $90,000 in exchange for a 40% interest in the RW Partnership.The adjusted basis of the land is $80,000 and it was subject to a liability of $20,000,which the partnership assumed.RW reported income of $100,000 for the year.If none of the liabilities are repaid by the end of the year,and if all liabilities are shared equally,Rhonda's basis at the end of the year is $108,000.
A)True
B)False
Q2) Syndication costs arise when partnership interests are being marketed to investors.These costs are amortized over 180 months.
A)True B)False
Q3) The "inside basis" is defined as a partner's basis in the partnership interest.
A)True B)False
Q4) One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner,regardless of whether or not distributed.
A)True B)False
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Chapter 11: Partnerships: Distributions, transfer of Interests, and Terminations
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Q1) The Crimson Partnership is a service provider.Its assets consist of unrealized receivables (basis $0,value $200,000),cash of $200,000,and land (basis of $280,000,value of $400,000).Assume 25% general partner Jill has a basis in her partnership interest of $130,000.If the ongoing partnership distributes the $200,000 cash to Jill in liquidation of her interest in the partnership,she will recognize ordinary income of $50,000 and a capital gain of $20,000.
A)True
B)False
Q2) A limited liability company generally provides limited liability for those owners that are not active in the management of the LLC but requires owner-managers of the LLC to have unlimited personal liability for LLC debts.
A)True
B)False
Q3) In a liquidating distribution,a partnership must distribute all of its property to all of its partners.
A)True
B)False
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Page 13
Chapter 12: S Corporations
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Q1) Which corporation is eligible to make the S election?
A)Foreign corporation.
B)100% owned corporation.
C)An insurance company.
D)A U.S.bank.
E)None of the above can elect S status.
Q2) The alternative minimum tax applies to an S corporation.
A)True
B)False
Q3) Randall owns 800 shares in Fabrication,Inc. ,an S corporation in Moss Hill,Texas.In 2010,his basis in his stock is $30,000,before the adjustment for this year's losses.During 2010,Randall's share of the corporation's ordinary loss is $20,000 and his share of its capital loss is $15,000.How much can Randall deduct due to these losses?
A)None.
B)$15,000 ordinary loss;$10,000 capital loss.
C)$17,143 ordinary loss;$12,857 capital loss.
D)$20,000 ordinary loss;$15,000 capital loss.
E)Some other amounts.
Q4) How may an S corporation manage its liability for the built-in gains tax?
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Chapter 13: Comparative Forms of Doing Business
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Q1) Agnes owns a sole proprietorship for which the assets have appreciated in value.If she is going to sell the business to Abner,should she structure the sale as (1)a sale of the individual assets or (2)a sale of the sole proprietorship?
Q2) Which of the following statements regarding the accumulated earnings tax is correct in 2010?
A)If Blue,Inc.'s accumulated taxable income for 2010 is $180,000,the calculated accumulated earnings tax liability would be $53,450 [($50,000 ´ 15%)+ ($25,000 ´ 25%)+ ($25,000 ´ 34%)+ ($80,000 ´ 39%)].
B)Blue,Inc. ,calculates accumulated taxable income for 2010 of $100,000.Therefore,it should increase the amount paid to the IRS for 2010 by $15,000 ($100,000 ´ 15%).
C)The accumulated earnings tax applies to C corporations,but applies to S corporations at only the shareholder level.
D)The tax rate for the accumulated earnings tax of 35% is the same as the highest tax bracket for the corporate taxpayer.
E)None of the above.
Q3) How can double taxation be avoided or reduced by owning assets outside a C corporation?
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Chapter 14: Taxes on the Financial Statements
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Q1) The valuation allowance can reduce a deferred tax liability.
A)True
B)False
Q2) South,Inc. ,earns book net income before tax of $400,000 in 2009.South acquires a depreciable asset in 2009 and first year tax depreciation exceeds book depreciation by $50,000.At the end of 2009,South's deferred tax liability account balance is $17,500.In 2010,South earns $500,000 book net income before tax and its book depreciation exceeds tax depreciation by $20,000.South has no other temporary or permanent differences.Assuming the U.S.tax rate is 35%,what is South's current income tax expense reported on its financial statements for 2010?
A)$182,000.
B)$175,000.
C)$168,000.
D)$7,000.
E)None of the above.
Q3) West,Inc. ,is a domestic corporation.It owns 100% of Texas,Inc. ,a domestic corporation,100% of Paris,a foreign corporation,and 35% of Iowa,Inc. ,a domestic corporation.Which entities income will be included in West's Federal consolidated income tax return? How would your answer change if West instead owned 15% of Iowa?
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Chapter 15: Exempt Entities
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Q1) Which of the following is a requirement for exempt status?
A)The organization does not exert political influence.
B)The organization has not been subject to intermediate sanctions for the past 18 months.
C)The organization serves some type of common good.
D)Only a.and c.
E)a. ,b. ,and c.
Q2) The excise tax imposed on a private foundation's investment income can be imposed both as an initial (first-level)tax and an additional (second-level)tax.
A)True
B)False
Q3) Why are some organizations exempt from Federal income tax?
Q4) If an organization qualifies for exempt status for Federal income tax purposes,it is exempt from all Federal income taxes.
A)True B)False
Q5) Under what circumstances are bingo games not treated as an unrelated trade or business?
Q6) What is a feeder organization? How is it taxed?
Page 17
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Chapter 16: Multistate Corporate Taxation
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Q1) An assembly worker earns a $30,000 salary and receives a fringe benefit package worth $15,000.The payroll factor assigns $45,000 for this employee.
A)True
B)False
Q2) Typically exempt from the sales/use tax base is the purchase of computer and cell phone equipment by a large consulting firm that is incorporated in the state.
A)True
B)False
Q3) If a state follows Federal income tax rules,tax compliance and enforcement become easier to accomplish.
A)True
B)False
Q4) Typical indicators of nexus include the presence of employees based in the state,and the ownership or lease of realty there.
A)True
B)False
Q5) Define the terms allocation and apportionment as they are used in multistate income taxation.
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Chapter 17: Tax Practice and Ethics
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Q1) With respect to the audit process,which statement is correct?
A)Office audits are conducted at the office of the taxpayer.
B)The most common type of Federal income tax audit is the correspondence audit.
C)An office audit typically is used for a business taxpayer.
D)A correspondence audit usually is concluded after a meeting with the taxpayer at the IRS auditor's office.
Q2) Maria and Miguel Blanco are in the midst of negotiating a divorce.Because both parties are unwilling to share any current financial information,their joint Form 1040 for 2010 is not filed until October 31,2011,when the respective divorce attorneys forced them to cooperate.The Blancos should not be subject to any Federal late-filing penalties,because of the reasonable cause exception.
A)True
B)False
Q3) The head of IRS operations is the Chief Counsel.
A)True
B)False
Q4) Kim underpaid her taxes by $30,000.Of this amount,$10,000 was due to negligence on her part,as her record-keeping system is highly inadequate.Determine the amount of any negligence penalty.
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Chapter 18: The Federal Gift and Estate Taxes
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Q1) Manfredo makes a donation of $50,000 to the church where he was baptized in Mexico City.The gift does not qualify as a charitable contribution for Federal income tax purposes.
A)True
B)False
Q2) As a result of a fatal auto accident,Irene totaled a Bentley worth $95,000.If the insurance company covers $60,000 of the loss,Irene's estate can claim a deduction of $35,000 in arriving at the taxable estate.
A)True
B)False
Q3) Lila is the owner and beneficiary of a policy on the life of her husband,Austin.Upon Austin's prior death,the insurance proceeds paid to Lila qualify for the marital deduction.
A)True
B)False
Q4) Sometimes also known as transaction taxes,Federal gift and estate taxes are excise taxes.
A)True
B)False
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Chapter 19: Family Tax Planning
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Q1) Which of the following independent statements correctly reflects the valuation rules applicable to estate and gift taxes?
A)In valuing an annuity issued by Prudential Insurance Company,use the tables issued by the IRS.
B)In valuing an unmatured life insurance policy on which no further premiums need be paid,use the policy's interpolated terminal reserve amount.
C)In valuing a note receivable,the issuer's bankruptcy should not be taken into account.
D)In valuing a used car,use the trade-in value offered by a dealership as a down payment on a new model.
E)None of the above statements is correct.
Q2) If a stock redemption is to be carried out,an entity type of buy and sell agreement must be involved.
A)True
B)False
Q3) Describe the various tax advantages that are available from donating a conservation easement to charity.
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Chapter 20: Income Taxation of Trusts and Estates
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Q1) To reduce trustee commissions,the Emily Trust is operated as though it were two trusts (i.e. ,with 70-year-old Grandma and 7-year old Skippy each holding equal shares).This year the trust generated distributable net income (DNI)of $80,000.The trustee distributed $90,000 to Grandma this year: $40,000 as her one-half share of the entity's income,and $50,000 as a distribution of principal.How much of the year's distributable net income is assigned to Grandma?
A)$90,000.
B)$80,000.
C)$50,000.
D)$40,000.
Q2) A fiduciary's distribution deduction assures that current-year income is taxed only once.
A)True
B)False
Q3) The Gable Trust reports $20,000 business income and $10,000 exempt interest income,and it paid a $3,000 fiduciary fee.Gable's distributable net income is computed net of the full $3,000 deduction for the fees.
A)True
B)False
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