Corporate Taxation
Pre-Test Questions
Course Introduction
Corporate Taxation explores the fundamental principles, rules, and issues surrounding the taxation of corporations and their shareholders. The course examines topics such as the formation of corporations, corporate income, distributions to shareholders, dividends, stock redemptions, liquidations, and reorganizations, all within the context of current tax laws and regulations. Students will develop an understanding of how tax policies affect business decisions and learn to identify tax planning opportunities and compliance requirements. The course also addresses the integration of statutory law, judicial decisions, and IRS rulings, emphasizing the practical consequences of tax strategies in corporate settings.
Recommended Textbook
South Western Federal Taxation 2013 Comprehensive Edition by William H. Hoffman
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Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Q1) During any month in which both the failure to file penalty and the failure to pay penalty apply, the failure to file penalty is reduced by the amount of the failure to pay penalty.
A)True
B)False
Answer: True
Q2) Burt and Lisa are married and live in a common law state.Burt wants to make gifts to their five children in 2012.What is the maximum amount of the annual exclusion they will be allowed for these gifts?
A)$130,000.
B)$65,000.
C)$26,000.
D)$13,000.
E)None of the above.
Answer: A
Q3) Unlike FICA, FUTA requires that employers comply with state as well as Federal rules.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Working With the Tax Law
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Q1) Tax bills are handled by which committee in the U.S.House of Representatives?
A)Taxation Committee.
B)Ways and Means Committee.
C)Finance Committee.
D)Budget Committee.
E)None of the above.
Answer: B
Q2) Section 1244 permits an investor to convert what would be a capital loss into an ordinary loss.
A)True
B)False
Answer: True
Q3) Which statement is incorrect with respect to taxation on the CPA exam?
A)The CPA exam now has only four parts.
B)There are no longer case studies on the exam.
C)A candidate may not go back after exiting a testlet.
D)Simulations include a four-function pop-up calculator.
E)None of the above are incorrect.
Answer: B
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Page 4
Chapter 3: Computing the Tax
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Q1) Which, if any, of the following is a correct statement relating to the kiddie tax?
A)If the parents are divorced, the income of the noncustodial parent is used to determine the allocable parental tax.
B)The components for the application of the kiddie tax are not subject to adjustment for inflation.
C)If the kiddie tax applies, the parents must include the income of the child on their own income tax return.
D)The kiddie tax does not apply if both parents of the child are deceased.
E)None of the above.
Answer: D
Q2) Once they reach age 65, many taxpayers will switch from itemizing their deductions from AGI and start claiming the standard deduction.
A)True
B)False
Answer: True
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Chapter 4: Gross Income: Concepts and Inclusions
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Q1) Sarah, a majority shareholder in Teal, Inc., made a $200,000 interest-free loan to the corporation.Sarah is not an employee of the corporation.
A)Sarah must recognize imputed interest income and the corporation must recognize imputed interest expense.
B)Sarah must recognize imputed interest expense and the corporation must recognize imputed interest income.
C)Sarah must recognize imputed dividend income and the corporation may recognize imputed interest expense.
D)Neither Sarah's nor the corporation's gross income is affected by the loans because no interest was charged.
E)None of the above.
Q2) In December 2012, Mary collected the December 2012 and January 2013 rent from a tenant.Mary is a cash basis taxpayer.The amount collected in December 2012 for the 2013 rent should be included in her 2013 gross income.
A)True
B)False
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Chapter 5: Gross Income: Exclusions
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Q1) Tommy, a senior at State College, receives free room and board as full compensation for working as a resident advisor at the university dormitory.The regular housing contract is $2,000 a year in total, $1,200 for lodging and $800 for meals in the dormitory.Tommy had the option of receiving the meals or $800 in cash.Tommy accepted the meals.What is Tommy's gross income from working as a resident advisor?
A)$1,800, the entire value of the contract is compensation.
B)$1,000, only the lodging contract must be included in gross income.
C)$800, only the meal contract must be included in gross income.
D)$0, the entire value of the contract is excluded from gross income.
E)None of the above.
Q2) The taxpayer's marginal tax bracket is 25%.Which would the taxpayer prefer?
A)$1.00 taxable income rather than $1.00 tax-exempt income.
B)$.80 tax-exempt income rather than $1.00 taxable income.
C)$1.25 taxable income rather than $1.00 tax-exempt income.
D)$1.30 taxable income rather than $1.00 tax-exempt income.
E)None of the above.
Q3) What are the tax problems associated with payments received by a wife from her deceased husband's employer? (Assume the wife renders no services to the employer.)
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Chapter 6: Deductions and Losses: in General
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Q1) Briefly explain the provisions regarding the deductibility of expenditures paid for another's benefit or obligation.
Q2) Generally, a closely-held family corporation is not permitted to take a deduction for a salary paid to a family member in calculating corporate taxable income.
A)True
B)False
Q3) Which of the following is not a "trade or business" expense?
A)Interest on business indebtedness.
B)Property taxes on business property.
C)Parking ticket paid on business auto.
D)Depreciation on business property.
E)All of the above are "trade or business" expenses.
Q4) Assuming an activity is deemed to be a hobby, discuss the order and limits in which expenses must be deducted.
Q5) All domestic bribes (i.e., to a U.S.official) are disallowed as deductions.
A)True
B)False
Q6) Under what circumstance can a bribe be deducted?
Q7) What losses are deductible by an individual taxpayer?
Page 8
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Q1) A bona fide debt cannot arise on a loan between father and son.
A)True
B)False
Q2) Red Corporation incurred a $15,000 bad debt last year. Red Corporation also had an $9,000 long-term capital gain last year. Red's taxable income for last year was $100,000. During the current year, Red Corporation, unexpectedly, collected $7,000 on the debt. How should Red Corporation account for the $7,000 collection?
A)$0 income.
B)$3,000 income.
C)$4,000 income.
D)$7,000 income.
E)None of the above.
Q3) A theft loss of investment property is an itemized deduction not subject to the 2%-of-AGI floor.
A)True
B)False
Q4) An unreimbursed employee business expense can create an NOL for an individual.
A)True
B)False
Page 9
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Chapter 8: Depreciation, Cost Recovery, Amortization, and Depletion
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Q1) Tom acquired a used five-year class asset on November 5, 2012 for $20,000. This was the only asset Tom acquired in 2012. He placed the asset in service on January 20, 2013. However, because the asset was purchased in 2012, Tom deducted regular MACRS cost recovery on the asset for the year 2012.He did not elect to expense any of the asset under § 179. In 2013, Tom purchased no assets and because he had no taxable income, he did not deduct any cost recovery. In 2014, Tom sold the five-year asset on September 25th. Determine the basis of the five-year asset at the time of the sale.
Q2) On February 15, 2012, Martin signed a 20-year lease on a commercial building. In March 2012, Martin purchased and placed in service new seven-year class assets costing $400,000. In June 2012, Martin paid $200,000 for qualified leasehold real property improvements. Martin desires to take the maximum cost recovery deduction with respect to the assets in 2012. He takes additional first-year depreciation. Assuming taxable income is not a limitation, determine Martin's maximum cost recovery for 2012.
Q3) The key date for calculating cost recovery is the date the asset is placed in service. A)True B)False
Q4) Discuss the reason for the inclusion amount with respect to leased automobiles.
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Chapter 9: Deductions: Employee and Self-Employed
Related Expenses
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Q1) When contributions are made to a Roth IRA, they are deductible by the participant.Later distributions from a the IRA, however, are fully taxed.
A)True
B)False
Q2) Which of the following expenses, if any, qualify as deductible?
A)Contributions to a Coverdell Education Savings Account (CESA).
B)Contributions to a qualified tuition program (§ 529 plan).
C)Job hunting expense of FBI agent who applies for the job of city manager of Beaumont (TX).
D)Contribution to a traditional IRA.
E)None of the above.
Q3) By itself, credit card receipts will constitute adequate substantiation for travel expenses.
A)True
B)False
Q4) Nicole just retired as a partner in a Philadelphia law firm.She moved to San Francisco where she took a job as an adjunct professor at a local law school.Can Nicole deduct her moving expenses? Explain
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Q1) Frank, a widower, had a serious stroke and is no longer capable of caring for himself. He has three sons, all of whom live in different states. Because they are unable to care for Frank in their homes, his sons have placed him in a nursing home equipped to provide medical and nursing care facilities. Total nursing home expenses amount to $45,000 per year. Of this amount, $18,000 is directly attributable to medical and nursing care.Frank's Social Security benefits are used to pay for $12,000 of the nursing home charges. He has no other income. His sons plan to split the remaining medical expenses equally.
a. What portion of the nursing home charges is potentially deductible as a medical expense?
b. Can you provide Frank's sons with a tax planning idea for maximizing the deduction for his medical expenses?
Q2) Sadie mailed a check for $2,200 to a qualified charitable organization on December 31, 2012.The $2,200 contribution is deductible on Sadie's 2012 tax return.
A)True
B)False
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Chapter 11: Investor Losses
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Q1) Last year, Ted invested $100,000 for a 50% interest in a partnership in which he was a material participant.The partnership incurred a loss, and Ted's share was $150,000.Which of the following statements is incorrect?
A)Ted's nondeductible loss of $50,000 can be carried over and used in the future (subject to the at-risk provisions).
B)If Ted has taxable income of $50,000 from the partnership in the current year and no other transactions that affect his at-risk amount, he can use all of the $50,000 loss carried over.
C)Since Ted has only $100,000 of capital at risk, he cannot deduct more than $100,000 against his other income.
D)None of the above is incorrect.
Q2) Rachel participates 150 hours in Activity A and 400 hours in Activity B, both of which are nonrental businesses.Both activities are passive.
A)True
B)False
Q3) When a taxpayer disposes of a passive activity by death, what happens to any unused passive losses?
Q4) What special passive loss treatment is available to real estate activities?
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Page 13
Chapter 12: Tax Credits and Payments
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Q1) Unless a taxpayer is disabled, the tax credit for the elderly or disabled is available only if the taxpayer is at least 59 1/2 years old.
A)True
B)False
Q2) In March 2012, Gray Corporation hired two individuals, both of whom were certified as long-term recipients of family assistance benefits.Each employee was paid $11,000 during 2012.Only one of the individuals continued to work for Gray Corporation in 2013, earning $9,000 during the year.No additional workers were hired in 2013.Gray Corporation's work opportunity tax credit amounts for 2012 and 2013 are:
A)$4,000 in 2012, $4,000 in 2013.
B)$8,000 in 2012, $4,500 in 2013.
C)$8,000 in 2012, $5,000 in 2013.
D)$8,000 in 2012, $9,000 in 2013.
E)None of the above.
Q3) Employers are encouraged by the work opportunity tax credit to hire individuals who have been long-term recipients of family assistance welfare benefits.
A)True
B)False
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Page 14
Chapter 13: Property Transactions: Determination of Gain or
Loss, Basis Considerations, and Nontaxable
Exchanges-Part 2
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Q1) Define an involuntary conversion.
Q2) Discuss the treatment of realized gains from involuntary conversions.
Q3) Boyd acquired tax-exempt bonds for $430,000 in December 2012.The bonds, which mature in December 2017, have a maturity value of $400,000.Boyd does not make any elections regarding the amortization of the bond premium.Determine the tax consequences to Boyd when he redeems the bonds in December 2017.
Q4) Evelyn's office building is destroyed by fire on July 12, 2012.The adjusted basis is $315,000.She receives insurance proceeds of $350,000 on August 31, 2012.Calculate the amount that Evelyn must reinvest in qualifying property in order that her recognized gain be $20,000.Assume she elects § 1033 (nonrecognition of gain from an involuntary conversion) postponement treatment.
Q5) If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets, how is the excess allocated among the purchased assets?
Q6) What types of exchanges of insurance contracts are eligible for nonrecognition treatment under § 1035?
Page 15
Q7) Under what circumstances will a distribution by a corporation to its only shareholder result in a capital gain?
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Chapter 13: A: Property Transactions: Determination
of
Gain
or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1
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Q1) If insurance proceeds are received for property used in a trade or business, a casualty transaction can result in recognized gain or recognized loss.
A)True
B)False
Q2) Alice owns land with an adjusted basis of $610,000, subject to a mortgage of $350,000.Real estate taxes are $9,000 per calendar year and are payable on December 31.On April 1, 2012, Alice sells her land subject to the mortgage for $650,000 in cash, a note for $600,000, and property with a fair market value of $120,000.What is the amount realized?
A)$1,370,000.
B)$1,372,219.
C)$1,720,000.
D)$1,722,219.
E)None of the above.
Q3) A donee receives depreciable property worth $85,000 (basis to donor of $150,000) with no gift tax being paid on the transfer.The donee's basis for depreciation purposes is $85,000.
A)True
B)False
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Chapter 14: Property Transactions: Capital Gains and Losses,
1231, Recapture Provisions
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Q1) Vertigo, Inc., has a 2012 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2011.For 2012, Vertigo's net § 1231 loss is treated as:
A)Ordinary loss.
B)Ordinary gain.
C)Capital loss.
D)Capital gain.
E)None of the above.
Q2) Why is it generally better to have a net § 1231 gain year followed by a net § 1231 loss year rather than a net § 1231 loss year followed by a net § 1231 gain year?
Q3) Which of the following creates potential § 1245 depreciation recapture and potential § 1231 gain?
A)Depreciable equipment held more than one year and sold for more than its original cost.
B)Amortizable goodwill held more than one year and disposed of for less than its adjusted basis.
C)Land held more than one year and sold for more than was paid for it.
D)Inventory held more than one year and sold for more than was paid for it.
E)None of the above.
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Chapter 15: Alternative Minimum Tax
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Q1) If a taxpayer deducts the standard deduction in calculating regular taxable income, what effect does this have in calculating AMTI?
Q2) The AMT can be calculated using either the direct or the indirect approaches.Both the tax law and the tax forms use the direct approach.
A)True
B)False
Q3) Omar acquires used 7-year personal property for $100,000 to use in his business in February 2012.Omar does not elect § 179 expensing, but does take the maximum regular cost recovery deduction.He elects not to take additional first-year depreciation.As a result, Omar will have a positive AMT adjustment in 2012 of what amount?
A)$0.
B)$3,580.
C)$10,710.
D)$14,290.
E)None of the above.
Q4) Ashlyn is subject to the AMT in 2012.She calculates her AMT base to be $200,000.What are the AMT rates that apply for Ashlyn?
Q5) Why is there no AMT adjustment for charitable contributions?
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Chapter 16: Accounting Periods and Methods
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Q1) In the case of a sale reported under the installment method, no gain is reported until the seller has recovered the entire cost of the property sold.
A)True
B)False
Q2) Terry, Inc., makes gasoline storage tanks.All production is done under contract.The company makes three basic models, but each model must be adapted to customer specifications for the location of outlets, insulation, and paint.It takes from three to six months to complete a tank.How should Terry account for the income for the business?
Q3) The taxpayer had incorrectly been using the cash method of accounting. For 2012, the company voluntarily changed to the accrual method. The adjustment due to the change in method as calculated at the beginning of 2012 was $120,000 (positive). The adjustment as calculated as of the end of 2012 was $80,000 (positive).As a result of the change in method, the company must:
A)Increase its income for 2012 by $120,000.
B)Increase its income for 2012 by $80,000.
C)Increase its income for 2012 by $30,000.
D)Increase its income for 2012 by $40,000.
E)None of the above.
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Chapter 17: Corporations: Introduction and Operating Rules
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Q1) The corporate marginal income tax rates range from 10% to 35%, while the individual marginal income tax rates range from 15% to 39%.
A)True
B)False
Q2) Lucinda is a 60% shareholder in Rhea Corporation, a calendar year S corporation.During the year, Rhea Corporation had gross income of $550,000 and operating expenses of $380,000.In addition, the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000.During the year, Rhea Corporation distributed $50,000 to Lucinda.With respect to this information, which of the following statements is correct?
A)Rhea Corporation will pay tax on taxable income of $200,000.
B)Lucinda reports ordinary income of $50,000.
C)Lucinda reports ordinary income of $120,000.
D)Lucinda reports ordinary income of $102,000 and a short-term capital gain of $18,000.
E)None of the above.
Q3) What is the purpose of Schedule M-3? Which corporations are required to file Schedule M-3?
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Chapter 18: Corporations: Organization and Capital Structure
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Q1) Sarah and Tony (mother and son) form Dove Corporation with the following investments: cash by Sarah of $65,000; land by Tony (basis of $25,000 and fair market value of $35,000).Dove Corporation issues 400 shares of stock, 200 each to Sarah and Tony.Thus, each receives stock in Dove worth $50,000.
A)Section 351 cannot apply since Sarah should have received 260 shares instead of only 200.
B)Section 351 may apply because stock need not be issued to Sarah and Tony in proportion to the value of the property transferred.
C)Tony's basis in the stock of Dove Corporation is $50,000.
D)As a result of the transfer, Tony recognizes a gain of $10,000.
E)None of the above.
Q2) A shareholder's holding period for stock received under § 351 includes the holding period of the property transferred to the corporation.
A)True
B)False
Q3) Issues relating to basis arise when a taxpayer is involved in a § 351 transaction. Describe the underlying rules, and the purpose they serve.
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Page 22
Chapter 19: Corporations: Distributions Not in Complete
Liquidation
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Q1) The gross estate of John, decedent, includes stock in Crimson Corporation and Jade Corporation valued at $1.3 million and $2 million, respectively. John's adjusted gross estate is $9 million. He owned 23% of the Crimson stock and 31% of the Jade stock. Immediate members of John's family own the remaining shares of both Crimson and Jade. Those individuals are also the sole beneficiaries of John's estate. Death taxes and funeral and administration expenses for John's estate are $1.3 million. John had a basis of $475,000 in the Crimson stock and $510,000 in the Jade stock. Crimson Corporation (E & P of $3 million) distributed land worth $1.3 million (basis of $800,000) to John's estate in redemption of all of the Crimson stock. Which of the following is a correct statement regarding the tax consequences of this redemption?
A)The estate recognizes dividend income of $1.3 million on the redemption.
B)Crimson Corporation recognizes no gain on the distribution of the land.
C)The estate recognizes no gain or loss on the redemption.
D)The estate has a basis of $800,000 in the land.
E)None of the above.
Q2) Constructive dividends have no effect on a distributing corporation's E & P.
A)True
B)False
Q3) Explain the stock attribution rules that apply in the case of stock redemptions.
Page 23
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganizations
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Q1) Scarlet Corporation, the parent corporation, has a basis of $600,000 in the stock of Brown Corporation, a subsidiary in which it owns 90% of all classes of stock. Scarlet purchased the stock in Brown Corporation 10 years ago. In the current year, Scarlet Corporation liquidates Brown Corporation and acquires assets worth $800,000 and with a tax basis to Brown Corporation of $950,000. What basis will Scarlet Corporation have in the assets acquired from Brown Corporation?
A)$0.
B)$600,000.
C)$800,000.
D)$950,000.
E)None of the above.
Q2) The amount of gain recognized by a shareholder in a corporate reorganization is based on the shareholder's proportionate share of E & P.
A)True
B)False
Q3) What are the tax consequences of a § 332 liquidation to the parent corporation, subsidiary corporation, and minority shareholder?
Q4) Discuss the role of letter rulings in corporate reorganizations.
Page 24
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Chapter 21: Partnerships
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Q1) Which of the following would be currently taxable as ordinary income to the service partner if received in exchange for services performed for the partnership? (In all cases, assume the interest is not sold within two years after the time it is granted to the service partner.)
A)A 10% interest in the capital of the partnership that will vest in 3 years.
B)A 20% interest in the future profits of the partnership received in exchange for future services to be performed for the partnership.
C)A 25% interest in the capital of the partnership where there are no restrictions on transferability of the interest.
D)A 30% interest in ongoing profits of the partnership where the partnership is not a publicly-traded partnership and the income stream is not assured.
E)All of the above.
Q2) The sum of the partner's ending basis on Schedule K-1 equals the total of the partner's ending capital account on Schedule L.
A)True
B)False
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Chapter 22: S: Corporations
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Q1) On January 2, 2011, David loans his S corporation $10,000, and by the end of 2011 David's stock basis is zero and the basis in his note has been reduced to $8,000.During 2012, the company's operating income is $10,000.The company also makes distributions to David of $11,000.David reports a(n):
A)$1,000 LTCG.
B)$3,000 LTCG.
C)$11,000 LTCG.
D)Loan basis of $10,000.
Q2) Which of these tax provisions does not apply to an S corporation?
A)Section 1244 stock.
B)"Partial liquidation" stock redemption.
C)Tax-free "A" reorganization.
D)Section 1202 capital gain exclusion.
Q3) The Schedule M-3 is the same for a C corporation and an S corporation.
A)True
B)False
Q4) An S election is made on the shareholder's Form 1040.
A)True
B)False
Q5) List some of the separately stated items listed on Schedule K of the Form 1120S.
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Chapter 23: Exempt Entities
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Q1) Which of the following are organizations exempt under § 501(c)(3)?
A)Girl Scouts of America.
B)Washington and Lee University.
C)Veterans of Foreign Wars (VFW).
D)Only a.and b.are § 501(c)(3) organizations.
E)All of the above are § 501(c)(3) organizations.
Q2) Teal, Inc., is a private foundation which failed to distribute an adequate amount of income for the exempt purpose of Teal.Which of the following statements is correct?
A)An excise tax in the form of an initial tax at the rate of 5% may be imposed on Teal.
B)An excise tax in the form of an initial tax at the rate of 2.5% may be imposed on the foundation manager.
C)An excise tax in the form of an additional tax at the rate of 100% may be imposed on Teal.
D)An excise tax in the form of an additional tax at the rate of 50% may be imposed on the foundation manager.
E)None of the statements is correct.
Q3) Why are some organizations exempt from Federal income tax?
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Page 27
Chapter 24: Multistate Corporate Taxation
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Q1) Most states waive the collection of sales tax on medical equipment.
A)True
B)False
Q2) 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.
Q3) If a state follows Federal income tax rules, the state's tax compliance and enforcement become easier to accomplish.
A)True
B)False
Q4) A few states assess a state-level tax on an S corporation that operates in the state.
A)True
B)False
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Page 28
Chapter 25: Taxation of International Transactions
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Q1) A Qualified Business Unit of a U.S.corporation that operates in Germany generally uses the Euro as its functional currency.
A)True
B)False
Q2) USCo, a domestic corporation, reports worldwide taxable income of $500,000, including a $100,000 dividend from ForCo, a wholly-owned foreign corporation.ForCo's undistributed earnings and profits are $1 million and it has paid $200,000 of foreign income taxes attributable to these earnings.What is USCo's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation)?
A)$500,000.
B)$200,000.
C)$100,000.
D)$20,000.
Q3) In allocating interest expense between U.S.and foreign sources, a taxpayer must use the tax basis of the income-producing assets.
A)True
B)False
Q4) Discuss the primary purposes of income tax treaties.
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Page 29
Chapter 26: Tax Practice and Ethics
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Q1) The taxpayer can avoid a valuation penalty for overstating the value of the charitable contribution of an artwork by showing that the deduction claimed was based on a qualified ____________________.
Q2) Ron, a calendar year taxpayer subject to a 35% marginal income tax rate, claimed a Form 1040 charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $150,000.The applicable overvaluation penalty is:
A)$0.
B)$7,000.
C)$10,000 (maximum penalty).
D)$14,000.
Q3) A ____________________% penalty may result when a taxpayer overstates by 150% or more the value of an asset contributed to a charity. or
Q4) Concerning the penalty for civil tax fraud:
A)Fraudulent behavior is more than mere negligence on the part of the taxpayer.
B)The burden of proof to establish the penalty is on the government.
C)The penalty is 100% of the underpayment.
D)Fraud is defined in Code §§ 6663(b) and (f).
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Page 30
Chapter 28: Income Taxation of Trusts and Estates
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Q1) The Whitmer Trust operates a manufacturing business. When Whitmer incurs a net operating loss, the current-year deduction passes through to the income beneficiaries.
A)True
B)False
Q2) A realized loss is recognized by a trust when it distributes a non-cash asset.
A)True
B)False
Q3) Explain how the Federal income tax law applies to a fiduciary entity like a trust. Is the tax structure similar to that of an individual? A partnership?
Q4) The distributable net income (DNI) of a fiduciary taxpayer:
A)Constitutes the maximum amount for the fiduciary's distribution deduction.
B)Specifies the character of the distributions in the hands of the year's income beneficiaries.
C)Marks the maximum amount of gross income that income beneficiaries must report when receiving distributions.
D)All of the above.
Q5) The IRS encourages ____________________ filing for Forms 1041.
Q6) Every ____________________ trust is allowed a $300 personal exemption.
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