Corporate Taxation
Study Guide Questions
Course Introduction
Corporate Taxation explores the federal income tax treatment of corporations and their shareholders, focusing on the formation, operation, distributions, mergers and acquisitions, and liquidations of corporations. The course analyzes key concepts such as double taxation, tax consequences of various corporate transactions, and planning opportunities to minimize tax liability within legal frameworks. Students will gain a comprehensive understanding of the Internal Revenue Code provisions affecting corporations, relevant Treasury Regulations, and pivotal judicial decisions, preparing them to identify and address tax issues commonly encountered in the business environment.
Recommended Textbook
Fundamentals of Taxation 9th Edition 2016 by Ana Cruz
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Page 2
Chapter 1: Introduction to Taxation, the Income Tax
Formula,
and Form 1040ez
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Sample Questions
Q1) Wages, salaries, and tips are compensation for services rendered. However, commissions, bonuses, and severance pay are not taxable.
A)True
B)False
Answer: False
Q2) Which of the following would disqualify a taxpayer from filing a Form 1040EZ?
A) Have total taxable income under $100,000.
B) Be under age 65 and not blind.
C) Have no dependents.
D)Have interest income more than $2,000.
Answer: D
Q3) Jake earned $15,000 and paid $1,500 of income tax, while Jill earned $40,000 and paid $6,000 of income tax. The tax rate structure they are subject to is:
A) Progressive.
B) Proportional.
C) Regressive.
D)Recessive.
Answer: A
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Chapter 2: Expanded Tax Formula, Forms 1040a and 1040, and Basic Concepts
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Sample Questions
Q1) A married couple can file a joint return only if both have earned income.
A)True
B)False
Answer: False
Q2) What is the amount of the tax liability for a married person filing a separate return and having taxable income of $115,715? All answers should be rounded to the nearest dollar.
A) $26,435.
B) $25,926.
C) $32,400.
D)$25,950.
Answer: D
Q3) A taxpayer may request an automatic seven-month extension of time to file his or her tax return.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Gross Income: Inclusions and Exclusions
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Sample Questions
Q1) Felix, a single taxpayer, claimed $180 of state tax as an itemized deduction on his 2014 tax return. The total itemized deductions on his tax return were $6,250. In 2015, he received a $25 refund from the state. What is the amount Felix has to report on his 2015 tax return?
A) $0.
B) $50.
C) $180.
D)$25.
Answer: D
Q2) If a student must perform certain services for the educational institution (e.g., graduate assistantships), the amount paid for services is considered:
A) A scholarship.
B) A fellowship.
C) Wages.
D)All of these.
Answer: C
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Chapter 4: Adjustments for Adjusted Gross Income
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Sample Questions
Q1) What is an "eligible educational institution" as it relates to the deductibility of student loan interest?
Q2) In 2015, Miguel accepted a new job and moved from San Diego to Boston to begin work. He incurred moving expenses for his household goods and furniture of $3,500. Prior to moving, Miguel flew to Boston to look for a new residence. The transportation and lodging for this trip to Boston was $900 and his meals were $150. The cost of his travel during the actual move to Boston was $500 which included $75 for meals. Calculate the amount of Miguel's moving expense deduction for 2015.
Q3) What are the two limitations associated with the deduction for health insurance for self-employed individuals?
Q4) Which of the following is not a requirement for an alimony deduction?
A) The payments must be in cash.
B) The payments must cease upon the death of the payee.
C) The payee must have a dependent child.
D)The payer and payee must not live in the same household at the time of the payments.
Q5) Is the self-employed health insurance deduction available to individuals other than self-employed taxpayers? If so, to whom is it available?
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Chapter 5: Itemized Deductions
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Sample Questions
Q1) To qualify for a medical expense deduction as taxpayer's dependent, a person must be a dependent either at the time the medical services were provided or at the time the expenses were paid. A person generally qualifies as a dependent for purposes of the medical expense deduction if the person:
A) Would qualify as a dependent except for the amount of gross income.
B) Was a foreign student staying briefly at taxpayer's home.
C) Is an unmarried adult child of taxpayer's sibling.
D)Is the unrelated caregiver for taxpayer's elderly parents.
Q2) For medical expenses, only expenses in excess of 7.5 percent of adjusted gross income are deductible.
A)True
B)False
Q3) Melissa earned net investment income of $11,000 during 2015 and incurred investment interest expense of $3,000 during the year related to a stock purchase. She incurred other investment interest expenses of $7,000 during the year. Melissa is limited to a deduction of $3,000 of investment interest expense in 2015.
A)True
B)False
Q4) Donations to what types of organizations are tax deductible?
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Chapter 6: Self-Employed Business Income
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Sample Questions
Q1) The luxury auto limits on depreciation must be reduced if business use is less than 100%.
A)True
B)False
Q2) "Listed property" includes only passenger automobiles.
A)True
B)False
Q3) The standard mileage rate encompasses all of the following auto costs except for:
A) Depreciation or lease payments.
B) Auto property taxes.
C) Maintenance and repairs.
D)Gasoline, oil, and insurance.
Q4) Trade or business expenses are treated as:
A) Deductible only if the activity had substantial income.
B) An itemized deduction if not reimbursed.
C) Deductible as itemized deductions subject to the 2% AGI floor.
D)Deductible as a for AGI deduction.
Q5) Describe each of the depreciation conventions and when each is applicable.
Q6) List and define the criteria for an expenditure to be deductible on Schedule C.
Page 8
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Chapter 7: Capital Gains and Other Sales of Property
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Sample Questions
Q1) Greg sold some equipment for $72,510 on June 13, 2015. Greg had originally purchased the equipment for $86,750 on November 21, 2014. The equipment was subject to depreciation of $17,350. What gain or loss will Greg recognize on the sale?
A) $3,110 ordinary gain.
B) $3,110 capital gain.
C) $8,250 capital loss.
D)$8,250 ordinary loss.
Q2) If a taxpayer cannot specifically identify which shares of stock were sold, the average cost of all shares held is used as the adjusted basis of the shares that were sold.
A)True
B)False
Q3) Which one of the following is a capital asset?
A) Business inventory.
B) A computer used for investments.
C) A non-musical copyright created by the taxpayer.
D)Rental property.
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Chapter 8: Rental Property, Royalties, Income From
Flow-Through Entities
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Sample Questions
Q1) If a tenant provides service for the rental property in lieu of rental payment, the fair market value of the service is considered rental income and must be reported as income.
A)True
B)False
Q2) Which of the following is not considered an ordinary expense for a rental activity?
A) Advertising
B) Insurance
C) Property taxes
D)All of these are deductible as ordinary expense
Q3) On June 1<sup>st</sup> of the current year, Kayla and Ralph purchased a rental beach house for $700,000. Of that amount, $400,000 was for the land value. How much depreciation deduction can they take in the current year? (You may need to refer to the depreciation tables.)
A) $0.
B) $5,910.
C) $7,880.
D)$13,790.
Q4) What are the different types of income that may be reported on Schedule E?
Page 10
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Chapter 9: Tax Credits
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Sample Questions
Q1) George is a single father who has 2 qualifying children. His AGI is $25,000. How much is his EIC (use the EIC formula)? (Round your answer to the nearest dollar.)
A) $3,359.
B) $4,097.
C) $5,259.
D)$5,548.
Q2) Juan paid $1,750 in qualifying expenses for his daughter who attended a community college. How much is Juan's lifetime learning credit without regard to AGI limitations or other credits?
A) $250.
B) $350.
C) $825.
D)$1,750.
Q3) Noah and Olivia have two boys, Jordan, age 6 and Jack, age 5. Their AGI is $176,000. What amount of child tax credit can they claim?
A) $0.
B) $1,000.
C) $2,000.
D)$2,300.
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Page 11
Chapter 10: Payroll Taxes
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Sample Questions
Q1) Juan is married, is paid 2,000 per week, and claims three withholding allowances. What is the amount of federal income tax withheld from Juan's gross wages for the week using the percentage method?
A) $222.90.
B) $239.23.
C) $258.23.
D)$296.90.
Q2) For wages paid in 2015, an employer must send Copy A of each Form W-2 along with the W-3 transmittal form to the SSA no later than:
A) January 31, 2015.
B) February 1, 2015.
C) February 28, 2015.
D)March 1, 2015.
Q3) Employers are not required to withhold any federal taxes on allocated tips.
A)True
B)False
Q4) FICA taxes are collected equally from the employee and the employer.
A)True
B)False
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities:
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Sample Questions
Q1) Heather, age 67, retired in 2015. During the year she received distributions of $14,000 from her IRA. She made nondeductible contributions of $40,000 to the IRA in prior years and has never received a nontaxable distribution. As of December 31, 2015, the value of her IRA was $250,000. Calculate the taxable portion of Heather's distribution and her tax basis in the IRA after the distribution that she will carry forward to 2016.
Q2) Defined-benefit plans provide for a stream of definitely determinable benefits. A)True
B)False
Q3) Employers with 200 or fewer employees who do not have a qualified pension or profit-sharing plan can establish a SIMPLE retirement plan for their employees. A)True B)False
Q4) Keisha established a Roth IRA in 2005. She contributes the maximum amount each year for the next 20 years and retires when she is 65. At the time of her retirement, the account has a balance of $248,000, which is made up of $100,000 in contributions and the balance in earnings. What amount can Keisha withdraw tax-free from the Roth IRA each year during her retirement?
Q5) What is an annuity contract? Who are the parties to an annuity contract?
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Chapter 12: Special Property Transactions
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Sample Questions
Q1) Jasmine sold land for $250,000 in 2015. The land had a basis of $118,000 and she incurred selling expenses of $10,000. Jasmine received $50,000 down in 2015 and will receive five additional annual payments of $40,000 each. How much income will Jasmine recognize in 2016 when she receives the first additional payment of $40,000?
A) $0.
B) $18,880.
C) $19,520.
D)$40,000.
Q2) If a taxpayer trades a personal-use asset for another asset, the exchange does not qualify as a like-kind exchange.
A)True
B)False
Q3) Edith owns farm land in western Montana. Her adjusted basis is $300,000 and the land is subject to a mortgage of $150,000. She exchanges her land for investment land in Wyoming owned by Dale. The investment land is worth $450,000. Dale assumes Edith's mortgage on the land. What is the amount of Edith's recognized gain or loss on the exchange and what is her adjusted basis in the land she received?
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Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Sample Questions
Q1) An equipment leasing activity is not subject to the at-risk rules.
A)True
B)False
Q2) After computing all tax preferences and AMT adjustments, Adam and his wife Cindy have AMTI of $290,000. If Adam and Cindy file a joint tax return, what exemption amount can they claim for AMT for 2015?
A) $0.
B) $50,625.
C) $53,600.
D)$83,400.
Q3) Gifts to charity are not allowed for AMT purposes.
A)True
B)False
Q4) Which of the following itemized deductions is not allowed for AMT?
A) Miscellaneous deductions.
B) Depreciation.
C) Medical expenses.
D)Charitable contributions.
Q5) Identify factors that increase or decrease the at-risk amount.
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Chapter 14: Partnership Taxation
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Sample Questions
Q1) In 2014, Angel contributes land to a partnership with a basis of $12,000 and a FMV of $22,000. In 2015, when the FMV of the land is $28,000, the partnership distributes the land to Shelia, another partner. What is the gain or loss recognized by Angel on the distribution to Shelia?
A) $0.
B) $10,000.
C) $16,000.
D)$28,000.
Q2) Sabrina has a $12,000 basis in her S&B partnership interest. Sabrina receives a current cash distribution of $10,000 and equipment with a $5,000 basis (FMV $6,000). What is Sabrina's basis in her partnership interest at the end of the year?
A) $0.
B) $2,000.
C) $7,000.
D)$12,000.
Q3) Generally, guaranteed payments do not have an impact on a partner's basis in the partnership interest.
A)True
B)False
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Page 16
Chapter 15: Corporate Taxation
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Sample Questions
Q1) Corporations are not subject to alternative minimum tax.
A)True
B)False
Q2) Alabaster Company is a Subchapter S corporation. It properly reported net income of $250,000 for financial statement purposes. It had net capital gains of $60,000 and charitable contributions of $20,000. What is the ordinary business income (loss) of Alabaster Company that will be reported to its shareholders on Schedule K-1?
A) $210,000.
B) $270,000.
C) $290,000.
D)$330,000.
Q3) Valarie owns 100% of Green Company. Green has earnings and profits of $10,000. The corporation distributes property with a basis of $9,000 and a FMV of $12,000 to Valarie. She must report dividend income of:
A) $2,000.
B) $9,000.
C) $10,000.
D)$12,000.
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