CPA Exam Preparation Test
Questions
Course Introduction
CPA Exam Preparation is a comprehensive course designed to equip students with the knowledge, skills, and strategies necessary to successfully pass the Certified Public Accountant (CPA) examination. The course covers the four main sections of the CPA exam Auditing and Attestation (AUD), Business Environment and Concepts (BEC), Financial Accounting and Reporting (FAR), and Regulation (REG) through focused lectures, practice questions, and simulated exams. Emphasis is placed on reviewing key accounting principles, regulatory frameworks, and ethical standards, as well as developing effective test-taking techniques. By the end of the course, students will have strengthened their understanding of core topics and honed their abilities to apply concepts in exam scenarios, significantly boosting their readiness for the CPA exam.
Recommended Textbook
South Western Federal Taxation 2018 Comprehensive 41st Edition by William H. Hoffman
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Page 2
Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Q1) The annual exclusion,currently $14,000,is available for gift and estate tax purposes.
A)True
B)False
Answer: False
Q2) As a matter of administrative convenience,the IRS would prefer to have Congress decrease (rather than increase) the amount of the standard deduction allowed to individual taxpayers.
A)True
B)False
Answer: False
Q3) A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty.
A)True
B)False
Answer: False
Q4) "Pay-as-you-go" (paygo) Answer: g
Q5) Interest due on refund Answer: i
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Chapter 2: Working With the Tax Law
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Q1) A "Bluebook" is substantial authority for purposes of the accuracy related penalty.
A)True
B)False Answer: True
Q2) In a U.S.District Court,a jury can decide both questions of fact and questions of law.
A)True
B)False Answer: False
Q3) Which is not a primary source of tax law?
A)Notice 89-99, 1989-2 C.B. 422.
B)Estate of Harry Holmes v. Comm., 326 U.S. 480 (1946).
C)Rev. Rul. 79-353, 1979-2 C.B. 325.
D)Prop. Reg. § 1.752-4T(f).
E)All of these are primary sources.
Answer: D
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4
Chapter 3: Computing the Tax
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Q1) Kiddie tax applies
Answer: k
Q2) For 2017,Tom has taxable income of $48,005.When he uses the Tax Tables,Tom finds that his tax liability is higher than under the Tax Rate Schedules.
a.Why is there a difference?
b.Can Tom use the Tax Rate Schedules?
Answer:
11ea87ef_7659_a05b_9939_2312a29b57b0_TB4136_00
Q3) Mr.Lee is a citizen and resident of Hong Kong,while Mr.Anderson is a citizen and resident of the U.S.In the taxation of income,Hong Kong uses a territorial approach,while the U.S.follows the global system.In terms of effect,explain what this means to Mr.Lee and Mr.Anderson.
Answer: Mr.Lee is taxed only on the income he receives from Hong Kong,while Mr.Anderson is taxed on his global income.Under the U.S.approach,a citizen or resident is taxed on a worldwide basis.Since the U.S.system could lead to the same income being taxed twice,various relief provisions are necessitated (e.g.,foreign tax credit).
Q4) A daughter who does not live with taxpayer.
Answer: b
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Page 5
Chapter 4: Gross Income: Concepts and Inclusions
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Q1) In December 2016,Mary collected the December 2016 and January 2017 rent from a tenant.Mary is a cash basis taxpayer.The amount collected in December 2016 for the 2017 rent should be included in her 2017 gross income.
A)True
B)False
Q2) Melissa is a compulsive coupon clipper.She often brags about the time she purchased a cart full of groceries for $5.00,when the cost without coupons would have been $50.Discuss whether Melissa realizes gross income from her coupon clipping.
Q3) The tax concept and economic concept of income are in agreement on which of the following:
A)The fair rental value of an owner-occupied home should be included in income.
B)The increase in value of assets held for the entire year should be included in income for the year.
C)Rent income for 2018 collected in 2017 is income for 2017.
D)All of these.
Q4) How does the taxation of Social Security benefits differ from the taxation of an annuity purchased by the taxpayer?
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6
Chapter 5: Gross Income: Exclusions
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Q1) Mauve Company permits employees to occasionally use the copying machine for personal purposes.The copying machine is located in the office where the higher paid executives work,so they occasionally use the machine.However,the machine is not convenient for use by the lower paid warehouse employees and,thus,they never use the copier.The use of the copy machine may not be excluded from gross income because the benefit is discriminatory.
A)True
B)False
Q2) Hazel,a solvent individual but a recovering alcoholic,embezzled $6,000 from her employer.In the same year that she embezzled the funds,her employer discovered the theft.Her employer did not fire her and told her she did not have to repay the $6,000 if she would attend Alcoholics Anonymous.Hazel met the conditions and her employer canceled the debt.
A)Hazel did not realize any income because her employer made a gift to her.
B)Hazel must include $6,000 in gross income from discharge of indebtedness.
C)Hazel must include $6,000 in gross income under the tax benefit rule.
D)Hazel may exclude the $6,000 from gross income because the debt never existed.
E)None of these.
Q3) What Federal income tax benefits are provided for college students?
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Page 7
Chapter 6: Deductions and Losses: in General
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Q1) Beulah's personal residence has an adjusted basis of $450,000 and a fair market value of $390,000.Beulah converts the property to rental use this year.The vacation home rules that limit the amount of the deduction to the rental income will apply and the adjusted basis for depreciation is $390,000.
A)True
B)False
Q2) LD Partnership,a cash basis taxpayer,purchases land and a building for $200,000 with $150,000 of the cost being allocated to the building.The gross receipts of the partnership are less than $100,000.LD must capitalize the $50,000 paid for the land,but can deduct the $150,000 paid for the building in the current tax year.
A)True
B)False
Q3) During the year,Jim rented his vacation home for 200 days and lived in it for 19 days.During the remaining days,the vacation home was available for rental use.Is the vacation home subject to the limitation on the deductions of a personal/rental vacation home?
Q4) Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?
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Page 8
Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Q1) A nonbusiness bad debt can offset an unlimited amount of long-term capital gain.
A)True
B)False
Q2) Losses on rental property are classified as deductions for AGI.
A)True
B)False
Q3) In the current year,Amber Corporation has taxable income of $880,000,alternative minimum taxable income of $600,000,and qualified production activities income (QPAI) of $640,000.The total W-2 wages paid to employees engaged in qualified domestic production activities are $116,000.Amber's DPAD for the current year is:
A)$54,000.
B)$57,600.
C)$58,000.
D)$79,200.
E)None of the above.
Q4) "Other casualty" means casualties similar to those associated with fires,storms,or shipwrecks.
A)True
B)False
Page 9
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Chapter 8: Depreciation, cost Recovery, amortization, and Depletion
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Q1) Rick purchased a uranium interest for $10,000,000 on January 3,2017,when recoverable reserves were estimated at 200,000 units.A total of 10,000 units were extracted in 2017 and 7,000 units were sold in 2017.Gross income from the property was $2,800,000 and taxable income without the allowance for depletion was $1,000,000.Determine the depletion deduction for 2017.
Q2) The basis of an asset on which $20,000 has been expensed under § 179 will be reduced by $20,000,even if $20,000 cannot be expensed in the current year because of the taxable income limitation.
A)True
B)False
Q3) The § 179 limit for a sports utility vehicle with a GVW of 7,000 pounds will not apply if the sports utility vehicle is used as a taxi.
A)True
B)False
Q4) If startup expenses total $53,000,$51,000 of those costs are amortized over 180 months.
A)True
B)False
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Q5) Discuss the reason for the inclusion amount with respect to leased automobiles.
Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Q1) Lynn determines when the services are to be performed.
Q2) Aiden performs services for Lucas.Which,if any,of the following factors indicate that Aiden is an employee,rather than an independent contractor?
A)Aiden provides his own support services (e.g., work assistants).
B)Aiden obtained his training (i.e., job skills) from his father.
C)Aiden is paid based on hours worked.
D)Aiden makes his services available to others.
E)None of these.
Q3) Amy lives and works in St.Louis.In the morning she flies to Boston,has a three-hour business meeting,and returns to St.Louis that evening.For tax purposes,Amy was away from home.
A)True
B)False
Q4) Mixed use (both business and pleasure) domestic travel.
Q5) Lloyd,a practicing CPA,pays tuition to attend law school.Since a law degree involves education leading to a new trade or business,the tuition is not deductible.
A)True
B)False
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Q1) A taxpayer pays points to obtain financing to purchase a second residence.At the election of the taxpayer,the points can be deducted as interest expense for the year paid.
A)True
B)False
Q2) Brad,who uses the cash method of accounting,lives in a state that imposes an income tax (including withholding from wages).On April 14,2017,he files his state return for 2016,paying an additional $600 in state income taxes.During 2017,his withholdings for state income tax purposes amount to $3,550.On April 13,2018,he files his state return for 2017 claiming a refund of $800.Brad receives the refund on June 3,2018.If he itemizes deductions,how much may Brad claim as a deduction for state income taxes on his Federal income tax return for calendar year 2017 (filed in April 2018)?
A)$3,350
B)$3,550
C)$4,150
D)$5,150
E)None of the above
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Page 12
Chapter 11: Investor Losses
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Q1) Jon owns an apartment building in which he is a material participant and also owns a computer consulting business.Of the 2,000 hours he spends on these activities during the year,55% of the time is spent operating the apartment building and 45% of the time is spent in the computer consulting business.
A)The computer consulting business is a passive activity but the apartment building is not.
B)The apartment building is a passive activity but the computer consulting business is not.
C)Both the apartment building and the computer consulting business are passive activities.
D)Neither the apartment building nor the computer consulting business is a passive activity.
E)None of the above.
Q2) Active participation.
Q3) Ken has a $40,000 loss from an investment in a partnership in which he does not materially participate.He paid $30,000 for his interest.How much of the loss is disallowed by the at-risk rules? How much is disallowed by the passive activity loss rules?
Q4) Treatment of a disposition of a passive activity by gift.
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Page 13
Chapter 12: Tax Credits and Payments
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Q1) Ahmad is considering making a $10,000 investment in a venture which its promoter promises will generate immediate tax benefits for him.Ahmad,who normally itemizes his deductions,is in the 28% marginal tax bracket.If the investment is of a type where the taxpayer may claim either a tax credit of 25% of the amount of the expenditure or an itemized deduction for the amount of the investment,what treatment normally would be most beneficial to Ahmad and by how much will Ahmad's tax liability decline because of the investment?
A)$0, take neither the itemized deduction nor the tax credit.
B)$2,500, take the tax credit.
C)$2,800, take the itemized deduction.
D)Both options produce the same benefit.
E)None of the above.
Q2) An individual generally may claim a credit for adoption expenses in the year in which the expenses are paid.
A)True
B)False
Q3) The maximum child tax credit under current law is $1,500 per qualifying child.
A)True
B)False
Q4) Discuss the treatment of unused general business credits.
Page 14
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Chapter 13: Property Transactions: Determination of Gain or
Loss, basis Considerations, and Nontaxable Exchanges
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Q1) On October 1,Paula exchanged an apartment building (adjusted basis of $375,000 and subject to a mortgage of $125,000) for another apartment building owned by Nick (fair market value of $550,000 and subject to a mortgage of $125,000).The property transfers were made subject to the mortgages.What amount of gain should Paula recognize?
A)$0
B)$25,000
C)$125,000
D)$175,000
E)None of the above
Q2) Discuss the application of holding period rules to property acquired by gift and inheritance.
Q3) Wyatt sells his principal residence in December 2017 and qualifies for the § 121 exclusion.He sells another principal residence in November 2018.Under no circumstance can Wyatt qualify for the § 121 exclusion on the sale of the second residence.
A)True
B)False
Q4) What requirements must be satisfied to receive nontaxable exchange treatment under § 1031?
Page 15
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Chapter 14: Property Transactions, capital Gains and
Losses, sec1231, and Recapture Provisions
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Q1) Which of the following comparisons is correct?
A)Corporations may carryback capital losses; individuals may not.
B)Both corporation and individual long-term capital losses carryover as short-term capital losses.
C)Corporations may carryforward capital losses indefinitely; individuals may only carryforward capital losses for five years.
D)Both corporations and individuals may use an alternative tax rate on net capital gains.
E)None of the above.
Q2) Blue Company sold machinery for $45,000 on December 23,2017.The machinery had been acquired on April 1,2015,for $69,000 and its adjusted basis was $34,200.The § 1231 gain,§ 1245 recapture gain,and § 1231 loss from this transaction are:
A)$0 § 1231 gain, $10,800 § 1245 recapture gain, $0 § 1231 loss.
B)$0 § 1231 gain, $0 § 1245 recapture gain, $14,800 § 1231 loss.
C)$0 § 1231 gain, $34,200 § 1245 recapture gain, $0 § 1231 loss.
D)$0 § 1231 gain, $10,800 § 1245 recapture gain, $34,200 § 1231 loss.
E)None of the above.
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Page 16
Chapter 15: Alternative Minimum Tax
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Q1) Assuming no phaseout,the AMT exemption amount for a married taxpayer filing separately for 2017 is more than the AMT exemption amount for C corporations.
A)True
B)False
Q2) The sale of business property could result in an AMT adjustment.
A)True
B)False
Q3) A taxpayer has a passive activity loss for the current tax year for regular income tax purposes and for AMT purposes.Is it possible that the passive activity losses will be the same amount?
Q4) Which of the following regular taxable income amounts does not potentially create an adjustment or preference in both the individual and the corporate AMT calculations?
A)Depreciation on tangible property placed in service after 1998.
B)The excess of percentage depletion over basis.
C)The deduction for state and local taxes.
D)The use of the completed contract method of accounting for long-term contracts.
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17
Chapter 16: Accounting Periods and Methods
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Q1) Abby sold her unincorporated business which consisted of equipment and goodwill.The equipment had an original cost of $200,000 and Abby had claimed $120,000 in depreciation (adjusted basis = $80,000).Abby had no basis in the goodwill.The sales price for the business was $250,000,with $150,000 for the equipment and $100,000 for the goodwill.The buyer agreed to pay $120,000 on June 30,2017,and $130,000 (plus interest at the Federal rate) in two years.Abby's gain to be reported in 2017 (exclusive of interest) is:
A)$40,000.
B)$51,000.
C)$102,000.
D)$118,000.
E)$170,000.
Q2) If an installment sale contract does not charge interest on the sale of a capital asset,only capital gain will be recognized over the life of the contract.
A)True
B)False
Q3) Using your knowledge of GAAP and financial reporting,list and explain one good reason why GAAP should not be used for tax purposes and one good reason why it should be used.
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Page 18
Chapter 17: Corporations: Introduction and Operating Rules
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Q1) In the current year,Crow Corporation,a C corporation,donated scientific property (basis of $30,000,fair market value of $50,000) to State University,a qualified charitable organization,to be used in research.Crow had held the property for four months as inventory.Crow Corporation may deduct $50,000 for the charitable contribution (ignoring the taxable income limitation).
A)True
B)False
Q2) Double taxation of corporate income results because dividend distributions are included in a shareholder's gross income but are not deductible by the corporation.
A)True
B)False
Q3) Briefly describe the charitable contribution deduction rules applicable to C corporations.
Q4) What is the annual required estimated tax payment for a C corporation? What are the rules regarding payment of the estimated tax?
Q5) Briefly describe the accounting methods available for adoption by a C corporation.
Q6) Briefly discuss the requirements for the dividends received deduction.
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Page 19
Chapter 18: Corporations: Organization and Capital Structure
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Q1) Three individuals form Skylark Corporation with the following contributions: Cliff,cash of $50,000 for 50 shares; Brad,land worth $20,000 (basis of $11,000) for 20 shares; and Ron,cattle worth $9,000 (basis of $6,000) for 9 shares and services worth $21,000 for 21 shares.
A)These transfers are fully taxable and not subject to § 351.
B)Ron's basis in his stock is $27,000.
C)Ron's basis in his stock is $6,000.
D)Brad's basis in his stock is $20,000.
E)None of the above.
Q2) Erica transfers land worth $500,000,basis of $100,000,to a newly formed corporation,Robin Corporation,for all of Robin's stock,worth $300,000,and a 10-year note.The note was executed by Robin and made payable to Erica in the amount of $200,000.As a result of the transfer:
A)Erica does not recognize gain.
B)Erica recognizes gain of $400,000.
C)Robin Corporation has a basis of $100,000 in the land.
D)Robin Corporation has a basis of $300,000 in the land.
E)None of the above.
Q3) What is the rationale underlying the tax deferral treatment available under § 351?
Page 20
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Chapter 19: Corporations: Distributions Not in Complete
Liquidation
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Q1) Yolanda owns 60% of the outstanding stock of Amber Corporation.In a qualifying stock redemption,Amber distributes $20,000 to Yolanda in exchange for one-half of her shares (basis of $35,000).As a result of the redemption,Yolanda has a recognized capital loss of $15,000.
A)True
B)False
Q2) Tangelo Corporation has an August 31 year-end.Tangelo had $50,000 in accumulated E & P at the beginning of its 2018 fiscal year (September 1,2017) and during the year,it incurred a $75,000 operating loss.It also distributed $65,000 to its sole shareholder,Cass,on November 30,2017.If Cass is a calendar year taxpayer,how should she treat the distribution when she files her 2017 income tax return (assuming the return is filed by April 15,2018)?
A)$65,000 of dividend income.
B)$60,000 of dividend income and $5,000 recovery of capital.
C)$50,000 of dividend income and $15,000 recovery of capital.
D)The distribution has no effect on Cass in the current year.
E)None of the above.
Q3) Penalties paid to state government for failure to comply with state law.
Q4) Meal and entertainment expenses not deducted in 2017 because of the 50% limitation.
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganization
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Q1) During the current year,Ecru Corporation is liquidated and distributes its only asset,land,to Kena,the sole shareholder.On the date of distribution,the land has a basis of $250,000,a fair market value of $650,000,and is subject to a liability of $500,000.Kena,who takes the land subject to the liability,has a basis of $120,000 in the Ecru stock.With respect to the distribution of the land,which of the following statements is correct?
A)Kena recognizes a gain of $530,000.
B)Ecru Corporation recognizes a gain of $250,000.
C)Kena recognizes a gain of $30,000.
D)Kena has a basis of $250,000 in the land.
E)None of the above.
Q2) If a parent corporation makes a § 338 election,the subsidiary corporation must be liquidated.
A)True
B)False
Q3) What will cause the corporations involved in a § 368 reorganization to recognize gain or loss? What will cause shareholders of the companies involved in the corporate reorganization to recognize gain or loss? If gain is recognized by shareholders,what are the different tax character possibilities?
Page 22
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Chapter 21: Partnerships
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Q1) Tara and Robert formed the TR Partnership four years ago.Because they decided the company needed some expertise in multimedia presentations,they offered Katie a 1/3 interest in partnership capital if she would come to work for the partnership.On July 1 of the current year,the unrestricted partnership interest (fair market value of $25,000) was transferred to Katie.How should Katie treat the receipt of the partnership interest in the current year?
A)Nontaxable.
B)$25,000 ordinary income.
C)$25,000 short-term capital gain.
D)$25,000 long-term capital gain.
Q2) Guaranteed payment
Q3) Disguised sale
Q4) Inside basis
Q5) Morgan and Kristen formed an equal partnership on August 1 of the current year.Morgan contributed $60,000 cash and land with a basis of $18,000 and a fair market value of $40,000.Kristen contributed equipment with a basis of $42,000 and a value of $100,000.Kristen and Morgan each have a basis of $100,000 in their partnership interests.
A)True
B)False
Page 23
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Chapter 22: S Corporations
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Q1) An S election is made on the shareholder's Form 2553.
A)True
B)False
Q2) What statement is correct with respect to an S corporation?
A)There is no advantage to elect § 1244 stock.
B)An S corporation can own up to 85% of an insurance company.
C)A resident alien may be a shareholder.
D)A voting trust arrangement is not available.
E)None of the above statements is true.
Q3) The choice of a flow-through entity for a closely-held corporation often is between a(n) ____________________ (a Federal tax entity) and a(n) ____________________ (a state tax entity).
Q4) ____________________ husband and wife must consent to an S election if they own their stock jointly.
Q5) As with partnerships,the income,deductions,and tax credits of an S corporation ____________________ to the shareholders annually.
Q6) Voting common stock and voting preferred stock (with a preference on dividends) would be treated as ____________________ class(es) of stock.
Q7) Discuss two ways that an S election may be terminated.
Page 24
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Chapter 23: Exempt Entities
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Q1) The tax consequences to a donor of making a charitable contribution to an exempt organization classified as a private foundation may be less favorable than the tax consequences to a donor of making a charitable contribution to an exempt organization that is a public charity.
A)True
B)False
Q2) Midnight Basketball,Inc.,an exempt organization that organizes and conducts basketball games for youths ages 10-13,receives a $20,000 contribution from Brown Shoe Company.Midnight agrees to put Brown's logo on the cover of its monthly newsletter.
a.Is the contribution unrelated business income to Midnight?
b.Assume that instead of putting Brown's logo on the cover of its newsletter, Midnight agrees to include a statement in the newsletter that youth playing in the games conducted by Midnight wear only shoes manufactured by Brown. Is the contribution unrelated business income to Midnight?
b. change if the amount of the payment was $7,500 instead of $20,000?
c.Would your answer in
Q3) Tax on jeopardizing investments
Q4) What are the common characteristics of organizations that receive exempt status?
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Page 25
Chapter 24: Multistate Corporate Taxation
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Q1) With respect to typical sales/use tax laws:
A)Exemptions are granted for purchases of clothing.
B)Exemptions are granted for fuel-efficient automobiles.
C)Fees paid for legal services are exempt.
D)Restaurant meals are exempt.
Q2) Provide the required information for Orange Corporation,whose Federal taxable income totals $100 million.Orange apportions 70% of its business income to State C.Orange generates $10 million of nonbusiness income each year.Forty percent of that income is attributable to rentals of buildings located in C.Orange's business income this year totals $90 million.
a.State C taxes how much of Orange's business income?
b.State C taxes how much of Orange's nonbusiness income?
c.Explain your results.
Q3) Your client,Hamlin Industries,wants to reduce its overall state/local income tax liability.Hamlin holds income-producing assets of various types,including tangible personal property,rental land and buildings,and high-yield stocks and bonds.You assess the asset portfolio and conclude that only the investment portfolio is "portable" and available for relocation at this time.What device might Hamlin use in a restructuring of its operations to achieve the desired tax result? Be specific.
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Chapter 25: Taxation of International Transactions
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Q1) Individual who is not a U.S.citizen or resident.
Q2) Nico lives in California.She was born in Peru but holds a green card.Nico is a nonresident alien (NRA).
A)True
B)False
Q3) WaterCo,a domestic corporation,purchases inventory for resale from unrelated distributors outside the U.S.It resells this inventory to U.S.customers,with title passing inside the United States.What is the source of WaterCo's inventory sales income?
A)100% U.S. source.
B)100% foreign source.
C)50% U.S. source and 50% foreign source.
D)50% foreign source and 50% sourced based on location of manufacturing assets.
Q4) Generally,accrued foreign income taxes are translated at the:
A)Exchange rate when the taxes are paid.
B)Exchange rate on the date when the taxes are accrued.
C)Average exchange rate for the tax year to which the taxes relate.
D)Average exchange rate for the last five tax years.
Q5) A business operation that accounts for profits and losses using its functional currency.
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Chapter 26: Tax Practice and Ethics
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Q1) The IRS targets high-income individuals for an audit rate that is much higher than that of the general populace.
A)True
B)False
Q2) Keepert uses "two sets of books." She only reports one-half of her cash sales on the records that she uses to complete her Federal income tax return.The statute of limitations for Keepert's return is six years.
A)True
B)False
Q3) Improper refund claim.
Q4) The IRS national office is organized into operating divisions,broadly on the basis of the tax returns that are each division's responsibilities.List the four IRS operating divisions.
Q5) Circular 230 applies to all paid tax practitioners.But attorneys,CPAs,and enrolled agents are exempt from the Circular 230 rules,because each of the groups has its own code of professional conduct.
A)True
B)False
Q6) Negligence.
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Chapter 27: The Federal Gift and Estate Taxes
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Q1) Ten cemetery lots purchased by decedent prior to death for use by himself and his family.
A)Some or all of the asset is included in the decedent's gross estate.
B)None of the asset is included in the decedent's gross estate.
Q2) Using his own funds,Horace establishes a savings account designating ownership as follows: "Horace and Nadine as joint tenants with right of survivorship." Horace predeceases Nadine.
A)No taxable transfer occurs
B)Gift tax applies
C)Estate tax applies
Q3) At the time of his death,Leroy owed Federal income taxes on income earned in a prior year.Leroy's estate can claim an estate tax deduction for the income tax it pays.
A)True
B)False
Q4) In 2017,grandparents contribute jointly owned funds to a § 529 qualified tuition plan on behalf of their granddaughter.The maximum annual exclusion allowed to them is $140,000 ($28,000 × 5 years).
A)True
B)False
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Chapter 28: Income Taxation of Trusts and Estates
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Q1) The Philmore Estate is subject to a 40% Federal estate tax rate and a 45% Federal and state income tax rate.Generally,an administrative expense should be claimed on the estate's income tax return.
A)True
B)False
Q2) The trust usually makes a distribution to the income beneficiaries in the amount of its fiduciary ____________________ income.
Q3) The Federal income taxation of a trust or estate has been described as a "modified pass-through" system.Compare fiduciary income tax rules to those that apply to LLCs and to individuals.
Q4) A trust whose income is taxed to the donor,not the beneficiaries.
Q5) Tax professionals use the terms simple trust and complex trust when dealing with fiduciary arrangements.How does one know whether a trust is "simple" or "complex?" When is this determination made?
Q6) The deduction for the Sharma Trust's $100,000 gift to charity is ____________________ when one-third of Sharma's accounting income for the tax year constitutes exempt interest income.
Q7) A trust whose remainder beneficiary is its grantor.
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