Federal Taxation Exam Review
Course Introduction
Federal Taxation is an in-depth course that explores the principles, regulations, and procedures underlying the federal tax system in the United States. The course covers fundamental topics such as income determination, taxable entities, deductions, credits, filing requirements, and tax planning strategies. Students will develop an understanding of the Internal Revenue Code, Treasury regulations, and judicial decisions as they relate to individuals and various business entities. Through practical examples and case studies, the course equips students with the analytical skills necessary to interpret tax laws, prepare basic tax returns, and make informed decisions regarding federal taxation issues.
Recommended Textbook
Prentice Halls Federal Taxation 2014 Comprehensive 27th Edition by Timothy J. Rupert
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Chapter 1: Tax Research
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Q1) According to the Statements on Standards for Tax Services,what belief should a CPA have before taking a pro-taxpayer position on a tax return?
Answer: The CPA should have a good faith belief that the pro-taxpayer position is warranted in existing law or can be supported by a good-faith argument for an extension,modification,or reversal of existing law.The position should have a realistic possibility of being sustained administratively or judicially on its merits if challenged.
Q2) Final regulations have almost the same legislative weight as the IRC.
A)True
B)False
Answer: True
Q3) Which regulation deals with Code Section 165?
A)Reg.Sec.1.165-5
B)Reg.Sec.165.183-5
C)Reg.Sec.1.5-165
D)Reg.Sec.165-5
Answer: A
Q4) Outline and discuss the tax research process.
Answer: 11ea8238_0c14_cafc_9591_9de575907084_TB5380_00_TB5380_00
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Page 3
Chapter 2: an Introduction to Taxation
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Q1) If a taxpayer's total tax liability is $30,000,taxable income is $100,000,and economic income is $120,000,the average tax rate is 30 percent.
A)True
B)False
Answer: True
Q2) Regressive tax rates decrease as the tax base increases.
A)True
B)False
Answer: True
Q3) Which is not a component of tax practice?
A)providing clients tax refund advance loans
B)tax research
C)tax planning and consulting
D)compliance
Answer: A
Q4) Describe the components of tax practice.
Answer: a.Tax compliance and procedure. b.Tax research. c.Tax planning and consulting. d.Financial planning.
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Chapter 3: Corporate Formations and Capital Structure
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Q1) The City of Seattle gives Dotcom Corporation $120,000 cash and land worth $200,000 to induce it to relocate to Seattle.Dotcom Corporation did not spend the cash during the 12 months following the contribution.What are the tax consequences to Dotcom Corporation with respect to the contribution?
Answer: No income is recognized.Dotcom Corporation's basis in the land is $0,and it must reduce the basis of other assets by $120,000.
Q2) Which of the following statements is true?
A)Shareholders in a C corporation can use C corporation losses to offset shareholder income from other sources.
B)C corporation losses remain in the C corporation and can offset capital gain income from other years.
C)C corporation shareholders are taxed based on their proportionate share of income.
D)Distributions of C corporation income are not taxable. Answer: B
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5
Chapter 4: Determination of Tax
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Q1) Ben,age 67,and Karla,age 58,have two children who live with them and for whom they provide total support.Their daughter is 21 years old,blind,is not a full-time student and has no income.Her twin brother is 21 years old,has good sight,is a full-time student and has income of $4,500.Ben and Karla can claim how many personal and dependency exemptions on their tax return?
A)2
B)3
C)4
D)5
Q2) Kate is single and a homeowner.In 2013,she has property taxes on her home of $3,000,makes charitable contributions of $2,000,and pays home mortgage interest of $7,000.Kate's adjusted gross income for 2013 is $77,000.
Required: Compute her taxable income for 2013.
Q3) Which of the following credits is considered a refundable credit?
A)child and dependent care credit
B)earned income credit
C)adoption expense credit
D)lifetime learning credit
Q4) Discuss reasons why a married couple may choose not to file a joint return.
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Chapter 5: The Corporate Income Tax
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Q1) A deferred tax asset indicates that a firm will realize the tax benefit of an event sometime in the future.
A)True
B)False
Q2) Which of the following items is a permanent difference between taxable and financial accounting income?
A)depreciation
B)dividends-received deduction
C)bad debts
D)net capital loss
Q3) Beta Corporation recently purchased 100% of XYZ Corporation stock.You are their CPA.What tax issues need to be addressed before determining whether or not to file a consolidated tax return?
Q4) Corporate estimated tax payments are due April 15,June 15,September 15,and January 15.
A)True
B)False
Q5) What is probably the most common reason for making a consolidated return election?
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Chapter 6: Gross Income: Inclusions
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Q1) Which of the following is not included in gross income when received?
A)interest received on bank accounts
B)royalties paid to an author
C)amounts received to cancel or modify a lease
D)refundable security deposit
Q2) If a taxpayer's method of accounting does not clearly reflect income,the IRS may specify a different accounting method which must be used by the taxpayer.
A)True
B)False
Q3) Mike won $700 in a football pool.This amount is not taxable.
A)True
B)False
Q4) Edward is considering returning to work part-time to supplement his pension and Social Security benefits.His current marginal tax rate is 15%.What should he consider from a tax perspective before returning to work?
Q5) Gains realized from property transactions are included in gross income unless a nonrecognition rule applies.
A)True
B)False
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Chapter 7: Corporate Nonliquidating Distributions
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Q1) Tia receives a $15,000 cash distribution from Main Corporation in March of the current year.Main has $6,000 of accumulated E&P at the beginning of the year and $12,000 of current E&P.Main also distributed $15,000 in cash to Betty,who purchased all 300 shares of Main stock from Tia in June of the current year.What tax issues should be considered with respect to the distributions paid to Tia and Betty?
Q2) Wills Corporation,which has accumulated a current E&P totaling $70,000,distributes land to its sole shareholder,an individual.The land has an FMV of $75,000 and an adjusted basis of $60,000.The shareholder assumes a $15,000 liability associated with the land.The transaction will have the following tax consequences.
A)The corporation will recognize a $15,000 gain; the shareholder will recognize dividend income of $75,000.
B)The corporation will recognize no gain; the shareholder will recognize dividend income of $75,000.
C)The corporation will recognize a $15,000 gain; the shareholder will recognize dividend income of $60,000.
D)The corporation will recognize no gain; the shareholder will recognize dividend income of $60,000.
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Chapter 8: Gross Income: Exclusions
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Q1) In 2012 Betty loaned her son,Juan,$10,000 to help him buy a car.In 2013,before he repaid the $10,000,Betty told Juan that she was "tearing up" the $10,000 note as a graduation present.How should Juan treat the amount forgiven?
A)taxable income in year of loan
B)taxable income in year of forgiveness
C)excludable gift in year of loan
D)excludable gift in year of forgiveness
Q2) Payments received from a workers' compensation plan are taxable.
A)True
B)False
Q3) Mae Li is beneficiary of a $70,000 insurance policy on her father's life.Upon his death,she elects to receive the proceeds in installments from the insurance company that carries the policy.She will receive $16,000 per year for five years.What are the tax consequences each year?
A)All $16,000 each year is taxable.
B)$10,000 interest is taxable in the first year.
C)There is no taxable income.
D)$2,000 of the $16,000 payment is taxable each year.
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10
Chapter 9: Other Corporate Tax Levies
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Q1) How is alternative minimum taxable income computed?
Q2) Barker Corporation,a personal service company,has $200,000 of taxable income.Barker has tax preferences and positive adjustments of $200,000 and negative adjustments of $140,000 for alternative minimum tax purposes.No credits are available.Barker's regular tax liability is $70,000.What is the tentative minimum tax amount?
Q3) When computing a corporation's alternative minimum taxable income,its taxable income is
A)only increased (never decreased)by tax preference items.
B)only increased (never decreased)by adjustments.
C)increased by the statutory exemption of $40,000.
D)increased by 75% of the excess of adjusted current earnings over taxable income.
Q4) Identify which of the following statements is false.
A)The corporate AMT produces relatively little tax revenue.
B)The small corporation AMT exemption exempts 95% of all corporations from the AMT.
C)The corporate AMT is similar to the AMT for individuals.
D)The starting point for computing a corporation's AMT is book income.
Q5) Define personal holding company income.
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Chapter 10: Property Transactions: Capital Gains and Losses
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Q1) Candice owns a mutual fund that reinvests her dividends and capital gains earned during the year.The mutual fund reported to her that her share of earnings was: $500 in dividends,$1,500 in short-term net capital gains,and $1,300 in long-term net capital gains.She reported the items on her tax return and paid the appropriate tax on these earnings.If her basis in the fund was $25,000 at the beginning of the year,what is her basis at the end of the year?
A)$25,000
B)$25,500
C)$27,000
D)$28,300
Q2) Kate subdivides land held as an investment and Section 1237 is satisfied.The lots sell for $30,000 per lot (basis $10,000).Kate sells five lots in the first year.Kate's ordinary income is
A)$0.
B)$20,000.
C)$100,000.
D)$150,000.
Q3) What are arguments for and against preferential treatment of capital gains?
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Chapter 11: Corporate Liquidating Distributions
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Q1) Identify which of the following statements is true.
A)Upon liquidation,any capitalized expenditures unamortized at the time of liquidation should be deducted if they have no further value to the corporation.
B)Shareholders who receive an installment obligation as part of their liquidating distribution ordinarily report the FMV of their obligation as part of the consideration received to calculate the amount of recognized gain or loss.
C)A liquidating corporation treats expenses associated with selling its property as an offset against the sales proceeds.
D)All the above are true.
Q2) Lake City Corporation owns all the stock in Columbia Corporation.Pursuant to a plan of complete liquidation,Columbia distributes land having a $500,000 FMV and a $200,000 basis to Lake City.Columbia's gain with respect to the distribution will be
A)no gain recognized.
B)$200,000.
C)$300,000.
D)$500,000.
Q3) Are liquidation and dissolution the same? Explain your answer.
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Page 13
Chapter 12: Deductions and Losses
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Q1) Which of the following individuals is not considered a relative for purposes of the loss disallowance rules under Sec.267?
A)brother
B)husband
C)sister-in-law
D)grandfather
Q2) In which of the following situations are points paid on a home mortgage loan not deductible in the year of payment?
A)purchase
B)refinance
C)construction
D)improvement
Q3) Explain the rules for determining whether a home is considered a rental property or a vacation home and the tax consequences of this classification.
Q4) Why can business investigation expenditures be deducted currently by a taxpayer who is engaged in a line of business similar to the one being investigated,while the same costs must be capitalized and amortized to be deductible by a taxpayer who is not engaged in a similar business?
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14
Chapter 13: Corporate Acquisitions and Reorganizations
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Q1) A stock acquisition that is not treated as a purchase for purposes of meeting the Sec.338 rules is
A)stock whose adjusted basis is determined by its basis in the hands of the person from whom it was acquired.
B)stock acquired from a decedent.
C)stock acquired in a tax-free reorganization.
D)All of the above are correct.
Q2) Identify which of the following statements is true.
A)Depreciation recapture rules do not override the nonrecognition of gain or loss rules.
B)The acquisition of liabilities by an acquiring corporation will trigger a gain.
C)A target corporation will recognize a gain when it distributes stock to its shareholders.
D)The basis of property acquired in a reorganization is its FMV.
Q3) Martha owns Gator Corporation stock having an adjusted basis of $21,000.As part of a tax-free reorganization involving Gator and Baker Corporations,Martha exchanges her Gator stock for $18,000 of Baker stock and $6,000 (face amount and FMV)of Baker securities.What is Martha's basis in the Baker stock?
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Page 15
Chapter 14: Itemized Deductions
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Q1) If the principal reason for a taxpayer's presence in an institution is the need and availability of medical care,the entire cost of lodging and meals is considered qualified medical expenditures.
A)True
B)False
Q2) Assessments or fees imposed for specific privileges or services are not deductible as taxes.
A)True
B)False
Q3) Medical expenses incurred on behalf of children of divorced parents are deductible by the parent who pays the expenses but only if that parent also is entitled to the dependency exemption.
A)True
B)False
Q4) Jill is considering making a donation to her church.She wants to give $50,000 for the new church building.She has some stock with a FMV of $50,000 and an adjusted basis of $10,000 that she has held for 3 years.She is planning to sell the stock and donate the $50,000 proceeds to the church.What should she consider before taking that action?
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Page 16
Chapter 15: Consolidated Tax Returns
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Q1) To be an affiliated group,the parent corporation must directly own at least 80% of another group member.
A)True
B)False
Q2) Identify which of the following statements is true.
A)To be part of an affiliated group,a corporation must be at least 80% directly owned by another group member.
B)Only common stock is considered when determining if the 80% ownership test is met for affiliated group eligibility.
C)An affiliated group electing to file a consolidated return may be composed of as few as two corporations.
D)All of the above are false.
Q3) A Canadian subsidiary cannot file as part of the consolidated group with its U.S.parent.
A)True
B)False
Q4) Define intercompany transactions and explain the two types of transactions.
Q5) Explain the requirements a group of corporations must meet in order to elect to file a consolidated return.
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Chapter 16: Losses and Bad Debts
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Q1) A business bad debt gives rise to an ordinary deduction while a nonbusiness bad debt is treated as a short-term capital loss.
A)True
B)False
Q2) Amy,a single individual and sole shareholder of Brown Corporation,sold all of the Brown stock for $30,000.The stock basis was $150,000.Amy had owned the stock for 3 years.Brown Corporation meets the Section 1244 requirements.Amy has
A)a $50,000 ordinary loss and $70,000 LTCL.
B)a $50,000 STCL and a $70,000 LTCL.
C)a $100,000 ordinary loss and a $20,000 LTCL.
D)a $100,000 LTCL and a $20,000 ordinary loss.
Q3) An individual taxpayer has negative taxable income for the year.In calculating the net operating loss created,which of the following expenses or losses will be added back to the negative taxable income?
A)capital losses
B)personal and dependency exemptions
C)nonbusiness deductions in excess of nonbusiness income
D)all of the above
Q4) What are some factors which indicate that a debt may be worthless?
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Chapter 17: Partnership Formation and Operation
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Q1) What is included in partnership taxable income?
Q2) On the first day of the partnership's tax year,Karen purchases a 50% interest in a general partnership for $30,000 cash and she materially participates in the operation of the partnership for the entire year.The partnership has $40,000 in recourse liabilities when Karen enters the partnership.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.There is no minimum gain related to the nonrecourse liability.During the year,the partnership incurs a $120,000 loss and a $20,000 increase in liabilities.How much of the loss can Karen report on her tax return for the current year?
A)$30,000
B)$40,000
C)$50,000
D)$60,000
Q3) ABC Partnership distributes $12,000 to partner Al.Al's distributive share of partnership income is $20,000.Al is taxed on $20,000.
A)True
B)False
Q4) What is the tax impact of guaranteed payments on the partner and the partnership?
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Page 19
Chapter 18: Employee Expenses and Deferred Compensation
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Q1) Jason,who lives in New Jersey,owns several apartment buildings in Baltimore.His travel expenses to Baltimore to inspect his property are tax deductible.
A)True
B)False
Q2) Which of the following statements regarding Coverdell Education Savings Accounts is incorrect,disregarding any AGI limits?
A)Distributions cannot be used for elementary and secondary education expenses.
B)Distributions to the beneficiary are not taxable as long as they are used for tuition,fees,room and board.
C)Contributions can be made until the beneficiary reaches 18.
D)Contributors can make nondeductible contributions of up to $2,000 for each beneficiary.
Q3) The deduction for unreimbursed transportation expenses for employees is subject to the 2% of AGI floor.
A)True
B)False
Q4) What factors are considered in determining whether an expense is a deductible travel expense?
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Chapter 19: Special Partnership Issues
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Q1) When a retiring partner receives payments that exceed the value of that partner's partnership property,the excess payment is a guaranteed payment.
A)True
B)False
Q2) Identify which of the following statements is true.
A)When unrealized receivables are distributed in a liquidating distribution,the basis of the receivables will be increased.
B)The bases of unrealized receivables and inventory distributed by a partnership in liquidation of a partnership interest are never increased above their bases in the hands of the partnership.
C)The basis of the partnership interest is apportioned between all of the assets received in a liquidating distribution based on the relative FMVs of the assets.
D)All of the above are false.
Q3) All states have adopted laws providing for limited liability companies.Describe a limited liability company (LLC).
Q4) What is the character of the gain/loss on the sale of a partnership interest?
Q5) Do most distributions made by a partnership require a Sec.751 calculation?
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Page 21
Chapter 20: Depreciation cost Recovery amortization and Depletion
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Q1) Why would a taxpayer elect to capitalize and amortize intangible drilling costs (IDCs)rather than expense such costs?
Q2) In August of 2013,David acquires and places into service business equipment costing $550,000.The equipment is classified as 5-year recovery property.No other acquisitions are made during the year.The property is not eligible for bonus depreciation.David elects to expense the maximum amount under Sec.179.David's total deductions for the year (including Sec.179 and depreciation)are
A)$110,000.
B)$550,000.
C)$500,000.
D)$510,000.
Q3) Ted purchases and places in service in 2013 personal property costing $2,050,000.What is the maximum Sec.179 deduction that Ted can deduct,ignoring any taxable income limitation?
A)$0
B)$500,000
C)$450,000
D)$2,050,000
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Chapter 21: S Corporations
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Q1) An S corporation is not treated as a corporate taxpayer with respect to which one of the following fringe benefits?
A)stock options
B)qualified retirement plans
C)group term life insurance premiums
D)nonqualified deferred compensation
Q2) Which of the following tax levies imposed on an S corporation are required to be paid by using estimated tax payments?
A)built-in gains tax
B)excess net passive income tax
C)both A and B
D)none of the above
Q3) The Vanity Corporation organized and began operations in January.The corporation's ten equal shareholders elect to have Vanity taxed as an S corporation,and the election and necessary consents are filed in a timely manner.For its first tax year ended December 31,Vanity has ordinary income of $64,000 and short-term capital gains of $16,000.During the year,it distributes $30,000 in cash equally to its ten shareholders.For the year,how much income should each shareholder report and how should it be characterized?
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Page 23
Chapter 22: Accounting Periods and Methods
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Q1) A business which provides a warranty on goods sold will deduct a reserve for warranty expense consistent with the reporting on its financial statements.
A)True
B)False
Q2) Contracts for services including accounting,legal and architectural services do not qualify for long-term contract treatment.
A)True
B)False
Q3) Which of the following partnerships can elect the cash basis method of accounting?
A)a CPA firm with average revenues of $20 million
B)a chocolate manufacturer with average revenues of $3 million
C)a cleaning service partnership generating average revenues of $5.5 million whose partners are Joe,Larry and Smith Inc.
D)None of the above.
Q4) Discuss the purpose of the imputed interest rules.
Q5) Which entities may elect a fiscal year? Discuss how certain tax entities may circumvent the requirement of using a calendar year.
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Chapter 23: The Gift Tax
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Q1) A husband transfers $90,000 by gift directly to his wife.The marital deduction for the transfer is
A)$0 unless he elects to claim one.
B)$90,000.
C)$76,000.
D)none of the above
Q2) Ida sells some stock to Mae for $20,000 at a time when the stock is valued at $50,000.Later in the year,she gives Mae $15,000 in cash.
a)What is the amount of Ida's taxable gifts?
b)How would your answer to Part (a)change if Ida gave the cash to Jonathan instead of to Mae?
Q3) Jason funds an irrevocable trust with Liberty Bank as trustee and reserves the right to receive the income for seven years.He provides that at the end of the seventh year,the trust assets will pass outright to his adult daughter,Paula,or to Paula's estate should Paula not be alive.Jason transfers assets valued at $1.5 million to the trust; the assets at present are producing income of about 7.5% per year.Assume that the Sec.7520 rate per the actuarial tables for the month of the transfer is 10%.What tax issues should Jason consider regarding the trust?
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Chapter 24: Property Transactions: Nontaxable Exchanges
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Q1) Daniella exchanges business equipment with a $100,000 adjusted basis for $10,000 cash and business equipment with a $96,000 FMV.What is the amount of gain recognized on the exchange?
A)$0
B)$4,000
C)$6,000
D)$10,000
Q2) Generally,a full exclusion of gain under Sec.121 upon the sale of a personal residence applies to only one sale or exchange every
A)six months.
B)year.
C)two years.
D)five years.
Q3) The exchange of a personal-use automobile for stock in an automobile manufacturer held as an investment qualifies for like-kind treatment.
A)True
B)False
Q4) Discuss the basis rules of property received in a nontaxable like-kind exchange.
Q5) Discuss why a taxpayer would want to avoid like-kind exchange provisions.
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Chapter 25: The Estate Tax
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Q1) Joe dies late in 2011 and his estate is subject to an estate tax of $2 million.He leaves all of his assets to his daughter,Claudia.Claudia dies in early 2013.Which of the following statements is correct?
A)Claudia's estate receives no credit or deduction for the tax paid by Joe's estate.
B)Claudia's estate receives a credit for $1,000,000 of Joe's estate tax.
C)Claudia's estate receives a credit for $2,000,000 of Joe's estate tax.
D)Claudia's estate receives a deduction for $2,000,000 of Joe's estate tax.
Q2) Guy died this year.His estate includes a closely held business interest valued at $400,000 and other property valued at $675,000.Guy's allowable Sec.2053 and 2054 deductions total $75,000.Within three years of death,partly in hopes of qualifying his estate for the installment payment allowed under Sec.6166 treatment,Guy made gifts of listed securities of $350,000 (at 2002 valuations)and paid no gift tax on the gift.Is Guy's estate eligible for Sec.6166 treatment?
Q3) The tax base for the federal estate tax is the total of the decedent's taxable estate and post-1986 taxable gifts if the decedent made gifts in 1981.
A)True
B)False
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Page 27
Chapter 26: Property Transactions: Section 1231 and Recapture
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Q1) Why did Congress establish favorable treatment for 1231 assets?
A)to encourage the mobility of capital
B)to allow a larger deduction for losses
C)to help business owners replace assets which had declined in value
D)All of the above
Q2) During the current year,Hugo sells equipment for $150,000.The equipment cost $175,000 when placed in service two years ago,and $55,000 of depreciation deductions were allowed.The results of the sale are
A)LTCG of $30,000.
B)Sec.1231 gain of $30,000.
C)Sec.1245 ordinary income $30,000.
D)Sec.1250 ordinary income of $30,000.
Q3) Hilton,a single taxpayer in the 28% marginal tax bracket,has $16,000 of nonrecaptured net Sec.1231 losses,at the beginning of a year in which he had the following transactions:
-Sale of Asset A at a $10,000 1231 gain,all of which is unrecaptured Sec.1250 gain
-Sale of Asset B at a $13,000 1231 gain
How are the items reported this year and at which rate(s)are the amounts taxed?
Q4) What is the purpose of Sec.1245 and what is its significance?
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Chapter 27: Income Taxation of Trusts and Estates
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Q1) Panther Trust has net accounting income and distributable net income of $100,000,$75,000 from taxable sources and $25,000 from tax-exempt sources.During the year,the trust makes a mandatory distribution to Julius and Steve of $50,000 each.The distribution deduction is
A)$25,000.
B)$50,000.
C)$75,000.
D)$100,000.
Q2) An example of income in respect to a decedent (IRD)for a cash method of accounting taxpayer is
A)interest earned but not received prior to death.
B)salary earned but not received prior to death.
C)gain from an installment sale entered into before death.
D)All of the above are examples.
Q3) A simple trust
A)may make charitable distributions.
B)may make discretionary distributions of principal.
C)may accumulate income.
D)is required to distribute all of its income currently.
Q4) What is the benefit of the 65-day rule?
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Chapter 28: Special Tax Computation Methods tax Credits and
Payment of Tax
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Q1) Tyne is single and has AGI of $25,000 in 2013.During the year,she contributes $3,000 to her Roth IRA.What is the amount of Tyne's qualified retirement savings contributions credit?
Q2) The earned income credit is refundable only if a tax has been withheld.
A)True
B)False
Q3) The general business credit is a refundable credit.
A)True
B)False
Q4) If an individual is classified as an employee,the employer is required to withhold the employee's share of the FICA tax and to provide a matching amount.
A)True
B)False
Q5) Which of the following is not a qualifying property for the residential energy efficient property (REEP)credit?
A)geothermal heat pumps
B)residential wind property
C)metal or asphalt roofs with special coatings
D)solar hot water heaters
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Chapter 29: Administrative Procedures
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Q1) One of your corporate clients comes to you asking for advice regarding a proposed merger with XYZ Company.You (a)issue an opinion concerning the FMV of XYZ,(b)prepare pro forma financials for the merged entity to be,(c)draft shareholder resolutions for your client approving the proposed merger,(d)file a shareholder proxy statement with the U.S.Securities and Exchange Commission,and (e)advise your client's board of directors concerning the advantages of a Type A versus a Type B reorganization.Which of these activities,if any,constitutes the unauthorized practice of law?
Q2) Identify which of the following statements is false.
A)In general,the taxpayer has the burden of proof in Tax Court cases.However,the IRS has the burden of proof for issues raised after the issuance of the 90-day letter.
B)A taxpayer may want to avoid using the Tax Court to litigate an issue because decisions from this court cannot be appealed.
C)The Tax Court can be used to litigate a tax issue without first paying the tax assessment.
D)In order to litigate in the Tax Court,a petition must be filed within 90 days of the issuance of a notice of deficiency.
Q3) For innocent spouse relief to apply,five conditions must be met.Explain them.
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Chapter 30: Tax Research
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Q1) The Senate equivalent of the House Ways and Means Committee is the Senate
A)Finance Committee.
B)Ways and Means Committee.
C)Tax Committee.
D)Joint Conference Committee.
Q2) What is "forum-shopping"?
Q3) A tax case cannot be appealed when initiated in the
A)U.S.Court of Federal Claims.
B)U.S.Tax Court.
C)U.S.Tax Court using the small case procedures.
D)none of the above
Q4) You need to locate a recent tax case that was tried in a Federal district court.The decision is an "unreported" decision.This means the decision was
A)not published in the Federal Supplement.
B)not published in American Federal Tax Reports.
C)not published in United States Tax Cases.
D)settled out of court.
Q5) Explain the legislative reenactment doctrine.
Q6) Are letter rulings of precedential value to third parties?
Q7) Describe the appeals process in tax litigation.
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Chapter 31: Ustaxation of Foreign-Related Transactions
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Q1) Alan,a U.S.citizen,works in Germany and earns $70,000,paying $20,000 in German taxes.His U.S.income is $40,000 and he pays $8,000 in U.S.taxes.His U.S.taxes on his worldwide income are $22,500.What is Alan's excess foreign tax credit? Assume he does not qualify for the foreign-earned income exclusion.
A)$0
B)$5,682
C)$8,000
D)none of the above
Q2) What are the carryback and carryforward periods for the foreign tax credit?
A)back two years; forward five years
B)back three years; forward ten years
C)back one year; forward ten years
D)back two years; forward twenty years
Q3) Under the Subpart F rules,controlled foreign corporations (CFCs)are required to distribute a certain portion of their income as dividends to their U.S.shareholders.
A)True
B)False
Q4) What is the branch profits tax? Explain the Congressional intent behind its enactment.
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Chapter 32: Corporations
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Q1) Major Corporation's taxable income for the current year is $335,000.Its tax liability is
A)$84,250.
B)$102,150.
C)$113,900.
D)$117,250.
Q2) Identify which of the following statements is true.
A)A corporate capital loss can be carried back three years,and then can be carried forward five years.
B)Corporate capital loss carrybacks can offset corporate ordinary income earned in previous years.
C)At the election of a corporation,a net capital loss carryback can be forgone and carried forward only.
D)All are false.
Q3) The corporate capital loss carryback and carryover rules are the same as for individual taxpayers.
A)True
B)False
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Chapter 33: Partnerships and S Corporations
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Q1) Which of the following is not a requirement to be an electing large partnership?
A)must be a service partnership
B)must not be engaged in commodity trading
C)must have at least 100 partners
D)must file an election
Q2) Scott provides accounting services worth $40,000 to the ABC Partnership in exchange for a 20% interest in the capital and profits of the partnership.The tax result to Scott is
A)a partnership interest with a zero basis and no gain or loss.
B)a partnership interest with a zero basis and $40,000 of ordinary income.
C)a partnership interest with a $40,000 basis and $40,000 capital gain.
D)a partnership interest with a $40,000 basis and $40,000 ordinary income.
Q3) All of the following are requirements to qualify as an S corporation with the exception of
A)the corporation must be a domestic corporation.
B)the corporation may issue only one class of stock (disregarding voting rights).
C)the corporation may not have more than 100 shareholders.
D)the corporation shareholders may consist of only individuals,estates,trusts,and partnerships.
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Chapter 34: Taxes and Investment Planning
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Q1) Brianna purchases stock for $8,000.The stock appreciates (grows)at a 6% rate before taxes.Brianna sells the stock ten years later for $14,327.Brianna has a 39.6% marginal tax rate,but the stock sale is a LTCG taxed at 20%.Ignore the 3.8% Medicare surtax on net investment income.What are Brianna's after-tax proceeds?
Q2) When given a choice between making a contribution to a Roth IRA or to a nondeductible traditional IRA,the taxpayer should choose the Roth IRA.
A)True
B)False
Q3) Which of the following is a classic example of the Deferred Model?
A)a deductible traditional IRA
B)a 401(k)plan
C)a H.R.10 (Keogh)plan
D)a nondeductible traditional IRA
Q4) The Deferred Model investment outperforms the Current Model investment if interest rates and tax rates are constant over time because the interest on the Deferred Model investment grows tax free until withdrawal.
A)True
B)False
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