Federal Taxation Question
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Course Introduction
Federal Taxation provides an in-depth study of the principles, laws, and regulations governing federal taxes in the United States. The course covers topics such as individual and corporate income taxation, tax compliance and planning, tax return preparation, and the interpretation of tax codes and IRS regulations. Students will gain practical knowledge of tax concepts including gross income, deductions, credits, and property transactions, as well as an understanding of the ethical and legal responsibilities of tax practitioners. Emphasis is placed on applying tax rules to real-world scenarios and developing analytical skills for strategic tax decision-making.
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) A client wants to take a tax return position with less than a 10% probability of being upheld in court.The CPA should
A)take the client's desired position,but not sign the tax return.
B)inform the client that the position does not have a realistic possibility of success.
C)ask the client to sign a waiver of his right to sue the CPA in the event the IRS disallows the position.
D)take the client's desired position and sign the return as usual.
Answer: B
Q2) Distinguish between an annotated tax service and a topical tax service.
Answer: An annotated tax service is organized by IRC section.The IRC-arranged subdivisions of this service are likely to encompass several topics.A topical tax service is organized by broad topic.The topically arranged subdivisions of this service are likely to encompass several IRC sections.
Q3) Appeals from the U.S.Tax Court are to the Court of Appeals for the Federal Circuit.
A)True
B)False
Answer: False
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Page 3
Chapter 2: an Introduction to Taxation
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Q1) The primary liability for payment of the gift tax is imposed upon the donee.
A)True
B)False
Answer: False
Q2) Which of the following individuals is most likely to be audited?
A)Lola has AGI of $35,000 from wages and uses the standard deduction.
B)Marvella has a $145,000 net loss from her unincorporated business (a horse farm).She also received $350,000 salary as a CEO of a corporation.
C)Melvin is retired and receives Social Security benefits.
D)Jerry is a school teacher with two children earning $45,000 a year.He also receives $200 in interest income on a bank account.
Answer: B
Q3) A taxpayer's average tax rate is the tax rate applied to an incremental amount of taxable income that is added to the tax base.
A)True
B)False
Answer: False
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4
Chapter 3: Corporate Formations and Capital Structure
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Q1) The City of Springfield donates land worth $250,000 to Deuce Corporation to induce it to locate in Springfield and provide 1,000 jobs for its citizens.How much gross income must Deuce Corporation recognize because of the land contribution,and what is the land's basis to Deuce Corporation?
A)$250,000 income; $250,000 basis
B)$250,000 income; $0 basis
C)$0 income; $250,000 basis
D)$0 income; $0 basis
Answer: D
Q2) Identify which of the following statements is false.
A)The check-the-box regulations permit an LLC to be taxed as a C corporation.
B)Under the check-the-box regulations,an LLC that has only two members (owners)must be taxed as a partnership.
C)A business need not be incorporated under state or federal law to be taxed as a corporation.
D)Once an election is made to change its classification,an entity cannot change again for 60 months.
Answer: B
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Chapter 4: Determination of Tax
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Q1) 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.
Q2) Generally,deductions for (not from)adjusted gross income are personal expenses specifically allowed by tax law.
A)True
B)False
Q3) The filing status in which the rates increase most rapidly is A)single.
B)head of household.
C)married filing separately.
D)married filing jointly.
Q4) If an individual with a marginal tax rate of 15% has a long-term capital gain,it is taxed at A)0%.
B)20%.
C)10%.
D)15%.
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Chapter 5: The Corporate Income Tax
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Questions
Q1) Identify which of the following statements is true.
A)"Ordinary income property" with regard to the charitable contribution deduction does not include property whose sale would have produced a short-term capital gain.
B)The Twilight Corporation purchases inventory for $5,000.Its FMV on the date it is donated to the Blue-Gray Hospital for the care of the needy is $14,000.The maximum charitable contribution deduction available for the donation is $9,000.
C)Corporations' charitable deductions are limited to 20% of their adjusted taxable income.
D)All of the above are false.
Q2) Davis Corporation,a manufacturer,has taxable income of $150,000.Davis's regular tax liability is
A)$15,000.
B)$41,750.
C)$34,000.
D)$35,000.
Q3) Corporations are permitted to deduct $3,000 in net capital losses annually.
A)True
B)False
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Chapter 6: Gross Income: Inclusions
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Q1) In 2013,Richard,a single taxpayer,has adjusted gross income of $40,000.His AGI includes $4,000 of qualified dividends.Richard has no dependents and does not itemize deductions.What is his 2013 federal income tax?
A)$3,454
B)$3,854
C)$4,054
D)$4,500
Q2) Julia owns 1,000 shares of Orange Corporation.This year,Orange declared a 10% stock dividend.There was no option for shareholders to receive cash.When Julia received 100 shares of Orange stock,it had a fair market value of $50 a share.How much income does Julia have from the dividend?
A)$0
B)$50
C)$5,000
D)$50,000
Q3) While certain income of a minor is taxed at the parent's tax rate,discuss how income shifting may still be accomplished and any constraints that may exist on income shifting.
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Chapter 7: Corporate Nonliquidating Distributions
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Q1) Define Sec.306 stock.
Q2) Hogg Corporation distributes $30,000 to its sole shareholder,Ima.At the time of the distribution,Hogg's E&P is $14,000 and Ima's basis in her stock is $10,000.Ima's gain from this transaction is a
A)$6,000 capital gain.
B)$14,000 capital gain.
C)$20,000 capital gain.
D)$30,000 capital gain.
Q3) Identify which of the following statements is false.
A)The rules for the recognition of a gain or loss by a corporation that distributes property in redemption of its stock are the same as the rules for property distributions that are not in redemption of stock.
B)Generally,little or no gain is recognized by the redeeming shareholder in a qualified Sec.303 redemption.
C)When a stock redemption is considered a sale of stock by the shareholder,the E&P of the redeeming corporation is reduced by the FMV of the property used to redeem the stock.
D)Under Sec.311,a corporation does not recognize a loss when it distributes property that has declined in value.
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Page 9
Chapter 8: Gross Income: Exclusions
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Q1) A nursing home maintains a cafeteria that is used by employees,patients,and visitors.The value of free meals provided to employees while on duty so that they may be available for emergency calls is not taxable.
A)True
B)False
Q2) During the year,Cathy received the following: Dividends of $4,000 from Lindsay Corporation.Cathy's father owned the stock and directed the corporation to send the dividends to Cathy.
A car worth $30,000 for being the 100<sup>th</sup> customer at a car dealership.
$5,500 cash gift from her uncle.
$10,000 inheritance from her grandmother. What amount must Cathy include in gross income?
A)$30,000
B)$34,000
C)$39,500
D)$49,500
Q3) Discuss briefly the options available for avoiding double taxation for the U.S.citizen earning income from sources outside the United States.
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Chapter 9: Other Corporate Tax Levies
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Q1) Which of the following is not permitted an accumulated earnings credit based on reasonable needs of the business?
A)an operating company
B)an investment company
C)an incorporated engineer
D)All of the above are permitted a credit based on reasonable business needs.
Q2) Becky places five-year property in service during June 2014 using the half-year convention.Depreciation is $1,500 under the 150% declining balance method and $2,000 under 200% declining balance.Becky uses the 200% declining balance method for regular income tax purposes.What is the amount of Becky's AMT adjustment?
A)$0
B)$1,500 positive adjustment
C)$500 positive adjustment
D)$500 negative adjustment
Q3) All corporations,except S corporations and small C corporations,must calculate the ACE adjustment.
A)True
B)False
Q4) Define personal holding company income.
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Chapter 10: Property Transactions: Capital Gains and Losses
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Q1) Donald has retired from his job as a corporate manager.He buys and sells stocks on a daily basis.He spends 8-9 hours daily studying prospective stock purchases and market news.What tax issues should Donald consider?
Q2) Interest incurred during the development and manufacture of a machine must be capitalized.
A)True
B)False
Q3) Andrea died with an unused capital loss carryover of $3,300.The carryover
A)may be carried back three years.
B)will be fully used on Andrea's final income tax return.
C)will be inherited by Andrea's heirs.
D)expires with death.
Q4) Unlike an individual taxpayer,the corporate taxpayer does not utilize the 25% and 28% specialty capital gain rates,but it does apply the 15% tax rate to adjusted net capital gain.
A)True
B)False
Q5) Distinguish between the Corn Products doctrine and the ruling in the Arkansas Best Corporation case.
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Chapter 11: Corporate Liquidating Distributions
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Q1) Under a plan of complete liquidation,Coast Corporation distributes land with a $300,000 adjusted basis and a $400,000 FMV to William,a 25% shareholder.William has a $200,000 basis in his Coast stock.The land is inventory in the hands of Coast Corporation.Coast Corporation must recognize A)no gain.
B)$100,000 of ordinary income.
C)$100,000 of long-term capital gain.
D)$200,000 of ordinary income.
Q2) Riverwalk Corporation is liquidated,with Juan receiving $5,000 in money,other property having a $6,000 FMV,and a $1,000 mortgage on the property.Juan's basis in his River walk stock is $8,000.Upon liquidation,Juan must recognize a gain of
A)0.
B)$2,000.
C)$3,000.
D)$11,000.
Q3) In a Sec.332 liquidation,what bases do both the parent and minority shareholders take in the assets received?
Q4) 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) Jason sells stock with an adjusted basis of $66,000 to JJ Inc.,his 60% owned corporation,for its fair market value of $60,000.JJ Inc.sells the stock three years later for $67,000.JJ Inc.'s recognized gain or loss on the sale will be A)$-0-.
B)($3,000).
C)$1,000.
D)$4,000.
Q2) Generally,deductions for adjusted gross income on an individual's tax return include all the following types of expenses except those
A)incurred in gambling activities.
B)incurred in a trade or business.
C)incurred in the production of rent income.
D)incurred in the production of royalty income.
Q3) 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?
Q4) Discuss when expenses are deductible under the accrual method of accounting.
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Page 14
Chapter 13: Corporate Acquisitions and Reorganizations
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Q1) Which one of the following is not a corporate reorganization as defined in the Internal Revenue Code?
A)recapitalization
B)mere change in identity
C)merger
D)stock redemption
Q2) Identify which of the following statements is true.
A)Able Corporation (New York)transfers its assets to Able Corporation (Delaware)in exchange for all of its stock.Able Corporation (New York)is liquidated.This exchange is a Type F reorganization.
B)Strict adherence to legislative guidelines with regard to reorganizations is sufficient for tax-free treatment.
C)A suitable business purpose for a tax-free reorganization is to permit the minimization of shareholder taxes.
D)All of the above are false.
Q3) In a taxable asset acquisition,the purchaser does not acquire unknown and contingent liabilities.
A)True
B)False
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Chapter 14: Itemized Deductions
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Q1) When are points paid on a loan deductible as interest expense?
Q2) Interest expense incurred in the taxpayer's trade or business is deductible as a for AGI deduction without limitation if the taxpayer materially participates in the business.
A)True
B)False
Q3) On December 1,2012,Delilah borrows $2,000 from her credit union to use in her business.Under the terms of the contract,Delilah actually receives $1,940 but is required to repay $2,000 in three months.
a.What amount may Delilah deduct as interest expense in 2012 and in 2013 if she is a cash basis taxpayer?
b.What amount may Delilah deduct as interest expense in 2012 and in 2013 if she is an accrual basis taxpayer?
Q4) Self-employed individuals may deduct the full self-employment taxes paid as a for AGI deduction.
A)True
B)False
Q5) Explain how tax planning may allow a deduction of qualified medical expenses.
Q6) Explain why interest expense on investments is limited to net investment income.
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Chapter 15: Consolidated Tax Returns
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Q1) What types of corporations are not includible corporations for purposes of determining whether or not an affiliated group exists?
Q2) Subsidiary Corporation purchases a used machine from Parent Corporation in an intercompany transaction.Which of the following events is a corresponding event for the intercompany transaction?
A)the purchasing group member depreciating the machine
B)the purchasing group member selling the machine for cash to a nonmember of the group
C)the departure of the purchasing group member from the affiliated group when its stock is sold to a nonmember of the group
D)All of the above are recognition events.
Q3) Intercompany dividends and undistributed subsidiary earnings do not create temporary differences for affiliated companies filing a consolidated return.
A)True
B)False
Q4) What are the differences between a controlled group and an affiliated group?
Q5) Define intercompany transactions and explain the two types of transactions.
Q6) What is the consequence of having losses subject to the SRLY limitations?
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Chapter 16: Losses and Bad Debts
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Q1) For a bad debt to be deductible,the taxpayer must have a basis in the debt.
A)True
B)False
Q2) Charlie owns activity B which was considered a passive activity and generated a $17,000 suspended loss.Charlie increases his involvement with activity B so that this year activity B is not considered passive for Charlie.During this year,activity B produces a $9,000 loss.In addition,Charlie acquires an investment in activity X,a passive activity,this year.Charlie's share of activity X's income is $13,000.Charlie's salary this year is $70,000.As a result,this year Charlie must
A)offset B's loss carryover against X's current income and carry over $9,000 loss from activity B to next year.
B)offset B's carryover loss and current loss against X's income first and then offset any remaining loss against salary.
C)offset B's $9,000 loss against X's $13,000 income and offset B's loss carryover against the remaining $4,000 of X's income.
D)offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year.
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Chapter 17: Partnership Formation and Operation
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Q1) On January 1,Helmut pays $2,000 for a 10% capital,profits,and loss interest in a partnership,which has recourse liabilities of $20,000.The partners share economic risk of loss from recourse liabilities in the same way they share partnership losses.In the same year,the partnership incurs losses of $6,000 and the recourse liabilities increase by $5,000.Helmut and the partnership use a calendar tax year-end.Helmut's basis at year-end is
A)$1,500.
B)$2,000.
C)$3,500.
D)$3,900.
Q2) On December 1,Antonio,a member of a three-person partnership,purchases investment securities from the partnership for their $37,000 FMV.All partners share profits and losses equally.The securities were acquired by the partnership for $25,000 cash in March of the current year.What amount and character of gain will Antonio recognize because of this transaction?
A)$0 gain
B)$4,000 ordinary income
C)$4,000 short-term capital gain
D)$12,000 ordinary income
Q3) What is included in partnership taxable income?
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Chapter 18: Employee Expenses and Deferred Compensation
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Q1) Dues paid to social or athletic clubs are deductible if they meet a primary-use test,requiring that more than 50% of the use of the facility be for business purposes.
A)True
B)False
Q2) David acquired an automobile for $30,000 for use in his unincorporated business in 2011 and used the standard mileage rate method in 2011 and 2012.He switches to the actual expense method for 2013.The automobile was used 25,000 miles in 2011 and 20,000 miles in 2012.What is the amount of the adjusted basis of the automobile for purposes of computing depreciation in 2013?
Q3) Deductible moving expenses include the cost of moving household goods and personal effects as well as temporary living expenses.
A)True
B)False
Q4) In-home office expenses which are not deductible in the year in which the costs were incurred due to limitations may be carried forward to subsequent years.
A)True
B)False
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Chapter 19: Special Partnership Issues
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Q1) A partnership cannot recognize a gain or loss on a current distribution.
A)True
B)False
Q2) Joshua is a 40% partner in the XY Partnership when he sells his entire interest to Stanley for $60,000 cash.At the time of the sale,Joshua's basis is $36,000,which includes his $10,000 share of partnership liabilities.The partnership has no Sec.751 assets.Calculate Joshua's gain or loss on the sale.
Q3) If a partnership asset with a deferred precontribution gain is distributed within seven years of acquisition in a nonliquidating distribution to a partner who did not contribute the asset,the precontribution gain must be recognized by the contributing partner.
A)True
B)False
Q4) A limited liability company is a form of business entity that combines the legal benefits of the corporate form with the tax benefits of the partnership form.
A)True
B)False
Q5) What is the character of the gain/loss on the sale of a partnership interest?
Q6) Do most distributions made by a partnership require a Sec.751 calculation?
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Chapter 20: Depreciation cost Recovery amortization and Depletion
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Q1) On May 1,2008,Empire Properties Corp.,a calendar year taxpayer,purchased an apartment building for $1,000,000,of which $400,000 was allocable to the land.The corporation sold the property this year on September 23,2013.
a.What was the corporation's depreciation for the building,using statutory percentages under MACRS for 2008?
b.What was the corporation's depreciation for the building,using statutory percentages under MACRS for 2013?
Q2) In computing MACRS depreciation in the year of disposition of personal property used in a trade or business,the half-year convention must be applied to the amounts in the tables if the half-year convention was used in the year the asset was placed into service.
A)True
B)False
Q3) Land,buildings,equipment,and stock are examples of tangible property.
A)True
B)False
Q4) Why would a taxpayer elect to use the alternative depreciation system rather than the MACRS rules?
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Chapter 21: S Corporations
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Q1) All shareholders must consent to the revocation of S status.
A)True
B)False
Q2) The S corporation rules were enacted to allow small corporations to enjoy the nontax advantages of the corporate form of business without being subject to the tax disadvantage of double taxation.
A)True
B)False
Q3) A corporation must make an S election for the current year after March 15 in the case of a calendar-year corporation.
A)True
B)False
Q4) Which of the following conditions will not cause an S election to be terminated?
A)exceeding the 100-shareholder limit
B)creating a second class of stock having a dividend preference
C)selecting an improper tax year
D)failing to file a timely tax return
Q5) If losses are suspended due to the lack of basis in S corporation stock,do the losses expire when the S election terminates?
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Chapter 22: Accounting Periods and Methods
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Q1) When preparing a tax return for a short period,the taxpayer should annualize the income if the short period return
A)is the last return for a decedent who died on June 15.
B)is the first return for a corporation created on June 1.
C)is the last return for a partnership,which was terminated on October 12.
D)is a return for June 1 to December 31,for a corporation changing from a fiscal year to a calendar year.
Q2) Arnie is negotiating the sale of land to Phil.Arnie's basis in the land is $3,000,000,and it currently has a fair market value of $5,000,000.Phil wants to pay the purchase price over three years.Arnie suggests that Phil pays $2,000,000 at closing,then pay $1,200,000 each of the next three years.Arnie would not require that Phil pay any interest under these terms.Discuss the tax issues that Arnie should consider.
Q3) C corporations and partnerships with a corporate partner may use the cash method of accounting if average annual gross receipts for the three preceding tax years do not exceed $10 million.
A)True B)False
Q4) Discuss the purpose of the imputed interest rules.
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Page 24
Chapter 23: The Gift Tax
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Q1) Calvin transfers land to a trust.Calvin retains the right to the income from the land for the rest of his life.Upon his death,the land is to be transferred to his daughter,Melissa.Melissa's interest is
A)a remainder interest.
B)a life estate.
C)a reversionary interest.
D)a term certain.
Q2) On July 1,Frank loans his brother Matt $200,000.The loan is evidenced by an interest-free demand note.The loan is still outstanding on December 31.The applicable interest rate is 12%.Frank is treated as having made a gift of A)$200,000.
B)$24,000.
C)$12,000.
D)$0.
Q3) Connie has some acreage that is valued at $1,500,000.Her daughter would like to build a home on it,but can only afford $500,000.Connie agrees to sell it to her daughter for $500,000.Is there any gift tax consequence as a result of this transaction?
Q4) Contrast the Crummey trust with the Sec.2503(c)trust.
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Chapter 24: Property Transactions: Nontaxable Exchanges
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Q1) If each party in a like-kind exchange assumes a liability of the other party,only the net liability given or received is boot.
A)True
B)False
Q2) Ron's building,which was used in his business,was destroyed in a fire.Ron's adjusted basis in the building was $210,000,and its FMV was $330,000.Ron filed an insurance claim and was reimbursed $300,000.In that same year,Ron invested $240,000 of the insurance proceeds in another business building.Ron's basis in the new building is
A)$180,000.
B)$210,000.
C)$240,000.
D)$330,000.
Q3) The holding period of like-kind property received in a nontaxable exchange begins on the day of the exchange.
A)True
B)False
Q4) Discuss the rules regarding the holding period for like-kind property received in a nontaxable exchange.
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Page 26
Chapter 25: The Estate Tax
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Q1) A stock redemption to pay death taxes under Sec.303 is generally treated as
A)a sale or exchange of property.
B)a dividend.
C)a return of capital.
D)ordinary income.
Q2) A qualified disclaimer is a valuable estate planning tool because
A)it establishes the value of the disclaimed assets.
B)it qualifies the assets for the alternative valuation date.
C)it is not treated as a gift made by the person who disclaims.
D)it allows the person making the disclaimer to determine the recipient.
Q3) Identify which of the following statements is true.
A)The transferee is liable for the generation-skipping transfer tax (GSTT)in the case of a direct skip.
B)Special use valuation is available for farmland to help alleviate liquidity problems.
C)Qualified disclaimers are not available for estate planning purposes.
D)All of the above are false.
Q4) The estate tax is a wealth transfer tax.
A)True
B)False
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Chapter 26: Property Transactions: Section 1231 and Recapture
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Q1) Blair,whose tax rate is 28%,sells one tract of land at a gain of $29,000 and another tract of land at a gain of $11,000.Both tracts of land are Sec.1231 property.She has never had any other Sec.1231 transactions.How are the gains taxed?
A)ordinary income of $40,000 taxed at 28%
B)a net capital gain of $40,000 which is not taxed
C)a net capital gain of $40,000 taxed at 15%
D)ordinary income of $40,000 taxed at 25%
Q2) Elaine owns equipment ($23,000 basis and $15,000 FMV)and a building ($136,000 basis and $148,000 FMV),which are used in her business.Elaine uses straight-line depreciation for both assets,which were acquired several years ago.Both the equipment and the building are destroyed in a fire,and Elaine collects insurance proceeds equal to the assets' FMV.
a.What is the tax treatment of these two transactions?
b.Assume that Elaine is only able to collect $3,000 from the insurance company for the equipment loss.What is the tax treatment of the two transactions (assume the basis and insurance reimbursement remain the same for the building).
Q3) 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) Identify which of the following statements is true.
A)Beneficiaries of simple trusts are taxed currently on their pro rata share of taxable distributable net income (DNI)regardless of the actual amount distributed to them during the period.
B)The income received by the beneficiaries of the trust loses its character once it is distributed.
C)Capital losses remaining in the final year of a trust do not pass through to the beneficiaries succeeding to the trust property.
D)All of the above are false.
Q2) Identify which of the following statements is true.
A)Income in respect of a decedent (IRD)is the gross income the decedent earned before death but had not collected before death.
B)An estate may deduct up to $5,000 of capital losses against the ordinary income taxable in the estate.
C)An example of income in respect of a decedent (IRD)is the gain recognized on property sold by the estate after the decedent's death.
D)All of the above are false.
Q3) Briefly discuss the reasons for establishing a trust.
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Chapter 28: Special Tax Computation Methods tax Credits and
Payment of Tax
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Q1) Kerry is single and has AGI of $25,000 in 2013.During the year he contributes $5,000 to his Roth IRA.What is the amount of qualified retirement savings contributions credit to which he is entitled?
A)$200
B)$400
C)$800
D)$1,000
Q2) The present AMT applies to individuals,corporations,estates,and trusts.
A)True
B)False
Q3) For purposes of the child and dependent care credit,qualifying employment-related expenses cannot include payments to a relative.
A)True
B)False
Q4) The qualified retirement savings contributions credit is based on a maximum contribution of $2,000.
A)True
B)False
Q5) Discuss when Form 6251,Alternative Minimum Tax,must be filed.
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Chapter 29: Administrative Procedures
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Q1) Identify which of the following statements is true.
A)If a taxpayer fails to file a return,the statute of limitations is extended to 10 years.
B)If a couple files a joint return but only one spouse had income,only the spouse with income is responsible for paying any tax due.
C)Joint and several liability means that each spouse is potentially liable for the full amount of tax due.
D)All of the above are false.
Q2) Explain how the Internal Revenue Service is organized to be efficient and client-oriented.
Q3) Identify which of the following statements is false.
A)So-called private letter rulings are made public after confidential information is eliminated.
B)A letter ruling is a written statement issued to a taxpayer by the IRS that interprets and applies the tax laws to that taxpayer's specific set of facts.
C)Only the taxpayer can appeal the decision of a court of original jurisdiction to the next higher court.
D)If the Supreme Court decides to hear a case,it grants certiorari.
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Chapter 30: Tax Research
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Q1) Which of the following statements about the Statements on Standards for Tax Services is true?
A)A CPA is never allowed to use a taxpayer's estimates when preparing a tax return.
B)The CPA must tell the IRS upon becoming aware that an error has been made on a past tax return.
C)The CPA may in good faith rely on information provided by the taxpayer,without verifying the reliability of that information if reasonable inquiries are made where the information furnished appears to be incorrect.
D)The CPA should not recommend that a taxpayer take a certain position if there is any doubt as to whether the position would be approved by the IRS upon audit.
Q2) In which courts may litigation dealing with tax matters begin? Discuss the factors that might be considered in deciding where to begin litigation.
Q3) A citator is used to find
A)the judicial history of a case.
B)the cases that have cited a case subsequent to the issuance of the opinion.
C)whether a case has been overturned.
D)all of the above.
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Page 32
Chapter 31: Ustaxation of Foreign-Related Transactions
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Q1) Jose,a U.S.citizen,has taxable income from U.S.sources of $15,000 and taxable income from a foreign country of $35,000.Assume the U.S.tax rate is 25% and Jose paid $12,000 in taxes to the foreign country.What foreign tax credit can be claimed by Jose?
Q2) Identify which of the following statements is true.
A)When a controlled foreign corporation (CFC)uses Subpart F income to invest in U.S.property,the investments are characterized as constructive distributions.
B)A controlled foreign corporation (CFC)can avoid the constructive dividend distribution resulting from investments in U.S.property if it invests in U.S.government obligations.
C)Distributions made by a controlled foreign corporation (CFC)are deemed to be paid first from tax-deferred earnings.
D)All of the above are false.
Q3) A foreign corporation with a single class of stock is owned 8% by Bert,49% by Xi Yong,30% by Ernie,and 13% by Mark.Bert,Ernie,and Mark are U.S.citizens,and Xi Yong is a nonresident alien.The shareholders are not related.Is the foreign corporation a controlled foreign corporation (CFC)?
Q4) What is a corporate inversion and why was this provision enacted?
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Page 33
Chapter 32: Corporations
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Q1) Manatee Corporation,a retailer,is owned equally by twelve unrelated individuals.Its taxable income this year is $100,000 and its regular federal income tax liability is $22,250.The company claims a $20,000 dividends-received deduction and pays $25,000 dividends to its shareholders.The corporation had accumulated earnings and profits of $200,000 at the end of the preceding year.The company has reasonable needs of the business at year-end of $210,000.The accumulated earnings tax is A)$413.
B)$3,413.
C)$4,550.
D)$7,735.
Q2) 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.
Q3) Johnson Corporation has $300,000 of AMTI before the exemption.What is the tax base for AMT?
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Chapter 33: Partnerships and S Corporations
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Q1) Passive activity loss limitations apply to S corporation shareholders in the same manner as partners.
A)True
B)False
Q2) A shareholder's basis for the S corporation stock is adjusted for ordinary income or loss and separately stated items that flow through to the shareholders as well as for additional capital contributions by shareholders and distributions to shareholders.
A)True
B)False
Q3) Under the "check-the-box" Treasury Regulations,an LLC with more than one member is treated as a partnership unless the LLC affirmatively elects to be classified as a corporation.
A)True
B)False
Q4) A partnership is generally required to use the tax year of one or more partners who own more than a 50% interest in partnership profits and capital.
A)True
B)False
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Chapter 34: Taxes and Investment Planning
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Q1) Sylvia makes a one-time $2,000 deductible contribution into a deductible traditional IRA account,which will earn 8% annually before taxes.Twenty-five years later,at age 65,she withdraws all of the accumulation from the IRA when she is in the 15% marginal tax bracket.What is the total of her after-tax accumulated proceeds from the IRA?
A)$6,000
B)$8,541
C)$11,642
D)$13,697
Q2) The Flow-Through Model used for S corporations and partnerships is an application of the A)Pension Model.
B)Current Model.
C)Deferred Model.
D)Exempt Model.
Q3) Common examples of the Pension Model include all of the following except for A)H.R.10 (Keogh)plans.
B)401(k)plans.
C)Nondeductible traditional IRAs.
D)tax deferred annuities or 403(b)plans.
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Page 36