Graduate Taxation Exam Bank
Course Introduction
Graduate Taxation is an advanced course designed to provide a comprehensive understanding of the principles and practices underlying taxation at the federal, state, and local levels. The course covers key topics such as income taxation of individuals and businesses, tax planning strategies, tax compliance, and the ethical dimensions of tax practice. Students will examine the structure of the Internal Revenue Code, regulations and rulings, case law, and administrative guidance, developing the skills necessary to interpret and apply tax laws in real-world situations. Additional emphasis is placed on current tax policy issues and the dynamic nature of tax law in a global economy, preparing students to advise individuals and entities on their tax obligations and planning opportunities.
Recommended Textbook
Pearsons Federal Taxation 2017 Corporations Partnerships Estates and Trusts 30th Edition Thomas
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Chapter 1: Tax Research
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Q1) Statements on Standards for Tax Services are issued by
A)the SEC.
B)the IRS.
C)the AICPA.
D)the FASB.
Answer: C
Q2) The acquiescence policy of the IRS extends to the
A)U)S.Supreme Court decisions.
B)U)S.Tax Court regular decisions.
C)U)S.District Court decisions.
D)both B and C
Answer: D
Q3) Explain the legislative reenactment doctrine.
Answer: Under the legislative reenactment doctrine,a Treasury Regulation is deemed to have been endorsed by Congress if the regulation was finalized before a related IRC provision was enacted,and during the interim,Congress did not amend the provision to which the regulation relates.
Q4) Discuss the differences and similarities between regular and memorandum decisions issued by the U.S.Tax Court.
Answer: Differences:
Page 3
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Chapter 2: Corporate Formations and Capital Structure
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Q1) Jeremy transfers Sec.351 property acquired three years earlier having a $100,000 basis and a $160,000 FMV to Jeneva Corporation.Jeremy receives all 200 shares of Jeneva stock having a $140,000 FMV,and a $20,000 90-day Jeneva note.What is Jeremy's recognized gain?
A)$0
B)$60,000
C)$20,000
D)$160,000
Answer: C
Q2) Zoe Ann transfers machinery having a $36,000 adjusted basis and a $70,000 FMV for all 100 shares of Zeema Corporation's stock.Before the transfer,Zoe Ann used the machinery in her business.She originally paid $50,000 for the machinery and claimed $14,000 of depreciation before transferring the machinery.Zoe Ann recaptures no depreciation on the transfer and the recapture potential is transferred to Zeema Corporation.Zeema sells the machine for $66,000 after it had depreciated the machine an additional $4,000.What is Zeema's gain on the machine and what is its character? Answer: Zeema must recognize a $34,000 ($66,000 - $32,000)gain on the sale.Of this gain,$18,000 is ordinary income recaptured under Sec.1245.The remaining $16,000 is Sec.1231 gain.
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Chapter 3: The Corporate Income Tax
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Questions
Q1) West Corporation purchases 50 shares (less than 1%)of Perch Corporation common stock on April 3.The ex-dividend date is April 4.West Corporation pays $50,000 for the stock and receives a dividend of $5,000 on the Perch stock.On May 1,West Corporation sells the Perch stock for $45,000.West's taxable income before the dividends-received deduction is $4,000.West's dividends-received deduction is
A)$3,500.
B)$3,200.
C)$2,800.
D)$0.
Answer: D
Q2) Which of the following items is a temporary difference between tax income and financial accounting income?
A)production activities deduction
B)proceeds on life insurance on a key executive
C)dividends-received deduction
D)depreciation
Answer: D
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Chapter 4: Corporate Nonliquidating Distributions
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Q1) What must be reported to the IRS by corporations when nondividend distributions are made to its shareholders?
Q2) Ameriparent Corporation owns a 70% interest in Flag Corporation.The corporations have current and accumulated E&Ps of $25,000 and $40,000,respectively.Taxpayer,who has a $20,000 basis in her 40% ownership interest of Ameriparent Corporation,sells sufficient stock to Flag to reduce her interest in Ameriparent from 40% to 20%.Taxpayer receives $20,000 for the stock she surrenders.What are the tax consequences of the transaction for Taxpayer?
Q3) Define Sec.306 stock.
Q4) Corporations may always use retained earnings as a substitute for earnings and profits.
A)True
B)False
Q5) In 2010,Tru Corporation deducted $5,000 of bad debts.It received no tax benefit from the deduction because it had an NOL in 2010 that it was unable to carry back or forward.In 2011,Tru recovered $4,000 of the amount due.
a)What amount must Tru include in income in 2011?
b)What effect does the $4,000 have on E&P in 2011,if any?
Q6) How does a shareholder classify a distribution for tax purposes?
Page 6
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Chapter 5: Other Corporate Tax Levies
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Q1) In the current year,Sun Corporation's federal income taxes before credits are $220,000.Its TMT is $100,000.Their only available credit is a research credit (part of the general business credit)of $160,000.The general business credit is limited to what amount?
Q2) Which of the following is not an adjustment in calculating AMTI?
A)gain on installment sales of noninventory property
B)the regular tax NOL deduction
C)production activities deduction
D)the difference between the gains for AMTI and regular tax purposes
Q3) Identify which of the following statements is true.
A)Payment of deficiency dividends will prevent the imposition of the accumulated earnings tax.
B)All corporations are exempt from the accumulated earnings tax on their first $250,000 of accumulated earnings.
C)A health service corporation can claim an accumulated earnings credit of $250,000.
D)All of the above are false.
Q4) What is the effect of the two-pronged test that allows the exclusion from PHCI of certain AIR (adjusted income from rents)?
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Chapter 6: Corporate Liquidating Distributions
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Q1) The liquidation of a subsidiary corporation must be completed within one tax year to receive nonrecognition treatment.
A)True
B)False
Q2) In a Sec.332 liquidation,what bases do both the parent and minority shareholders take in the assets received?
Q3) A plan of liquidation
A)must be written.
B)details the steps to be undertaken in carrying out the liquidation.
C)must be a formal plan.
D)must be completed in one year.
Q4) For that following set of facts,what are the tax consequences to Parent Corporation,Subsidiary Corporation,and a Subsidiary Corporation shareholder,Melisa? Parent Corporation owns 80% of Subsidiary Corporation's stock.Melisa owns the remaining 20% of the Subsidiary stock.Parent and Melisa's stock have adjusted bases of $100,000 and $25,000,respectively,for their Subsidiary stock.Subsidiary distributes land having a $125,000 adjusted basis and a $200,000 FMV to Parent and $50,000 in cash to Melisa.
Q5) Are liquidation and dissolution the same? Explain your answer.
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Chapter 7: Corporate Acquisitions and Reorganizations
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Q1) When gain is realized by a target corporation from disposing of its assets in a tax-free reorganization,the gain is
A)recognized if boot is received and immediately distributed to its shareholders.
B)recognized without exception.
C)recognized if boot is received and retained.
D)never recognized.
Q2) The acquiring corporation does not obtain the target corporation's tax attributes in A)a Type A reorganization.
B)a Type B reorganization.
C)an acquisitive Type C reorganization.
D)an acquisitive Type D reorganization.
Q3) In a triangular Type A merger,the acquiring subsidiary corporation must obtain substantially all of the target corporation's assets. A)True
B)False
Q4) Briefly describe A,B,C,D,and G reorganization types.
Q5) What are the two steps of a Sec.338 deemed liquidation election?
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Chapter 8: Consolidated Tax Returns
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Q1) How do intercompany transactions affect the calculation of capital gains/losses?
Q2) Identify which of the following statements is true.
A)Corporations that join in a consolidated return must adopt the same tax year as the parent corporation.
B)Permission to discontinue the filing of consolidated tax returns is sometimes granted by the IRS.
C)Additional administrative costs may be incurred when filing a consolidated tax return.
D)All of the above are true.
Q3) Penish and Sagen Corporations have filed consolidated tax returns for several calendar years.At the close of business on September 30,2012,Penish Corporation sells its all of its Sagen stock to June.What are the tax consequences to each corporation?
Q4) Which of the following corporations is an includible corporation for purposes of filing a consolidated tax return?
A)insurance companies
B)S corporations
C)car manufacturing corporation
D)foreign corporations
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Chapter 9: Partnership Formation and Operation
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Q1) A partner's share of nonrecourse debt increases that partner's share of basis.
A)True
B)False
Q2) For a 20% interest in partnership capital,profits,and losses,Kasi contributes a machine having a basis of $30,000 and an FMV of $40,000.The partnership also assumes a $24,000 recourse liability secured by the machine.The partnership has $6,000 in recourse liabilities immediately preceding Kasi's contributions.Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.Kasi's basis in the partnership interest is
A)$10,800.
B)$12,000.
C)$13,200.
D)$30,000.
Q3) Identify which of the following statements is true.
A)All of the partners in a limited partnership have limited liability.
B)A limited partnership must have at least two general partners.
C)A limited partnership cannot have a corporate general partner.
D)All of the above are false.
Q4) Briefly explain the aggregate and entity theories as they relate to partnerships.
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Chapter 10: Special Partnership Issues
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Q1) A partner can recognize gain,but not loss,on a liquidating distribution.
A)True
B)False
Q2) What is an electing large partnership? What are the advantages to the partnership of electing to be taxed under the electing large partnership rules?
Q3) Mirabelle contributed land with a $5,000 basis and a $9,000 FMV to MS Partnership four years ago.This year the land is distributed to Sergio,another partner in the partnership.At the time of distribution,the land had a $12,000 FMV.What is the impact of the distribution on Mirabelle's partnership basis?
A)0
B)$4,000 increase
C)$4,000 decrease
D)$7,000 increase
Q4) What is included in the definition of unrealized receivables?
Q5) The limited liability company (LLC)has become a popular business form because of its limited liability protection for its owner.The S corporation also provides limited liability protection for its owner.What advantages does an LLC provide that are not available with an S corporation?
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Chapter 11: US Corporations
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Q1) Pressley Corporation was incorporated on January 1,2004.The corporation made its S election on March 1,2008.The corporation retains an E&P balance from its C corporation days.During the current year,it made a cash distribution to its sole shareholder Robert Pressley.What is the proper sequence in reducing the corporate earnings accounts for the distribution?
A)AAA;E&P
B)AAA;OAA;E&P
C)E&P;AAA
D)AAA;PTI;E&P
Q2) Up to six generations of a family are considered as one shareholder for purposes of the 100-shareholder limit.
A)True
B)False
Q3) Which one of the following special loss limitations apply to an S corporation?
A)at-risk rules
B)passive activity limitation rules
C)hobby loss rules
D)All of the above apply.
Q4) What is a permitted year?
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Chapter 12: The Gift Tax
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Q1) A Sec."2503(c)trust"
A)is a discretionary trust for a beneficiary of any age.
B)is intended for beneficiaries over the age of 20.
C)requires distribution of trust assets to the beneficiary at age 21.
D)can be formed only by the parent(s)of the beneficiaries.
Q2) A Crummey trust
A)provides the donor with the ability to retrieve the property.
B)prohibits the beneficiary from withdrawing assets.
C)allows the donor an annual exclusion for transfers.
D)receives property that is not eligible for the annual exclusion.
Q3) 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?
Q4) On September 1,George transfers his entire ownership rights in a $250,000 life insurance policy on his own life to his sister,Sally.The policy's interpolated terminal reserve is $30,000 as of September 1.On July 1,George had paid the policy's $6,000 annual premium.What are the gift tax consequences,if any?
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Chapter 13: The Estate Tax
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Q1) In 2014,the unified credit enables an estate valued at $5.34 million or less to not be subject to the estate tax.
A)True
B)False
Q2) On March 1,Sue transfers stock worth $20,000 to Frank.How long must Sue live to avoid inclusion of the $20,000 of stock in her gross estate?
A)six months
B)one year
C)three years
D)No minimum time period exists,but she must be alive at transfer of ownership.
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
Q4) Explain why living trusts are popular tax-planning vehicles.
Q5) Compare the credits available for estate tax purposes with the credits available for gift tax purposes.What differences exist?
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Chapter 14: Income Taxation of Trusts and Estates
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Q1) For the first five months of its existence (August through December 2008),the Estate of Christine Lowry had gross income (net of expenses)of $7,000 per month.For January through July 2009,the executor estimates that the estate will have gross income (net of expenses)totaling $5,000.The estate's sole beneficiary is Christine's son,Jonathan,who is a calendar-year taxpayer.Jonathan incurred a large NOL from his sole proprietorship years ago,and $34,000 of the NOL carryover remains but expires at the end of 2008.During 2008,Jonathan received only $5,000 of income from part-time employment.What tax issues should the executor of Christine's estate consider with respect to the reporting of the estate's income?
Q2) Describe the tier system for trust beneficiaries.
Q3) The distribution deduction for a complex trust is the lesser of the amount distributed or distributable net income,reduced by net tax-exempt income.
A)True
B)False
Q4) Describe the double taxation of income in respect of a decedent and how it can be reduced.
Q5) List some common examples of principal and income items.
Q6) Explain the three functions of distributable net income (DNI).
Q7) What is the basis of inherited IRD items to the beneficiary?
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Chapter 15: Administrative Procedures
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Q1) Tax return preparers can be penalized for the following activities except
A)failure to sign a return.
B)failure to give a copy of the return to the taxpayer.
C)failure to maintain IRS continuing education requirements.
D)failure to provide the preparer's identification number on the return.
Q2) Identify which of the following statements is false.
A)Appeals officers usually have the operating authority to settle disputes with taxpayers based on the "hazards of litigation."
B)When an appeals officer is dealing with an "appeals coordinated issue," he has the authority to settle with the taxpayer based on the "hazards of litigation."
C)A Technical Advice Memorandum may be requested by an IRS auditor if the transaction in question involves an especially complex tax issue.
D)If the taxpayer and the appeals officer fail to reach agreement,the IRS issues a 90-day letter.
Q3) Pete has reported a tax liability of $3,500 on his 2012 tax return.His 2013 withholding was $3,800.He did not file his 2013 return until June 12,2014.What penalties does Pete owe?
Q4) For innocent spouse relief to apply,five conditions must be met.Explain them.
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Chapter 16: Us Taxation of Foreign-Related Transactions
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Q1) A U.S.citizen accrued $120,000 of creditable foreign taxes last year.The citizen's foreign tax credit limitation for last year is $90,000 (only a single limitation need be calculated).The excess foreign tax credit limitation for the year preceding the year in which the excess foreign taxes were incurred is $2,000.A similar $2,000 excess foreign tax credit limitation position is expected in each of the next 10 years.What portion of the excess foreign taxes can be expected to be noncreditable because of the foreign tax credit limitation?
A)$0
B)$2,000
C)$8,000
D)none of the above
Q2) A foreign corporation with a single class of stock is owned equally by Jericho Corporation,a U.S.corporation,and Joshua,a U.S.citizen.Joshua owns no Alpha Corporation stock.Is the foreign corporation a controlled foreign corporation (CFC)?
Q3) Describe the financial statement implications of the foreign tax credit and a foreign subsidiary.
Q4) Explain the alternatives available to individual taxpayers for reporting foreign income taxes that have been paid or accrued.
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