Graduate Taxation Exam Practice Tests
Course Introduction
Graduate Taxation provides an in-depth analysis of the principles and practices of taxation at the graduate level, focusing on federal, state, and local tax systems. This course covers topics such as income recognition, deductions, tax credits, compliance requirements, and ethical considerations in tax planning. Students will learn to apply tax code provisions to real-world scenarios, analyze complex taxation issues affecting individuals and business entities, and explore contemporary issues in tax policy and administration. The course is designed to equip students with the critical skills and knowledge necessary for professional success in taxation and related fields.
Recommended Textbook
South Western Federal Taxation 2015 Corporations Partnerships Estates and Trusts 38th Edition
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20 Chapters
2958 Verified Questions
2958 Flashcards
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Chapter 1: Understanding and Working With the Federal Tax Law
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74 Verified Questions
74 Flashcards
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Sample Questions
Q1) Revenue Rulings carry the same legal force and effect as Regulations.
A)True
B)False Answer: False
Q2) Unlike determination letters, letter rulings are issued by the National Office of the IRS.
A)True
B)False
Answer: True
Q3) If these citations appeared after a trial court decision, which one means that the decision was viewed favorably?
A) Aff'd 633 F. 2d 512 (CA7, 1980).
B) Rem'd 399 F. 2d 800 (CA5, 1968).
C) Rev'd 914 F. 2d 396 (CA3, 1990).
D) Rev'd 935 F. 2d 203 (CA5, 1991).
E) None of the above.
Answer: A
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Chapter 2: Corporations: Introduction and Operating Rules
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) Because of the taxable income limitation, no dividends received deduction is allowed if a corporation has an NOL for the current taxable year.
A)True
B)False
Answer: False
Q2) During the current year, Woodchuck, Inc., a closely held personal service corporation, has $115,000 of net active income, $40,000 of portfolio income, and $135,000 of passive activity loss. What is Woodchuck's taxable income for the current year?
A) $0
B) $20,000
C) $40,000
D) $155,000
E) None of the above
Answer: D
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Chapter 3: Corporations: Special Situations
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) In the case of corporations that are members of an expanded affiliated group (EAG), the DPAD is determined by treating the group as a single taxpayer.
A)True
B)False
Answer: True
Q2) DPGR cannot include the cost of an embedded service that is part of in the sale of a manufactured product.
A)True
B)False
Answer: False
Q3) Mayberry, Inc. engages in production activities that generate QPAI of $460,000 and taxable income (without taking into account the DPAD and NOL) of $600,000 in 2014. The company also has an NOL carryover to 2014 of $500,000 and qualified W-2 wages of $300,000. Calculate any DPAD.
Answer: $9,000. Multiply 9% by the lesser of QPAI ($460,000) and taxable income ($600,000 - $500,000), or 9% × $100,000 = $9,000. The deduction is not limited by the wage limitation of $150,000 (50% × $300,000).
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Page 5
Chapter 4: Corporations: Organization and Capital Structure
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92 Verified Questions
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Sample Questions
Q1) A shareholder transfers a capital asset to Red Corporation for its stock. If the transfer qualifies under § 351, Red's holding period for the asset begins on the day of the exchange.
A)True
B)False
Q2) George transfers cash of $150,000 to Finch Corporation, a newly formed corporation, for 100% of the stock in Finch worth $80,000 and debt in the amount of $70,000, payable in equal annual installments of $7,000 plus interest at the rate of 9% per annum. In the first year of operation, Finch has net taxable income of $40,000. If Finch pays George interest of $6,300 and $7,000 principal payment on the note:
A) George has dividend income of $13,300.
B) Finch Corporation does not have a tax deduction with respect to the payment.
C) George has dividend income of $7,000.
D) Finch Corporation has an interest expense deduction of $6,300.
E) None of the above.
Q3) A taxpayer may never recognize a loss on the transfer of property in a transaction subject to § 351.
A)True
B)False
Page 6
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Chapter 5: Corporations: Earnings Profits and Dividend
Distributions
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) Dividends taxed as ordinary income are considered investment income for purposes of the investment interest expense limitation.
A)True
B)False
Q2) Constructive dividends do not need to satisfy the legal requirements for a dividend as set forth by applicable state law.
A)True
B)False
Q3) Regardless of any deficit in current E & P, distributions during the year are taxed as dividends to the extent of accumulated E & P.
A)True
B)False
Q4) To determine E & P, some (but not all) previously excluded income items are added back to taxable income.
A)True
B)False
Q5) Briefly define the term "earnings and profits."
Page 7
Q6) Gain realized, but not recognized, in a like-kind exchange transaction in 2014.
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Chapter 6: Corporations: Redemptions and Liquidations
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115 Verified Questions
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Sample Questions
Q1) Coffee Corporation has 2,000 shares of common stock outstanding. John owns 700 of the shares, John's grandfather owns 100 shares, John's father owns 100 shares, John's exwife owns 700 shares, and Redbird Partnership owns 400 shares. John is a 50% partner in Redbird Partnership. How many shares is John deemed to own in Coffee Corporation under the § 318 attribution rules?
A) 700
B) 1,000
C) 1,100
D) 1,700
E) None of the above
Q2) Explain the stock attribution rules that apply in the case of stock redemptions.
Q3) If a parent corporation makes a § 338 election, the subsidiary corporation is treated as a new corporation as of the day following the qualified stock purchase date.
A)True
B)False
Q4) Compare the sale of a corporation's assets with a sale of its stock from the perspective of the seller.
Q5) When is a redemption to pay death taxes under § 303 most advantageous?
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Chapter 7: Corporations: Reorganizations
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) In a "Type B" reorganization, the acquiring corporation obtains control by exchanging common and preferred stock in the same percentages as the target's outstanding common and preferred stock.
A)True
B)False
Q2) When the § 382 limitation is evoked, the acquiring corporation is limited in its use of the tax loss carryover of the loss corporation. The limitation is based on the net present value of the loss corporation using the Federal long-term discount rate.
A)True
B)False
Q3) Pallid Swift, Inc., is an S corporation located in Colorado. In the past year, PallidSwift has become profitable; but due to its rapid growth, Pallid Swift has no excess cash for distributions. Therefore, Pallid Swift decides that it should become a C corporation.
A) This transaction qualifies as a "Type F" reorganization.
B) This transaction qualifies as a "Type E" reorganization.
C) This change has no tax significance for Federal purposes.
D) This change is a taxable event.
E) None of the above.
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Chapter 8: Consolidated Tax Returns
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175 Verified Questions
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Sample Questions
Q1) Each of the members of a Federal consolidated tax return group can claim its own $40,000 AMT exemption, subject to phase-out.
A)True
B)False
Q2) Keep Corporation joined an affiliated group by merger in 2010. The group generated a 2014 consolidated NOL, and Keep's share of the loss was $50,000. Keep's share of the loss is included in the group's NOL carryforward to 2015.
A)True
B)False
Q3) The Harris consolidated group reports a net operating loss (NOL) for the year. The tax law works to:
A) Allow unused charitable contributions a 20-year carryforward.
B) Disallow any carrybacks of NOL deductions.
C) Keep the consolidated group from benefiting when the election to consolidate is motivated chiefly by tax reduction strategies.
D) All of the above statements describe effects of the consolidated return rules.
Q4) Member's operating loss, when stock basis = $0
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Chapter 9: Taxation of International Transactions
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177 Verified Questions
177 Flashcards
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Sample Questions
Q1) Unused foreign tax credits are carried back two years and then forward 20 years. A)True B)False
Q2) Which of the following statements regarding a nonU.S. person's U.S. tax consequences is true?
A) Non-U.S. persons are potentially subject to U.S. withholding tax on U.S.-source investment income.
B) Non-U.S. individuals may be subject to U.S. income tax but non-U.S. corporations are never subject to U.S. income tax.
C) Non-U.S. persons are only subject to U.S. income or withholding tax if engaged in a U.S. trade or business.
D) Non-U.S. persons must be physically present in the United States before any U.S.-source income is subject to U.S. income or withholding tax.
Q3) Income of foreign person taxed through filing of a U.S. tax return with deductions allowed against gross income.
Q4) A business operation that accounts for profits and losses using its functional currency.
Q5) A net loss in all foreign tax credit limitation baskets.
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Chapter 10: Partnerships: Formation, Operation, and Basis
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135 Verified Questions
135 Flashcards
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Sample Questions
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. She will also receive a 25% interest in future partnership profits. On July 1 of the current year, the unrestricted partnership capital 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.
E) None of the above.
Q2) If a partnership earns tax-exempt income, the income should not affect the partners' bases in their partnership interests. Do you agree with this statement? Explain.
Q3) The "inside basis" is defined as a partner's basis in the partnership interest.
A)True
B)False
Q4) Schedule K-1
Q5) General partnership
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Chapter 11: Partnerships: Distributions, Transfer of Interests, and Terminations
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) Hot assets
Q2) Carlos receives a proportionate liquidating distribution consisting of $8,000 cash and inventory with a basis to the partnership of $5,000 and a fair market value of $6,000. His basis in his partnership interest was $15,000 immediately before the distribution. Carlos assigns a basis of $7,000 to the inventory, and recognizes no gain or loss.
A)True
B)False
Q3) The MBA Partnership makes a § 736(b) cash payment of $20,000 to partner Amanda in liquidation of her interest in the partnership. The partnership owns no hot assets. Amanda's basis in her partnership interest before the distribution was $50,000. If the partnership has a § 754 election in effect, it will record a $30,000 decrease in its inside basis in partnership assets, affecting all the remaining partners in the partnership.
A)True
B)False
Q4) Sales price of partnership interest
Q5) Cash basis accounts receivable.
Q6) Nonqualified distribution
Q7) Liquidating distribution
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Chapter 12: S: Corporations
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158 Verified Questions
158 Flashcards
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Sample Questions
Q1) An S corporation must possess which of the following characteristics?
A) Not more than one hundred shareholders.
B) Corporation organized in the U.S.
C) Only one class of stock.
D) All of the above are required of an S corporation.
E) None of the above are required of an S corporation.
Q2) As with partnerships, the income, deductions, and tax credits of an S corporation to the shareholders annually.
Q3) Tax-exempt income is listed on Schedule of Form 1120S.
Q4) Which statement is correct with respect to filing an S election?
A) Form 2553 must be filed.
B) All shareholders must consent.
C) The election may be filed in the previous year.
D) An extension of time is available for filing Form 2553.
E) All of the above statements are correct.
Q5) An S corporation recognizes a on any distribution of appreciated property.
Q6) A newly formed S corporation does not receive any tax benefit from an NOL incurred in its first tax year.
A)True
B)False
Page 14
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Chapter 13: Comparative Forms of Doing Business
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170 Verified Questions
170 Flashcards
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Sample Questions
Q1) The corporation has a greater potential for raising capital than does the partnership.
A)True
B)False
Q2) Bart contributes $100,000 to the Fish Partnership for a 40% interest. During the first year of operations, Fish has a profit of $20,000. At the end of the first year, Fish has outstanding loans from the following banks. First Bank (recourse) $10,000
Second Bank (nonrecourse) 30,000
What is Bart's atrisk basis in Fish at the end of the first year?
A) $100,000
B) $108,000
C) $112,000
D) $124,000
E) None of the above
Q3) S corporations
Q4) Limited partnership
Q5) General partnership
Q6) Do the § 465 atrisk rules treat recourse debt and nonrecourse debt differently?
Q7) Net capital loss
15
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Chapter 14: Taxes on the Financial Statements
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87 Verified Questions
87 Flashcards
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Sample Questions
Q1) A partnership owned at least 80% by a corporation is included in a consolidated group's U.S. income tax return.
A)True
B)False
Q2) Which of the following taxes are included in the total income tax expense of a corporation as reported on its GAAP financial statements?
A) Federal income taxes.
B) Foreign income taxes.
C) State income taxes.
D) All of the above taxes are included.
Q3) The valuation allowance can reduce either a deferred tax asset or a deferred tax liability.
A)True
B)False
Q4) You are the tax adviser to a publicly traded U.S. corporation. How might you use a "benchmarking" analysis to begin your review of the entity's tax situation and planning opportunities?
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Chapter 15: Exempt Entities
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Sample Questions
Q1) How can an exempt organization, otherwise classified as a private foundation, become a public charity?
Q2) Describe how an exempt organization can be eligible to make lobbying expenditures without losing its tax exemption.
Q3) George is running for mayor of Culpepper. The members of Third Church adamantly oppose his candidacy. They would like to run a political advertisement in the local newspaper opposing his candidacy. The newspaper ad would have no effect on Third Church's exempt status because the ad opposes George it does not support his opponent.
A)True
B)False
Q4) Plus, Inc., is a § 501(c)(3) organization. It generates a small amount of net income each year. Ralph, the CEO of Plus, Inc., is concerned that Plus may be subject to the unrelated business income tax. Is there a materiality exception to this tax?
Q5) Unrelated business income is generally that derived from the unrelated trade or business, reduced by the deductions directly connected with the conduct of the unrelated trade or business.
Q6) Exempt organization
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Chapter 16: Multistate Corporate Taxation
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187 Verified Questions
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Sample Questions
Q1) Training administrative personnel to use an update to ordering software.
Q2) In the apportionment formula, most states assign more than a one-third weight to the factor.
Q3) A garment purchased for resale.
Q4) Under P.L. 86-272, which of the following transactions by itself would create nexus with a state?
A) Inspection by a sales employee of the customer's inventory for specific product lines.
B) Using an independent contractor who acts as a manufacturer's representative for the taxpayer through a sales office in the state.
C) Executing a sales campaign, using an advertising agency acting as an independent contractor for the taxpayer.
D) Maintenance of inventory in the state by an independent contractor under a consignment plan.
Q5) Typically included in the sales/use tax base is the purchase of tablet computers and cell phone equipment by a large manufacturing firm, whose sales force uses the items.
A)True
B)False
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Page 18
Chapter 17: Tax Practice and Ethics
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Sample Questions
Q1) The IRS is organized according to the industry classification of the taxpayer. One of the operating divisions of the IRS deals exclusively with manufacturing and exporting businesses.
A)True
B)False
Q2) An individual's amended tax return, computing a refund or amount due, generally uses Form
Q3) During any month in which both the failure-to-file and failure-to-pay penalties apply, both penalties must be paid in full.
A)True
B)False
Q4) Compute the failure to pay and failure to file penalties for John, who filed his 2012 income tax return on December 14, 2013, paying the $10,000 amount due. On April 1, 2013, John submitted a six-month extension of time in which to file his return; he paid no tax with the extension request. He has no reasonable cause for failing to file his return by October 15, or for failing to pay the tax that was due on April 15, 2013. John's failure to comply with the tax laws was not fraudulent.
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Page 19
Chapter 18: The Federal Gift and Estate Taxes
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Sample Questions
Q1) As reflected by the tax law, congressional policy relative to the Federal gift and estate taxes has been very inconsistent. Comment on this policy regarding the following time periods.
a. From original enactment of these taxes up to the Tax Reform Act of 1976.
b. From the Tax Reform Act of 1976 to EGTRRA.
c. From EGTRRA to the Tax Relief Act (TRA) of 2010.
d. From TRA of 2010 to ATRA of 2012.
Q2) When one spouse predeceases the other, the credit for prior transfers does not apply.
a. Why?
b. Under what circumstances might the credit apply?
Q3) Using his own funds, Horace establishes a savings account designating ownership as follows: "Horace and Nadine as joint tenants with right of survivorship." Horace later withdraws all of the funds.
Q4) Surviving spouse's share of the community property.
Q5) State death tax imposed on the estate.
Q6) Transportation cost for decedent and surviving son to site of burial.
Q7) Dower interest claimed by decedent's surviving spouse.
Page 20
Q8) Selling expenses incurred to sell estate assets in order to pay administration expenses.
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Chapter 19: Family Tax Planning
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188 Verified Questions
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Sample Questions
Q1) Measure of income tax deduction on a gift of depreciated property to charity.
Q2) At the time of his death, Al owned a majority interest in Macaw Corporation, a closely held holding company. Macaw's major asset is stock in ABC Grocers, a regional supermarket chain. The ABC stock has a per share basis to Macaw of $50 and is currently worth $2,000. In what manner, if any, may these facts have a bearing on the value of the Macaw stock included in Al's gross estate?
Q3) Current use valuation as to certain realty (§ 2032A).
Q4) Giselle, a widow, has an extensive investment portfolio that has appreciated in value. Starting this year, she initiates a policy of making annual gifts of securities to her grandchildren who are attending college. Evaluate Giselle's policy in terms of the: a. Federal gift and estate taxes. b. Federal income tax.
Q5) Established a joint tenancy with right of survivorship.
Q6) Doubles the number of annual exclusions available.
Q7) The quantity of stock that a decedent owns in a closely held corporation can have an effect on its valuation. Explain this statement.
Q8) Exemption equivalent
Q9) Prior to death filed for a refund of overpaid income taxes.
Page 21
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Chapter 20: Income Taxation of Trusts and Estates
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183 Verified Questions
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Sample Questions
Q1) The Form 1041 of a calendar-year trust is due on 15 (not including extensions) of the following year.
Q2) The Crown Trust distributed one-half of its accounting income to Lee this year. Lee also is allocated one-half of Crown's credit for building lowincome housing.
A)True
B)False
Q3) Which of the following is the annual maximum amount to be included as gross income by all of the income beneficiaries of the trust or estate?
A) Entity taxable income.
B) Entity adjusted gross income.
C) Distributable net income.
D) Fiduciary accounting income.
Q4) The Gable Trust reports $20,000 business income and $10,000 exempt interest income, and it paid a $3,000 fiduciary fee. Gable's distributable net income includes $10,000 for the interest income. A)True
B)False
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