Graduate Taxation Exam Review
Course Introduction
This course offers an in-depth exploration of advanced taxation principles and practices, focusing on the application of tax laws to individuals, corporations, partnerships, and other entities. Students will gain a comprehensive understanding of federal tax structures, compliance, planning strategies, and the ethical implications of tax practice. Emphasis is placed on the analysis of complex tax scenarios, current tax issues, and the development of critical skills necessary for effective tax research and decision-making within a professional context. The course is designed for graduate students preparing for careers in tax advisory, public accounting, corporate finance, or government agencies.
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) How does a treaty with a foreign country impact a section in the Internal Revenue Code?
Answer: The United States enters into tax treaties (sometimes called tax conventions) with foreign countries to render mutual assistance in tax enforcement and to avoid double taxation. Neither a tax law or tax treaty takes precedence. When there is a conflict, the most recently enacted item will take precedence.
Q2) Only one judge hears a trial in a U.S. District Court.
A)True
B)False
Answer: True
Q3) A Memorandum decision of the U.S. Tax Court could be cited as:
A) 37 AFTR 2d 456.
B) T.C. Memo. 1990-650.
C) 681 USTC ¶ 9200.
D) All of the above.
E) None of the above.
Answer: A
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Page 3
Chapter 2: Corporations: Introduction and Operating Rules
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) An expense that is deducted in computing net income per books but not deductible in computing taxable income is a subtraction item on Schedule M-1.
A)True
B)False
Answer: False
Q2) Beige Corporation, a C corporation, purchases a warehouse on August 1, 1998, for $1 million. Straight-line depreciation is taken in the amount of $411,750 before the property is sold on June 11, 2014, for $1.2 million. What is the amount and character of the gain recognized by Beige on the sale of the realty?
a. Ordinary income of $0 and § 1231 gain of $611,750.
b. Ordinary income of $411,750 and § 1231 gain of $200,000.
c. Ordinary income of $82,350 and § 1231 gain of $529,400.
d. Ordinary income of $117,650 and § 1231 gain of $494,100.
e. None of the above.
Answer:
11ea86e9_81cd_5210_a30f_ef5f56237c09_TB4133_00
11ea86e9_81cd_5211_a30f_53c609d56c45_TB4133_00
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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) NOLs are negative adjustments.
A)True
B)False
Answer: True
Q2) Which of the following items will be an addition to AMTI in arriving at ACE?
A) Tax-exempt income.
B) Federal income tax.
C) Excess capital loss.
D) Excess charitable contributions.
E) None of the above.
Answer: A
Q3) Long-term capital gains are taxed under the AET and PHC taxes.
A)True
B)False
Answer: False
Q4) Once a small corporation for AMT purposes, always a small corporation.
A)True
B)False Answer: False
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Chapter 4: Corporations: Organization and Capital Structure
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Sample Questions
Q1) Carl and Ben form Eagle Corporation. Carl transfers cash of $50,000 for 50 shares of stock of Eagle. Ben transfers proprietary information with a tax basis of zero and a fair market value of $50,000 for the remaining 50 shares in Eagle. Carl will have a tax basis of $50,000 in his stock in Eagle Corporation, but Ben's basis in his stock will be zero.
A)True
B)False
Q2) To help avoid the thin capitalization problem, it is advisable to make the repayment of the debt contingent upon the corporation's earnings.
A)True
B)False
Q3) When depreciable property is transferred to a controlled corporation under § 351, any recapture potential disappears and does not carry over to the corporation. A)True
B)False
Q4) For transfers falling under § 351, what are the holding period rules for stock received by the shareholder and for the assets transferred to the corporation?
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Page 6
Chapter 5: Corporations: Earnings Profits and Dividend
Distributions
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) Timothy owns 100% of Forsythia Corporation's stock. Corporate employees and annual salaries include Timothy ($300,000) Richard, Timothy's son ($80,000) Rita, Timothy's daughter ($100,000) and Sandy ($120,000). The operation of Forsythia Corporation is shared about equally between Timothy and Sandy (an unrelated party). Richard and Rita are full-time college students at a university about 150 miles away. Forsythia Corporation has substantial E & P but has not distributed a dividend for the past five years. Discuss problems related to the salary arrangement for Forsythia Corporation.
Q2) If stock rights are taxable, the recipient has income to the extent of the fair market value of the rights.
A)True B)False
Q3) Loss on sale between related parties in 2014.
Q4) Constructive dividends have no effect on a distributing corporation's E & P. A)True B)False
Q5) In general, how are current and accumulated earnings and profits allocated to corporate distributions?
Q7) Excess capital loss in year incurred. Page 7
Q6) Gain realized (but not recognized) on a like-kind exchange.
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Page 8
Chapter 6: Corporations: Redemptions and Liquidations
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Which of the following statements is correct with respect to the § 338 election?
A) The subsidiary corporation makes the § 338 election.
B) A qualified stock purchase occurs when a corporation acquires, in a taxable transaction, at least 80% of the stock (voting power and value) of another corporation within an18-month period.
C) The parent recognizes no gain (loss) as a result of the election.
D) Gain, but not loss, is recognized by the subsidiary as a result of a deemed sale of its assets.
E) None of the above.
Q2) Tanya is in the 33% tax bracket. She acquired 1,000 shares of stock in Swan Corporation seven years ago for $100 a share. In the current year, Swan Corporation (E & P of $1.2 million) redeems all of her shares for $160,000. What are the income tax consequences to Tanya if:
a. The redemption qualifies for sale or exchange treatment, and Tanya has no other transactions in the current year involving capital assets?
b. The redemption does not qualify for sale or exchange treatment?
Q3) Compare the sale of a corporation's assets with a sale of its stock from the perspective of the seller.
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Chapter 7: Corporations: Reorganizations
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140 Verified Questions
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Sample Questions
Q1) Without evidence to the contrary, the IRS views transactions occurring within one year of a reorganization as part of the restructuring.
A)True
B)False
Q2) On March 1, Cream Corporation transfers all of its assets to Coffee Corporation in exchange for 10% of its common voting stock. At the time of the reorganization, Cream has assets valued at $4 million (basis of $3 million) and its earnings and profits account shows a deficit of $650,000. Coffee's earnings and profits as of March 1 were $420,000. Due to the reorganization, Coffee has an NOL for the current year of $150,000. Coffee still declares its usual dividends of $100,000, paid on April 30, August 31, and December 31 ($300,000 of total dividends).
a. How are the Coffee shareholders taxed on the distribution?
b. What portion of the current-year NOL may be carried back to prior Coffee and/or Cream tax years?
Q3) Since the "Type B" reorganization precludes the use of , gain or loss is not recognized. In this type of reorganization, a relationship between the acquiring and target corporations is created.
Q4) Requires at least a 40% carryover ownership by target shareholders.
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Page 10
Chapter 8: Consolidated Tax Returns
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175 Verified Questions
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Sample Questions
Q1) In computing consolidated taxable income, capital gains and losses are removed from the taxable incomes of the group members and determined on a group basis.
A)True
B)False
Q2) The calendar year parent and affiliates must elect to file on a consolidated basis by 15 after the first consolidated tax year.
Q3) Business reasons, and not tax incentives, constitute the primary motivation for most corporations to form a conglomerate and file tax and financial accounting reports on a consolidated basis.
A)True
B)False
Q4) A tax-exempt charitable trust, created by a U.S. C corporation, can join in a Federal consolidated return.
A)True
B)False
Q5) Choice of tax year-ends by affiliates
Q6) Ownership level of parent at which a subsidiary can join the consolidated group.
Q7) Binding nature of election over multiple tax years
Page 11
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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) Wellington, Inc., a U.S. corporation, owns 30% of a CFC that has $50 million of earnings and profits for the current year. Included in that amount is $20 million of Subpart F income. Wellington has been a CFC for the entire year and makes no distributions in the current year. Wellington must include in gross income (before any § 78 grossup):
A) $0.
B) $6 million.
C) $20 million.
D) $50 million.
Q2) With respect to income generated by nonU.S. persons, does the U.S. apply a "worldwide" or a "territorial" approach. Be specific.
Q3) Treasury powers over transfer pricing.
Q4) Rule that requires determination of the dividend equivalent amount.
Q5) The United States has in force income tax treaties with about 70 countries.
A)True
B)False
Q6) Upon repatriation to a CFC, it does not create dividend income.
Q7) Ownership percentage required before a deemed paid foreign tax credit is allowed.
Q8) Portfolio income treated as Subpart F income.
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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) Which one of the following statements regarding partnership taxation is incorrect?
A) A partnership is a taxable entity for Federal income tax purposes.
B) Partnership income is comprised of ordinary partnership income or loss and separately stated items.
C) A partnership is required to file a return with the IRS.
D) A partner's profitsharing percent may differ from the partner's losssharing percent.
E) All of these statements are correct.
Q2) If the partnership properly makes an election for treatment of a specific tax item, the partner is bound by that treatment.
A)True
B)False
Q3) Substituted
Q4) The sum of the partners' ending basis amounts on all Schedules K1 equals the partners' ending capital account balance shown on the partnership's Schedule L.
A)True
B)False
Q5) Disguised sale
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13
Chapter 11: Partnerships: Distributions, Transfer of Interests, and Terminations
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144 Verified Questions
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Sample Questions
Q1) Unstated goodwill
Q2) Marcie is a 40% member of the M&A LLC. Her basis is $10,000 immediately before the LLC distributes to her $30,000 of cash and land (basis to the LLC of $20,000 and fair market value of $25,000). As a result of the proportionate, nonliquidating distribution, Marcie recognizes a gain of $20,000 and her basis in the land is $0.
A)True
B)False
Q3) The Crimson Partnership is a service provider. Its assets consist of unrealized receivables (basis of $0, fair market value of $400,000), cash of $300,000, and land (basis of $200,000, fair market value of $300,000). Assume 20% general partner Jana has a basis in her partnership interest of $100,000. If the ongoing partnership distributes $200,000 of cash to Jana in liquidation of her interest in the partnership, she will recognize ordinary income of $80,000 and a capital gain of $20,000.
A)True
B)False
Q4) Optional adjustment election
Q5) Inventory with a basis of $10,000 and a fair market value of $10,500.
Q6) Section 754
Page 14
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Chapter 12: S: Corporations
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Sample Questions
Q1) The passive investment income of an S corporation includes gains from the sale of securities.
A)True
B)False
Q2) Randall owns 800 shares in Fabrication, Inc., an S corporation in Moss Hill, Texas. In 2014, the basis in his stock is $30,000, before the adjustment for this year's losses. During 2014, Randall's share of the corporation's ordinary loss is $20,000, and his share of its capital loss is $15,000. How much can Randall deduct due to these losses?
A) No deduction.
B) $15,000 ordinary loss; $10,000 capital loss.
C) $17,143 ordinary loss; $12,857 capital loss.
D) $20,000 ordinary loss; $15,000 capital loss.
Q3) For a new corporation, a premature S election may not be effective.
A)True
B)False
Q4) Post-termination distributions by a former S corporation that are charged against do not get tax-free treatment.
Q5) Tax-exempt income is listed on Schedule of Form 1120S.
Q6) There is no need formally to elect to treat members as a single shareholder.
Page 15
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Chapter 13: Comparative Forms of Doing Business
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Sample Questions
Q1) Only C corporations are subject to the accumulated earnings tax (i.e., S corporations are not).
A)True
B)False
Q2) If an individual contributes an appreciated personal use asset to a C corporation in a transaction which qualifies for nonrecognition treatment under § 351, the corporation's basis in the asset is the same as was the shareholder's adjusted basis.
A)True
B)False
Q3) What is the major pitfall associated with attempting to reduce and/or avoid double taxation by a corporation not making distributions to shareholders?
Q4) A corporation can avoid the accumulated earnings tax by demonstrating that it has plans to distribute earnings at a later date.
A)True
B)False
Q5) For a C corporation to be classified as a personal service corporation (PSC) for § 469 purposes, what requirements must be satisfied?
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Chapter 14: Taxes on the Financial Statements
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Sample Questions
Q1) In general, the purpose of ASC 740 (SFAS 109) is to compute and disclose the taxes payable by a business entity to state, local, Federal, and foreign governments, for the current year and all future years.
A)True
B)False
Q2) Beach, Inc., a domestic corporation, owns 100% of Mountain, Ltd., a manufacturing facility in Ireland. Mountain has no operations or activities in the United States. The U.S. tax rate is 35% and the Irish tax rate is 10%. For the current year, Beach earns $500,000 in taxable income. Mountain earns $300,000 in taxable income from its operations, pays $30,000 in taxes to Ireland, and makes no distributions to Beach. What is Beach's effective tax rate for GAAP book purposes, assuming that Beach does not make the permanent reinvestment assumption of ASC 740- 30 (APB 23)?
A) 38.75%.
B) 35%.
C) 31.25%.
D) 25.63%.
Q3) ASC 740 (FIN 48) is the GAAP equivalent of the Form 1120 Schedule UTP.
A)True
B)False
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Page 17
Chapter 15: Exempt Entities
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Sample Questions
Q1) Which of the following statements regarding the unrelated business income tax is not correct?
A) Unrelated business income is income from activities not related to the exempt purpose of the exempt organization.
B) The unrelated business income tax is levied because the exempt organization is engaging in substantial commercial activities.
C) If the unrelated business income tax were not levied, nonexempt organizations would be placed at a substantial disadvantage when trying to compete with the exempt organization.
D) The tax rate that is applied to unrelated business taxable income is the highest corporate tax rate.
E) All of the above statements are correct.
Q2) Tax on self-dealing
Q3) Tax on jeopardizing investments
Q4) 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.
Q5) Private foundation
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Chapter 16: Multistate Corporate Taxation
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Sample Questions
Q1) Compost Corporation has finished its computation of Federal taxable income. In State Q, the derivation of state corporate taxable income starts with the Federal amount and makes a number of modifications. List at least five such modifications that Compost is likely to encounter. In this regard, follow the general UDITPA rules, and list both addition and subtraction modifications.
Q2) State income tax expense.
Q3) A state sales tax usually falls upon:
A) The sale of a used dinette set sold at a rummage sale.
B) The sale of a dinette set by the manufacturer to a furniture retailer.
C) The sale of a case of Bibles by the publisher to a church bookstore.
D) The sale of a Bible to a member of the church.
E) All of the above are exempt transactions.
Q4) In most states, a taxpayer's income is apportioned on the basis of a formula measuring the extent of business contact, and allocated according to the location of property owned or used.
A)True
B)False
Q5) A garment purchased for wear at an office job.
Q6) Q adopts a throwback rule.
Page 19
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Chapter 17: Tax Practice and Ethics
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Sample Questions
Q1) Circular 230 requires that a tax preparer provide training for the tax staff as to the latest changes in the tax law.
A)True
B)False
Q2) An IRS letter ruling might determine that an employee's compensation is unreasonable in amount.
A)True
B)False
Q3) If the taxpayer shows for an underpayment of tax, the failure to pay penalty can be reduced or eliminated.
Q4) Jenny prepared Steve's income tax returns for no compensation for 2011 and 2012. Jenny is Steve's mother. In 2014, the IRS notifies Steve that it will audit his returns for 2010-2012. Jenny cannot represent Steve during the audit of the returns, as she is not a "registered tax return preparer."
A)True
B)False
Q5) Substantial understatement of a tax.
Q6) Failure to pay a tax.
Q7) Undervaluation of a reported item.
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Chapter 18: The Federal Gift and Estate Taxes
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Sample Questions
Q1) At the time of his death, Gene held a Roth IRA account with his wife as the designated beneficiary. The IRA is included in Gene's gross estate.
A)True
B)False
Q2) Using his own funds, Horace establishes a savings account designating ownership as follows: "Horace and Nadine as joint tenants with right of survivorship." Nadine predeceases Horace.
Q3) Brad holds a life estate in a trust created by his father, while Scott holds a life estate in a trust created by himself. Upon their deaths, Scott must include the trust in his gross estate, while Brad need not include his trust. Why?
Q4) Which of the following is not a characteristic of both the Federal gift tax and the Federal estate tax?
A) A deduction for state death taxes may be available.
B) A charitable deduction is available.
C) A marital deduction is available.
D) An exclusion amount is available in computing the tax.
E) None of the above.
Q5) Interest on municipal bonds accrued after death.
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Chapter 19: Family Tax Planning
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Sample Questions
Q1) A farm has a best use valuation of $3 million and a current use valuation of $1.2 million. If death occurs in 2014 and § 2032A is elected, the farm can be valued in the deceased owner's gross estate at $1.2 million.
A)True
B)False
Q2) Decedent owned stock that had depreciated in value.
Q3) If depreciable property is transferred by gift, any depreciation recapture potential carries over to the donee.
A)True
B)False
Q4) At the time of his death, Fred held some notes receivable for loans he made to his two daughters and the payment of which he forgives in his will. The amount to be included in Fred's gross estate as to these notes is not affected by his forgiveness.
A)True
B)False
Q5) Purchased a certificate of deposit listing daughter as the beneficiary under a payable on death designation.
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Chapter 20: Income Taxation of Trusts and Estates
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Sample Questions
Q1) Counsell is a simple trust that correctly uses the calendar year for tax purposes. Its income beneficiaries (Kathie, Lynn, Mark, and Norelle) are entitled to the trust's annual accounting income in shares of onefourth each. For the current calendar year, the trust has ordinary business income of $40,000, a long-term capital gain of $20,000 (allocable to income), and a trustee commission expense of $4,000 (allocable to corpus). Use the format of Figure 20.3 in the text to address the following items.
a. How much income is each beneficiary entitled to receive?
b. What is the trust's DNI?
c. What is the trust's taxable income?
d. How much is taxed to each of the beneficiaries?
Q2) Judy can claim onethird of the Sweet Estate's cost recovery deductions, because she received onethird of the fiduciary's distributable net income (DNI).
A)True
B)False
Q3) The Circle Trust reports some exempt interest income for the year. How does this investment income affect Circle's deduction of its fiduciary fees? Charitable contributions?
Q4) The entity typically can choose any fiscal tax year.
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Page 23