Graduate Taxation
Mock Exam
Course Introduction
Graduate Taxation is an advanced course designed to provide students with in-depth knowledge of the principles, policies, and practical applications of tax law and taxation systems. The course covers the federal income tax framework as it applies to individuals, corporations, partnerships, estates, and trusts, while also exploring issues such as tax planning, compliance, and the economic implications of taxation. Through analyses of case law, statutes, and regulatory materials, students will develop a comprehensive understanding of tax concepts and their roles in business and personal financial decision-making, preparing them for professional practice or further academic research in tax policy and law.
Recommended Textbook
Prentice Halls Federal Taxation 2014 Corporations Partnerships Estates and Trusts 27th Edition by
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Chapter 1: Tax Research
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Q1) Identify which of the following statements is true.
A) If regulations are issued prior to the latest tax legislation dealing with a specific Code section, the regulations are no longer effective to the extent they conflict with the provisions in the new legislation.
B) Legislative regulations are more likely to be invalidated by the courts than are interpretative regulations.
C) Regulations have more authoritative weight than tax statues.
D) All of the above are false.
Answer: A
Q2) Ralph's business records were lost as a result of Hurricane Katrina.CPA Jane prepares Ralph's return using estimates.What do the Statements on Standards for Tax Services state about the use of estimates?
A) Estimates may not be used.
B) Estimates may be used without disclosing their use to the IRS.
C) Estimates may be used, but Jane should disclose their use to the IRS.
D) The Statements on Standards for Tax Services do not address the use of estimates. Answer: C
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Chapter 2: Corporate Formations and Capital Structure
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Q1) Lynn transfers land having a $50,000 adjusted basis, an $80,000 FMV, and $10,000 cash to Allied Corporation in exchange for 100% of Allied's stock.The corporation assumes the $70,000 mortgage on the land.Which of the following statements is correct?
A) Lynn recognizes no gain and the stock basis is $60,000.
B) Lynn recognizes a $10,000 gain and the stock basis is $60,000.
C) Lynn recognizes no gain and the stock basis is $50,000.
D) Lynn recognizes a $10,000 gain and the stock basis is zero.
Answer: D
Q2) Identify which of the following statements is true.
A) The transferor must recapture depreciation when exchanging Sec. 1245 property in all transactions coming under Sec. 351.
B) A corporation receiving property in a Sec. 351 exchange can select any MACRS depreciation method for the asset.
C) When depreciable property is transferred to a corporation in a Sec. 351 exchange in which no gain is recognized, the corporation must continue to use the transferor's depreciation method and recovery period for the property.
D) All of the above are false.
Answer: C
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Page 4
Chapter 3: The Corporate Income Tax
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Sample Questions
Q1) 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
Q2) Prince Corporation donates inventory having an adjusted basis of $26,000 and an FMV of $40,000 to County Hospital, which is a qualified public charity.What is the amount of Prince's deduction?
Answer: Prince may deduct the adjusted basis plus 50% of the excess of the property's FMV over the adjusted basis (not to exceed twice the property's adjusted basis)for a total of $33,000 [$26,000 + (.50 × $14,000)] provided the property is related to the donee's exempt function, and it is used solely for the care of the ill.
Q3) Organizational expenses incurred after 2004 are amortized over five years.
A)True
B)False
Answer: False
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Chapter 4: Corporate Nonliquidating Distributions
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Q1) Identify which of the following increases Earnings & Profits.
A) a capital contribution
B) life insurance proceeds payable to the spouse
C) tax-exempt interest income
D) All of the above increase E&P of a corporation.
Q2) Jack Corporation redeems 200 shares of its stock for $100,000 from Junior, who inherited the stock from his father, Ken.The stock's FMV on Ken's date of death was $90,000.Ken's basis in the stock was $40,000.Jack Corporation had an E&P balance of $300,000.If the redemption qualifies under Sec.303, Junior will
A) recognize a capital gain of $10,000.
B) recognize a capital gain of $60,000.
C) recognize $100,000 in dividend income.
D) recognize dividend income of $50,000 and a capital gain of $10,000.
Q3) Current E&P does not include
A) tax-exempt interest income.
B) life insurance proceeds where the corporation is the beneficiary.
C) federal income tax refunds from prior years.
D) All of the above are included.
Q4) Define Sec.306 stock.
Q5) 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) Certain adjustments must be made to alternative minimum taxable income (AMTI)to arrive at adjusted current earnings (ACE).Which one of the following adjustments increases AMTI to arrive at ACE?
A) federal income taxes paid
B) the 80% dividends-received deduction
C) gain realized on the installment sale of noninventory property
D) excess of capital losses over capital gains
Q2) The minimum tax credit available for a corporation's alternative minimum tax liability can be carried forward indefinitely and offsets regular tax liabilities in future years.
A)True
B)False
Q3) Door Corporation's alternative minimum taxable income before the statutory exemption is $200,000.What is Door's tentative minimum tax before credits?
Q4) Rich Company sold equipment this year for $50,000.The equipment had been depreciated using 200% declining balance.Accumulated depreciation totals $60,000 for regular tax purposes and $70,000 for AMTI.The equipment originally cost $90,000.What AMT issues does this sale present?
Q5) Define personal holding company income.
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Chapter 6: Corporate Liquidating Distributions
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Sample Questions
Q1) Albert receives a liquidating distribution from Glidden Corporation as part of a complete redemption of its stock.Albert receives cash of $5,000 and other property with an adjusted basis of $6,000 and an FMV of $10,000.Albert's basis in the Glidden stock surrendered is $8,000.How much gain does he recognize?
Q2) Identify which of the following statements is true.
A) In general, a noncorporate shareholder that receives a distribution in complete liquidation of the liquidating corporation recognizes his or her entire realized gain as a capital gain.
B) The basis for nonmoney property received by a noncorporate shareholder as part of a liquidating distribution is the same as its basis on the books of the liquidating corporation.
C) The liquidating corporation does not recognize gains and losses when making a distribution of nonmoney property.
D) All of the above are false.
Q3) What event determines when a cash or accrual method of accounting taxpayer reports a liquidating distribution?
Q4) Explain the difference in tax treatment between a partial liquidation and a complete liquidation.
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Page 8
Chapter 7: Corporate Acquisitions and Reorganizations
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Q1) Identify which of the following statements is true.
A) Depreciation recapture rules do not override the nonrecognition of gain or loss rules.
B) The acquisition of liabilities by an acquiring corporation will trigger a gain.
C) A target corporation will recognize a gain when it distributes stock to its shareholders.
D) The basis of property acquired in a reorganization is its FMV.
Q2) Identify which of the following statements is true.
A) A deemed liquidation election is available when a target corporation is liquidated into its parent corporation.
B) Corporate purchasers generally prefer Sec. 338 treatment because of the significant tax savings originating from the step-up in basis.
C) The Sec. 338 deemed liquidation rules require that 100% of the target corporation's stock be purchased.
D) All of the above are false.
Q3) What are the two steps of a Sec.338 deemed liquidation election?
Q4) Define the seven classes of assets used in allocating basis when using the residual method.
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Page 9
Chapter 8: Consolidated Tax Returns
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Q1) Marietta and Alpharetta Corporation, two accrual method of accounting corporations that use the calendar year as their tax year, have filed consolidated tax returns for a number of years.Alpharetta Corporation, a 100% owned subsidiary of Marietta, is transferring a patent, equipment, and working capital to newly created Georgia Corporation in exchange for 100% of its stock.In 2011, the corporation will begin to produce parts for the computer industry.Georgia Corporation expects to incur organizational expenditures of $10,000 and start-up expenditures of $60,000.What tax issues should Georgia Corporation consider with respect to the selection of its overall accounting method, inventory method, and tax year, and the proper reporting of its organizational and start-up expenditures?
Q2) Identify which of the following statements is true.
A) The corporate AMT is determined on a separate return basis and then consolidated.
B) All corporations filing consolidated tax returns are subject to the AMT.
C) Alternative minimum tax payments from prior consolidated return years that are attributable to timing or permanent differences can be carried over by the affiliated group and claimed as a credit on current or future consolidated returns.
D) All of the above are false.
Q3) Define intercompany transactions and explain the two types of transactions.
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Chapter 9: Partnership Formation and Operation
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Sample Questions
Q1) In January of this year, Arkeva, a calendar-year taxpayer, receives a $50,000 guaranteed payment from NFR Partnership.NFR deducted the payment during its tax year ending November 30 of last year.What tax year must Arkeva report her guaranteed payment in?
A) She may elect either year.
B) last year
C) current year
D) She does not need to report guaranteed payments on her return.
Q2) A partner's basis for his partnership interest can be negative.
A)True
B)False
Q3) Identify which of the following statements is true.
A) Tax-exempt interest received by a partnership is taxable to the partners if distributed.
B) Partnership gains and losses from two different casualty and theft occurrences in one year are passed through to the partners as two separate items.
C) The amount and character of any gains/losses is determined at the partnership level.
D) All of the above are false.
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Chapter 10: Special Partnership Issues
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Q1) The AB Partnership has a machine with an FMV of $25,000 and a basis of $20,000.The partnership has taken an $8,000 depreciation on the machine.The unrealized receivable related to the machine is
A) $0.
B) $5,000.
C) $8,000.
D) $20,000.
Q2) What is the character of the gain/loss on the sale of a partnership interest?
Q3) Ten years ago, Latesha acquired a one-third interest in Dana Associates, a partnership, for $26,000 cash.This year, Latesha's entire interest in the partnership is liquidated when her basis is $24,000.Dana's assets consist of the following: cash, $20,000; inventory with a basis of $46,000 and an FMV of $40,000.Dana has no liabilities.Latesha receives the cash of $20,000 in liquidation of her entire interest.What is Latesha's recognized loss on the liquidation of her interest in Dana?
A) $0
B) $4,000 long-term capital loss
C) $4,000 short-term capital loss and $2,000 ordinary loss
D) $4,000 long-term capital loss and $2,000 ordinary loss
Q4) Do most distributions made by a partnership require a Sec.751 calculation?
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Chapter 11: S Corporations
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Q1) Boxer Corporation, a C corporation, elects on June 30 of last year to make an S election for the current year.The net unrealized built-in gains at the beginning of the current year are $300,000.The net recognized built-in gains in the current year are $110,000.What is Boxer's built-in gains tax for the current year?
Q2) Martha, a U.S.citizen, owns 40% of the stock of George Corporation, an electing S corporation.At the time of her death this year, the George stock passes to her estate.The stock is subsequently transferred to a trust provided for in Martha's will.Can the testamentary trust hold the George stock for a two-year period before the S election is terminated?
Q3) All shareholders must consent to the revocation of S status.
A)True
B)False
Q4) What is a permitted year?
Q5) 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
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Chapter 12: The Gift Tax
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Q1) The gift tax is a wealth transfer tax that applies to transfers during a person's lifetime and transfers at death.
A)True
B)False
Q2) Ward and June decide to divorce after 30 years of marriage.Ward transfers $500,000 to June in settlement of her property rights.What are the gift tax consequences of this transfer?
Q3) Identify which of the following statements is false.
A) Gift tax returns are due annually by April 15 following the year of the gift. No extensions are allowed.
B) The donor pays the gift tax generally.
C) Gift tax returns are filed on a calendar-year basis.
D) Receipt of an extension of time for filing a gift tax return does not extend the due date for payment of the gift tax.
Q4) On June 1, Sherri deposits $60,000 into a new joint bank account in the names of Sherri and John.Her friend John makes no deposits.On December 15th, John withdraws $25,000 from the joint account.What are the gift tax consequences, if any?
Q5) Discuss the purpose of the gift tax annual exclusion.
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Chapter 13: The Estate Tax
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Q1) The estate tax return is due, ignoring extensions, 3-1/2 months after the decedent's date of death.
A)True
B)False
Q2) The following items were discovered in reviewing materials for John's estate tax return:
(1)Two years ago, John sold stock to his son, Patrick, for $30,000.At the date of sale, the stock had a value of $65,000.The value of the stocks at John's death was $90,000.
(2)John owned a beach house, worth $500,000, with his sister, Amber, who paid for it.
(3)John's home was held in a tenancy by the entirety with his wife, Julia.Julia paid for the house, which had a value of $300,000 on the date of his death.
(4)John's clothing and other personal belongings are worth $3,700 on the date of his death.
What amount is included in John's estate?
Q3) 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) 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.
Q2) Briefly discuss the reasons for establishing a trust.
Q3) 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.
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Chapter 15: Administrative Procedures
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Q1) Pete has reported a tax liability of $3,500 on his 2009 tax return.His 2009 withholding was $3,800.He did not file his 2009 return until June 12, 2010.What penalties does Pete owe?
Q2) Explain the four conditions that must be met in civil cases for the burden of proving any factual issue relevant to the determination of taxpayer liability to rest with the IRS.
Q3) Identify which of the following statements is true.
A) If a taxpayer has been audited in at least one of the two previous years on the same item and the earlier audit did not result in any additional tax owed, the taxpayer may qualify for the special audit relief rule.
B) A taxpayer can request and always receive an exemption from an audit by the IRS if his return was audited in at least one of the two previous years and the previous audit did not result in any change to his tax liability.
C) The signing of Form 870 allows the taxpayer to wait for 30 interest-free days after the billing date to pay the tax.
D) All of the above are true.
Q4) Explain how the Internal Revenue Service is organized to be efficient and client-oriented.
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17
Chapter 16: US Taxation of Foreign-Related Transactions
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Q1) In January of the current year, Stan Signowski's U.S.employer assigned him to their Paris office.This year, he earned salary, a cost-of-living allowance, a housing allowance, a home leave allowance that permits him to return home once each year, and an education allowance to pay for U.S.schooling for his son.Stan and his wife, Jennifer, have rented an apartment in Paris and paid French income taxes.What tax issues does Stan need to consider when preparing his tax return?
Q2) U.S.Corporation, a domestic corporation, owns all of Foreign Corporation's stock.Foreign Corporation is incorporated in France.This year, Foreign Corporation suffers a $100,000 net operating loss (NOL)in France.What amount of the $100,000 NOL can U.S.Corporation use to reduce its current-year U.S.taxable income?
A) $100,000
B) $50,000
C) $0
D) none of the above
Q3) Excess foreign tax credits can be carried back one year and forward five years.
A)True
B)False
Q4) What is the branch profits tax? Explain the Congressional intent behind its enactment.
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