Graduate Taxation
Question Bank
Course Introduction
Graduate Taxation offers an in-depth exploration of the principles and practices underlying federal, state, and local taxation systems as they apply to individuals, businesses, and other entities. The course covers topics such as tax law interpretation, taxable income calculation, tax compliance, planning strategies, corporate and partnership taxation, and the tax implications of various business transactions. Emphasis is placed on the analysis of statutes, regulations, and case law to develop advanced tax research and problem-solving skills, preparing students for professional roles in accounting, law, or financial consulting.
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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Sample Questions
Q1) According to the Statements on Standards for Tax Services, if a CPA believes that a client's prior-year tax return contains false information, the CPA should report this to the A) IRS.
B) SEC.
C) AICPA.
D) None of the above. The CPA does not report the false information to any external agencies, unless required by law.
Answer: D
Q2) If the U.S.District Court for Rhode Island, the Tax Court, and the Eleventh Circuit have all ruled on a particular issue, then what precedents have been set for which courts in the future?
Answer: Any U.S.District court within the Eleventh Circuit must follow that circuit's decision.The U.S.District Court for Rhode Island must rule consistently with its previous ruling.Tax Court decisions are not binding on district courts, thus all district courts other than the one for Rhode Island and those in the Eleventh Circuit are free to decide the issue independently.
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Chapter 2: Corporate Formations and Capital Structure
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Q1) Beth transfers an asset having an FMV of $200,000 and an adjusted basis of $150,000 to ABC Corporation in a Sec.351 transaction.Beth receives in exchange ABC common stock having an FMV of $175,000 and Zeus Corporation common stock (a capital asset)having an FMV of $25,000 and a basis of $10,000 to ABC Corporation.ABC Corporation must recognize A) no gain.
B) a $15,000 capital gain.
C) a $25,000 capital gain.
D) a $50,000 capital gain.
Answer: B
Q2) Matt and Sheila form Krupp Corporation.Matt contributes property with an FMV of $55,000 and a basis of $35,000.Sheila contributes property with an FMV of $75,000 and a basis of $40,000.Matt sells his stock to Paul shortly after the exchange.The transaction will
A) not qualify under Sec. 351.
B) qualify under Sec. 351 if Matt can show that the sale to Paul was not part of a prearranged plan.
C) qualify with respect to Sheila under Sec. 351 whether Matt qualifies or not.
D) qualify under Sec. 351 only if an advance ruling has been obtained.
Answer: B
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Page 4
Chapter 3: The Corporate Income Tax
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Sample Questions
Q1) During the year, Soup Corporation contributes some of its inventory to a qualified charity for use in feeding the needy.The inventory has an FMV of $85,000 and an adjusted basis of $25,000.What is the amount of Soup Corporation's charitable contribution deduction for the donation of the inventory as determined without regard to the overall charitable contribution limitation?
Answer: $25,000 + 0.50 ($85,000 - $25,000)= $55,000 tentative deduction.This amount is limited to twice the property's adjusted basis, or $50,000 (2 × $25,000).Soup Corporation can claim a $50,000 deduction.
Q2) Identify which of the following statements is false.
A) Brown Corporation owns 60% of Clark Corporation and 65% of Davis Corporation. Davis Corporation owns 10% of Clark Corporation, and Clark Corporation owns 10% of Davis Corporation. The remaining stock is owned by an individual shareholder. Brown, Davis, and Clark Corporations are a parent-subsidiary controlled group.
B) There are three categories of control groups: parent-subsidiary, brother-sister, and combined.
C) The controlled group test is applied on December 31.
D) A controlled group must apportion certain tax benefits among its members.
Answer: A
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Chapter 4: Corporate Nonliquidating Distributions
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Q1) Identify which of the following statements is true.
A) The distributing corporation's E&P must be reduced by the FMV of nontaxable stock rights distributed to shareholders.
B) A stock redemption can be used to withdraw some assets from a corporation prior to a sale of the business.
C) A shareholder can redeem part of his stock and recognize a capital gain if the corporation has only one shareholder.
D) All of the above are false.
Q2) A stock redemption is always treated as if the shareholder sold his stock to the corporation.
A)True
B)False
Q3) On April 1, Delta Corporation distributes $120,000 in cash to each of its two equal shareholders, Sarah and Matt.At the time of the distribution, Delta's E&P is $160,000.Sarah's basis in her stock is $50,000 and Matt's basis in his stock is $20,000.How are the distributions characterized to Sarah and Matt? Be specific.
Q4) What must be reported to the IRS by corporations when nondividend distributions are made to its shareholders?
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Page 6
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) Larry Corporation purchased a new precision casting machine for its manufacturing facility.The machine cost $2 million, and another $150,000 was spent on installation.The machine was placed in service in June 2009.The old machine, which was placed in service in 2003, was sold in 2009 to an unrelated party for a $250,000 financial accounting profit.What asset disposition and capital recovery issues do you need to address when removing the old machine from, and placing the new machine on, the financial accounting and tax books and in calculating the 2009 tax depreciation?
Q3) The personal holding company penalty tax rate is
A) 15%.
B) 10%.
C) 20%.
D) 35%.
Q4) How is alternative minimum taxable income computed?
Q5) Define personal holding company income.
Q6) What is a personal holding company?
Page 7
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Chapter 6: Corporate Liquidating Distributions
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Q1) When a subsidiary corporation is liquidated into its parent corporation under a formal plan of liquidation, the distributions must take place within
A) a six-month period.
B) a 12-month period.
C) the current and next tax years.
D) the current and next three tax years.
Q2) A Sec.332 liquidation requires a complete statement be filed with the distributee's tax return
A) when a liquidating distribution is received.
B) when the liquidation plan is adopted.
C) when the liquidation is compiled.
D) No statement is required with the return.
Q3) Lake Corporation distributes a building used in its business to Sandy in exchange for all of her Lake stock.Sandy's basis in her stock is $30,000 and the property she receives has a $90,000 FMV.As part of the distribution, Sandy assumes a liability associated with the property of $65,000.The property's basis prior to the liquidating distribution was $25,000.What are the tax consequences of the distribution to Sandy? To Lake Corporation?
Q4) Are liquidation and dissolution the same? Explain your answer.
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Chapter 7: Corporate Acquisitions and Reorganizations
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Q1) Martha owns Gator Corporation stock having an adjusted basis of $21,000.As part of a tax-free reorganization involving Gator and Baker Corporations, Martha exchanges her Gator stock for $18,000 of Baker stock and $6,000 (face amount and FMV)of Baker securities.What is Martha's basis in the Baker stock?
Q2) 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.
Q3) As part of a plan of corporate reorganization, Sally exchanged 1,000 shares of Tone Corporation common stock that she had purchased for $85,000, for 3,000 shares of Fade Corporation voting common stock having an $87,000 FMV.What is the amount and character of Sally's recognized gain and her basis in the Tone stock as a result of the exchange?
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) Identify which of the following statements is true.
A) An affiliated group member incurring an NOL in a separate return year that is available as a carryback or carryforward to a consolidated return year is subject to a limit on the use of the NOL when the loss year is designated a separate return limitation year (SRLY).
B) A consolidated NOL may be carried back one year and carried forward twenty years.
C) An NOL incurred in a separate return limitation year by the corporation that is the common parent corporation for the group in the carryover year is subject to the SRLY limitation.
D) All of the above are false.
Q2) Identify which of the following statements is true.
A) When a new corporation joins an affiliated group, all of its income and expense items for the tax year, including the acquisition date, must be allocated between the separate tax return and consolidated tax return that are to be filed based on the number of days included in each of the two tax years.
B) A consolidated return election may be revoked after 5 years.
C) All members of a consolidated group must use the same tax year.
D) All of the above are false.
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Chapter 9: Partnership Formation and Operation
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Sample Questions
Q1) Jerry has a 10% interest in the EKG Partnership capital, profits, and losses.He is a limited partner.At the beginning of the current year, his basis in his partnership interest is $10,000.The partnership earned $20,000 of ordinary income this year and repaid a $150,000 nonrecourse liability.What tax issues should Jerry consider with respect to reporting the results of this year's activities for the EKG Partnership on his personal return?
Q2) Karl arranges financing for a limited partnership to purchase real estate in exchange for a 50% interest in partnership profits.Two weeks later, Karl sells the profits interest for $30,000.In this tax year, Karl must recognize A) no gain or loss.
B) a $30,000 short-term capital gain.
C) a $30,000 ordinary income.
D) a $30,000 Sec. 1231 gain.
Q3) The definition of a partnership does not include A) a syndicate.
B) a group.
C) a pool.
D) All of the above are included.
Q4) What is included in partnership taxable income?
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Chapter 10: Special Partnership Issues
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Sample Questions
Q1) For Sec.751 purposes, "substantially appreciated inventory" means property held for sale to customers whose market value exceeds its adjusted basis.
A)True
B)False
Q2) In a current distribution, the partner's basis in the partnership interest is reduced by the amount of money received and by the partnership's bases in the distributed property.
A)True
B)False
Q3) Helmut contributed land with a basis of $5,000 and an FMV of $10,000 to the HG Partnership five years ago to acquire a 50% partnership interest.This year the land is distributed to another partner, Gail, when its FMV is $11,000.No other distributions have been made since Helmut became a partner.When the land is distributed to Gail, Helmut recognizes a gain of
A) $0.
B) $2,500.
C) $3,000.
D) $5,000.
Q4) What is included in the definition of unrealized receivables?
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Chapter 11: S Corporations
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Q1) An electing S corporation has a $30,000 ordinary loss for the nonleap year.On January 1, Beverly and Sonya own equally all of the S corporation stock.On the 146th day of the year, Beverly gives her one-half of the S corporation stock to her daughter Becky.How much of the $30,000 ordinary loss is allocated to Beverly?
A) $25,000
B) $15,000
C) $6,000
D) $5,959
Q2) A C corporation was formed five years ago and is a fiscal-year taxpayer with a June 30 year-end.The C corporation wants to make an S election for its tax year beginning in the current year.The election must be made by ________ (assuming permission can be obtained to continue using the fiscal year from the IRS).
A) June 30 of the current year
B) September 15 of the current year
C) June 30 of the next year
D) September 15 of the next year
Q3) List and discuss five advantages and five disadvantages of electing to be taxed as an S corporation over a C corporation or a partnership.
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Page 13
Chapter 12: The Gift Tax
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Q1) 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?
Q2) Mia makes a taxable gift when she makes her mother a joint owner on Mia's bank account.Mia has $25,000 in the account.
A)True
B)False
Q3) What is the due date for the gift tax return? Are there any exceptions? If so, what are they?
Q4) 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
Q5) Discuss the negative aspects of gifts.
Q6) Gift tax returns are filed on a calendar-year basis.
A)True
B)False
Page 14
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Chapter 13: The Estate Tax
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Q1) At Mark's death, Mark owed a debt of $40,000 plus $2,000 of accrued interest.Mark's funeral expenses were $5,000, and Mark's charge card had a balance due of $400.The expected administration costs for the estate are $2,000.Assume the estate will owe no income taxes in the next few years and that the taxable estate is expected to be in excess of $1 million.What amount should the estate deduct?
Q2) The value of stock that is not publicly traded may be determined by considering A) the nature and history of the business.
B) earning capacity.
C) dividend-paying capacity.
D) all of the above
Q3) Five years ago, George and Jerry (his brother)provide $40,000 and $60,000, respectively, to purchase realty titled in the names of George and Jerry as joint tenants with right of survivorship.George dies in the current year and is survived by Jerry.At the time of George's death, the realty is valued at $300,000.What is the value of the realty in George's gross estate?
Q4) Briefly discuss how inter vivos gifts can be used to reduce the size of the estate tax base.
Q5) Compare the tax treatment of administration expenses with that of the decedent's debts.
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Chapter 14: Income Taxation of Trusts and Estates
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Q1) Which of the following statements is incorrect?
A) The income tax rules governing estates and trusts are generally identical.
B) Income generated by property owned by an estate or trust is reported on that entity's tax return.
C) Subchapter K contains the special rules applicable to estates and trusts.
D) All of the above are correct.
Q2) A trust is required to distribute all of its income annually.It distributes all of the income and $2,000 of principal to the beneficiary.Which of the following statements is correct?
A) The trust is a complex trust and is allowed a $300 exemption.
B) The trust is a complex trust and is allowed a $100 exemption.
C) The trust is a simple trust and is allowed a $300 exemption.
D) The trust is a simple trust and is allowed a $100 exemption.
Q3) Little Trust, whose trust instrument is silent with respect to depreciation, collects rental income of $20,000 and pays property taxes of $1,000.Depreciation expense is $5,000.
Little Trust is in a state where all depreciation is charged to principal.What is the trust's net accounting income?
Q4) What is the basis of inherited IRD items to the beneficiary?
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Chapter 15: Administrative Procedures
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Q1) A taxpayer's return is audited and additional taxes are assessed.The IRS also asserts that a negligence penalty should be assessed.The taxpayer concurs with the additional $15,000 tax liability; $7,000 of this amount is attributable to negligence.What is the amount of the penalty for negligence?
A) $700
B) $1,400
C) $5,600
D) $1,750
Q2) The program specifically designed to identify returns with a high potential for a deficiency assessment is the A) TCMP.
B) DIF program.
C) instant audit program.
D) 1040 program.
Q3) The IRS will issue a 90-day letter (a Statutory Notice of Deficiency)if the taxpayer does not file a protest letter within 30 days of the date of the 30-day letter.
A)True
B)False
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Chapter 16: US Taxation of Foreign-Related Transactions
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Q1) Identify which of the following statements is false.
A) An accrual-basis taxpayer must make an adjustment to their foreign tax credit which reflects the change in exchange rates between the accrual date and the payment date.
B) Dividend income received by a U.S. individual from a foreign corporation earning nearly all of its income from outside the United States is foreign-source income.
C) Income from the sale of personal property (other than inventory) by a U.S. resident is considered earned in the country where the personal property is delivered.
D) Itemized deductions are allocated between U.S. and foreign-source income.
Q2) U.S.citizens and resident aliens working abroad may qualify for the foreign-earned income exclusion of $97,600 in 2013.
A)True
B)False
Q3) A U.S.corporation can claim a credit for foreign taxes withheld from dividends paid by a foreign corporation in which it owns at least 10% of the stock.
A)True
B)False
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