IRS Practice and Procedures
Chapter Exam Questions
Course Introduction
This course provides an in-depth examination of the practices and procedures of the Internal Revenue Service (IRS). Students will explore the organizational structure of the IRS, the processes involved in tax return examination, administrative appeals, collection activities, and the resolution of tax disputes. Emphasis is placed on understanding taxpayer rights, compliance requirements, audit techniques, penalty assessments, and the procedural steps for representing clients before the IRS. Practical application of IRS regulations and guidance is integrated to prepare students for effective practice in tax compliance and controversy settings.
Recommended Textbook
Prentice Halls Federal Taxation 2014 Comprehensive 27th Edition by Timothy J. Rupert
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Page 2
Chapter 1: Tax Research
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Sample Questions
Q1) The citation "Rev.Rul.2006-8,2006-1 C.B.541" refers to
A)the eighth ruling of 2006 found on page 541 in Vol.1 of the 2006 Cumulative Bulletin.
B)the eighth ruling of 2006 found on page 541 in the 2006 volume of the Cumulative Bulletin.
C)the 541st ruling of 2006 found on page eight in Vol.1 of the 2006 Cumulative Bulletin.
D)the 1st ruling of 2006 found on page 541 in the 2006 volume of the Cumulative Bulletin.
Answer: A
Q2) A tax case cannot be appealed when initiated in the
A)U.S.Court of Federal Claims.
B)U.S.Tax Court.
C)U.S.Tax Court using the small case procedures.
D)none of the above
Answer: C
Q3) Tax planning is not an integral part of open-fact situations.
A)True
B)False
Answer: False
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Page 3
Chapter 2: an Introduction to Taxation
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Sample Questions
Q1) Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays tax of $12,000 on $120,000.The tax is a
A)progressive tax.
B)proportional tax.
C)regressive tax.
D)None of the above.
Answer: B
Q2) The various entities in the federal income tax system may be classified into two general categories,taxpaying entities (such as individuals and C [regular] corporations)and flow-through entities such as sole proprietorships,partnerships,S corporations,and limited liability companies.
A)True
B)False
Answer: True
Q3) Individuals are the principal taxpaying entities in the federal income tax system.
A)True
B)False
Answer: True
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Chapter 3: Corporate Formations and Capital Structure
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Sample Questions
Q1) The City of Providence donates land worth $125,000 to Triple A Corporation to induce it to locate in Providence and provide jobs for its citizens.How much gross income must Triple A Corporation recognize because of the land contribution,and what is the land's basis to Triple A Corporation?
Answer: The corporation recognizes no income and the land has a $0 basis.
Q2) Sarah transfers property with an $80,000 adjusted basis and a $100,000 FMV to Super Corporation in a Sec.351 transaction.Sarah receives stock with an $85,000 FMV and a short-term note with a $15,000 FMV.Sarah's basis in the stock is
A)$100,000.
B)$95,000.
C)$85,000.
D)$80,000.
Answer: D
Q3) South Corporation acquires 100 shares of treasury stock for $10,000.The next year,South reissues the 100 shares for land having a $15,000 FMV.What is the amount of gain or loss realized by South Corporation,and how much is recognized?
Answer: South realizes a $5,000 ($15,000 - $10,000)gain on the exchange.None of it is recognized.
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Chapter 4: Determination of Tax
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Sample Questions
Q1) Julia provides more than 50 percent of the support for three individuals: Theresa,an unrelated child who lives with Julia all year long; Margaret,Julia's cousin,who lives in another city; and Emma,Julia's daughter who lives in her own home.Each of the potential dependents earned less than $3,900.How many dependency exemptions can Julia claim on her 2013 tax return?
A)0
B)1
C)2
D)3
Q2) A married person who files a separate return can claim a personal exemption for his spouse if the spouse is not the dependent of another and has A)gross income that is less than the personal exemption.
B)adjusted gross income that is less than the personal exemption.
C)no gross income.
D)no taxable income.
Q3) Suri,age 8,is a dependent of her parents and has unearned income of $6,000.She must file her own tax return.
A)True
B)False
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Page 6
Chapter 5: The Corporate Income Tax
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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?
Q2) A deferred tax asset indicates that a firm will realize the tax benefit of an event sometime in the future.
A)True
B)False
Q3) Which of the following is not subject to classification as a personal service corporation?
A)construction
B)law
C)accounting
D)performing arts
Q4) How does the use of a net capital loss differ for individual and corporate taxpayers?
Q5) What are start-up expenditures?
Q6) For corporations,what happens to excess charitable contributions?
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Chapter 6: Gross Income: Inclusions
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Sample Questions
Q1) Leigh inherited $65,000 of City of New York bonds in January 2013.In March 2013,she received $4,000 of interest on the bonds.In July 2013,she sold the bonds at a $10,000 gain.Leigh also redeemed Series E U.S.Savings bonds in October 2013 that she had purchased several years ago and received accumulated interest of $2,600.In December 2013,she received $800 of interest on City of Paris,France,bonds.What amount,if any of gross income must Leigh report?
Q2) Edward,a single taxpayer,has AGI of $50,000 which includes $1,000 of qualified dividends.Edward has $7,000 of itemized deductions.What is his 2013 federal income tax?
A)$5,614
B)$5,604
C)$5,454
D)$9,775
Q3) Marisa and Kurt divorced in 2011.Under the terms of the divorce agreement,Marisa was to pay Kurt $110,000 in 2011 and $60,000 each year following until Kurt's death or remarriage.What must Kurt report on his tax return for 2013 regarding these transactions?
Q4) Income from illegal activities is taxable.
A)True
B)False
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Chapter 7: Corporate Nonliquidating Distributions
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Q1) In the current year,Red Corporation has $100,000 of current and accumulated E&P.On March 2,Red Corporation distributes to Randy,a shareholder,a parcel of land (a capital asset)having a $60,000 FMV.The land has a $30,000 adjusted basis (for both tax and E&P purposes)to Red Corporation and is subject to an $8,000 mortgage,which Randy assumes.Assume a 34% marginal corporate tax rate.
a)What is the amount and character of the income Randy recognizes as a result of the distribution?
b)What is Randy's basis for the land?
c)What is the amount and character of Red Corporation's gain or loss as a result of the distribution?
d)What effect does the distribution have on Red Corporation's E&P?
Q2) Which of the following is not a condition that permits a stock redemption to be treated as a sale?
A)It provides funds for payment of income taxes.
B)It is not essentially equivalent to a dividend.
C)The redemption is substantially disproportionate.
D)The redemption completely terminates the shareholder's interest.
Q3) Why are stock dividends generally nontaxable? Under what circumstances are stock dividends taxable?
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Page 9
Chapter 8: Gross Income: Exclusions
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Q1) "Working condition fringe benefits," such as memberships in professional organizations paid for by the employer,are generally excluded from the employee's gross income.
A)True
B)False
Q2) Accelerated death benefits received by a terminally ill person may be excluded from taxable income.
A)True
B)False
Q3) Linda was injured in an automobile accident caused by another driver.Her son,Matthew,was in the automobile but not physically injured.The other driver's insurance company was required by a court to pay Linda $75,000 to cover medical bills relating to her injuries,$30,000 to compensate her for emotional distress attributable to the injuries and $40,000 of punitive damages.Matthew was paid $15,000 to compensate him for emotional distress attributable to his witnessing his mother's injuries.What is the amount taxable to Linda?
A)$30,000
B)$40,000
C)$105,000
D)$145,000
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Chapter 9: Other Corporate Tax Levies
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Q1) A manufacturing corporation has accumulated E&P of $210,000 and current E&P of $65,000.Accumulated taxable income,before reduction for the accumulated earnings credit,is $90,000 for the current year.No dividends were paid during the year.The corporation has an increase in reasonable business needs of $35,000.If the corporation is not a service corporation and has reported no long-term capital gains,what is the amount of earnings subject to the accumulated earnings tax?
Q2) Which of following generally does not indicate an unreasonable earnings accumulation?
A)loans to shareholders
B)expenditure of corporate funds for the personal benefit of the shareholders
C)planned expansion of business facilities
D)investments in properties or securities unrelated to the activities of the corporation
Q3) Which of the following entities is subject to the accumulated earnings tax?
A)Sec.501 tax-exempt corporation
B)personal holding company
C)C corporation
D)S corporation
Q4) How is alternative minimum taxable income computed?
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Chapter 10: Property Transactions: Capital Gains and Losses
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Q1) If property received as a gift has a basis of the fair market value of the property on the date of the gift,the donee's holding period starts on the day after the date of the gift.
A)True
B)False
Q2) In a basket purchase,the total cost is apportioned among the assets purchased according to the relative fair market value of the assets.
A)True
B)False
Q3) Gina owns 100 shares of XYZ common stock with a $12,000 basis and a $25,000 FMV.She receives 100 stock rights with a total FMV of $15,000.Answer the following: a.What is the basis of the 100 shares of stock? b.What is the basis of the 100 stock rights?
Q4) An uncle gifts a parcel of land to his niece,and he has to pay gift taxes.The land has appreciated substantially since he purchased it 20 year ago.A portion of gift taxes paid by the uncle will increase the niece's basis of the land.
A)True
B)False
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Chapter 11: Corporate Liquidating Distributions
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Q1) In a Sec.332 liquidation,can a subsidiary corporation recognize losses on distributions to either the parent corporation or minority shareholders?
Q2) Market Corporation owns 100% of Subsidiary Corporation's stock.Market Corporation completely liquidates Subsidiary Corporation,receiving land with a $400,000 adjusted basis and a $500,000 FMV in exchange for Subsidiary stock,which has a $300,000 adjusted basis.Market Corporation has a basis in the land of
A)$300,000.
B)$400,000.
C)$500,000.
D)none of the above
Q3) When a corporation liquidates,it performs three activities.What is the general order of these activities in a plan of liquidation?
A)pay debts,distribute property to shareholders,and wind up its affairs
B)wind up its affairs,distribute property to shareholders,pay debts
C)pay debts,wind up its affairs,and distribute property to shareholders
D)wind up its affairs,pay debts,and distribute property to shareholders
Q4) Under what circumstances does a liquidating corporation not recognize a gain or loss when making a distribution?
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Page 13
Chapter 12: Deductions and Losses
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Sample Questions
Q1) If property that qualifies as a taxpayer's residence is rented for less than 15 days per year,the taxpayer includes no rental income in gross income and similarly may claim no expenses related to the property other than interest and taxes.
A)True
B)False
Q2) On December 1,Robert,a cash method taxpayer,borrows $10,000 from the bank for use in his business.Under the terms of the loan,the bank discounts the loan by $300,paying Robert the $9,700 cash proceeds.If Robert repays the loan next year,he may deduct
A)$300 next year.
B)$300 this year.
C)$25 this year and $275 next year.
D)nothing since the note is "noninterest-bearing."
Q3) Individuals are allowed to deduct the greater of the standard deduction or itemized deductions.
A)True
B)False
Q4) Discuss why the distinction between deductions for AGI and from AGI is important to individuals.
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Chapter 13: Corporate Acquisitions and Reorganizations
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Sample Questions
Q1) Parent Corporation purchases all of Target Corporation's stock for $200,000 and makes a deemed liquidation election.Target Corporation has Class I assets with an adjusted basis of $55,000 and an FMV of $55,000; Class II assets with an adjusted basis of $40,000 and an FMV of $60,000; and Class V assets with an adjusted basis of $70,000 and an FMV of $100,000.The Class V assets are subject to a $20,000 liability.Assume a 34% corporate tax rate.What is the adjusted grossed-up basis of Target Corporation's stock?
Q2) Discuss the advantages and disadvantages of a tax-free reorganization as compared with a taxable transaction.
Q3) 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?
Q4) In a nontaxable reorganization,shareholders of the target corporation recognize gain or loss.
A)True
B)False
Q5) What are the advantages and disadvantages of a Type C reorganization?
Q6) What are the two steps of a Sec.338 deemed liquidation election?
Page 15
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Chapter 14: Itemized Deductions
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Q1) Corporate charitable deductions are limited to 10% of the corporation's taxable income for the year.
A)True
B)False
Q2) Assessments or fees imposed for specific privileges or services are not deductible as taxes.
A)True
B)False
Q3) In 2013,Carlos filed his 2012 state income tax return and paid taxes of $800.Also in 2013,Carlos's employer withheld state income tax of $750 from Carlos's salary.In 2014,Carlos filed his 2013 state income tax return and paid an additional $600 of state income tax due for 2013.How much state income tax can Carlos deduct on his 2013 federal income tax return for state income tax?
A)$1,350
B)$1,400
C)$1,550
D)$2,150
Q4) Discuss what circumstances must be met for personal property taxes to be deductible.
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Chapter 15: Consolidated Tax Returns
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Q1) A separate return year is a corporation's tax year for which it files a separate tax return or files a consolidated tax return with another affiliated group.
A)True B)False
Q2) Intercompany sales between members of an affiliated group filing separate returns cause deferred tax assets to be recognized by both buyer and seller.
A)True B)False
Q3) What is the carryback and carryforward rule for consolidated NOLs?
Q4) Toby owns all of the single class of stock of James and Mony Corporations.James Corporation owns all of Volt Corporation's stock.Mony owns all of Wegnin Corporation.Mony and Wegnin Corporations are foreign corporations.Toby,James,and Volt are domestic corporations.Are the corporations part of an affiliated group?
Q5) Why are other intercompany transactions not given any special treatment?
Q6) Define intercompany transactions and explain the two types of transactions.
Q7) The treatment of capital loss carrybacks and carryovers is similar to NOLs.
A)True B)False
Page 17
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Chapter 16: Losses and Bad Debts
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Q1) Which of the following is most likely not considered a casualty?
A)fire loss
B)water damage caused by a busted water heater
C)death of a pine tree due to a two-day infestation of pine beetles
D)water damage to the walls and ceiling of a taxpayer's personal residence as the result of gradual deterioration of the roof
Q2) Vera has a key supplier for her business who was facing cash flow problems which would impair Vera's ability to get shipments of key components for her production.Vera made a $10,000 loan to the supplier.Unfortunately the supplier filed for bankruptcy and has gone out of business without repaying Vera.Vera will be able to recognize a loss of A)$10,000.
B)$3,000.
C)$7,000.
D)-0-
Q3) A passive activity includes any rental activity or any trade or business in which the taxpayer does not materially participate.
A)True
B)False
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Chapter 17: Partnership Formation and Operation
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Q1) Identify which of the following statements is true.
A)The contribution of Sec.1245 property to a partnership triggers recognition of ordinary income by the contributor at the time of the transfer.
B)A partner may not recognize ordinary income when receiving a capital and profits interest in a partnership in exchange for services.
C)When a partnership interest is given to a partner in exchange for services,the partnership can deduct or capitalize the FMV of the services,depending on the nature of the services.
D)All of the above are false.
Q2) In computing the ordinary income of a partnership,a deduction is allowed for A)net Sec.1231 losses.
B)bad debts.
C)foreign income taxes paid.
D)charitable contributions.
Q3) A partnership must file Form 1065 only if its income exceeds $1,000.
A)True
B)False
Q4) Explain the difference between partnership distributions and distributive shares.
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Page 19
Chapter 18: Employee Expenses and Deferred Compensation
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Q1) Tyne is a 48-year-old an unmarried taxpayer who is not an active participant in an employer-sponsored qualified retirement plan.Before IRA contributions,her AGI is $61,000 in 2013.What is the maximum amount she may contribute to a tax deductible IRA?
A)$ -0-
B)$4,400
C)$5,500
D)$6,500
Q2) Hannah is a 52-year-old an unmarried taxpayer who is not an active participant in an employer-sponsored qualified retirement plan.Before IRA contributions,her AGI is $61,000 in 2013.What is the maximum amount she may contribute to a tax deductible IRA?
A)$4,400
B)$5,200
C)$5,500
D)$6,500
Q3) A gift from an employee to his or her superior does not qualify as a business gift.
A)True B)False
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Chapter 19: Special Partnership Issues
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Q1) Identify which of the following statements is true.
A)John Albin is a retired partner of Brill & Crum,a personal service partnership.Albin has not rendered any services to Brill & Crum since his retirement six years ago.Under the provisions of Albin's retirement agreement,Brill & Crum is obligated to pay Albin 10% of the partnership's net income each year through the end of the current year.In compliance with the agreement,Brill & Crum pay Albin $25,000 in the current year.Albin should treat this $25,000 as a long-term capital gain.
B)An exchange of partnership interests in different partnerships qualifies under the like-kind exchange rules.
C)The payment for partnership property to a retiring partner is not deductible by the partnership and often not income to the retiring partner.
D)All of the above are false.
Q2) What is the definition of "substantially appreciated inventory"?
A)inventory with a FMV greater than its basis
B)inventory and unrealized receivables with a FMV greater than their basis
C)inventory with a FMV greater than 120% of its basis
D)inventory and unrealized receivables with a FMV greater than 120% of their basis
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Chapter 20: Depreciation cost Recovery amortization and Depletion
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Q1) If a new luxury automobile is used 100% for business and placed in service in 2013,the maximum MACRS depreciation on the vehicle for 2013 is $11,160.
A)True
B)False
Q2) Taxpayers are entitled to a depletion deduction if they have an economic interest in the natural resource property.
A)True
B)False
Q3) Section 179 allows taxpayers to immediately expense up to $500,000 (for 2013),subject to limitations,of the cost of real and personal property placed into service in a trade or business.
A)True
B)False
Q4) On June 30,2013,Temika purchased office furniture costing $259,000 and computers with a cost of $400,000.She uses Sec.179.Her business income is $900,000 without considering Sec.179.How should she allocate the 179 election in order to maximize her total cost recovery deductions (depreciation and Sec.179)for 2013 (assume that bonus depreciation is not available)?
Page 22
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Chapter 21: S Corporations
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Q1) What is a permitted year?
Q2) Which of the following would terminate a Subchapter S election?
A)Estate becomes a shareholder.
B)Grantor trust becomes a shareholder.
C)Voting trust becomes a shareholder.
D)Partnership becomes a shareholder.
Q3) Identify which of the following statements is true.
A)Fringe benefits limited by the more-than-2%-shareholder rule include stock options,group term life insurance premiums,and medical insurance premiums.
B)A shareholder owning 2% or more of an S corporation's stock,who is also an employee of the corporation,must include all statutory fringe benefits in gross income on his/her individual return.
C)Section 318 stock attribution rules are used to define 2% or more shareholders of S corporation's stock.
D)All of the above are false.
Q4) Corporations and partnerships can be S corporation shareholders.
A)True
B)False
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Page 23
Chapter 22: Accounting Periods and Methods
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Q1) Kyle sold land on the installment basis for $100,000.His basis in the land was $70,000.Kyle received a $40,000 down payment and a real estate installment sale contract calling for $60,000 in additional payments in future years.In addition,Kyle paid $6,000 in commissions on the sale.What is the gross profit to be recognized in the current year?
A)$0
B)$9,600
C)$12,000
D)$24,000
Q2) The final tax return of Marjorie,a single taxpayer on the calendar basis,who died on July 15,2013,is due on April 15,2014 (ignoring extensions).
A)True
B)False
Q3) Tonya sold publicly-traded stock with an adjusted basis of $76,000 for $90,000.Tonya received a down payment of $15,000 with the balance due in equal payments over the next four years.What is the amount of gross profit to be recognized in the year of sale?
Q4) Which entities may elect a fiscal year? Discuss how certain tax entities may circumvent the requirement of using a calendar year.
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Chapter 23: The Gift Tax
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Q1) Tracy gave stock with an adjusted basis of $18,000 and an FMV of $15,000 to her nephew Phil.No gift tax was paid.Phil sold the stock for $16,000.The gain or loss Phil will recognize on the sale is
A)$1,000 gain.
B)$0.
C)$1,500 loss.
D)none of the above
Q2) 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?
Q3) Which of the following is a completed gift?
A)Greta transfers $50,000 to a revocable trust benefiting her children Hans and Julio.
B)Juan purchases a ski chalet using his own funds,but listing Penelope as a joint owner.
C)Horatio transfers $60,000 to a bank account with Hazel.Hazel does not contribute any money to the account.
D)Mike changes the beneficiary of his policy to Meredith.
Q4) Discuss the negative aspects of gifts.
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25
Chapter 24: Property Transactions: Nontaxable Exchanges
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Q1) The receipt of boot as part of a nontaxable exchange causes a realized loss to be recognized.
A)True
B)False
Q2) If the taxpayer elects to defer the gain on an involuntary conversion,the holding period of the replacement property begins on the date of purchase.
A)True
B)False
Q3) Glen owns a building that is used in business.The building is worth $200,000,but is subject to a mortgage of $40,000.Glen's basis in the building is $120,000.Glen exchanges the building for investment land worth $150,000 plus $10,000 cash.In addition,the other party assumes the mortgage which will be held for investment.Glen must recognize a gain of
A)$0.
B)$10,000.
C)$50,000.
D)$80,000.
Q4) Discuss the basis rules of property received in a nontaxable like-kind exchange.
Q5) Discuss why a taxpayer would want to avoid like-kind exchange provisions.
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Chapter 25: The Estate Tax
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Q1) Denise died April 1 and owned several bonds that paid interest March 31 and September 30.Also,she owned stock that paid dividends quarterly on March 31,June 30,September 30,and December 31.Denise's estate received the interest and dividends on the payment dates.What should be included in Denise's gross estate?
A)all interest and dividends received in the year of death
B)only interest and dividends received prior to the date of death
C)only interest and dividends received after the date of death
D)none of the interest and dividends received
Q2) The alternate valuation date can be elected for estate tax purposes only if the election
A)increases the value of the gross estate.
B)decreases the value of the gross estate.
C)decreases the estate tax liability (after reduction for tax credits).
D)Both B and C are required.
Q3) Discuss some of the factors to be considered in determining the amount of property that should pass under the marital deduction.
Q4) Melissa transferred $650,000 in trust in 2006: income for life to herself,the remainder to her son.What part,if any,of the value of the trust's assets will be included in Melissa's estate?
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Chapter 26: Property Transactions: Section 1231 and Recapture
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Q1) In 1980,Artima Corporation purchased an office building for $400,000 for use in its business.The building is sold during the current year for $550,000.Total depreciation allowed for the building was $350,000; straight-line would have been $320,000.As result of the sale,how much section 1231 gain will Artima Corporation report?
A)$350,000
B)$406,000
C)$320,000
D)$500,000
Q2) The sale of inventory results in ordinary gain or loss.
A)True
B)False
Q3) Octet Corporation placed a small storage building in service in 1993.Octet's original cost for the building is $800,000 and the cost recovery deductions are $300,000.This year the building is sold for $1,100,000.The amount and character of the gain are
A)Ordinary gain of $60,000 and Sec.1231 gain of $540,000.
B)Ordinary gain of $300,000 and Sec.1231 gain of $300,000.
C)Ordinary gain of $600,000.
D)Sec.1231 gain of $600,000.
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Chapter 27: Income Taxation of Trusts and Estates
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Q1) If a state has adopted the Revised Uniform Principal and Income Act,which of the following statements is correct?
A)The state law definition of trust income will preempt any other definitions.
B)The definition of trust income in the trust document will preempt all other definitions.
C)Under state law,tax-exempt interest will not be allocated to income.
D)The definition of principal in the trust document must classify capital gains as principal.
Q2) Fred,a cash-basis taxpayer,died on January 15,2012.In 2013,the estate made a $9,000 distribution from estate income to Fred's sole heir.The estate had $20,000 of taxable interest and a $10,000 net long-term capital gain allocable to corpus.The estate incurred $5,000 in expenses attributable to the estate income.What is the estate's distributable net income (DNI)?
A)$15,000
B)$20,000
C)$25,000
D)$30,000
Q3) Explain to a client the significance of the income and principal categorization scheme used for fiduciary accounting purposes.
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Chapter 28: Special Tax Computation Methods tax Credits and
Payment of Tax
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Q1) Evan and Barbara incurred qualified adoption expenses in 2012 of $6,000,and then incurred $7,500 more in 2013 when the adoption of their child became final.Their 2012 AGI was $110,000 and their 2013 AGI was $100,000.The allowable adoption credit is
A)$12,970 in 2013.
B)$13,500 in 2013.
C)$6,000 in 2012 and $6,970 in 2013.
D)$6,000 in 2012 and $7,500 in 2013.
Q2) A wage cap does not exist for which of the following self-employment taxes?
A)OASDI
B)FICA
C)FUTA
D)Medicare hospital insurance
Q3) Discuss tax-planning options available for expenses incurred for child and dependent care.
Q4) If an individual is an employee and also has self-employment income,the maximum tax base for computing self-employment tax is reduced by the wages that are subject to the FICA tax.
A)True
B)False
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Chapter 29: Administrative Procedures
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Questions
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) Paul's tax liability for last year was $30,000.Paul projects that his tax for this year will be $40,000.Paul is self-employed and,thus,will have no withholding.His AGI for last year did not exceed $150,000.How much estimated tax should Paul pay for this year to avoid the penalty for underpayment of estimated taxes?
Q3) Kelly,a calendar-year taxpayer,files her 2008 individual return on March 30,2009,and pays the amount due at the same time.Later,she discovers some deductions that she should have claimed on the return.By what date must she file a claim for refund?
Q4) 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?
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Chapter 30: Tax Research
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Q1) A client wants to take a tax return position with less than a 10% probability of being upheld in court.The CPA should
A)take the client's desired position,but not sign the tax return.
B)inform the client that the position does not have a realistic possibility of success.
C)ask the client to sign a waiver of his right to sue the CPA in the event the IRS disallows the position.
D)take the client's desired position and sign the return as usual.
Q2) Which of the following documents is issued by the IRS to a specific taxpayer?
A)regulation
B)revenue procedure
C)letter ruling
D)information release
Q3) A citator is used to find
A)the judicial history of a case.
B)the cases that have cited a case subsequent to the issuance of the opinion.
C)whether a case has been overturned.
D)all of the above.
Q4) What are some of the consequences of the small cases procedure of the Tax Court?
Q5) Discuss the purposes and scope of temporary regulations.
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Chapter 31: Ustaxation of Foreign-Related Transactions
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Q1) What are the carryback and carryforward periods for the foreign tax credit?
A)back two years; forward five years
B)back three years; forward ten years
C)back one year; forward ten years
D)back two years; forward twenty years
Q2) U.S.shareholders are not taxed on dividends paid by a foreign subsidiary as long as the earnings are not remitted to them as dividends.
A)True
B)False
Q3) Define the term "nonresident alien" and discuss the special tax consequences of U.S.taxation on various types of income of a nonresident alien.
Q4) A foreign corporation is a CFC that is in its initial year of operation.For the current year,it reports $1 million of earnings and has an aggregate U.S.Property investment of $400,000.If none of the earnings qualified as Subpart F income,explain how the earnings are taxed.
Q5) Excess foreign taxes in one basket cannot offset limitation amounts in another basket.
A)True
B)False
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Chapter 32: Corporations
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Q1) A shareholder receives a distribution from a corporation in complete liquidation.The distribution will be taxed as a dividend to the extent of current or accumulated E&P.
A)True
B)False
Q2) Baxter Corporation is a personal service corporation in the legal field.Baxter Corporation has taxable income of $10,000.Baxter Corporation's tax is
A)$1,500.
B)$3,400.
C)$3,500.
D)$3,900.
Q3) In order for the Sec.351 nonrecognition rules to apply,the transferor-shareholders in aggregate must control the transferee corporation by owning more than 50% of its stock immediately after the exchange.
A)True
B)False
Q4) Discuss the tax consequences of a complete liquidation to the liquidated corporation and to the shareholders.
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Chapter 33: Partnerships and S Corporations
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Q1) Separately stated items are allocated to the S corporation shareholders based on the number of shares of stock owned on the last day of the S corporation's taxable year.
A)True
B)False
Q2) Stephanie owns a 25% interest in a qualifying S corporation.Stephanie's basis in the stock was $40,000 at the beginning of the year.Stephanie made no capital contributions and received no distributions during the year.Stephanie loaned the S corporation $10,000 this year.The S corporation incurred a $240,000 ordinary loss this year.Stephanie's deduction and carryover of the unused loss are
A)$30,000 and $30,000.
B)$40,000 and $20,000.
C)$50,000 and $10,000.
D)$60,000 and $0.
Q3) Explain the difference between expenses of organizing a partnership and expenses of syndicating a partnership.
Q4) What is the effect of a change in a partner's interest in the partnership during the year?
Q5) What is the primary purpose of Form 1065,Partnership Tax Return?
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Chapter 34: Taxes and Investment Planning
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Q1) One of the characteristics of the Exempt Model is that earnings on the investment are exempt from explicit taxation.
A)True
B)False
Q2) The Pension Model has all of the following characteristics except for A)before-tax dollars are invested.
B)the annual earnings on the investment grow at the before-tax rate of return. C)only the accumulated earnings are taxed at the end of the investment horizon when the investor cashes out of the investment.
D)the entire accumulation is taxed at the end of the investment horizon when the investor cashes out of the investment.
Q3) The Flow-Through Model also applies to a sole proprietorship.
A)True
B)False
Q4) Rachel invests $5,000 in a money market account which earns a 5% before-tax return.Rachel has a 20% marginal tax rate.Rachel makes the one-time investment and leaves the funds in the account for 10 years.She allows all after-tax earnings to remain in the account.What is her after-tax accumulation after 10 years?
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