LLM in Taxation
Chapter Exam Questions
Course Introduction
The LLM in Taxation is a specialized postgraduate law program designed to provide students with advanced knowledge of tax law and policy, both domestic and international. The course covers key topics such as corporate taxation, international tax regimes, tax compliance, estate and gift taxation, tax controversies, and the ethical considerations involved in tax practice. Students will analyze complex statutes, regulations, and case law, and gain experience in researching and solving intricate tax problems. The program prepares graduates for careers in tax practice, advisory roles, academia, or policymaking by equipping them with critical analytical, practical, and strategic tax problem-solving skills.
Recommended Textbook
South Western Federal Taxation 2015 Corporations Partnerships Estates and Trusts 38th Edition
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Page 2
Chapter 1: Understanding and Working With the Federal Tax Law
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Sample Questions
Q1) Which state is located in the jurisdiction of the Fifth Court of Appeals?
A) Louisiana.
B) California.
C) New York.
D) South Carolina.
E) None of the above.
Answer: A
Q2) Longer class lives for depreciable property and the required use of straight-line method of depreciation should dampen the tax incentive for purchasing capital assets.
A)True
B)False
Answer: True
Q3) A taxpayer must pay any tax deficiency assessed by the IRS and sue for a refund to bring suit in the U.S. District Court.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Corporations: Introduction and Operating Rules
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Sample Questions
Q1) A corporate net operating loss can be carried back 2 years and forward 20 years to offset taxable income for those years.
A)True
B)False
Answer: True
Q2) Norma formed Hyacinth Enterprises, a proprietorship, in 2014. In its first year, Hyacinth had operating income of $400,000 and operating expenses of $240,000. In addition, Hyacinth had a long-term capital loss of $10,000. Norma, the proprietor of Hyacinth Enterprises, withdrew $75,000 from Hyacinth during the year. Assuming Norma has no other capital gains or losses, how does this information affect her taxable income for 2014?
A) Increases Norma's taxable income by $157,000 ($160,000 ordinary business income$3,000 longterm capital loss).
B) Increases Norma's taxable income by $150,000 ($160,000 ordinary business income$10,000 longterm capital loss).
C) Increases Norma's taxable income by $75,000.
D) Increases Norma's taxable income by $160,000.
E) None of the above.
Answer: A
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Page 4
Chapter 3: Corporations: Special Situations
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Sample Questions
Q1) What amount of accumulated earnings of a service type corporation is considered within the reasonable needs of a business without the corporation having to show a bona fide business reason for the accumulation?
A) $150,000 or less.
B) $200,000 or less.
C) $250,000 or less.
D) $300,000 or less.
E) None of the above.
Answer: A
Q2) DPGR cannot include the cost of an embedded service that is part of in the sale of a manufactured product.
A)True
B)False
Answer: False
Q3) Fewer corporations are subject to the AMT than to the domestic production activities deduction.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Corporations: Organization and Capital Structure
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Sample Questions
Q1) Stock in Merlin Corporation is held equally by Jane, Eve, and Fred. Merlin seeks additional capital to buy a valuable tract of land that will cost $6,000,000. Jane, Eve, and Fred propose to loan Merlin $2,000,000 each, taking from Merlin a $2,000,000 ten-year note with interest payable annually at five points above the prime rate. Merlin Corporation has current taxable income of $7,000,000. How are the payments on the notes treated for tax purposes?
Q2) Nick exchanges property (basis of $100,000; fair market value of $3 million), for 65% of the stock of Yellow Corporation. The other 35% of the stock is owned by Gloria who acquired it several years ago. What are the tax consequences to Nick?
Q3) Beth forms Lark Corporation with a transfer of appreciated property in exchange for all of its shares. Shortly thereafter, she transfers half her shares to her son, Ted. The later transfer to Ted could cause the original transfer to be taxable.
A)True
B)False
Q4) If a shareholder owns stock received as a gift from her mother, it cannot be § 1244 stock.
A)True
B)False
Page 6
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Chapter 5: Corporations: Earnings Profits and Dividend
Distributions
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Sample Questions
Q1) Christian, the president and sole shareholder of Venture Corporation, is paid an annual salary of $150,000. Christian would like to draw additional funds from the corporation but is concerned that increased salary might cause the IRS to contend his salary is unreasonable. Further, Christian does not want the corporation to pay any dividends. He would like to contribute $40,000 to his alma mater to establish scholarships for needy students. If Christian makes a pledge to the university to provide $40,000 for scholarships, would there be a problem if Venture Corporation paid the pledge on his behalf? Explain.
Q2) Purple Corporation makes a property distribution to its sole shareholder, Paul. The property distributed is a house (fair market value of $189,000; basis of $154,000) that is subject to a $245,000 mortgage that Paul assumes. Before considering the consequences of the distribution, Purple's current E & P is $35,000 and its accumulated E & P is $140,000. Purple makes no other distributions during the current year. What is Purple's taxable gain on the distribution of the house?
A) $0
B) $21,000
C) $35,000
D) $91,000
E) None of the above
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Chapter 6: Corporations: Redemptions and Liquidations
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Sample Questions
Q1) Brown Corporation purchased 85% of the stock of Green Corporation five years ago for $850,000. In the current year, Brown Corporation liquidates Green Corporation and acquires assets with a basis to Green Corporation of $700,000 (fair market value of $1.1 million). Brown Corporation will have a basis in the assets of $850,000, the same as Brown's basis in its Green stock.
A)True
B)False
Q2) Joe owns 100% of Green Corporation (E & P of $500,000) and 100% of Navy Corporation (E & P of $400,000). Joe sells 100 shares in Green (basis of $40,000) to Navy for $70,000, its fair market value. Joe purchased the stock in Green six years ago. Joe has:
A) Dividend income of $70,000.
B) A long-term capital gain of $70,000.
C) Dividend income of $30,000.
D) A long-term capital gain of $30,000.
E) None of the above.
Q3) Compare the sale of a corporation's assets with a sale of its stock from the perspective of the seller.
Q4) Explain the stock attribution rules that apply in the case of stock redemptions.
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Chapter 7: Corporations: Reorganizations
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Sample Questions
Q1) Spoonbill Corporation has assets with a FMV of $800,000 and adjusted basis of $600,000. It has been manufacturing engineering equipment and laboratory tools for the last 8 years. Spoonbill forms a new corporation, Roseate Corporation, by acquiring all of its stock in exchange for the laboratory tool division of Spoonbill. Each of the Spoonbill shareholders receives 1 share of Roseate stock for each 50 shares they own in Spoonbill. How will this transaction be treated for Federal income tax purposes?
A) As a splitoff "Type D" reorganization.
B) As a spinoff "Type D" reorganization.
C) As a spitup "Type D" reorganization.
D) This transaction is treated as a stock dividend.
E) None of the above.
Q2) The basis for the acquiring corporation in the target's assets is increased by any gain recognized by the target.
A)True
B)False
Q3) Liabilities are problematic only in the reorganization when the corporation transfers other property (boot) as well as stock to the target.
Q4) Carries over to new corporations in a split-up reorganization.
Q5) Requires at least a 40% carryover ownership by target shareholders.
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Chapter 8: Consolidated Tax Returns
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Sample Questions
Q1) Which of the following potentially is a disadvantage of electing to file a Federal corporate income tax consolidated return?
A) Increased deduction amounts when computations are made on a group basis.
B) Deferral of gains realized in transactions between group members.
C) Increased basis in the stock of a subsidiary that generates annual taxable income.
D) Additional administrative costs in complying with the election.
Q2) A tax-exempt charitable trust, created by a U.S. C corporation, can join in a Federal consolidated return.
A)True
B)False
Q3) When the parent acquires 51% of a subsidiary U.S. corporation, the subsidiary can join the consolidated financial statements and the consolidated tax return of the parent. A)True B)False
Q4) Where are the controlling Federal income tax rules regarding consolidated tax returns to be found? What is the general philosophy of those rules? Do they tend to be pro-or anti-taxpayer?
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Chapter 9: Taxation of International Transactions
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Sample Questions
Q1) Which of the following is a special tax regime imposed on certain foreign persons engaged in a U.S. trade or business?
A) Nondiscrimination tax.
B) Windfall U.S. profits tax.
C) Dividend repatriation tax.
D) Branch profits tax.
Q2) ForCo, a non-U.S. corporation based in Aldonza, purchases widgets from USCo, Inc., its U.S. parent corporation. The widgets are sold by ForCo to an unrelated foreign corporation in Aldonza. The income from sale of the widgets by ForCo is Subpart F foreign base company sales income.
A)True
B)False
Q3) Bighley shows the following results for the year. Bighley offsets the general-basket loss against U.S.-source income for the current tax year.
U.S.-source income $5 million
Foreign-source income, general FTC basket ($2 million)
Foreign-source income, passive FTC basket $3 million
A)True
B)False
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Page 11
Chapter 10: Partnerships: Formation, Operation, and Basis
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Sample Questions
Q1) Ryan is a 25% partner in the ROCC Partnership. At the beginning of the tax year, Ryan's basis in the partnership interest was $90,000, including his share of partnership liabilities. During the current year, ROCC reported net ordinary income of $100,000. In addition, ROCC distributed $10,000 to each of the partners ($40,000 total). At the end of the year, Ryan's share of partnership liabilities increased by $10,000. Ryan's basis in the partnership interest at the end of the year is:
A) $90,000.
B) $100,000.
C) $115,000.
D) $125,000.
E) None of the above.
Q2) Partners' capital accounts should be determined using the same method on Form 1065 Schedule L, Form 1065 Schedule M-2, and the Schedules K-1 prepared for the partners. A)True
B)False
Q3) Syndication costs
Q4) Limited liability partnership
Q5) Limited liability company
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Chapter 11: Partnerships: Distributions, Transfer of Interests, and Terminations
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Sample Questions
Q1) Tim and Darby are equal partners in the TD Partnership. Partnership income for the year is $60,000. Tim needs cash in order to pay tax on his share of the partnership income, but Darby wants to leave the cash in the partnership for expansion. If the partners agree, it is acceptable for TD to distribute $8,000 to Tim, and no cash or other property to Darby.
A)True
B)False
Q2) A gain will only arise on a distribution from a partnership of cash that exceeds the partner's basis in the partnership interest. For this purpose, only cash, checks, and credit card charges are treated as cash.
A)True
B)False
Q3) Distribution of cash of $60,000 for a partner's share of unrealized receivables where the partner is a general partner, and most of the partnership's income is derived from services.
Q4) Active member of LLC
Q5) Distribution of cash of $10,000 to a limited partner for goodwill, where goodwill is not provided for in the partnership agreement.
Page 13
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Chapter 12: S: Corporations
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Q1) When loss assets are distributed by an S corporation, a shareholder's basis is equal to the asset's fair market value.
A)True
B)False
Q2) On January 1, Bobby and Alice own equally all of the stock of an electing S corporation called Prairie Dirt Delight. The dirt company has a $60,000 loss for a non-leap year. On the 200th day of the year, Bobby sells his one-half of the stock to his son, Saul. How much of the $60,000 loss, if any, is allocated to Bobby?
A) $0
B) $13,562
C) $16,438
D) $32,877
Q3) On December 31, 2014, Erica Sumners owns one share of an S corporation's 10 outstanding shares of stock. The basis of Erica's share is $300. During 2015, the S corporation incurs a loss of $3,650. Determine the amount of the loss allocated to Erica, and calculate her stock basis at the end of 2015.
Q4) An S corporation is limited to a theoretical maximum of shareholders.
Q5) Discuss two ways that an S election may be terminated.
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Chapter 13: Comparative Forms of Doing Business
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Sample Questions
Q1) Sam and Vera are going to establish a business. Sam will contribute cash of $100,000 for a 50% interest, and Vera will contribute land and a building worth $135,000 (adjusted basis of $65,000) for a 50% interest. The land and building is encumbered by a $35,000 mortgage which the entity assumes. Determine the tax consequences of the contribution to Sam, Vera, and the entity if the business is:
a. An S corporation.
b. A partnership.
c. A C corporation.
Q2) Section 1244 ordinary loss treatment is available to shareholders in a C corporation but not to those in an S corporation.
A)True
B)False
Q3) Under what circumstances, if any, do the § 469 passive activity loss rules apply to C corporations?
Q4) Techniques are available that may permit a C corporation to avoid double taxation.
A)True
B)False
Q5) Limited partnership
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Chapter 14: Taxes on the Financial Statements
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Q1) You are assisting LipidCo, a U.S. corporation subject to GAAP, to determine its current-year book expense for income taxes. The following represent the steps that you will take in making this computation. Put the steps into the correct order.
A. Compute the deferred tax provision.
B. Determine book income before income tax effects.
C. Determine the current tax provision.
D. Determine whether a valuation allowance is required, and apply or release it.
E. Identify and measure temporary book-tax differences.
F. Prepare the disclosures for the financial statement footnotes.
G. Add/Subtract any permanent book-tax differences.
Q2) The current tax expense reported on the GAAP financial statements generally represents the taxes actually payable to domestic or foreign governmental authorities.
A)True
B)False
Q3) A deferred tax liability represents a current tax liability associated with income or expense to be reported in future year GAAP financial statements.
A)True
B)False
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Chapter 15: Exempt Entities
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Q1) If an exempt organization is required to file an annual information return, on what form is it filed?
Q2) Teal, Inc., is a private foundation which failed to distribute an adequate amount of income for the exempt purpose of Teal. Which of the following statements is correct?
A) An excise tax in the form of an initial tax at the rate of 5% may be imposed on Teal.
B) An excise tax in the form of an initial tax at the rate of 2.5% may be imposed on the foundation manager.
C) An excise tax in the form of an additional tax at the rate of 100% may be imposed on Teal.
D) An excise tax in the form of an additional tax at the rate of 50% may be imposed on the foundation manager.
E) None of the statements is correct.
Q3) An exempt entity in no circumstance is subject to Federal income tax. A)True B)False
Q4) Discuss any negative tax consequences that result from an exempt organization being classified as a private foundation.
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Page 17
Chapter 16: Multistate Corporate Taxation
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Q1) The typical state sales/use tax falls on sales of both real and personal property.
A)True
B)False
Q2) Under the UDITPA's concept, sales are assumed to take place at the point of delivery, as opposed to the location at which the shipment originates.
Q3) Carrying a free sample of a product to the customer's premises.
Q4) Double weighting the sales factor effectively decreases the corporate income tax burden on taxpayers based in the state, such as entities with in-state headquarters.
A)True
B)False
Q5) Most states begin the computation of corporate taxable income with an amount from the Federal income tax return.
A)True
B)False
Q6) The tax usually is applied at the city or county level, as its main source of revenue.
Q7) A garment purchased by an actress.
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Page 18
Chapter 17: Tax Practice and Ethics
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Q1) Specific factors that are used in selecting tax returns for audit, and the weights for such factors, are not released to the public. Summarize the public information about tax audit selection how might a tax return's chances of audit increase above national norms?
Q2) If the taxpayer comes to the office of the IRS for the audit of a tax return, the review is called a(n)
____________________ audit.
Q3) What are the chief responsibilities of the IRS Commissioner, and of the Chief Counsel of the IRS?
Q4) Concerning the penalty for civil tax fraud:
A) The burden of proof is on the taxpayer to establish that no fraud was committed.
B) Fraudulent behavior is more than mere negligence on the part of the taxpayer.
C) The penalty is 100% of the underpayment.
D) Fraud is defined in Code §§ 6663(b) and (f).
Q5) Evaluate this statement: the audited taxpayer has more freedom to "trade issues" with the IRS when the dispute progresses to an Appeals conference. Hint: What are the "hazards of litigation?"
Q6) Improper refund claim.
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Chapter 18: The Federal Gift and Estate Taxes
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Q1) At the time of his death, Lance held a life estate in the LM Trust. Under which of the following circumstances will the LM Trust not be included in his gross estate?
A) The trust was created by Lance and was revocable. He released the power to revoke four years before his death.
B) The trust was created by Lance and is irrevocable.
C) The trust was created by Lance's father.
D) The trust was created by Lance's deceased wife and the executor of her estate made a QTIP election.
E) None of the above.
Q2) At the time of her death on June 6, Mary owned the following assets.
-Taupe Corporation stock (cost $400,000, FMV $800,000). On May 4, Taupe declared a cash dividend, payable on June 15, to shareholders as of the record date of June 4. Mary's executor received the $40,000 dividend on the scheduled payment date.
-City of Boise bonds (cost $800,000, FMV $780,000). Interest accrued to June 6 was $42,000. The executor eventually collected $50,000 (included post-death accrual of $8,000) on July 20.
As to these transactions, how much is included in Mary's gross estate?
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Page 20
Chapter 19: Family Tax Planning
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Sample Questions
Q1) Exemption equivalent
Q2) Paid medical expenses prior to death.
Q3) Current use valuation as to certain realty (§ 2032A).
Q4) Noncommercial annuity contracts should be valued using the tables issued by the IRS.
A)True
B)False
Q5) In April 2013, Tim makes a gift of real estate (basis of $900,000; fair market value of $800,000) to his aunt. After the gift, the aunt makes $50,000 worth of capital improvements to the property. The aunt dies in March 2014, when the property is worth $840,000. Under the aunt's will, the realty passes to Tim. Tim's income tax basis in the property is:
A) $840,000.
B) $890,000.
C) $900,000.
D) $950,000.
E) None of the above.
Q6) Prior to death filed for a refund of overpaid income taxes.
Q7) Made life insurance payable to children.
Q8) Created during life an irrevocable trust naming others as beneficiaries.
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Chapter 20: Income Taxation of Trusts and Estates
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Q1) Tax planning motivations usually predominate over other objectives in deciding whether to create a trust.
A)True
B)False
Q2) With respect to a trust's timely filed Form 1041, the IRS will accept:
A) Only paper returns.
B) Only e-filed returns.
C) Returns either on paper or in electronic form.
D) Only e-filed returns if gross income exceeds $5,000 for the tax year.
Q3) A Form 1041 must be filed by a trust that has $ or more gross income for the tax year.
Q4) The entity is an information-reporting, not a tax-paying, taxpayer.
Q5) A decedent's income in respect of a decedent is subject to the Federal income tax, but it is excluded from the estate tax.
A)True
B)False
Q6) Trusts can select any Federal income tax year-end.
A)True
B)False
Q7) An estate (can/cannot) be liable for a Federal alternative minimum tax.
Page 22
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