Partnership Taxation
Exam Materials
Course Introduction
Partnership Taxation explores the federal income tax laws governing partnerships and their partners. The course examines how partnerships are formed, how income and losses are allocated among partners, and how distributions and sales of partnership interests are treated for tax purposes. Topics include the tax consequences of contributions to and distributions from partnerships, the effects of partnership liabilities, special allocations, transactions between partners and the partnership, and the termination or liquidation of partnerships. Through case studies and analysis of the Internal Revenue Code, students gain a thorough understanding of the tax implications affecting partnerships and practical skills for advising clients engaged in partnership ventures.
Recommended Textbook
South Western Federal Taxation 2011 Comprehensive 34th Edition by William H. Hoffman
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Page 2
Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Sample Questions
Q1) Which,if any,of the following taxes are proportional (rather than progressive)?
A)Federal corporate income tax.
B)Federal gift tax.
C)Federal estate tax.
D)Federal employment taxes (i.e. ,FICA,FUTA).
E)All of the above.
Answer: D
Q2) Because they are politically unpopular,many cities are reducing or eliminating their hotel occupancy and car rental surcharges.
A)True
B)False
Answer: False
Q3) If a "special agent" becomes involved in the audit of a return,this indicates that the IRS suspects that fraud is involved.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Working With the Tax Law
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Sample Questions
Q1) Which is not a Code section number?
A)§ 212(1).
B)§ 2(a)(1).
C)§ 280B.
D)§ 6(a).
E)All are current Code sections.
Answer: D
Q2) Individual Senators have considerable latitude to make amendments on the Senate floor.
A)True
B)False
Answer: True
Q3) The computer-based CPA examination has four sections with true-false,multiple-choice,and case studies (called simulations).
A)True
B)False
Answer: False
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Chapter 3: Computing the Tax
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Sample Questions
Q1) In 2010,Warren sold his personal use automobile for a loss of $9,000.He also sold a personal coin collection for a gain of $10,000.As a result of these sales,$1,000 is subject to income tax.
A)True
B)False
Answer: False
Q2) During the year,Kim sold the following assets: business auto for a $1,000 loss,stock investment for a $1,000 loss,and pleasure yacht for a $1,000 loss.Presuming adequate income,how much of these losses may Kim claim?
A)$0.
B)$1,000.
C)$2,000.
D)$3,000.
E)None of the above.
Answer: C
Q3) An "above the line" deduction refers to a deduction for AGI.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Gross Income: Concepts and Inclusions
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Sample Questions
Q1) Theresa,a cash basis taxpayer,purchased a bond on July 1,2007,for $10,000,plus $400 of accrued interest.The bond paid $800 of interest each December 31.On March 31,2010,she sold the bond for $10,150,which included $200 of accrued interest.
A)Theresa's 2010 interest income from the bond is $150.
B)Theresa's gain on the sale of the bond is $150.
C)Theresa has a $250 loss from the sale of the bond.
D)Theresa has $200 of interest income and a $50 loss from the bond in 2010.
E)None of the above.
Q2) Ted and Alice were in the process of negotiating a divorce agreement.They own bonds with a basis of $800,000 and a fair market value of $800,000.They also own common stock with a basis of $500,000 and a fair market value of $800,000.Alice is trying to decide whether to bargain to receive the bonds or the stock.Whichever of the assets she receives,she will sell it to start a new business and to purchase a house.She knows that Ted would prefer to receive the bonds,but she is not sure why.
a.Why do you suppose that Ted prefers to receive the bonds?
b.If Ted is bargaining to receive the bonds,what additional consideration should Alice receive?
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Chapter 5: Gross Income: Exclusions
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Q1) Christie sued her former employer for a back injury she suffered on the job in 2009.As a result of the injury,she was partially disabled.In 2010,she received $250,000 for her loss of future income,$150,000 in punitive damages because of the employer's flagrant disregard for the employee's safety,and $10,000 for medical expenses.Christie took the standard deduction in 2009 and 2010.Christie's 2010 gross income from the above is:
A)$410,000.
B)$400,000.
C)$250,000.
D)$150,000.
E)None of the above.
Q2) Describe a situation under which a company would decide a cafeteria plan would be advantageous for its employees.
Q3) In his will,John named his nephew Steve as executor of the estate.Steve is to receive a fee of $12,000 for serving as executor.When John died,Steve performed the executorial services and received the fee.Steve can exclude the $12,000 from gross income as an inheritance from his uncle's estate.
A)True
B)False
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Chapter 6: Deductions and Losses: in General
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Q1) Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.
Q2) Investment-related expenses such as those related to investments in stocks and bonds are deductions for AGI.
A)True
B)False
Q3) If a taxpayer cannot satisfy the three-out-of-five year presumption test associated with hobby losses,then expenses from the activity cannot be deducted in excess of the gross income from the activity.
A)True
B)False
Q4) The income of a sole proprietorship are reported on Schedule C (Profit or Loss from Business).
A)True
B)False
Q5) For an expense to be deducted,the amount must be paid by the taxpayer.
A)True
B)False
Q6) Briefly discuss the disallowance of deductions for capital expenditures.
Page 8
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) A farming NOL may be carried back 5 years.
A)True
B)False
Q2) The domestic production activities deduction (DPAD)for 2010 cannot exceed 50% of all W-2 wages paid to employees engaged in qualified domestic production activities by the taxpayer during the tax year.
A)True
B)False
Q3) Peggy is in the business of factoring accounts receivable.Last year,she purchased a $30,000 account receivable for $25,000.This year,the account was settled for $18,000.How much loss can Peggy deduct and in which year?
A)$5,000 for the current year.
B)$5,000 for the prior year and $7,000 for the current year.
C)$7,000 for the current year.
D)$12,000 for the current year.
E)None of the above.
Q4) How is qualified production activities income (QPAI)calculated?
Q5) Identify the factors that should be considered in determining whether a transaction is a bona fide loan or a gift.
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Chapter 8: Depreciation,cost Recovery,amortization,and Depletion
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Sample Questions
Q1) Nora purchased a new automobile on July 20,2010,for $29,000.The car was used 60% for business and 40% for personal use.In 2011,the car was used 30% for business and 70% for personal use.If Congress reenacts additional first-year depreciation for 2010,Nora elects not to take additional first-year depreciation.Determine the cost recovery recapture and the cost recovery deduction for 2011.
Q2) Which of the following assets would be subject to cost recovery?
A)A painting by Picasso hanging on a doctor's office wall.
B)An antique vase in a doctor's waiting room.
C)Improvements to a parking lot used by a doctor's patients.
D)a. ,b. ,and c.
E)None of the above.
Q3) An election to use straight-line under ADS is made on a class-by-class basis for property other than eligible real estate.
A)True
B)False
Q4) Discuss the reason for the inclusion amount with respect to leased automobiles.
Q5) Discuss the tax consequences of listed property being used for the production of income compared to being used in a trade or business.
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Q1) Mallard Corporation furnishes meals at cost to its employees by means of a cafeteria it maintains.The cost of operating the cafeteria is not subject to the cutback adjustment.
A)True
B)False
Q2) A worker may prefer to be classified as an employee (rather than an independent contractor)for which of the following reasons:
A)To avoid the self-employment tax.
B)To claim unreimbursed work-related expenses as a deduction for AGI.
C)To avoid the cutback adjustment on unreimbursed business entertainment expenses.
D)To avoid the 2%-of-AGI floor on unreimbursed work-related expenses.
E)None of the above.
Q3) Which,if any,of the following is subject to the cutback adjustment?
A)An airline pilot for an executive jet rental company who pays his own travel expenses.
B)Meals provided at cost to employees by a cafeteria funded by the employer.
C)Fourth of July company picnic for employees.
D)Business gifts of $25 (or less).
E)None of the above.
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Q1) In 2010,Michelle,single,paid $2,500 interest on a qualified student loan.Her MAGI was $65,000.She may deduct the $2,500 interest as a deduction for AGI.
A)True
B)False
Q2) Chad pays the medical expenses of his son,James.James would qualify as Chad's dependent except that he earns $7,500 during the year.Chad may not claim James' medical expenses because he is not a dependent.
A)True
B)False
Q3) In applying the percentage limitations,carryovers of charitable contributions must be claimed after contributions in the current year are considered (FIFO rule).
A)True
B)False
Q4) The reduced deduction election enables a taxpayer to move from the 30% of AGI limitation to the 50% of AGI limitation.
A)True
B)False
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Chapter 11: Investor Losses
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Sample Questions
Q1) Rachel acquired a passive activity several years ago.Until 2007,the activity was profitable,and Rachel's at-risk amount at the beginning of 2007 was $300,000.The activity produced losses for Rachel of $80,000 in 2007,$50,000 in 2008,and $70,000 in 2009.In 2010,the activity produced income of $90,000.How much is Rachel's suspended passive loss at the beginning of 2011?
A)$150,000.
B)$110,000.
C)$60,000.
D)$0.
E)None of the above.
Q2) All of a taxpayer's tax credits relating to a passive activity can be utilized when the activity is sold at a loss.
A)True
B)False
Q3) Explain how a taxpayer's at-risk amount in a business venture is adjusted periodically.
Q4) List the taxpayers that are subject to the passive loss rules and summarize the general impact of these rules on these taxpayers.
Q5) What special passive loss treatment is available to real estate activities?
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Chapter 12: Tax Credits and Payments
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Q1) Rick spends $600,000 to build a qualified low-income housing project,which is placed in service on January 1,2010.He financed the project using his personal funds.What is the amount of the low-income housing credit that Rick may claim in 2010 (assuming a rate of 7.65%)? What is the total amount of the credit that Rick may claim as a result of the $600,000 expenditure?
Q2) The maximum child tax credit under current law is $1,200 per qualifying child.
A)True
B)False
Q3) The American Opportunity credit is available per eligible student,while the lifetime learning credit is calculated per taxpayer.
A)True
B)False
Q4) The components of the general business credit include all of the following except:
A)Credit for employer-provided child care.
B)Disabled access credit.
C)Research activities credit.
D)Tax credit for rehabilitation expenditures.
E)All of the above are components of the general business credit.
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Page 14
Chapter 13: Part 1--Property Transactions: Determination of
Gain or Loss,basis Considerations,and Nontaxable Exchanges
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Sample Questions
Q1) Agnes,a calendar year taxpayer,lists her principal residence with a realtor on April 3,2010,enters into a contract to sell on May 28,2010,and sells (i.e. ,the closing date)the residence on June 30,2010.The realized gain on the sale is $212,000.Which date is the appropriate ending date in determining if the residence has been owned and used by the taxpayer as the principal residence for at least two years during the prior five-year period?
A)April 3,2010.
B)May 28,2010.
C)June 30,2010.
D)December 31,2010.
E)None of the above.
Q2) If a seller assumes the buyer's liability on the property acquired,the buyer's adjusted basis for the property is increased by the amount of the liability assumed.
A)True
B)False
Q3) In a nontaxable exchange,recognition is postponed.In a tax-free transaction,nonrecognition is permanent.
A)True
B)False
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Chapter 13:
Part 2--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges
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Q1) What effect does a deductible casualty loss have on the adjusted basis of property?
Q2) Discuss the logic for mandatory deferral of realized gain or loss for a § 1031 like-kind exchange.
Q3) What is the general formula for calculating the amount realized on the sale or other disposition of property?
Q4) Distinguish between a direct involuntary conversion and an indirect involuntary conversion.
Q5) Ollie owns a personal use car for which he originally paid $42,000.He trades the car in on a sports utility vehicle (SUV)paying the automobile dealer cash of $24,000.If the negotiated price of the SUV is $45,000,what is Ollie's recognized gain or loss and his adjusted basis for the SUV?
Q6) For gifts made after 1976,when will part of the gift tax paid by the donor be added to the donee's basis?
Q7) Walter acquired tax-exempt bonds for $330,000 in December 2010.The bonds,which mature in December 2015,have a maturity value of $300,000.Walter does not make any elections regarding the amortization of the bond premium.Determine the tax consequences to Walter when he redeems the bonds in December 2015.
Page 16
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Page 17
Chapter 14: Property Transactions: Capital Gains and Losses,1231,and
Recapure Provisions
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Q1) An individual taxpayer received a valuable painting from his uncle,a famous painter.The painter created the painting.After the taxpayer held the painting for two years,he sold it for a $400,000 gain.The gain is a long-term capital gain.
A)True
B)False
Q2) Karla owned an office building that had been held more than one year when it was sold for $567,000.The real estate had an adjusted basis of $45,000 for the land and $233,000 for the building.Straight-line depreciation of $162,000 had been taken on the building.What is the amount and initial character of the gain or loss from disposition of the real estate? Is any of the gain unrecaptured § 1250 (25%)gain?
Q3) Jon owned a rental building (but not the land)that was destroyed by a hurricane.The building was insured and Jon has a $56,000 gain because his insurance recovery exceeded his adjusted basis for the building.Jon does not intend to replace the building.Jon had taken $45,000 of depreciation on the building,has no § 1231 lookback loss,has no other § 1231 transactions for the year,and has no Schedule D transactions for the year.What is the final nature of Jon's gain for the year and what tax rate(s)apply to the gain?
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Page 18
Chapter 15: Alternative Minimum Tax
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Q1) Tad is a vice-president of Ruby Corporation.In 2010,he acquired 1,000 shares of Ruby Corporation stock under the corporation's incentive stock option (ISO)plan for an option price of $43 per share.At the date of exercise in 2010,the fair market value of the stock was $65 per share.The stock became freely transferable in 2011.Tad sold the 1,000 shares for $69 per share in 2012.Which of the following statements is incorrect?
A)Acquisition of the stock in 2010 had no effect on Tad's taxable income,but increased AMTI by $22,000 in 2010.
B)Tad's regular income tax basis for the stock is $43,000 and his AMT basis is $65,000 in 2011.
C)Tad must report a positive AMT adjustment of $22,000 in 2011.
D)Tad will have a negative AMT adjustment of $22,000 in 2012.
E)All of the above are correct.
Q2) The deduction for charitable contributions in calculating the regular income tax is not the same as that in calculating the AMT.
A)True
B)False
Q3) Why is there no AMT adjustment for charitable contributions?
Q4) Under what circumstances are corporations exempt from the AMT?
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Page 19
Chapter 16: Accounting Periods and Methods
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Q1) The Seagull Partnership has three equal partners.Partner A's tax year ends June 30th,and Partners B and C use a calendar year.If the partnership uses the calendar year to report its income,when Partner A files his tax return for his tax year ending June 30,2011,he will include his share of partnership income for the period July 1,2010 through June 30,2011.
A)True
B)False
Q2) Sandstone,Inc. ,has consistently included some factory overhead as a current expense,rather than as a cost of producing goods.As a result,the beginning inventory for 2010 is understated by $30,000.If Sandstone voluntarily changes accounting methods effective January 1,2010,the adjustment to the inventory is a § 481 adjustment and $7,500 must be added to taxable income for each year 2010,2011,2012,and 2013.
A)True
B)False
Q3) What incentives do the tax accounting rules provide for taxpayers to voluntarily change from an incorrect method of accounting that has reduced the company's tax liability in prior years?
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Page 20
Chapter 17: Corporations: Introduction and Operating Rules
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Q1) Peach Corporation had $210,000 of active income,$45,000 of portfolio income,and a $230,000 passive loss during the year.If Peach is a closely held C corporation that is not a PSC,it can deduct $210,000 of the passive loss in the year.
A)True
B)False
Q2) Geneva,a sole proprietor,sold one of her business assets for a $5,000 long-term capital gain.Geneva's marginal tax rate is 25%.Gulf,a C corporation,sold one of its assets for a $5,000 long-term capital gain.Gulf's marginal tax rate is 25%.What tax rates are applicable to these capital gains?
A)15% rate applies to both Geneva and Gulf.
B)15% rate applies to Geneva and 25% rate applies to Gulf.
C)15% rate applies to Gulf and 25% rate applies to Geneva.
D)25% rate applies to both Geneva and Gulf.
E)None of the above.
Q3) Macayo,Inc. ,received $800,000 life insurance proceeds on the death of its president.The $800,000 will be a subtraction item on Macayo's Schedule M-1.
A)True
B)False
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21
Chapter 18: Corporations: Organization and Capital Structure
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Q1) Kevin and Nicole form Indigo Corporation with the following transfers: inventory from Kevin (basis of $360,000 and fair market value of $400,000)and improved real estate from Nicole (basis of $320,000 and fair market value of $375,000).Nicole,an accountant,agrees to contribute her services (worth $25,000)in organizing Indigo.The corporation's stock is distributed equally to Kevin and Nicole.As a result of these transfers:
A)Indigo can deduct $25,000 as a business expense.
B)Nicole has a recognized gain of $55,000 on the transfer of the real estate.
C)Indigo has a basis of $360,000 in the inventory.
D)Indigo has a basis of $375,000 in the real estate.
E)None of the above.
Q2) The definition of property for purposes of § 351 includes unrealized receivables transferred by a cash basis taxpayer.
A)True
B)False
Q3) The transfer of an installment obligation in a transaction qualifying under § 351 is a disposition of the obligation that causes gain to be recognized by the transferor.
A)True
B)False
Page 22
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Chapter 19: Corporations: Distributions Not in Complete
Liquidation
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Q1) Pelican Corporation has E & P of $260,000.It distributes land with a fair market value of $80,000 (adjusted basis of $30,000)to its sole shareholder,Bernard.The land is subject to a liability of $45,000 that Bernard assumes.Bernard has a taxable dividend of:
A)$10,000.
B)$35,000.
C)$55,000.
D)$80,000.
E)None of the above.
Q2) Hawk Corporation has 300 shares of stock outstanding: Marina owns 60 shares,Kent owns 90 shares,and Tom owns 75 shares.Blackbird Partnership owns the remaining 75 shares of stock in Hawk Corporation.Marina,Kent,and Tom,all unrelated,are equal partners of Blackbird Partnership.With respect to the stock attribution rules under § 318:
A)Marina owns,directly and indirectly,85 shares in Hawk Corporation.
B)Tom owns,directly and indirectly,150 shares in Hawk Corporation.
C)Kent owns,directly and indirectly,90 shares in Hawk Corporation.
D)Blackbird Partnership owns,directly and indirectly,150 shares in Hawk Corporation.
E)None of the above.
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Page 23
Chapter 20: Distributions in Complete Liquidation and an
Overview of Reorganizations
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Q1) Section 332 will apply to a parent-subsidiary liquidation even if the subsidiary corporation is insolvent on the date of the liquidation.
A)True
B)False
Q2) All of the following statements are true about gains recognized in a corporate reorganization except:
A)Taxable amounts in a reorganization are classified as a dividend or capital gain.
B)Corporate shareholders would prefer taxable amounts in a reorganization be classified as a capital gain.
C)Individuals are taxed at the same rate for dividends and capital gains.
D)Capital gains and dividend income can be totally eliminated in a corporate reorganization with careful tax planning.
E)All of the above statements are true.
Q3) Debt security holders recognize gain when the principal amount of the securities received is greater than the principal amount given up.
A)True
B)False
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Page 24
Chapter 21: Partnerships
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Q1) Which of the following is not typically considered to be a "hot asset?"
A)Accounts receivable of a cash basis partnership.
B)Inventory with a basis of $10,000 and a fair market value of $15,000.
C)Depreciation recapture potential.
D)Stock held for investment.
E)Land held for development.
Q2) Roxanne contributes land to the newly formed RB Partnership in exchange for a 40% interest.The land has an adjusted basis and fair market value of $75,000 and is subject to a liability of $25,000,which the partnership assumes.None of this liability is repaid at year-end.At the end of the year,the partnership has trade accounts payable of $30,000.Assume all liabilities are allocated proportionately to the partners.Total partnership income for the year is $100,000.What is Roxanne's basis in her partnership interest at the end of the year?
Q3) In a proportionate nonliquidating distribution of a capital asset,the partner recognizes gain to the extent the fair market value of the asset exceeds the partnership's basis in the asset.
A)True
B)False
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25
Chapter 22: S Corporations
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Q1) Fred is the sole shareholder of an S corporation in Fort Deposit,Alabama.At a time when his stock basis is $10,000,the corporation distributes appreciated property worth $100,000 (basis of $10,000).There is no built-in gain.Fred's taxable gain is:
A)$0.
B)$10,000.
C)$90,000.
D)$100,000.
E)None of the above.
Q2) Explain how the domestic production activities deduction is used for an S corporation.
Q3) Which statement is incorrect with respect to filing for an S election?
A)Form 2553 must be filed.
B)All shareholders must consent.
C)The election may be filed in the previous year.
D)An extension of time is available for filing Form 2553.
E)None of the above are incorrect.
Q4) Form 1120S provides a shareholder's computation of his or her stock basis.
A)True
B)False
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Chapter 23: Exempt Entities
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Q1) Federal agencies exempt from Federal income tax under § 501(c)(1)are not subject to the unrelated business income tax (UBIT).
A)True
B)False
Q2) Which of the following taxes that are imposed on private foundations is,effectively,an audit fee to defray IRS expenses?
A)Tax on self-dealing.
B)Tax on failure to distribute income.
C)Tax on taxable expenditures.
D)Only a.and c.
E)None of the above.
Q3) The unrelated business income tax (UBIT)is designed to treat the entity as if it were subject to the corporate income tax,with the highest corporate tax rate (35%)applying.
A)True
B)False
Q4) Define average acquisition indebtedness with respect to debt-financed property.
Q5) A § 501(c)(3)organization exchanges its membership lists with another exempt organization.What are the Federal income tax consequences?
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Chapter 24: Multistate Corporate Taxation
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Q1) The ____________________ tax usually is applied at the city or county level,as its main source of revenue.
Q2) S corporations must withhold taxes on the portions of the entity's income allocated to its shareholders.
A)True
B)False
Q3) A state sales tax usually falls upon:
A)Sales of groceries.
B)Sales made to out-of-state customers.
C)Sales made to the U.S.Department of Education.
D)Sales made to the ultimate consumer of the product or service.
Q4) Under ____________________ a state is prohibited from taxing a business if the only connection with the state is the solicitation of orders for sales of tangible personal property that are sent outside the state for approval or rejection and,if approved,are filled and shipped by the business from a point outside of the state.
Q5) The sales/use tax that is employed by most U.S.states does not fall on all retail transactions.Identify at least five sales/use tax exemptions that states often allow,eliminating certain transactions from the tax base.
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Chapter 25: Taxation of International Transactions
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146 Verified Questions
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Sample
Questions
Q1) Rufus,Inc. ,a domestic corporation,has worldwide taxable income of $800,000,including a $300,000 dividend from Emma,Inc. ,a § 902 noncontrolled foreign corporation.Rufus' U.S.tax liability before FTC is $280,000.Rufus owns 20% of Emma.Emma's post-1986 E & P after taxes is $8 million and it has paid foreign taxes of $5 million attributable to post-1986 E & P.If Rufus elects the FTC,its U.S.gross income with regard to the dividend from Emma is:
A)$487,500.
B)$112,500.
C)$300,000.
D)$0.
Q2) Income tax treaties may provide for higher withholding tax rates on interest income than the rate provided under U.S.statutory law.
A)True
B)False
Q3) Interest paid to an unrelated party by a domestic corporation that historically earns 81% of its gross income each year from the conduct of an active trade or business outside the United States is foreign-source income.
A)True
B)False
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Page 29
Chapter 26: Tax Practice and Ethics
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Sample Questions
Q1) Identify a profile for a taxpayer who is more likely than the national average to be audited by the IRS.
Q2) A letter ruling is issued by the IRS at no charge.
A)True
B)False
Q3) Recently,the overall Federal income tax audit rate for individual returns has been about 3%.
A)True
B)False
Q4) IRS letter rulings seldom are revised or revoked.
A)True
B)False
Q5) Circular 230 requires that a tax preparer be aware of changes in the tax law.Furthermore,office practices of the preparer must be up to industry standards. A)True
B)False
Q6) A taxpayer can take a dispute to the Small Cases Division of the Tax Court when the disputed amounts do not exceed $____________________.
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Chapter 27: The Federal Gift and Estate Taxes
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Q1) The election of the alternate valuation date can affect the amount of a marital deduction allowed to an estate for a bequest to a surviving spouse.
A)True
B)False
Q2) Michael and Addison are married and have a 9-year old grandson,Braydon.They want to contribute to a § 529 plan on behalf of Braydon's education.For 2009,what is the maximum amount they can transfer to the plan without making a taxable gift?
Q3) For Federal estate tax purposes,the gross estate of a decedent may include property he or she does not own.
A)True
B)False
Q4) In the case of a transfer by gift,a QTIP election causes the property to be subject to the estate tax upon the death of the donee spouse.
A)True
B)False
Q5) For estate tax purposes,what is the difference between a surviving spouse's share of the community property and a dower (or courtesy)interest?
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Page 31
Chapter 28: Income Taxation of Trusts and Estates
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Q1) Trusts typically use a calendar tax year.
A)True
B)False
Q2) Trusts are created exclusively to reduce tax liabilities.
A)True
B)False
Q3) The fiduciary entity pays tax on the income that it retains and adds to corpus.
A)True
B)False
Q4) Estates and trusts can claim deductions for their costs incurred in maintaining investments in municipal bonds.
A)True
B)False
Q5) If provided for in the trust agreement,a trust might terminate when the income beneficiary reaches age 30.
A)True
B)False
Q6) Corpus,principal,and assets of the trust are synonyms.
A)True
B)False
Page 32
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