Partnership Taxation Exam Preparation Guide
Course Introduction
Partnership Taxation focuses on the federal income tax laws and regulations governing partnerships and their partners. The course examines the formation, operation, and dissolution of partnerships, addressing topics such as the allocation of income, deductions, and credits among partners; the tax consequences of contributions and distributions; the treatment of partnership liabilities; the transfer of partnership interests; and special issues like disguised sales and the partnership audit regime. Students will analyze Internal Revenue Code provisions, Treasury regulations, and key judicial decisions to understand both the theoretical framework and practical application of partnership taxation.
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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Q1) Federal excise tax is no longer imposed on wagering.
A)True
B)False
Answer: False
Q2) The Federal income tax is based on a pay-as-you-go system and has become a "mass tax." Explain this statement.
Answer: The pay-as-you-go system is present in the wage and other withholding procedures.In the case of self-employed persons,it is manifested in the required quarterly payments for estimated taxes.The income tax became a mass tax during World War II when its coverage was extended to 74% of the population (from less than 6% in 1939).
Q3) Which,if any,of the following provisions cannot be justified as mitigating the effect of the annual accounting period concept?
A)Nonrecognition of gain allowed for involuntary conversions.
B)Net operating loss carryback and carryover provisions.
C)Carry over of excess charitable contributions.
D)Use of the installment method to recognize gain.
E)Carry over of excess capital losses.
Answer: A
Page 3
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Chapter 2: Working With the Tax Law
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Q1) Compare a determination letter with a letter ruling.
Answer: Like letter rulings,determination letters are issued at the request of taxpayers and provide guidance on the tax law.Determination letters differ from letter rulings in that the issuing source of a determination letter is the Area Director rather than the National Office of the IRS.Also,determination letters usually involve completed (as opposed to proposed)transactions.Determination letters are not published and are made known only to the party making the request.
Q2) A taxpayer who loses in a U.S.District Court may appeal directly to the:
A)Supreme Court.
B)U.S.Tax Court.
C)U.S.Court of Federal Claims.
D)U.S.Circuit Court of Appeals.
E)All of the above.
Answer: D
Q3) A Revenue Procedure is an administrative source of Federal tax law.
A)True
B)False
Answer: True
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Chapter 3: Computing the Tax
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Q1) Kyle,whose wife died in December 2007,filed a joint tax return for 2007.He did not remarry,but has continued to maintain his home in which his two dependent children live.What is Kyle's filing status as to 2010?
A)Head of household.
B)Surviving spouse.
C)Single.
D)Married filing separately.
E)None of the above.
Answer: A
Q2) Currently,the top Federal income tax rate in effect is the highest it has ever been.
A)True
B)False
Answer: False
Q3) A child who has unearned income of $1,900 or less cannot be subject to the kiddie tax.
A)True
B)False
Answer: True
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Chapter 4: Gross Income: Concepts and Inclusions
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Q1) The annual increase in the cash surrender value of a life insurance policy:
A)Is taxed according to the original issue discount rules.
B)Is not included in gross income because the policy must be surrendered to receive the cash surrender value.
C)Reduces the deduction for life insurance expense.
D)Is exempt because it is life insurance proceeds.
E)None of the above.
Q2) Rachel owns rental properties.When Rachel rents to a new tenant,she usually requires the tenant to pay an amount in addition to the first month's rent.The additional amount serves as security for damages to the property and the tenant's failure to pay future rents.How should the payments be characterized (e.g. ,on lease documents)to minimize Rachel's current tax liability?
Q3) Under the formula for taxing Social Security benefits,low income taxpayers are not required to include any of the Social Security benefits in gross income.But as income increases,50% of the Social Security benefits may be included in gross income.Further increases in income will cause as much as 85% of the Social Security benefits being subject to tax.Does this mean that the taxation of Social Security benefits is more or less progressive than the taxation of other types of income?
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Chapter 5: Gross Income: Exclusions
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Q1) Chris was hospitalized for stomach problems.While he was away from the job,he collected his regular salary from an employer-sponsored income protection insurance policy.Chris's employer-sponsored hospitalization insurance policy also paid for all of his medical expenses.Chris also collected on an income protection policy that he purchased.Which of the above sources of income are taxable? Explain the basis for excluding any item or items.
Q2) The taxpayer is a Ph.D.student in accounting at State University.The student is paid $1,000 per month for teaching two classes.The total amount received for the year is $9,000.
A)The $9,000 is excludible if the money is used to pay for tuition and books.
B)The $9,000 is taxable compensation.
C)The $9,000 is considered a scholarship and,therefore,is excluded.
D)The $9,000 is excluded because the total amount received for the year is less than her standard deduction and personal exemption.
E)None of the above.
Q3) Describe a situation under which a company would decide a cafeteria plan would be advantageous for its employees.
Q4) What Federal income tax benefits are provided for college students?
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Page 7
Chapter 6: Deductions and Losses: in General
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Q1) Generally,a closely-held family corporation is not permitted to take a deduction for a salary paid to a family member in calculating corporate taxable income.
A)True
B)False
Q2) Which of the following cannot be deducted as a § 162 business expense?
A)Expenses of investing in stocks and bonds.
B)Charitable contributions made by a sole proprietorship.
C)Fines and penalties.
D)Only a.and c.cannot.
E)a. ,b. ,and c.cannot.
Q3) In January,Lance sold stock with a cost basis of $26,000 to his brother,James,for $24,000,the fair market value of the stock on the date of sale.Five months later,James sold the same stock through his broker for $27,000.What is the tax effect of these transactions?
A)Disallowed loss to James of $2,000;gain to Lance of $1,000.
B)Disallowed loss to Lance of $2,000;gain to James of $3,000.
C)Deductible loss to Lance of $2,000;gain to James of $3,000.
D)Disallowed loss to Lance of $2,000;gain to James of $1,000.
E)None of the above.
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Page 8
Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Q1) A bona fide debt arises from a debtor-creditor relationship based on a valid and enforceable obligation to pay a fixed sum of money.
A)True
B)False
Q2) Accrual basis taxpayers can use the reserve method for computing deductions for bad debts.
A)True
B)False
Q3) On February 20,2009,Bill purchased stock in Pink Corporation (the stock is not small business stock)for $1,000.On May 1,2010,the stock became worthless.During 2010,Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago,a $9,000 loss on a nonbusiness bad debt,and a $5,000 long-term capital gain.How should Bill treat these items on his 2010 tax return?
A)$4,000 long-term capital loss and $9,000 short-term capital loss.
B)$4,000 long-term capital loss and $3,000 short-term capital loss.
C)$8,000 ordinary loss and $3,000 short-term capital loss.
D)$8,000 ordinary loss and $5,000 short-term capital loss.
E)$8,000 long-term capital loss and $6,000 short-term capital loss.
Q4) Why was the domestic production activities deduction (DPAD)enacted by Congress?
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Chapter 8: Depreciation,cost Recovery,amortization,and Depletion
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Q1) Discuss the effect on the cost recovery method of a taxpayer election if the uniform capitalization rules apply to a farming business.
Q2) Jim acquires a new seven-year class asset on September 20,2010,for $60,000.He placed the asset in service on October 5,2010.He does not elect to expense any of the asset under § 179 or elect straight-line cost recovery.If Congress reenacts additional first-year depreciation for 2010,he elects not to take additional first-year depreciation.He sells the asset on August 25,2011.This is the only asset he acquires in 2010.Determine Jim's cost recovery in 2010 and 2011.
Q3) For real property,the ADS convention is the mid-month convention.
A)True
B)False
Q4) The basis of cost recovery property must be reduced by the cost recovery allowed. A)True B)False
Q5) If 150% declining-balance is used,there is no straight-line switchover. A)True B)False
Page 10
Q6) Discuss the reason for the inclusion amount with respect to leased automobiles.
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Q1) Bill is the regional manager for a national chain of auto-parts stores and is based in Salt Lake City.When the company opens new stores in Boise,Bill is given the task of supervising their initial operation.For three months,he works weekdays in Boise and returns home on weekends.He spends $410 returning to Salt Lake City but would have spent $390 had he stayed in Boise for the weekend.As to the weekend trips,how much,if any,qualifies as a deduction?
A)$0,since the trips are personal and not work related.
B)$0,since Bill's tax home has changed from Salt Lake City to Boise.
C)$390.
D)$410.
E)None of the above.
Q2) In the case of an office in the home deduction,the exclusive business use test does not apply when the home is used as a daycare center.
A)True
B)False
Q3) Meg teaches the fifth grade at a local school.During 2010,she spends $1,200 for school supplies for use in her classroom.On her income tax return for 2010,some of this expense is not reported and the balance is deducted in two different places.Explain what has probably happened.
Page 11
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Q1) For all of the current year,Randy (a calendar year taxpayer)allowed the Salvation Army to use a building he owns rent-free.The building normally rents for $24,000 a year.Randy will be allowed a charitable contribution deduction this year of $24,000.
A)True
B)False
Q2) Victor sold his personal residence to Colleen and paid real estate taxes of $9,450 for the year,$3,250 of which was apportioned to Colleen based on the period she owned the property during the year.What are the income tax consequences to each party?
Q3) Linda borrowed $60,000 from her parents for a down payment on a condominium.She paid interest of $5,500 in 2008,$0 in 2009,and $9,000 in 2010.The IRS disallowed the deduction.Can you offer any explanation for the disallowance?
Q4) On December 23,2010,Megan used her credit card to make a $750 contribution to the United Way,a qualified charitable organization.She will pay her credit card balance in January 2011.If Megan itemizes,she cannot deduct the $750 in 2010.
A)True
B)False
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Page 12
Chapter 11: Investor Losses
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Q1) Ned,a college professor,owns a separate business (not real estate)in which he participates in the current year.He has one employee who works part-time in the business.
A)If Ned participates for 120 hours and the employee participates for 120 hours during the year,Ned does not qualify as a material participant.
B)If Ned participates for 95 hours and the employee participates for 5 hours during the year,Ned probably does not qualify as material participant.
C)If Ned participates for 500 hours and the employee participates for 520 hours during the year,Ned qualifies as material participant.
D)If Ned participates for 600 hours and the employee participates for 2,000 hours during the year,Ned qualifies as a material participant.
E)None of the above.
Q2) Services performed by an employee are treated as being related to a real estate trade or business if the employee performing the services has more than a 5% ownership interest in the employer.
A)True
B)False
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Page 13
Chapter 12: Tax Credits and Payments
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Q1) Unless a taxpayer is disabled,the tax credit for the elderly or disabled is available only if the taxpayer is at least 59 1/2 years old.
A)True
B)False
Q2) John owns and operates a real estate agency as a sole proprietor.On a full-time basis,he employs his 17-year old daughter as a receptionist and his 22-year old son as a bookkeeper.Only the son is subject to FICA withholding.
A)True
B)False
Q3) In May 2006,Alma incurred qualifying rehabilitation expenditures of $400,000 on a certified historic structure and properly claimed the tax credit for rehabilitation expenditures.In March 2010,she sold the building at a loss.Calculate the rehabilitation expenditures credit recapture that she must report in 2010.
Q4) Discuss the treatment of unused general business credits.
Q5) Child and dependent care expenses include amounts paid for general household services.
A)True
B)False
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Chapter 13: Part 1--Property Transactions: Determination of
Gain or Loss,basis Considerations,and Nontaxable Exchanges
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Q1) Expenditures made for ordinary repairs and maintenance of property are not added to the original basis in the determination of the property's adjusted basis whereas capital expenditures are added to the original basis.
A)True
B)False
Q2) Sandra's automobile,which is used exclusively in her trade or business,was damaged in an accident.The adjusted basis prior to the accident was $11,000.The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000.Insurance proceeds of $3,200 are received.What is Sandra's adjusted basis for the automobile after the casualty?
A)$0.
B)$7,000.
C)$7,800.
D)$10,200.
E)None of the above.
Q3) Purchased goodwill is assigned a basis,but developed or self-created goodwill is not assigned a basis.
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) For gifts made after 1976,when will part of the gift tax paid by the donor be added to the donee's basis?
Q2) Under what circumstance is there recognition of some or all of the realized gain associated with the giving of boot by the taxpayer in a like-kind exchange?
Q3) Albert,age 57,leased a house for one year in Denver with an option to buy as his personal residence.At the end of the lease,he purchased the house.He lived there for an additional 25 months before his employer transferred him to Tucson.Expecting to be in Tucson for 18 to 24 months,he rented the Denver house for 18 months with an option to extend on a month to month basis for an additional 6 months.At the end of the 18-month period,Albert's employer offered him a permanent position in Tucson as branch manager.The tenant who had been occupying Albert's house in Denver purchased it at the end of the 24-month extended lease period.Is Albert eligible to elect exclusion treatment under § 121?
Q4) Discuss the relationship between realized gain and boot received in a § 1031 like-kind exchange.
Q5) Distinguish between a direct involuntary conversion and an indirect involuntary conversion.
Q6) Discuss the treatment of losses from involuntary conversions. Page 16
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Chapter 14: Property Transactions: Capital Gains and Losses,1231,and
Recapure Provisions
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Q1) A business taxpayer sells depreciable business property with an adjusted basis of $40,000 for $32,000.The taxpayer held the property for more than a year.The taxpayer has an $8,000 long-term capital loss.
A)True
B)False
Q2) All collectibles gain is subject to a potential alternative tax rate of 28%.
A)True
B)False
Q3) The holding period of property given up in a like-kind exchange includes the holding period of the asset received if the property that has been exchanged is a capital asset.
A)True
B)False
Q4) A net short-term capital loss first offsets any 28% net long-term capital gain before it offsets either 25% net long-term capital gain or 0%/15% net long-term capital gain. A)True
B)False
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18
Chapter 15: Alternative Minimum Tax
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Q1) The AMT can be calculated using either the direct or the indirect approaches.The tax law uses the indirect approach while the tax forms use the direct approach.
A)True
B)False
Q2) If all long-term contracts are accounted for under the percentage of completion method for regular income tax purposes,no adjustment is required for AMT purposes.
A)True
B)False
Q3) How can interest on a private activity bond issued in 2008 result in both an AMT adjustment that decreases AMTI and an AMT preference that increases AMTI?
Q4) Joel placed real property in service in 2010 that cost $500,000 and used MACRS for regular income tax purposes.He is required to make a positive adjustment for AMT purposes in 2010.
A)True
B)False
Q5) What is the relationship between the regular income tax liability and the tentative AMT?
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Chapter 16: Accounting Periods and Methods
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Q1) In 2003,a medical doctor who incorporated his practice elected a fiscal year ending September 30th.During the fiscal year ended September 30,2010,he received a salary of $180,000.During the period from October 1,2010 to December 31,2010 the corporation paid the doctor a total salary of $40,000,and paid him $200,000 of salary in the following 9 months.The corporation's salary deduction for the fiscal year ending September 30,2011,is $240,000.
A)True
B)False
Q2) Father sold land to Son for $150,000 in 2010.Father's basis in the land was $60,000.Son paid Father $25,000 and gave Father a note for $125,000 due in 2013.In 2011,Son sold the land for $200,000 cash.The note bore interest at the appropriate Federal rate and both Father and Son held the land as an investment.
A)Father must recognize $90,000 of income in 2010.
B)Father must recognize a $75,000 gain in 2011.
C)Father's gain is all ordinary income.
D)Son is not permitted to use the installment method to report his gain.
E)None of the above.
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Page 20
Chapter 17: Corporations: Introduction and Operating Rules
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Q1) George Judson is the sole shareholder and employee of Black Corporation,a C corporation that is engaged exclusively in engineering services.During the year,Black has gross revenues of $300,000 and operating expenses (excluding salary)of $100,000.Further,Black Corporation pays George a salary of $150,000.The salary is reasonable in amount and George is in the 35% marginal tax bracket irrespective of any income from Black.Assuming that Black Corporation distributes all after-tax income as dividends,how much total combined income tax do Black and George pay in the current year? (Ignore any employment tax considerations. )
A)$64,875.
B)$70,000.
C)$74,875.
D)$81,375.
E)None of the above.
Q2) Bass Corporation received a dividend of $100,000 from Trout Corporation.Bass owns 25% of the Trout Corporation stock.Assuming it is not subject to the taxable income limitation,Bass's dividends received deduction is $80,000.
A)True
B)False
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Page 21
Chapter 18: Corporations: Organization and Capital Structure
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Q1) In order to induce Parakeet Corporation to build a new manufacturing facility in Oxford,Mississippi,the city donates land (fair market value of $250,000)and cash of $50,000 to the corporation.Within several months of the donation,Parakeet Corporation spends $350,000 (which includes the $50,000 received from Oxford)on the construction of a new plant located on the donated land.
A)Parakeet recognizes income of $50,000 as to the donation.
B)Parakeet has a zero basis in the land and a basis of $350,000 in the plant.
C)Parakeet recognizes income of $300,000 as to the donation.
D)Parakeet has a zero basis in the land and a basis of $300,000 in the plant.
E)None of the above.
Q2) Three individuals form Skylark Corporation with the following contributions: Cliff,cash of $50,000 for 50 shares;Brad,land (fair market value of $20,000)for 20 shares;and Ron,cattle (fair market value of $9,000)for 9 shares and services (fair market value of $21,000)for 21 shares.Section 351 will not apply in this situation because the control requirement has not been satisfied.
A)True
B)False
Q3) What is the rationale underlying the tax deferral treatment available under § 351?
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Chapter 19: Corporations: Distributions Not in Complete Liquidation
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Q1) Navy Corporation makes a property distribution to its sole shareholder,Troy.The property distributed is a car (fair market value of $10,000;basis of $15,000)that is subject to a $2,000 liability which Troy assumes.Navy makes no other distributions during the current year.Navy has no accumulated E & P and $15,000 of current E & P from other sources during the year.What is Navy's E & P after taking into account the distribution of the car?
A)$2,000.
B)$3,000.
C)$5,000.
D)$7,000.
E)None of the above.
Q2) What are the tax consequences of a qualifying stock redemption to the distributing corporation?
Q3) When computing current E & P,taxable income is not adjusted for the deferred gain in a § 1033 involuntary conversion.
A)True
B)False
Q4) Explain the requirements for waiving the family attribution rules in the case of complete termination redemptions.
Page 23
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Chapter 20: Distributions in Complete Liquidation and an
Overview of Reorganizations
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Q1) In corporate reorganizations in which the target receives property other than stock,gains but not losses can be recognized.
A)True
B)False
Q2) 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
Q3) 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.
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Page 24
Chapter 21: Partnerships
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Q1) Denise invested $30,000 this year to purchase a 20% interest in the DEF Partnership.The partnership reported $100,000 of net income from operations,a $6,000 short-term capital loss,and a $2,000 charitable contribution.In addition,the partnership distributed $10,000 to Denise and $20,000 each to partners Ed and Fran.Assuming the partnership has no beginning or ending liabilities,what is Denise's basis in her partnership interest at the end of the year?
Q2) Which of the following statements,if any,about an LLC is false?
A)An LLC is usually taxed like a partnership.
B)"Members" of an LLC generally have limited personal liability for debts of the LLC.
C)"Members" of an LLC can participate in management of the LLC unless the member agrees not to participate.
D)An LLC can specially allocate income items,as long as the substantial economic effect rules of § 704(b)are followed.
E)None of the above statements is false.
Q3) A distribution from a partnership to a partner is not generally taxable to the partner.
A)True B)False
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Page 25
Chapter 22: S Corporations
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Q1) On December 31,2009,Erica Sumners owns one share of an S corporation's 10 outstanding shares of stock.The basis of Erica's share is $300.During 2010,the S corporation has no income or deductions,but incurs a loss of $3,650.Using the separate-share approach,determine the amount of the loss allocated to Erica and calculate her stock basis in 2010.
Q2) Depletion in excess of basis in property causes a(n)____________________ adjustment to an S shareholder's basis.
Q3) On January 2,2009,David loans his S corporation $10,000,and by the end of 2009 David's stock basis is zero and the basis in his note has been reduced to $8,000.During 2010,the company's operating income is $10,000.The company also makes distributions to David of $11,000.Which statement is correct?
A)$1,000 LTCG.
B)$3,000 LTCG.
C)$11,000 LTCG.
D)Loan basis is $10,000.
E)None of the above statements is correct.
Q4) Explain how the domestic production activities deduction is used for an S corporation.
Q5) The corporate ____________________ tax is avoided in an S corporation.
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Chapter 23: Exempt Entities
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Q1) Acquisition indebtedness consists of the unpaid amounts of which of the following for debt-financed property?
A)Debt incurred in acquiring or improving the property.
B)Debt incurred to enable the organization to carry out its exempt purpose.
C)Debt incurred to enable the exempt organization to acquire a feeder organization.
D)Only a.and b.
E)a. ,b. ,and c.
Q2) A profit-related activity of an exempt organization avoids the unrelated business income tax if greater than 50% of the merchandise sold had been received as a contribution.
A)True
B)False
Q3) If personal property is leased with real property and more than 50% of the rent income under the lease is from personal property,all of the rent income is subject to the unrelated business income tax.
A)True
B)False
Q4) Identify the components of the tax model for unrelated business taxable income.
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Chapter 24: Multistate Corporate Taxation
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Q1) Which of the following is not immune from state income taxation,even if P.L.86-272 is in effect?
A)Sale of a share of corporate stock.
B)Sale of office equipment that constitutes inventory to the purchaser.
C)Sale of office equipment to be used in the taxpayer's business.
D)All of the above are protected by P.L.86-272 immunity provisions.
Q2) Identify some state/local income tax issues facing pass-through entities such as S corporations,partnerships,and LLCs.
Q3) The sale of a used auto probably is exempt from sales/use tax under the _________________________ rule.
Q4) A(n)____________________ business operates its separate companies as a whole.It cannot be segregated into independently operating divisions or branches.
Q5) The corporate income tax provides about one-half of the annual tax revenues for the typical U.S.state.
A)True
B)False
Q6) A state sales tax is designed to be collected by the ____________________ (seller/purchaser)of the product and then remitted to the state.
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Chapter 25: Taxation of International Transactions
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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) Monika,a nonresident alien,is employed by GlobalCo,a foreign corporation.Monika works in the United States for 32 days during the year,receiving a gross salary of $2,900 for this period.GlobalCo is not engaged in a U.S.trade or business.Under the "commercial traveler" exception,the $2,900 is not classified as U.S.-source income.
A)True
B)False
Q3) Discuss the primary purposes of income tax treaties.
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Chapter 26: Tax Practice and Ethics
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Q1) IRS letter rulings seldom are revised or revoked.
A)True
B)False
Q2) Compute the failure to pay and failure to file penalties for John,who filed his 2009 income tax return on December 17,2010,paying the $10,000 amount due.On April 1,2010,the IRS approved John's six-month extension of time in which to file his return;he paid no tax with the extension request.He has no reasonable cause for failing to file his return by October 15 or for failing to pay the tax that was due on April 15,2010.John's failure to comply with the tax laws was not fraudulent.
Q3) The rules of Circular 230 need not be followed by:
A)An attorney.
B)A CPA.
C)A Wal-Mart cashier who e-files 15 tax returns for her paying clients per filing season.
D)An enrolled agent.
E)All of the above are subject to the Circular 230 rules.
Q4) Carole,a CPA,feels that she cannot act as an aggressive advocate for tax clients in today's environment.What aspects of the ethical conduct of a tax practice might have influenced Carole's attitude?
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Chapter 27: The Federal Gift and Estate Taxes
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Q1) Under the alternate valuation date election,each asset in the gross estate is valued at the lesser of the date of death value or six months thereafter.
A)True
B)False
Q2) Frank owns an insurance policy on the life of Cynthia,with Leon as the designated beneficiary.Upon Cynthia's prior death,Frank is treated as making a gift of the insurance proceeds to Leon.
A)True
B)False
Q3) In which of the following situations has a gift occurred?
A)Heidi creates a trust,income payable to herself,remainder to her children.
B)Herman establishes a joint savings account with his sister.
C)After Herman's death,his sister withdraws the funds he placed in their joint savings account.
D)The day before their marriage,Eva gives Arlan $500,000 in securities.
E)Choices a.and d.but not b.and c.
Q4) What is the justification for the terminable interest rule that is applicable to the marital deduction?
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Chapter 28: Income Taxation of Trusts and Estates
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Q1) The Roz Trust has distributable net income for the year of $100,000 and no income from tax-exempt sources.Under the terms of the trust instrument,the trustee must distribute $30,000 to Roger and $30,000 to Sally.After payment of these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the trustee distributes an additional $40,000 to Roger and $40,000 to Sally.How much income from the trust must Sally recognize?
A)$90,000.
B)$60,000.
C)$50,000.
D)$40,000.
Q2) Corpus,principal,and assets of the trust are synonyms.
A)True
B)False
Q3) Harry,the sole income beneficiary,received a $40,000 distribution from the Lucy Trust,in a year when the trust's distributable net income was $30,000.Harry's AGI can increase by as much as $40,000.
A)True
B)False
Q4) How does the alternative minimum tax affect fiduciary entities?
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