Partnership Taxation
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Course Introduction
Partnership Taxation explores the federal income tax laws and regulations governing partnerships and limited liability companies treated as partnerships for tax purposes. The course covers topics such as the formation and operation of partnerships, allocation of income, deductions, and credits among partners, basis adjustments, transactions between partners and the partnership, distributions, sales of partnership interests, and the taxation consequences of terminating or liquidating a partnership. Students will examine key provisions of Subchapter K of the Internal Revenue Code, develop an understanding of both the practical and theoretical aspects of partnership taxation, and analyze real-world problems to apply complex tax rules to various partnership scenarios.
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South Western Federal Taxation 2011 Corporations Partnerships Estates and T
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Chapter 1: Understanding and Working With the Federal Tax Law
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Q1) The adoption tax credit can be explained by social considerations.
A)True
B)False Answer: True
Q2) Stare decisis applies to Small Cases Division decisions.
A)True
B)False
Answer: False
Q3) A district court must abide by the precedents set by the court of appeals of jurisdiction.
A)True
B)False
Answer: True
Q4) An international treaty takes precedence over a provision in the Internal Revenue Code.
A)True
B)False Answer: False
Q5) What are the key components of tax planning?
Answer: 11ea8edf_2da8_0a98_9698_4be087005b07_TB4125_00
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Chapter 2: Corporations: Introduction and Operating Rules
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Q1) Fender Corporation was organized in 2008 and had profits in 2008 and 2009.The corporation had an NOL in 2010.The corporation should elect to forgo carrying the NOL back:
A)If it cannot accurately predict future tax rates.
B)If tax rates in the preceding years were high and if lower tax rates are expected in the future.
C)If all of the NOL cannot be used in the carryback years.
D)If tax rates in the preceding years were low and if higher tax rates are expected in the future.
E)None of the above.
Answer: D
Q2) Generally,corporations with no taxable income must file a Form 1120.
A)True
B)False Answer: True
Q3) A personal service corporation with taxable income of $150,000 will have a tax liability of $52,500.
A)True
B)False Answer: True
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Chapter 3: Corporations: Special Situations
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Q1) DPAD for 2010 is 9% of the greater of QPAI or TI,but not to exceed the W-2 wages limitation.
A)True
B)False
Answer: False
Q2) The exemption amount is phased out entirely when AMTI reaches:
A)$40,000.
B)$310,000.
C)$1,000,000.
D)$5,000,000.
E)Some other amount.
Answer: B
Q3) Which of the following items will have an effect (add or subtract)on unadjusted AMTI to arrive at ACE?
A)Federal income tax.
B)Dividends received deduction.
C)Excess capital losses.
D)Tax-exempt interest income.
E)None of the above.
Answer: D
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Chapter 4: Corporations: Organization and Capital Structure
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Q1) Similar to the like-kind exchange provision,§ 351 can be partly justified under the wherewithal to pay concept.
A)True
B)False
Q2) Adam transfers cash of $300,000 and land worth $200,000 to Camel Corporation for 100% of the stock in Camel.In the first year of operation,Camel has net taxable income of $70,000.If Camel distributes $50,000 to Adam:
A)Adam has taxable income of $50,000.
B)Camel Corporation has a tax deduction of $50,000.
C)Adam has no taxable income from the distribution.
D)Camel Corporation reduces its basis in the land to $150,000.
E)None of the above.
Q3) Penny,Miesha,and Sabrina transfer property to Owl Corporation for 75% of its stock.Nancy,their attorney,receives 25% of the stock in Owl for legal services rendered in incorporating the business.What are the tax consequences of these transactions? How should this be handled?
Q4) If a corporation is thinly capitalized,all debt is reclassified as equity.
A)True B)False
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Chapter 5: Corporations: Earnings Profits and Dividend
Distributions
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Q1) Stephanie is the sole shareholder and president of Hawk Corporation.She feels that she can justify at least a $220,000 bonus this year because of her performance.However,rather than a bonus in the form of a salary,she plans to have Hawk pay her a $220,000 dividend.She believes this is preferable because it will be taxed at only 15% (her marginal rate is 39.6%).Her accountant,however,suggests a $310,000 bonus in lieu of the $220,000 dividend since Hawk Corporation is in the 34% tax bracket.Should Stephanie take the $220,000 dividend or the $310,000 bonus? Support your answer by computing the after-tax cost of the two alternatives to Hawk and to Stephanie.
Q2) Property distributed by a corporation as a dividend is subject to a liability in excess of its basis.For purposes of determining gain on the distribution,the basis of the property is treated as being not less than the amount of liability.
A)True
B)False
Q3) The amount of dividend income recognized by a shareholder from a property distribution is always reduced by the amount of liabilities assumed by the shareholder.
A)True
B)False
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Chapter 6: Corporations: Redemptions and Liquidations
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Q1) Explain the requirements for waiving the family attribution rules in the case of complete termination redemptions.
Q2) If a liquidation qualifies under § 332,any minority shareholder will recognize gain (but not loss)equal to the difference between the fair market value of assets received and the basis of the shareholder's stock.
A)True
B)False
Q3) If a parent corporation makes a § 338 election,the subsidiary corporation need not be liquidated.
A)True
B)False
Q4) In applying the stock attribution rules to a stock redemption,stock owned by a 50% or more shareholder of a corporation is deemed to be owned in full by the corporation. A)True
B)False
Q5) Describe the requirements for and tax consequences of a § 338 election.
Q6) What are the tax consequences of a qualifying stock redemption to the distributing corporation?
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Chapter 7: Corporations: Reorganizations
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Q1) A shareholder bought 2,000 shares of Zee Corporation for $90,000 several years ago.When the stock is valued at $200,000,Zee redeems these shares in exchange for 6,000 shares of Yea Corporation stock.This transaction meets the requirements of § 368.Which of the following statements is true with regard to this transaction?
A)The shareholder has a recognized gain of $110,000.
B)The shareholder has a postponed gain of $110,000.
C)The shareholder has a basis in the Yea stock of $200,000.
D)Gain or loss cannot be determined because the value of the Yea stock is not given.
E)None of the above are true.
Q2) The divisive "Type D" reorganization requires that acquiring corporation form a subsidiary to receive all or part of target corporation's assets in exchange for stock.After the transaction,a parent-subsidiary controlled group exists.
A)True
B)False
Q3) Discuss the judicial doctrines of sound business purpose,continuity of interest,and the step transaction as they relate to tax-free corporate reorganizations.
Q4) Define the different divisive "Type D" reorganizations.
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Chapter 8: Consolidated Tax Returns
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Q1) Sub sells an asset to Parent at a realized loss.That loss is not recognized by the group in the year of the sale,because of the:
A)Matching rule.
B)Acceleration rule.
C)Transfer pricing rules.
D)Wash sale rule.
E)None of the above.The group deducts the loss.
Q2) The Harris consolidated group reports a net operating loss (NOL)for the year.The tax law works to:
A)Keep the consolidated group from benefiting when the election to consolidate is motivated chiefly by tax reduction strategies.
B)Disallow any carrybacks of NOL deductions.
C)Allow unused charitable contributions a 20-year carryforward.
D)All of the above statements describe effects of the consolidated return rules.
Q3) What tax accounting period and methods must be used by the members of a Federal consolidated group?
Q4) List three "intercompany transactions" of a Federal consolidated income tax group.ParentCo owns all of the stock of both SubOne and SubTwo.
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Chapter 9: Taxation of International Transactions
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Q1) USCo,a domestic corporation,receives $100,000 of foreign-source income in the general limitation income category and $40,000 of foreign-source income in the passive income category.Worldwide taxable income is $1,200,000 and the U.S.tax liability before FTC is $420,000.Foreign taxes attributable to the general limitation income are $60,000 and to the passive income are $4,000.What is USCo's foreign tax credit for the tax year?
A)$39,000.
B)$64,000.
C)$60,000.
D)$4,000.
E)Some other amount.
Q2) U.S.individuals that receive dividends from foreign corporations may not claim the deemed-paid foreign tax credit related to such dividends.
A)True
B)False
Q3) A nonresident alien is defined as someone who is not a citizen or resident of the U.S.
A)True B)False
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Chapter 10: Partnerships: Formation, operation, and Basis
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Q1) Schedule K of Form 1065 reports the separately stated items of a partnership.
A)True
B)False
Q2) When property is contributed to a partnership for a capital and profits interest,the holding period of the contributing partner's interest:
A)May include the holding period of the contributed property.
B)Always starts the day after the contribution date.
C)Always starts the day the property was contributed.
D)Never includes the holding period of the contributed property.
E)None of the above.
Q3) Morgan and Kristen formed an equal partnership on August 1 of the current year.Morgan contributed $60,000 cash and land with a basis of $18,000 and a fair market value of $40,000.Kristen contributed equipment with a basis of $42,000 and a value of $100,000.Kristen's tax basis in her interest is $42,000;Morgan's tax basis is $78,000.
A)True
B)False
Q4) The "inside basis" is defined as a partner's basis in the partnership interest. A)True
B)False
Page 12
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Chapter 11: Partnerships: Distributions, transfer of Interests, and Terminations
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Q1) The ABC Partnership makes a proportionate distribution of its assets to Charles,in complete liquidation of his partnership interest.The distribution consists of $30,000 in cash and capital assets with a basis to the partnership of $20,000 and a fair market value of $28,000.None of the payment is for partnership goodwill.At the time of the distribution,Charles's partnership basis is $42,000 and the partnership has no liabilities and no "hot assets." If the partnership makes an optional basis adjustment election on a timely filed return,it recognizes:
A)Capital gain of $16,000 and increases the basis of its remaining assets by $8,000.
B)Capital loss of $8,000 and decreases the basis of its remaining assets by $16,000.
C)No gain or loss and increases the basis of its remaining assets by $8,000.
D)No gain or loss and decreases the basis of its remaining assets by $16,000.
E)None of the above.
Q2) A disproportionate distribution arises when the partnership distributes a share of partnership hot assets to one or more partners that is not the same as the partner's ownership interest in the partnership.
A)True
B)False
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Chapter 12: S Corporations
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Q1) An S shareholder's basis is decreased by distributions treated as being paid from AAA.
A)True
B)False
Q2) Explain how the domestic production activities deduction is used for an S corporation.
Q3) Passive investment income includes gains from the sale of securities.
A)True
B)False
Q4) A C corporation elects S status.The corporation may be subject to a built-in gains tax on which of the following assets?
A)Securities held for investment.
B)Goodwill.
C)Accounts receivables.
D)Investment land.
E)All of the above.
Q5) An S corporation is entitled to a deduction for its NOL carryovers.
A)True
B)False
Q6) Explain the OAA concept in S corporation taxation.
Page 14
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Chapter 13: Comparative Forms of Doing Business
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Q1) Walter wants to sell his wholly-owned C corporation,Cream,Inc.The fair market value of his stock exceeds the corporation's adjusted basis for the assets.Should Walter sell his stock or have Cream sell its assets and make a liquidating distribution to him?
Q2) A corporation cannot avoid the accumulated earnings tax by demonstrating that it plans to distribute earnings at a later date.
A)True
B)False
Q3) Both S corporations and C corporations are subject to the accumulated earnings tax.
A)True
B)False
Q4) The "check-the-box" Regulations enable certain entities which have corporate characteristics to be taxed as S corporations.
A)True
B)False
Q5) Do the § 465 at-risk rules apply to partnerships,LLCs,and S corporations?
Q6) How can double taxation be avoided or reduced by owning assets outside a C corporation?
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Chapter 14: Taxes on the Financial Statements
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Q1) The ownership percentage share of net earnings from a lower-tier corporation owned between 20% and 50% is included in the upper-tier corporation's book income without regard to whether any dividends are paid.
A)True
B)False
Q2) The benefits of ASC 740-30 (APB 23)are "all or nothing" because if elected,APB 23 applies to the earnings from all foreign subsidiaries.
A)True
B)False
Q3) Which of the following represent temporary book-tax differences?
A)Compensation-related expenses.
B)Municipal bond interest.
C)Meals and entertainment expense deduction.
D)Nondeductible penalties.
E)All the above.
Q4) Only domestic entities are included in a combined financial statement prepared under GAAP.
A)True
B)False
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Chapter 15: Exempt Entities
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Q1) Discuss any negative tax consequences that result from an exempt organization being classified as a private foundation.
Q2) A church that is exempt under § 501(c)(3)cannot be classified as a private foundation.
A)True
B)False
Q3) A church is not required to obtain IRS approval for its exempt status.
A)True
B)False
Q4) Hotel,Inc. ,is a feeder organization for Museum,Inc. ,an exempt organization.Hotel,Inc. ,provides approximately 25% of the support needed by Museum,Inc. ,to carry out its tax-exempt mission.Which of the following statements is correct?
A)Only Museum,Inc. ,is subject to Federal income taxation.
B)Both Museum,Inc. ,and Hotel,Inc. ,are subject to Federal income taxation.
C)Hotel,Inc. ,is subject to Federal income taxation on all of its income and Museum,Inc. ,is subject to Federal income taxation on 25% of its income.
D)Only Hotel,Inc. ,is subject to Federal income taxation.
E)None of the statements is correct.
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Chapter 16: Multistate Corporate Taxation
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Q1) A state wants to increase its income tax collections,but politically it would be unwise to raise taxes on in-state individuals or businesses.Identify some changes to the income tax apportionment formula that would shift the scheduled income tax increases to out-of-state businesses.
Q2) In conducting multistate tax planning,the taxpayer should:
A)Review tax opportunities in light of their effect on the overall business.
B)Consider additional administrative costs generated by the plan.
C)Exploit inconsistencies among the statutes and formulas of the states.
D)Recognize that minimizing state tax costs may not always be prudent.
E)All of the above are true.
Q3) A state or local tax on a corporation's income might be called a franchise tax or a business privilege tax.
A)True
B)False
Q4) A typical state taxable income addition modification is the Federal income tax expense.
A)True
B)False
Q5) What is the significance of the term nexus when discussing state income taxation?
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Chapter 17: Tax Practice and Ethics
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Q1) Concerning a taxpayer's requirement to make quarterly estimated tax payments:
A)An estate is not required to make estimated payments.
B)A trust must make estimated payments if its Federal income tax liability for the year will exceed $500.
C)A C corporation must make estimated payments if its Federal income tax liability for the year will exceed $250.
D)An individual must make estimated payments if his or her balance due for the Federal income tax for the year will exceed $1,000.
Q2) A tax preparer and his/her client hold a privilege of confidentiality from the IRS,as to their discussions about completing a tax return.
A)True
B)False
Q3) Only the government can appeal a decision of the Tax Court Small Cases Division. A)True
B)False
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 18: The Federal Gift and Estate Taxes
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Q1) A transfer in trust in which the trustee has the power to accumulate income is a gift of a future interest even if the trustee never exercises the power.
A)True
B)False
Q2) Pursuant to Corey's will,Emma (Corey's sister)inherits his property.Emma dies later.The estate tax attributable to the inclusion of the property in Corey's gross estate was $300,000.The estate tax attributable to the inclusion of the property in Emma's gross estate is $400,000.Emma's credit for the tax on prior transfers (under§ 2013)is:
A)$0 if Emma died 9 1/2 years after Corey.
B)$32,000 if Emma died 3 years after Corey.
C)$40,000 if Emma died 1 year after Corey.
D)$24,000 if Emma died 5 1/2 years after Corey.
E)None of the above amounts is correct.
Q3) At one point,the tax rates applicable to transfers by gift were lower than those applying to transfers by death.
A)True
B)False
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Chapter 19: Family Tax Planning
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Q1) Which,if any,of the following statements properly characterize features involving buy-sell agreements?
A)Agreements cannot be used to control disposition of partnership interests.
B)If properly structured,the agreements can control valuation for estate tax purposes.
C)If a stock redemption is proposed,utilize a cross-purchase type.
D)Arrangements work best when the interest to be transferred involves publicly traded securities.
E)None of the above.
Q2) Scott makes a gift of stock in Cormorant Corporation,which is not closely held but is traded in an over-the-counter market.The transactions involving this stock that occurred closest to the date of gift took place six trading days before (mean selling price of $60)and seven days after (mean selling price of $50).Determine the fair market value of the Cormorant stock on the date of the gift.
Q3) The election by an estate of § 2032A (special use valuation as to real estate)or § 2032 (the alternate valuation date)will have an effect on the income tax basis of the property received by the heirs.
A)True
B)False
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Chapter 20: Income Taxation of Trusts and Estates
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Q1) If provided for in the trust agreement,a trust might terminate when the income beneficiary reaches age 30.
A)True
B)False
Q2) The grantor set up a trust,income to a daughter,remainder to a grandson.To the extent that trust income is accumulated for a later distribution to the grandson,Subchapter J rules are ignored,and the income is taxed to the grantor.
A)True
B)False
Q3) The first step in computing an estate's taxable income is the determination of its distributable net income for the year.
A)True
B)False
Q4) 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
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