Principles of Taxation Test
Preparation
Course Introduction
Principles of Taxation introduces students to the foundational concepts and systems underlying tax law and administration. The course explores the objectives and principles of taxation, types of taxes (including income, corporate, sales, and property taxes), and the economic, social, and administrative impact of tax policy. Key topics include tax structures, the criteria for a good tax system, tax incidence, equity and efficiency considerations, and basic tax computation. By examining tax frameworks used globally, students develop a comprehensive understanding of how taxes are designed, governed, and enforced, preparing them for further study in accounting, finance, or public administration.
Recommended Textbook
South western Federal Taxation 2017 Comprehensive Edition 40th Edition by William H. Hoffman
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28 Chapters
3604 Verified Questions
3604 Flashcards
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Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) Which, if any, is not one of Adam Smith's canons of taxation?
A)Economy.
B)Certainty.
C)Convenience.
D)Simplicity.
E)Equality.
Answer: D
Q2) If an income tax return is not filed by a taxpayer, there is no statute of limitations on assessments of tax by the IRS.
A)True
B)False Answer: True
Q3) When interest is charged on a deficiency, any part of a month counts as a full month.
A)True
B)False Answer: False
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Page 3
Chapter 2: Working With the Tax Law
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Sample Questions
Q1) Which publisher offers Tax Center that provides the Code, Regulations, and material from Matthew Bender, CCH, Kleinrock, and the Bureau of National Affairs?
A)Research Institute of America.
B)Commerce Clearing House.
C)LexisNexis.
D)Prentice-Hall.
E)None of the above.
Answer: C
Q2) The granting of a Writ of Certiorari indicates that at least four members of the Supreme Court believe that an issue is of sufficient importance to be heard by the full court.
A)True
B)False
Answer: True
Q3) The Index to Federal Tax Articles (published by Warren, Gorham, and Lamont) is available in print and electronic formats.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Computing the Tax
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Sample Questions
Q1) Merle is a widow, age 80 and blind, who is claimed as a dependent by her son.During 2012, she received $4,800 in Social Security benefits, $2,200 in bank interest, and $1,800 in cash dividends from stocks.Merle's taxable income is:
A)$4,000 - $950 - $2,900 = $150.
B)$4,000 - $2,900 = $1,100.
C)$4,000 - $950 - $1,450 = $1,600.
D)$8,800 - $950 - $2,900 = $4,950.
E)None of the above.
Answer: A
Q2) After her divorce, Hope continues to support her ex-husband's sister, Cindy, who does not live with her.Hope can claim Cindy as a dependent.
A)True
B)False
Answer: True
Q3) Deductions for AGI are often referred to as "above-the-line" or "page 1" deductions.Explain.
Answer: "Above the line" means before the bottom line of page 1 of Form 1040, which is AGI.These deductions appear on page 1 of Form 1040.
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Page 5
Chapter 4: Gross Income: Concepts and Inclusions
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Sample Questions
Q1) For purposes of determining gross income, which of the following is true?
A)A mechanic completed repairs on an automobile during the year and collects money from the customer.The customer was not satisfied with the repairs and sued the mechanic for a refund.The mechanic can defer recognition of the income until the suit has been settled.
B)A taxpayer who finds a wallet full of money is not required to recognize income because someone will eventually ask for the return of the money.
C)Embezzlement proceeds are included in the embezzler's gross income because the embezzler has an obligation to repay the owner.
D)All of the above are true.
E)None of the above is true.
Q2) George and Erin are divorced, and George is required to pay Erin $20,000 of alimony each year.George earns $75,000 a year.Erin is not required to include the alimony payments in gross income because George earned the income and therefore he should pay the tax on the income.
A)True
B)False
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Page 6
Chapter 5: Gross Income: Exclusions
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Sample Questions
Q1) Workers' compensation benefits are included in gross income if the employer also pays the employee while the employee is recovering from his or her injury.
A)True
B)False
Q2) A cash basis taxpayer took an itemized deduction of $5,500 for state income tax paid in 2012. His total itemized deductions in 2012 were $18,000. In 2013, he received a $900 refund of his 2012 state income tax.The taxpayer must include the $900 refund in his 2013 Federal gross income in accordance with the tax benefit rule.
A)True
B)False
Q3) The CEO of Cirtronics Inc., discovered that the company's competitor had adopted a cafeteria plan for its employees. The CEO is concerned about retaining his talented employees and would like you to provide a brief explanation as to why a cafeteria plan may be attractive to the company's employees.
Q4) What Federal income tax benefits are provided for college students?
Q5) What are the tax problems associated with payments received by a wife from her deceased husband's employer? (Assume the wife renders no services to the employer.)
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Page 7
Chapter 6: Deductions and Losses: in General
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Sample Questions
Q1) Amos, a shareholder-employee of Pigeon, Inc., receives a $400,000 salary.The IRS classifies $125,000 of this amount as unreasonable compensation.The effect of this reclassification is to decrease Amos' gross income by $125,000 and increase Pigeon's gross income by $125,000.
A)True
B)False
Q2) What losses are deductible by an individual taxpayer?
Q3) Alice incurs qualified moving expenses of $12,000.If she is reimbursed by her employer, the deduction is classified as a deduction for AGI.If not reimbursed, the deduction is classified as an itemized deduction.
A)True
B)False
Q4) Assuming an activity is deemed to be a hobby, discuss the order and limits in which expenses must be deducted.
Q5) In a related party transaction where realized loss is disallowed, when can the disallowed loss be used by the buyer on the subsequent sale of the property? In the case of a related party disallowed loss transaction, can the related party seller's disallowed loss be used by a taxpayer other than the related party buyer?
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) If personal casualty losses (after deducting the $100 floor) exceed personal casualty gains in 2012, the itemized deduction is always equal to the losses, to the extent they exceed 10% of adjusted gross income.
A)True
B)False
Q2) A theft loss of investment property is an itemized deduction not subject to the 2%-of-AGI floor.
A)True
B)False
Q3) On September 3, 2011, Able, a single individual, purchased § 1244 stock in Red Corporation from his friend Al for $60,000.On December 31, 2011, the stock was worth $85,000.On August 15, 2012, Able was notified that the stock was worthless.How should Able report this item on his 2012 tax return?
A)$85,000 capital loss.
B)$85,000 ordinary loss.
C)$50,000 ordinary loss and $35,000 capital loss.
D)$60,000 ordinary loss.
E)None of the above.
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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Sample Questions
Q1) Land improvements are generally not eligible for cost recovery.
A)True
B)False
Q2) On April 15, 2012, Sam placed in service a storage facility (a single-purpose agricultural structure) costing $80,000. Sam also purchased and planted fruit trees costing $40,000. Sam does not elect to expense any of the acquisitions under § 179. Sam elected not to take additional first-year depreciation. Determine Sam's cost recovery from these two items for 2012.
Q3) The § 179 deduction can exceed $139,000 in 2012 if the taxpayer had a § 179 amount which exceeded the taxable income limitation in the prior year.
A)True
B)False
Q4) Sid bought a new $410,000 seven-year class asset on August 2, 2012.On December 2, 2012, he purchased $160,000 of used five-year class assets. Sid does take additional first-year depreciation if available.If Sid elects § 179, what is the maximum write-off for these purchases for 2012?
Q5) Discuss the beneficial tax consequences of an SUV not being classified as a passenger automobile.
Page 10
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Sample Questions
Q1) In which, if any, of the following situations is the automatic mileage available?
A)A limousine to be rented by the owner for special occasions (e.g., weddings, high school proms).
B)The auto belongs to taxpayer's mother.
C)One of seven cars used to deliver pizzas.
D)MACRS statutory percentage method has not been claimed on the automobile.
E)None of the above.
Q2) A participant, who is age 38, in a cash or deferred arrangement plan [§ 401(k)] may contribute up to what amount in 2012?
A)$12,000.
B)$16,500.
C)$17,000.
D)$17,500.
E)None of the above.
Q3) If an individual is ineligible to make a deductible contribution to a traditional IRA, nondeductible contributions of any amount can be made to a traditional IRA.
A)True
B)False
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) In Shelby County, the real property tax year is the calendar year. The real property tax becomes a personal liability of the owner of real property on January 1 in the current real property tax year, 2012. The tax is payable on June 1, 2012. On April 30, 2012, Julio sells his house to Anita for $230,000. On June 1, 2012, Anita pays the entire real estate tax of $7,300 for the year ending December 31, 2012. How much of the property taxes may Julio deduct?
A)$0.
B)$2,380.
C)$2,400.
D)$4,920
E)None of the above.
Q2) The phaseout of certain itemized deductions has been reinstated for years beginning in 2012.
A)True
B)False
Q3) A medical expense does not have to relate to a particular ailment to be deductible. A)True B)False
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Chapter 11: Investor Losses
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Sample Questions
Q1) Jed spends 32 hours a week, 50 weeks a year, operating a DVD rental store that he owns.He also owns a music store in another city that is operated by a full-time employee.He elects not to group them together as a single activity under the "appropriate economic unit" standard.Jed spends 40 hours per year working at the music store.
A)Neither store is a passive activity.
B)Both stores are passive activities.
C)Only the DVD rental store is a passive activity.
D)Only the music store is a passive activity.
E)None of the above.
Q2) Joyce, an attorney, earns $100,000 from her law practice in the current year.In addition, she receives $35,000 in dividends and interest during the year.Further, she incurs a loss of $35,000 from an investment in a passive activity.What is Joyce's AGI for the year after considering the passive investment?
Q3) Coyote Corporation has active income of $45,000 and a passive loss of $23,000 in the current year.Coyote cannot deduct the $23,000 loss if it is a personal service corporation.
A)True
B)False
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Page 13
Chapter 12: Tax Credits and Payments
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Sample Questions
Q1) BlueCo incurs $700,000 during the year to construct a facility that will be used exclusively for the care of its employees' pre-school age children during normal working hours.The credit for employer-provided child care available to BlueCo this year is $175,000.
A)True
B)False
Q2) Cheryl is single, has one child (age 6), and files as head of household during 2012.Her salary for the year is $19,000.She qualifies for an earned income credit of the following amount:
A)$0.
B)$305.
C)$2,864.
D)$3,169.
E)None of the above.
Q3) The disabled access credit was enacted to encourage small businesses to make their businesses more accessible to disabled individuals.
A)True
B)False
Q4) Discuss the treatment of unused general business credits.
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Chapter 13: Property Transactions: Determination of Gain or
Loss, Basis Considerations, and Nontaxable
Exchanges-Part 1
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Sample Questions
Q1) Taylor inherited 100 acres of land on the death of his father in 2012.A Federal estate tax return was filed and this land was valued therein at $650,000, its fair market value at the date of the father's death.The father had originally acquired the land in 1966 for $112,000 and prior to his death he had expended $20,000 on permanent improvements.Determine Taylor's holding period for the land.
A)Will begin with the date his father acquired the property.
B)Will automatically be long-term.
C)Will begin with the date of his father's death.
D)Will begin with the date the property is distributed to him.
E)None of the above.
Q2) Etta received nontaxable stock rights on October 3, 2012.She allocated $12,000 of the $30,000 basis for the associated stock to the stock rights.The stock rights are exercised on November 8, 2012.The exercise price for the stock is $42,000.What is Etta's basis for the acquired stock?
A)$12,000.
B)$42,000.
C)$54,000.
D)$72,000.
E)None of the above.
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Chapter 13: Property Transactions: Determination of Gain or
Loss, Basis Considerations, and Nontaxable
Exchanges-Part 2
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Sample Questions
Q1) For disallowed losses on related-party transactions, who has the right of offset?
Q2) Discuss the treatment of realized gains from involuntary conversions.
Q3) Discuss the relationship between realized gain and boot received in a § 1031 like-kind exchange.
Q4) Janet, age 68, sells her principal residence for $500,000.She purchased it twenty-two years ago for $150,000.Selling expenses are $30,000 and repair expenses to get the house in a marketable condition to sell are $15,000.Janet's objective is to minimize the taxes she must pay associated with the sale.Calculate her recognized gain.
Q5) Hilary receives $10,000 for a 13-foot wide utility easement along one of the boundaries to her property.The easement provides that no structure can be built on that portion of the property.Her adjusted basis for the property is $200,000 and the easement covers 15% of the total acreage.Determine the effect of the $10,000 payment on Hilary's gross income and her basis for the property.
Q6) What types of exchanges of insurance contracts are eligible for nonrecognition treatment under § 1035?
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Q7) What effect does a deductible casualty loss have on the adjusted basis of property?
Chapter 14: Property Transactions: Capital Gains and Losses,
1231, Recapture Provisions
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Q1) Lease cancellation payments received by a lessor are always ordinary income because they are considered to be in lieu of rental payments. A)True B)False
Q2) Residential real estate was purchased in 2009 for $345,000, held as rental property, and depreciated straight-line. Assume the land cost was $45,000 and the building cost was $300,000. Depreciation totaled $34,089. The building and land were sold on June 10, 2012, for $683,000 total. What is the tax status of the property, the nature of the gain from the disposition, and is any of it § 1250 depreciation recapture gain or unrecaptured § 1250 gain?
Q3) Vanna 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?
Q4) Why is it generally better to have a net § 1231 gain year followed by a net § 1231 loss year rather than a net § 1231 loss year followed by a net § 1231 gain year?
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Chapter 15: Alternative Minimum Tax
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Q1) Which of the following statements is incorrect?
A)If the tentative minimum tax exceeds the regular income tax liability, the AMT is $0.
B)The exemption amount increases as AMTI increases.
C)The AMT tax rate for an individual taxpayer can be as high as 26%.
D)Only a.and b.are incorrect.
E)a., b., and c.are incorrect.
Q2) A tax preference can increase or decrease alternative minimum taxable income while an adjustment can only increase alternative minimum taxable income.
A)True
B)False
Q3) The required adjustment for AMT purposes for pollution control facilities placed in service in 2012 is equal to the difference between the amortization deduction allowed for regular income tax purposes and the depreciation deduction computed under ADS.
A)True
B)False
Q4) Under what circumstances are corporations exempt from the AMT?
Q5) Why is there no AMT adjustment for charitable contributions?
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Page 18
Chapter 16: Accounting Periods and Methods
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Q1) Todd, a CPA, sold land for $300,000 cash on the date of sale plus a note for $500,000 due in one year.The interest rate on the note was equal to the Federal rate.The fair market value of the note was $400,000.Todd's basis in the land was $80,000.
A)If Todd uses the cash basis to report the income from his practice, he cannot use the installment method to report the gain on the sale of the land.
B)If Todd uses the accrual basis to report the income from his practice, he cannot use the installment method to report the gain from the sale of the land.
C)If Todd uses the installment method to report the gain, the contract price is $800,000.
D)If Todd does not use the installment method, his gain in the year of sale is $620,000 ($700,000 - $80,000).
E)None of the above.
Q2) Terry, Inc., makes gasoline storage tanks.All production is done under contract.The company makes three basic models, but each model must be adapted to customer specifications for the location of outlets, insulation, and paint.It takes from three to six months to complete a tank.How should Terry account for the income for the business?
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Chapter 17: Corporations: Introduction and Operating Rules
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Q1) Robin Corporation, a calendar year C corporation, had taxable income of $1.9 million, $1.2 million, and $900,000 for 2009, 2010, and 2011, respectively.Robin has taxable income of $1.5 million for 2012. The minimum 2012 estimated tax installment payments for Robin are:
A)April 15, 2012, $76,500; June 15, 2012, $76,500; September 15, 2012, $76,500; December 15, 2012, $76,500.
B)April 15, 2012, $110,500; June 15, 2012, $127,500; September 15, 2012, $127,500; December 15, 2012, $127,500.
C)April 15, 2012, $127,500; June 15, 2012, $127,500; September 15, 2012, $127,500; December 15, 2012, $127,500.
D)April 15, 2012, $76,500; June 15, 2012, $178,500; September 15, 2012, $127,500; December 15, 2012, $127,500.
E)None of the above.
Q2) Azure Corporation, a C corporation, had a long-term capital gain of $50,000 in the current year. The maximum amount of tax applicable to the capital gain is $7,500 ($50,000 ´ 15%).
A)True
B)False
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Chapter 18: Corporations: Organization and Capital Structure
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Q1) George (an 80% shareholder) has made loans to Mountainview Corporation that become worthless in the current year. George is not employed by Mountainview.
A)George is not permitted a deduction for the worthless loans.
B)The loans provide a nonbusiness bad debt deduction to George in the current year.
C)The loans provide George with a business bad debt deduction.
D)George may claim an ordinary loss as to the worthless loans.
E)None of the above.
Q2) Ann transferred land worth $500,000, with a tax basis of $150,000, to Brown Corporation, an existing entity, for 200 shares of its stock.Brown Corporation has two other shareholders, Bill and Bob, each of whom holds 100 shares.With respect to the transfer:
A)Ann has no recognized gain.
B)Brown Corporation has a basis of $350,000 in the land.
C)Ann has a basis of $500,000 in her 200 shares in Brown Corporation.
D)Ann has a basis of $150,000 in her 200 shares in Brown Corporation.
E)None of the above.
Q3) Issues relating to basis arise when a taxpayer is involved in a § 351 transaction. Describe the underlying rules, and the purpose they serve.
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Chapter 19: Corporations: Distributions Not in Complete Liquidation
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Q1) A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation's E & P.
A)True
B)False
Q2) When current E & P has a deficit and accumulated E & P is positive, the two accounts are netted at the date of the distribution. If a positive balance results, the distribution is a dividend to the extent of the balance.
A)True
B)False
Q3) Stacey and Andrew each own one-half of the stock in Parakeet Corporation, a calendar year taxpayer. Cash distributions from Parakeet are: $350,000 to Stacey on April 1 and $150,000 to Andrew on May 1. If Parakeet's current E & P is $60,000, how much is allocated to Andrew's distribution?
A)$5,000.
B)$10,000.
C)$18,000.
D)$30,000.
E)None of the above.
Q4) How does the payment of a property dividend affect E & P?
Page 22
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganizations
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Q1) If a parent corporation makes a § 338 election, the subsidiary corporation must be liquidated.
A)True
B)False
Q2) After a plan of complete liquidation has been adopted, Condor Corporation sells its only asset, land (basis of $220,000), to Eduardo (an unrelated party) for $300,000.Under the terms of the sale, Condor Corporation receives cash of $50,000 and Eduardo's notes for the balance of $250,000.The notes are payable over the next five years ($50,000 per year) and carry an appropriate interest rate.Immediately after the sale, Condor Corporation distributes the cash and notes to Maria, the sole shareholder of Condor Corporation.Maria has a basis of $30,000 in the Condor stock.The installment notes have a value equal to their face amount.If Maria wishes to defer as much gain as possible on the transaction, which of the following is correct?
A)Condor Corporation recognizes no gain or loss on the distribution of the installment notes.
B)Maria recognizes a gain of $20,000 in the year of liquidation.
C)Maria recognizes a gain of $45,000 in the year of liquidation.
D)Maria recognizes a gain of $270,000 in the year of liquidation.
E)None of the above.
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Chapter 21: Partnerships
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Q1) Which of the following is an election or calculation made by the partner rather than the partnership?
A)Whether to claim a tax credit or deduction for foreign taxes.
B)Whether to capitalize, amortize, or expense research and experimental costs.
C)The taxable year of the partnership.
D)The depreciation method used for partnership property.
E)All of the above elections are made by the partnership.
Q2) Beth has an outside basis of $100,000 in the BBDE Partnership as of December 31 of the current year.On that date the partnership liquidates and distributes to Beth a proportionate distribution of $50,000 cash and inventory with an inside basis to the partnership of $10,000 and a fair market value of $16,000.In addition, Beth receives a computer (not inventory) which has an inside basis and fair market value of $0 and $3,000, respectively.None of the distribution is for partnership goodwill.How much gain or loss will Beth recognize on the distribution, and what basis will she take in the computer?
A)$40,000 loss; $0 basis.
B)$37,000 loss; $3,000 basis.
C)$0 gain or loss; $3,000 basis.
D)$0 gain or loss; $40,000 basis.
E)None of the above.
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Page 24
Chapter 22: S: Corporations
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Q1) The § 1202 exclusion of _________________ on the disposition of small business stock (is/is not) _________________ available for S stock.
Q2) Passive investment income includes net capital gains from the sale of stocks and securities.
A)True
B)False
Q3) Net operating losses incurred before an S election do not flow through to the shareholders once the election is in effect.
A)True
B)False
Q4) Most IRAs can own stock in an S corporation.
A)True
B)False
Q5) In the case of a complete termination of an S corporation interest, a ____________________ tax year may occur.
Q6) For a new corporation, a premature S election may not be effective.
A)True
B)False
Q7) An S corporation may not have a ____________________ alien shareholder.
Page 25
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Chapter 23: Exempt Entities
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Q1) An exempt organization that otherwise would be classified as an unrelated trade or businesses will not be subject to the unrelated business income tax if the individuals performing substantially all the work of the trade or business do so without compensation.
A)True
B)False
Q2) Which of the following statements are correct?
A)If an exempt organization has annual gross receipts of less than $50,000, it files an e-Postcard (Form 990-N).
B)Private foundations must file Form 990-PF (Return of Private Foundation).
C)An exempt organization with less than $250,000 in gross receipts may file a Form 990-EZ.
D)Only a.and b.are correct.
E)a., b., and c.all are correct.
Q3) 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
Q4) Why are some organizations exempt from Federal income tax?
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Chapter 24: Multistate Corporate Taxation
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Q1) In most states, Federal S corporations must make a separate state-level election of the flow-through status.
A)True
B)False
Q2) A local business wants your help in making a decision about a large capital investment. Should your advice concentrate on tax or non-tax implications of the decision?
Q3) P.L.86-272 ____________________ (does/does not) create nexus when the sales representative also makes credit decisions before approving a sale at the customer's location.
Q4) Discuss how a multistate business divides up its corporate taxable income among the states in which it operates. Hint: use the terms allocation and apportionment in your comments.
Q5) A number of court cases in the last several decades have involved the application of a state's nexus rules concerning a business taxpayer. What is the significance of the term nexus when discussing state income taxation?
Q6) In most states, medical services are exempt from the sales/use tax base.
A)True
B)False
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Chapter 25: Taxation of International Transactions
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Q1) An appropriate transfer price is one that considers the risks, assets, and functions of the persons to whom income is assigned.
A)True
B)False
Q2) Which of the following is a principle used in applying income sourcing under U.S.rules?
A)Location of economic activity.
B)Country with lowest tax rate.
C)Country with highest tax rate.
D)Potential size of allowed foreign tax credit.
Q3) When a business taxpayer "goes international," the first step usually is to create an overseas branch sales office.
A)True
B)False
Q4) "Inbound" and "offshore" asset transfers by a U.S.business can be subject to immediate Federal income taxation under § 367.
A)True
B)False
Q5) Discuss the primary purposes of income tax treaties.
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Chapter 26: Tax Practice and Ethics
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Q1) Last year, Ned's property tax deduction on his residence was $22,500.Although he lives in the same house, he tells his CPA that this year's taxes will be only $7,500.The CPA can use this estimate in computing Ned's itemized deductions, under the Statements of Standards for Tax Services.
A)True
B)False
Q2) The IRS employs about 100,000 personnel, making it one of the largest Federal agencies.
A)True
B)False
Q3) In a criminal fraud case, the burden is on the taxpayer to show that he or she was innocent "beyond the shadow of any reasonable doubt."
A)True
B)False
Q4) A penalty can be assessed from an appraiser who knew that his/her improper appraisal would be used as part of a tax computation, in the amount of the lesser of ____________________% of the tax understatement or ____________________ % of the appraisal fee collected. or
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Chapter 28: Income Taxation of Trusts and Estates
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Q1) Every ____________________ trust is allowed a $300 personal exemption.
Q2) 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
Q3) Income beneficiary Molly wants to receive all of the municipal bond interest income of the Brenner Trust. A special allocation of this sort must be supported by a non-tax ____________________.
Q4) When a beneficiary receives a distribution from a trust of an asset other than cash, generally a(n) ____________________ basis is assigned to the asset.
Q5) A ____________________ trust is a revocable entity that is used to avoid probate upon the death of the grantor.
Q6) An estate's income beneficiary generally must wait until the entity is terminated by the executor to receive any distribution of income.
A)True B)False
Q7) The IRS encourages ____________________ filing for Forms 1041.
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