Tax Accounting
Final Test Solutions
Course Introduction
Tax Accounting is a course that explores the principles, laws, and regulations governing the accounting for income taxes at both individual and organizational levels. It covers topics such as the structure of the tax system, calculation of taxable income, tax compliance, tax planning, and the implications of different business transactions on the tax liability of individuals and corporations. Students will analyze Internal Revenue Code provisions, learn to prepare tax returns, and examine tax research methods. The course also emphasizes ethical considerations and recent developments in tax law, equipping students with the foundational knowledge and practical skills necessary for careers in accounting and taxation.
Recommended Textbook Pearsons Federal Taxation 2018 Comprehensive 31st Edition by Timothy J. Rupert
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34 Chapters
4096 Verified Questions
4096 Flashcards
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Chapter 1: Tax Research
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114 Verified Questions
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Sample Questions
Q1) What is the minimum information that should be contained in a citation?
Answer: A citation should contain,at a minimum,the name of the case,the reporter that publishes the case,a volume number,a page or paragraph number,the year the case was decided,and the court that decided the case.
Q2) Why should tax researchers take note of the date on which a Treasury Regulation was adopted?
Answer: Researchers should note the date on which a Treasury Regulation was adopted because the IRC may have been revised subsequent to the date of adoption.That is,the regulation may not interpret the current version of the IRC.Discrepancies between the IRC and the regulation occur when the Treasury Department has not updated the regulation to reflect the current statute.
Q3) Identify which of the following statements is true.
A)RIA United States Tax Reporter and CCH Standard Federal Tax Reporter are topical tax services.
B)An annotated tax service is organized by broad subject areas.
C)Annotations are summaries of IRS pronouncements and court opinions.
D)All of the above are false.
Answer: A
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Page 3
Chapter 2: Corporate Formations and Capital Structure
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123 Verified Questions
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Sample Questions
Q1) What is the tax treatment for a contribution of capital to a corporation by a nonshareholder?
Answer: The corporation does not recognize income as a result of the capital contribution.The basis of any property contributed by a nonshareholder is zero.The basis of property acquired with a money contribution made by a nonshareholder must be reduced by the amount of the contributed money used toward the purchase.Any money that was contributed and not spent during the 12 months following the contribution reduces the basis of other assets.The order of reduction is: First,depreciable property; then amortizable property; then depletable property; and finally,all other property.
Q2) Brad forms Vott Corporation by contributing equipment,which has a basis of $50,000 and an FMV of $40,000 in exchange for Vott stock.Brad also contributes $5,000 in cash.If the transaction meets the Sec.351 control and ownership tests,what are the tax consequences to Brad?
A)He recognizes a $5,000 loss.
B)He recognizes a $5,000 gain and a $10,000 loss.
C)He recognizes neither a gain nor a loss.
D)He recognizes a $10,000 loss.
Answer: C
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Page 4
Chapter 3: the Corporate Income Tax
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Sample Questions
Q1) A new corporation may generally select one of the following accounting methods with the exception of
A)cash method.
B)accrual method.
C)retail method.
D)hybrid method.
Answer: C
Q2) Which of the following results in a deferred tax asset?
A)Revenue or gains are recognized earlier for book purposes than for tax purposes.
B)Operating loss or tax credit carryforwards exist.
C)Tax basis of an asset is less than its book.
D)Expenses are deductible earlier for tax purposes than for book purposes.
Answer: B
Q3) A C corporation must use a calendar year as its tax year unless it has a substantial business purpose to use a fiscal year.
A)True
B)False
Answer: False
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Chapter 4: Corporate Nonliquidating Distributions
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Sample Questions
Q1) In a taxable distribution of stock,the recipient shareholder takes a basis equal to the FMV of the stock received.
A)True
B)False
Q2) White Corporation is a calendar-year taxpayer.Wilhelmina owns all of its stock.Her basis for the stock is $25,000.On March 1 of the current year (not a leap year),White Corporation distributes $60,000 to Wilhelmina.Determine the tax consequences of the cash distribution to Wilhelmina in each of the following independent situations:
a)Current E&P $15,000,accumulated E&P $50,000.
b)Current E&P $25,000,accumulated E&P $(25,000).
c)Current E&P ($36,500),accumulated E&P $65,000.
d)Current E&P ($10,000),accumulated E&P $(25,000).
Q3) Identify which of the following increases Earnings & Profits.
A)a capital contribution
B)life insurance proceeds payable to the spouse
C)tax-exempt interest income
D)All of the above increase E&P of a corporation.
Q4) Outline the computation of current E&P,including two examples for each adjustment.
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Chapter 5: Other Corporate Tax Levies
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Sample Questions
Q1) Identify which of the following statements is true.
A)A corporation accumulates earnings to fund the redemption of a shareholder's stock following her death so as to provide her estate with liquidity to pay death taxes.Such an accumulation of earnings is a reasonable business need.
B)A corporation accumulates earnings to fund a buy-sell agreement.Such an accumulation of earnings is a reasonable business need.
C)A corporation's net capital gain (minus any federal income taxes paid with respect to such gain)increases the tax base for the accumulated earnings tax.
D)All of the above are false.
Q2) Barker Corporation,a personal service company,has $200,000 of taxable income.Barker has tax preferences and positive adjustments of $200,000 and negative adjustments of $140,000 for alternative minimum tax purposes.No credits are available.Barker's regular tax liability is $70,000.How much is its alternative minimum tax liability?
Q3) Explain the carryover provisions of the minimum tax credit.
Q4) The courts and the Treasury Regulations have mentioned a number of reasonable needs that allow a corporation to accrue earnings and avoid the accumulated earnings tax.What are these reasons?
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Page 7
Chapter 6: Corporate Liquidating Distributions
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Sample Questions
Q1) Identify which of the following statements is true.
A)In general,a noncorporate shareholder that receives a distribution in complete liquidation of the liquidating corporation recognizes his or her entire realized gain as a capital gain.
B)The basis for nonmoney property received by a noncorporate shareholder as part of a liquidating distribution is the same as its basis on the books of the liquidating corporation.
C)The liquidating corporation does not recognize gains and losses when making a distribution of nonmoney property.
D)All of the above are false.
Q2) Bluebird Corporation owns and operates busses and has decided to liquidate its operations.Victor,who owns 80% of the company's stock,will receive all of the busses,repair parts inventory,and all tools and equipment.He plans to start a bus company in another town.Penny,who owns 20% of the stock,wants nothing to do with the new bus business and will receive a cash distribution.Bluebird will incur about $20,000 of expenses in connection with the liquidation.What tax issues should Victor,Penny,and Bluebird consider with respect to the liquidation?
Q3) Are liquidation and dissolution the same? Explain your answer.
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Chapter 7: Corporate Acquisitions and Reorganizations
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Sample Questions
Q1) Gulf Corporation wants to acquire all of Beamer Corporation's assets and liabilities in a Type C reorganization.The FMV of Beamer's assets is $500,000.Beamer's liabilities are $70,000.How much cash can Gulf Corporation use to pay for Beamer's assets without violating the Type C reorganization requirements?
Q2) Identify which of the following statements is false.
A)A taxable acquisition of the assets of a target corporation that is subsequently liquidated,results in a loss of the target corporation's tax attributes.
B)A taxable acquisition of the assets of a target corporation,that is subsequently liquidated,results in the target corporation's shareholders recognizing gain or loss on the surrender of their target stock.
C)An acquiring corporation in a tax-free or a taxable acquisition transaction does not recognize gain or loss when its stock is issued in exchange for property.
D)An acquiring corporation in a taxable acquisition transaction must acquire all of the assets and liabilities of the target corporation.
Q3) What are the two steps of a Sec.338 deemed liquidation election?
Q4) Briefly describe A,B,C,D,and G reorganization types.
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Chapter 8: Consolidated Tax Returns
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Sample Questions
Q1) Gee Corporation purchased land from an unrelated corporation several years ago for $105,000.The land was used by Gee as a storage lot for company trucks.Gee sold the land to Wilkers,its 85%-owned subsidiary corporation,last year (July 3)for $115,000.The land was also used in Wilkers' trade or business.Wilkers Corporation sold the land for cash this year (August 22)for $130,000 to a corporation that was not a member of the affiliated group.What gains and losses are recognized,deferred,or restored by Gee and Wilkers Corporations?
Q2) An affiliated group elects the use of the consolidated method for filing its tax return by
A)filing Form 1120.
B)filing a consent to the election from each member of the affiliated group in the initial year.
C)filing an affiliations schedule.
D)All of the above are necessary for the election.
Q3) An advantage of filing a consolidated return is that losses of one affiliated group member may be offset against the taxable income of other group members in the same tax year.
A)True
B)False
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Page 10
Chapter 9: Partnership Formation and Operation
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Sample Questions
Q1) A partner's share of nonrecourse debt increases that partner's share of basis.
A)True
B)False
Q2) Karl arranges financing for a limited partnership to purchase real estate in exchange for a 50% interest in partnership profits.Two weeks later,Karl sells the profits interest for $30,000.In this tax year,Karl must recognize
A)no gain or loss.
B)a $30,000 short-term capital gain.
C)a $30,000 ordinary income.
D)a $30,000 Sec.1231 gain.
Q3) Electing large partnership rules differ from other partnership rules in all of the following areas except
A)partnership income reporting.
B)partnership termination.
C)partnership audits.
D)All of the above are large partnership rule differences.
Q4) Explain the difference between partnership distributions and distributive shares.
Q5) What is included in partnership taxable income?
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Chapter 10: Special Partnership Issues
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Sample Questions
Q1) Eicho's interest in the DPQ Partnership is terminated when her basis in the partnership is $70,000.She receives a liquidating distribution of $20,000 cash and inventory with a $24,000 basis and a $40,000 FMV.What is her gain or loss,and what is her basis in the inventory received?
Q2) Identify which of the following statements is true.
A)The depreciation recapture potential for a Sec.1245 property is not included in the definition of a Sec.751 asset.
B)For Sec.751 purposes,"substantially appreciated inventory" means property held for sale to customers whose market value exceeds its adjusted basis.
C)Inventory for Sec.751 purposes includes all property except cash,capital assets,and Sec.1231 assets.
D)All of the above are false.
Q3) A partner's holding period for a partnership interest is never considered when determining the holding period for property distributed in a liquidating distribution.
A)True
B)False
Q4) What are some advantages and disadvantages of making a Section 754 election?
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Page 12
Chapter 11: S Corporations
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Sample Questions
Q1) Troy owns 50% of Dot.Com,an e-commerce company.His S corporation stock basis at the beginning of the year is $300,000.Dot.Com has not done well this year and will report an ordinary loss of $875,000.Troy's marginal tax rate for the current year is 35%.What tax issues should Troy consider with respect to the loss?
Q2) Gofer Corporation,an S corporation,is owned equally by Mahmoud and Kwame.The corporation had long-term capital gains of $100,000 and ordinary income of $90,000 for the current year and made no distributions.What is the amount of ordinary income from S corporation activities that Mahmoud must report?
Q3) The election of Subchapter S status by a corporation is valid only if all shareholders consent to the election.
A)True
B)False
Q4) Up to six generations of a family are considered as one shareholder for purposes of the 100-shareholder limit.
A)True
B)False
Q5) If losses are suspended due to the lack of basis in S corporation stock,do the losses expire when the S election terminates?
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Chapter 12: The Gift Tax
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) Identify which of the following statements is false.
A)A power of appointment exists when a person transfers property and grants someone else the power to specify who eventually will receive the property.
B)A person possesses a general power of appointment if the person has the power to appoint property to himself,his creditors,his estate,or the creditors of his estate.
C)The donee's payment of the gift tax does not reduce the amount of the gift because it is treated as consideration paid to the donor.
D)The donor must recognize as a gain the excess of the gift tax payable over the adjusted basis of the property.
Q2) Greg transfers property on August 8 of the current year with an adjusted basis of $40,000 and an FMV of $90,000 to his ex-wife as a property settlement that is part of their divorce agreement.The property settlement agreement and the divorce were both finalized on June 3 of the current year.Greg has made a gift of A)$0.
B)$40,000.
C)$80,000.
D)$90,000.
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Page 14
Chapter 13: The Estate Tax
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Sample Questions
Q1) An executor may elect to postpone payment of the estate tax attributable to a remainder or reversionary interest until 6 months after the interests of the other person(s)terminate.
A)True
B)False
Q2) Explain how shares of stock traded on a stock exchange are valued.What is the blockage rule?
Q3) The tax base for the federal estate tax is the total of the decedent's taxable estate and post-1986 taxable gifts if the decedent made gifts in 1981.
A)True
B)False
Q4) The GSTT's (generation-skipping transfer tax)purpose is
A)to impose a graduated transfer tax one time a generation.
B)to impose some form of transfer tax one time a generation.
C)to impose a graduated transfer tax every other generation.
D)to impose some form of transfer tax every other generation.
Q5) Briefly discuss how inter vivos gifts can be used to reduce the size of the estate tax base.
Q6) Explain why living trusts are popular tax-planning vehicles.
Page 15
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Chapter 14: Income Taxation of Trusts and Estates
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Sample Questions
Q1) Income in respect of a decedent (IRD)includes interest earned by a cash-basis taxpayer but not received by the taxpayer before death.
A)True
B)False
Q2) An example of income in respect to a decedent (IRD)for a cash method of accounting taxpayer is
A)interest earned but not received prior to death.
B)salary earned but not received prior to death.
C)gain from an installment sale entered into before death.
D)All of the above are examples.
Q3) Identify which of the following statements is false.
A)For purposes of trust administration,the term "sprinkling" relates to the discretionary authority of the trustee to distribute income among various beneficiaries.
B)The IRS may terminate an estate as a taxpayer after the expiration of a reasonable period of time for performance of the administrative duties.
C)Assets in a revocable trust do not avoid probate.
D)Assets in a revocable trust are included in the gross estate.
Q4) Explain the three functions of distributable net income (DNI).
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Page 16
Chapter 15: Administrative Procedures
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Sample Questions
Q1) The IRS will issue a 90-day letter (a Statutory Notice of Deficiency)if the taxpayer does not file a protest letter within 30 days of the date of the 30-day letter.
A)True
B)False
Q2) Identify which of the following statements is true.
A)Form 870-AD is used if the taxpayer and IRS representative agree to a lesser tax liability than that originally proposed by the Service.
B)Signing of Form 870-AD by the taxpayer does not generally preclude the subsequent filing of a refund claim.
C)The IRS will issue a 90-day letter (a Statutory Notice of Deficiency)if the taxpayer does not file a protest letter within 10 days of the date of the 30-day letter.
D)All of the above are false.
Q3) Richard recently won a popular television reality show and its one million dollar prize.However,he omitted the prize money from his tax return for the year.What penalties can the IRS assess?
Q4) Explain how the Internal Revenue Service is organized to be efficient and client-oriented.
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Chapter 16: Ustaxation of Foreign-Related Transactions
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Sample Questions
Q1) Michael,a U.S.citizen,earned $100,000 of foreign-earned income and no other U.S.or foreign income in 2013.He also incurred $10,000 of employment-related expenses,none of which were reimbursed.If the full foreign-earned income exclusion is utilized,calculate the deductible employment-related expense (before the 2% nondeductible floor).
Q2) Quality Corporation created a foreign subsidiary in Country C this year.The subsidiary receives components from Quality,assembles the components into a finished product using local labor,and sells them to unrelated wholesalers in Countries A,B,and C using its own sales force.The foreign subsidiary has paid no dividends to the parent this year.What tax issues should Quality's Director of Taxes consider with respect to these activities?
Q3) Music Corporation is a CFC incorporated in Country M.Music receives interest and dividends from its two foreign subsidiary corporations,Sharp Corporation and Flat Corporation.Sharp is incorporated in Country S and conducts all of its activities in that country.Flat is incorporated in Country M and conducts all of its activities in that country.Are the interest and dividends received by Music Corporation FPHCI?
Q4) Define the term "nonresident alien" and discuss the special tax consequences of U.S.taxation on various types of income of a nonresident alien.
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Chapter 17: An Introduction to Taxation
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Sample Questions
Q1) Firefly Corporation is a C corporation.Freya owns all of the stock.During the current year Firefly earned taxable income of $500,000 and paid a $300,000 dividend to Freya.Which of the following statements is correct?
A)Firefly will pay corporate income tax on its earnings,and Freya will pay individual income tax on the dividends.
B)Only Firefly will pay taxes.Freya will not pay any taxes due to her holdings in Firefly.
C)Firefly's income will flow through to Freya's tax return,and she will pay the taxes on the $500,000 of corporate income.
D)Firefly will not pay any taxes,but Freya will pay taxes on the dividend received.
Q2) All of the following are executive (administrative)sources of tax law except
A)Internal Revenue Code.
B)Income Tax Regulations.
C)Revenue Rulings.
D)Revenue Procedures.
Q3) List the steps in the legislative process for major tax reform.
Q4) Explain how returns are selected for audit.
Q5) Describe the components of tax practice.
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Page 19
Chapter 18: Determination of Tax
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Sample Questions
Q1) Refundable tax credits are allowed to reduce or totally eliminate a taxpayer's tax liability but any credits in excess of the tax liability are lost.
A)True
B)False
Q2) One requirement for claiming a dependent as a qualifying relative is that the taxpayer provides more than 50 percent of the dependent's support (assuming it is not a multiple support agreement situation).
A)True
B)False
Q3) An individual who is claimed as a dependent by another person is not entitled to a personal exemption on his or her own return.
A)True
B)False
Q4) The only business entity that pays federal income taxes is the C corporation.
A)True
B)False
Q5) What options are available for reporting and paying tax on the unearned income of a child under age 24?
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Chapter 19: Gross Income: Inclusions
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Sample Questions
Q1) Under the accrual method of accounting,income is considered earned when all the events have occurred which fix the right to receive the income and when the amount of income can be determined with reasonable accuracy.
A)True
B)False
Q2) In December 2017,Max,a cash-basis taxpayer,rents an apartment to Kadeem.Max receives both the first and last months' rent totaling $1,800 plus a security deposit of $400.The amount of income reported by Max as taxable in 2017 is A)$400.
B)$1,300.
C)$1,800.
D)$2,200.
Q3) Improvements to leased property made by a lessee are includible in the lessor's gross income only if made in lieu of rent or if rent is reduced because of the improvements.
A)True
B)False
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21
Chapter 20: Gross Income: Exclusions
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Sample Questions
Q1) John,an employee of a manufacturing company,suffered a heart attack and was unable to work for six months.He received $1,500 per month of disability benefits as a result of an employer-provided group policy.The benefits are includible in John's gross income.
A)True
B)False
Q2) Brad suffers from congestive heart failure and has been admitted to a nursing home where he is expected to spend the remainder of his life.His doctor has certified him as chronically ill.In 2017,Brad receives $320 per day from his life insurance policy for 100 days ($32,000)as accelerated death benefits.Brad's nursing home care costs $300 per day ($30,000 for the 100 days of care).Brad will be allowed to exclude A)$0.
B)$30,000.
C)$32,000.
D)$2,000.
Q3) Amounts collected under accident and health insurance policies purchased by the taxpayer are excludible from income.
A)True
B)False
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Page 22
Chapter 21: Property Transactions: Capital Gains and Losses
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Q1) Section 1221 specifically states that inventory or property held primarily for sale to customers is not classified as a capital asset of the trade or business.
A)True
B)False
Q2) On January 31 of the current year,Sophia pays $1,000 for an option to acquire 100 shares of Texas Corporation common stock for $105 per share at any time prior to December 31.As of December 31,Sophia had not exercised the option or sold it.Which of the following statements is correct?
A)Sophia may recognize a $1,000 STCL.
B)Sophia may recognize a $1,000 LTCL.
C)Sophia may recognize a $1,000 ordinary income.
D)Sophia may not recognize a loss.
Q3) Gina owns 100 shares of XYZ common stock with a $12,000 basis and a $25,000 FMV.She receives 100 stock rights with a total FMV of $15,000.Answer the following:
a.What is the basis of the 100 shares of stock?
b.What is the basis of the 100 stock rights?
Q4) What are arguments for and against preferential treatment of capital gains?
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Chapter 22: Deductions and Losses
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Q1) Pat,an insurance executive,contributed $1,000,000 to the reelection campaign of Governor Stephens,in hopes that Stephens will appoint her to a coveted position on the State Board of Insurance.How much of the contribution can Pat deduct?
A)$0
B)$100,000
C)$500,000
D)$1,000,000
Q2) Losses on the sale of property between a taxpayer and his/her more than 50-percent-owned corporation are disallowed.
A)True
B)False
Q3) During the current year,Charlene borrows $10,000 to purchase Kansas City bonds.Charlene incurs $800 of interest on her outstanding loan.How much interest expense may Charlene deduct in the current year?
Q4) Itemized deductions are deductions for AGI.
A)True
B)False
Q5) Discuss when expenses are deductible under the accrual method of accounting.
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Chapter 23: Itemized Deductions
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Q1) A charitable contribution in excess of the deduction limit for one taxable year can be carried forward five years.
A)True B)False
Q2) Interest expense incurred in the taxpayer's trade or business is deductible as a for AGI deduction without limitation if the taxpayer materially participates in the business.
A)True B)False
Q3) Qualified residence interest consists of both acquisition indebtedness and home equity interest.
A)True
B)False
Q4) Which of the following is deductible as interest expense?
A)personal credit card interest
B)interest to purchase tax-exempt bonds
C)bank service charges on personal account
D)interest on a home equity loan to purchase a car
Q5) Explain how tax planning may allow a deduction of qualified medical expenses.
Q6) Explain why interest expense on investments is limited to net investment income.
Page 25
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Chapter 24: Losses and Bad Debts
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Q1) If a taxpayer suffers a loss attributable to a disaster in an area subsequently declared a disaster area,the casualty loss may be deducted in the year preceding the year in which the loss actually occurs.
A)True
B)False
Q2) Shaunda has AGI of $90,000 and owns rental property generating a $27,000 loss.She actively manages the property.Her deductible loss is A)$0.
B)$13,500.
C)$25,000.
D)$27,000.
Q3) Classification of a loss as a capital loss is based upon the length of time the asset was held.
A)True
B)False
Q4) What is or are the standards that must be present to warrant a casualty loss deduction?
Q5) Why did Congress enact restrictions and limitations on losses from passive activities?
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Chapter 25: Employee Expenses and Deferred Compensation
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Q1) A company maintains a qualified pension plan for all of its employees.The company can also establish a qualified profit-sharing plan for its management team.
A)True
B)False
Q2) H (age 50)and W (age 48)are married but only W is employed.She is not covered by a retirement plan at work.She earns $75,000 during the year and they have combined AGI of $78,000 before any IRA contribution.In 2017,the maximum amount together they may contribute to tax deductible IRAs is
A)$5,500.
B)$6,500.
C)$11,000.
D)$12,000.
Q3) An employee has unreimbursed travel and business auto expenses.In order to claim the deduction,the employee will report the details (amounts and type of expenditure)on Schedule A (Itemized Deductions)of Form 1040.
A)True
B)False
Q4) Why did Congress establish Health Savings Accounts (HSAs)? How do HSAs operate?
Page 27
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Chapter 26: Depreciation, cost Recovery, amortization, and Depletion
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Q1) William purchases nonresidential real property costing $300,000 and places it in service in March 2016.What is Lincoln's 2017 depreciation on the property?
A)$6,099
B)$7,692
C)$8,637
D)$10,908
Q2) On August 11,2017,Nancy acquired and placed into service residential rental property,which cost $430,000; the cost of the land has been excluded.Nancy annually elects the maximum allowed Sec.179 deduction.The total depreciation for the year is (rounded)
A)$5,865.
B)$4,141.
C)$5,117.
D)$15,636.
Q3) Any Section 179 deduction that is not allowed currently due to the taxable income limitation may be carried over and deducted in future years.
A)True
B)False
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Chapter 27: Accounting Periods and Methods
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Q1) Which of the following statements regarding UNICAP is incorrect?
A)The UNICAP rules result in more costs being included in inventory for tax purposes than for financial accounting.
B)Taxpayers with gross receipts averaging more than $10,000,000 or more for the prior three years must apply the UNICAP provisions.
C)Interest must be included in inventory if the property produced is real property or long-lived property.
D)UNICAP requires that advertising and selling costs be allocated between inventory and cost of sales.
Q2) Jared wants his daughter,Jacqueline,to learn about the stock market.He loans Jacqueline $30,000,but does not require Jacqueline to pay interest.Jared tells Jacqueline that she can repay him from the proceeds of future stock sales.Discuss the tax issues that Jared should consider.
Q3) What is the significance of the Thor Power Tool Co.case?
Q4) Generally,if inventories are an income-producing factor to the business,the accrual method must be used for sales and cost of goods sold.
A)True
B)False
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Chapter 28: Property Transactions: Nontaxable Exchanges
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Q1) If an exchange qualifies as a like-kind exchange,nonrecognition of gain or loss is elective.
A)True
B)False
Q2) Gena exchanges land held as an investment with a $60,000 basis for other land with a $80,000 FMV and a motorcycle with a $10,000 FMV.The acquired land is to be held for investment and the motorcycle is for personal use.What is the amount of recognized gain?
A)$0
B)$10,000
C)$20,000
D)$30,000
Q3) Kuda owns a parcel of land she acquired on June 1,2012,as an investment.She exchanges the land on July 5,2017,for a storage building to be used in her business and marketable securities to be held as an investment.The marketable securities' holding period begins on
A)June 1,2012
B)June 2,2012
C)July 5,2017
D)July 6,2017
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Chapter 29: Property Transactions: Sec1231 and Recapture
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Q1) Cobra Inc.sold stock for a $25,000 loss five years ago.It has been carrying over the capital loss for five years,and the loss will expire at the end of this year because Cobra has not had any capital gains.Earlier this year Cobra sold a parcel of land held four years for business use and will recognize a $30,000 gain.Cobra is thinking about selling some machinery used in its business for the past three years.During this time technology has dramatically changed so Cobra will recognize a $32,000 loss on the sale of the machinery.Cobra is trying to decide whether to sell the machinery at year-end or early next year.Cobra is profitable and has a consistent marginal tax rate of 35%.When should Cobra sell the equipment?
A)current year
B)early next year
C)current year,but arrange an installment sale to spread the loss recognition over the two years
D)either the current year or next year
Q2) The amount recaptured as ordinary income under either Sec.1245 or Sec.1250 can never exceed the realized gain.
A)True
B)False
Q3) What is the purpose of Sec.1245 and what is its significance?
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Chapter 30: Special Tax Computation Methods, tax Credits, and Payment of Tax
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Q1) In the fall of 2017,James went back to school to earn a master of accountancy degree.He incurred $7,000 of qualified educational expenses and his modified AGI for the year was $40,000.His Lifetime Learning Credit is
A)$1,000.
B)$1,400.
C)$1,800.
D)$2,500.
Q2) Research expenses eligible for the research credit include costs that are incident to the development or improvement of a product or component.
A)True
B)False
Q3) Which of the following statements is not correct regarding the residential energy efficient property (REEP)credit?
A)Credits earned but not used in the current year can be carried forward to the next year.
B)The taxpayer's basis in the property is reduced by the credit.
C)Only solar property qualifies for the credit.
D)All of the above statements regarding the REEP credit are correct.
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Chapter 31: Tax Research
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Q1) Communicate the conclusions to the client.
Q2) The primary citation for a federal circuit court of appeals case would be
A)40 AFTR 2d 78-1234.
B)44 F.Supp.403.
C)3 F.3d 134.
D)79-2 USTC & 9693.
Q3) Discuss the differences and similarities between regular and memorandum decisions issued by the U.S.Tax Court.
Q4) Discuss the conflict between advocacy for a client and responsibility to the IRS.
Q5) Identify which of the following statements is true.
A)Paragraph references are most commonly used when citing or referring to the tax statutes.
B)Title 26 of the United States Code and the Internal Revenue Code of 1986 are synonymous.
C)Before 1939,tax statutes were codified or compiled into one document.
D)The Internal Revenue Code contains chapters,which are further subdivided into titles.
Q6) What are some of the factors to consider when deciding in which court to file a tax-related claim?
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Chapter 32: Corporations
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Questions
Q1) Ron transfers assets with a $100,000 FMV (basis $60,000)and $70,000 of business-related liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $30,000.The corporation assumes the $70,000 mortgage.The transfer qualifies under Sec.351.What is the adjusted basis of the stock received?
A)$0
B)$30,000
C)$60,000
D)$70,000
Q2) Corporations that are members of a parent-subsidiary affiliated group may file a consolidated return if the proper election is made.
A)True
B)False
Q3) The term "thin capitalization" means that the corporation is financed primarily with capital stock rather than debt.
A)True
B)False
Q4) Discuss the tax consequences of a complete liquidation to the liquidated corporation and to the shareholders.
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Chapter 33: Partnerships and S Corporations
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Q1) Which of the following statements regarding voluntary revocation of the S election is incorrect?
A)In order for the revocation to be effective retroactively to the first day of the tax year,the revocation must be filed by March 15 of the affected year.
B)All of the shareholders must consent to the revocation.
C)The corporation cannot reelect S corporation status for five years.
D)The revocation can provide a specified effective date to occur mid-year,requiring two tax returns to be filed for the year.
Q2) Hal transferred land having a $160,000 FMV and a $75,000 adjusted basis which is subject to a $150,000 mortgage in exchange for a one-third interest in the HEF Partnership.Hal acquired the land ten years ago.The partnership owes no other liabilities.Hal,Ellen,and Felix share profits and losses equally and each has a one-third interest in partnership capital.Hal's basis in the one-third partnership interest is A)$0.
B)($25,000).
C)$75,000.
D)$85,000.
Q3) Why are some partnership items separately stated?
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Chapter 34: Taxes and Investment Planning
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Q1) In the Current Model,investment earnings are taxed as they are earned.
A)True
B)False
Q2) In the Exempt Model
A)investment earnings are taxed currently.
B)investment earnings are exempt from explicit taxation.
C)investment earnings are taxed at the end of the investment period.
D)the initial investment is deductible or excludible from gross income,and the investment earnings are taxed at the end of the investment period.
Q3) In the Pension Model,the initial investment is deductible or excludible from gross income,and investment earnings are taxed currently.
A)True
B)False
Q4) A taxpayer in the 25% marginal tax bracket invests $1,000 of after-tax dollars at 10% interest before taxes.At the end of year one,the taxpayer will have accumulated after-tax dollars of $1,075.
A)True
B)False
Q5) What are the characteristics of the Pension Model?
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