Tax Planning and Research Test Questions
Course Introduction
This course provides an in-depth exploration of tax planning concepts and the research methodologies essential for effective tax decision-making. Students will develop the skills needed to identify tax issues, apply relevant tax laws, and utilize authoritative resources to support tax positions. Emphasis is placed on strategic planning for individuals and businesses, with coverage of current tax regulations, case law, and IRS rulings. Through case studies and practical exercises, students will learn how to communicate research findings, recommend tax-saving strategies, and ensure compliance while maximizing tax efficiency.
Recommended Textbook
South Western Federal Taxation 2012 Comprehensive by William H. Hoffman
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28 Chapters
3533 Verified Questions
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Page 2
Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Sample Questions
Q1) Brayden files his Federal income tax return by April 15,but does not pay the tax.Although he expects to pay interest on the large amount of tax he still owes,he feels that the timely filing has avoided any penalties.Is Brayden's assumption correct?
Answer: Although Brayden has avoided the failure to file penalty,the failure to pay penalty will apply.It is 0.5% per month up to a maximum of 25% of the tax due as shown on the return.
Q2) A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles.
A)True
B)False Answer: False
Q3) The principal objective of the FICA tax is to provide some measure of retirement security.
A)True
B)False Answer: True
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Page 3
Chapter 2: Working With the Tax Law
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Sample Questions
Q1) A scholarship received by a student is excluded for purposes of computing whether a person is self-supporting under the qualified child provision.
A)True
B)False
Answer: True
Q2) Discuss the advantages and disadvantages of the Small Cases Division of the U.S.Tax Court.
Answer: There is no appeal from the Small Cases Division.The jurisdiction of the Small Cases Division is limited to cases involving amounts of $50,000 or less.The proceedings of the Small Cases Division are informal (e.g.,no necessity for the taxpayer to be represented by a lawyer or other tax adviser).Special trial judges rather than Tax Court judges preside over these proceedings.The decisions of the Small Cases Division are not precedents for any other court decision and are not reviewable by any higher court.Proceedings can be more timely and less expensive in the Small Cases Division.Some of these cases can now be found on the U.S.Tax Court Internet Website.
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Chapter 3: Tax Determination: Personal and Dependency
Exemptions: an Overview of Property Transactions
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Sample Questions
Q1) In 2011,Hal furnishes more than half of the support of his ex-wife and her father,neither of whom lives with him.The divorce occurred in 2010.Hal may claim the father-in-law and the ex-wife as dependents.
A)True
B)False
Answer: False
Q2) Katelyn is divorced and maintains a household in which she and her daughter,Crissa,live.Crissa,age 22,earns $11,000 during 2011 as a model.Katelyn does qualify for head of household filing status.
A)True
B)False
Answer: False
Q3) As opposed to itemizing deductions from AGI,the majority of individual taxpayers choose the standard deduction.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Gross Income: Concepts and Inclusions
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Q1) Linda delivers pizzas for a pizza shop.On Wednesday,December 31,2011,Linda made several deliveries and collected $400 from customers.However,Linda forgot to turn in the proceeds for the day to her employer until the following Friday,January 2,2012.The pizza shop owner recognizes the income of $400 when he receives it from Linda in 2012.
A)True
B)False
Q2) Ted was shopping for a new automobile.He found one that met his needs and agreed to purchase it for $23,000.He had shopped around and concluded that he could not get a better price from another dealer.After he had paid for the automobile,the dealer called to notify Ted that he was entitled to a manufacturer's rebate of $1,500.The next week he received a $1,500 check from the manufacturer.How much should Ted include in gross income?
Q3) The realization requirement gives an incentive to sell assets that have increased in value and to retain assets whose value has decreased.
A)True
B)False
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Chapter 5: Gross Income: Exclusions
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Sample Questions
Q1) Hazel,a solvent individual but a recovering alcoholic,embezzled $6,000 from her employer.In the same year that she embezzled the funds,her employer discovered the theft.Her employer did not fire her and told her she did not have to repay the $6,000 if she would attend Alcoholics Anonymous.Hazel met the conditions and her employer canceled the debt.
A) Hazel did not realize any income because she obtained the funds illegally.
B) Hazel is not required to include the $6,000 in gross income because her employer made a gift to her.
C) Hazel must include $6,000 in gross income from discharge of indebtedness.
D) Hazel may exclude the $6,000 from gross income because the debt never existed.
E) None of the above.
Q2) Margaret is trying to decide whether to place funds in a qualified tuition program.Her son will be attending college in 4 years.She is in the 35% marginal tax bracket and she believes she can earn an 7% before tax return on alternative investments.Thus,$10,000 will accumulate to $11,948 (after-tax)in 4 years.Margaret expects tuition to increase at the rate of 5% each year to $12,155 in 4 years.Her son will be in the 15% marginal tax bracket in all relevant years.Given these assumptions,should Margaret participate in the qualified tuition program?
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Page 7
Chapter 6: Deductions and Losses: in General
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Sample Questions
Q1) Agnes is the sole shareholder of Violet,Inc.For 2011,she receives from Violet a salary of $200,000 and dividends of $100,000.Violet's taxable income for 2011 is $500,000.On audit,the IRS treats $50,000 of Agnes's salary as unreasonable.Which of the following statements is correct?
A) Agnes's gross income will increase by $50,000 as a result of the IRS adjustment.
B) Violet's taxable income will not be affected by the IRS adjustment.
C) Agnes's gross income will decrease by $50,000 as a result of the IRS adjustment.
D) Violet's taxable income will increase by $50,000 as a result of the IRS adjustment.
E) None of the above is correct.
Q2) Landscaping expenditures on new rental property are deductible in the year they are paid or incurred.
A)True
B)False
Q3) 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?
Q4) Are there any circumstances under which lobbying expenditures are deductible?
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Page 8
Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) The amount of a farming loss cannot exceed the amount of the taxpayer's NOL for the taxable year.
A)True
B)False
Q2) If a business debt previously deducted as partially worthless becomes totally worthless this year,only the amount not previously deducted can be deducted this year.
A)True
B)False
Q3) Taxpayer's home was destroyed by a storm in the current year and the area was declared a disaster area.If the taxpayer elects to treat the loss as having occurred in the prior year,it will be subject to the 10%-of-AGI reduction based on the AGI of the prior year.
A)True
B)False
Q4) A theft loss of investment property is an itemized deduction not subject to the 2%-of-AGI floor.
A)True
B)False
Q5) 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) On February 15,2011,Martin signed a 20-year lease on a commercial building.In March 2011,Martin purchased and placed in service seven-year class assets costing $400,000.In June 2011,Martin paid $200,000 for qualified leasehold real property improvements.Martin desires to take the maximum cost recovery deduction with respect to the assets in 2011.Assuming taxable income is not a limitation,determine Martin's maximum cost recovery for 2011.
Q2) Percentage depletion enables the taxpayer to recover only the cost of an asset.
A)True
B)False
Q3) James purchased a new business asset (three-year personalty)on July 23,2011,at a cost of $40,000.He did not elect to expense any of the asset under § 179,nor did he elect straight-line cost recovery.James elects not to take additional first-year depreciation.Determine the cost recovery deduction for 2011.
A) $8,333.
B) $16,665.
C) $33,333.
D) $41,665.
E) None of the above.
Q4) 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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Sample Questions
Q1) In choosing between the actual expense method and the automatic mileage method,a taxpayer should consider the cost of insurance on the automobile.
A)True
B)False
Q2) Elaine,the regional sales director for a manufacturer of exercise equipment,pays $2,500 to rent a skybox for a visiting performance of the Harlem Globetrotters.The skybox holds 10 seats,and Elaine invites 7 clients to the event.Nonluxury seats range in price from $80 to $120.The refreshments provided during the event cost $600.If Elaine meets all of the requirements for deductibility (i.e.,business discussion,substantiation),she may deduct:
A) $900.
B) $1,100.
C) $1,260.
D) $1,500.
E) $1,550.
Q3) If a taxpayer does not own a home but rents an apartment,the office in the home deduction is not available.
A)True
B)False
Page 11
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) In 2011,Brandon,age 72,paid $3,000 for long-term care insurance premiums.He may include the $3,000 in computing his medical expense deduction for the year.
A)True
B)False
Q2) For purposes of computing the deduction for qualified residence interest,a qualified residence includes only the taxpayer's principal residence.
A)True
B)False
Q3) Antonio sold his personal residence to Mina on July 1,2011.He had paid real property taxes on March 1,2011,the due date for property taxes for 2011.How will Antonio's payment affect his deduction for property taxes in 2011? Will Antonio's payment of the taxes have any effect on Mina's itemized deductions for 2011? What other tax or financial effects will Antonio's payment of the taxes have on either party?
Q4) In January 2012,Pam,a calendar year cash basis taxpayer,made an estimated state income tax payment for 2011.The payment is deductible in 2011.
A)True
B)False
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Chapter 11: Investor Losses
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Q1) Bonnie owns and actively participates in the operations of an apartment building that produces a $40,000 loss during the year.In addition,she has AGI of $100,000 from an active business.Her at-risk amount in the apartment building is $200,000.She may deduct $25,000 of the loss in the current year,while the remaining $15,000 is a suspended passive loss.
A)True
B)False
Q2) All of a taxpayer's tax credits relating to a passive activity can be utilized when the activity is sold at a loss.
A)True B)False
Q3) From January through November,Vern participated for 420 hours as a salesman in a partnership in which he owns a 50% interest.The partnership has four full-time employees.During December,Vern spends 110 hours cleaning the store and painting the walls in order to meet the material participation standards.Vern qualifies as a material participant.
A)True
B)False
Q4) What special passive loss treatment is available to real estate activities?
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Chapter 12: Tax Credits and Payments
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Sample Questions
Q1) Qualifying tuition expenses paid from the proceeds of a tax-exempt scholarship do not give rise to an education tax credit.
A)True
B)False
Q2) The disabled access credit was enacted to encourage small businesses to make their businesses more accessible to disabled individuals.
A)True
B)False
Q3) An individual generally may claim a credit for adoption expenses in the year in which the expenses are paid.
A)True
B)False
Q4) The tax credit for rehabilitation expenditures for certified historic structures differs from that for qualifying structures that are not certified historic structures.
A)True
B)False
Q5) Discuss the treatment of unused general business credits.
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Page 14
Chapter 13: Property Transactions
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Sample Questions
Q1) 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.
Q2) Discuss the relationship between realized gain and boot received in a § 1031 like-kind exchange.
Q3) Discuss the relationship between the postponement of realized gain under § 1031 (like-kind exchanges)and the adjusted basis and holding period for the replacement property.
Q4) Sandy and Greta form Tan,Inc.by transferring the following assets to the corporation in exchange for 1,000 shares of stock each.
Sandy: Cash of $200,000
Greta: Land (worth $200,000; adjusted basis of $75,000). How much gain must Tan recognize on the receipt of these assets?
Q5) Discuss the treatment of realized gains from involuntary conversions.
Q6) How does the replacement time period differ for the condemnation of real property used in a trade or business or held for investment when compared with that for other involuntary conversions?
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Chapter 14: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) The Code contains two major depreciation recapture provisions-§§ 1243 and 1248.
A)True
B)False
Q2) An individual taxpayer has the gains and losses shown below.There are $5,000 of § 1231 lookback losses.What is the net long-term capital gain?
Q3) The tax law does not require that capital gains and losses be separated from other types of gains and losses because there is no alternative tax calculation when taxable income includes net long-term capital gain.
A)True
B)False
Q4) If there is a net § 1231 loss,it is treated as a long-term capital loss.
A)True
B)False
Q5) A franchisor licenses its mode of business operation to a franchisee.
A)True
B)False
Q6) Original issue discount is amortized over the life of the bond.
A)True
B)False
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Chapter 15: Alternative Minimum Tax
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Q1) In 2011,Glenda had a $97,000 loss on a passive activity.None of the loss is attributable to AMT adjustments or preferences.She has no other passive activities.Which of the following statements is correct?
A) In 2011, Glenda can deduct $97,000 for regular income tax purposes and for AMT purposes.
B) Glenda will have a $97,000 tax preference in 2011 as a result of the passive activity.
C) For regular income tax purposes, none of the loss is allowed in 2011.
D) In 2011, Glenda will have a positive adjustment of $25,000 as a result of the passive loss.
E) None of the above.
Q2) If a taxpayer exercises an ISO and disposes of the option in the same tax year,are any AMT adjustments required?
Q3) Since most tax preferences are merely timing differences,they eventually will reverse and net to zero.
A)True
B)False
Q4) Are the AMT rates for the individual taxpayer the same as those for a corporate taxpayer?
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Page 17
Chapter 16: Accounting Periods and Methods
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Q1) A doctor's incorporated medical practice may end the last day of any month of the year.
A)True
B)False
Q2) A C corporation in the manufacturing business must use a calendar year as its tax year unless the corporation has a business reason for using a tax year that is not a calendar year.
A)True
B)False
Q3) John sold an apartment building for $600,000.His basis in the building was $360,000 and it was subject to $30,000 of depreciation recapture.John received $150,000 in the year of sale,the buyer assumed John's mortgage payable of $240,000,and the buyer gave John an 8% (the current Federal rate)note of $210,000 due in 5 years.The interest on the note was payable each June 30th,beginning in the year following the year of the sale.John incurred $30,000 of selling expenses which he paid in the year of sale.Compute John's installment sales gain that should be reported in the year of sale.
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Chapter 17: Corporations: Introduction and Operating Rules
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Q1) Elk,a C corporation,has $370,000 operating income and $290,000 operating expenses during the year.In addition,Elk has a $10,000 long-term capital gain and a $17,000 short-term capital loss.Elk's taxable income is:
A) $90,000.
B) $80,000.
C) $73,000.
D) $63,000.
E) None of the above.
Q2) On December 20,2011,the directors of Quail Corporation (an accrual basis,calendar year taxpayer)authorized a cash donation of $5,000 to the American Cancer Society,a qualified charity.The payment,which is made on March 15,2012,may be claimed as a deduction for tax year 2011.
A)True
B)False
Q3) Red Corporation,a C corporation that has two equal shareholders,earned $450,000 during 2011.Orange Company,a partnership that has two equal partners,earned $450,000 during the year.Red did not make any distributions to its shareholders,and Orange's partners did not make any withdrawals.Contrast the tax treatment of the shareholders of Red Corporation and the partners of Orange Company.
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Page 19
Chapter 18: Corporations: Organization and Capital Structure
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Q1) How is the transfer of liabilities in a property transaction generally treated for tax purposes? How is a transfer of liabilities generally treated in a § 351 transaction? What exceptions could arise to this usual treatment in a § 351 setting?
Q2) The definition of property for purposes of § 351 includes unrealized receivables transferred by a cash basis taxpayer.
A)True
B)False
Q3) Stock in Merlin Corporation is held equally by Jane,Eve,and Fred.Merlin seeks additional capital to buy a valuable tract of land that will cost $6,000,000.Jane,Eve,and Fred propose to loan Merlin $2,000,000 each,taking from Merlin a $2,000,000 ten-year note with interest payable annually at five points above the prime rate.Merlin Corporation has current taxable income of $7,000,000.How are the payments on the notes treated for tax purposes?
Q4) Issues relating to basis arise when a taxpayer is involved in a § 351 transaction.Describe the underlying rules,and the purpose they serve.
Q5) If a corporation is thinly capitalized,all debt is reclassified as equity. A)True B)False
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Chapter 19: Corporations: Distributions Not in Complete Liquidation
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Q1) During the year,Blue Corporation distributes land to its sole shareholder.If the fair market value of the land is less than its adjusted basis,Blue will recognize a loss on the distribution.
A)True
B)False
Q2) The adjusted gross estate of Debra,decedent,is $8 million.Debra's estate will incur death taxes and funeral and administration expenses of $1 million.Debra's gross estate includes stock in Silver Corporation that she had purchased twelve years ago for $600,000 (date of death fair market value of $3 million).At the time of her death in 2011,Debra owned 80% of the stock in Silver Corporation.Silver Corporation (E & P of $4 million)redeems all of the estate's stock in the corporation for $3 million.Debra's will names her daughter,Dena,who owns the remaining 20% interest in Silver Corporation,as her sole heir.With respect to this redemption,Debra's estate has the following income:
A) $0.
B) $2.4 million long-term capital gain.
C) $2 million dividend.
D) $1 million dividend.
E) None of the above.
Q3) Explain the stock attribution rules that apply in the case of stock redemptions.
Page 21
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganizations
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Q1) Brown Corporation purchased 85% of the stock of Green Corporation five years ago for $850,000.In the current year,Brown Corporation liquidates Green Corporation and acquires assets with a basis to Green Corporation of $700,000 (fair market value of $1.1 million).Brown Corporation will have a basis in the assets of $700,000,the same as Green's basis in the assets.
A)True
B)False
Q2) The gain recognized by a shareholder in a corporate reorganization is the difference between the realized gain and the boot received.
A)True
B)False
Q3) Sparrow Corporation purchased 90% of the stock of Warbler Corporation eight years ago for $1 million.In the current year,Sparrow liquidates Warbler and acquires assets with a basis to Warbler of $850,000 (fair market value of $1.2 million).Sparrow will have a basis in the assets of $850,000 (Warbler's basis in the assets),and a recognized loss of $150,000 ($1 million basis in Warbler stock - $850,000 carryover basis in assets).
A)True B)False
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Chapter 21: Partnerships
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Q1) Rick is a 30% partner in the ROC Partnership.At the beginning of the tax year,Rick's basis in the partnership interest was $60,000,including his share of partnership liabilities.During the current year,ROC reported net ordinary income of $40,000.In addition,ROC distributed $5,000 to each of the partners ($15,000 total).At the end of the year,Rick's share of partnership liabilities increased by $20,000.Rick's basis in the partnership interest at the end of the year is:
A) $120,000.
B) $87,000.
C) $75,000.
D) $60,000.
E) None of the above.
Q2) Matt,a partner in the MB Partnership,receives a proportionate,nonliquidating distribution of property having a fair market value of $16,000 and a partnership basis of $23,000.Matt's basis in the partnership is $10,000 before the distribution.In this situation,Matt will recognize a $6,000 gain,take a $16,000 basis in the property,and his basis in the partnership interest is reduced to zero.
A)True
B)False
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Page 23
Chapter 22: S Corporations
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Q1) A distribution of cash or other property by an S corporation to shareholders that does not exceed the balance of AAA during a one-year period following an S election termination receives special capital gain treatment.
A)True
B)False
Q2) Non-separately computed loss ____________________ a S shareholder's stock basis.
Q3) On January 2,2010,Tim loans his S corporation $10,000.By the end of 2010,Tim's stock basis is zero,and the basis in his note has been reduced to $8,000.During 2011,the company's operating income is $10,000.The company also makes distributions to Tim of $8,000.Which statement is correct?
A) Loan basis is now $10,000.
B) $8,000 LTCG.
C) Stock basis is $2,000.
D) $2,000 LTCG.
E) None of the above statements is correct.
Q4) An S corporation may have ____________________ class(es)of stock.
Q5) What are the characteristics of an S corporation's straight debt?
Q6) Explain how the domestic production activities deduction is used for an S corporation.
Page 24
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Chapter 23: Exempt Entities
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Q1) Hope,Inc.,an exempt organization,owns a factory building that it leases to a taxable corporation for $150,000 per year.Related expenses for Hope are $40,000.Hope's average acquisition indebtedness on the building is $500,000 and the average adjusted basis is $750,000.Calculate Hope's unrelated debt-financed income and expenses.Then indicate the effect of these items on unrelated business taxable income.
Q2) Exempt organizations which are appropriately classified as private foundations include churches,educational institutions,and charitable organizations receiving a major portion of their support from the general public or the U.S.,a state,or a political subdivision thereof.
A)True
B)False
Q3) All exempt organizations which are subject to the unrelated business income tax must file Form 990-T (Exempt Organization Business Income Tax Return).
A)True
B)False
Q4) What are the common characteristics of organizations that receive exempt status?
Q5) What tax forms are used to apply for exempt status?
Q6) What is the purpose of the unrelated business income tax?
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Chapter 24: Multistate Corporate Taxation
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Q1) Norman Corporation owns and operates two manufacturing facilities,one in State X and the other in State Y.Due to a temporary decline in the corporation's sales,Norman has rented 20% of its Y facility to an unaffiliated corporation.Norman generated $1,000,000 net rental income and $2,000,000 income from manufacturing. Norman is incorporated in Y.For X and Y purposes,rental income is classified as allocable nonbusiness income.By applying the statutes of each state,Norman determined that its apportionment factors are .65 for X and .35 for Y. Norman's income attributed to X is:
A) $0.
B) $1,000,000.
C) $1,300,000.
D) $2,000,000.
E) $3,000,000.
Q2) Usually a business chooses a location where it will build a new plant based chiefly on tax considerations.
A)True
B)False
Q3) In the apportionment formula,most states assign more than a one-third weight to the ____________________ factor.
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Page 26
Chapter 25: Taxation of International Transactions
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Q1) Without the foreign tax credit,double taxation would result when:
A) The United States taxes the U.S.-source income of a U.S. resident.
B) The United States and a foreign country both tax the foreign-source income of a U.S. resident.
C) A foreign country taxes the foreign-source income of a nonresident alien.
D) Only the United States taxes the foreign-source income of a U.S. resident (e.g., a treaty prevents foreign taxation).
Q2) OutCo,a controlled foreign corporation owned 100% by USCo,earned $900,000 in Subpart F income for the current year.OutCo's current year E & P is $250,000 and its accumulated E & P is $18 million.What is the current year Subpart F deemed dividend to USCo?
A) $250,000.
B) $650,000.
C) $900,000.
D) $18 million.
Q3) Income tax treaties may provide for either higher or lower withholding tax rates on interest income than the rate provided under U.S.statutory law.
A)True
B)False
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Page 27
Chapter 26: Tax Practice and Ethics
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147 Verified Questions
147 Flashcards
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Sample Questions
Q1) Megan prepared for compensation a Federal income tax return for Joan.Joan's return included an aggressive interpretation of the rules concerning overnight business travel.Megan is not liable for a preparer penalty for taking an unreasonable tax return position if:
A) The tax reduction attributable to the disputed deduction did not exceed $5,000.
B) There was a reasonable basis for Joan's interpretation of the travel deduction rules.
C) There was substantial authority for Joan's interpretation of the travel deduction rules.
D) The IRS found that the travel deduction was frivolous, but Joan disclosed the position in an attachment to the return.
Q2) With respect to the Small Cases Division of the Tax Court,
A) The taxpayer (but not the IRS) can appeal a contrary judgment.
B) The IRS (but not the taxpayer) can appeal a contrary judgment.
C) Either the IRS or the taxpayer can appeal a contrary judgment.
D) Neither the IRS nor the taxpayer can appeal a contrary judgment.
Q3) During an audit,the IRS might require that the taxpayer produce the ____________________ that underlie the tax return data.
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Page 28
Chapter 27: The Federal Gift and Estate Taxes
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169 Verified Questions
169 Flashcards
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Sample Questions
Q1) Doyle died in 2000 and by will created a trust with the following provisions: "life estate to my wife,Grace,remainder upon her death to our children." Grace dies in 2011.Is the trust Doyle created included in Grace's gross estate? Explain.
Q2) Stacey inherits unimproved land (fair market value of $6 million)from her father on June 1,2010.Martha disclaims her interest in the property as follows: one-third on December 1,2010; one-third on January 3,2011; and the remaining one-third on May 31,2011.In all cases,the disclaimers pass the interest to her son (the next heir under state law).The Federal gift tax applies to Stacey for:
A) All of the disclaimers.
B) The disclaimer made in 2010.
C) The disclaimers made in 2011.
D) The May 31, 2011 disclaimer.
E) None of the disclaimers.
Q3) Cliff loans his adult daughter,Stella,a large sum of money to enable her to start her own business.The loan is evidenced by a note,and no interest is provided for or repayment date specified.What are the potential tax ramifications of this arrangement to Cliff and Stella?
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Chapter 28: Income Taxation of Trusts and Estates
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) A ____________________ tier distribution is one that the trust agreement requires to be made by the trustee to the income beneficiary. or
Q2) The Gibson Estate is responsible for the income in respect of a decedent (IRD)of Juanita Gibson,the deceased.Define the term IRD and describe its treatment for Federal tax purposes
Q3) During the current year,the Santo Trust received $30,000 of taxable interest income,paid trustee's commissions of $3,000,and had no other income or expenses.The Santo trust instrument requires that $20,000 be paid annually to Marilyn,and $40,000 be paid annually to Domingo.How much gross income must Marilyn and Domingo recognize?
A) $20,000 by Marilyn and $40,000 by Domingo.
B) $15,000 by Marilyn and $15,000 by Domingo.
C) $13,500 by Marilyn and $13,500 by Domingo.
D) $9,000 by Marilyn and $18,000 by Domingo.
Q4) Remainder beneficiary Shelley receives a $50,000 net operating loss carryover when the Malone Trust terminates.Shelley deducts this amount ____________________ (for/from)AGI on her Form 1040.
Q5) The IRS encourages ____________________ filing for Forms 1041.
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