Tax Planning
Textbook Exam Questions
Course Introduction
Tax Planning is a course designed to provide students with an in-depth understanding of the strategies and techniques used to minimize tax liabilities for individuals and businesses within the framework of current tax laws. The course covers core concepts such as tax avoidance versus tax evasion, income shifting, timing strategies, and the use of various financial instruments for tax efficiency. Students will analyze real-world scenarios, explore tax planning for different entities (including corporations, partnerships, and sole proprietorships), and assess the impact of evolving tax legislation. By the end of the course, learners will be equipped with practical skills to develop effective tax plans while adhering to legal and ethical standards.
Recommended Textbook Pearsons Federal Taxation 2018 Comprehensive 31st Edition by Timothy J. Rupert
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34 Chapters
4096 Verified Questions
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Chapter 1: Tax Research
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Q1) When a taxpayer contacts a tax advisor requesting advice as to the most advantageous way to dispose of a stock,the tax advisor is faced with
A)a restricted-fact situation.
B)a closed-fact situation.
C)an open-fact situation.
D)a recognized-fact situation.
Answer: C
Q2) Small case procedures of the U.S.Tax Court requires that the amount in dispute not exceed
A)$5,000.
B)$10,000.
C)$50,000.
D)$100,000.
Answer: C
Q3) According to the Statements on Standards for Tax Services,CPAs must verify all tax return information submitted by reviewing client documentation.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Corporate Formations and Capital Structure
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Q1) South Corporation acquires 100 shares of treasury stock for $10,000.The next year,South reissues the 100 shares for land having a $15,000 FMV.What is the amount of gain or loss realized by South Corporation,and how much is recognized?
Answer: South realizes a $5,000 ($15,000 - $10,000)gain on the exchange.None of it is recognized.
Q2) The City of Seattle gives Dotcom Corporation $120,000 cash and land worth $200,000 to induce it to relocate to Seattle.Dotcom Corporation did not spend the cash during the 12 months following the contribution.What are the tax consequences to Dotcom Corporation with respect to the contribution?
Answer: No income is recognized.Dotcom Corporation's basis in the land is $0,and it must reduce the basis of other assets by $120,000.
Q3) Identify which of the following statements is true.
A)Regular corporation and C corporation are synonymous terms.
B)Regular corporation and S corporation are synonymous terms.
C)A partner is generally considered to be an employee of the partnership.
D)All of the above are false.
Answer: A
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Page 4
Chapter 3: the Corporate Income Tax
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Sample Questions
Q1) Once a corporation has elected a taxable year,it can change the taxable year without IRS permission if
A)the resulting short period has a net operating loss of $100,000 that the corporation wants to carry forward.
B)the corporation changed its taxable year seven years ago.
C)the corporation is not an S Corporation.
D)a corporation can change its taxable year without IRS permission in all of the above situations.
Answer: D
Q2) Identify which of the following statements is false.
A)A corporation must file a tax return annually.
B)A corporation can obtain an automatic six-month extension of time to file its tax return.
C)The IRS will permit an extension of time to file a corporate return beyond the original due date only when the corporation's delay is reasonable.
D)The IRS can rescind the extension period.
Answer: C
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Chapter 4: Corporate Nonliquidating Distributions
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Sample Questions
Q1) When computing E&P and taxable income,different depreciation methods are often used.What happens when the taxpayer sells such assets?
Q2) Wills Corporation,which has accumulated a current E&P totaling $70,000,distributes land to its sole shareholder,an individual.The land has an FMV of $75,000 and an adjusted basis of $60,000.The shareholder assumes a $15,000 liability associated with the land.The transaction will have the following tax consequences.
A)The corporation will recognize a $15,000 gain; the shareholder will recognize dividend income of $75,000.
B)The corporation will recognize no gain; the shareholder will recognize dividend income of $75,000.
C)The corporation will recognize a $15,000 gain; the shareholder will recognize dividend income of $60,000.
D)The corporation will recognize no gain; the shareholder will recognize dividend income of $60,000.
Q3) A stock redemption is always treated as if the shareholder sold his stock to the corporation.
A)True
B)False
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Chapter 5: Other Corporate Tax Levies
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Sample Questions
Q1) 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?
Q2) What are the four general rules that provide a framework for the ACE calculation?
Q3) When using the Bardahl formula,an increase in accounts payable (while holding purchases and operating expenses constant)has which of the following effects on the working capital requirements?
A)increase
B)decrease
C)no effect
D)increase,decrease,or no effect,depending on other factors
Q4) Which of the following is not an adjustment to taxable income when computing the personal holding company tax?
A)dividends-received deduction
B)dividends-paid deduction
C)NOL carryover from immediately preceding tax year
D)All of the above are adjustments.
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Chapter 6: Corporate Liquidating Distributions
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Q1) Charlene and Dennis each own 50% of Brewster Corporation and have owned it for five years.The adjusted bases of their Brewster stock are $80,000 and $40,000 respectively.Brewster Corporation liquidates and distributes $60,000 to Charlene in exchange for her stock.It distributes a parcel of land with a $140,000 FMV which is subject to a $90,000 mortgage to Dennis in exchange for his stock.Dennis assumes the mortgage and also receives $10,000 in cash.
a)What is the character and amount of each shareholder's gain or loss?
b)What is each shareholder's basis in the property received in the liquidation?
Q2) Identify which of the following statements is true.
A)With limited exceptions,a loss can be recognized by a liquidating corporation when it makes a liquidating distribution of property that has declined in value.
B)When computing the corporate-level gain on a liquidating distribution,the FMV of the property cannot exceed the liability assumed or acquired by the shareholder.
C)The FMV of property distributed by a liquidating corporation can be less than the amount of the liability assumed or acquired by the shareholder.
D)All of the above are false.
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) John Van Kirk owns all the stock of Monmouth Restaurant Corporation in Pittsburgh.John would like to sell his business and retire to sunny Florida now that he has turned 65.Pam,a long-time bartender at Monmouth Restaurant,offers to purchase all the business's noncash assets in exchange for a 25% down payment,with the remaining 75% being paid in five equal annual installments.Interest will be charged at a 10% rate on the unpaid installments.John plans to liquidate the corporation that has operated the restaurant and have Monmouth Restaurant distribute the installment notes and any remaining assets.What tax issues should Monmouth Restaurant,John,and Pam consider with respect to the purchase transaction?
Q2) Acquiring Corporation acquires all of the stock of Target Corporation in a Type B (stock-for-stock)reorganization.Both corporations have always filed separate tax returns.Which one of the following statements regarding the acquisition is correct?
A)Acquiring and Target Corporations can elect to file a consolidated tax return.
B)Acquiring and Target Corporations must file a consolidated tax return.
C)Acquiring Corporation assumes all of the tax attributes of Target Corporation.
D)Acquiring Corporation must step up or step down the basis of the Target Corporation's assets to their FMV on the acquisition date?
Q3) There are no questions for this section.
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Chapter 8: Consolidated Tax Returns
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Sample Questions
Q1) What are the differences between a controlled group and an affiliated group?
Q2) Which of the following statements is incorrect with respect to the consolidated alternative minimum tax?
A)The starting point for the consolidated alternative minimum taxable income computation is consolidated taxable income before the NOL deduction.
B)The difference between the consolidated ACE amount and the consolidated preadjustment AMTI is an adjustment to consolidated taxable income in arriving at AMTI.
C)Each corporation is permitted its own $40,000 statutory exemption.
D)If the consolidated tentative minimum tax is smaller than the consolidated regular tax,there is no alternative minimum tax liability.
Q3) What types of corporations are not includible corporations for purposes of determining whether or not an affiliated group exists?
Q4) Penish and Sagen Corporations have filed consolidated tax returns for several calendar years.At the close of business on September 30,2012,Penish Corporation sells all of its Sagen stock to June.What are the tax consequences to each corporation?
Q5) Define intercompany transactions and explain the two types of transactions.
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Chapter 9: Partnership Formation and Operation
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Sample Questions
Q1) Albert contributes a Sec.1231 asset to a partnership on June 1 of this year in exchange for a 10% partnership interest.He had purchased the asset on March 1,2002.His holding period for the partnership interest begins
A)March 1,2002.
B)March 2,2002.
C)June 1 of the current year.
D)June 2 of the current year.
Q2) Stella acquired a 25% interest in the STUV Partnership by contributing land having an adjusted basis of $32,000 and a fair market value of $100,000.The land was subject to a $48,000 mortgage,which was assumed by STUV.No other liabilities existed at the time of contribution.What is Stella's basis in her partnership interest?
A)$0
B)$32,000
C)$52,000
D)$64,000
Q3) What is the tax impact of guaranteed payments on the partner and the partnership?
Q4) There are no questions for this section.
LO12: Compliance and Procedural Considerations
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Chapter 10: Special Partnership Issues
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Q1) What conditions are required for a partner to recognize a loss upon receipt of a distribution from a partnership?
Q2) Carlos has a basis in his partnership interest of $30,000.He receives a current distribution of $6,000 cash,unrealized receivables (FMV $11,000,basis $10,000),inventory (FMV $8,000,basis $4,000),land held as an investment (FMV $7,000,basis,$6,000),and building (FMV $21,000,basis $9,000).The partners' relative interests in the Sec.751 assets do not change as a result of the current distribution.Carlos's basis in the building is A)$2,500.
B)$6,000.
C)$7,500.
D)$9,000.
Q3) The Principle Limited Partnership has more than 300 partners and is publicly traded.The Principle was grandfathered under the 1987 Tax Act and has consistently been taxed as a partnership.In the current year,The Principle Limited Partnership will continue to be very profitable and will continue to pay out about 30% of its income to its owners each year.The managing partners of The Principle want to consider the firm's options for taxation in the current and later years.
Q4) What is included in the definition of unrealized receivables?
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Page 12
Chapter 11: S Corporations
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Q1) Which of the following would terminate a Subchapter S election?
A)Estate becomes a shareholder.
B)Grantor trust becomes a shareholder.
C)Voting trust becomes a shareholder.
D)Partnership becomes a shareholder.
Q2) Garret and Hans own all the stock of GH Corporation.Garret sells all his GH stock to Olga on February 12.The next day,GH makes an S election.For the election to apply to the current year,who must consent to the election?
Q3) All shareholders must consent to the revocation of S status.
A)True
B)False
Q4) Swamp Corporation,a calendar-year taxpayer,has been an S corporation for several years.However,the corporation has become quite profitable,and management feels that it would be advantageous to make a public stock offering.What are Swamp Corporation's options concerning the date of revocation of the S election?
Q5) If losses are suspended due to the lack of basis in S corporation stock,do the losses expire when the S election terminates?
Q6) What is a permitted year?
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Chapter 12: The Gift Tax
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Sample Questions
Q1) Identify which of the following statements is true.
A)A purpose of the annual exclusion is to eliminate the necessity of accounting for and reporting small gifts such as those made for weddings and Christmas.
B)The gift tax exclusion is available only for a gift of a present interest.
C)A present interest is an unrestricted right to the immediate use,possession,or enjoyment of property or the income from property.
D)All of the above are true.
Q2) Contrast the Crummey trust with the Sec.2503(c)trust.
Q3) Calvin transfers land to a trust.His daughter Melissa will receive the income from the land for ten years.After ten years,the land is returned to Calvin.Calvin's interest is
A)a term certain.
B)a life estate.
C)a reversionary interest.
D)none of the above
Q4) In October 1976,Marian made a large taxable gift.It was her first gift.Marian used her $30,000 specific exemption to reduce her taxable gift amount.What impact does this gift have on her unified credit and death tax base?
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Page 14
Chapter 13: The Estate Tax
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Q1) Taxpayers can avoid the estate tax by making gifts at least a year prior to death.
A)True
B)False
Q2) 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
Q3) On December 1,1976,Bart made a gift and claimed a $30,000 specific exemption.When Bart died in 2008,his tax base was $2,000,000.Assuming the maximum unified credit is $780,800,what is the credit available when computing Bart's estate tax is what?
Q4) On March 1,Sue transfers stock worth $20,000 to Frank.How long must Sue live to avoid inclusion of the $20,000 of stock in her gross estate?
A)six months
B)one year
C)three years
D)No minimum time period exists,but she must be alive at transfer of ownership.
Q5) Explain why living trusts are popular tax-planning vehicles.
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Chapter 14: Income Taxation of Trusts and Estates
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Q1) Identify which of the following statements is false.
A)A trust receives no standard deduction when computing taxable income.
B)Trust tax preparation fees are miscellaneous itemized deductions and subject to the 2% nondeductible floor.
C)There is no limit on a fiduciary's charitable contribution deduction if such a contribution is authorized in the trust instrument.
D)All of the above are false.
Q2) Identify which of the following statements is true.
A)The personal exemption available to a trust is adjusted annually based on changes in the consumer price index.
B)Income received by a trust beneficiary has the same character it had at the trust level.
C)Distributable net income (DNI)excludes tax-exempt income.
D)All of the above are false.
Q3) A tax entity,often called a fiduciary,includes all of the following except A)estates.
B)complex trusts.
C)testamentary trusts.
D)All of the above are fiduciaries.
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Chapter 15: Administrative Procedures
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Q1) How long does a taxpayer have to file a petition with the U.S.Tax Court following the date of the Statutory Notice of Deficiency?
A)90 days
B)three months
C)180 days
D)30 days
Q2) A taxpayer can automatically escape the penalty for underpayment of taxes by A)owing less than $1,000 in taxes over and above the taxes withheld from wages. B)owing taxes in the previous year.
C)having a casualty loss.
D)none of the above
Q3) Pablo,a bachelor,owes $80,000 of additional taxes,all due to fraud.What is the amount of the civil fraud penalty? What criminal fraud penalty might be imposed under Sec.7201?
Q4) You are preparing the tax return for Agre Corporation,which has sales of $50 million.Agre made a $2 million expenditure for which the appropriate tax treatment,deductible or capitalizable,is a gray area.The corporation's Chief Financial Officer wants you to deduct the expenditure.What tax compliance issues should you consider in deciding whether to deduct the expenditure?
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Chapter 16: Ustaxation of Foreign-Related Transactions
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Q1) Pedro,a nonresident alien,licenses a patent to a U.S.company for an $11 per unit fee for each unit produced.As a result of receiving the fee,Pedro must recognize the fee as
A)ordinary income taxable in the United States.
B)capital gain taxable in the United States.
C)no gain or income taxed in the United States.
D)a portion of the gain,depending on the number of days Pedro is physically present in the United States during the current year.
Q2) U.S.citizen Patrick is a bona fide resident of a foreign country for all of the current year.Patrick uses a calendar year as his tax year.He has $100,000 of self-employment income and incurs $20,000 in housing expenses.The base housing cost amount is $15,616.The deduction for housing expenses is
A)$13,184 for AGI.
B)$13,184 from AGI.
C)$4,384 for AGI.
D)$6,816 from AGI.
Q3) 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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18
Chapter 17: An Introduction to Taxation
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Q1) The term "tax law" includes
A)Internal Revenue Code.
B)Treasury Regulations.
C)judicial decisions.
D)All of the above.
Q2) Which of the following is not an advantage of a limited liability company (LLC)?
A)limited liability for all members of a LLC
B)ability to choose between taxation as a partnership or corporation
C)default tax treatment as a corporation,unless otherwise elected
D)All of the above are advantages of an LLC.
Q3) The IRS must pay interest on
A)all tax refunds.
B)tax refunds paid later than 30 days after the due date.
C)tax refunds paid later than 45 days after the due date.
D)The IRS never pays interest on tax refunds.
Q4) The marginal tax rate is useful in tax planning because it measures the tax effect of a proposed transaction.
A)True
B)False
Q5) Describe the types of audits that the IRS conducts.
Page 19
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Chapter 18: Determination of Tax
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Q1) Julia provides more than 50 percent of the support for three individuals: Theresa,an unrelated child who lives with Julia all year long; Margaret,Julia's cousin,who lives in another city; and Emma,Julia's daughter,who lives in her own home.Each of the potential dependents earned less than $4,050.How many dependency exemptions can Julia claim on her 2017 tax return?
A)0
B)1
C)2
D)3
Q2) Suri,age 8,is a dependent of her parents and has unearned income of $6,000.She must file her own tax return.
A)True
B)False
Q3) A widow or widower may file a joint tax return and claim an exemption for the deceased spouse in the year of the spouse's death as long as the surviving spouse does not remarry before the end of the year.
A)True
B)False
Q4) Discuss reasons why a married couple may choose not to file a joint return.
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Chapter 19: Gross Income: Inclusions
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Q1) One of the requirements that must be met in order to defer recognition of income for advance payments for goods is
A)the taxpayer's method of accounting for the sale for tax purposes is the same as the method used for financial reporting purposes.
B)the goods are on the taxpayer's premises on the last day of the tax year.
C)the goods are produced in the United States.
D)the amount received is more than the taxpayer's cost of the goods.
Q2) David,age 62,retires and receives $1,000 per month annuity from his employer's qualified pension plan.David made $65,000 of after-tax contributions to the plan prior to his retirement.Under the simplified method,David's number of anticipated payments is 260.What is the amount includible in income in the first year of withdrawals assuming 12 monthly payments?
A)$2,600
B)$3,000
C)$9,000
D)$12,000
Q3) Ron and Eve are a married couple who plan to file separate tax returns.How will they determine how to split their income for tax reporting purposes?
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Chapter 20: Gross Income: Exclusions
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Q1) Cameron is the owner and beneficiary of a $300,000 policy on the life of his mother.Cameron sells the policy to his brother,Parker,for $100,000.Parker subsequently pays premiums of $55,000.Upon his mother's death,how much of the insurance proceeds must Parker include in income?
A)$0
B)$55,000
C)$145,000
D)$300,000
Q2) Melanie,a U.S.citizen living in Paris,France,for the last three years,earns a salary of $125,000 in 2017.Melanie's housing costs are $24,000 per year,which is reasonable.How much can Melanie exclude from income?
A)$118,436
B)$102,100
C)$109,764
D)$149,000
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) If a capital asset held for one year or more is sold at a gain,the gain is classified as long-term capital gain.
A)True
B)False
Q2) Darla sold an antique clock in 2017 for $3,000.She had purchased the clock in 2009 for $2,000.If she is otherwise in the 33% marginal tax bracket,what is the maximum tax rate on the capital gain on the sale of the clock?
A)33%
B)15%
C)28%
D)20%
Q3) Richard exchanges a building with a basis of $35,000,and subject to a liability of $25,000,for land with a FMV of $50,000 owned by Bill.Bill takes the building subject to the liability.What is the amount of Richard's realized gain?
A)$0
B)$15,000
C)$25,000
D)$40,000
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Chapter 22: Deductions and Losses
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Q1) On August 1 of the current year,Terry refinances her home and borrows $240,000.Terry is required to pay two points on the loan.The loan is secured by the residence and the charging of points is an established business practice in the area.The term of the loan is 20 years,beginning on August 1 of the current year.How much,if any,of the points may Terry deduct in the current year?
A)$0
B)$100
C)$240
D)$4,800
Q2) A deduction will be allowed for an expenditure unless the Internal Revenue Code specifically disallows it.
A)True
B)False
Q3) List those criteria necessary for an expenditure to be deductible as business or investment expenses.
Q4) Discuss why the distinction between deductions for AGI and from AGI is important to individuals.
Q5) What must a taxpayer do to properly document a deductible travel or entertainment expense?
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Chapter 23: Itemized Deductions
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Q1) A taxpayer can deduct a reasonable amount for small out-of-pocket (i.e.cash)donations.
A)True
B)False
Q2) Explain when the cost of living in an institution other than a hospital may be deductible.
Q3) Leo spent $6,600 to construct an entrance ramp and to widen doorways in his personal residence to make the home accessible for his wife,who is disabled and confined to a wheelchair.The $6,600 expenditure increased the value of the residence by $2,000.How much of the $6,600 is a deductible medical expense (before considering limits based on AGI)?
A)$0
B)$2,000
C)$4,600
D)$6,600
Q4) Acquisition indebtedness for a personal residence includes debt incurred to substantially improve the residence.
A)True
B)False
Q5) When are points paid on a loan deductible as interest expense?
Page 25
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Chapter 24: Losses and Bad Debts
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Q1) Jamie sells investment real estate for $80,000,resulting in a $15,000 loss.Jamie's loss is
A)an ordinary loss.
B)a capital loss.
C)a Sec.1231 loss.
D)a Sec.1244 loss.
Q2) An individual taxpayer has generated a net operating loss in 2017.He would like to receive a quick refund by filing a carryback claim on Form 1045.To obtain the quick refund,the taxpayer must file Form 1045 within 90 days after April 15,2018.
A)True
B)False
Q3) If a loan has been made to a related party,what are some considerations for determining whether the loan is a bona fide debt or is,in fact,merely a gift?
Q4) Losses from passive activities that cannot be deducted currently are carried over for up to 5 subsequent years.
A)True
B)False
Q5) What are some factors which indicate that a debt may be worthless?
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Chapter 25: Employee Expenses and Deferred Compensation
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Q1) Angie starts a new job and becomes covered under the employer's health insurance plan which has an annual deductible of $2,400.Angie contributes the maximum amount into a Health Savings Account.Which of the following statements regarding Angie's Health Savings Account is correct?
A)Angie can contribute and deduct $1,200 for AGI.
B)Angie's contribution will be deductible if she itemizes,and the contribution along with her out-of-pocket medical expenses exceed 10% of AGI.
C)If Angie withdraws $500 to pay for X-rays,the $500 is taxable.
D)Interest income earned on the HCA is taxable.
Q2) Generally,50% of the cost of business gifts is deductible up to $25 per donee per year.
A)True
B)False
Q3) Taxpayers may use the standard mileage rate method when five vehicles are used simultaneously for business.
A)True
B)False
Q4) Why did Congress establish Health Savings Accounts (HSAs)? How do HSAs operate?
Q5) What two conditions are necessary for moving expenses to be deductible?
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Chapter 26: Depreciation, cost Recovery, amortization, and Depletion
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Q1) In April 2017,Emma acquired a machine for $60,000 for use in her business.The machine is classified as 7-year property.Emma does not expense the asset under Sec.179,and it is not eligible for bonus depreciation.Emma's depreciation on the machine this year is
A)$30,000.
B)$60,000.
C)$6,428.
D)$8,574.
Q2) Capital improvements to real property must be depreciated over the remaining life of the property on which the improvements were made.
A)True
B)False
Q3) Arthur uses a Chevrolet Suburban (GVWR 7,500 pounds)100% for business.He acquired and placed the vehicle in service in his business in January of the current year.The vehicle cost $65,000.The maximum deduction allowed this year is
A)$13,000.
B)$38,000.
C)$25,000.
D)$33,000.
Page 28
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Chapter 27: Accounting Periods and Methods
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Q1) An installment sale is best defined as
A)any disposition of property in which at least three payments are received.
B)any disposition of property in which the installment method is elected by the taxpayer.
C)any disposition of property where at least one payment is received after the close of the taxable year in which disposition occurs.
D)any disposition of publicly traded securities or inventory where at least one payment is received after the close of the taxable year in which disposition occurs.
Q2) Emily made the following interest free loans to her children:
(1)$10,000 to Erin for a down payment on a new home.Her net investment income for the year is $1,300.
(2)$50,000 to Sasha to purchase stock.Her net investment income for the year is $800.
(3)$60,000 to Tim to purchase a new boat.His net investment income for the year is $2,800.
The applicable federal interest rate on similar loans is 5%.What is the amount of interest income that Emily must report from these transactions?
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Chapter 28: Property Transactions: Nontaxable Exchanges
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Q1) Laurie owns land held for investment.The land's FMV is $150,000.Laurie's basis in the land is $130,000.Laurie exchanges the land,plus $20,000 of cash,for a warehouse owned by Trey.The warehouse is worth $210,000,but is subject to a mortgage of $40,000 which Laurie will assume.Trey's basis in the warehouse is $120,000.Laurie's basis in the warehouse received will be
A)$150,000.
B)$170,000.
C)$190,000.
D)$210,000.
Q2) Which of the following statements regarding involuntary conversions is incorrect?
A)With some exceptions,the replacement property must be similar or related in service or use to the property converted.
B)The functional-use test is more restrictive than the like-kind test.
C)The taxpayer-use test applies to the involuntary conversion of rental property owned by an investor.
D)Real property used in a trade or business that is condemned must be replaced with property which has the same functional use as the converted property.
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Chapter 29: Property Transactions: Sec1231 and Recapture
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Q1) Costs of tangible personal business property which are expensed under Sec.179 are subject to recapture if the property is converted to nonbusiness use before the end of the MACRS recovery period.
A)True
B)False
Q2) The purpose of Sec.1245 is to eliminate the advantage taxpayers would have if they were able to reduce ordinary income by depreciation deductions and also receive favorable Sec.1231 treatment when the asset was sold.
A)True
B)False
Q3) If the recognized losses resulting from involuntary conversions arising from casualty or theft exceed the recognized gains from such events (i.e.a net loss from the casualty),all of the involuntary conversions are treated as ordinary gains and losses.
A)True
B)False
Q4) Sec.1231 property must satisfy a holding period of more than one year.
A)True
B)False
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Chapter 30: Special Tax Computation Methods, tax Credits, and Payment of Tax
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Q1) ChocoHealth Inc.is developing new chocolate products providing abundant health benefits at low calorie counts.For the past three years,it spent an average of $500,000 per year on research.ChocoHealth has spent $900,000 on research.The company has elected the simplified credit.For the current year,it will earn a research credit of A)$54,000.
B)$126,000.
C)$80,000.
D)$91,000.
Q2) A corporation has $100,000 of U.S.source taxable income and $300,000 of foreign source taxable income from countries X and Y for a total worldwide taxable income of $400,000.Countries X and Y levy a total of $60,000 in foreign taxes upon the foreign source taxable income.U.S.taxes before credits are $140,000.The foreign tax credit limitation is
A)$35,000.
B)$60,000.
C)$80,000.
D)$105,000.
Q3) Discuss the tax planning techniques available to a U.S.citizen who is on a foreign job assignment.
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Chapter 31: Tax Research
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Q1) Read the applicable material.
Q2) Tax Court memorandum decisions
A)cannot be appealed.
B)are not published.
C)have less precedential value than regular decisions.
D)usually deal with factual variations of issues litigated previously.
Q3) Check the supplementary (current developments)material.
Q4) Identify which of the following statements is true.
A)If regulations are issued prior to the latest tax legislation dealing with a specific Code section,the regulations are no longer effective to the extent they conflict with the provisions in the new legislation.
B)Legislative regulations are more likely to be invalidated by the courts than are interpretative regulations.
C)Regulations have more authoritative weight than tax statutes.
D)All of the above are false.
Q5) According to the Statements on Standards for Tax Services,what belief should a CPA have before taking a pro-taxpayer position on a tax return?
Q6) What is the purpose of a citator?
Q7) Compare and contrast proposed,temporary,and final regulations.
Page 33
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Chapter 32: Corporations
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Q1) Nguyen Corporation,a calendar-year corporation,has a $40,000 current E&P deficit and a $60,000 positive accumulated E&P balance.Also assume that shareholders of the corporation have a total basis in outstanding shares of $35,000.A $75,000 distribution is made to the shareholders on the last day of the year.What is the tax treatment of the $75,000 distribution to the shareholders?
Q2) If a corporation reports both a NLTCG and a NSTCG after netting all capital gains and losses,both the NLTCG and the NSTCG are subject to tax at rates applicable to ordinary income.
A)True
B)False
Q3) A controlled group of corporations must apportion the lower tax rates among the group members as if only one corporation existed.
A)True
B)False
Q4) C corporations can choose between the cash-basis and accrual-basis methods of accounting.
A)True
B)False
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Page 34
Chapter 33: Partnerships and S Corporations
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Q1) A nonliquidating distribution of cash or property from the partnership to a partner is generally treated as a tax-free return of capital to the extent of a partner's basis.
A)True
B)False
Q2) The basis of a partner's interest in a partnership is adjusted to reflect each partner's share of income and deduction items only if a distribution is made to the partners.
A)True
B)False
Q3) S corporation shareholders who own more than 2% of the outstanding stock are eligible for which of the following tax-free benefits?
A)group term life insurance exclusion under Sec.79 for premiums paid for up to $50,000 coverage
B)exclusion for meals and lodging furnished for the convenience of the employer
C)exclusion from income for premiums paid for accident and health and medical reimbursement plans
D)None of the above.
Q4) What is the primary purpose of Form 1065,Partnership Tax Return?
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Chapter 34: Taxes and Investment Planning
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Q1) Given that D<sub>n</sub> is the amount of deferred compensation received in lieu of $1 currently,then if the employee's indifference level of D<sub>n</sub> exceeds the employer's indifference level of D<sub>n</sub>,the employee must accept current salary because the employer will not pay the employee's required deferred compensation.
A)True
B)False
Q2) One of the characteristics of the Exempt Model is that earnings on the investment are exempt from explicit taxation.
A)True
B)False
Q3) The Deferred Model investment outperforms the Current Model investment if interest rates and tax rates are constant over time because the interest on the Deferred Model investment grows tax free until withdrawal.
A)True
B)False
Q4) In the Deferred Model,only after-tax dollars are invested.
A)True
B)False
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