Tax Practice and Procedures
Mock Exam
Course Introduction
This course provides a comprehensive overview of the principles and procedures involved in tax practice, focusing on the preparation and filing of tax returns, the resolution of tax controversies, and the ethical responsibilities of tax practitioners. Students will gain practical knowledge of tax compliance, IRS examination processes, appeals, and collection procedures. The course also covers strategies for representing clients before tax authorities, understanding statutory deadlines, and applying procedural rules to real-world tax issues. Emphasis is placed on developing research, analytical, and communication skills essential for effective tax representation and compliance.
Recommended Textbook
South Western Federal Taxation 2009 Corporations Partnerships Estates and Trusts 32nd Edition
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19 Chapters
2406 Verified Questions
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Chapter 1: Understanding and Working With the Federal Tax Law
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Sample Questions
Q1) What company or group publishes Supreme Court cases?
A)U.S. Government Printing Office.
B)Commerce Clearing House.
C)Research Institute of America.
D)Lawyer's Co-operative Publishing Company.
E)All of the above.
Answer: E
Q2) Which provision could best be justified as a means of controlling the economy?
A)Write-off of research and development expenditures.
B)The § 179 immediate write-off.
C)Amortization of pollution control facilities.
D)The rehabilitation tax credit.
E)None of the above.
Answer: B
Q3) There are three Courts of Federal Claims.
A)True
B)False
Answer: False
Page 3
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Chapter 2: Corporations: Introduction and Operating Rules
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Q1) Bass Corporation received a dividend of $80,000 from Trout Corporation.Bass owns 15% of the Trout Corporation stock.Assuming it is not subject to the taxable income limitation,Bass's dividends received deduction is $64,000.
A)True
B)False Answer: False
Q2) Sage,Inc.,a closely held corporation that is not a PSC,has a $140,000 passive loss,$85,000 of active business income,and $35,000 of portfolio income.How much of the passive loss can Sage deduct?
A)$0.
B)$85,000.
C)$120,000.
D)$140,000.
E)None of the above.
Answer: B
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4
Chapter 3: Corporations: Special Situations
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Sample Questions
Q1) The AMT NOL deduction is limited to 80%.
A)True
B)False
Answer: False
Q2) The exemption amount is phased out entirely when AMTI reaches:
A)$40,000.
B)$310,000.
C)$1,000,000.
D)$5,000,000.
E)Some other amount.
Answer: B
Q3) Green Company,a U.S.corporation based in Arkansas,manufactures and sells a product which includes some components made in Mexico.All of Green's income from sales might constitute DPGR.
A)True
B)False
Answer: True
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Chapter 4: Corporations: Organization and Capital Structure
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Sample Questions
Q1) When forming a corporation,a transferor-shareholder may choose to receive some corporate debt along with stock. Identify some of the issues the transferor must consider when deciding whether debt should be a part of the transaction.
Q2) Eileen transfers property worth $200,000,basis of $60,000,to Goldfinch Corporation.In return,she receives 80% of the stock in Goldfinch Corporation worth $180,000,and a long-term note,executed by Goldfinch and made payable to Eileen,worth $20,000.Eileen will recognize no gain on the transfer.
A)True
B)False
Q3) Three individuals form Skylark Corporation with the following contributions: Cliff,cash of $50,000 for 50 shares; Brad,land worth $20,000 (basis of $11,000)for 20 shares; and Ron,cattle worth $9,000 (basis of $6,000)for 9 shares and services worth $21,000 for 21 shares.
A)These transfers are fully taxable and not subject to § 351.
B)Ron's basis in his stock is $27,000.
C)Ron's basis in his stock is $6,000.
D)Brad's basis in his stock is $20,000.
E)None of the above.
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Chapter 5: Corporations: Earnings and Profits and Dividend
Distributions
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Sample Questions
Q1) The tax treatment of corporate distributions at the shareholder level does not depend on:
A)The basis of stock in the hands of the shareholder.
B)The earnings and profits of the corporation.
C)The character of the property being distributed.
D)Whether the distributed property is subject to a liability.
E)None of the above.
Q2) Green Corporation has accumulated E & P of $50,000 on January 1,2008.In 2008,Green has current E & P of $65,000 (before any distribution).On December 31,2008,the corporation distributes $125,000 to its sole shareholder,Maxwell (an individual).Green Corporation's E & P as of January 1,2009 is:
A)$0.
B)($10,000).
C)$50,000.
D)$65,000.
E)None of the above.
Q3) Differences between MACRS and ADS cost recovery require an E & P adjustment.
A)True
B)False
Q4) Nontaxable stock dividend distributed to shareholders.
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Chapter 6: Corporations: Redemptions and Liquidations
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Sample Questions
Q1) At a time when Blackbird Corporation had E & P of $600,000 and 1,000 shares of stock outstanding,the corporation distributed $200,000 to redeem 200 shares of its stock.The transaction qualified as a disproportionate redemption for the shareholder.Blackbird's E & P is reduced by $120,000 as a result of the distribution.
A)True
B)False
Q2) Hazel,Emily,and Frank,unrelated individuals,own all of the stock in Wren Corporation (E & P of $900,000)as follows: Hazel,100 shares; Emily,100 shares; and Frank,400 shares.Wren redeems 150 of Frank's shares (basis of $60,000)for $150,000.With respect to the distribution in redemption of the stock:
A)Frank has dividend income of $90,000.
B)Frank has a capital gain of $90,000.
C)Frank has dividend income of $150,000.
D)Frank has a capital gain of $150,000.
E)None of the above.
Q3) Why is the redemption to pay death taxes a uniquely advantageous qualifying stock redemption provision?
Q4) Discuss when stock is treated as § 306 stock.
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Chapter 7: Corporations: Reorganizations
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Sample Questions
Q1) Noncorporate shareholders would prefer to have a gain on a corporate reorganization treated as a capital gain rather than as a dividend,because of the lower tax rates applied to capital gains.
A)True
B)False
Q2) If the tax implications and dollar amounts involved in a reorganization are significant,the participating corporations should apply for a ____________________ ____________________ from the IRS.
Q3) Target Corporation is merging into Acquiring Corporation under state law requirements.Target has 3,000 shares outstanding,with a value of $100 per share.Joey,one of Target's shareholders,exchanges his 500 Target shares,for which he paid $80 per share,for 1,000 shares of Crow stock,valued at $30 per share,and $5,000 cash.Acquiring owns 40% of Crow stock.How does Joey treat this transaction for tax purposes?
A)Joey recognizes a $5,000 gain.
B)Joey has a recognized $60,000 gain.
C)Joey recognizes no gain or loss.
D)Joey has a recognized loss of $5,000.
E)None of the above.
Q4) Shareholder's loss to the extent of boot received in a qualified reorganization.
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Chapter 8: Consolidated Tax Returns
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Sample Questions
Q1) A penalty can be assessed by the IRS if the parent corporation does not keep good records to support the computation of a subsidiary's stock basis.
A)True
B)False
Q2) When accumulated taxable losses of a subsidiary exceed the parent's acquisition price,the basis in the subsidiary's stock becomes negative.
A)True
B)False
Q3) How do the requirements differ in identifying an affiliated group rather than a parent-subsidiary controlled group?
Q4) Member's operating gains/profits
Q5) The right to file on a consolidated basis is available to a group of corporations when they constitute a parent-subsidiary controlled group.
A)True
B)False
Q6) In terms of the consolidated return rules,non-U.S.corporations,tax-exempt entities,limited liability companies,partnerships,and trusts are ____________________ corporations.
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Chapter 9: Taxation of International Transactions
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Sample Questions
Q1) ForCo,a controlled foreign corporation owned 100% by USCo,earned $900,000 in Subpart F income for the current year.ForCo's current year E & P is $150,000 and it's accumulated E & P is $18 million.What is the current year Subpart F deemed dividend to USCo?
A)$18 million.
B)$900,000.
C)$150,000.
D)$0.
E)None of the above.
Q2) Amelia,Inc.,a domestic corporation receives a $100,000 cash dividend from Starke,Ltd.,a § 902 noncontrolled foreign corporation (i.e.,Amelia owns at least 10% but Starke is not a CFC).Amelia owns 15% of Starke.Starke's post-1986 E & P is $2 million and it has paid foreign taxes of $1 million attributable to post-1986 E & P.What is the § 902 FTC allowed Amelia related to the Starke dividend?
A)$0.
B)$50,000.
C)$100,000.
D)$200,000.
E)None of the above.
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Chapter 10: Partnerships: Formation, operation, and Basis
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Sample Questions
Q1) Guaranteed payment
Q2) Disguised sale
Q3) On the first day of the current tax year,Melanie's basis in her partnership interest was $85,000.Her Schedule K-1 from the partnership reflected the following items for the current year: share of partnership ordinary loss,$95,000; interest income from money market accounts,$6,000.On her personal tax return,Melanie will report a loss from the partnership of $91,000,and interest income of $6,000.
A)True
B)False
Q4) PaulCo,DavidCo,and Ralph form a partnership with cash contributions of $80,000,$50,000 and $30,000,respectively,and agree to share profits and losses in the ratio of their original cash contributions.PaulCo uses a January 31 fiscal year-end,while DavidCo and Ralph use a November 30 and December 31 fiscal year-end,respectively.Since PaulCo is a majority partner,this partnership will use a January 31 year-end.
A)True
B)False
Q5) Precontribution gain
Q6) Entity concept
Page 12
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Chapter 11: Partnerships: Distributions, transfer of Interests, and Terminations
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Sample Questions
Q1) Liquidating distribution
Q2) Payment of $100,000 cash,representing the partner's share of the value of partnership equipment which has a potential depreciation recapture of $25,000.
Q3) Nonqualified distribution
Q4) A § 754 election is made for a tax year in which the partner recognizes gain or loss on a distribution from the partnership or the basis in distributed property is increased or decreased from the inside basis the partnership held in those assets.The election is made by a partner any time it is necessary to adjust his or her share of the inside basis of partnership assets.
A)True B)False
Q5) 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 take a $10,000 basis in the property,and his basis in the partnership interest is reduced to zero.
A)True B)False
Page 13
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Chapter 12: S Corporations
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Sample Questions
Q1) For a new corporation,a premature S election may not be effective.
A)True
B)False
Q2) Pepper,Inc.,an S corporation in Norfolk,Virginia,has revenues of $400,000,taxable interest of $380,000,operating expenses of $250,000,and deductions attributable to the interest income of $140,000.What is Pepper's § 1375 penalty tax payable?
A)$0.
B)$40,895.
C)$185,000.
D)$380,000.
E)Some other amount.
Q3) An S corporation may be subject to the following tax.
A)Corporate income tax (§ 11).
B)Passive investment income tax.
C)Personal holding company tax.
D)Alternative minimum tax.
E)None of the above apply to S corporations.
Q4) The maximum individual tax rate is ______________ (higher,lower,the same)as the corporate income rate.
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Chapter 13: Comparative Forms of Doing Business
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Sample Questions
Q1) General partnership.
Q2) Personal service corporations can offset passive activity losses against active income,but not against portfolio income.
A)True
B)False
Q3) Thrush,Inc.,provides group-term life insurance of $50,000 for all of its employees.The total cost of such coverage is $15,000.Wren,Inc.,does not provide such coverage.Instead,it increases the employees' salaries by $15,000 so the employees can purchase such coverage if they choose to do so.The corporations are in the 34% tax bracket,and the shareholders are in the 28% tax bracket.Compare the effects of the two different fringe benefit policies on the corporations and on the employees.
Q4) What planning opportunity may be available for a C corporation that incurs the alternative minimum tax (AMT)each year because of the ACE adjustment?
Q5) Section 1244 ordinary loss treatment is available to shareholders in a C corporation but not to those in an S corporation.
A)True
B)False
Q6) Technique for minimizing double taxation.
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Chapter 14: Exempt Entities
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Sample Questions
Q1) An exempt organization is located in the state of Nevada.Gambling in Nevada is legal.Therefore,bingo games are conducted by both taxable and tax-exempt organizations.If the net earnings from the bingo games are less than $25,000,the exempt organization is not subject to the unrelated business income tax (UBIT).
A)True
B)False
Q2) Even though substantially all the work of an unrelated trade or business is performed by volunteers,it can be subject to the unrelated business income tax (UBIT).
A)True
B)False
Q3) Is the taxation of a feeder organization influenced by the percentage of its earnings that it remits to an exempt organization?
Q4) Personal property rental income is subject to and real property rental income is not subject to the unrelated business income tax.
A)True
B)False
Q5) Private foundation
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Chapter 15: Multistate Corporate Taxation
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Q1) The ____________________ tax usually is applied at the city or county level,as its main source of revenue.
Q2) States use the same apportionment factors and formula.
A)True
B)False
Q3) State A does not apply a throwback rule.General Corporation is taxable in a number of states and made a $100,000 sale from its A headquarters to a State B office of an agency of the U.S.government.General has not established nexus with B.In which state(s)will the sale be included in the sales factor?
A)All in A.
B)All in B.
C)In none of the states.
D)In all of the states, according to the apportionment formulas of each, as the U.S. government is present in all states.
Q4) ____________________ is a method under which specific components of a corporation's income are directly assigned to a specific state.
Q5) A garment purchased by an actress
Q6) Summarize the principles of multistate tax planning.
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Chapter 16: Tax Practice and Ethics
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Sample Questions
Q1) The Statements on Standards for Tax Services apply to attorneys,as well as to CPAs.
A)True
B)False
Q2) Carol's AGI last year was $180,000.Her Federal income tax came to $60,000,which she paid through a combination of withholding and estimated payments.This year,her AGI will be $200,000,with a projected tax liability of $75,000,all to be paid through estimates.Ignore the annualized income method.Compute Carol's quarterly estimated payment schedule for this year.
Q3) The IRS need not pay the taxpayer interest on a refund if the payment is made within ____________________ days of the due date of a timely filed return.
Q4) Compute the failure to pay and failure to file penalties for John,who filed his 2007 income tax return on December 6,2008,paying the $15,000 amount due.On April 1,2008,John had received a six-month extension of time in which to file his return,but he paid no tax with the extension request.He has no reasonable cause for failing to file his return by October 15 or for failing to pay the tax that was due on April 17,2008.John's failure to comply with the tax laws was not fraudulent.
Q5) Failure to file a return
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Page 18
Chapter 17: The Federal Gift and Estate Taxes
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Sample Questions
Q1) An estate tax is a tax on the right of an heir to receive property on the death of the owner.
A)True
B)False
Q2) Note receivable issued by a grandson and forgiven by the decedent in her will.
Q3) Jason and Emma are brother and sister.Using his funds,Jason purchases land,listing title as: "Jason and Emma,joint tenants with right of survivorship." If Jason dies first,one-half is included in his gross estate as to the land.
A)True
B)False
Q4) Derek and Tanya are husband and wife and live in Arizona,a community property state.If Derek receives a gift of land from his father,the land is their community property. A)True
B)False
Q5) Maggie purchased an insurance policy on Jim's life and designated Susan as the beneficiary.
Q6) Interest on municipal bonds accrued prior to death.
Q7) Post-death property taxes paid to county on realty included in the gross estate.
Page 19
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Chapter 18: Family Tax Planning
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Sample Questions
Q1) Which,if any,of the following statements reflects the correct tax valuation rules?
A)The value of a note receivable is its face amount.
B)The geographical location of the property is relevant.
C)Sentimental value should be considered.
D)Values listed in the classified section of the newspaper are not representative.
E)None of the above.
Q2) Transfer by death of depreciable property.
Q3) A well-known artist dies and among her assets are a large number of her paintings.What approach might be taken to lower the value of her estate?
Q4) Jen inherits her father's farm,and the executor of the estate properly makes a § 2032A election.Six years later,Jen sells the farm.It is determined that the election,which allowed $600,000 in value to be excluded,saved $120,000 in estate taxes.What are Jen's tax options? Tax consequences?
Q5) Can produce income tax,ad valorem property tax,and estate tax savings.
Q6) Made life insurance payable to children.
Q7) Donee's basis for loss.
Q8) A gift will not cause income tax consequences to the donor.
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Chapter 19: Income Taxation of Trusts and Estates
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Q1) The grantor set up a trust,income to a daughter,remainder to a grandson.To the extent that trust income is accumulated for a later distribution to the grandson,Subchapter J rules are ignored,and the income is taxed to the grantor.
A)True
B)False
Q2) Which,if any,of the following statements relates to the tax treatment of both estates and trusts?
A)The entity is required to distribute all of its income currently to its beneficiaries.
B)The entity must use the same tax year as its creator (i.e., grantor, decedent).
C)In the year of its termination, the entity's net operating loss carryovers are passed through to its beneficiaries.
D)None of the above.
Q3) Trusts are created exclusively to reduce tax liabilities.
A)True
B)False
Q4) A casualty loss of a trust usually is allocable to ____________________.
Q5) Can a trust or estate claim a deduction for cost recovery? Explain.
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Page 21