Tax Research and Planning Final Test Solutions - 1727 Verified Questions
Chapter 6: Corporate Liquidating Distributions
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Q1) Santa Fe Corporation adopts a plan of liquidation late in the current tax year in which it expects to earn $100,000 profits from its operating activities.Santa Fe's operating activities are discontinued before the end of the year.Pursuant to the liquidation,it distributes assets,which result in the recognition of $30,000 of ordinary losses.Santa Fe also distributes assets that have appreciated in value,which results in the recognition of $30,000 of ordinary gains.Generally,Santa Fe Corporation should distribute
A) the $30,000 of ordinary loss property in the current year and the $30,000 of ordinary gain property next year.
B) both the ordinary loss and gain properties this year.
C) both the ordinary losses and gains properties next year.
D) the $30,000 of ordinary gain property in the current year and the $30,000 of ordinary loss property next year.
Q2) Under the general liquidation rules,Missouri Corporation is liquidated,with Jefferson receiving $5,000 in cash plus other property having a $6,000 FMV and assuming a $2,000 mortgage on the property.Jefferson's basis in his Missouri stock is $8,000.What is Jefferson's amount realized and gain or loss recognized on the liquidation?
Q3) Are liquidation and dissolution the same? Explain your answer.
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Page 8
Chapter 7: Corporate Acquisitions and Reorganizations
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Q1) Identify which of the following statements is true.
A) When the acquiring corporation makes the Sec. 338 election, the target corporation is treated in many respects as a new corporation.
B) A Sec. 338 election requires the adoption of the old target corporation's tax year by the new target corporation.
C) Tax attributes of the target corporation are not lost when a Sec. 338 deemed liquidation election is made.
D) All of the above are false.
Q2) A Type C reorganization is a change in identity,legal form,or state of incorporation in which the shareholders retain the same equity interest.
A)True
B)False
Q3) Tax attributes of the target corporation are lost when a Sec.338 deemed liquidation election is made.
A)True
B)False
Q4) Define the seven classes of assets used in allocating basis when using the residual method.
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9
Chapter 8: Consolidated Tax Returns
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Q1) Which of the following intercompany transactions creates temporary book/tax differences when a parent corporation owns 100% of a subsidiary's stock and the companies file a consolidated return?
A) intercompany dividends
B) undistributed subsidiary earnings
C) intercompany sale
D) None of the above items create temporary differences.
Q2) Subsidiary Corporation purchases a used machine from Parent Corporation in an intercompany transaction.Which of the following events is a corresponding event for the intercompany transaction?
A) the purchasing group member depreciating the machine
B) the purchasing group member selling the machine for cash to a nonmember of the group
C) the departure of the purchasing group member from the affiliated group when its stock is sold to a nonmember of the group
D) All of the above are recognition events.
Q3) The treatment of capital loss carrybacks and carryovers is similar to NOLs.
A)True
B)False
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Page 10
Chapter 9: Partnership Formation and Operation
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Q1) Identify which of the following statements is true.
A) A partnership cannot have an NOL carryback or carryforward.
B) A partnership cannot make charitable contributions.
C) Dividends received by a partnership from a domestic corporation are included in the partnership's ordinary income.
D) All of the above are false.
Q2) Mario contributes inventory to a partnership on August 1 of this year in exchange for a 20% partnership interest.Mario had purchased the inventory on July 2 of last year.His holding period for the partnership interest begins
A) July 2 of last year.
B) July 3 of last year.
C) August 1 of the current year.
D) August 2 of the current year.
Q3) Jason,a lawyer,provided legal services for the employees of the ABC Partnership during the first six months of the current year.In exchange,he received a 2% capital and profits interest in the partnership.The value of the interest is $5,000.What are the tax consequences to Jason,the ABC Partnership,and the employees of ABC?
Q4) What is included in partnership taxable income?
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Page 11
Chapter 10: Special Partnership Issues
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Q1) A partnership terminates for tax purposes
A) only when it terminates under local partnership law.
B) when at least 50% of the total interest in partnership capital and profits changes hands by sale or exchange within twelve consecutive months.
C) when the sale of partnership assets is made only to an outsider(s) and not to an existing partner(s).
D) when a partnership tax return (Form 1065) ceases to be filed by the partnership.
Q2) A partner can recognize gain,but not loss,on a liquidating distribution.
A)True
B)False
Q3) What is the character of the gain/loss on the sale of a partnership interest?
Q4) Han purchases a 25% interest in the CHOP Partnership from Huang for $600,000.The partnership has assets with a basis of $1,600,000.What is the amount of the basis adjustment,if the partnership has a 754 election in place?
A) $0
B) $150,000 increase in Han's basis in his partnership interest
C) $200,000 increase in Han's share of the basis in partnership assets
D) $1,000,000 increase in partnership assets
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Page 12
Chapter 11: US Corporations
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Q1) Identify which of the following statements is true.
A) Shareholders who acquire stock in an S corporation after the election date and prior to the election's effective date must consent to the election.
B) S corporation consent by shareholders is binding on the current tax year and all future tax years.
C) Only shareholders who own stock on the date an S election takes effect must consent to the election.
D) All of the above are false.
Q2) Identify which of the following statements is true.
A) The overall S corporation loss limitation equals the shareholder's adjusted basis for his/her S corporation stock plus his/her ratable share of all S corporation liabilities.
B) The loss pass-throughs from an S corporation may produce a net operating loss for the shareholder.
C) An S corporation shareholder can increase the adjusted basis of his/her stock by any indebtedness owed the shareholder by the S corporation.
D) All of the above are false.
Q3) What is a permitted year?
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Chapter 12: The Gift Tax
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Q1) Identify which of the following statements is true.
A) If the gifted property's FMV on the date of the gift exceeds its adjusted basis and the donor pays no gift tax, the donee's basis is the same as the donor's basis if the property is sold for a loss.
B) Prospective donors should not dispose of property that has declined in value by selling it rather than gifting it.
C) A $13,000 annual exclusion per donee is available for both gift tax and estate tax purposes.
D) All of the above are false.
Q2) On June 1,Sherri deposits $60,000 into a new joint bank account in the names of Sherri and John.Her friend John makes no deposits.On December 15th,John withdraws $25,000 from the joint account.What are the gift tax consequences,if any?
Q3) Mike transfers securities to an irrevocable trust and gives Rachel the power to determine who will receive the trust's income and assets.Rachel,her estate,and her creditors cannot be beneficiaries or receive the trust assets.Rachel has a general power of appointment.
A)True
B)False
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Page 14
Chapter 13: The Estate Tax
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Q1) Guy died this year.His estate includes a closely held business interest valued at $400,000 and other property valued at $675,000.Guy's allowable Sec.2053 and 2054 deductions total $75,000.Within three years of death,partly in hopes of qualifying his estate for the installment payment allowed under Sec.6166 treatment,Guy made gifts of listed securities of $350,000 (at 2002 valuations)and paid no gift tax on the gift.Is Guy's estate eligible for Sec.6166 treatment?
Q2) In 2001,Clara made taxable gifts of $2 million.This year,Clara dies with a taxable estate of $4 million.At the time of her death,the FMV of the property Clara gifted in 2001 is $8 million.What is the amount of the estate tax base?
Q3) Mary Johnson dies early in the current year.All her property passes subject to her will,which states that all of her property is to go to a QTIP trust for Dan for life with the remainder to their children.Mary's gross estate is about $5 million,and her Sec.2053 deductions are very small.Dan,who is in poor health,already owns about $3 million of property.What tax issues should Dan Johnson and the estate's executor consider with respect to the property that passes to the QTIP trust?
Q4) Compare the tax treatment of administration expenses with that of the decedent's debts.
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) In the current year,a trust has distributable net income (DNI)of $30,000.During the year,the trust makes a mandatory distribution to Sarah of $5,000 and a discretionary distribution of $10,000 to Kyle.The trust has no tax-exempt income.The distribution deduction of the trust is
A) $30,000.
B) $15,000.
C) $10,000.
D) $5,000.
Q2) Revocable trusts means
A) the transferor may not demand the assets be returned.
B) income or estate tax savings for the grantor.
C) the assets in the trust avoid probate.
D) the grantor is always the beneficiary.
Q3) Briefly discuss some of the reasons for using a revocable trust.
Q4) For purposes of trust administration,the term "sprinkling" relates to the mandatory distribution of income among various beneficiaries.
A)True
B)False
Q5) What is the basis of inherited IRD items to the beneficiary?
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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) In order to appeal to the Appeals Division,a taxpayer must submit a protest letter to the IRS
A) if an office audit is involved.
B) as a response to receiving a 30-day letter.
C) in a field audit involving an assessment of taxes, interest, and penalties in excess of $25,000.
D) if a TCMP audit is involved.
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) What is the difference between the burden of proof for civil and criminal fraud?
Q5) For innocent spouse relief to apply,five conditions must be met.Explain them.
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Chapter 16: US Taxation of Foreign-Related Transactions
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Q1) Jacque,a single nonresident alien,is in the United States for 80 days in the current year engaging in the conduct of a U.S.trade or business.Jacque has a $15,000 capital gain on the sale of stock in a U.S.corporation while he was in the United States.The capital gain is not connected to his trade or business.How will the capital gain be taxed and how will the tax be collected?
Q2) In accounting for multinational corporations,
A) SFAS 109 requires companies to include taxes on repatriation of foreign earnings as a deferred tax asset.
B) the deferral of foreign earnings is a temporary difference.
C) SFAS 109 allows the parent to exclude taxes on repatriated foreign earnings if they will not be repatriated in the foreseeable future.
D) a corporation with excess foreign tax credits will record a deferred tax liability.
Q3) Nonresident aliens are not allowed to claim the standard deduction.
A)True
B)False
Q4) Discuss the use of a "tax haven" nation to reduce taxes and the effect of Subpart F rules on such planning.
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