Tax Research and Policy Pre-Test Questions
Course Introduction
Tax Research and Policy explores the principles and methods used to analyze tax laws and develop sound tax policy. The course covers primary sources of tax authority, advanced research techniques, and the interpretation and application of tax statutes, regulations, and case law. Students will examine current topics in tax policy, including tax equity, efficiency, and economic impact, as well as the legislative and regulatory processes that shape tax rules. Practical research assignments and case studies will help students develop critical thinking skills and the ability to effectively communicate tax findings and policy recommendations.
Recommended Textbook
South Western Federal Taxation 2011 Comprehensive 34th Edition by William H. Hoffman
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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) If the tax deficiency is attributable to fraud,the negligence penalty will not be imposed.
A)True
B)False
Answer: True
Q2) Characteristics of the "Fair Tax" (i.e. ,national sales tax)include which,if any,of the following:
A)Abolition of the Federal individual (but not the corporate)income tax.
B)Abolition of all Federal income taxes but retention of payroll taxes (including the self-employment tax).
C)Abolition of all Federal income taxes and payroll taxes but retention of the Federal estate and gift taxes.
D)Abolition of all Federal income and payroll taxes as well as the Federal estate and gift taxes.
E)None of the above.
Answer: D
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Page 3
Chapter 2: Working With the Tax Law
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Sample Questions
Q1) Which trial court's jurisdiction depends on the geographical location of the taxpayer?
A)U.S.Tax Court.
B)U.S.District Court.
C)U.S.Court of Federal Claims.
D)Small Cases Division of the Tax Court.
E)None of the above.
Answer: B
Q2) Which of the following is not an administrative source of the tax law?
A)General Counsel Memoranda.
B)Revenue Procedures.
C)Technical Advice Memoranda.
D)Actions on Decisions.
E)All of the above are administrative sources.
Answer: E
Q3) Before 1943,the U.S.Tax Court was called the Board of Tax Appeals.
A)True
B)False
Answer: True
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4
Chapter 3: Computing the Tax
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Sample Questions
Q1) Heloise,age 74 and a widow,is claimed as a dependent by her daughter.For 2010,she had income as follows: $2,500 interest on municipal bonds;$3,200 Social Security benefits;$3,000 income from a part-time job;and $2,800 dividends on stock investments.What is Heloise's taxable income for 2010?
Answer: $1,100.$3,000 (income from job)+ $2,800 (dividends)- $3,300 (basic standard deduction is $3,000 + $300)- $1,400 (additional standard deduction for age)= $1,100.The Social Security benefits of $3,200 and the interest on municipal bonds of $2,500 are not taxable.
Q2) For the qualifying relative rule (for dependency exemption purposes):
A)The dependent must be under age 19 or a full-time student under age 24.
B)The dependent need not reside with the taxpayer claiming the exemption.
C)The dependent must be related to the taxpayer claiming the exemption.
D)The dependent must be a citizen or resident of the U.S.
E)None of the above.
Answer: B
Q3) In some cases,the tax on long-term capital gains can be as low as 0%.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Gross Income: Concepts and Inclusions
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Q1) The tax concept and economic concept of income are in agreement on which of the following:
A)The fair rental value of an owner-occupied home should be included in income.
B)The increase in value of assets held for the entire year should be included in income for the year.
C)The decrease in value of assets held for the entire year should reduce income for the year.
D)All of the above.
E)None of the above.
Q2) Which of the following is not a requirement for an alimony deduction?
A)The payments must be in cash.
B)The payments must cease upon the death of the payee.
C)The payments must be pursuant to a legal obligation to provide support.
D)The payor and payee must not live in the same household at the time of the payments.
E)All of the above are requirements for an alimony deduction.
Q3) In some foreign countries,the tax law specifically designates the types of income items that are includible in gross income.How does this approach compare with the U.S.Internal Revenue Code (§ 61)? What is a major advantage to the approach used in the U.S.tax law?
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Chapter 5: Gross Income: Exclusions
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Q1) Beverly died during the current year.At the time of her death,her accrued salary and commissions totaled $3,000 and were paid to her husband.The employer also paid the husband $35,000 which represented an amount equal to Beverly's salary for the year prior to her death.The employer had a policy of making the salary payments to "help out the family in the time of its greatest need." Beverly's spouse collected her interest in the employer's qualified profit sharing plan amounting to $30,000.As beneficiary of his wife's life insurance policy,Beverly's spouse elected to collect the proceeds in installments.In the year of death,he collected $8,000 which included $1,500 interest income.Which of these items are subject to income tax for Beverly's spouse?
Q2) Sarah's employer pays the hospitalization insurance premiums for a policy that covers all employees and their family members.Sarah can exclude from her gross income the premiums for herself and her family members.
A)True
B)False
Q3) A U.S.citizen who works in France from February 1,2010 until January 31,2011 is eligible for the foreign earned income exclusion in 2010 and 2011.
A)True
B)False
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Chapter 6: Deductions and Losses: in General
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Q1) Payment of expenses by a cash basis taxpayer does not necessarily ensure a deduction in the current year.
A)True
B)False
Q2) Generally,a closely-held family corporation is not permitted to take a deduction for a salary paid to a family member in calculating corporate taxable income.
A)True B)False
Q3) Fines paid in the course of carrying on a trade or business generally are deductible if there is a related business purpose.
A)True
B)False
Q4) Payments by a cash basis taxpayer of capital expenditures:
A)Must be expensed at the time of payment.
B)Must be expensed by the end of the first year after the asset is acquired.
C)Must be deducted over the actual or statutory life of the asset.
D)Can be deducted in the year the taxpayer chooses.
E)None of the above.
Q5) Are all personal expenses disallowed as deductions?
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) On February 20,2009,Bill purchased stock in Pink Corporation (the stock is not small business stock)for $1,000.On May 1,2010,the stock became worthless.During 2010,Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago,a $9,000 loss on a nonbusiness bad debt,and a $5,000 long-term capital gain.How should Bill treat these items on his 2010 tax return?
A)$4,000 long-term capital loss and $9,000 short-term capital loss.
B)$4,000 long-term capital loss and $3,000 short-term capital loss.
C)$8,000 ordinary loss and $3,000 short-term capital loss.
D)$8,000 ordinary loss and $5,000 short-term capital loss.
E)$8,000 long-term capital loss and $6,000 short-term capital loss.
Q2) If qualified production activities income (QPAI)cannot be used in the calculation of the domestic production activities deduction in 2010 because of the taxable income limitation,the product of the amount not allowed multiplied by 9% can be carried over for 5 years.
A)True
B)False
Q3) Identify the factors that should be considered in determining whether a transaction is a business bad debt or a nonbusiness bad debt.
Q4) How is qualified production activities income (QPAI)calculated?
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Chapter 8: Depreciation,cost Recovery,amortization,and Depletion
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Q1) A taxpayer may elect to use the alternative depreciation system (ADS)on property used predominantly outside the United States.
A)True
B)False
Q2) Grape Corporation purchased a machine in December of the current year.This was the only asset purchased during the current year.The machine was placed in service in February of the following year.No assets were purchased in the following year.Grape Corporation's cost recovery would begin:
A)In the current year using a mid-quarter convention.
B)In the current year using a half-year convention.
C)In the following year using a mid-quarter convention.
D)In the following year using a half-year convention.
E)None of the above.
Q3) If a taxpayer uses regular MACRS for all property,an alternative minimum tax adjustment is made with respect to the depreciation on all property.
A)True
B)False
Q4) Discuss the reason for the inclusion amount with respect to leased automobiles.
Page 10
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Q1) A worker may prefer to be treated as an independent contractor (rather than an employee)for which of the following reasons:
A)Avoids the cutback adjustment as to business meals.
B)All of the self-employment tax is deductible for income tax purposes.
C)Work-related expenses are not subject to the 2%-of-AGI floor.
D)A Schedule C does not have to be filed.
E)None of the above.
Q2) Distributions from a Roth IRA that are subject to taxation are treated first as from earnings and last as from contributions.
A)True
B)False
Q3) During 2010,Tracy used her car as follows: 12,000 miles (business),2,500 miles (commuting),and 4,000 miles (personal).In addition,she spent $440 for tolls (business)and $310 for parking (business).If Tracy uses the automatic mileage method,what is the amount of her deduction?
Q4) An employed taxpayer can avoid the cutback adjustment on entertainment expenses by claiming the standard deduction.
A)True
B)False
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Q1) In 2010,Mary traveled 800 miles for specialized medical treatment that was not available in her hometown.She paid $60 for meals during the trip,$105 for a hotel room on Tuesday night,and $20 in parking fees.She did not keep records of other out-of-pocket costs for transportation.Mary can include $202 in computing her medical expenses.
A)True
B)False
Q2) A taxpayer pays points to obtain financing to purchase a rental house.At the election of the taxpayer,the points can be deducted as interest expense for the year paid.
A)True
B)False
Q3) Herbert is the sole proprietor of a furniture store.He can deduct real property taxes on his store building but he cannot deduct state income taxes related to his net income from the furniture store as a business deduction.
A)True
B)False
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12
Chapter 11: Investor Losses
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Sample Questions
Q1) Gray Company,a closely held C corporation,incurs a $50,000 loss on a passive activity during the year.The company has active income of $34,000 and portfolio income of $24,000.If Gray is a not a personal service corporation,it may deduct $34,000 of the passive loss.
A)True
B)False
Q2) In the current year,Crow Corporation,a closely held C corporation that is not a personal service corporation,has $100,000 of passive losses,$80,000 of active business income,and $20,000 of portfolio income.How much of the passive loss may Crow deduct in the current year?
A)$0.
B)$20,000.
C)$80,000.
D)$100,000.
E)None of the above
Q3) A taxpayer is considered to be a material participant in a significant participation activity if he or she spends at least 400 hours in the activity.
A)True
B)False
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Page 13
Chapter 12: Tax Credits and Payments
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Q1) For the current year,the base amount for the Social Security portion (old age,survivors,and disability insurance)is different from that for the Medicare portion of FICA.
A)True
B)False
Q2) The low-income housing credit is available to low-income tenants who reside in qualifying low-income housing.
A)True
B)False
Q3) In describing FICA taxes,which (if any)of the following statements is incorrect?
A)The base amounts for 2011 probably will increase from the 2010 amounts.
B)The base amounts for the Social Security and Medicare portions are the same.
C)If both spouses work,excess FICA taxes need not result.
D)Excess FICA taxes can be claimed as an income tax credit.
E)None of the above.
Q4) An employer's tax deduction for wages is not affected by the work opportunity tax credit.
A)True
B)False
Q5) Discuss the treatment of unused general business credits.
Page 14
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Chapter 13: Part 1--Property Transactions: Determination of
Gain or Loss,basis Considerations,and Nontaxable Exchanges
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Q1) Abner gives his daughter,Melissa,stock (basis of $50,000;fair market value of $44,000).No gift tax is paid.If Melissa subsequently sells the stock for $53,000,what is her recognized gain or loss?
A)$0.
B)$3,000.
C)$9,000.
D)$53,000.
E)None of the above.
Q2) Joyce,a farmer,has the following events occur during the tax year.Which of the events qualify as an involuntary conversion under § 1033 (nonrecognition of gain from an involuntary conversion)?
A)Her farm tractor is hauled to the city dump because it is worn out.
B)She burns her barn because it is infested with termites.
C)Her personal residence,adjusted basis of $100,000,is condemned to make way for an interstate highway.She recovers condemnation proceeds of $175,000.
D)She sells 10 acres of pasture land at a loss of $40,000 because she has reduced the size of her dairy herd due to a reduction in milk prices.
E)None of the above.
Page 15
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Chapter 13: Part 2--Property
Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges
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Q1) Albert,age 57,leased a house for one year in Denver with an option to buy as his personal residence.At the end of the lease,he purchased the house.He lived there for an additional 25 months before his employer transferred him to Tucson.Expecting to be in Tucson for 18 to 24 months,he rented the Denver house for 18 months with an option to extend on a month to month basis for an additional 6 months.At the end of the 18-month period,Albert's employer offered him a permanent position in Tucson as branch manager.The tenant who had been occupying Albert's house in Denver purchased it at the end of the 24-month extended lease period.Is Albert eligible to elect exclusion treatment under § 121?
Q2) Katrina,age 58,rented (as a tenant)the house that was her principal residence from January 1,2010 through December 31,2011.She purchased the house on January 1,2012,for $150,000 and continued to occupy it through June 30,2013.She leased it to a tenant from July 1,2013,through December 31,2014.On January 1,2015,she sells the house for $350,000.She incurs a realtor's commission of $20,000.Calculate her recognized gain if her objective is to minimize the recognition of gain and she does not intend to acquire another residence.
Q3) What is the easiest way for a taxpayer who is going to sell property that has declined in value to avoid the § 267 loss disallowance provision?
Page 16
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Chapter 14: Property Transactions: Capital Gains and Losses,1231,and
Recapure Provisions
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Q1) Kenneth acquires $100,000 face value corporate bonds for $86,000 when the bonds are issued.He holds the bonds as an investment for two years and then sells them for $98,000.What tax issues does Kenneth have with respect to these bonds?
Q2) To compute the holding period,start counting on the day the property was acquired and include the day of disposition.
A)True
B)False
Q3) An individual taxpayer received a valuable painting from his uncle,a famous painter.The painter created the painting.After the taxpayer held the painting for two years,he sold it for a $400,000 gain.The gain is a long-term capital gain.
A)True
B)False
Q4) Section 1245 may apply to depreciable farm equipment.
A)True
B)False
Q5) All collectibles gain is subject to a potential alternative tax rate of 28%.
A)True
B)False
Page 17
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Chapter 15: Alternative Minimum Tax
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Q1) For AMT purposes,taxpayers must capitalize and amortize research and experimental expenditures over a 10-year period.
A)True
B)False
Q2) What is the relationship between the regular income tax liability and the tentative AMT?
Q3) The AMT can be calculated using either the direct or the indirect approaches.The tax law uses the indirect approach while the tax forms use the direct approach.
A)True
B)False
Q4) Medical expenses are reduced by 10% of AGI to compute the amount deductible for AMT purposes and 7.5% of AGI for regular income tax purposes.
A)True
B)False
Q5) Are the AMT rates for the individual taxpayer the same as those for a corporate taxpayer?
Q6) How can the positive AMT adjustment for research and experimental expenditures be avoided?
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Chapter 16: Accounting Periods and Methods
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Q1) A CPA practice that is incorporated earns two-thirds of its annual revenues in the months of February,March,and April.Because the CPA practice is a professional services corporation (PSC),it must use a calendar year to report its income.
A)True
B)False
Q2) A calendar year,cash basis corporation began business on October 1,2010 and paid $2,400 for a 12-month liability insurance policy.The corporation can deduct $2,400 as insurance expense for its first tax year ending on December 31,2010.
A)True
B)False
Q3) A doctor's incorporated medical practice,generally,must have a business purpose for using a tax year that does not end on December 31.
A)True
B)False
Q4) What incentives do the tax accounting rules provide for taxpayers to voluntarily change from an incorrect method of accounting that has reduced the company's tax liability in prior years?
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Chapter 17: Corporations: Introduction and Operating Rules
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Q1) Red Corporation,which owns stock in Blue Corporation,had net operating income of $200,000 for the year.Blue pays Red a dividend of $40,000.Red takes a dividends received deduction of $28,000.Which of the following statements is correct?
A)Red owns less than 20% of Blue Corporation.
B)Red owns 20% or more,but less than 80% of Blue Corporation.
C)Red owns 80% of Blue Corporation.
D)Red owns 80% or more of Blue Corporation.
E)None of the above.
Q2) Schedule M-1 of Form 1120 is used to reconcile financial net income with taxable income reported on the corporation's income tax return as follows: net income per books + additions - subtractions = taxable income.Which of the following items is a subtraction on Schedule M-1.
A)Book depreciation in excess of allowable tax depreciation.
B)Federal income tax per books.
C)Premiums paid on life insurance policy on key employee.
D)Tax-exempt interest.
E)None of the above.
Q3) Describe the Federal tax treatment of entities formed as limited liability companies.
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Chapter 18: Corporations: Organization and Capital Structure
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Q1) Leah transfers equipment (basis of $400,000 and fair market value of $500,000)for additional stock in Crow Corporation.After the transfer,Leah owns 80% of Crow's stock.Associated with the equipment is § 1245 depreciation recapture potential of $70,000.As a result of the transfer:
A)Leah recognizes ordinary income of $70,000.
B)The § 1245 depreciation recapture potential carries over to Crow Corporation.
C)The § 1245 depreciation recapture potential disappears.
D)Leah recognizes ordinary income of $70,000 and § 1231 gain of $30,000.
E)None of the above.
Q2) Ashley,a 70% shareholder of Wren Corporation,transfers property with a basis of $250,000 and a fair market value of $900,000 to Wren Corporation for additional stock.Ashley owns 78% of Wren after the transfer.Two other shareholders in Wren transfer a nominal amount of property to Wren along with Ashley's transfer so that Ashley and the two shareholders own 90% of the Wren stock after the transfer.Does Ashley have taxable gain on the transfer?
Q3) In a § 351 transaction,if a transferor receives consideration other than stock,the transaction can be taxable.
A)True
B)False
Page 21
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Chapter 19: Corporations: Distributions Not in Complete
Liquidation
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Q1) Which one of the following statements is false?
A)Most countries that trade with the U.S.do not impose a double tax on dividends.
B)Tax proposals that include corporate integration would eliminate the double tax on dividends.
C)The double tax on dividends may make corporations more financially vulnerable during economic downturns.
D)Many of the arguments in support of the double tax on dividends relate to fairness.
E)None of the above.
Q2) In the current year,Pink Corporation has a § 179 expense of $80,000.As a result,next year,taxable income must be decreased by $16,000 to determine current E & P.
A)True
B)False
Q3) Noncorporate and corporate shareholders typically do not have the same preference for the tax treatment of a stock redemption.Explain why noncorporate taxpayers normally prefer sale or exchange treatment for a stock redemption,and why corporate taxpayers normally prefer dividend treatment for a stock redemption.
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Page 22
Chapter 20: Distributions in Complete Liquidation and an
Overview of Reorganizations
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Q1) As a general rule,a liquidating corporation recognizes gains and losses on the distribution of property in complete liquidation.
A)True
B)False
Q2) After a plan of complete liquidation has been adopted,Condor Corporation sells its only asset,land (basis of $170,000),to Eduardo (an unrelated party)for $400,000.Under the terms of the sale,Condor Corporation receives cash of $100,000 and Eduardo's notes for the balance of $300,000.The notes are payable over the next five years ($60,000 per year)and carry an appropriate interest rate.Immediately after the sale,Condor Corporation distributes the cash and notes to Maria,the sole shareholder of Condor Corporation.Maria has a basis of $80,000 in the Condor stock.The installment notes have a value equal to their face amount.If Maria wishes to defer as much gain as possible on the transaction,which of the following is correct?
A)Maria recognizes a gain of $80,000 in the year of liquidation.
B)Condor Corporation recognizes no gain or loss on the distribution of the installment notes.
C)Maria recognizes a gain of $240,000 in the year of liquidation.
D)Maria recognizes a gain of $320,000 in the year of liquidation.
E)None of the above.
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Chapter 21: Partnerships
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Q1) Which of the following is an election or calculation made by the partner rather than the partnership?
A)The amount of the § 199 (domestic production activities)deduction related to partnership activities.
B)The taxable year of the partnership.
C)The depreciation method used for partnership property.
D)Amortization of organizational and startup expenses incurred by the partnership.
E)All of the above elections are made by the partnership.
Q2) The partnership allocates recourse debt among the partners according to the "constructive liquidation scenario."
A)True
B)False
Q3) Generally,gain is recognized on a proportionate current or liquidating distribution only if the cash distributed exceeds the partner's basis in the partnership interest.
A)True
B)False
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Chapter 22: S Corporations
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Q1) The carryover period for the NOLs of a C corporation continues to run during S corporation years.
A)True B)False
Q2) An S corporation shareholder's basis includes his or her direct investments plus a ratable share of any corporate liabilities.
A)True B)False
Q3) The Schedule M-3 is the same for a C corporation and an S corporation.
A)True B)False
Q4) An S corporation may not have a ____________________ alien shareholder.
Q5) The taxable LIFO recapture amount equals the excess of the inventory's value under ____________________ over the ____________________ value.
Q6) Pass-through S corporation losses can reduce the basis in the shareholder's loan to the entity,but distributions do not.
A)True B)False
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Chapter 23: Exempt Entities
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Q1) Which of the following are available options for the IRS in dealing with an exempt organization entering into prohibited transactions?
A)Attempt to subject all or part of the organization's income to Federal income tax.
B)Revoke the exempt status of the organization.
C)Impose intermediate sanctions in the form of excise taxes.
D)Only a.and b.
E)a. ,b. ,and c.
Q2) The excise taxes such as the tax on self-dealing and the tax on excess business holdings are imposed only on exempt organizations classified as private foundations.
A)True
B)False
Q3) Debt-financed property consists of all real property of a tax-exempt organization on which there is a mortgage.
A)True
B)False
Q4) Is there a materiality exception associated with the unrelated business income tax?
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Chapter 24: Multistate Corporate Taxation
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Q1) Only a few states require that Federal S corporations make a separate state-level election of the flow-through status.
A)True
B)False
Q2) In determining taxable income for state income tax purposes,a Federal NOL deduction may constitute a(n)____________________ modification.
Q3) 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 .75 for X and .25 for Y. Norman's income attributed to X is:
A)$0.
B)$1,000,000.
C)$1,500,000.
D)$2,000,000.
E)$3,000,000.
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Chapter 25: Taxation of International Transactions
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Q1) KeenCo,a domestic corporation,is the sole shareholder of LovettCo,a controlled foreign corporation.LovettCo has $250,000 in E & P attributable to income not previously taxed to KeenCo and $200,000 E & P attributable to income taxed to the U.S.shareholder as Subpart F income.LovettCo makes a $125,000 dividend distribution to KeenCo.Ignoring any deemed paid credit implications,what is the U.S.gross income to KeenCo resulting from this dividend?
Q2) ForCo,a foreign corporation,receives interest income of $100,000 from USCo,an unrelated domestic corporation.USCo has historically earned 82% of its income from foreign sources.What amount of ForCo's interest income is U.S.source?
A)$100,000.
B)$18,000.
C)$0.
D)$82,000.
Q3) U.S.taxpayers may take a current FTC equal to the lesser of the FTC limit or the actual foreign taxes (direct or indirect).
A)True
B)False
Q4) Discuss the primary purposes of income tax treaties.
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Chapter 26: Tax Practice and Ethics
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135 Verified Questions
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Sample Questions
Q1) When a practitioner discovers an error in a client's prior return,AICPA tax ethics rules require that an amended return immediately be filed.
A)True
B)False
Q2) After a tax audit,the taxpayer receives the Revenue Agent's Report and a "30-day letter."
A)True B)False
Q3) A tax preparer is in violation of Circular 230 if he or she:
A)Files a tax return that includes a math error.
B)Does not sign the tax return that is prepared as a favor for a relative.
C)Charges a fee to prepare an original Form 1120 equal to one-third of the taxpayer's refund due.
D)Fails to inform the IRS of an error on the client's prior-year return.
E)All of the above are Circular 230 violations.
Q4) A tax preparer and his/her client hold a privilege of confidentiality from the IRS,as to their discussions about completing a tax return.
A)True
B)False
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Chapter 27: The Federal Gift and Estate Taxes
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Q1) Although qualified tuition plans under § 529 are treated favorably for gift tax purposes,such plans are subject to estate tax consequences upon the grantor's death.
A)True
B)False
Q2) The purpose of the marital deduction is to place married decedents in common law states on par with those in community property jurisdictions.
A)True
B)False
Q3) Two brothers,Sam and Bob,acquire real estate as equal tenants in common.Of the purchase price of $200,000,Sam furnished $80,000 while Bob provided the balance.If Sam dies first ten years later when the real estate is worth $600,000,his estate includes $240,000 as to the property.
A)True
B)False
Q4) Interest on state and local bonds is subject to neither the Federal income tax nor the Federal estate tax.
A)True
B)False
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Chapter 28: Income Taxation of Trusts and Estates
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Q1) An estate cannot claim a § 199 domestic production activities deduction,as the deduction passes through to the income beneficiaries.
A)True
B)False
Q2) A complex trust may incur a liability for the AMT.
A)True
B)False
Q3) Can a trust document assign to specific income beneficiaries the right to receive certain tax-favorable items (e.g. ,MACRS deductions,exempt income)? Or must all distributions follow the character of income and deductions appearing in distributable net income (DNI)? Explain.
Q4) The Gable Trust reports $20,000 business income and $10,000 exempt interest income,and it paid a $3,000 fiduciary fee.Gable's distributable net income includes $10,000 for the interest income.
A)True
B)False
Q5) List the three major functions of distributable net income (DNI)in determining how the beneficiaries of a trust or estate account for their distributions received for the tax year.
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