Tax Research Practice Exam
Course Introduction
Tax Research is a course designed to equip students with essential skills in researching complex tax issues using primary and secondary tax authorities. Students learn to navigate the Internal Revenue Code, Treasury regulations, IRS rulings, court cases, and professional literature to analyze and resolve real-world tax scenarios. Emphasis is placed on understanding authoritative guidance, synthesizing information for tax planning and compliance, effective written communication, and the ethical considerations inherent to tax practice. The course prepares students for professional roles by providing practical experience in conducting research, interpreting tax law, and presenting findings clearly and accurately.
Recommended Textbook
Pearsons Federal Taxation 2018 Comprehensive 31st Edition by Timothy J. Rupert
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Chapter 1: Tax Research
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Q1) The Tax Court departs from its general policy of ruling uniformly for all taxpayers where
A)a U.S.District Court has ruled differently on the issue in the taxpayer's jurisdiction.
B)the U.S.Court of Federal Claims has ruled differently on the issue in the taxpayer's jurisdiction.
C)the Court of Appeals in the circuit to which the Tax Court decision would be appealed has ruled differently on the issue.
D)the IRS has indicated that it will acquiesce.
Answer: C
Q2) Which tax service is usually deemed to be the most authoritative?
A)United States Tax Reporter
B)Standard Federal Tax Reporter
C)Federal Tax Coordinator 2d
D)All are equally authoritative.
Answer: D
Q3) What is the purpose of a citator?
Answer: Citators give a history of the case,and they list other authorities such as other cases or revenue rulings that cite the case in question.
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3
Chapter 2: Corporate Formations and Capital Structure
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Q1) Ralph transfers property with an adjusted basis of $65,000 and an FMV of $70,000 to Lake Corporation in a Sec.351 transaction.Ralph receives stock worth $60,000 and a short-term note having a $10,000 FMV.Ralph's basis in the stock is
A)$75,000.
B)$70,000.
C)$65,000.
D)$60,000.
Answer: D
Q2) Discuss the tax planning opportunities that are available in forming a corporation when one of the parties owns property that has a high basis and a low FMV. Answer: The plan should be formulated to allow the contributor to avoid Sec.351 and be able to recognize the loss.This can be done by having the transferor sell the property to an unrelated party and then have the transferor contribute cash.The transferor must be careful to avoid the related party rules of Sec.267,which could prevent the loss from being recognized if the property is sold directly to the corporation.Several other suggestions are explored on pages C:2-34 and C:2-35.
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Page 4
Chapter 3: the Corporate Income Tax
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Sample Questions
Q1) Joker Corporation owns 80% of Klue Corporation.Joker Corporation also owns 45% of Lion Corporation and 45% of Mark Corporation.Klue Corporation owns 40% of Lion Corporation and 10% of Mark Corporation.Which corporations are members of a controlled group?
A)Klue,Lion,and Mark Corporations
B)Joker,Klue,Lion,and Mark Corporations
C)Joker,Klue,and Lion Corporations
D)Joker and Klue Corporations
Answer: C
Q2) The dividends-received deduction is designed to reduce double taxation of corporate dividends payable to individual shareholders.
A)True
B)False
Answer: False
Q3) A deferred tax asset indicates that a firm will realize the tax benefit of an event sometime in the future.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Corporate Nonliquidating Distributions
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Q1) Identify which of the following statements is false.
A)The rules for the recognition of a gain or loss by a corporation that distributes property in redemption of its stock are the same as the rules for property distributions that are not in redemption of stock.
B)Generally,little or no gain is recognized by the redeeming shareholder in a qualified Sec.303 redemption.
C)When a stock redemption is considered a sale of stock by the shareholder,the E&P of the redeeming corporation is reduced by the FMV of the property used to redeem the stock.
D)Under Sec.311,a corporation does not recognize a loss when it distributes property that has declined in value.
Q2) Splash Corporation has $50,000 of taxable income before any charitable contribution deduction.Splash contributed $20,000 to a qualified charitable organization.Due to the 10% of taxable income limitation on charitable contribution deductions,Splash's contribution deduction is limited to $5,000.What effect does the charitable contribution have on current and future E&P?
Q3) What is a constructive dividend? Under what circumstances are constructive dividends most likely to arise?
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6
Chapter 5: Other Corporate Tax Levies
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Q1) When computing the accumulated earnings tax,which of the following is not a reduction to arrive at accumulated taxable income?
A)accumulated earnings credit
B)NOL deduction claimed
C)accrued federal income taxes
D)dividends-paid deduction
Q2) 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.
Q3) Wind Corporation is a personal holding company.Its taxable income for this year is $100,000.The corporation's charitable contributions are $5,000 greater than its income tax charitable contribution deduction limitation.Wind's UPHCI is $95,000,assuming no other adjustments must be made.
A)True
B)False
Q4) What is a personal holding company?
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Chapter 6: Corporate Liquidating Distributions
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Q1) A corporation is required to file Form 966 within 30 days after the adoption of a plan of liquidation.
A)True
B)False
Q2) Generally,a corporation recognizes a gain,but not a loss,on a liquidating distribution.
A)True
B)False
Q3) Identify which of the following statements is true.
A)A parent corporation cannot liquidate a subsidiary corporation (having but a single class of stock)and avoid recognizing its realized gain unless the parent corporation owns at least 80% of the subsidiary's stock.
B)The liquidation of a subsidiary corporation must be completed within one tax year to receive nonrecognition treatment.
C)The provisions permitting a tax-free liquidation of a subsidiary corporation apply to both corporate and noncorporate shareholders of the subsidiary.
D)All of the above are false.
Q4) Are liquidation and dissolution the same? Explain your answer.
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Chapter 7: Corporate Acquisitions and Reorganizations
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Q1) Define the seven classes of assets used in allocating basis when using the residual method.
Q2) Shareholders in Boxer Corporation exchange all of their nonvoting Class B common stock for additional shares of Boxer's Class A common stock.Which of the following statements is correct?
A)If boot is added to the exchange,the entire gain realized on the exchange is recognized in full.
B)The exchange is a Type F reorganization,assuming all requirements are met.
C)The exchange is tax-free even if no plan of reorganization has been created.
D)The basis of the Class A common stock received is equal to its FMV.
Q3) Marty is a party to a tax-free reorganization.He has a basis of $22,000 in his Van Corporation stock that has an FMV of $35,000.Marty exchanges the Van stock for Young Corporation stock worth $29,000 and Young securities with a face amount of $7,000 and an FMV of $6,000.What is Marty's basis in the Young securities?
Q4) What are the advantages and disadvantages of a Type C reorganization?
Q5) What are the two steps of a Sec.338 deemed liquidation election?
Q6) What are the advantages of a triangular merger?
Q7) There are no questions for this section.
Q8) Briefly describe A,B,C,D,and G reorganization types.
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Chapter 8: Consolidated Tax Returns
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Sample Questions
Q1) Compute each group member's taxable income (or loss)based on the member's own accounting methods as if the corporation were filing its own separate tax return.
Q2) Identify which of the following statements is true.
A)The basic accounting method elections that are used by the seller in intercompany transactions do not override the intercompany transaction rules.
B)P and S are members of an affiliated group that has filed consolidated tax returns for a number of years.The sale of inventory by P,which was acquired from S in an intercompany transaction,outside the affiliated group triggers the restoration of gain by S.
C)Last year,P,S,and T Corporations have filed consolidated tax returns for a number of years.Last year P Corporation sold land (a Sec.1231 asset)to T at a $75,000 profit.The gain was deferred by P in last year's consolidated tax return.P sold the T stock to Mike on June 1 of this year.The stock sale will require P to report in its income the gain that was deferred on the land sale.
D)All of the above are true.
Q3) The treatment of capital loss carrybacks and carryovers is similar to NOLs.
A)True
B)False
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Chapter 9: Partnership Formation and Operation
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Sample Questions
Q1) 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
Q2) Jerry has a 10% interest in the EKG Partnership capital,profits,and losses.He is a limited partner.At the beginning of the current year,his basis in his partnership interest is $10,000.The partnership earned $20,000 of ordinary income this year and repaid a $150,000 nonrecourse liability.What tax issues should Jerry consider with respect to reporting the results of this year's activities for the EKG Partnership on his personal return?
Q3) Identify which of the following statements is true.
A)All of the partners in a limited partnership have limited liability.
B)A limited partnership must have at least two general partners.
C)A limited partnership cannot have a corporate general partner.
D)All of the above are false.
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Page 11
Chapter 10: Special Partnership Issues
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Sample Questions
Q1) What is included in the definition of unrealized receivables?
Q2) Derrick's interest in the DEF Partnership is liquidated when his basis in the interest is $30,000.He receives a liquidating distribution of $20,000 cash and inventory with a basis of $8,000 and an FMV of $30,000.Derrick will recognize
A)no gain or loss.
B)$2,000 capital loss.
C)$2,000 ordinary loss.
D)$10,000 capital loss and $20,000 ordinary loss.
Q3) Danielle has a basis in her partnership interest of $12,000.She receives a current distribution of $8,000 cash and equipment with a basis of $7,000.There is no potential gain under Sec.737.What is her basis in the equipment?
A)$0
B)$4,000
C)$7,000
D)none of the above
Q4) Do most distributions made by a partnership require a Sec.751 calculation?
Q5) A partner can recognize gain,but not loss,on a liquidating distribution.
A)True
B)False
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Chapter 11: S Corporations
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Sample Questions
Q1) April Corporation's Subchapter S election was voluntarily terminated for 2010.The first year that April would be eligible to reelect S corporation status is
A)2012.
B)2013.
C)2014.
D)2015.
Q2) Identify which of the following statements is true.
A)The natural business year for fiscal-year election purposes is any tax year that ends within six months after the peak period of business.
B)Section 444 permits an S corporation to elect to use a fiscal year other than a permitted year.
C)A new corporation that is 100% owned by Johnny Blake,a cash method of accounting taxpayer,makes an S election for its initial tax year.The S corporation must also elect to use the cash method of accounting as its overall accounting method.
D)All of the above are false.
Q3) All shareholders must consent to the revocation of S status.
A)True
B)False
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Chapter 12: The Gift Tax
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Q1) Identify which of the following statements is false.
A)The gift-splitting election will apply to all transfers made during the portion of any year that the spouses electing gift splitting are married to each other.
B)The gift-splitting election is made separately on each gift either spouse makes.
C)Making gifts during one's lifetime helps to reduce the amount of estate taxes owed at death.
D)In order to use gift splitting,both spouses must be U.S.citizens or residents at the time of the transfer.
Q2) Discuss at least two reasons for making inter vivos (lifetime)gifts.
Q3) Interest-free or below-market loans
A)must always have interest imputed on them.
B)may result in treating the borrower as paying interest.
C)result in treating the entire loan proceeds as a gift.
D)will always result in at least $1,000 of interest income being imputed.
Q4) Connie has some acreage that is valued at $1,500,000.Her daughter would like to build a home on it,but can only afford $500,000.Connie agrees to sell it to her daughter for $500,000.Is there any gift tax consequence as a result of this transaction?
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Page 14
Chapter 13: The Estate Tax
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Q1) Yee made $3 million of taxable gifts in 1993 and paid gift taxes (less the unified credit)of $1,098,000.Yee died in 2013 with a taxable estate of $10,000,000.At current rates,the gift taxes payable on $3 million would be $1,145,800.Yee died in a year when the unified credit was $2,045,800.Determine her estate tax liability.
Q2) In 2001,Alejandro buys an annuity for $100,000 that will pay Alejandro an annual amount for life with survivor benefits to his wife.When Alejandro dies in the current year,a comparable contract would have cost $81,000.What amount is included in Alejandro's gross estate?
A)$0
B)$81,000
C)$100,000
D)$181,000
Q3) Praneh Patel,a widower,died in March of the current year.His gross estate is $5,325,000,and at the time of his death,he owed debts of $40,000.His will made a charitable bequest of $280,000 and left the rest of his property to his children.His administrative expenses are estimated to be about $55,000.What tax issues should the estate's CPA consider when preparing Praneh's estate tax return and his estate's income tax return?
Q4) 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) Which of the following statements is incorrect?
A)The income tax rules governing estates and trusts are generally identical.
B)Income generated by property owned by an estate or trust is reported on that entity's tax return.
C)Subchapter K contains the special rules applicable to estates and trusts.
D)All of the above are correct.
Q2) Grantor trusts are taxed as complex trusts.
A)True
B)False
Q3) Describe the tier system for trust beneficiaries.
Q4) A trust must distribute all of its income annually.Capital gains are allocated to principal.The trust has dividend income of $12,000,capital gains of $6,000,and no expenses.Calculate the trust's taxable income.
Q5) What is the basis of inherited IRD items to the beneficiary?
Q6) Which of the following statements regarding the taxation of a trust is incorrect?
A)An irrevocable trust's income is taxed to the grantor.
B)Trusts are generally not taxed at favorable rates for income shifting.
C)Trusts are not subject to double taxation.
D)A trust's long-term capital gains are taxed at a top rate of 15%.
Page 16
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Chapter 15: Administrative Procedures
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Q1) What is the requirement for a substantial understatement of tax for individuals?
A)The understatement exceeds 10% of the tax required to be shown on the return.
B)The understatement exceeds $5,000.
C)The understatement exceeds the lesser of 10% of the tax required to be shown on the return or $5,000.
D)The understatement exceeds the greater of 10% of the tax required to be shown on the return or $5,000.
Q2) The statute of limitations,which stipulates the time frame within which either the government or the taxpayer may request a redetermination of tax due,usually expires 6 years after the date on which the return is filed.
A)True
B)False
Q3) Richard recently won a popular television reality show and its one million dollar prize.However,he omitted the prize money from his tax return for the year.What penalties can the IRS assess?
Q4) The maximum failure to file penalty is a total of 25% of the underpayment.
A)True
B)False
Q5) What is the difference between the burden of proof for civil and criminal fraud?
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Chapter 16: Ustaxation of Foreign-Related Transactions
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Q1) Under the Subpart F rules,controlled foreign corporations (CFCs)are required to distribute a certain portion of their income as dividends to their U.S.shareholders.
A)True
B)False
Q2) U)S.Corporation,a domestic corporation,owns all of Foreign Corporation's stock.Foreign Corporation is incorporated in France.This year,Foreign Corporation suffers a $100,000 net operating loss (NOL)in France.What amount of the $100,000 NOL can U.S.Corporation use to reduce its current-year U.S.taxable income?
A)$100,000
B)$50,000
C)$0
D)none of the above
Q3) Which of the following characteristics is not used by the U.S.government to determine the tax treatment accorded foreign-related transactions?
A)the taxpayer's country of citizenship
B)the taxpayer's country of residence
C)the taxpayer's type of business
D)the type of income earned
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Chapter 17: An Introduction to Taxation
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Q1) Doug and Frank form a partnership,D and F Advertising,each contributing $50,000 to start the business.During the first year of operations,D and F earns $80,000,which is allocated $40,000 each to Doug and Frank.At the beginning of the second year,Doug sells his interest to Marcus for $90,000.What is the amount of Doug's taxable gain on the sale?
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) Alan files his 2016 tax return on April 1,2017,shortly before the April 18 due date.His return contains no misstatements or omissions of income.The statute of limitations for changes to the return expires
A)April 1,2021.
B)April 18,2020.
C)April 18,2021.
D)The statute of limitations never expires.
Q4) The terms "progressive tax" and "flat tax" are synonymous.
A)True
B)False
Page 19
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Chapter 18: Determination of Tax
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Q1) Discuss why Congress passed the innocent spouse provision and detail the requirements to be met in order to qualify as an innocent spouse and be relieved of liability for tax on unreported income.
Q2) In October 2017,Joy and Paul separated and have not lived with each other since,but they are still legally married.They do not file a joint return.Joy supports their children after the separation and pays the cost of maintaining their home.Joy's filing status in 2017 and 2018 is,respectively
A)single for both years.
B)head of household and single.
C)married filing separately for both years.
D)married filing separately and head of household.
Q3) Ivan Trent,age five,receive $2,900 of dividends per year from a mutual fund he owns; it is his only source of taxable income.Ivan's parents plan to gift a corporate bond they currently own to him.The bond pays $2,100 of interest income per year.The Trent family overall will save taxes if the bond is transferred to the child.
A)True
B)False
Q4) Discuss reasons why a married couple may choose not to file a joint return.
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Page 20
Chapter 19: Gross Income: Inclusions
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Q1) Under the tax concept of income,all realized income is recognized and subject to tax.
A)True
B)False
Q2) Julia,age 57,purchases an annuity for $33,600.Julia will receive $400 per month for the rest of her life.The expected return multiple is 20.0.At age 88,the amount that Julia may exclude from income is
A)$0.
B)$1,680.
C)$3,120.
D)$4,800.
Q3) Speak Corporation,a calendar-year,accrual-basis taxpayer,sell packages of foreign langauge lessons to individuals planning to work overseas.In December 2017,it sold and received payment for $600,000 of 24-month lesson packages to be provided evenly through 2018 and 2019.Speak Corporation will recognize the $600,000 of income
A)all in 2017.
B)half in 2018 and half in 2019.
C)all in 2018.
D)all in 2019.
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Chapter 20: Gross Income: Exclusions
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Q1) An electronics store sold a home theater system to an employee for $300,even though the retail price was $500.The gross profit percentage is 40%.Such discounts are available to all employees.How much income should be recognized by the employee from these transactions?
A)$0
B)$100
C)$120
D)$200
Q2) Bret carries a $200,000 insurance policy on his life and has paid premiums of $10,000 over the years.Dividends on the policy have totaled $8,500.Each year Bret has left the dividends with the insurance company.In the current year,the insurance company credited $800 of interest on the accumulated dividends to Bret's account.In addition,$600 of dividends was added by the insurance company.In the current year,Bret must report income of
A)$0.
B)$600.
C)$800.
D)$1,400.
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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) Stock purchased on December 15,2016,which becomes worthless in March 2017,produces a STCL since the holding period is one year or less.
A)True
B)False
Q3) Armanti received a football championship ring in college.During difficult economic times,Armanti sold the ring at a pawn shop.What are the tax issues of the sale to Armanti?
Q4) On January 31 of the current year,Sophia pays $1,000 for an option to acquire 100 shares of Texas Corporation common stock for $105 per share at any time prior to December 31.As of December 31,Sophia had not exercised the option or sold it.Which of the following statements is correct?
A)Sophia may recognize a $1,000 STCL.
B)Sophia may recognize a $1,000 LTCL.
C)Sophia may recognize a $1,000 ordinary income.
D)Sophia may not recognize a loss.
Page 23
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Chapter 22: Deductions and Losses
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Q1) Brienne sells land to her brother,Abe,at a loss.A few years later,Abe sells the land to an unrelated party for a substantial gain.Brienne can recognize her realized loss on the land when Abe sells the land to an unrelated party.
A)True
B)False
Q2) Which of the following factors is not used to determine whether an activity is a hobby or a business?
A)the taxpayer's expertise in the activity
B)the taxpayer's financial status
C)the personal pleasure derived from the activity
D)the success of the taxpayer in other dissimilar activities
Q3) Rachel has significant travel and entertainment expenses for her work,but she has not kept receipts.She will be able to deduct a reasonable amount of these ordinary and necessary expenses under the Cohan rule.
A)True
B)False
Q4) Discuss tax planning considerations which a taxpayer may use to possibly avoid classification of an activity as a hobby.
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Chapter 23: Itemized Deductions
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Q1) Christopher,a cash-basis taxpayer,borrows $1,000 from ABC Bank by issuing a 3-month note on December 1,2017.Christopher receives $940 but must repay $1,000 on the due date.The amount of interest expense deductible in 2017 is $20.
A)True
B)False
Q2) Jill is considering making a donation to her church.She wants to give $50,000 for the new church building.She has some stock with a FMV of $50,000 and an adjusted basis of $10,000 that she has held for 3 years.She is planning to sell the stock and donate the $50,000 proceeds to the church.What should she consider before taking that action?
Q3) Valeria owns a home worth $1,400,000,with a mortgage balance of $950,000.She borrows $200,000 to purchase a speedboat,using a home equity loan.What is the total amount of debt on which Valeria can deduct interest in the current year?
A)$1,000,000
B)$950,000
C)$1,050,000
D)$1,100,000
Q4) Discuss the timing of the allowable medical expense deduction.
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25
Chapter 24: Losses and Bad Debts
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Q1) An individual taxpayer misses the deadline for filing for a quick refund (Form 1045)for an NOL carryback claim.The taxpayer has lost the opportunity to obtain a refund.
A)True
B)False
Q2) Which of the following is not generally classified as a passive activity?
A)an activity in which the taxpayer does not materially participate
B)a limited partnership interest
C)rental real estate
D)a business in which the taxpayer owns an interest and works 1,000 hours a year
Q3) Classification of a loss as a capital loss is based upon the length of time the asset was held.
A)True
B)False
Q4) Taxpayers are allowed to recognize net passive losses from all activities up to a ceiling of $25,000.
A)True
B)False
Q5) Distinguish between the accrual-method taxpayer and the cash-method taxpayer with regard to basis in a receivable.
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Chapter 25: Employee Expenses and Deferred Compensation
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Q1) Raul and Jenna are married and are both working.They are both over age 50.Jenna participates in her employer's Sec.401(k)plan and makes the maximum contribution and enjoys a company matching contribution.Raul's employer does not maintain a retirement plan so he would like to save as much as possible in a tax-advantaged manner for retirement.They expect to report $190,000 of AGI for 2017.
a.What is the maximum amount that Raul can contribute to a traditional IRA and how much can he deduct?
b.What is the maximum amount that Raul can contribute to a Roth IRA and how much can he deduct?
c.How could Raul contribute to both the traditional IRA and Roth IRA to maximize current and future tax savings?
Q2) A sole proprietor will not be allowed to deduct current home office expenses to the extent that they create or increase a loss from her business.
A)True
B)False
Q3) What two conditions are necessary for moving expenses to be deductible?
Q4) Discuss the tax treatment of a nonqualified stock option plan.
Q5) Why did Congress establish Health Savings Accounts (HSAs)? How do HSAs operate?
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Chapter 26: Depreciation, cost Recovery, amortization, and Depletion
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Q1) The MACRS system requires that residential rental property and nonresidential real property be depreciated using the straight-line method.
A)True
B)False
Q2) Terra Corporation,a calendar-year taxpayer,purchases and places into service machinery with a 7-year life that costs $650,000.Neither the mid-quarter convention,nor bonus depreciation apply.Terra elects to depreciate the maximum under Sec.179.Terra's taxable income for the year before the Sec.179 deduction is $700,000.What is Terra's total depreciation deduction related to this property (rounded to the nearest dollar)?
A)$650,000
B)$530,006
C)$92,885
D)$602,885
Q3) The mid-quarter convention applies to personal and real property.
A)True
B)False
Q4) Why would a taxpayer elect to capitalize and amortize intangible drilling costs (IDCs)rather than expense such costs?
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Chapter 27: Accounting Periods and Methods
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Q1) A taxpayer may use a combination of accounting methods as long as income is clearly reflected.
A)True
B)False
Q2) A taxpayer must use the same accounting method on the personal tax return that the taxpayer uses in the taxpayer's trade or business.
A)True
B)False
Q3) Generally,if inventories are an income-producing factor to the business,the accrual method must be used for sales and cost of goods sold.
A)True
B)False
Q4) The all-events test requires that the accrual-basis taxpayer report income when all events have occurred that fix the taxpayer's right to the income and when the amount can be determined with reasonable accuracy.
A)True
B)False
Q5) What is the significance of the Thor Power Tool Co.case?
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Chapter 28: Property Transactions: Nontaxable Exchanges
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Q1) Olivia exchanges land with a $50,000 basis plus marketable securities with a $20,000 basis for a larger parcel of land worth $110,000 in a transaction that otherwise qualifies as a like-kind exchange.The FMV of the land and marketable securities exchanged by Olivia is $75,000 and $35,000 respectively.
a.What is the amount of gain realized and recognized by Olivia on each asset?
b.What is the amount of Olivia's basis in the new land?
Q2) Stephanie's building,which was used in her business,was destroyed in a fire.Stephanie's adjusted basis in the building was $175,000,and its FMV was $210,000.Stephanie filed an insurance claim and was reimbursed $200,000.In that same year,Stephanie invested $180,000 of the insurance proceeds in another business building.If the proper election is made,Stephanie will recognize gain of
A)$ 0.
B)$15,000.
C)$20,000.
D)$25,000.
Q3) An exchange of inventory for inventory of a like kind qualifies as a like-kind exchange.
A)True
B)False
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Chapter 29: Property Transactions: Sec1231 and Recapture
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Q1) Maura makes a gift of a van to a local food bank run by a charity.Maura had used the van in her trade or business.The van has a FMV of $6,500; a cost of $31,000; and $27,000 depreciation claimed.What is the amount of Maura's charitable contribution deduction?
A)$6,500
B)$31,000
C)$4,000
D)$2,500
Q2) Eric purchased a building in 2006 that he uses in his business.Eric uses the straight-line method for the building.Eric's original cost for the building is $420,000 and cost-recovery deductions are $120,000.Eric is in the top tax bracket and has never sold any other business assets.If the building is sold for $560,000,the tax results are
A)$260,000 Sec.1231 gain,all taxable at 20%.
B)$260,000 unrecaptured Sec.1250 gain,all taxable at 25%.
C)$260,000 Sec.1231 gain,of which $120,000 is unrecaptured Sec.1250 gain taxable at 25% and the $140,000 balance is taxable at 20%.
D)$120,000 Sec.1245 ordinary income,$140,000 Sec.1231 gain taxable at 20%.
Q3) What is the purpose of Sec.1245 and what is its significance?
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Chapter 30: Special Tax Computation Methods, tax Credits, and Payment of Tax
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Q1) Lee and Whitney incurred qualified adoption expenses in 2016 of $2,000,and then incurred $7,000 more in 2017 when the adoption of their child became final.Their 2016 AGI was $120,000 and their 2017 AGI was $140,000.The allowable adoption credit is
A)$ 7,000 in 2017.
B)$ 9,000 in 2017.
C)$13,570 in 2017.
D)$2,000 in 2016 and $7,000 in 2017.
Q2) Sam and Megan are married with two dependent children.Both Sam and Megan work,earning $50,000 and $55,000,respectively.Their AGI totals $110,000.They incur $6,500 of qualifying child care expenses of which $2,500 is reimbursed by Megan's dependent care program at work. What is the amount of their child and dependent care credit?
Q3) Tyne is single and has AGI of $25,000 in 2017.During the year,she contributes $3,000 to her Roth IRA.What is the amount of Tyne's qualified retirement savings contributions credit?
Q4) The earned income credit is refundable only if a tax has been withheld. A)True B)False
Page 32
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Chapter 31: Tax Research
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Q1) The tax statutes with the popular name "The Internal Revenue Code of 1986" are contained in which Title of the Code?
A)20
B)25
C)26
D)301
Q2) The Tax Court decides an expenditure is deductible in the year the issue was first litigated.The government appealed and won a reversal in the Ninth Circuit Court of Appeals.It is the only appellate decision regarding the issue.If and when the Tax Court encounters this issue again,how will it hold?
Q3) Identify which of the following statements is true.
A)Tax planning is an integral part of both closed-fact situations and open-fact situations.
B)The first step in conducting tax research is to clearly understand the issues involved.
C)The Statements on Standards for Tax Services recommend that only written tax advice be provided to the client in all situations.
D)All of the above are false.
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Chapter 32: Corporations
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Questions
Q1) DEF Corporation and MNO Corporation are both C corporations.To date,DEF has earned $100,000 of taxable income,and MNO has earned $1,000,000.Each corporation expects to earn another $100,000 of taxable income before year-end.DEF will pay more tax on its incremental $100,000 of taxable income than will MNO.
A)True
B)False
Q2) Individuals Gayle and Marcus form GM Corporation.Gayle transfers land and a building with a $750,000 adjusted basis and a $830,000 FMV in exchange for 50% of the stock of the GM Corporation worth $800,000 and a $30,000 note.Marcus transfers cash of $830,000 for 50% of the stock worth $800,000 and a note of the GM Corporation valued at $30,000.The basis of the land and building to GM Corporation is
A)$750,000.
B)$780,000.
C)$830,000.
D)$860,000.
Q3) Tara and Jeff wish to form TJ Corporation.They have determined that they need initial capitalization of $1,000,000.What tax issues should they consider when determining whether to issue stock only or some combination of debt and equity?
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Chapter 33: Partnerships and S Corporations
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Q1) On January 1 of this year (assume not a leap year),Anne bought 50% of a calendar-year S corporation.Anne purchased the remaining 50% on July 1 (day 181 of the year).Anne's adjusted basis in the stock is $277,000 before any basis adjustments are taken into account.For this year,the corporation had a net operating loss of $365,000.What is the amount of the corporation's loss that Anne can deduct on her current individual income tax return?
A)$0
B)$274,500
C)$273,500
D)$365,000
Q2) Hunter contributes property having a $75,000 FMV and a $65,000 adjusted basis which is subject to a $36,000 mortgage in exchange for a one-fourth interest in the ABC Partnership.The partnership owes no other debts,but does assume this mortgage.Profits and losses are shared equally and each partner has a one-fourth interest in partnership capital.Hunter's basis in the partnership is
A)$38,000.
B)$48,000.
C)$74,000.
D)$84,000.
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Chapter 34: Taxes and Investment Planning
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Q1) A taxpayer in the 25% marginal tax bracket invests $1,000 of after-tax dollars at 10% interest before taxes.At the end of year one,the taxpayer will have accumulated after-tax dollars of $1,075.
A)True
B)False
Q2) Charlene can invest $4,000 of after-tax dollars (AT$)directly in a taxable bond outside an IRA,or she can contribute the $4,000 to a nondeductible IRA and invest in the same bond through the IRA vehicle.In either case the bond yields an annual 7% before-tax rate of return (BTROR).Charlene's marginal tax rate is 20%,and she expects it to remain so for the entire investment horizon of 25 years.What is her annualized after-tax rate of return (annualized ATROR)for the "bond outside the IRA"?
A)5)6%
B)6%
C)6)5%
D)7%
Q3) The nondeductible traditional IRA is a classic example of the Pension Model.
A)True
B)False
Q4) Discuss the decision rules for current salary versus deferred compensation.
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