Taxation for Accountants Exam Questions
Course Introduction
This course provides an in-depth exploration of taxation principles and practices relevant to accountants, covering both individual and business tax systems. Students will learn to interpret and apply tax laws, regulations, and guidelines, analyze tax planning opportunities, and prepare various tax returns in compliance with regulatory requirements. The course emphasizes the ethical responsibilities of accountants in taxation and includes case studies to illustrate the practical application of tax concepts in real-world scenarios. By the end of the course, students will be equipped with the technical knowledge and skills necessary to offer informed tax advice and ensure accurate tax reporting in their professional careers.
Recommended Textbook
South Western Federal Taxation 2011 Corporations Partnerships Estates and T
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Chapter 1: Understanding and Working With the Federal Tax Law
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Q1) A taxpayer may select the District Court that will hear his or her tax dispute.
A)True
B)False Answer: False
Q2) The earned income tax credit is not refundable.
A)True
B)False Answer: False
Q3) Taxation is included in the Regulation section of the CPA examination.
A)True
B)False Answer: True
Q4) The U.S.Tax Court follows a policy of always deciding cases based upon what it thinks the results should be.
A)True
B)False Answer: False
Q5) What are the key components of tax planning?
Answer: 11ea8edf_2da8_0a98_9698_4be087005b07_TB4125_00
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Chapter 2: Corporations: Introduction and Operating Rules
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Q1) Black Corporation,an accrual basis taxpayer,was formed and began operations on February 1,2010.During its first year of operations (February 1 - December 31,2010),Black incurred the following expenses: fee paid to state of incorporation of $1,000,accounting and legal services incident to organization of $7,000,and expenses related to the printing and sale of stock certificates of $9,000.Black has $17,000 of qualified organizational expenditures that it may elect to amortize.
A)True
B)False Answer: False
Q2) Compensation that is determined to be unreasonable is usually treated as a constructive dividend to the shareholder and is not deductible by the corporation. A)True
B)False Answer: True
Q3) Generally,corporations with no taxable income must file a Form 1120.
A)True
B)False Answer: True
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Chapter 3: Corporations: Special Situations
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Q1) Under some circumstances,the sale of prepared food at a taxpayer's retail facility can qualify as DPGR.
A)True
B)False
Answer: True
Q2) In the case of a sole proprietor,modified AGI is substituted for taxable income in the DPAD formula.
A)True
B)False
Answer: True
Q3) Which AMT adjustment would only be negative?
A)Loss limitation.
B)AMT NOL deduction.
C)DPAD.
D)Completed contract method.
E)None of the above.
Answer: B
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Chapter 4: Corporations: Organization and Capital Structure
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Q1) Carl and Ben form Condor Corporation.Carl transfers cash of $50,000 for 50 shares of stock of Condor.Ben transfers a secret process with a tax basis of zero and a fair market value of $50,000 for the remaining 50 shares in Condor.Both Carl and Ben will have a tax basis of $50,000 in their stock in Condor Corporation.
A)True
B)False
Q2) Tara incorporates her sole proprietorship,transferring it to newly formed Black Corporation.The assets transferred have an adjusted basis of $240,000 and a fair market value of $300,000.Also transferred was $10,000 in liabilities,$1,000 of which was personal and the balance of $9,000 being business related.In return for these transfers,Tara receives all of the stock in Black Corporation.
A)Black Corporation has a basis of $241,000 in the property.
B)Black Corporation has a basis of $240,000 in the property.
C)Tara's basis in the Black Corporation stock is $241,000.
D)Tara's basis in the Black Corporation stock is $249,000.
E)None of the above.
Q3) If a corporation is thinly capitalized,all debt is reclassified as equity.
A)True
B)False
Page 6
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Chapter 5: Corporations: Earnings Profits and Dividend
Distributions
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Q1) Use of MACRS cost recovery when computing taxable income requires an E & P adjustment.
A)True
B)False
Q2) Glenda is the sole shareholder of Condor Corporation.She sold her stock to Melissa on October 31 for $150,000.Glenda's basis in Condor stock was $50,000 at the start of the year.Condor distributed land to Glenda immediately before the sale.Condor's basis in the land was $20,000 (fair market value of $25,000).On December 31,Melissa received a $75,000 cash distribution from Condor.During the year,Condor has $20,000 of current E & P and its accumulated E & P balance on January 1 is $10,000.Which of the following statements is true?
A)Glenda recognizes a $110,000 gain on the sale of her stock.
B)Glenda recognizes a $100,000 gain on the sale of her stock.
C)Melissa receives $5,000 of dividend income.
D)Glenda receives $20,000 of dividend income.
E)None of the above.
Q3) The terms "earnings and profits" and "retained earnings" are identical in meaning. A)True
B)False
Page 7
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Chapter 6: Corporations: Redemptions and Liquidations
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Q1) Three years ago,Loon Corporation purchased 100% of the stock of Pelican Corporation for $950,000.Currently,Pelican Corporation has assets with a basis of $700,000 and a fair market value of $1.2 million.If Loon liquidates Pelican,what basis will Loon have in the assets it acquires from Pelican Corporation?
A)$0.
B)$700,000.
C)$950,000.
D)$1.2 million.
E)None of the above.
Q2) Yellow Corporation transfers land (basis of $210,000,fair market value of $300,000)to Joe,a shareholder,to carry out a qualifying stock redemption.The land is distributed subject to a $320,000 liability.With respect to the redemption:
A)Yellow Corporation will recognize a gain of $20,000.
B)Yellow Corporation will recognize a gain of $90,000.
C)Yellow Corporation will recognize a gain of $110,000.
D)Yellow Corporation will not recognize a gain.
E)None of the above.
Q3) Describe the requirements for and tax consequences of a § 338 election.
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Chapter 7: Corporations: Reorganizations
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Q1) The so-called "anti-stuffing" rules are designed to thwart shareholders from contributing assets to a loss corporation,chiefly to increase its value for the computation of the § 382 limitation.
A)True
B)False
Q2) Explain how the tax treatment for parties involved in a tax-free reorganization almost exactly parallels the treatment under the like-kind exchange provisions of § 1031.
Q3) A shareholder bought 2,000 shares of Zee Corporation for $90,000 several years ago.When the stock is valued at $200,000,Zee redeems these shares in exchange for 6,000 shares of Yea Corporation stock.This transaction meets the requirements of § 368.Which of the following statements is true with regard to this transaction?
A)The shareholder has a recognized gain of $110,000.
B)The shareholder has a postponed gain of $110,000.
C)The shareholder has a basis in the Yea stock of $200,000.
D)Gain or loss cannot be determined because the value of the Yea stock is not given.
E)None of the above are true.
Q4) Define the different divisive "Type D" reorganizations.
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Chapter 8: Consolidated Tax Returns
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Q1) ParentCo purchased all of the stock of SubCo on January 1,2009,for $500,000.SubCo produced a loss for 2009 of $150,000 and distributed cash of $25,000 to ParentCo.In 2010,SubCo generated a loss of $750,000;in 2011,it recognized net income of $45,000.What is ParentCo's capital gain or loss if it sells all of its SubCo stock to a nongroup member on January 1,2012,for $50,000?
A)$50,000.
B)$430,000.
C)($380,000).
D)($500,000).
Q2) The Harris consolidated group reports a net operating loss (NOL)for the year.The tax law works to:
A)Keep the consolidated group from benefiting when the election to consolidate is motivated chiefly by tax reduction strategies.
B)Disallow any carrybacks of NOL deductions.
C)Allow unused charitable contributions a 20-year carryforward.
D)All of the above statements describe effects of the consolidated return rules.
Q3) A public university cannot join in a consolidated return.
A)True
B)False
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Page 10
Chapter 9: Taxation of International Transactions
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Q1) Gain or loss on the exchange of foreign currency must be considered separately from the underlying transaction (e.g. ,the purchase or sale of goods).
A)True
B)False
Q2) Rufus,Inc. ,a domestic corporation,has worldwide taxable income of $800,000,including a $300,000 dividend from Emma,Inc. ,a § 902 noncontrolled foreign corporation.Rufus' U.S.tax liability before FTC is $280,000.Rufus owns 20% of Emma.Emma's post-1986 E & P after taxes is $8 million and it has paid foreign taxes of $5 million attributable to post-1986 E & P.If Rufus elects the FTC,its U.S.gross income with regard to the dividend from Emma is:
A)$487,500.
B)$112,500.
C)$300,000.
D)$0.
Q3) A "U.S.shareholder" for purposes of CFC classification is any U.S.person who owns directly,indirectly,or constructively at least 10% of the voting power or value of a foreign corporation.
A)True
B)False
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Page 11
Chapter 10: Partnerships: Formation, operation, and Basis
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Q1) Meagan purchased her partnership interest from Lisa on the first day of the current year for $30,000 cash.She received a $15,000 cash distribution from the partnership during the year,and her share of partnership income is $12,000.If her share of partnership liabilities on the last day of the partnership year is $10,000,her outside basis for her partnership interest at the end of the year is $27,000.
A)True
B)False
Q2) Roger is a 30% partner in the ROC Partnership.At the beginning of the tax year,Roger's basis in the partnership interest was $60,000,including his share of partnership liabilities.During the current year,ROC reported net ordinary income of $40,000.In addition,ROC distributed $5,000 to each of the partners ($15,000 total).At the end of the year,Roger's share of partnership liabilities increased by $20,000.Roger's basis in the partnership interest at the end of the year is:
A)$60,000.
B)$75,000.
C)$87,000.
D)$120,000.
E)None of the above.
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Chapter 11: Partnerships: Distributions, transfer of Interests, and Terminations
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Q1) A distribution can be "proportionate" even if only one partner receives assets from the partnership.
A)True
B)False
Q2) The LMO Partnership distributed $30,000 cash to Laura in a proportionate,nonliquidating distribution.Laura's basis in her partnership interest was $25,000 immediately before the distribution.As a result of the distribution,Laura's basis is reduced to ($5,000)(negative)and she recognizes no gain or loss.
A)True
B)False
Q3) A partnership has accounts receivable with a basis of $0 and a fair market value of $10,000 and depreciation recapture potential of $15,000.All other assets of the partnership are either cash,capital assets,or § 1231 assets.If a purchaser acquires a 30% interest in the partnership from another partner,the selling partner will be required to recognize ordinary income of $7,500.
A)True
B)False
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Chapter 12: S Corporations
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Q1) On January 1,Bobby and Alice own equally all of the stock of an electing S corporation called Prairie Dirt Delight.The dirt company has a $60,000 loss for a non-leap year.On the 219th day of the year,Bobby sells his one-half of the stock to his son,Paul.How much of the $60,000 loss,if any,is allocated to Bobby?
A)$0.
B)$18,000.
C)$36,000.
D)$60,000.
E)None of the above.
Q2) For Federal income tax purposes,taxation of S corporations resembles that of partnerships.
A)True
B)False
Q3) Which equity arrangement would stop a corporation from being an S corporation?
A)Phantom stock.
B)Stock appreciation rights.
C)Warrants.
D)Straight debt.
E)An insurance company structure.
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Chapter 13: Comparative Forms of Doing Business
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Q1) Normally a C corporation shareholder would prefer to receive a return of capital distribution (e.g. ,stock redemption)rather than a dividend distribution.Provide an example of where the opposite is true.
Q2) In its first year of operations,a corporation projects losses of $200,000.Since losses are involved,the corporation definitely should elect S corporation status.
A)True
B)False
Q3) What tax rates apply for the AMT for an individual taxpayer and for a C corporation?
Q4) Agnes owns a sole proprietorship for which the assets have appreciated in value.If she is going to sell the business to Abner,should she structure the sale as (1)a sale of the individual assets or (2)a sale of the sole proprietorship?
Q5) Lime,Inc. ,has taxable income of $330,000.If Lime is a C corporation,its tax liability must be $111,950 [($50,000 ´ 15%)+ ($25,000 ´ 25%)+ ($25,000 ´ 34%)+ ($230,000 ´ 39%)].
A)True
B)False
Q6) Why are S corporations not subject to the accumulated earnings tax?
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Chapter 14: Taxes on the Financial Statements
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Q1) The current tax expense component of the financial statement total income tax expense generally represents the taxes actually payable (or refunds receivable)from domestic or foreign governmental authorities.
A)True
B)False
Q2) Which of the following represent temporary book-tax differences?
A)Compensation-related expenses.
B)Municipal bond interest.
C)Meals and entertainment expense deduction.
D)Nondeductible penalties.
E)All the above.
Q3) ASC 740 (FIN 48)replaced FAS 5,Accounting for Contingencies,with regard to accounting for uncertain tax positions.
A)True
B)False
Q4) A deferred tax asset is the current tax benefit (savings)associated with income or expense to be reported in future year financial statements.
A)True
B)False
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Chapter 15: Exempt Entities
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Q1) The key factor in determining whether an exempt entity's income from a bingo game is unrelated trade or business income is whether substantially all the work is performed by volunteers.
A)True
B)False
Q2) Tan,Inc. ,a tax-exempt organization,has $65,000 of net unrelated business income.Total charitable contributions (all associated with the unrelated trade or business)are $7,500.Assuming that the $7,500 was deducted in calculating net unrelated business income,what is Tan's unrelated business taxable income?
A)$57,500.
B)$65,250.
C)$66,000.
D)$72,500.
E)Some other amount.
Q3) If an exempt organization is subject to intermediate sanctions,it forfeits its exempt status.
A)True
B)False
Q4) Identify the components of the tax model for unrelated business taxable income.
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Chapter 16: Multistate Corporate Taxation
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Q1) Bobby and Sally work for the same employer,Wooster Manufacturing.Bobby manages the company's speculative investment portfolio,and Sally is a foreman in the factory.How are the salaries paid to Bobby and Sally treated in computing Wooster's payroll factor? Apply the general UDITPA rules in answering this question.
Q2) Hermann Corporation is based in State A (corporate income tax rate 10%.It sells its goods to customers in both A and State B (corporate income tax rate 4%).Hermann's state taxable income for the year is $1 million,30% of which relates to B customers.Hermann's level of activities in B is insufficient to create nexus there,but A has adopted a throwback rule as to multistate sales.Would Hermann reduce its total state income tax liability by creating nexus with B,say by allowing its sales force to make credit decisions? Elaborate.
Q3) Typically exempt from the sales/use tax base is the purchase of computer and cell phone equipment by a large consulting firm that is incorporated in the state.
A)True
B)False
Q4) Almost all of the states assess some form of consumer-level sales tax.
A)True
B)False
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Chapter 17: Tax Practice and Ethics
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Q1) Circular 230 applies to all tax practitioners other than attorneys,CPAs,and enrolled agents,who are exempt because this group have their own codes of conduct.
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 $250,000,with a projected tax liability of $80,000,all to be paid through estimates.Ignore the annualized income method.Compute Carol's quarterly estimated payment schedule for this year.
Q3) A "field audit" takes place at the headquarters of the corporate taxpayer.
A)True
B)False
Q4) The Statements on Standards for Tax Services are issued by the: A)IRS.
B)Sarbanes-Oxley Commission.
C)AICPA.
D)SEC.
Q5) Describe how the IRS applies interest rules in the context of a tax controversy.
Q6) Why should the tax practitioner study the workings of the IRS?
Page 19
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Chapter 18: The Federal Gift and Estate Taxes
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Q1) In 2007,Katherine made some taxable gifts upon which she paid a Federal gift tax of $96,000.If Katherine dies in 2009,the $96,000 is included in her gross estate under the "gross up" rule.
A)True
B)False
Q2) Under the terms of a trust created by Billie,Jody (Billie's brother)has the right to determine how its income is to be divided among Billie's children.Jody holds a special power of appointment.
A)True
B)False
Q3) For Federal estate tax purposes,the gross estate does not include property that will pass to a surviving spouse.
A)True B)False
Q4) Rachel owns an insurance policy on the life of Albert with Belle as the designated beneficiary.Upon Rachel's prior death,nothing regarding this policy is included in her gross estate.
A)True
B)False
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Chapter 19: Family Tax Planning
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Q1) Al creates a trust,income payable to John (age 18)for 8 years,remainder to Carol (age 36).In determining the value of Carol's interest,use the multiple provided in the tables for an 8-year term certain income interest.
A)True
B)False
Q2) In valuing a life insurance policy that has not matured (i.e. ,the insured is still alive),it makes a difference whether the policy is paid up.
A)True
B)False
Q3) For the IRS to grant a discretionary extension of time to pay estate taxes (under § 6161),the executor must show that the estate would otherwise undergo undue hardship.
A)True
B)False
Q4) If a stock redemption is to be carried out,an entity type of buy and sell agreement must be involved.
A)True
B)False
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Chapter 20: Income Taxation of Trusts and Estates
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Q1) The Roz Trust has distributable net income for the year of $100,000 and no income from tax-exempt sources.Under the terms of the trust instrument,the trustee must distribute $30,000 to Roger and $30,000 to Sally.After paying these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the trustee distributes an additional $10,000 to Roger and $30,000 to Sally.How much gross income from the trust must Sally recognize?
A)$80,000.
B)$60,000.
C)$50,000.
D)$20,000.
Q2) When a fiduciary distributes to a beneficiary a non-cash asset,how is the realized gain or loss treated?
Q3) Peggy,a trustee,has learned that the Olsen Trust has been characterized as a "grantor trust." What are the tax consequences of this status?
Q4) List some of the most commonly encountered motivations for creating fiduciary entities.
Q5) Once the distributable net income (DNI)of a trust or estate is known,how does the entity compute its deduction for distributions to beneficiaries?
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