Taxation of Business Entities Solved Exam Questions
Course Introduction
This course provides a comprehensive overview of federal income tax principles as they apply to various business entities, including corporations, partnerships, limited liability companies, and S corporations. Students will explore the tax implications of forming, operating, and dissolving business entities, as well as the allocation of income, deductions, and credits among owners. Key topics include entity classification, double taxation, distribution rules, the impact of tax law changes, and planning strategies to minimize tax liability. Through case studies and practical examples, students will develop the ability to analyze complex tax situations and apply relevant tax codes and regulations to real-world scenarios.
Recommended Textbook
Pearsons Federal Taxation 2018 Comprehensive 31st Edition by Timothy J. Rupert
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4096 Verified Questions
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Chapter 1: Tax Research
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Q1) Is it possible for the Tax Court to intentionally issue conflicting decisions?
Answer: Yes.If the Tax Court is issuing two decisions that are appealable to different circuit courts and these circuit courts have previously reached different conclusions on the issue,the Tax Court follows the respective precedent in each circuit and issues conflicting decisions.This is a result of the Golsen rule.
Q2) Identify which of the following statements is true.
A)If regulations are issued prior to the latest tax legislation dealing with a specific Code section,the regulations are no longer effective to the extent they conflict with the provisions in the new legislation.
B)Legislative regulations are more likely to be invalidated by the courts than are interpretative regulations.
C)Regulations have more authoritative weight than tax statutes.
D)All of the above are false.
Answer: A
Q3) What are the purposes of citations in tax research?
Answer: Citations serve two purposes.First,they substantiate propositions,and second,they enable the reader to locate underlying authority.
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Page 3
Chapter 2: Corporate Formations and Capital Structure
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Sample Questions
Q1) If an individual transfers an ongoing business to a corporation in a Sec.351 exchange,the individual must recognize any realized gain
A)only if the adjusted basis of the property transferred is less than the FMV of the stock received.
B)if the transferor receives property other than stock.
C)if the FMV of the property exchanged exceeds the FMV of the stock received.
D)both A and B above
Answer: B
Q2) Silvia transfers to Leaf Corporation a machine she had purchased a year ago for $50,000.The machine has a $40,000 adjusted basis and a $55,000 FMV on the transfer date.$10,000 in depreciation was claimed by Silvia prior to the transfer.Silvia receives all 1,000 shares of Leaf Corporation stock worth $50,000 and a two-year note with a $5,000 FMV.What is the amount and character of the recognized gain or loss?
A)$15,000 ordinary income
B)$15,000 capital gain
C)$5,000 ordinary income
D)$5,000 capital gain
Answer: C
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Chapter 3: the Corporate Income Tax
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Sample Questions
Q1) JLA is a U.S.shoe manufacturer.Its domestic production income is $1,000,000 and U.S.W-2 wages are $600,000.Taxable income before the domestic production deduction is $500,000.What is the amount of the production activities deduction?
A)$15,000
B)$20,000
C)$45,000
D)$50,000
Answer: C
Q2) For corporations,what happens to excess charitable contributions?
Answer: Corporations may not deduct charitable contributions in excess of 10% of adjusted taxable income.Excess charitable contributions are eligible for a five-year carryforward but cannot be carried back.Excess charitable contributions are subject to the same 10% limitation in the carryover years.
Q3) What are some of the advantages and disadvantages of filing a consolidated return?
Answer: Advantages include:
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Chapter 4: Corporate Nonliquidating Distributions
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Q1) For purposes of determining current E&P,which of the following items cannot be deducted in the year incurred?
A)charitable contribution in excess of the 10% limitation
B)capital losses in excess of capital gains
C)life insurance premiums (in excess of the increase in cash surrender value for the policy)paid on the lives of key employees
D)dividends-received deduction
Q2) Boris owns 60 of the 100 shares outstanding of Bread Corporation stock and 80 of the 100 shares of Butter Corporation stock.His basis in the Bread shares is $10,000 and his basis in his Butter shares is $5,000.Boris sells 30 of his Bread Corporation shares to Butter Corporation for $25,000.Bread Corporation has E&P of $20,000 and Butter Corporation has E&P of $40,000.In applying the substantially disproportionate test to determine if this is a sale or a dividend,Boris is treated as owning how many shares of Bread after the sale?
A)30 shares
B)54 shares
C)60 shares
D)80 shares
Q3) How does a shareholder classify a distribution for tax purposes?
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Page 6
Chapter 5: Other Corporate Tax Levies
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Q1) Which of the following statements regarding the minimum tax credit is correct?
A)It can only be carried forward.
B)It must be carried back before being carried forward.
C)Taxpayers may elect to forgo the carryback period and carry the credit forward.
D)There are not carryforwards or carrybacks of the minimum tax credit.
Q2) Identify which of the following statements is false.
A)The corporate AMT produces relatively little tax revenue.
B)The small corporation AMT exemption exempts 95% of all corporations from the AMT.
C)The corporate AMT is similar to the AMT for individuals.
D)The starting point for computing a corporation's AMT is book income.
Q3) What is the effect of the two-pronged test that allows the exclusion from PHCI of certain AIR (adjusted income from rents)?
Q4) A corporation cannot reasonably accumulate earnings to
A)protect against pending litigation.
B)fund an employee retirement plan.
C)self-insure.
D)redeem stock of an elderly shareholder where such accumulation occurs prior to the shareholder's death.
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Page 7
Chapter 6: Corporate Liquidating Distributions
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Q1) Identify which of the following statements is false.
A)An individual taxpayer,who is assessed an additional payment of money based on stock ownership in a corporation whose stock is redeemed in a complete liquidation,may recognize a capital loss to the extent of the additional assessment.
B)The open transaction doctrine defers the shareholder's gain or loss from a liquidation until the assets can be valued by sale or collection.
C)The open transaction doctrine as applied to complete corporate liquidations refers to the numerous planning alternatives available when liquidating a corporation.
D)The IRS asserts that the open transaction doctrine should be used only in extraordinary circumstances.
Q2) In a complete liquidation,a liability assumed by a shareholder reduces the shareholder's amount realized.
A)True
B)False
Q3) Under what circumstances does a liquidating corporation not recognize a gain or loss when making a distribution?
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) After the stock acquisition,MCI transferred its assets to TC Investments Corporation in a liquidation transaction,after which TC Investments Corporation held MCI assets instead of MCI stock.TC Investments Corporation then changed its name to MCI Communications Corporation,and WorldCom changed its name to MCI WorldCom. After these three steps,MCI Communications Corporation,which held the acquired MCI assets,ended up as a subsidiary of MCI WorldCom.Total assets of MCI WorldCom after the merger were $86 billion,including the stock of its subsidiary,MCI Communications Corporation.
On December 31,1997,prior to the acquisition,MCI had $576 million of U.S.NOL carryovers and $179 million of minimum tax credit carryovers.MCI WorldCom incurred expenses of $127 million in connection with the acquisition.MCI WorldCom recorded the transaction as a purchase for financial accounting purposes with the excess of cost over FMV being recorded as a combination of goodwill,in-process R&D costs,and other intangible assets.In addition,MCI WorldCom incurred $21 million in employee severance pay outlays.MCI stock options were converted into MCI WorldCom stock options.What type of reorganization did WorldCom and MCI engage in? What tax issues should the parties to the reorganization (MCI,BT,TC Investments Corporation,WorldCom,and the MCI and WorldCom shareholders)consider when evaluating the acquisition?
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Chapter 8: Consolidated Tax Returns
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Sample Questions
Q1) Jeffrey Corporation owns 85% of Placer Corporation and 25% of Mercer Corporation.Placer Corporation owns 60% of Mercer Corporation and 45% of Tyson Corporation.Jeffrey Corporation also owns 85% of Apple Corporation and Apple Corporation owns 30% of Tyson Corporation.Which of these corporations are members of an affiliated group if all percentages represent voting power and value held by the respective corporations?
Q2) The election to file a consolidated return is made annually. A)True B)False
Q3) What types of corporations are not includible corporations for purposes of determining whether or not an affiliated group exists?
Q4) How do intercompany transactions affect the calculation of capital gains/losses?
Q5) Which of the following statements is true?
A)A consolidated group determines its general business credit on a consolidated basis.
B)The general business credit can be carried back 3 years and forward 15 years.
C)The general business credit can be carried forward indefinitely.
D)The general business credit cannot be carried forward or backward.
Q6) What is the consequence of having losses subject to the SRLY limitations?
Q7) What are the five steps in calculating consolidated taxable income?
Page 10
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Chapter 9: Partnership Formation and Operation
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Q1) 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.
Q2) Matt and Joel are equal partners in the MJ Partnership.For the current year ended December 31,the partnership has book income of $80,000,which includes the following deductions: (1)guaranteed payments (salaries)to partners: Matt,$35,000; and Joel,$25,000; and (2)charitable contributions,$6,000.The book income amount does not include any sales of capital assets or Sec.1231 assets or any tax-exempt income.Based on the above information,what amount should be reported as ordinary income on the partnership return?
A)$60,000
B)$80,000
C)$86,000
D)$140,000
Q3) Explain the tax consequences for both the service partner and the partnership when a contribution of services is made to the partnership.
Q4) What is included in partnership taxable income?
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Chapter 10: Special Partnership Issues
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Sample Questions
Q1) A partnership terminates for federal income tax purposes if
A)a general partner who owns a majority interest dies.
B)state partnership law terminates the partnership.
C)a partnership interest of more than 50% is gifted.
D)within a 12-month period there is a sale or exchange of at least 50% of the total interest in partnership capital and profits.
Q2) What are some advantages and disadvantages of making a Section 754 election?
Q3) Patrick purchases a one-third interest in the PPP partnership for $600,000.The partnership has assets with a value of $1,500,000.PPP has a 754 election in effect.What is the amount of the basis adjustment?
A)$0
B)$300,000 increase in the basis of partnership assets
C)$100,000 increase in Patrick's basis in the partnership assets
D)$100,000 increase in Patrick's share of the basis in the partnership assets
Q4) What is an electing large partnership? What are the advantages to the partnership of electing to be taxed under the electing large partnership rules?
Q5) All states have adopted laws providing for limited liability companies.Describe a limited liability company (LLC).
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Chapter 11: S Corporations
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Q1) An S corporation is not treated as a corporate taxpayer with respect to which one of the following fringe benefits?
A)stock options
B)qualified retirement plans
C)group term life insurance premiums
D)nonqualified deferred compensation
Q2) Cook's Outlet has been an S corporation since its inception six years ago.On January 1 of the current year,the corporation's two equal shareholders,Davis and Dane,had adjusted bases of $150,000 and $175,000,respectively,for their S corporation's stock.The shareholders plan to have the corporation distribute land with a $50,000 adjusted basis and a $200,000 FMV in the current year.Ordinary income is expected to be $180,000 in the current year.What tax issues should Davis and Dane consider with respect to the distribution?
Q3) 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.
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Page 13
Chapter 12: The Gift Tax
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Q1) The purchase of a $15,000 engagement ring generates a taxable gift necessitating the filing of a gift tax return.
A)True
B)False
Q2) A net gift occurs when a donor makes a gift subject to the agreement that the recipient agrees to pay the gift tax.
A)True
B)False
Q3) Phil transfers $50,000 to a revocable trust benefiting his son,Josh.The transfer is a taxable gift.
A)True
B)False
Q4) Barbara sells a house with an FMV of $170,000 to her daughter for $120,000.From this transaction,Barbara is deemed to have made a gift (before the annual exclusion)of
A)$50,000.
B)$170,000.
C)$120,000.
D)$0.
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Page 14
Chapter 13: The Estate Tax
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Q1) Compare the tax treatment of administration expenses with that of the decedent's debts.
Q2) The probate estate includes property that passes by will or an intestacy statute and does not include property that passes due to a beneficiary designation.
A)True
B)False
Q3) Identify which of the following statements is true.
A)Regardless of how large the gross estate is,the estate tax liability can be completely eliminated if the estate is willed to a charitable organization.
B)There is a ceiling on the marital deduction.
C)All transfers to the surviving spouse are eligible for the marital deduction.
D)All of the above are false.
Q4) In 2000,Mike transfers $100,000 of leased land to a trust.The trust income is payable to Mike's son for 13 years,after which time the land is to revert to Mike.This year,Mike dies when the land is valued at $210,000.The applicable federal rate is 10%,and the reversionary actuarial factor is 0.30.How much of the trust value must be included in Mike's estate?
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) A trust distributes 30% of its income to Mark and 20% to Nancy.The remaining 50% is accumulated.The trust's depreciation is $1,000.The trust instrument is silent regarding the depreciation deduction.State law requires the depreciation be charged to principal.What part of the depreciation deduction will be allocated to Mark?
A)$0
B)$200
C)$300
D)$1,000
Q2) The term "trust income" when not preceded by an explanatory word relates most closely to
A)gross income.
B)taxable income.
C)distributable net income.
D)net accounting income.
Q3) For purposes of trust administration,the term "sprinkling" relates to the mandatory distribution of income among various beneficiaries.
A)True
B)False
Q4) Explain the three functions of distributable net income (DNI).
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Chapter 15: Administrative Procedures
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Q1) The statute of limitations is unlimited for a tax return that is never filed.
A)True
B)False
Q2) Identify which of the following statements is false.
A)The IRS issues annually a revenue procedure that prescribes how a letter ruling should be requested and the information to be contained in the ruling request.
B)The request for a ruling may contain a suggested conclusion (or answer)that the taxpayer proposes that the IRS adopt in the described situation.
C)As a practical consideration,taxpayers always find it preferable to obtain an advance ruling on questionable tax situations.
D)Third parties may not cite private letter rulings as authority for the tax consequences of their transactions.
Q3) Lucy files her current-year individual income tax return on August 5 of the following year,without having requested an extension.Her total tax is $10,000.Lucy pays $7,500 in a timely manner and the $2,500 balance when she files the return.Lucy did not engage in fraud and has no reasonable cause for late filing and late payment.Compute Lucy's penalties.
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Page 17
Chapter 16: Ustaxation of Foreign-Related Transactions
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Q1) U.S.Corporation owns 45% of the stock of Foreign Corporation.Foreign Corporation is incorporated in Country T.In its first year of operations,Foreign Corporation earns 100,000 frugs of E&P,pays a 20,000- frug dividend to U.S.Corporation,and pays 5,000 frugs in income taxes.The exchange rate between the dollar and the frug is: first year average,1 frug = $0.20; yearend,1 frug = $0.25); tax payment date,1 frug = $0.30; and dividend payment date,1 frug = $0.28.What is the translated foreign tax amount attributable to the dividend for deemed paid foreign tax credit purposes?
A)$200.00
B)$250.00
C)$300.00
D)$280.00
Q2) Income is "effectively connected" with the conduct of a U.S.business only if
A)the asset-use test is met.
B)the business activities test is met.
C)activities of the U.S.business are a material factor in the realization of the income.
D)Either A,B,or C can be correct.
Q3) What is a corporate inversion and why was this provision enacted?
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Chapter 17: An Introduction to Taxation
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Q1) Charlie makes the following gifts in the current year: $40,000 to his spouse,$30,000 to his church,$18,000 to his nephew,and $25,000 to a friend.Assuming Charlie does not elect gift splitting with his wife,his taxable gifts in the current year will be
A)$13,000.
B)$15,000.
C)$25,000.
D)$41,000.
Q2) Limited liability company members (owners)are responsible for the liabilities of their limited liability company.
A)True
B)False
Q3) The unified transfer tax system
A)imposes a single tax upon transfers of property during an individual's lifetime only.
B)imposes a single tax upon transfers of property during an individual's life and at death.
C)imposes a single tax upon transfers of property only at an individual's death.
D)none of above.
Q4) Describe the components of tax practice.
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19
Chapter 18: Determination of Tax
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Q1) A taxpayer is able to change his filing status from married filing jointly to married filing separately by filing an amended return.
A)True
B)False
Q2) Keith,age 17,is a dependent of his parents.During 2017,he received $3,000 of dividend income.The parent's marginal rate is 28% and Keith's rate is 10%.Keith's tax is
A)$292.50.
B)$130
C)$357.
D)None of the above.
Q3) A married couple in the top tax bracket has a new baby.Due to the birth of the baby their taxable income will be reduced in 2017 by $4,050.
A)True
B)False
Q4) The requirement to file a tax return is based on the individual's adjusted gross income.
A)True
B)False
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Chapter 19: Gross Income: Inclusions
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Q1) On April 1,2017,Martha,age 67,begins receiving payments of $3,000 monthly from her employer's qualified retirement plan.She had contributed $90,000 to the plan in after-tax dollars.The anticipated number of payments is 210.Using the simplified method,how much of the payments are taxable in 2017?
Q2) Which of the following bonds do not generate tax-exempt federal income?
A)U)S.Treasury bonds
B)bonds issued by fire districts
C)school district bonds
D)bonds issued by cities
Q3) Emma is the sole shareholder in Pacific Corporation and has owned the stock for five years.The basis in her stock is $50,000.Pacific distributes $35,000 to Emma.Accumulated earnings and profits at the beginning of the year equal $25,000 and current earnings and profits equal $5,000.
Required:
a.What are the tax consequences of this information?
b.What are the tax consequences of this information if,instead of distributing $35,000 to Emma,Pacific distributes $100,000 to Emma?
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Chapter 20: Gross Income: Exclusions
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Q1) "No additional cost" benefits are excluded from an employee's gross income if the services are the same type that are sold to customers and in the line of business in which the employee works.
A)True
B)False
Q2) Rebecca is the beneficiary of a $500,000 insurance policy on her husband's life.She elects to receive $52,000 per year for 10 years rather than receive the entire amount in a lump sum.Of the amount received each year
A)$2,000 is taxable income.
B)$50,000 is taxable income.
C)$52,000 is taxable income.
D)$5,000 per year is tax free as a death benefit.
Q3) Loan proceeds are taxable in the year received in cash. A)True
B)False
Q4) The amount of cash fringe benefits received under a cafeteria plan is taxable to an employee.
A)True
B)False
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Chapter 21: Property Transactions: Capital Gains and Losses
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Q1) Corporate taxpayers may offset capital losses only against capital gains and may carry excess losses back three years and then forward five years.
A)True
B)False
Q2) Distinguish between the Corn Products doctrine and the ruling in the Arkansas Best Corporation case.
Q3) Rita died on January 1,2017 owning an asset with a FMV of $730,000 that she purchased in 2010 for $600,000.Bert inherited the asset from Rita.When Bert sells the asset for $800,000 on August 20,2017,he must recognize a
A)STCG of $70,000.
B)LTCG of $70,000.
C)STCG of $200,000.
D)LTCG of $200,000.
Q4) Section 1221 specifically states that inventory or property held primarily for sale to customers is not classified as a capital asset of the trade or business.
A)True
B)False
Q5) What are arguments for and against preferential treatment of capital gains?
Page 23
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Chapter 22: Deductions and Losses
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Questions
Q1) American Healthcare (AH),an insurance company,is trying to persuade Congress to enact nationwide anti-smoking legislation.As part of this effort,AH paid $500,000 to hire a lobbying firm to discuss its concerns with members of Congress.AH also contributed $100,000 to candidates for political office who support limiting public smoking.What amount of these expenditures can AH deduct?
A)$0
B)$100,000
C)$500,000
D)$600,000
Q2) A sole proprietor contributes to the election campaign of a state governor.The candidate has promised to change a law that severely limits the growth of the sole proprietor's business.Given the direct benefit,the sole proprietor can deduct the contribution.
A)True
B)False
Q3) A small business uses the accrual method of accounting for its financial statements.It must also use the accrual method for computing taxable income.
A)True
B)False
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Chapter 23: Itemized Deductions
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Q1) All of the following statements are true except
A)investment interest expense is deductible to the extent of a taxpayer's net investment income.
B)short-term capital gains meet the definition of net investment income.
C)investment interest expense includes interest expense to purchase or carry tax-exempt securities.
D)net investment income is the taxpayer's investment income in excess of investment expenses.
Q2) Marcia,who is single,finished graduate school this year and began repaying her student loan.The proceeds of the loan were used to pay her qualified higher education expenses.She has not received any type of educational assistance or scholarships.The amount of interest paid during the year amounted to $3,000.What is the amount and classification of her student loan interest deduction if her AGI is $68,000?
A)$500 for AGI
B)$2,000 for AGI
C)$2,500 for AGI
D)$3,000 for AGI
Q3) Explain why interest expense on investments is limited to net investment income.
Q4) When are points paid on a loan deductible as interest expense?
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Chapter 24: Losses and Bad Debts
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Q1) The amount of loss realized on the sale of property is computed by subtracting adjusted basis from amount realized.
A)True
B)False
Q2) An individual taxpayer has generated a net operating loss in 2017.He would like to receive a quick refund by filing a carryback claim on Form 1045.To obtain the quick refund,the taxpayer must file Form 1045 within 90 days after April 15,2018.
A)True
B)False
Q3) What is required for an individual to be considered as actively participating in a real estate activity for purposes of utilizing the $25,000 ceiling on rental real estate losses?
Q4) How is a claim for refund of taxes filed by an individual who carries an NOL deduction back to a prior year?
Q5) If a loan has been made to a related party,what are some considerations for determining whether the loan is a bona fide debt or is,in fact,merely a gift?
Q6) What must an individual taxpayer prove to receive a worthless security deduction?
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Chapter 25: Employee Expenses and Deferred Compensation
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Q1) Travel expenses for a taxpayer's spouse are deductible if the spouse is an employee,the travel is for a bona fide purpose,and the expenses are otherwise deductible.
A)True
B)False
Q2) Corporations issuing incentive stock options receive a tax deduction for compensation expense.
A)True
B)False
Q3) Norman traveled to San Francisco for four days on vacation,and while there spent another two days conducting business for his employer.Norman's plane fare for the trip was $500; meals cost $150 per day; hotels cost $300 per day; and a rental car cost $150 per day that was used for all six days.Norman was not reimbursed by his employer for any expenses.Norman's AGI for the year is $40,000 and he did not have any other miscellaneous itemized deductions.Norman may deduct (after limitations)
A)$250.
B)$800.
C)$1,050.
D)$1,200.
Page 27
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Chapter 26: Depreciation, cost Recovery, amortization, and Depletion
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Q1) A calendar-year taxpayer places in service one new piece of equipment this year on March 1.The asset cost $600,000.For this first year,the taxpayer will base the depreciation deduction on 10 months.
A)True
B)False
Q2) Depreciable property includes business,investment,and personal-use assets. A)True
B)False
Q3) If personal-use property is converted to trade or business use,the basis for depreciation is the lesser of adjusted basis or FMV on the date of conversion.
A)True
B)False
Q4) In order for an asset to be depreciated in the year of purchase,it must be placed in service before year's end. A)True
B)False
Q5) Discuss the options available regarding treatment of an amount paid in excess of the FMV of an acquired company's net assets in a business combination.
Page 28
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Chapter 27: Accounting Periods and Methods
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Q1) Misha,a single taxpayer,died on July 31,2017.Her final income tax return (ignoring extensions)is due November 15,2017.
A)True
B)False
Q2) Marissa sold stock of a non-publicly traded corporation with an adjusted basis of $36,000 for $48,000.Marissa received a down payment of $12,000 with the balance due in equal payments over the next two years.
a.What is the amount of gross profit to be recognized in the year of sale?
b.Assume that the buyer defaulted on the final payment.Marissa sued and was able to repossess the stock.The fair market value of the stock on the date of repossession is $36,000; legal fees were $1,500.What is the gain or loss on the repossession?
Q3) A corporation is starting to produce watches with smart phone capabilities.Generally,a business producing this type of product will want to elect the LIFO inventory method.
A)True
B)False
Q4) What is the significance of the Thor Power Tool Co.case?
Q5) Discuss the purpose of the imputed interest rules.
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Chapter 28: Property Transactions: Nontaxable Exchanges
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Q1) Kuda owns a parcel of land she acquired on June 1,2012,as an investment.She exchanges the land on July 5,2017,for a storage building to be used in her business and marketable securities to be held as an investment.The marketable securities' holding period begins on
A)June 1,2012
B)June 2,2012
C)July 5,2017
D)July 6,2017
Q2) If the threat of condemnation exists and the taxpayer has reasonable grounds to believe that the property will be condemned,the taxpayer may elect to defer gain even if the taxpayer sells the property to a party other than the governmental unit that is threatening to condemn the property.
A)True
B)False
Q3) The holding period for boot property received begins on the day after the date of the exchange.
A)True
B)False
Q4) Discuss why a taxpayer would want to avoid like-kind exchange provisions.
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Chapter 29: Property Transactions: Sec1231 and Recapture
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Q1) Emma owns a small building ($120,000 basis and $123,000 FMV)and equipment ($35,000 basis and $22,000 FMV).Both assets were acquired three years ago,are used in Emma's business,and are depreciated using straight-line depreciation.Both are destroyed by fire.Insurance proceeds were equal to their FMVs.Only one other transfer of an asset occurs during the year,and a $3,000 LTCL is recognized.After considering all transactions,the tax result to Emma is a
A)$13,000 NLTCL.
B)$13,000 ordinary loss.
C)$3,000 LTCG; $3,000 LTCL; and $13,000 ordinary loss.
D)$10,000 net ordinary loss and a $3,000 NLTCL.
Q2) What is the purpose of Sec.1245 and what is its significance?
Q3) A taxpayer has a gain on Sec.1245 property.None of the gain will be treated as Sec.1231 gain unless the sale price exceeds the original cost.
A)True
B)False
Q4) The amount recaptured as ordinary income under either Sec.1245 or Sec.1250 can never exceed the realized gain.
A)True
B)False
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Chapter 30: Special Tax Computation Methods, tax Credits, and
Payment of Tax
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Q1) Carlotta,Inc. ,has $50,000 foreign-source income and $150,000 worldwide income.Its U.S.tax on its worldwide income is $42,000,and it paid foreign taxes of $16,000.What is the corporation's foreign tax credit?
A)$2,000
B)$14,000
C)$16,000
D)$42,000
Q2) Harley's tentative minimum tax is computed by multiplying the AMT tax rates by her A)taxable income.
B)alternative minimum tax base.
C)alternative minimum taxable income.
D)tentative alternative taxable income.
Q3) Self-employment taxes include components for A)Medicare hospital insurance and SUTA.
B)Social Security and FUTA.
C)FICA and FUTA.
D)Social Security and Medicare hospital insurance.
Q4) Discuss the tax planning techniques available to a U.S.citizen who is on a foreign job assignment.
Page 32
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Chapter 31: Tax Research
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Q1) A citator enables tax researchers to locate authorities (e.g. ,cases and IRS pronouncements)that have cited a particular case.
A)True
B)False
Q2) What are some of the consequences of the small cases procedure of the Tax Court?
Q3) Use a citator to determine the current status of the relevant cases and rulings and if there are any additional cases and rulings.
Q4) Regular and memorandum decisions have the same precedential value.
Q5) Regular decisions involve an issue decided for the first time.A memorandum decision frequently involves a variation in the facts for an issue where the law has been previously decided.
Q6) Read the cases and rulings referenced in the database.
Q7) According to the Statements on Standards for Tax Services,what belief should a CPA have before taking a pro-taxpayer position on a tax return?
Q8) Compare and contrast "interpretative" and "statutory" regulations.
Q9) According to the AICPA's Statements on Standards for Tax Services,what duties does the tax practitioner owe the client?
Q10) Refine the issues and perhaps return to step 1.
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Chapter 32: Corporations
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Q1) Individuals Julie and Brandon form JB Corporation.Julie transfers cash of $425,000 in exchange for 50% of the stock of the JB Corporation worth $410,000 and a $15,000 note.Brandon transfers equipment with a $390,000 adjusted basis and a $425,000 FMV for 50% of the stock worth $410,000 and a note of the JB Corporation valued at $15,000.Brandon's basis in the stock received is
A)$350,000.
B)$390,000.
C)$410,000.
D)$425,000.
Q2) Lafayette Corporation distributes $80,000 in cash along with land having a $40,000 adjusted basis and a $70,000 FMV to its shareholder,Gus.The corporation has accumulated substantial earnings and profits.
a.What are the tax consequences to Lafayette Corporation?
b.What are the tax consequences to the shareholder?
c.What is the shareholder's basis in the land?
Q3) For corporations,NSTCLs and NLTCLs are treated as STCLs for purposes of the carryback and carryforward rules.
A)True
B)False
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Page 34
Chapter 33: Partnerships and S Corporations
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Q1) All of the following could file partnership tax returns except
A)general partnership.
B)limited liability partnership.
C)limited liability company.
D)single member limited liability company.
Q2) Shelley owns a 25% interest in a qualifying S corporation.Shelley's basis in the stock was $15,000 at the beginning of the year.Shelley made no capital contributions and received no distributions during the year.Shelley loaned the S corporation $20,000 this year.The S corporation incurred a $160,000 ordinary loss this year.
a.What are the amounts of Shelley's deduction and carryover of the unused loss for the year?
b.What is the amount of Shelley's basis in the stock at the end of year one?
c.If the S Corporation earned net income of $200,000 in year two,what is the amount of Shelley's stock basis at the end of year two?
Q3) A partnership is generally required to use the tax year of one or more partners who own more than a 50% interest in partnership profits and capital.
A)True
B)False
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Chapter 34: Taxes and Investment Planning
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Q1) An investment in a growth stock which does not pay dividends is an example of the Exempt Model.
A)True B)False
Q2) In the Pension Model,the initial investment is deductible or excludible from gross income,and investment earnings are taxed currently.
A)True B)False
Q3) The Flow-Through Model applies to a sole proprietorship.
A)True B)False
Q4) While tax-exempt bonds are not subject to income tax under the Internal Revenue Code,they are subject to implicit taxes caused by increased demand driving up the price.
A)True B)False
Q5) The nondeductible traditional IRA is a classic example of the Pension Model. A)True B)False
Page 36
Q6) Compare the characteristics of the Current and Deferred Models.
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