Taxation of Business Entities Solved Exam Questions
Course Introduction
This course provides a comprehensive examination of the federal income taxation of business entities, including corporations, partnerships, and limited liability companies. Students will analyze tax rules concerning the formation, operation, distributions, and dissolution of these entities, as well as the tax implications for their owners. The course emphasizes the practical application of tax laws to business transactions, compliance requirements, and strategic tax planning to optimize entity structure and minimize tax liabilities. Case studies and real-world examples are integrated to enhance understanding of current issues and developments in business taxation.
Recommended Textbook
Prentice Halls Federal Taxation 2014 Comprehensive 27th Edition by Timothy J. Rupert
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Chapter 1: Tax Research
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Q1) Your client wants to deduct commuting expenses on his tax return.You explain to the client that there is no legal authority allowing this deduction.The client,however,continues to insist on this action.What guidance do the Statements on Standards for Tax Services provide in this dilemma?
Answer: According to Statement on Tax Standards,the CPA should explain to the client that this action is a violation of the tax law and would trigger IRS penalties.If the client insists on the deduction,the CPA should consider withdrawing from the engagement.
Q2) 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.
Q3) Appeals from the U.S.Tax Court are to the Court of Appeals for the Federal Circuit. A)True B)False
Answer: False
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Page 3
Chapter 2: an Introduction to Taxation
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Q1) Latashia reports $100,000 of gross income on her 2012 tax return,filed April 15,2013.She omits $30,000 of income,but the error was not fraudulent.When does the statute of limitations for examining her tax return expire?
A)April 15,2015
B)April 15,2016
C)April 15,2019
D)It never expires.
Answer: C
Q2) Property is generally included on an estate tax return at its historical cost basis.
A)True
B)False
Answer: False
Q3) The Internal Revenue Service is the branch of the Treasury Department responsible for administering the federal tax law.
A)True
B)False
Answer: True
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Chapter 3: Corporate Formations and Capital Structure
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Q1) Which of the following statements about a partnership is true?
A)A partnership is a taxpaying entity.
B)Partners are taxed on distributions from a partnership.
C)Partners are taxed on their allocable share of income whether it is distributed or not.
D)Partners are considered employees of the partnership.
Answer: C
Q2) Rose and Wayne form a new corporation.Rose contributes cash for 85% of the stock and Wayne contributes services for 15% of the stock.The tax effect is
A)Rose and Wayne must recognize their realized gains,if any.
B)Wayne must report the FMV of the stock received as capital gain.
C)Rose and Wayne are not required to recognize their realized gains.
D)Wayne must report the FMV of the stock received as ordinary income.
Answer: D
Q3) Under Sec.351,corporate stock may include all of the following except A)voting stock.
B)nonvoting stock.
C)stock warrants.
D)qualified preferred stock.
Answer: C
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Page 5
Chapter 4: Determination of Tax
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Q1) Taxpayers have the choice of claiming either the personal and dependency exemption or the standard deduction.
A)True
B)False
Q2) Generally,in the case of a divorced couple,the parent who has physical custody of a child for the greater part of the year is entitled to the dependency exemption.
A)True
B)False
Q3) When a spouse dies,the surviving spouse for the year of death
A)may file a married filing jointly return.
B)must file a tax return using the single filing status.
C)must file a tax return using the head of household filing status.
D)may file a married filing jointly return only if the death occurred in the last half of the year.
Q4) The only business entity that pays income taxes is the C corporation. A)True B)False
Q5) Discuss reasons why a married couple may choose not to file a joint return.
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Chapter 5: The Corporate Income Tax
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Q1) Identify which of the following is false.
A)Corporations that sell real property at a gain must report an additional 20% of the entire gain as ordinary income.
B)Corporations selling real property that previously had been depreciated using an accelerated method are subject to Sec.291.
C)Section 291 reduces the amount of net Sec.1231 gains that can be offset by corporate capital losses.
D)Section 291 recapture applies to Sec.1250 property.
Q2) Bright Corporation purchased residential real estate five years ago for $450,000,of which $50,000 was allocated to the land and $400,000 was allocated to the building.Bright booked straight-line MACRS deductions of $55,000 during the past five years.This year,Bright sells the property for $550,000,of which $100,000 is allocated to the land and $450,000 is allocated to the building.What is the amount and character of Bright's recognized gain or loss on the sale?
Q3) Zeta Corporation received a $150,000 dividend from Omega Corporation this year.Zeta owns 10% of Omega's single class of stock.What tax issues should Zeta consider with respect to its dividend income?
Q4) Describe the domestic production activities deduction.
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Chapter 6: Gross Income: Inclusions
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Q1) Natasha,age 58,purchases an annuity for $40,000.Natasha will receive $400 per month for the rest of her life.The expected return multiple is 20.0.At age 65,the amount that Natasha may exclude from income is A)$0.
B)$2,000.
C)$2,800.
D)$4,000.
Q2) Raoul sells household items on an Internet website.He receives $3,340 cash and a pair of high-power binoculars from this activity during the year.What tax issues should Raoul consider?
Q3) Interest credited to a bank savings account is taxed regardless of whether or not it is withdrawn.
A)True
B)False
Q4) Alimony received is taxable to the recipient while child support payments are not.
A)True
B)False
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8
Chapter 7: Corporate Nonliquidating Distributions
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Q1) Maple Corporation distributes land to a noncorporate shareholder.Explain how the following items are computed:
a)The amount of the distribution.
b)The amount of the dividend.
c)The basis of the land to the shareholder.
d)The start of the holding period for the land. How would your answers change if the distribution was made to a corporate shareholder?
Q2) Identify which of the following statements is false.
A)A stock redemption is treated as a sale or exchange only if the shareholder's ownership of one particular class of stock is terminated.
B)An individual is not considered to own stock owned by a brother under the family attribution rules of Sec.318.
C)An individual is considered to own the stock owned by his parents,children,spouse,and grandchildren under the family attribution rules of Sec.318.
D)A person who has an option to purchase stock is considered to own the stock.
Q3) Define Sec.306 stock.
Q4) How does a shareholder classify a distribution for tax purposes?
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Page 9
Chapter 8: Gross Income: Exclusions
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Q1) Liza's employer purchased a disability income policy from an insurance company on behalf of all of its employees.The employer paid for two-thirds of the premiums,and the employees paid for the other one-third.Subsequently,Liza received $3,000 per month for 6 months she was unable to work.Liza will be taxed on
A)$0.
B)$6,000.
C)$12,000.
D)$18,000.
Q2) Loan proceeds are taxable in the year received in cash.
A)True B)False
Q3) Healthwise Ambulance requires its employees to be on 24-hour call and consequently gives them $800 per month housing allowance and a $200 per month food allowance.Ron,an employee of Healthwise,receives a salary of $40,000 per year (this does not include the allowances).Ron will be taxed each year on A)$40,000.
B)$42,400.
C)$49,600.
D)$52,000.
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Page 10
Chapter 9: Other Corporate Tax Levies
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Q1) Which of the following is not an adjustment in calculating AMTI?
A)gain on installment sales of noninventory property
B)the regular tax NOL deduction
C)production activities deduction
D)the difference between the gains for AMTI and regular tax purposes
Q2) What is a personal holding company?
Q3) ASC 740 requires that
A)the AMT is not considered as federal income tax expense.
B)companies must establish a valuation allowance for the minimum tax credit.
C)the minimum tax credit creates a deferred tax asset.
D)the minimum tax credit increases federal income tax expense.
Q4) How is the accumulated earnings tax liability computed?
Q5) The accumulated earnings tax is imposed at what rate?
A)10%
B)15%
C)20%
D)35%
Q6) How is alternative minimum taxable income computed?
Q7) Door Corporation's alternative minimum taxable income before the statutory exemption is $200,000.What is Door's tentative minimum tax before credits?
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Chapter 10: Property Transactions: Capital Gains and Losses
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Q1) In a community property state,jointly owned property left to the surviving spouse will have a basis after the estate is settled equal to
A)the decedent's basis before death.
B)the total fair market value of the entire property at the date of death (if the alternative valuation date was not elected).
C)half of the fair market value of the entire property at the date of death (if the alternative valuation date was not elected).
D)half of the basis just before death,plus half of the fair market value at the date of death (if the alternative valuation date was not elected).
Q2) If Houston Printing Co.purchases a new printing press during the current year for $30,000,pays sales taxes of $2,000,and pays $1,000 for installation,the cost basis for the printing press is $33,000.
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?
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Page 12
Chapter 11: Corporate Liquidating Distributions
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Q1) Property received in a corporate liquidation by a noncorporate shareholder has
A)a basis equal to its basis on the liquidating corporation's books increased by any gain recognized by the shareholder upon receipt of the property.Its holding period includes the holding period of the shareholder's stock.
B)a basis equal to its basis on the liquidating corporation's books increased by any gain recognized by the shareholder upon receipt of the property.Its holding period commences on the day after the distribution date.
C)a basis equal to its FMV reduced by any liabilities assumed by the shareholder.Its holding period commences on the day after the distribution date.
D)a basis equal to its FMV.Its holding period commences on the day after the distribution date.
Q2) A subsidiary must recognize depreciation recapture income when the subsidiary is liquidated into the parent.
A)True
B)False
Q3) Liquidation and dissolution have the same legal meaning.
A)True
B)False
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Chapter 12: Deductions and Losses
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Q1) According to the tax formula,individuals can deduct the greater of for AGI deductions or from AGI deductions.
A)True
B)False
Q2) Deductions for adjusted gross income include all of the following except
A)contributions to certain retirement plan arrangements.
B)alimony.
C)expenses attributable to production of rental income.
D)unreimbursed employee business expenses.
Q3) Pat,an insurance executive,contributed $1,000,000 to the re-election campaign of Governor Stephens,in hopes that Stephens will appoint her to a coveted position on the State Board of Insurance.How much of the contribution can Pat deduct?
A)$0
B)$100,000
C)$500,000
D)$1,000,000
Q4) List those criteria necessary for an expenditure to be deductible as business or investment expenses.
Q5) Discuss when expenses are deductible under the accrual method of accounting.
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Chapter 13: Corporate Acquisitions and Reorganizations
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Q1) 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?
Q2) What are the advantages of a triangular merger?
Q3) Table Corporation transfers one-half of its assets to Chair Corporation in exchange for 100% of Chair Corporation's single class of stock.Following the exchange,Table Corporation distributes the Chair stock ratably to its shareholders.This transaction will constitute a
A)Type A reorganization.
B)Type C reorganization.
C)divisive Type D reorganization.
D)acquisitive Type D reorganization.
Q4) Baxter Corporation transfers assets with an adjusted basis of $300,000 and an FMV of $500,000 to Duke Corporation for 90% of Duke's single class of stock worth $500,000.The Duke stock is then exchanged for Frank's 50% interest in Baxter Corporation.Frank's basis in the Baxter stock he surrenders is $120,000.What is Duke Corporation's basis in the assets it receives?
Q5) What are the advantages and disadvantages of a Type C reorganization?
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Chapter 14: Itemized Deductions
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Q1) Don's records contain the following information: 1.Donated stock having a fair market value of $3,600 to a qualified charitable organization.He acquired the stock five months previously at a cost of $2,400.
2.Paid $700 to a church school as a requirement for the enrollment of his daughter.
3.Paid $200 for annual homeowner's association dues.
4.Drove 400 miles in his personal auto at 14 cents per mile.The travel was directly related to volunteer services he performed for his church (actual costs were not available). What is Don's charitable contribution deduction?
A)$2,456
B)$3,156
C)$3,356
D)$3,656
Q2) Patrick and Belinda have a twelve year old son,Aidan,who is autistic.Patrick and Belinda pay tuition of $20,000 annually for Aidan to attend a school for autistic children.What tax issues should be considered? What additional information would you need?
Q3) Explain how tax planning may allow a deduction of qualified medical expenses.
Q4) When are points paid on a loan deductible as interest expense?
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Page 16
Chapter 15: Consolidated Tax Returns
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Q1) 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 can not be carried forward or backward.
Q2) What are the differences between a controlled group and an affiliated group?
Q3) Identify which of the following statements is true.
A)An affiliated group member incurring an NOL in a separate return year that is available as a carryback or carryforward to a consolidated return year is subject to a limit on the use of the NOL when the loss year is designated a separate return limitation year (SRLY).
B)A consolidated NOL may be carried back one year and carried forward twenty years.
C)An NOL incurred in a separate return limitation year by the corporation that is the common parent corporation for the group in the carryover year is subject to the SRLY limitation.
D)All of the above are false.
Q4) How do intercompany transactions affect the calculation of capital gains/losses?
Q5) Define intercompany transactions and explain the two types of transactions.
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Page 17
Chapter 16: Losses and Bad Debts
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Q1) One of the requirements which must be met for stock to be considered Section 1244 stock is that the stock must be owned by an individual or a partnership.
A)True
B)False
Q2) When business property involved in a casualty is totally destroyed,the amount of the loss is limited to the lesser of the taxpayer's adjusted basis in the property or the reduction in FMV.
A)True
B)False
Q3) A passive activity includes any rental activity or any trade or business in which the taxpayer does not materially participate.
A)True
B)False
Q4) The sale of inventory at a loss results in an ordinary loss.
A)True
B)False
Q5) For a bad debt to be deductible,the taxpayer must have a basis in the debt.
A)True
B)False
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Chapter 17: Partnership Formation and Operation
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Q1) Latoya owns a 10% interest in the ABC Partnership from January 1 through June 30 (the 181st day of the tax year)of the current year (a non-leap year).On July 1,Latoya buys an additional 10% interest in the partnership.The XYZ Partnership's ordinary income is $109,500 and it is earned evenly throughout the year.Latoya's distributive share of the ordinary income is
A)$16,380.
B)$16,425.
C)$16,470.
D)$21,900.
Q2) Allen contributed land,which was being held for sale to Allen's customers,to a partnership in exchange for a 20% interest.The partnership uses the land in its business for three years and then sells the property.When the property was contributed,it had a basis in Allen's hands of $500,000 and an FMV of $600,000.The partnership sells the land for $700,000.The gain reported by the partnership is
A)$100,000 of ordinary income and $100,000 of Sec.1231 gain.
B)$100,000 of Sec.1231 gain and $100,000 of capital gain.
C)$200,000 of ordinary income.
D)$200,000 of Sec.1231 gain.
Q3) What is included in partnership taxable income?
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Page 19
Chapter 18: Employee Expenses and Deferred Compensation
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Q1) Dues paid to social or athletic clubs are deductible if they meet a primary-use test,requiring that more than 50% of the use of the facility be for business purposes.
A)True
B)False
Q2) Ruby Corporation grants stock options to Iris on February 1,2012.The options do not have a readily ascertainable value.The option price is $100,and the FMV of the Ruby stock is also $100 on the grant date.The option allows Iris to purchase 200 shares of Ruby stock.Iris exercises the option on August 1,2013,when the stock's FMV is $150.Iris sells the stock on December 5,2014 for $400.Determine the amount and character (i.e.ordinary,LTCG or STCG)of income recognized by Iris and the deduction allowed Ruby Corporation in 2012,2013 and 2014 under the following assumptions: a.The stock option is an incentive stock option. b.The stock option is a nonqualified stock option.
Q3) If the purpose of a trip is primarily personal and only secondarily related to business,the transportation costs to and from the destination are deductible.
A)True
B)False
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Page 20
Chapter 19: Special Partnership Issues
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Q1) Identify which of the following statements is false.
A)A sale or exchange of at least 50% of the capital and profits interest in a partnership within a 12- consecutive-month period will terminate the partnership and end all of the partnership's elections.
B)When using the 50% rule to terminate a partnership,if an interest is sold more than once during the 12-month period,each sale is counted separately.
C)A partner's individual income tax return,under some circumstances,may include the results of partnership operations for a period exceeding 12-months.
D)When several different transfers are made during a 12-month period,the partnership termination occurs on the date of the transfer that first crosses the 50% threshold.
Q2) The definition of "unrealized receivable" does not include the
A)right to payment for services performed by a cash-basis taxpayer.
B)recapture potential on Sec.1245 property.
C)recapture potential on Sec.1250 property.
D)right to payment for services performed by an accrual-basis taxpayer.
Q3) Can a partner recognize both a gain and a loss on the sale of a partnership interest? If so,under what conditions?
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Chapter 20: Depreciation cost Recovery amortization and Depletion
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Q1) On its tax return,a corporation will use the same depreciation,amortization and depletion methods used in its financial statements issued to shareholders.
A)True
B)False
Q2) Residential rental property is defined as property from which more than 80% of the gross rental income is rental income from dwelling units.
A)True
B)False
Q3) Under the MACRS system,automobiles and computers are classified as seven-year property.
A)True
B)False
Q4) Intangible assets are subject to MACRS depreciation.
A)True
B)False
Q5) The basis of an asset must be reduced by the depreciation allowable. A)True
B)False
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Chapter 21: S Corporations
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Q1) Can loss or credit carryforwards from a previous C corporation tax year help reduce the built-in gains tax?
Q2) Identify which of the following statements is true.
A)The overall S corporation loss limitation equals the shareholder's adjusted basis for his/her S corporation stock plus his/her ratable share of all S corporation liabilities.
B)The loss pass-throughs from an S corporation may produce a net operating loss for the shareholder.
C)An S corporation shareholder can increase the adjusted basis of his/her stock by any indebtedness owed the shareholder by the S corporation.
D)All of the above are false.
Q3) 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?
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Chapter 22: Accounting Periods and Methods
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Q1) Under the cash method of accounting,payment by credit card entitles the taxpayer to deduct the expenditure at the time the charge is made.
A)True
B)False
Q2) Which entities may elect a fiscal year? Discuss how certain tax entities may circumvent the requirement of using a calendar year.
Q3) Emily made the following interest free loans to her children:
$10,000 to Erin for a down payment on a new home.Her net investment income for the year is $1,300.
$50,000 to Sasha to purchase stock.Her net investment income for the year is $800. $60,000 to Tim to purchase a new car.His net investment income for the year is $2,800. The applicable federal interest rate on similar loans is 5%.What is the amount of interest income that Anita must report from these transactions?
Q4) All C corporations can elect a tax year other than a calendar year.
A)True
B)False
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Chapter 23: The Gift Tax
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Q1) Contrast the Crummey trust with the Sec.2503(c)trust.
Q2) In 2013,Lilly makes taxable gifts aggregating $5.25 million.Her only other taxable gifts amount to $1 million,all of which were made in 1998.What is her gift tax liability?
Q3) Yuli wants to help his adult grandson,Jerry,become a CPA.He pays all of Jerry's tuition this year,which totals $20,000.He also pays $9,000 for Jerry's room and board at school.Yuli makes the payments directly to the school.What are the gift tax consequences?
Q4) The changing of a life insurance policy beneficiary from a spouse to an adult daughter constitutes a gift for transfer tax purposes.
A)True
B)False
Q5) 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 25
Chapter 24: Property Transactions: Nontaxable Exchanges
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Q1) Ron's building,which was used in his business,was destroyed in a fire.Ron's adjusted basis in the building was $210,000,and its FMV was $330,000.Ron filed an insurance claim and was reimbursed $300,000.In that same year,Ron invested $240,000 of the insurance proceeds in another business building.Ron will recognize gain of
A)$-0-.
B)$30,000.
C)$60,000.
D)$90,000.
Q2) Mitchell and Debbie,both 55 years old and married,sell their personal residence to Sophie.Sophie pays $225,000 and assumes their $70,000 mortgage.To make the sale they pay $4,000 in commissions and $1,000 in legal costs.They have owned and lived in the house for seven years and their tax basis is $125,000.What is the amount of gain recognized on the sale?
A)$-0-
B)$100,000
C)$165,000
D)$170,000
Q3) Discuss the rules regarding the holding period for like-kind property received in a nontaxable exchange.
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Page 26
Chapter 25: The Estate Tax
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Q1) Identify which of the following statements is true.
A)In general,an estate tax return is not required to be filed unless the value of the gross estate and adjusted taxable gifts exceeds the exemption equivalent.
B)Estate taxes must be paid when the return is filed,including any extensions.
C)The estate tax return is due,ignoring extensions,12 months after the decedent's date of death.
D)All of the above are false.
Q2) Which of the following credits is available for estate tax purposes?
A)investment tax credit
B)credit for income taxes paid on decedent's final return
C)credit for estate taxes paid on certain prior transfers
D)All of the above are available.
Q3) Guy died this year.His estate includes a closely held business interest valued at $400,000 and other property valued at $675,000.Guy's allowable Sec.2053 and 2054 deductions total $75,000.Within three years of death,partly in hopes of qualifying his estate for the installment payment allowed under Sec.6166 treatment,Guy made gifts of listed securities of $350,000 (at 2002 valuations)and paid no gift tax on the gift.Is Guy's estate eligible for Sec.6166 treatment?
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Chapter 26: Property Transactions: Section 1231 and Recapture
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Q1) Which of the following assets is 1231 property?
A)a machine used in the company's manufacturing operations
B)an investment in corporate stock
C)land held for investment
D)items held for resale by a retailer
Q2) Section 1231 property will generally have all the following characteristics except A)real or depreciable property.
B)used in trade or business.
C)held for sale to customers.
D)held for more than one year.
Q3) Installment sales of depreciable property which result in recaptured income under Secs.1245 or 1250 require that the recaptured income be recognized in the year of sale.
A)True
B)False
Q4) On June 1,2010,Buffalo Corporation purchased and placed in service 7-year MACRS tangible property costing $100,000.On November 10,2013,Buffalo sold the property for $102,000 after having taken MACRS $47,525 in depreciation deductions.What is the amount and character of Buffalo's gain?
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Chapter 27: Income Taxation of Trusts and Estates
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Q1) A trust receives no standard deduction when computing taxable income.
A)True
B)False
Q2) Identify which of the following statements is false.
A)For purposes of trust administration,the term "sprinkling" relates to the discretionary authority of the trustee to distribute income among various beneficiaries.
B)The IRS may terminate an estate as a taxpayer after the expiration of a reasonable period of time for performance of the administrative duties.
C)Assets in a revocable trust do not avoid probate.
D)Assets in a revocable trust are included in the gross estate.
Q3) A trust has net accounting income of $15,000.In addition,the trust has a $10,000 capital gain,which is not included in net accounting income.The trust is required to distribute the trust income to the beneficiary.The beneficiary will receive
A)$10,000.
B)$15,000.
C)$24,700.
D)$25,000.
Q4) What is the benefit of the 65-day rule?
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Chapter 28: Special Tax Computation Methods tax Credits and
Payment of Tax
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Q1) The earned income credit is available only to taxpayers with qualifying children. A)True
B)False
Q2) The nonrefundable disabled access credit is available to eligible small businesses for expenditures incurred to make existing business facilities accessible to disabled individuals.
A)True
B)False
Q3) Jeffery and Cassie,who are married with modified AGI of $90,000,are sending their son to his first year of college.Their total tuition and related payments during 2013 amounted to $5,500.They have not taken advantage of any other type of tax benefit related to educational expenses.Their American Opportunity Tax Credit for 2013 is
A)$1,500.
B)$2,000.
C)$2,500.
D)$5,000.
Q4) Discuss when Form 6251,Alternative Minimum Tax,must be filed.
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Chapter 29: Administrative Procedures
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Q1) Explain how the Internal Revenue Service is organized to be efficient and client-oriented.
Q2) Identify which of the following statements is false.
A)If fraud is asserted in a tax transaction,the burden of proof falls on the IRS.
B)The civil fraud penalty consists of 75% of the tax underpayment attributable to fraud plus 25% of the interest payable on the portion of the underpayment resulting from the fraud.
C)The government must prove its case "beyond a reasonable doubt" in order for the court or jury to convict a taxpayer of criminal fraud.
D)The fraud penalty can be imposed with respect to income,gift,and estate tax returns.
Q3) Treasury Department Circular 230 regulates the practice of attorneys,CPAs,enrolled agents,and enrolled actuaries before the IRS.
A)True B)False
Q4) Explain one of the two exceptions to imposing interest from the original due date of the tax return until the date the tax deficiency is paid.
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Chapter 30: Tax Research
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Q1) Compare and contrast proposed,temporary,and final regulations.
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 statues.
D)All of the above are false.
Q3) Identify which of the following statements is false.
A)When tax advisors speak of the "tax law," they usually have in mind just the Internal Revenue Code.
B)Members from both the House and the Senate are on the Conference Committee.
C)Records of committee hearings are helpful in determining Congressional intent.
D)All of the above are false.
Q4) Does Title 26 contain statutory provisions dealing only with income taxation? Explain.
Q5) What is the purpose of a citator?
Q6) Is it possible for the Tax Court to intentionally issue conflicting decisions?
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Chapter 31: Ustaxation of Foreign-Related Transactions
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Q1) For the foreign credit limitation calculation,income derived from the sale of inventory which is produced by the seller,is considered earned
A)where production occurs.
B)where the sale occurs.
C)where the seller is a resident.
D)partially where produced and partially where sold.
Q2) Excess foreign tax credits can be carried back one year and forward five years.
A)True
B)False
Q3) A foreign corporation with a single class of stock is owned 8% by Bert,49% by Xi Yong,30% by Ernie,and 13% by Mark.Bert,Ernie,and Mark are U.S.citizens,and Xi Yong is a nonresident alien.Bert is Ernie's son.Is the foreign corporation a controlled foreign corporation (CFC)?
Q4) If foreign taxes on foreign income exceed U.S.taxes on foreign income,the excess foreign taxes are credited against U.S.taxes in the current year.
A)True
B)False
Q5) What is a corporate inversion and why was this provision enacted?
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Chapter 32: Corporations
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Q1) Certain personal service corporations are subject to a 35% flat rate of tax.
A)True
B)False
Q2) Chocolat Inc.is a U.S.chocolate manufacturer.Its domestic production income is $4,000,000.Taxable income before the domestic production deduction is $3,000,000.What is the amount of the production activities deduction?
A)$270,000
B)$360,000
C)$240,000
D)$180,000
Q3) A corporation has regular taxable income of $90,000 and its gross receipts have never exceeded $5,000,000.Tax preference items and positive adjustments total $70,000.Its regular tax liability is $15,450.The alternative minimum tax is
A)$0.
B)$9,050.
C)$24,000.
D)$24,500.
Q4) Johnson Corporation has $300,000 of AMTI before the exemption.What is the tax base for AMT?
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Chapter 33: Partnerships and S Corporations
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Q1) Voluntary revocation of an S corporation election is permitted only if consent is obtained from all shareholders.
A)True
B)False
Q2) At the beginning of this year,Edmond and Samuel were equal partners in a partnership that uses the calendar year as its tax year.On October 1,this year,Joan contributed $48,000 cash for a one-third interest in the partnership.The interests of both Edmond and Samuel drop to one-third.The partnership reports a $36,000 ordinary loss for the current tax year ending December 31.The loss allocation to Samuel (one of the original partners)is
A)$12,000.
B)$13,500.
C)$16,500.
D)$18,000.
Q3) Which of the following is not a requirement to be an electing large partnership?
A)must be a service partnership
B)must not be engaged in commodity trading
C)must have at least 100 partners
D)must file an election
Q4) What are special allocations of partnership items and when are they permitted?
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Chapter 34: Taxes and Investment Planning
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Q1) Willa is considering receiving either $20,000 of current salary or $30,000 of deferred compensation in two years.Her current tax rate is 35%,but she expects her tax rate to be 25% two years from now.Willa can invest any after-tax current salary at a 6% ATROR.If she receives the current salary and invests the after-tax amount,her investment will accumulate to
A)$16,854.
B)$14,607.
C)$22,472.
D)None of the above.
Q2) Flow-through entities include partnerships,limited liability companies,limited liability partnerships,and C corporations.
A)True
B)False
Q3) In the Deferred Model,
A)investment earnings are taxed currently.
B)investment earnings are exempt from explicit taxation.
C)investment earnings are taxed at the end of the investment period.
D)the initial investment is deductible or excludable from gross income,and the investment earnings are taxed at the end of the investment period.
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