Taxation of Estates and Trusts
Exam Preparation Guide
Course Introduction
This course provides a comprehensive overview of the federal and state taxation principles applicable to estates and trusts. Students will examine the legal and practical aspects of income, gift, and estate taxation as they relate to fiduciaries and beneficiaries. The course covers topics such as the preparation and filing of fiduciary income tax returns, calculation of distributable net income (DNI), deduction rules, grantor trust taxation, and planning strategies for minimizing tax liabilities. Emphasis is placed on the interpretation of relevant statutes and regulations, as well as practical issues encountered in estate and trust administration.
Recommended Textbook Pearsons Federal Taxation 2018 Corporations Partnerships Estates Trusts 31st Edition by Kenneth
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16 Chapters
1727 Verified Questions
1727 Flashcards
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2
Chapter 1: Tax Research
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Sample Questions
Q1) If the U.S.Supreme Court decides to hear an appeal of a tax case,it will grant a
A) writ of appeal.
B) writ of certiorari.
C) writ of detainer.
D) writ of habeas corpus.
Answer: B
Q2) You need to locate a recent tax case that was tried in a Federal district court.The decision is an "unreported" decision.This means the decision was
A) not published in the Federal Supplement.
B) not published in American Federal Tax Reports.
C) not published in United States Tax Cases.
D) settled out of court.
Answer: A
Q3) Which tax service is usually deemed to be the most authoritative?
A) United States Tax Reporter
B) Standard Federal Tax Reporter
C) Federal Tax Coordinator 2d
D) All are equally authoritative.
Answer: D
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Page 3
Chapter 2: Corporate Formations and Capital Structure
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Sample Questions
Q1) Identify which of the following statements is true.
A) To qualify for Sec. 351 treatment, control is defined as more than 50% ownership of the voting stock, and more than 50% of all other classes of stock.
B) If a shareholder receives stock with an FMV greater than the FMV of the property exchanged in a Sec. 351 transaction, the excess FMV may be considered a gift from one shareholder to another shareholder.
C) Only transfers to newly created corporations qualify for Sec. 351 treatment.
D) All of the above are false.
Answer: B
Q2) Identify which of the following statements is true.
A) Section 351 applies exclusively to the formation of a new corporation.
B) Section 351 applies to property transfers in exchange for stock.
C) Section 351 only applies to individual transferors.
D) All of the above are false.
Answer: B
Q3) There are no tax consequences of a partnership converting to a C corporation.
A)True
B)False
Answer: False
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Page 4
Chapter 3: The Corporate Income Tax
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Sample Questions
Q1) Richards Corporation has taxable income of $280,000 calculated before the charitable contribution deduction and before its dividends-received deduction of $34,000.Richards makes cash contributions of $35,000 to charitable organizations.What is Richards Corporation's charitable contribution deduction for the current year?
A) $24,600
B) $28,000
C) $31,400
D) $35,000
Answer: B
Q2) A deferred tax asset indicates that a firm will realize the tax benefit of an event sometime in the future.
A)True
B)False
Answer: True
Q3) How does the use of an NOL differ for individual and corporate taxpayers?
Answer: An individual must make adjustments to his taxable income to calculate his NOL.A corporation's NOL is simply the excess of its deductions over its income.
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Chapter 4: Corporate Nonliquidating Distributions
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Sample Questions
Q1) Identify which of the following statements is false.
A) The distribution of stock rights will be taxable if the value of the stock rights is more than 15% of the value of the underlying stock.
B) The distribution of stock rights is generally tax free under Sec. 305.
C) If the value of stock rights is less than 15% of the value of the underlying stock, the basis of the rights is zero unless the shareholder elects to allocate basis to the rights.
D) The holding period for stock rights includes the holding period for the underlying stock.
Q2) Good Times Corporation has a $60,000 accumulated E&P balance at the beginning of the year and incurs a $100,000 deficit during the year.Because of its poor operating performance,Good Times pays only three of its usual $10,000 quarterly dividend payments to its sole shareholder: those ordinarily paid March 31,June 30,and September 30.How are the March 31,June 30,and September 30 payments of $10,000 treated?
A) dividend; dividend; return of capital
B) dividend; return of capital; return of capital
C) return of capital; dividend; dividend
D) return of capital; return of capital; dividend
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Chapter 5: Other Corporate Tax Levies
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Sample Questions
Q1) The courts and the Treasury Regulations have mentioned a number of reasonable needs that allow a corporation to accrue earnings and avoid the accumulated earnings tax.What are these reasons?
Q2) A manufacturing corporation has accumulated E&P of $210,000 and current E&P of $65,000.Accumulated taxable income,before reduction for the accumulated earnings credit,is $90,000 for the current year.No dividends were paid during the year.The corporation has an increase in reasonable business needs of $35,000.If the corporation is not a service corporation and has reported no long-term capital gains,what is the amount of earnings subject to the accumulated earnings tax?
Q3) To avoid the accumulated earnings tax,a corporation needs to have a definite plan for expending the accumulated earnings.
A)True
B)False
Q4) In the current year,Sun Corporation's federal income taxes before credits are $220,000.Its TMT is $100,000.Their only available credit is a research credit (part of the general business credit)of $160,000.The general business credit is limited to what amount?
Q5) What is a personal holding company?
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Chapter 6: Corporate Liquidating Distributions
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Sample Questions
Q1) The adjusted basis of property received in a complete liquidation is its fair market value on the distribution date.
A)True
B)False
Q2) A subsidiary must recognize depreciation recapture income when the subsidiary is liquidated into the parent.
A)True
B)False
Q3) In a Sec.332 liquidation,can a subsidiary corporation recognize losses on distributions to either the parent corporation or minority shareholders?
Q4) Robot Corporation is liquidated,with Marty receiving property having an adjusted basis of $60,000 and an FMV of $90,000.The property is subject to an $80,000 mortgage,which Marty assumes.Marty's basis in the Robot stock surrendered is $50,000.Marty must recognize
A) a $40,000 loss.
B) no gain or loss.
C) a $60,000 gain.
D) none of the above
Q5) Are liquidation and dissolution the same? Explain your answer.
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Chapter 7: Corporate Acquisitions and Reorganizations
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Sample Questions
Q1) Identify which of the following statements is true.
A) A Type B reorganization must be accomplished in one transaction.
B) "Creeping acquisitions" are not allowed in a Type B reorganization.
C) Boxer Corporation acquires 81% of Excel Corporation's stock in a Type B reorganization. When Boxer Corporation acquires an additional 11% of Excel Corporation's stock two years later in exchange for Boxer stock, the second acquisition is also treated as a Type B reorganization.
D) All of the above are false.
Q2) Brown Corporation has assets with a $650,000 basis and an $800,000 FMV.The assets are subject to $250,000 in liabilities.Clark Corporation acquires all of Brown's assets and liabilities for $600,000 in cash.Brown Corporation then liquidates.What is Clark Corporation's basis in the acquired assets?
Q3) When gain is realized by a target corporation from disposing of its assets in a tax-free reorganization,the gain is
A) recognized if boot is received and immediately distributed to its shareholders.
B) recognized without exception.
C) recognized if boot is received and retained.
D) never recognized.
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9
Chapter 8: Consolidated Tax Returns
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Sample Questions
Q1) What is the consequence of having losses subject to the SRLY limitations?
Q2) Identify which of the following statements is false.
A) A corresponding item includes the income, gain, deduction, or loss amount reported by the buyer from an intercompany transaction, or from property acquired in an intercompany transaction.
B) Affiliated groups of corporations filing a consolidated tax return are not eligible for the small corporation exemption from the corporate alternative minimum tax.
C) An intercompany transaction generally results in the selling member and buying member in a property transaction being treated as divisions of a single corporation.
D) Intercompany dividends and undistributed subsidiary earnings do not create temporary differences for affiliated companies filing a consolidated return.
Q3) Toby owns all of the single class of stock of James and Mony Corporations.James Corporation owns all of Volt Corporation's stock.Mony owns all of Wegnin Corporation.Mony and Wegnin Corporations are foreign corporations.Toby,James,and Volt are domestic corporations.Are the corporations part of an affiliated group?
Q4) What are the differences between a controlled group and an affiliated group?
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Page 10
Chapter 9: Partnership Formation and Operation
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Sample Questions
Q1) 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
Q2) Meg and Abby are equal partners in the AM Partnership,which earns $40,000 ordinary income,$6,000 long-term capital gain (LTCG),and $2,000 Sec.1231 loss during the current year.What is the amount and character of income that must be reported on Abby's tax return for this year's partnership operations?
A) $20,000 ordinary income, $3,000 LTCG, $1,000 Sec. 1231 loss
B) $19,000 ordinary income, $3,000 LTCG
C) $23,000 ordinary income, $1,000 Sec. 1231 loss
D) $22,000 ordinary income
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Chapter 10: Special Partnership Issues
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Sample Questions
Q1) Two years ago,Tom contributed investment land with a basis of $50,000 and an FMV of $62,000 to the RST Partnership.This year,Tom has a basis in his partnership interest of $53,000 when he receives a current distribution of $14,000 cash and inventory with a basis of $35,000 and an FMV of $52,000.(There is no Sec.751 exchange in connection with the inventory distribution.)The partnership continues to hold the land Tom contributed.How much gain (if any)must Tom recognize as a result of this distribution?
Q2) 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.
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12
Chapter 11: US Corporations
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Sample Questions
Q1) If losses are suspended due to the lack of basis in S corporation stock,do the losses expire when the S election terminates?
Q2) Identify which of the following statements is true.
A) Shareholders who acquire stock in an S corporation after the election date and prior to the election's effective date must consent to the election.
B) S corporation consent by shareholders is binding on the current tax year and all future tax years.
C) Only shareholders who own stock on the date an S election takes effect must consent to the election.
D) All of the above are false.
Q3) Shanghai Corporation was organized and elected S status in the current year.How much passive investment income can Shanghai earn and retain its S status?
A) none
B) 80% of gross receipts
C) 50% of gross receipts
D) no limit
Q4) What is a permitted year?
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13
Chapter 12: The Gift Tax
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Sample Questions
Q1) Kenny is thinking of making a substantial gift of stock to his fiancée,Maria.The wedding is scheduled for October 1 of the current year.Kenny already has exhausted his unified credit.He also is considering giving $26,000 cash this year to each of his three children by a previous marriage.What tax issues should Kenny consider with respect to the gifts he plans to make to Maria and his three children?
Q2) Discuss the negative aspects of gifts.
Q3) Tia funds an irrevocable trust with $100,000,naming Vonda to receive income for life.Tia also grants Vonda a general power of appointment during her life.During the next year,Vonda directs the trustee to give $100,000 to Rick.Which of the following statements is not correct?
A) Tia made a $100,000 gift to Rick.
B) Vonda makes a $100,000 gift to Rick.
C) Tia has made a gift of $100,000 to Vonda.
D) Exercising a general power of appointment constitutes a gift.
Q4) A Sec."2503(c)trust"
A) is a discretionary trust for a beneficiary of any age.
B) is intended for beneficiaries over the age of 20.
C) requires distribution of trust assets to the beneficiary at age 21.
D) can be formed only by the parent(s) of the beneficiaries.
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Chapter 13: The Estate Tax
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Sample Questions
Q1) Brent,who died on January 10,owned 10 shares of Potts Corporation stock.The closest trading dates to January 10 are January 8 (two working days before the date of death)and January 11 (one working day after the date of death).On January 8,the stock traded at a high of 101 and a low of 97,while on January 11,the high was 90 and the low was 86.The date-of-death per-share value is
A) $99.00.
B) $95.33.
C) $93.50.
D) $91.67.
Q2) Joe dies late in 2011 and his estate is subject to an estate tax of $2 million.He leaves all of his assets to his daughter,Claudia.Claudia dies in early 2013.Which of the following statements is correct?
A) Claudia's estate receives no credit or deduction for the tax paid by Joe's estate.
B) Claudia's estate receives a credit for $1,000,000 of Joe's estate tax.
C) Claudia's estate receives a credit for $2,000,000 of Joe's estate tax.
D) Claudia's estate receives a deduction for $2,000,000 of Joe's estate tax.
Q3) Discuss some of the factors to be considered in determining the amount of property that should pass under the marital deduction.
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Page 15
Chapter 14: Income Taxation of Trusts and Estates
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Sample Questions
Q1) The distribution deduction for a complex trust is the lesser of the amount distributed or distributable net income,reduced by net tax-exempt income.
A)True
B)False
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) Michael died in 2013 with a taxable estate and estate tax base of $6,000,000.Michael's estate owed no state death taxes.Michael's estate includes $250,000 of income in respect of a decedent (IRD),none of which is received by his surviving spouse.His estate had no DRD.The estate collects $200,000 of the IRD during its current tax year.The Sec.691(c)deduction for the estate in current year is
A) $153,000.
B) $122,400.
C) $90,000.
D) $80,000.
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Page 16
Chapter 15: Administrative Procedures
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Sample Questions
Q1) On April 15,2010,a married couple filed their joint 2009 tax return showing gross income of $120,000.Their return was prepared by a professional tax preparer who mistakenly omitted $45,000 of income,which the preparer in good faith considered to be nontaxable.No information with regard to this omitted income was disclosed on the return or attached statements.By what date must the IRS assert a notice of deficiency before the statute of limitations expires?
A) April 15, 2015
B) December 31, 2011
C) April 15, 2009
D) December 31, 2009
Q2) For innocent spouse relief to apply,five conditions must be met.Explain them.
Q3) If a return's due date is extended,a taxpayer
A) also extends the period in which to pay taxes without interest.
B) still should pay the tax by the original return due date.
C) has 30 days following the original due date to pay estimated taxes without penalty.
D) has 30 days following the original due date to pay estimated taxes without interest.
Q4) What is the difference between the burden of proof for civil and criminal fraud?
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17
Chapter 16: US Taxation of Foreign-Related Transactions
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Sample Questions
Q1) Which of the following is an advantage of conducting foreign operations through a branch?
A) Foreign branch losses can offset domestic income.
B) Foreign branch income is taxed at a lower rate than domestic income.
C) The parent's assets are protected from foreign branch creditors.
D) Foreign branch income is taxed by both the United States and the host country.
Q2) Jose,a U.S.citizen,has taxable income from U.S.sources of $15,000 and taxable income from a foreign country of $35,000.Assume the U.S.tax rate is 25% and Jose paid $12,000 in taxes to the foreign country.What foreign tax credit can be claimed by Jose?
Q3) Perry,a U.S.citizen,is transferred by his employer to Japan for a three-year assignment.Which one of the following items is not excluded under Sec.911?
A) base salary
B) cost-of-living allowance
C) housing costs
D) premiums paid on first $50,000 of group term life insurance
Q4) What is a corporate inversion and why was this provision enacted?
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Page 18