Taxation of Estates and Trusts
Test Questions
Course Introduction
This course explores the key federal income tax principles applicable to estates and trusts, emphasizing the Internal Revenue Code provisions that govern their taxation. Topics include the calculation and allocation of distributable net income, the responsibilities of fiduciaries in tax reporting, and the tax consequences of distributions to beneficiaries. Students will analyze the preparation of IRS Form 1041, the interaction between estate and gift taxation, and planning strategies to minimize tax liabilities. The course also addresses related issues such as charitable contributions, income in respect of a decedent, and the tax treatment of grantor and non-grantor trusts.
Recommended Textbook
South Western Federal Taxation 2009 Corporations Partnerships Estates and Trusts 32nd Edition
Available Study Resources on Quizplus
19 Chapters
2406 Verified Questions
2406 Flashcards
Source URL: https://quizplus.com/study-set/3358 Page 2
Chapter 1: Understanding and Working With the Federal Tax Law
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/66689
Sample Questions
Q1) The Supreme Court must hear all cases appealed from the U.S.Court of Appeals for the Federal Circuit.
A)True
B)False
Answer: False
Q2) When the Senate version of a tax bill differs from that passed by the House,a Joint Conference Committee drafts a compromise tax bill.
A)True
B)False
Answer: True
Q3) Regulations are issued by the Internal Revenue Service.
A)True
B)False Answer: False
Q4) An international treaty takes precedence over a provision in the Internal Revenue Code.
A)True
B)False
Answer: False
Page 3
To view all questions and flashcards with answers, click on the resource link above.
Chapter 2: Corporations: Introduction and Operating Rules
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/66690
Sample Questions
Q1) Serena,a cash basis taxpayer,owns 60% of the stock of Lark Corporation,a calendar year,accrual basis corporation.On December 31,2008,Lark accrues a salary of $30,000 to Serena,but the payment is not made until 2009.
a.When does Serena report the salary as income, and when does Lark deduct the salary expense?
b.How would your answer change if Serena were a 25% shareholder?
Answer: a.Serena and the corporation are related parties under § 267.Serena,a cash basis taxpayer,must report the salary income in 2009,the year of receipt.The corporation,which is on the accrual basis,cannot deduct the salary expense when accrued in 2008,but must wait until Serena reports the salary as income (2009).
b.If Serena were a 25% shareholder,the related party rules would not apply. Lark would deduct the accrued salary in 2008 and Serena would report it in 2009.
Q2) Albatross,a C corporation,had $200,000 net income from operations and a $25,000 short-term capital loss in 2008.Albatross Corporation's taxable income is $200,000. A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Corporations: Special Situations
Available Study Resources on Quizplus for this Chatper
76 Verified Questions
76 Flashcards
Source URL: https://quizplus.com/quiz/66691
Sample Questions
Q1) A positive ACE adjustment is beneficial to a corporation.
A)True
B)False
Answer: False
Q2) Maize Corporation,a Miami contractor,pays Crane Engineering a fee to design bridges for a highway Maize will build in the Dominican Republic.The fee Crane receives is not DPGR.
A)True
B)False
Answer: True
Q3) Which entity is subject to the ACE provisions?
A)S corporation.
B)Real estate investment trust (REITs).
C)Real estate investment companies.
D)Real estate mortgage investment conduits.
E)None of the above.
Answer: E
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Corporations: Organization and Capital Structure
Available Study Resources on Quizplus for this Chatper
91 Verified Questions
91 Flashcards
Source URL: https://quizplus.com/quiz/66692
Sample Questions
Q1) When a taxpayer transfers property subject to a mortgage to a controlled corporation in an exchange qualifying under § 351,the transferor shareholder's basis in stock received in the transferee corporation is increased by the amount of the mortgage on the property.
A)True
B)False
Q2) In 2001,Donna transferred assets (basis of $300,000 and fair market value of $250,000)to Egret Corporation in return for 200 shares of § 1244 stock. Due to § 351,the transfer was nontaxable; therefore,Donna's basis in the Egret stock is $300,000. In 2002,Donna sells 100 of these shares to Walter (a family friend)for $100,000. In 2008,Egret Corporation files for bankruptcy,and its stock becomes worthless.
a.How much loss may Donna recognize in 2002 and 2008? What is the nature of this loss? [Note: Donna is married and always files a joint return.]
b.How much loss may Walter (a single taxpayer) recognize in 2008, and what is the nature of such loss?
Q3) Issues relating to basis arise when a taxpayer is involved in a § 351 transaction.Describe the underlying basis rules,and the purpose they serve.
To view all questions and flashcards with answers, click on the resource link above.
Page 6
Chapter 5: Corporations: Earnings and Profits and Dividend
Distributions
Available Study Resources on Quizplus for this Chatper
82 Verified Questions
82 Flashcards
Source URL: https://quizplus.com/quiz/66693
Sample Questions
Q1) Premiums paid on key employee life insurance policy (assume no increase in cash surrender value of policy)in 2008.
Q2) Sophie is the sole shareholder and president of Green Corporation. She feels that she can justify at least a $200,000 bonus this year because of her performance. However,rather than a bonus in the form of a salary,she plans to have Green pay her a $200,000 dividend. She believes this is preferable because it will be taxed at only 15% (her marginal rate is 39.6%). Her CPA suggests a $300,000 bonus in lieu of the $200,000 (Green Corporation is in a 34% tax bracket).Should Sophie take the $200,000 dividend or the $300,000 bonus? Support your answer by computing the after-tax cost of the two alternatives to Green and to Sophie.
Q3) A pro rata distribution of nonconvertible preferred stock to common shareholders is not generally taxable.
A)True
B)False
Q4) Briefly describe the rationale for the reduced tax rate on dividends for individual taxpayers.
Q5) Proceeds of life insurance received upon the death of a key employee (policy had no cash surrender value).
Page 7
To view all questions and flashcards with answers, click on the resource link above.
Chapter 6: Corporations: Redemptions and Liquidations
Available Study Resources on Quizplus for this Chatper
107 Verified Questions
107 Flashcards
Source URL: https://quizplus.com/quiz/66694
Sample Questions
Q1) Swan Corporation incurred $15,000 of accounting and legal fees in the redemption of stock from its shareholders.Swan can deduct the redemption expenditures as trade or business expenses under § 162.
A)True
B)False
Q2) Orange Corporation distributes property worth $200,000,basis of $140,000,to a shareholder in a distribution that is a qualifying stock redemption.The property is subject to a liability of $90,000,which the shareholder assumes.The basis of the property to the shareholder is:
A)$50,000.
B)$110,000.
C)$140,000.
D)$200,000.
E)None of the above.
Q3) For purposes of a partial liquidation,the "not essentially equivalent to a dividend" test is applied at the shareholder level.
A)True
B)False
Q4) Discuss when stock is treated as § 306 stock.
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Corporations: Reorganizations
Available Study Resources on Quizplus for this Chatper
138 Verified Questions
138 Flashcards
Source URL: https://quizplus.com/quiz/66695
Sample Questions
Q1) Bark Corporation merged into Dog Corporation two years ago.At the time of the merger,Bark had an earnings and profits (E & P)deficit of $250,000 and Dog had a positive E & P of $200,000.The prior two years have resulted in a positive E & P of $100,000.Despite having a negative E & P of $30,000 for the year,Dog makes a distribution to its shareholders of $270,000.How is the distribution taxed to the shareholders?
A)$270,000 treated as a return of capital.
B)$20,000 taxed as a dividend and $250,000 treated as a return of capital.
C)$200,000 taxed as a dividend and $70,000 treated as a return of capital.
D)$270,000 taxed as a dividend.
E)None of the above.
Q2) Which reorganization is most likely to run afoul of the continuity of interest test?
A)A "Type A" reorganization.
B)A "Type B" reorganization.
C)An acquisitive "Type C" reorganization.
D)An acquisitive "Type D" reorganization.
E)All are equally as likely.
Q3) Limits nonrecognition treatment to reorganizations that are motivated by valid corporate needs.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Consolidated Tax Returns
Available Study Resources on Quizplus for this Chatper
143 Verified Questions
143 Flashcards
Source URL: https://quizplus.com/quiz/66696
Sample Questions
Q1) Legislative Regulations are the basis for most of the consolidated return rules. The Code offers few details in this area.
A)True
B)False
Q2) In computing consolidated taxable income,capital and § 1231 gains and losses are removed from the taxable incomes of the group members and determined on a group basis.
A)True
B)False
Q3) Which of the following is eligible to join in a Federal consolidated return?
A)A sole proprietor with annual sales of more than $50 million.
B)A limited liability company.
C)A company organized in Germany.
D)A corporation that operates in seven different U.S. states.
E)None of the above can join a Federal consolidated group.
Q4) Affiliates must keep track of their shares of a consolidated NOL.
A)True
B)False
Q5) Member's operating loss,when stock basis = $0
Q6) Binding nature of election over multiple tax years
Page 10
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: Taxation of International Transactions
Available Study Resources on Quizplus for this Chatper
142 Verified Questions
142 Flashcards
Source URL: https://quizplus.com/quiz/66697
Sample Questions
Q1) Dividends received from Shamrock,Ltd.,an Irish corporation that earns 40% of its income from U.S.business activities,are foreign-source income.
A)True
B)False
Q2) Which of the following statements regarding foreign persons not engaged in a U.S.trade or business is true?
A)Foreign persons are not subject to U.S. tax if not engaged in a U.S. trade or business.
B)Foreign persons with any U.S.-source income are taxed on any net investment income (after expenses).
C)Foreign persons are subject to potential withholding taxes on the gross amount of U.S.-source investment income.
D)Foreign persons with only U.S.-source investment income are exempt from U.S. tax.
E)None of the above.
Q3) Bilateral agreement between two countries related to tax issues.
Q4) Foreign tax credit allowed for income taxes paid by foreign corporation.
Q5) Passive type income treated as Subpart F income.
Q6) U.S.taxpayers earning income outside the United States.
To view all questions and flashcards with answers, click on the resource link above.
Page 11
Chapter 10: Partnerships: Formation, operation, and Basis
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/66698
Sample Questions
Q1) Hardy's basis in his partnership interest was $5,000 at the beginning of the tax year.For the year,his share of the partnership's loss was $6,000,and he also received a distribution of $3,000.Hardy can deduct a $2,000 loss,and the remaining $4,000 loss is suspended until a year in which he has adequate basis.
A)True
B)False
Q2) Harry and Sally are considering forming a partnership.Both taxpayers use the calendar year and are cash basis taxpayers.The partnership will not be a tax shelter.The partners are uncertain as to whether the partnership should use the cash or accrual method of accounting.Also,the idea of a tax deferral in the first year of operations has led them to consider using a June 30 fiscal year-end for the partnership. As their tax adviser,identify the issues that must be considered in selecting an accounting method and tax year for the partnership.
Q3) Limited liability company
Q4) Check the box regulations
Q5) Cost versus percentage depletion decision
Q6) Substituted
Q7) Business purpose
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Partnerships: Distributions, transfer of Interests, and Terminations
Available Study Resources on Quizplus for this Chatper
84 Verified Questions
84 Flashcards
Source URL: https://quizplus.com/quiz/66699
Sample Questions
Q1) Payment of an annuity to a retiring general partner in a service oriented partnership of 5% of partnership profits each year for the five years following the partner's retirement.
Q2) Land held by the partnership for investment purposes.
Q3) Maggie,a partner in the Magpie partnership,received a proportionate nonliquidating distribution of $20,000 cash,unrealized receivables with a basis of $0 and a fair market value of $30,000,and land with a basis of $25,000 and a fair market value of $20,000.Her basis in the partnership interest immediately before the distributions was $30,000.She will recognize $0 gain on the distribution,and her basis in the receivables and land will be $0 and $20,000 respectively.
A)True
B)False
Q4) Step up
Q5) Milton contributed property to the MDB Partnership in 2006.At the time of the contribution,the basis in the property was $10,000 and its value was $15,000.In 2008,MDB distributed that property to partner Dana.Milton may be required to recognize gain on the distribution to Dana.
A)True
B)False
Page 13
To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: S Corporations
Available Study Resources on Quizplus for this Chatper
161 Verified Questions
161 Flashcards
Source URL: https://quizplus.com/quiz/66700
Sample Questions
Q1) The benefits of the AAA can be ____________________ from one shareholder to another _________________________.
Q2) If shareholders have high marginal rates relative to C corporation rates,it may be desirable to ________________ S corporation status.
Q3) Depletion in excess of basis in property causes a(n)____________ adjustment to an S shareholder's basis.
Q4) More S corporation returns are filed than C corporation returns. A)True B)False
Q5) If a loan's basis has been reduced and has not been restored,income is recognized when the S corporation _____________ the shareholder.
Q6) Advise your client how income,expenses,gains and losses are allocated to shareholders.
Q7) Stock basis is first increased by income items,then ___________ by distributions,and finally decreased by __________.
Q8) Outline the requirements that an entity must meet to elect S corporation status.
Q9) Compare the distribution of property rules for an S corporation with the corresponding partnership rules.
Page 14
To view all questions and flashcards with answers, click on the resource link above.
Chapter 13: Comparative Forms of Doing Business
Available Study Resources on Quizplus for this Chatper
139 Verified Questions
139 Flashcards
Source URL: https://quizplus.com/quiz/66701
Sample Questions
Q1) Terry has a 20% ownership interest in a business for which his basis is $100,000.During the year,the entity earns profits of $90,000 and makes cash distributions to the owners of $50,000.How do these transactions affect Terry's basis if:
a.The entity is a C corporation?
b.The entity is a general partnership?
Q2) S corporation.
Q3) Thrush,Inc.,provides group-term life insurance of $50,000 for all of its employees.The total cost of such coverage is $15,000.Wren,Inc.,does not provide such coverage.Instead,it increases the employees' salaries by $15,000 so the employees can purchase such coverage if they choose to do so.The corporations are in the 34% tax bracket,and the shareholders are in the 28% tax bracket.Compare the effects of the two different fringe benefit policies on the corporations and on the employees.
Q4) The legal form of Amy and Beth's business entity is an LLC.Under the check-the-box Regulations,what options are available to them for Federal income tax purposes? Which option would you normally recommend?
Q5) List the various ways to minimize or avoid double taxation for a corporate taxpayer.
Q6) Charitable contributions.
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Exempt Entities
Available Study Resources on Quizplus for this Chatper
159 Verified Questions
159 Flashcards
Source URL: https://quizplus.com/quiz/66702
Sample Questions
Q1) Form 4720
Q2) Kentwood Rodeo Club
Q3) The trade or business is not substantially related to the exempt purpose of the organization.
Q4) An exempt educational organization is permitted to make lobbying expenditures if the payments relate to education or charity and do not exceed $25,000.
A)True
B)False
Q5) Watch,Inc.,a § 501(c)(3)exempt organization,solicits contributions through a mail campaign.An executive,who recently completed an executive MBA degree program,recommends that personal address labels be included as an additional way to motivate the potential donor to contribute.The value of these labels is $7.25 per potential donor.What is the effect of the inclusion of the address labels on Watch's unrelated business income?
Q6) Not an exempt organization
Q7) Private foundation
Q8) § 501(h)election
Q9) Why are some organizations exempt from Federal income tax?
Q10) Tax on taxable expenditures
Page 16
To view all questions and flashcards with answers, click on the resource link above.
Chapter 15: Multistate Corporate Taxation
Available Study Resources on Quizplus for this Chatper
169 Verified Questions
169 Flashcards
Source URL: https://quizplus.com/quiz/66703
Sample Questions
Q1) All but a few states have not adopted a tax based on net taxable income.
A)True
B)False
Q2) The property factor includes assets that the taxpayer owns,but not those merely used under a lease agreement.
A)True
B)False
Q3) The starting point in computing state taxable income generally is ____________________ ____________________
Q4) State A does not apply a throwback rule.General Corporation is taxable in a number of states and made a $100,000 sale from its A headquarters to a State B office of an agency of the U.S.government.General has not established nexus with B.In which state(s)will the sale be included in the sales factor?
A)All in A.
B)All in B.
C)In none of the states.
D)In all of the states, according to the apportionment formulas of each, as the U.S. government is present in all states.
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Tax Practice and Ethics
Available Study Resources on Quizplus for this Chatper
147 Verified Questions
147 Flashcards
Source URL: https://quizplus.com/quiz/66704
Sample Questions
Q1) With respect to the audit process which,if any,of the following statements is incorrect?
A)Upon advance request, a taxpayer must be allowed to make an audio recording during the audit conference.
B)Only the Appeals Division of the IRS has the authority to settle tax disputes based on the hazards of litigation.
C)The issuance of a Revenue Agents Report (RAR) is usually not necessary when mathematical errors on a tax return understate a taxpayer's tax liability.
D)The IRS publishes the factors it uses for audit selection purposes annually in the Commissioner's Report.
E)None of the above is incorrect.
Q2) Failure by a tax preparer to sign the return
Q3) The client has decided to dispute the Revenue Agent's Report.What is the tax advisor's next step?
Q4) One of the four operating divisions of the IRS deals exclusively with the largest corporations and partnerships.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: The Federal Gift and Estate Taxes
Available Study Resources on Quizplus for this Chatper
199 Verified Questions
199 Flashcards
Source URL: https://quizplus.com/quiz/66705
Sample Questions
Q1) Walt dies intestate (i.e.,without a will)in 2006 with a gross estate valued at $4,000,000.Under applicable state law,Walt's property passes to Kelly or to Belle,in that order.Kelly has an estimated net worth of $3,000,000 while Belle has none.From a tax planning standpoint,what course of action might be advisable.
Q2) Under the terms of a trust created by Billie,Jody (Billie's brother)has the right to determine how its income is to be divided among Billie's children.Jody holds a general power of appointment.
A)True
B)False
Q3) Which,if any,of the following statements is incorrect?
A)The annual exclusion applies only to the gift tax.
B)A marital deduction is allowed for both gift and estate tax purposes.
C)Originally, the gift tax rates were lower than the estate tax rates.
D)A charitable deduction is allowed for both gift and estate tax purposes.
E)For 2008, the unified transfer tax credit (exclusion amount) is the same for both gift and estate tax purposes.
Q4) General power of appointment
Q5) Casualty loss to property already distributed to an heir.
Q6) Surviving spouse's share of the community property.
Page 19
To view all questions and flashcards with answers, click on the resource link above.
Chapter 18: Family Tax Planning
Available Study Resources on Quizplus for this Chatper
168 Verified Questions
168 Flashcards
Source URL: https://quizplus.com/quiz/66706
Sample Questions
Q1) What is the justification,if any,for allowing a surviving spouse a change in income tax basis in his or her share of community property upon the death of the first spouse?
Q2) In 2008,Clara's father dies and leaves her the family farm.The farm has a current use value of $2,000,000 and a best use value of $2,500,000.If the § 2032A election is made,the farm should be included in the father's gross estate at a value of:
A)$1,540,000 ($2,500,000 - $960,000).
B)$2,000,000.
C)$1,040,000 ($2,000,000 - $960,000).
D)$900,000.
E)None of the above.
Q3) Decedent owned stock that had depreciated in value.
Q4) Surviving spouse disclaims inheritance in favor of bypass amount.
Q5) Corporation agrees to redeem withdrawing shareholder's stock.
Q6) What is the rationale for the deferral and the equalization approaches to the marital deduction?
Q7) Brother purchased land listing ownership with decedent as tenants in common.
Q8) Spouse purchased residence listing ownership as tenants by the entirety.
Q9) Bypass amount.
Page 20
To view all questions and flashcards with answers, click on the resource link above.
Chapter 19: Income Taxation of Trusts and Estates
Available Study Resources on Quizplus for this Chatper
155 Verified Questions
155 Flashcards
Source URL: https://quizplus.com/quiz/66707
Sample Questions
Q1) Harry,the sole income beneficiary,received a $40,000 distribution from the Lucy Trust,in a year when the trust's distributable net income was $50,000.Harry's AGI can increase by as much as $50,000.
A)True
B)False
Q2) A trust passes through to its income beneficiaries the data needed to compute the domestic production activities deduction.
A)True
B)False
Q3) Delphi is a complex trust.This year it distributed all of its accounting income and $5,000 from corpus.Delphi's taxable income for the year is:
A)($5,000).
B)$0.
C)($300).
D)($100).
Q4) The entity is controlled by state-level probate laws.
Q5) Subchapter J applies a modified ____________________ principle in deriving the tax liability for estates,trusts,and their beneficiaries.
To view all questions and flashcards with answers, click on the resource link above. Page 21