Advanced Federal Taxation Exam Practice Tests
Course Introduction
Advanced Federal Taxation explores complex issues in U.S. federal tax law, focusing on the taxation of corporations, partnerships, S corporations, and estates and trusts.
Emphasizing both technical tax provisions and practical applications, the course examines topics such as consolidated returns, income allocation, tax planning strategies, and compliance requirements. Students engage with current tax code developments, case studies, and IRS regulations to develop the skills necessary for analyzing advanced tax scenarios and providing informed tax advice to businesses and individuals.
Recommended Textbook
South Western Federal Taxation 2013 Corporations Partnerships Estates and Trusts 36th Edition
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20 Chapters
2489 Verified Questions
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Page 2
Chapter 1: Understanding and Working With the Federal Tax Law
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Sample Questions
Q1) Revenue Procedures are published semiannually in the:
A)Cumulative Bulletin.
B)Federal Revenue Bulletin.
C)Internal Revenue Bulletin.
D)I.R.S.Digest.
E)None of the above.
Answer: A
Q2) Explain the Golsen doctrine.
Answer: Because the Tax Court is a national court,it decides cases from all parts of the country.For many years,the Tax Court followed a policy of deciding cases based on what it thought the result should be,even though its decision might be appealed to a U.S.Circuit Court of Appeals that had previously decided a similar case differently.A number of years ago this policy was changed in the Golsen decision.Now the Tax Court will decide a case as it feels the law should be applied only if the Circuit Court of Appeals of appropriate jurisdiction has not yet passed on the issue or has previously decided a similar case in accord with the Tax Court's decision.If the Circuit Court of Appeals of appropriate jurisdiction has previously held otherwise,the Tax Court will conform under the Golsen rule even though it disagrees with the holding.
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Chapter 2: Corporations: Introduction and Operating Rules
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Sample Questions
Q1) As a general rule,a personal service corporation (PSC)must use a calendar year as its accounting period.
A)True
B)False
Answer: True
Q2) Heron Corporation,a calendar year C corporation,had an excess charitable contribution for 2011 of $5,000.In 2012,Heron made a further charitable contribution of $20,000.Heron's 2012 deduction is limited to $15,000 (10% of taxable income).The current year's contribution must be applied first against the $15,000 limitation.
A)True
B)False
Answer: True
Q3) A calendar year C corporation with average annual gross receipts of $5 million or less must use the cash method of accounting.
A)True
B)False
Answer: False
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Chapter 3: Corporations: Special Situations
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Sample Questions
Q1) AMTI may be defined as regular taxable income after AMT adjustments (other than the NOL and ACE adjustments)and after tax preferences.
A)True
B)False
Answer: False
Q2) Map,Inc. ,has taxable income of $13 million in 2012.What is the maximum DPAD tax savings for this C corporation?
A)None.
B)$204,000.
C)$210,000.
D)$409,500.
E)$441,000.
Answer: D
Q3) One of the components of DPGR is qualified production property (QPP).The QPP must be manufactured,produced,grown,or extracted entirely within the U.S.
A)True
B)False
Answer: False
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Chapter 4: Corporations: Organization and Capital Structure
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Sample Questions
Q1) Nick exchanges property (basis of $100,000;fair market value of $3 million),for 65% of the stock of Yellow Corporation.The other 35% of the stock is owned by Gloria who acquired it several years ago.What are the tax consequences to Nick?
Q2) A city contributes $500,000 to a corporation as an inducement to locate in the city.Within the next 12 months,the corporation uses the money to purchase property.The corporation has income of $500,000 and must reduce its tax basis in the property by the same amount.
A)True
B)False
Q3) Carl and Ben form Eagle Corporation.Carl transfers cash of $50,000 for 50 shares of stock of Eagle.Ben transfers a secret process with a tax basis of zero and a fair market value of $50,000 for the remaining 50 shares in Eagle.Carl will have a tax basis of $50,000 in his stock in Eagle Corporation,but Ben's basis in his stock will be zero.
A)True
B)False
Q4) What is the rationale underlying the tax deferral treatment available under § 351?
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Page 6
Chapter 5: Corporations: Earnings Profits and Dividend
Distributions
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Sample Questions
Q1) A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation's E & P.
A)True
B)False
Q2) Gold Corporation has accumulated E & P of $2 million as of January 1 of the current year.During the year,it expects to have earnings from operations of $1,680,000 and to distribute $900,000 in cash to shareholders.Gold Corporation also expects to sell an asset for a loss of $2 million.Thus,it anticipates incurring a deficit of $320,000 for the year.What can Gold do to minimize the amount of dividend income to its shareholders?
Q3) A realized gain from an involuntary conversion under § 1033 that is not recognized for income tax purposes has no effect on E & P.
A)True
B)False
Q4) Regardless of any deficit in current E & P,distributions during the year are taxed as dividends to the extent of accumulated E & P.
A)True
B)False
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Chapter 6: Corporations: Redemptions and Liquidations
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Sample Questions
Q1) For purposes of the application of § 304 (redemptions through the use of related corporations),a shareholder must own (directly or indirectly)at least 50% of the stock of two more corporations.
A)True
B)False
Q2) The stock of Tan Corporation (E & P of $1.3 million)is owned as follows: 90% by Egret Corporation (basis of $520,000),and 10% by Zoe (basis of $55,000).Both shareholders acquired their shares in Tan more than six years ago.In the current year,Tan Corporation liquidates and distributes land (fair market value of $1.1 million,basis of $750,000)and equipment (fair market value of $700,000,basis of $410,000)to Egret Corporation,and securities (fair market value of $200,000,basis of $150,000)to Zoe.What are the tax consequences of these distributions to Egret,to Tan,and to Zoe?
Q3) Vireo Corporation redeemed shares from its sole shareholder pursuant to a written agreement between the parties that clearly identified the transaction as a stock redemption (and not a dividend distribution).Since the agreement is binding under state law,the shareholder will receive sale or exchange treatment with respect to the redemption.
A)True
B)False
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Page 8
Chapter 7: Corporations: Reorganizations
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Sample Questions
Q1) Discuss the treatment of accumulated earnings and profits (E & P)in a corporate reorganization when both corporations have positive E & P and when the target corporation has a negative E & P.
Q2) All of the following statements are true about corporate reorganization except:
A)Taxable amounts for shareholders are classified as a dividend or capital gain.
B)Reorganizations receive treatment similar to corporate formations under § 351.
C)The transfers of stock to and from shareholders qualify for like-kind exchange treatment.
D)The value of the stock received by the shareholder less the gain not recognized (postponed)will equal the shareholder's basis in the stock received.
E)All of the above statements are true.
Q3) Obtaining a positive letter ruling from the IRS can ensure the desired tax treatment for parties contemplating a corporate reorganization.
A)True
B)False
Q4) Provide the formula for the § 382 limitation and demonstrate how the formula is altered for the change year.What is the purpose of the § 382 limitation?
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Chapter 8: Consolidated Tax Returns
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Sample Questions
Q1) When a consolidated NOL is generated,each affiliate is allocated a share of the loss.
A)True
B)False
Q2) Assume that all of the affiliates in a Federal consolidated group conduct allowable manufacturing activities.Is a domestic production activities deduction (DPAD)available? Who can claim it? How is each member's DPAD,if any,computed?
Q3) The losses of a consolidated group member are subject to both the SRLY rules and a § 382 limitation.When both limitations apply,the SRLY rules override the § 382 restrictions for this affiliate.
A)True
B)False
Q4) A Federal consolidated tax return group can apply the "relative taxable income" method as a means to apportion the tax liabilities of the members among the affiliates. A)True
B)False
Q5) Describe the general computational method used by a Federal consolidated group in computing taxable income.
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Chapter 9: Taxation of International Transactions
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Sample Questions
Q1) The source of income received for the use of intangible property is the home country of the owner of the property producing the income.
A)True
B)False
Q2) GreenCo,a domestic corporation,earns $25 million of taxable income from U.S.sources and $5 million of taxable income from foreign sources.What amount of taxable income does GreenCo report on its U.S.tax return?
A)$30 million.
B)$25 million.
C)$30 million less any tax paid on U.S.income.
D)$25 million less any tax paid on the foreign income.
Q3) Which of the following persons typically is not concerned with the U.S.-sourcing rules for gross income?
A)Foreign persons with U.S.activities.
B)Foreign persons with only foreign activities.
C)U.S.employees working abroad.
D)U.S.persons with foreign activities.
Q4) Discuss the primary purposes of income tax treaties.
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Page 11
Chapter 10: Partnerships: Formation, operation, and Basis
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Sample Questions
Q1) One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner,regardless of whether or not distributed.
A)True
B)False
Q2) Michelle and Jacob formed the MJ Partnership.Michelle contributed $20,000 of cash in exchange for her 50% interest in the partnership capital and profits.During the first year of partnership operations,the following events occurred: the partnership had a net taxable income of $10,000;Michelle received a distribution of $8,000 cash from the partnership;and Michelle had a 50% share in the partnership's $16,000 of recourse liabilities on the last day of the partnership year.Michelle's adjusted basis for her partnership interest at year end is:
A)$17,000.
B)$20,000.
C)$25,000.
D)$33,000.
E)$38,000.
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Page 12
Chapter 11: Partnerships: Distributions, transfer of Interests, and Terminations
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Sample Questions
Q1) In a proportionate liquidating distribution,Sara receives a distribution of $40,000 cash,accounts receivable (basis of $0,fair market value of $30,000),and inventory (basis of $50,000,fair market value of $60,000).Sara's basis in the entity immediately before the distribution was $120,000.As a result of the distribution,what is Sara's basis in the accounts receivable and inventory,and how much gain or loss does she recognize?
A)$0 basis in accounts receivable;$50,000 basis in inventory;$30,000 loss.
B)$0 basis in accounts receivable;$80,000 basis in inventory;$0 gain or loss.
C)$40,000 basis in accounts receivable;$40,000 basis in inventory;$0 gain or loss.
D)$30,000 basis in accounts receivable;$50,000 basis in inventory;$30,000 loss.
E)$30,000 basis in accounts receivable;$60,000 basis in inventory;$10,000 gain.
Q2) A gain will only arise on a distribution of cash that exceeds the partner's basis in the partnership interest.For this purpose,only cash,checks,and credit card charges are treated as cash.
A)True
B)False
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Page 13
Chapter 12: S: Corporations
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Sample Questions
Q1) Explain how the domestic production activities deduction is used for an S corporation.
Q2) Passive investment income includes net capital gains from the sale of stocks and securities.
A)True
B)False
Q3) The amount of any distribution to an S corporation shareholder is equal to the ____________________ plus the fair market value of any other property distributed..
Q4) Where the S corporation rules are silent,partnership rules apply to the S corporation. A)True
B)False
Q5) If an S corporation has C corporate E & P and passive income in excess of ____________________ % of its gross receipts for ____________________ consecutive taxable years,the S election is terminated at the beginning of the ____________________ year.
Q6) Rents always are considered to be passive investment income in S status. A)True B)False
Page 14
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Chapter 13: Comparative Forms of Doing Business
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Sample Questions
Q1) Which of the following is not a reason why a corporation would want to elect S corporation status?
A)To pass through losses to the shareholders.
B)To avoid the alternative minimum tax at the entity level.
C)To make special allocations of income and expenses to shareholders.
D)To avoid taxation at the entity level.
E)None of the above.
Q2) If an individual contributes an appreciated personal use asset to a C corporation in a transaction which qualifies for nonrecognition treatment under § 351,the corporation's basis in the asset is the same as was the shareholder's adjusted basis.
A)True
B)False
Q3) An S corporation election for Federal income tax purposes also is effective for all states' income tax purposes.
A)True
B)False
Q4) Do the § 465 at-risk rules treat recourse debt and nonrecourse debt differently?
Q5) Do the § 465 at-risk rules apply to partnerships,LLCs,and S corporations?
Q6) Why are S corporations not subject to the accumulated earnings tax?
Page 15
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Chapter 14: Taxes on the Financial Statements
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Sample Questions
Q1) Schedule UTP of the Form 1120 reconciles financial statement net income after tax with a large corporation's taxable income.
A)True
B)False
Q2) The major purpose of ASC 740 (SFAS 109)is to match current-year GAAP income with its corresponding tax expenses.
A)True
B)False
Q3) Which of the following items are not included in the income tax note for a publicly traded company?
A)Breakdown of income between foreign and domestic.
B)Analysis of deferred tax assets and liabilities.
C)Breakdown of income among States.
D)Rate reconciliation.
E)Analysis of total tax expense components.
Q4) How does an auditor determine whether a valuation allowance is needed against an entity's deferred tax asset? List some of the factors than an auditor will consider in this regard.
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Chapter 15: Exempt Entities
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Q1) An intermediate sanction imposed by the IRS on an exempt organization is a greater sanction than revocation of exempt status.
A)True
B)False
Q2) Tan,Inc. ,a tax-exempt organization,has $65,000 of net unrelated business income.Total charitable contributions (all associated with the unrelated trade or business)are $7,500.Assuming that the $7,500 was deducted in calculating net unrelated business income,what is Tan's unrelated business taxable income?
A)$57,500.
B)$65,250.
C)$66,000.
D)$72,500.
E)Some other amount.
Q3) Define a qualified corporate sponsorship payment.
Q4) What are the excise taxes imposed on private foundations,and why are they imposed?
Q5) Under what circumstances are bingo games not treated as an unrelated trade or business?
Q6) What income and activities are not subject to the feeder organization rules?
Page 17
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Chapter 16: Multistate Corporate Taxation
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Sample Questions
Q1) All of the U.S.states have adopted a tax based on net taxable income.
A)True
B)False
Q2) The sale of groceries to an individual probably is exempt from sales/use tax under the _________________________ rule.
Q3) The benefits of a passive investment company typically include:
A)Reduced state income taxes.
B)Isolation of the entity's portfolio income from taxation in other nonunitary states.
C)Exclusion of the subsidiary's portfolio income from the parent corporation's apportionment formula denominator in other nonunitary states.
D)All of the above are benefits.
Q4) In the broadest application of the unitary theory,the U.S.unitary business files a combined tax return using factors and income amounts for all affiliates:
A)Organized in the U.S.
B)Organized in NAFTA countries.
C)Organized anywhere in the world.
D)As dictated by the tax treaties between the U.S.and the other countries.
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Chapter 17: Tax Practice and Ethics
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Sample Questions
Q1) IRS computers use document matching programs for both individuals and business taxpayers to keep the audit rate low.
A)True
B)False
Q2) In a letter ruling,the IRS responds to a taxpayer request concerning the tax treatment of a proposed transaction.
A)True
B)False
Q3) Maria and Miguel Blanco are in the midst of negotiating a divorce.Because both parties are unwilling to share any current financial information,their joint Form 1040 for 2012 is not filed until October 31,2013,when the respective divorce attorneys forced them to cooperate.The Blancos should not be subject to any Federal late-filing penalties,because of the reasonable cause exception.
A)True
B)False
Q4) If the taxpayer refuses to pay an assessed tax,the IRS can seize taxpayer property under the ____________________ process.
Q5) The IRS is a subsidiary agency of the Department of the
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Chapter 18: The Federal Gift and Estate Taxes
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Sample Questions
Q1) A husband and wife make a gift of their jointly owned vacation home to their adult children.The gift-splitting election must be made.
A)True
B)False
Q2) In 2001,Katelyn inherited considerable property when her father died.When Katelyn dies in 2012,her estate may be able to use § 2013 (credit for tax on prior transfers)as to some of the estate taxes paid by her father's estate.
A)True
B)False
Q3) In 2010,Katherine made some taxable gifts upon which she paid a Federal gift tax of $96,000.If Katherine dies in 2012,the $96,000 is included in her gross estate under the "gross up" rule.
A)True
B)False
Q4) The current top Federal transfer tax rate of 35% is not the highest rate ever imposed. A)True
B)False
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Chapter 19: Family Tax Planning
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Q1) Which of the following procedures carried out will reduce both Mary's future gross estate and her probate estate?
A)Mary issues a timely disclaimer as to real estate that is willed to her by her grandfather.
B)Mary creates a revocable trust naming her children as the beneficiaries.
C)One year before her death,Mary gives an insurance policy on her life to her son,the designated beneficiary.
D)Mary purchases real estate as joint tenants with her sister.Mary predeceases her sister.
E)None of the above.
Q2) What are some of the pitfalls in the use of § 2032A (special use valuation method)?
Q3) If a decedent's household goods are sold through public auction,the price received should be the valuation used for Federal estate tax purposes.
A)True
B)False
Q4) What is the rationale for the deferral and the equalization approaches to the marital deduction?
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Chapter 20: Income Taxation of Trusts and Estates
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Q1) The Circle Trust has some exempt interest income for the year.How does this investment income affect Circle's deduction of its fiduciary fees? Charitable contributions?
Q2) Beginning with its ____________________ tax year,an estate must remit quarterly Federal estimated income tax payments. or
Q3) The Yellow Trust incurred $10,000 of portfolio income.Its corporate trustee paid fiduciary fees of $1,000 therefrom,and also paid $1,000 in premiums for a life insurance policy on Marcia,the grantor of the trust.How much gross income does Marcia include with respect to these trust activities?
A)$10,000.
B)$9,000.
C)$1,000.
D)$800.
Q4) You are responsible for the Federal income tax filings of the Tyrone Trust.Summarize the relevant due dates and filing requirements for Tyrone.
Q5) A gift to charity from its 2012 income is deductible on an estate's Form 1041 if it is made by the end of the ____________________ tax year.
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