Federal Income Taxation Test Bank
Course Introduction
Federal Income Taxation provides an in-depth exploration of the United States federal income tax system, focusing on the principles, policies, and laws that govern the taxation of individuals and business entities. Students will examine the Internal Revenue Code, Treasury Regulations, and judicial interpretations to understand concepts such as gross income, deductions, credits, filing status, and taxation of property transactions. The course emphasizes practical skills in tax research, statutory interpretation, and application of tax law to real-world scenarios, preparing students for further studies in tax law or allied professional fields.
Recommended Textbook
South Western Federal Taxation 2016 Comprehensive 39th Edition by William H. Hoffman
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Page 2
Chapter 1: An Introduction to Taxation and Understanding the Tax Law
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Sample Questions
Q1) A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis.
A)True
B)False
Answer: True
Q2) Revenue Agent's Report (RAR)
Answer: c
Q3) The Federal excise tax on cigarettes is an example of a proportional tax.
A)True
B)False Answer: True
Q4) Tax on transfers at death (inheritance type)
Answer: j
Q5) Sales made by mail order are not exempt from the application of a general sales (or use) tax.
A)True
B)False
Answer: True
Q6) Tax fraud suspected
Answer: e Page 3
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Page 4
Chapter 2: Working With the Tax Law
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Sample Questions
Q1) Compare Revenue Rulings with Revenue Procedures.
Answer: Revenue Rulings are official pronouncements of the National Office of the IRS.They typically provide one or more examples of how the IRS would apply a law to specific fact situations.Like Regulations,Revenue Rulings are designed to provide interpretation of the tax law.However,they do not carry the same legal force and effect as Regulations and usually deal with more restricted problems.Regulations are approved by the Secretary of the Treasury,whereas Revenue Rulings generally are not.Revenue Procedures are issued in the same manner as Revenue Rulings,but deal with the internal management practices and procedures of the IRS.Familiarity with these procedures can increase taxpayer compliance and help the IRS administer the tax laws more efficiently.A taxpayer's failure to follow a Revenue Procedure can result in unnecessary delay or,in a discretionary situation,can cause the IRS to decline to act on behalf of the taxpayer.
Q2) Deferring income to a subsequent year is considered to be tax avoidance.
A)True
B)False
Answer: True
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Page 5
Chapter 3: Computing the Tax
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Sample Questions
Q1) Buddy and Hazel are ages 72 and 71 and file a joint return.If they have itemized deductions of $14,600 for 2015,they should not claim the standard deduction.
A)True
B)False
Answer: False
Q2) Which,if any,of the following statements relating to the standard deduction is correct?
A)If a taxpayer dies during the year,his (or her) standard deduction must be prorated.
B)If a taxpayer is claimed as a dependent of another,his (or her) additional standard deduction is allowed in full (i.e. ,no adjustment is necessary).
C)If spouses file separate returns,both spouses must claim the standard deduction (rather than itemize their deductions from AGI).
D)If a taxpayer is claimed as a dependent of another,no basic standard deduction is allowed.
E)None of these.
Answer: B
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6
Chapter 4: Gross Income: Concepts and Inclusions
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Q1) In the case of a person with other income of $300,000,15% of his or her Social Security benefits received are excluded from gross income.
A)True
B)False
Q2) In December 2014,Mary collected the December 2014 and January 2015 rent from a tenant.Mary is a cash basis taxpayer.The amount collected in December 2014 for the 2015 rent should be included in her 2015 gross income.
A)True
B)False
Q3) A sole proprietorship purchased an asset for $1,000 in 2015 and its value was $1,500 at the end of 2015.In 2016,the sole proprietorship sold the asset for $1,400.The sole proprietorship realized a taxable gain of $400 in 2016 but an economic loss of $100 in 2016.
A)True
B)False
Q4) How does the taxation of Social Security benefits differ from the taxation of an annuity purchased by the taxpayer?
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Chapter 5: Gross Income: Exclusions
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Q1) Sally and Ed each own property with a fair market value less than the amount of the outstanding mortgage on the property and also less than the original cost basis.They each were able to convince the mortgage holder to reduce the principal amount on the mortgage.Sally's mortgage is on her personal residence and Ed's mortgage is on rental property he owns.
a.Explain whether each of these individuals has realized income from the reduction in the debt.
b.Assume that under the current system of measuring income,each of these taxpayers realized income from the reductions in the mortgages.Should either of these taxpayers be permitted to exclude any of the debt reduction income?
Q2) A U.S.citizen who works in France from February 1,2015 until January 31,2016 is eligible for the foreign earned income exclusion in 2015 and 2016.
A)True
B)False
Q3) If a tax-exempt bond will yield approximately .65 (1 - .35) times the yield on a taxable bond of equal risk,who benefits from the tax exemption: the Federal government,the state and local governments who issue the bonds,or the investors?
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Page 8
Chapter 6: Deductions and Losses: in General
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Q1) Under what circumstance can a bribe be deducted?
Q2) Paula is the sole shareholder of Violet,Inc.For 2015,she receives from Violet a salary of $300,000 and dividends of $100,000.Violet's taxable income for 2015 is $500,000.On audit,the IRS treats $100,000 of Paula's salary as unreasonable.Which of the following statements is correct?
A)Paula's gross income will increase by $100,000 as a result of the IRS adjustment.
B)Violet's taxable income will not be affected by the IRS adjustment.
C)Paula's gross income will decrease by $100,000 as a result of the IRS adjustment.
D)Violet's taxable income will decrease by $100,000 as a result of the IRS adjustment.
E)None of the above is correct.
Q3) Susan is a sales representative for a U.S.weapons manufacturer.She makes a $100,000 "grease" payment to a U.S.government official associated with a weapons purchase by the U.S.Army.She makes a similar payment to a Saudi Arabian government official associated with a similar sale.Neither of these payments is deductible by Susan's employer.
A)True
B)False
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) John files a return as a single taxpayer.In 2015,he had the following items: Salary of $40,000. Loss of $65,000 on the sale of § 1244 stock acquired two years ago. Interest income of $6,000. Determine John's AGI for 2015.
A)($5,000).
B)$0.
C)$45,000.
D)$51,000.
E)None of the above.
Q2) Taxpayer's home was destroyed by a storm in the current year and the area was declared a disaster area.If the taxpayer elects to treat the loss as having occurred in the prior year,it will be subject to the 10%-of-AGI reduction based on the AGI of the current year.
A)True
B)False
Q3) How is qualified production activities income (QPAI) calculated?
Q4) A father cannot claim a loss on his daughter's rental use property.
A)True
B)False
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Q5) Why was the domestic production activities deduction (DPAD) enacted by Congress?
Chapter 8: Depreciation, cost Recovery, amortization, and Depletion
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Sample Questions
Q1) Tan Company acquires a new machine (ten-year property) on January 15,2015,at a cost of $200,000.Tan also acquires another new machine (seven-year property) on November 5,2015,at a cost of $40,000.No election is made to use the straight-line method.The company does not make the § 179 election and elects to not take additional first-year depreciation if available.Determine the total deductions in calculating taxable income related to the machines for 2015.
A)$24,000
B)$25,716
C)$102,000
D)$132,858
E)None of the above
Q2) A purchased trademark is a § 197 intangible.
A)True
B)False
Q3) In a farming business,MACRS straight-line cost recovery is required for all fruit bearing trees.
A)True
B)False
Q4) Discuss the reason for the inclusion amount with respect to leased automobiles.
Page 11
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Q1) A taxpayer takes six clients to an NBA playoff game.If all of the tickets (list price of $120 each) are purchased on the Internet for $1,800 ($300 each),only $60 ($120 × 50% cutback adjustment) per ticket is deductible.
A)True
B)False
Q2) Sue was trained by Lynn.
Q3) In the case of an office in the home deduction,the exclusive business use test does not apply when the home is used as a daycare center.
A)True
B)False
Q4) In November 2015,Katie incurs unreimbursed moving expenses to accept a new job.Katie cannot deduct any of these expenses when she timely files her 2015 income tax return since she has not yet satisfied the 39-week time test.
A)True
B)False
Q5) Time test (for moving expenses) waived
Q6) Concerning the deduction for moving expenses,what circumstances,if any,will excuse a taxpayer from meeting the time test of 39 or 78 weeks?
Page 12
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) In January 2016,Pam,a calendar year cash basis taxpayer,made an estimated state income tax payment for 2015.The payment is deductible in 2015.
A)True
B)False
Q2) Which of the following items would be an itemized deduction on Schedule A of Form 1040 not subject to the 2%-of-AGI floor?
A)Professional dues paid by an accountant (employed by Ford Motor Co. ) to the National Association of Accountants.
B)Gambling losses to the extent of gambling winnings.
C)Job hunting costs.
D)Appraisal fee paid to a valuation expert to determine the fair market value of art work donated to a qualified museum.
E)None of the above.
Q3) Georgia contributed $2,000 to a qualifying Health Savings Account in the current year.The entire amount qualifies as an expense deductible for AGI.
A)True
B)False
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Page 13
Chapter 11: Investor Losses
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Sample Questions
Q1) Pat sells a passive activity for $100,000 that has an adjusted basis of $55,000.During the years of her ownership,$60,000 of losses have been incurred that were suspended under the passive activity loss rules.In addition,the passive activity generated tax credits of $10,000 that were not utilized and suspended.Determine the tax treatment to Pat on the disposition of the property.
Q2) Lucy owns and actively participates in the operations of an apartment complex that produces a $50,000 loss during the year.Her modified AGI is $125,000 from an active business.Disregarding any at-risk amount limitation,she may deduct $25,000 of the loss,and the remaining $25,000 is a suspended passive loss.
A)True
B)False
Q3) Identify how the passive loss rules broadly classify various types of income and losses.Provide examples of each category.
Q4) Discuss the treatment given to suspended passive activity losses and credits.What happens to an activity's unused losses and credits when the activity is sold?
Q5) Describe the general rules that limit the deduction of investment interest expense.
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Page 14
Chapter 12: Tax Credits and Payments
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Q1) Expenses that are reimbursed by a taxpayer's employer under a dependent care assistance program can also qualify for the credit for child and dependent care expenses.
A)True
B)False
Q2) The earned income credit is available only if the taxpayer has at least one qualifying child in the household.
A)True
B)False
Q3) Discuss the treatment of unused general business credits.
Q4) Phil and Audrey,husband and wife,are both employed by Laurel Corporation.Phil earns $125,000 in salary in 2015,and Audrey earns $70,000.How much FICA tax must they pay for 2015?
Q5) Only self-employed individuals are required to make estimated tax payments. A)True
B)False
Q6) A taxpayer who qualifies for the low-income housing credit claims the credit over a 20-year period.
A)True
B)False
Page 15
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Chapter 13: Property Transactions: Determination of Gain or
Loss, basis Considerations, and Nontaxabl
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Sample Questions
Q1) What kinds of property do not qualify under the like-kind provisions?
Q2) Boyd acquired tax-exempt bonds for $430,000 in December 2015.The bonds,which mature in December 2020,have a maturity value of $400,000.Boyd does not make any elections regarding the amortization of the bond premium.Determine the tax consequences to Boyd when he redeems the bonds in December 2020.
Q3) The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.
A)True
B)False
Q4) Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a nephew.
Q5) In 1973,Fran received a birthday gift of stock worth $75,000 from her aunt.The aunt had owned the stock (adjusted basis $50,000) for 10 years and paid gift tax of $27,000 on the transfer.Fran's basis in the stock is $75,000-the lesser of $77,000 ($50,000 + $27,000) or $75,000.
A)True
B)False
Page 16
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Chapter 14: Property Transactions: Capital Gains and
Losses, section 1231 and Recapture Provisions
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Q1) Samuel,head of household with two dependents,has 2015 wages of $26,000,paid alimony of $3,000,has taxable interest income of $2,000,and a $12,000 0%/15%/20% net long-term capital gain.Samuel uses the standard deduction and is age 38.What is his 2015 taxable income and the tax on the taxable income?
Q2) A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee.The tenant wanted to get out of its lease so it could move to a different building.The lessor had held the lease for three years before it was canceled.The lessor had a zero tax basis for the lease.The lessor has received:
A)Ordinary income of $45,000.
B)Long-term capital gain of $45,000.
C)Short-term capital gain of $45,000.
D)Neither gain nor loss.
E)None of the above.
Q3) An individual taxpayer has the gains and losses shown below.There are $3,000 of § 1231 lookback losses.What is the net long-term capital gain? Holding Period/Property Character of Gain or Loss Amount 5 years/vacant land § 1231 gain $7,000 2 years/business equipment § 1245 gain 3,200 3 years/publicly traded stock Long-term capital gain 890 8 months/publicly traded stock Short-term capital loss (1,870)
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Chapter 15: Alternative Minimum Tax
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Q1) How can interest on a private activity bond issued in 2008 result in both an AMT adjustment that decreases AMTI and an AMT preference that increases AMTI?
Q2) Under what circumstances are corporations exempt from the AMT?
Q3) Interest on a home equity loan cannot be deducted for AMT purposes.
A)True
B)False
Q4) In deciding to enact the alternative minimum tax,Congress was concerned about the inequity that resulted when taxpayers with substantial economic incomes could avoid paying regular income tax.
A)True
B)False
Q5) Lavender,Inc. ,incurs research and experimental expenditures of $210,000 in 2015.Determine the amount of the AMT adjustment for 2015 and for 2016 if for regular income tax purposes:
a.Lavender expenses the research and experimental expenses.
b.Lavender capitalizes the research and experimental expenses and elects to amortize them over a 10-year period.
Q6) Why is there a need for a second tax system called the alternative minimum tax?
Q7) What is the relationship between taxable income and AMTI?
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Chapter 16: Accounting Periods and Methods
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Q1) The buyer and seller have tentatively agreed to a contract for the sale of a building that the buyer will use in its business.The buyer will pay the seller $100,000 (principal and interest) each year for 5 years.The seller's cost of the asset is $200,000,and he will report the capital gain using the installment method.The buyer and seller are now negotiating the interest rate that will be used to compute the interest included in each $100,000 payment.The relevant Federal rate is 5%,but the market rate on similar contracts is in the area is 7%.
a.Why would the seller bargain for a 5% interest rate for the contract rather than a 7% interest rate?
b.How does the interest rate affect the buyer's future taxable income?
Q2) Dr.Stone incorporated her medical practice and elected to use a fiscal year ending September 30th.For the fiscal year ending September 30,2015,the corporation earned $40,000 profits each month,before Dr.Stone's salary and income tax.Dr.Stone received a salary that averaged $30,000 per month.Next year (fiscal year ending September 30,2016),Dr.Stone expects the average monthly profits before salary and taxes to be $48,000.What is the minimum salary Dr.Stone can receive for the last three months of calendar year 2015 to ensure that the corporation can deduct salary equal to the corporation's before salary income for the fiscal year ending September 30,2016?
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Chapter 17: Corporations: Introduction and Operating Rules
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Q1) Beige Corporation,a C corporation,purchases a warehouse on August 1,1999,for $1 million.Straight-line depreciation is taken in the amount of $411,750 before the property is sold on June 11,2015,for $1.2 million.What is the amount and character of the gain recognized by Beige on the sale of the realty?
A)Ordinary income of $0 and § 1231 gain of $611,750.
B)Ordinary income of $411,750 and § 1231 gain of $200,000.
C)Ordinary income of $82,350 and § 1231 gain of $529,400.
D)Ordinary income of $117,650 and § 1231 gain of $494,100.
E)None of the above.
Q2) If a C corporation uses straight-line depreciation on real estate (§ 1250 property),no portion of a gain on the sale of the property will be recaptured as ordinary income.
A)True
B)False
Q3) Schedule M-1 is used to reconcile net income as computed for financial accounting purposes with taxable income reported on the corporation's income tax return.
A)True
B)False
Q4) Briefly discuss the requirements for the dividends received deduction. To view all questions and flashcards with answers, click on the resource link above.
Page 20
Chapter 18: Corporations: Organization and Capital Structure
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Q1) Hazel transferred the following assets to Starling Corporation. Adjusted Basis Fair Market Value Cash $120,000 $120,000 Machinery 48,000 36,000 Land 108,000 144,000 In exchange,Hazel received 50% of Starling Corporation's only class of stock outstanding.The stock has no established value.However,all parties believe that the value of the stock Hazel received is the equivalent of the value of the assets she transferred.The only other shareholder,Rick,formed Starling Corporation five years ago.
A)Hazel has no gain or loss on the transfer.
B)Starling Corporation has a basis of $48,000 in the machinery and $108,000 in the land.
C)Starling Corporation has a basis of $36,000 in the machinery and $144,000 in the land.
D)Hazel has a basis of $276,000 in the stock of Starling Corporation.
E)None of the above.
Q2) Stock in Merlin Corporation is held equally by Jane,Eve,and Fred.Merlin seeks additional capital to buy a valuable tract of land that will cost $6,000,000.Jane,Eve,and Fred propose to loan Merlin $2,000,000 each,taking from Merlin a $2,000,000 ten-year note with interest payable annually at five points above the prime rate.Merlin Corporation has current taxable income of $7,000,000.How are the payments on the notes treated for tax purposes?
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Page 21
Chapter 19: Corporations: Distributions Not in Complete
Liquidation
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Q1) Distributions that are not dividends are a return of capital and decrease the shareholder's basis.
A)True
B)False
Q2) A corporation that distributes a property dividend must reduce its E & P by the adjusted basis of the property less any liability on the property.
A)True
B)False
Q3) Reginald and Roland (Reginald's son) each own 50% of the stock of Robin Corporation.Reginald's stock interest is entirely redeemed by Robin Corporation.Two years later,Reginald loans Robin Corporation $250,000.The loan to Robin Corporation does not constitute a prohibited interest for purposes of the family attribution waiver.
A)True
B)False
Q4) Constructive dividends do not need to satisfy the legal requirements for a dividend as set forth by applicable state law.
A)True
B)False
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganizations
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Q1) What are the tax consequences of a § 332 liquidation to the parent corporation,subsidiary corporation,and minority shareholder?
Q2) The stock in Rhea Corporation is owned by Jennifer (80%) and Lucy (20%),mother and daughter.In a liquidation of the corporation in the current year,Rhea distributes land that it purchased two years ago for $675,000 to Lucy.The property has a fair market value on the date of distribution of $450,000.One year later,Lucy sells the land for $400,000.What loss,if any,will Rhea Corporation recognize with respect to the distribution of land?
A)$0.
B)$45,000.
C)$225,000.
D)$275,000.
E)None of the above.
Q3) The built-in loss limitation in a complete liquidation does not apply to losses attributable to a decline in a property's fair market value after its transfer to the corporation.
A)True
B)False
Q4) Discuss the role of letter rulings in corporate reorganizations.
Page 23
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Chapter 21: Partnerships
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Q1) In a proportionate liquidating distribution of his 40% interest in the RST LLC,Stuart received cash ($100,000),land (basis of $60,000 and value of $90,000),and unrealized receivables (basis of $0 and value of $40,000).In addition,Stuart is relieved of his $80,000 share of the LLC's liabilities.Stuart's basis in RST (including his share of LLC liabilities) was $200,000 immediately prior to this distribution.
a.How much gain or loss does Stuart recognize on this distribution?
b.What is Stuart's basis in the receivables and land he receives in the distribution?
Q2) A limited partnership (LP) offers all partners protection from claims by the LP's creditors.
A)True
B)False
Q3) A partner will have the same profit-sharing,loss-sharing,and capital-sharing ownership percentages.
A)True
B)False
Q4) Check the box regulations
Q5) Substituted
Q6) Aggregate concept
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Chapter 22: S Corporations
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Q1) S corporations are treated as partnerships under state property laws.
A)True
B)False
Q2) Post-termination distributions that are charged against OAA are received tax-free.
A)True
B)False
Q3) During 2015,Miles Nutt,the sole shareholder of a calendar year S corporation,received a distribution of $16,000.On December 31,2014,his stock basis was $4,000.The corporation earned $11,000 ordinary income during the year.It has no accumulated E & P.Which statement is correct?
A)Nutt recognizes a $1,000 LTCG.
B)Nutt's stock basis will be $2,000.
C)Nutt's ordinary income is $15,000.
D)Nutt's tax-free return of capital is $11,000.
E)None of the above.
Q4) The choice of a flow-through entity for a closely-held corporation often is between a(n) ____________________ (a Federal tax entity) and a(n) ____________________ (a state tax entity).
Q5) Non-separately computed loss ____________________ a S shareholder's stock basis.
Page 25
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Chapter 23: Exempt Entities
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Q1) Tax on excess business holdings
Q2) Debt-financed income is the net income from debt financed property.
Q3) Plus,Inc. ,is a § 501(c)(3) organization.It generates a small amount of net income each year.Ralph,the CEO of Plus,Inc. ,is concerned that Plus may be subject to the unrelated business income tax.Is there a materiality exception to this tax? A 501(c)(3) with "net income" does not automatically result in a UBIT classification.They must be conducting a trade or business that is regularly carried on and that is not substantially related to its exempt purpose.
Q4) If the unrelated business income of an exempt organization is $25,000 or less,the unrelated business income tax (UBIT) will be $0.
A)True
B)False
Q5) Why are some organizations exempt from Federal income tax?
Q6) Not an exempt organization
Q7) To what types of organizations does the UBIT apply?
Q8) Form 990-PF
Q9) Define "trade or business" for purposes of the unrelated business income tax (UBIT).
Q10) Form 990-PF.
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Chapter 24: Multistate Corporate Taxation
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Sample Questions
Q1) Bert Corporation,a calendar-year taxpayer,owns property in States M and O.Both M and O require that the average value of assets be included in the property factor.M requires that the property be valued at its historical cost,and O requires that the property be included in the property factor at its net depreciated book value. Account Balances at Beginning of Year State M State O Totals Inventories $200,000 $300,000 $ 500,000 Building & machinery (cost) 700,000 300,000 1,000,000 Accumulated depreciation (150,000) (50,000) (200,000) Land 400,000 200,000 600,000 Totals $1,150,000 $750,000
$1,900,000 Account Balances at Year-End State M State O Totals Inventories $ 400,000 $100,000 $ 500,000 Building & machinery (cost) 800,000 500,000 1,300,000 Accumulated depreciation (300,000) (100,000) (400,000) Land 400,000 200,000 600,000 Totals
$1,300,000 $700,000 $2,000,000 Annual rent payments $ 50,000 $ 25,000 Bert's State M property factor is:
A)75.0%.
B)66.7%.
C)64.9%.
D)64.5%.
Q2) Checking the customer's inventory to determine whether a reorder is needed.
Q3) Leased property,when included in the property factor,usually is valued at ____________________ times its annual rental,even though the taxpayer does not own the asset.
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Chapter 25: Taxation of International Transactions
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Sample Questions
Q1) RainCo,a U.S.corporation,owns a number of patents related to designing umbrellas.RainCo licenses these patents to unrelated parties.TexCo,a domestic corporation,paid RainCo $100,000 in royalties related to these licenses.TexCo uses the patent information in its manufacturing process in its Canadian plant.IrishCo,an Irish corporation,paid RainCo $25,000 in royalties related to the licenses.IrishCo uses the patent information in its manufacturing process in its Michigan manufacturing plant.How much U.S.-source royalty income did RainCo earn from these licenses?
A)$0
B)$25,000
C)$100,000
D)$125,000
Q2) The U.S.system for taxing income earned inside its borders by non-U.S.persons is referred to as inbound taxation because such foreign persons are earning income by coming into the United States.
A)True
B)False
Q3) Ownership percentage required before a deemed paid foreign tax credit is allowed.
Q4) Treasury powers over transfer pricing.
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Page 28
Chapter 26: Tax Practice and Ethics
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Q1) Which of the following statements does not reflect the rules governing the accuracy-related penalty for negligence?
A)The penalty rate is 20%.
B)The penalty applies whenever the taxpayer takes a return position that is contrary to a court decision.
C)The penalty applies when the taxpayer does not keep records adequate to compute the tax correctly.
D)The penalty is waived if the taxpayer uses Form 8275 to disclose a return position that is reasonable though contrary to the IRS position.
Q2) An individual is not subject to an underpayment penalty until more than $____________________ is due and unpaid through estimated taxes.
Q3) Substantial understatement of a tax.
Q4) Specific factors that are used in selecting tax returns for audit,and the weights for such factors,are not released to the public.Summarize the public information about tax audit selection;how might a tax return's chances of audit increase above national norms?
Q5) Failure to pay a tax.
Q6) Fraudulent failure to file a tax return.
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Chapter 27: Family Tax Planning
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Q1) Bank account held as joint tenant with mother.Mother provided all of the funds.Mother survives.
Q2) Election to split gifts (§ 2513)
Q3) The election of the alternate valuation date can affect the amount of a charitable deduction allowed to an estate for a bequest to a qualified charity.
A)True
B)False
Q4) Among the assets included in Taylor's gross estate are the following. Fair Market Value Date of Death Six Months After Date of Death Stock in Grebe Corporation Stock in Rail Corporation Office building $7,000,000 800,000 900,000 $6,800,000 850,000 890,000
a.What is the amount of Taylor's gross estate if date of death value is used?
b.What is the amount of Taylor's gross estate if the alternate valuation date is elected?
c.Suppose all of Taylor's assets pass to her surviving spouse.Does this have any impact on the choice of valuation date? Explain.
Q5) Meg gives her 18-year-old son money for his college tuition and living expenses (e.g. ,room and board).
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Chapter 28: Income Taxation of Trusts and Estates
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Q1) The Prasad Trust incurred the following items: Taxable interest income $50,000 Tax-exempt interest income,not on private activity bonds 25,000 Tax-exempt interest income,on private activity bonds 5,000 Compute Prasad's tentative minimum tax for the year.Prasad does not hold any credits available to reduce the AMT liability.
Q2) A trust whose remainder beneficiary is its grantor.
Q3) The Chen Trust is required to distribute its accounting income every year,one-half to Missy Chen,and one-half to the local church's homeless shelter.What is the Chen Trust's personal exemption?
A)$0
B)$100
C)$300
D)$600
Q4) 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
Q5) The fiduciary in charge of a trust.
Q6) An estate always is created upon the death of this party.
Page 31
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