Introduction to Taxation Exam Solutions
Course Introduction
Introduction to Taxation provides students with a foundational understanding of tax systems and principles, focusing primarily on the taxation environment relevant to individuals and businesses. The course covers key topics such as the structure of tax laws, basic tax terminology, the role of taxation in government finance, income determination, tax compliance procedures, and key concepts in corporate and personal taxation. Through practical examples and case studies, students learn how taxes are calculated, reported, and the implications of tax policies on economic decision-making, preparing them for more advanced study in taxation and financial accounting.
Recommended Textbook
Prentice Halls Federal Taxation 2014 Comprehensive 27th Edition by Timothy J. Rupert
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Chapter 1: Tax Research
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Q1) According to the Statements on Standards for Tax Services,CPAs must verify all tax return information submitted by reviewing client documentation.
A)True
B)False
Answer: False
Q2) Identify which of the following statements is true.
A)The U.S.Court of Federal Claims hears cases only in Washington,D.C.
B)Each state has at least one U.S.District Court.
C)Federal district court decisions and federal courts of appeals decisions are not printed by the U.S.Government Printing Office.
D)All of the above are false.
Answer: B
Q3) Identify which of the following statements is true.
A)The citation,41 TCM 1272,refers to a Tax Court regular decision published by Commerce Clearing House.
B)The Federal Supplement contains only tax cases.
C)The American Federal Tax Reports contain only tax cases.
D)All of the above are false.
Answer: C
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Page 3
Chapter 2: an Introduction to Taxation
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Q1) Which of the following individuals is most likely to be audited?
A)Lola has AGI of $35,000 from wages and uses the standard deduction.
B)Marvella has a $145,000 net loss from her unincorporated business (a horse farm).She also received $350,000 salary as a CEO of a corporation.
C)Melvin is retired and receives Social Security benefits.
D)Jerry is a school teacher with two children earning $45,000 a year.He also receives $200 in interest income on a bank account.
Answer: B
Q2) What is an important aspect of a limited liability partnership?
A)It is the same as a limited partnership where the general partner has unlimited liability.
B)A partner has unlimited liability arising from his or her own acts of negligence or misconduct or similar acts of any person under his or her direct supervision,but does not have unlimited liability in other matters.
C)All partners have limited liability regarding all partnership activities.
D)All partners have unlimited liability.
Answer: B
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Chapter 3: Corporate Formations and Capital Structure
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Q1) Several years ago,John acquired 200 shares of Jersey Corporation stock directly from the corporation for $150,000 in cash.This year,he sold the stock to Bill for $85,000.What tax issues should John consider with respect to the stock sale?
Answer: Was the stock sold to a related party (Bill)as defined by Sec.267(b)? If so,John cannot recognize the loss,and the remaining issues do not have to be examined. Is the stock a capital asset?
Is Jersey Corporation a qualifying small business corporation?
If a qualifying small business corporation,does the stock qualify for Sec.1244 stock treatment?
If Sec.1244 stock,what is John's marital and filing status?
Has John's basis for the stock changed from its initial acquisition cost?
What is the amount and character of John's recognized loss? John's stock sale results in a $65,000 ($150,000 - $85,000)long-term capital loss,provided the purchaser was not a related party.If the purchaser is a related party,Sec.267(a)prevents John from recognizing any loss.Since John is the original holder of the stock,the loss may be characterized as ordinary under Sec.1244 if the various requirements of Sec.1244 are satisfied.
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Chapter 4: Determination of Tax
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Q1) In October 2012,Joy and Paul separated and have not lived with each other since,but they are still legally married.They do not file a joint return.Joy supports their children after the separation and pays the cost of maintaining their home.Joy's filing status in 2012 and 2013 is,respectively,
A)single for both years.
B)head of household and single.
C)married filing separately for both years.
D)married filing separately and head of household.
Q2) Edward,a widower whose wife died in 2010,maintains a household for himself and his daughter who qualifies as his dependent.Edward's most favorable filing status for 2013 is A)single.
B)surviving spouse.
C)head of household.
D)married filing jointly.
Q3) Generally,deductions for (not from)adjusted gross income are personal expenses specifically allowed by tax law.
A)True
B)False
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Chapter 5: The Corporate Income Tax
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Q1) Quality Corporation,a regular corporation,has an opportunity to realize $50,000 of additional income in either the current year or next year.What tax issues need to be considered in determining when to realize the income?
Q2) Junod Corporation's book income is $500,000.What tax issues must be addressed in determining taxable income?
Q3) What are the various levels of stock ownership by corporate shareholders for the dividends-received deduction (DRD)? What is the DRD% for each level of ownership?
Q4) Super Corporation gives a painting to a museum for public display on August 6.The painting was purchased on April 3 of the same year for $20,000 and is worth $30,000 at the date of gift.Also,Super accrues a charitable contribution on December 30 and pays the $12,000 contribution on February 1 of the next year.Super Corporation is a calendar-year corporation that uses the accrual method of accounting.Before considering the 10% limitation rule,the maximum deduction for the current year is A)$12,000.
B)$20,000.
C)$30,000.
D)$32,000.
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7
Chapter 6: Gross Income: Inclusions
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Sample Questions
Q1) Bridget owns 200 shares of common stock of Jones Corporation.During the current year,Jones gives its shareholders the choice of receiving cash of $2 per share or one additional share of Jones common stock for each 5 shares of stock owned.The stock has a fair market value of $10 per share.Bridget chooses to take the additional shares of stock.How much income does Bridget have from the stock dividend?
A)$0
B)$200
C)$400
D)$1,000
Q2) As a result of a divorce,Michael pays Judy $75,000 in year one and $25,000 per year in subsequent years.How much of the $75,000 in year one is properly characterized as alimony and will not be recaptured later?
A)$25,000
B)$35,000
C)$40,000
D)$75,000
Q3) Unemployment compensation is exempt from federal income tax.
A)True
B)False
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Page 8
Chapter 7: Corporate Nonliquidating Distributions
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Q1) Tia owns 2,000 shares of Bass Corporation common stock with an $80,000 basis.Bass distributes a nontaxable preferred stock dividend.When the preferred stock is distributed,it has an FMV of $60,000 and the FMV of the 2,000 common stock shares is $180,000.The basis of the preferred stock is
A)$0.
B)$20,000.
C)$60,000.
D)$80,000.
Q2) Identify which of the following increases Earnings & Profits.
A)a capital contribution
B)life insurance proceeds payable to the spouse
C)tax-exempt interest income
D)All of the above increase E&P of a corporation.
Q3) A shareholder's basis in property distributed as a dividend is its fair market value.
A)True
B)False
Q4) When is E&P measured for purposes of determining whether a distribution is a dividend?
Q5) How does a shareholder classify a distribution for tax purposes?
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Chapter 8: Gross Income: Exclusions
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Sample Questions
Q1) Rick chose the following fringe benefits under his employer's cafeteria plan.Which of his chosen benefits will be taxable?
A)$150 cash per pay period
B)medical insurance on his family
C)dental insurance
D)group term life insurance of $20,000
Q2) In the case of foreign-earned income,U.S.citizens may avoid double taxation of income by both the U.S.and the host country by utilizing a foreign tax credit or by electing the foreign earned income exclusion.
A)True
B)False
Q3) "No additional cost" benefits are excluded from an employee's gross income if the services are the same type that are sold to customers and in the line of business in which the employee works.
A)True
B)False
Q4) Loan proceeds are taxable in the year received in cash.
A)True
B)False
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Chapter 9: Other Corporate Tax Levies
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Q1) Identify which of the following statements is true.
A)The personal holding company tax is levied to prevent closely held corporations from sheltering passive income.
B)Caleb Corporation is owned by a mother and her two daughters.It reports $100,000 of rental income,$30,000 of depreciation,interest,and property taxes on the rental real estate,and $10,000 of dividend income.Caleb Corporation is classified as a personal holding company.
C)Luke Corporation is owned by a father and his son.The corporation employs 10 individuals to provide public accounting services.Father and son make all of the work assignments for the professional employees.The professional fees earned by the corporation are personal holding company income.
D)All of the above are false.
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?
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Chapter 10: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) Amanda,whose tax rate is 33%,has NSTCL of $25,000,a $30,000 LTCG from sale of a rare coin held 15 months and a $18,000 LTCG from the sale of stock held for three years.By what amount will Amanda's tax liability increase?
A)$3,450
B)$4,100
C)$6,440
D)$7,340
Q2) What type of property should be transferred to heirs at a decedent's death and why? Should estate planning also mean that some property is transferred prior to death? Why?
Q3) Stock purchased on December 15,2012,which becomes worthless in March 2013 produces a STCL since the holding period is one year or less.
A)True
B)False
Q4) What are arguments for and against preferential treatment of capital gains?
Q5) The gain or loss on an asset purchased on March 31,2012,and sold on March 31,2013,is classified as short-term.
A)True
B)False
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Chapter 11: Corporate Liquidating Distributions
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Sample Questions
Q1) Parent Corporation owns 70% of Sam Corporation's single class of stock.This year,Parent Corporation purchases for cash the remaining 30% of Sam Corporation's stock from four individual investors pursuant to a tender offer.A plan of liquidation is approved by Sam Corporation's shareholders during the last month of this year,and Sam Corporation's assets are distributed by year-end to Parent Corporation in exchange for all of Sam's outstanding stock.Parent Corporation should
A)not recognize any gains and losses on the redemption.
B)recognize gains and losses on the redemption.
C)recognize gains but not losses on the redemption.
D)recognize losses but not gains on the redemption.
Q2) A subsidiary must recognize depreciation recapture income when the subsidiary is liquidated into the parent.
A)True
B)False
Q3) A liquidation must be reported to the Internal Revenue Service on Form 966
A)within 60 days of the adoption of a plan of liquidation.
B)that is filed with the national IRS office.
C)whether the shareholders' realized gain is recognized or not.
D)by the shareholders.
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Page 13
Chapter 12: Deductions and Losses
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Q1) For the years 2009 through 2013 (inclusive)Max,a surgeon,has been involved in raising poodles.Only in 2012 and 2013 did his revenue exceed the expenses from the activity.Which statement is correct?
A)The activity is a business.The IRS cannot prove it is a hobby.
B)The activity is a hobby.Max cannot prove it is a business.
C)The activity is presumed to be a business.However,the IRS may prove it is a hobby.
D)The activity is presumed to be a hobby.However,Max may prove it is a business.
Q2) Jones,Inc.,a calendar-year taxpayer,is in the air conditioner repair business.The business uses the cash method.In December of the current year,Jones charged $100 of supplies at Refrigeration,Inc.,(he will pay the credit card bill in January)and also purchased $600 of supplies at XYZ on open account (he will make a payment on the open account in January).What is the amount that is deductible by Jones,Inc.,in the current year?
A)$100
B)$600
C)$700
D)The amounts must be capitalized and charged to expense as used.
Q3) Discuss when expenses are deductible under the accrual method of accounting.
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14
Chapter 13: Corporate Acquisitions and Reorganizations
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Q1) Which of the following definitions of Sec.338 property classes is not correct?
A)Class I: cash,demand deposits,and similar accounts in banks,savings and loan associations,etc.
B)Class II: actively traded personal property such as publicly traded securities
C)Class III: covenants not to compete,similar restrictions on trade,etc.
D)Class IV: inventory or other property held primarily for sale to customers
Q2) Define the seven classes of assets used in allocating basis when using the residual method.
Q3) The Supreme Court has held that literal compliance with the statutory requirements for a reorganization transaction is not enough for a transaction to receive tax-free treatment.The courts have placed four primary restrictions on reorganization transactions.What are they?
Q4) Identify which of the following statements is true.
A)A plan of reorganization must be a written document.
B)Advance rulings are required for all reorganizations.
C)The IRS will issue an advance ruling on any proposed tax-free reorganization.
D)All of the above are false.
Q5) What are the advantages and disadvantages of a merger transaction?
Q6) What are the advantages of a triangular merger?
Q7) What are the two steps of a Sec.338 deemed liquidation election?
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Chapter 14: Itemized Deductions
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Q1) A personal property tax based on the weight of the property is deductible.
A)True
B)False
Q2) A medical expense is generally deductible only in the year in which the expense is actually paid.
A)True
B)False
Q3) Acquisition indebtedness for a personal residence includes debt incurred to substantially improve the residence.
A)True
B)False
Q4) Jeffrey,a T.V.news anchor,is concerned about the wrinkles around his eyes.Because it is job-related,the cost of a face lift to eliminate these wrinkles is a deductible medical expense.
A)True
B)False
Q5) Legal fees for drafting a will are generally deductible.
A)True
B)False
Q6) Explain how tax planning may allow a deduction of qualified medical expenses.
Page 16
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Chapter 15: Consolidated Tax Returns
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Q1) 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.
Q2) What issues determine whether an affiliated group exists?
Q3) Which of the following corporations is entitled to join in a consolidated tax return without making a special election?
A)corporations exempt from tax under Sec.501
B)real estate investment trusts
C)closely held corporations
D)foreign corporations
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Chapter 16: Losses and Bad Debts
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Q1) What must an individual taxpayer prove to receive a worthless security deduction?
Q2) During the year,Patricia realized $10,000 of taxable income from activity A,$4,000 loss from activity B,and $6,000 of taxable income from activity C.All three activities are passive activities with regard to Patricia.In addition,$32,000 of passive losses from activity C is carried over from prior years.During the current year,Patricia sells activity C for an $18,000 taxable gain.Patricia's salary for the year is $100,000.What is the amount of Patricia's deduction against salary income?
Q3) A taxpayer may deduct a loss resulting from the theft of business and investment property but not a theft of personal-use property.
A)True
B)False
Q4) For purposes of applying the passive loss limitations for rental real estate,active participation requires a greater time commitment by the taxpayer than does material participation.
A)True
B)False
Q5) What are some factors which indicate that a debt may be worthless?
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Page 18
Chapter 17: Partnership Formation and Operation
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Q1) Kay and Larry each contribute property to become equal partners in the KL General Partnership.Kay contributes office furniture with an adjusted basis of $40,000 and an FMV of $50,000,which she has depreciated using MACRS.Larry contributes land with a basis of $60,000 and an FMV of $50,000,which he had been holding as an investment.The partnership will use the land as a parking lot for their business.
a)What is the partnership's basis in each of the two pieces of property?
b)If the land that Larry contributed is sold four years after the contribution for $45,000,what is the amount and character of the gain or loss which Larry should report?
Q2) Identify which of the following statements is true.
A)Distribution of partnership income in the form of cash to partners is generally tax-free to the partners and the partnership.
B)When partners receive cash distributions from the partnership,they pay taxes on those distributions.
C)If money distributions exceed the partner's basis in the partnership interest,the partner would have to recognize gain on the distribution from the partnership.Such gain is usually an ordinary gain.
D)All of the above are true.
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Chapter 18: Employee Expenses and Deferred Compensation
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Q1) Dues paid to social or athletic clubs are deductible if they meet a primary-use test,requiring that more than 50% of the use of the facility be for business purposes.
A)True
B)False
Q2) Tyne is a 48-year-old an unmarried taxpayer who is not an active participant in an employer-sponsored qualified retirement plan.Before IRA contributions,her AGI is $61,000 in 2013.What is the maximum amount she may contribute to a tax deductible IRA?
A)$ -0-
B)$4,400
C)$5,500
D)$6,500
Q3) Kim currently lives in Buffalo and works in Rochester,a 60-mile commute each way.Kim accepts a new job in a town outside of Rochester,and the new commute is 75-miles each way.Kim decides the commute for the new job is too long,and she moves to Rochester.Kim is eligible to deduct her moving expenses.
A)True
B)False
Q4) Why did Congress establish Health Savings Accounts (HSAs)? How do HSAs operate?
Page 20
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Chapter 19: Special Partnership Issues
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Q1) Identify which of the following statements is true.
A)If a partnership asset with a deferred precontribution gain is distributed in a nonliquidating distribution to the partner who contributed the asset,the precontribution gain must be recognized by the partner.
B)The partner's basis in the partnership interest is normally reduced by the FMV of property distributed in a nonliquidating distribution.
C)When a current distribution from a partnership reduces the basis of the partnership interest to zero,the partner's interest in the partnership is terminated.
D)All of the above are false.
Q2) Derrick's interest in the DEF Partnership is liquidated when his basis in the interest is $30,000.He receives a liquidating distribution of $20,000 cash and inventory with a basis of $8,000 and an FMV of $30,000.Derrick will recognize
A)no gain or loss.
B)$2,000 capital loss.
C)$2,000 ordinary loss.
D)$10,000 capital loss and $20,000 ordinary loss.
Q3) What is the character of the gain/loss on the sale of a partnership interest?
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Page 21
Chapter 20: Depreciation cost Recovery amortization and Depletion
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Q1) The Section 179 expensing election is available on an annual basis for property purchased during the year.
A)True
B)False
Q2) MACRS recovery property includes tangible personal and real property that is used in a trade or business.
A)True
B)False
Q3) Costs that qualify as research and experimental expenditures include all of the following except
A)depreciation of laboratory equipment.
B)management studies.
C)costs incurred in developing product improvements.
D)costs of obtaining a patent such as attorney fees.
Q4) Land,buildings,equipment,and stock are examples of tangible property.
A)True
B)False
Q5) Discuss the options available regarding treatment of an amount paid in excess of the FMV of an acquired company's net assets in a business combination.
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Chapter 21: S Corporations
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Q1) Up to six generations of a family are considered as one shareholder for purposes of the 100-shareholder limit.
A)True
B)False
Q2) Cactus Corporation,an S Corporation,had accumulated earnings and profits of $100,000 at the beginning of 2009.Tex and Shirley each own 50% of the stock and have a basis in their stock of $50,000 on January 1,2009.Cactus does not make any distributions during 2009,but had $200,000 of ordinary income.In 2010,ordinary income was $100,000 and distributions were $100,000.What is Tex's basis at January 1,2011?
A)$100,000
B)$150,000
C)$200,000
D)$250,000
Q3) An S corporation is not treated as a corporate taxpayer with respect to which one of the following fringe benefits?
A)stock options
B)qualified retirement plans
C)group term life insurance premiums
D)nonqualified deferred compensation
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Page 23
Chapter 22: Accounting Periods and Methods
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Q1) The installment method is not applicable to sales of inventory and marketable securities.
A)True B)False
Q2) Interest is not imputed on a gift loan between two individuals totaling $100,000 except when the borrowed funds are used to purchase income-producing property.
A)True B)False
Q3) In 2013 Anika Co.adopted the simplified dollar-value LIFO method.Inventory under FIFO in 2012 and 2013 is $400,000 and $600,000,respectively.The Consumer Price Index for 2012 is 115 and the Consumer Price Index in 2013 is 125 percent.How much is Anika's inventory at the end of year 2013 under simplified LIFO?
Q4) A taxpayer's tax year must coincide with the year used to keep the taxpayer's books and records.
A)True B)False
Q5) Discuss the purpose of the imputed interest rules.
Q6) What is the significance of the Thor Power Tool Co.case?
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Chapter 23: The Gift Tax
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Q1) On January 1,Jeff loans his friend Patrick $7,000 to buy a used car.Patrick signs a noninterest-bearing demand note.The applicable interest rate is 5%.Which of the following statements is correct?
A)Jeff has made a taxable gift to Patrick of $3,500.
B)Jeff must report interest income of $3,500 from Patrick.
C)Jeff has made a gift to Patrick that is not taxable since it is less than $11,000.
D)Interest does not have to be imputed on the gift since the loan amount is less than $10,000 and does not have a tax avoidance motive.
Q2) Mike transfers securities to an irrevocable trust and gives Rachel the power to determine who will receive the trust's income and assets.Rachel,her estate,and her creditors cannot be beneficiaries or receive the trust assets.Rachel has a general power of appointment.
A)True
B)False
Q3) The purchase of a $15,000 engagement ring generates a taxable gift necessitating the filing of a gift tax return.
A)True
B)False
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Page 25
Chapter 24: Property Transactions: Nontaxable Exchanges
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Q1) Emily owns land for investment purposes that has a FMV of $300,000 (basis of $260,000).She exchanges the land,plus $40,000 cash,for a warehouse to be used in her business.The warehouse is worth $420,000,but is subject to a mortgage of $80,000 which Emily will assume.The gain realized by Emily on the exchange is
A)$40,000.
B)$ 80,000.
C)$ 120,000.
D)$ 160,000.
Q2) Patricia exchanges office equipment with an adjusted basis of $20,000 for $5,000 cash and office equipment with a fair market value of $12,000.
a.What is the gain or loss recognized?
b.What is the adjusted basis of the new office equipment?
Q3) The exchange of a partnership interest for an interest in another partnership qualifies as a like-kind exchange.
A)True
B)False
Q4) May a taxpayer elect under Sec.1033 to defer recognition of loss resulting from an involuntary conversion?
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Page 26
Chapter 25: The Estate Tax
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Q1) For 2013,the unified credit is equivalent to a statutory exemption of
A)$1,000,000.
B)$1,500,000.
C)$780,800.
D)$5,250,000.
Q2) Briefly discuss how inter vivos gifts can be used to reduce the size of the estate tax base.
Q3) In 2002,Gert made a $5,000,000 taxable gift.The 2002 gift tax on $5,000,000 was $2,275.800.Gert was entitled to a unified credit of $345,800,resulting in a gift tax of $1,193,000.The marginal tax rate in 2002 is 50%.Assume Gert dies in 2013 when the credit is $2,045.800 and the marginal rate is 40%,the tax on $5,000,000 would equal $1,945,800 before subtracting any credit.In arriving at Gert's estate tax liability,what is the amount subtracted for 1992 gift taxes paid?
Q4) Listed stocks are valued at their closing price on the date of death.
A)True
B)False
Q5) Explain how shares of stock traded on a stock exchange are valued.What is the blockage rule?
Q6) Explain why living trusts are popular tax-planning vehicles.
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Chapter 26: Property Transactions: Section 1231 and Recapture
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Q1) If no gain is recognized in a nontaxable like-kind exchange involving Sec.1245 or Sec.1250 property,the recapture potential carries over to the replacement property.
A)True
B)False
Q2) Blair,whose tax rate is 28%,sells one tract of land at a gain of $29,000 and another tract of land at a gain of $11,000.Both tracts of land are Sec.1231 property.She has never had any other Sec.1231 transactions.How are the gains taxed?
A)ordinary income of $40,000 taxed at 28%
B)a net capital gain of $40,000 which is not taxed
C)a net capital gain of $40,000 taxed at 15%
D)ordinary income of $40,000 taxed at 25%
Q3) Gifts of appreciated depreciable property may trigger recapture of depreciation or cost-recovery deductions to the donor.
A)True
B)False
Q4) Sec.1231 property must satisfy a holding period of more than one year.
A)True
B)False
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Chapter 27: Income Taxation of Trusts and Estates
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Q1) In which of the following situations will the grantor trust rules apply?
A)The trust is revocable and mandates the distribution of income to the named beneficiary.
B)The trust is irrevocable,and the trustee,who is also the grantor,has the power to distribute or accumulate income for the named beneficiary.
C)The trust is irrevocable,the income must be paid out currently,and the trust assets will revert to the grantor at the end of nine years.
D)The grantor trust rules will apply in each of the situations.
Q2) Apple Trust reports net accounting income of $40,000,all from taxable sources.The trustee is required to distribute $15,000 annually to Megan.The trustee also makes discretionary distributions of $30,000,$7,500 to Megan and $22,500 to Caroline.The trust pays $5,000 of the discretionary distributions from corpus.What is the taxable amount of the Megan's tier-2 distribution?
A)$7,500
B)$6,250
C)$15,000
D)$22,500
Q3) Briefly discuss some of the reasons for using a revocable trust.
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Chapter 28: Special Tax Computation Methods tax Credits
and Payment of Tax
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Q1) Which one of the following is a refundable credit?
A)earned income credit
B)child and dependent care credit
C)lifetime learning credit
D)credit for the elderly and disabled
Q2) Which of the following expenditures will qualify as a research expenditure for purposes of the research credit?
A)An ice cream producer develops a new type of packaging that will keep ice cream frozen while driving home from the grocery store.
B)An ice cream producer develops a new design on the package that will be more pleasing to the culture of a new market it is entering.
C)An ice cream producer develops a new marketing campaign to introduce its brand to a new region of the country it is entering.
D)All of the above qualify as research expenditures for the research credit.
Q3) Annie has taxable income of $100,000,a regular tax liability of $21,293,a positive AMT adjustment due to limitations on itemized deductions of $20,000,and tax preferences of $25,000 in 2013.Annie is single and takes a $3,900 personal exemption for herself only.What is Annie's AMT for 2013?
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Chapter 29: Administrative Procedures
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Q1) The "Statement on Practice in the Field of Federal Income Taxation" includes all of the following areas of mutual competence except
A)preparing federal income tax returns.
B)determining the tax effect of proposed transactions.
C)representing clients in criminal investigations.
D)representing taxpayers before the U.S.Tax Court.
Q2) Which of the following communications between an accountant and client are not privileged?
a)An accountant orally communicates to his client that he should set up a foreign subsidiary to shift taxable income to a lower tax jurisdiction.
b)An accountant privately submits to the client a plan for shifting taxable income to a lower tax jurisdiction.
c)During a meeting in which a client is asking for advice relating to criminal fraud,the client tells his accountant that he lied to the IRS.
Q3) How does a taxpayer determine if "substantial authority" exists for a tax treatment the taxpayer desires to adopt?
Q4) For innocent spouse relief to apply,five conditions must be met.Explain them.
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Chapter 30: Tax Research
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Q1) Discuss the purposes and scope of temporary regulations.
Q2) Outline and discuss the tax research process.
Q3) Title 26 of the U.S.Code includes
A)income tax legislation only.
B)gift tax and estate tax legislation only.
C)alcohol and tobacco tax legislation only.
D)all of the tax legislation mentioned above.
Q4) Which of the following is secondary authority?
A)Internal Revenue Code
B)Treasury Regulations
C)RIA and CCH tax services
D)Revenue Ruling
Q5) Describe the format of a client memo.
Q6) The phrase "Entered under Rule 155" indicates that
A)the computation of the exact amount of the tax deficiency has been left to the litigating parties.
B)the court has not reached a decision concerning the appropriate tax treatment of an issue.
C)the parties have agreed not to appeal the decision.
D)only one Tax Court judge reviewed the case.
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Chapter 31: Ustaxation of Foreign-Related Transactions
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Q1) Overseas business activities conducted by U.S.corporations receive which one of the following favorable tax breaks?
A)Foreign subsidiaries of U.S.corporations are exempt from the U.S.corporate income tax unless they earn U.S.-source investment or trade or business income.
B)Foreign subsidiaries of U.S.corporations are always exempt from the U.S.corporate income tax even if they earn U.S.-source investment or trade or business income.
C)Domestic corporations conducting business in a foreign country through a branch office or facility can exempt non-U.S.income from the U.S.corporate income tax.
D)All of the above are correct.
Q2) Quality Corporation created a foreign subsidiary in Country C this year.The subsidiary receives components from Quality,assembles the components into a finished product using local labor,and sells them to unrelated wholesalers in Countries A,B,and C using its own sales force.The foreign subsidiary has paid no dividends to the parent this year.What tax issues should Quality's Director of Taxes consider with respect to these activities?
Q3) What is the branch profits tax? Explain the Congressional intent behind its enactment.
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Chapter 32: Corporations
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Q1) Charades Corporation is a publicly held company listed on the New York Stock Exchange.During the current year,its chief executive officer,Samantha Chen,receives the following compensation from the corporation: salary,$1,500,000; commissions based on sales generated by Samantha $200,000; payments to a qualified pension plan,$30,000; and tax-free fringe benefits,$20,000.What is the total amount that Charades may deduct?
A)$1,000,000
B)$1,250,000
C)$1,500,000
D)$1,750,000
Q2) Individuals Jimmy and Ellen form JE Corporation.Ellen transfers land and a building with a $175,000 adjusted basis and $200,000 FMV in exchange for 50% of the stock of the JE Corporation and a $20,000 note.Jimmy transfers cash of $200,000 for 50% of the stock and a $20,000 note.The JE stock has a fair market value of $360,000.What is:
(a)the amount of Ellen's gain or loss recognized on the transfer? (b)the basis of her stock in JE Corporation?
(c)JE Corporation's basis in the land and building (together)transferred by Ellen?
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Chapter 33: Partnerships and S Corporations
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Q1) How does an electing large partnership differ from a regular partnership?
A)In the determination of separately stated items of partnership income,gain,loss,or deduction.
B)An electing large partnership terminates when the partners cease to conduct any business,financial operation,or venture.
C)An electing large partnership must provide a Schedule K-1 to its partners.
D)There are no differences in the reporting of income,gain,loss,deduction or credit between a partnership and an electing large partnership.
Q2) John contributes land having $110,000 FMV and a $90,000 adjusted basis which is subject to a $60,000 mortgage in exchange for a one-third interest in the AJK Partnership.The partnership owes no other liabilities.After the contribution,Abby,John,and Kent share profits and losses equally and each has a one-third interest in the partnership capital.John's basis in the partnership interest is
A)$50,000.
B)$90,000.
C)$110,000.
D)$150,000.
Q3) Discuss the concept of partnership guaranteed payments.
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Chapter 34: Taxes and Investment Planning
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Q1) The Roth IRA is an example of the Pension Model.
A)True
B)False
Q2) In a progressive tax system,an investor can benefit from tax-exempt bonds when
A)the investor's marginal tax rate is equal to the marginal investor.
B)the investor's marginal tax rate exceeds that of the marginal investor.
C)the investor's marginal tax rate is less than that of the marginal investor.
D)None of the above.
Q3) Which of the following characteristics belong(s)to the Exempt Model?
A)Only after-tax dollars are invested.
B)Only tax-free dollars are invested.
C)Earnings on the investment are exempt from explicit taxation.
D)both A and C
Q4) The Deferred Model investment outperforms the Current Model investment if interest rates and tax rates are constant over time because the interest on the Deferred Model investment grows tax free until withdrawal.
A)True
B)False
Q5) Compare the characteristics of the Current and Deferred Models.
Q6) What are the characteristics of the Pension Model?
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