Solved by verified expert :Which of the following statements is true?
·
All income, whether realized or
unrealized, is reported on the individual tax return.
·
Individuals generally report all
excluded income on statements supporting their tax returns.
·
Always report annual licensing fees.
·
Individuals
generally report deferred income on their tax returns.
The estate and gift taxes share several common features. Which of the
following characteristics are common to both the estate and gift taxes?
·
A unified credit and a marital deduction
·
A charitable deduction and the amount
of the exemption equivalent
·
A gift-skipping election and a
deduction for income taxes paid by the fiduciary
·
A charitable deduction and an annual
exclusion
Beth’s business purchased only one asset during the current year. It placed in
service machinery (7-year property) on December 1 with a basis of $50,000.
Calculate the maximum depreciation expense (ignoring Section 179 or bonus
expensing):
·
$7,145
·
$10,000
·
$1,785
·
$2,500
Hector is a married self-employed taxpayer, and this year he paid $3,000
for his health insurance premiums. Under which of the following alternative
conditions can Hector deduct the cost of the premiums for AGI?
·
Hector’s
spouse participates in an employer-sponsored plan, but Hector is not eligible
to participate in this plan.
·
Hector can deduct the health insurance
premiums regardless of the insurance status of his spouse.
·
Neither Hector nor his spouse
participates in an employer-sponsored plan although both are eligible to
participate in a plan.
·
Hector chose not to participate in the
employer-sponsored plan of his spouse.
Sue and Andrew form SA general partnership. Each person receives an
equal interest in the newly created partnership. Sue contributes $10,000 of
cash and land with a FMV of $55,000. Her basis in the land is $20,000. Andrew
contributes equipment with a FMV of $12,000 and a building with a FMV of
$33,000. His basis in the equipment is $8,000, and his basis in the building is
$20,000. How much gain must the SA general partnership recognize on the
transfer of these assets from Sue and Andrew?
·
$0
·
$48,000
·
$4,000
·
$52,000
Roberta transfers property with a tax basis of $400 and a fair market
value of $500 to a corporation in exchange for stock with a fair market value
of $350 in a transaction that qualifies for deferral under Section 351. The
corporation assumed a liability of $150 on the property transferred. What is
the amount realized by Roberta in the exchange?
·
$250
·
$350
·
$500
·
$400
Clampett, Inc. has been an S corporation since its inception. On July 15, 2011,
Clampett, Inc. distributed $50,000 to J.D. His basis in his Clampett, Inc.
stock on January 1, 2011, was $45,000. For 2011, J.D. was allocated $10,000 of
ordinary income from Clampett, Inc. and no separately stated items. What is the
amount of income J.D. recognizes related to Clampett, Inc. in 2011?
·
$60,000
·
$20,000
·
$50,000
·
$10,000
Clampett, Inc. has been an S corporation since its inception. On July
15, 2011, Clampett, Inc. distributed $50,000 to J.D. His basis in his Clampett,
Inc. stock on January 1, 2011, was $45,000. For 2011, J.D. was allocated
$10,000 of ordinary income from Clampett, Inc. and no separately stated items.
What is the amount of income J.D. recognizes related to Clampett, Inc. in 2011?
·
$60,000
·
$20,000
·
$50,000
·
$10,000
Congress allows self-employed taxpayers to deduct the cost of health
insurance above the line (for AGI) because
·
self-employed taxpayers need an
alternate mechanism for reducing the cost of health care.
·
health insurance premiums cannot be
deducted otherwise.
·
this
deduction provides a measure of equity between employees and the self-employed.
·
employers are allowed to deduct social
security (FICA) taxes as a business expense.
Vanessa contributed $20,000 of cash and
land with a fair market value of $100,000 and an adjusted basis of $40,000 to
Cook, Inc. (an S corporation) when it was formed. The land was encumbered by a
$30,000 mortgage executed two years before. What is Vanessa’s tax basis in
Cook, Inc. after formation?
·
$20,000
·
$80,000
·
$60,000
·
$30,000
Which of the following stock dividends
would be tax-free to the shareholder?
·
Stock dividend where
the shareholder could choose between cash and stock
·
A 2-for-1 stock split to all holders of common
stock
·
A stock dividend to
all holders of preferred stock
·
All answers are correct.
After a meeting with a prospective client, Holly paid for dinner. After
dinner, Holly took the prospective client to the theatre. Holly paid $290 for
the meal and $250 for the tickets, amounts that were reasonable under the
circumstances. What amount of these expenditures can Holly deduct as a business
expense?
·
$415
·
$270
·
$540
·
None—the meals and entertainment are
not deductible except during travel.
Which of the following statements regarding tax credits is true?
·
Tax
credits reduce taxes payable dollar for dollar.
·
Tax credits reduce taxable income
dollar for dollar.
·
Tax credits provide a greater tax benefit
the greater the taxpayer’s marginal tax rate.
·
None of the answer choices are correct.
Suppose at the beginning of 2010, Jamaal’s basis in his S corporation
stock was $27,000 and that Jamaal has loaned the S corporation $10,000. During
2010, the S corporation reported an $80,000 ordinary business loss and no
separately stated items. How much of the ordinary loss is deductible by Jamaal
if he owns 50% of the S corporation?
·
$27,000
·
$40,000
·
$10,000
·
$37,000
What happens when a taxpayer experiences a net loss from a rental home?
·
If the taxpayer is not allowed to
deduct the loss due to the passive activity limitations, the loss is suspended
and carried forward until the taxpayer generates passive income or until the
taxpayer sells the property.
·
The loss is fully deductible against
the taxpayer’s ordinary income, no matter the circumstances.
·
If the taxpayer is not an active
participant in the rental, the taxpayer may be allowed to deduct the loss even
if the taxpayer does not have any sources of passive income.
·
The
taxpayer will not be allowed to deduct the loss under any circumstance if the
taxpayer does not have passive income from other sources.
5
At his death, Trevor had a probate estate consisting of $4 million of
property. Which of the following is a true statement about Trevor’s estate or
estate tax?
·
Trevor
must have a gross estate of at least $4 million.
·
Trevor must have a taxable estate of at
least $4 million.
·
Trevor must have estate tax base
(cumulative taxable transfers) of at least $4 million.
·
Trevor must have an adjusted gross
estate of at least $4 million.
Foreaker LLC sold a piece of land that it uses in its business for
$52,000. Foreaker bought the land two years ago for $42,500. What is the
character of Foreaker’s gain?
·
$9,500
Section 1231
·
$9,500 Section 1250
·
$9,500 Section 1221
·
$9,500 Section 1245
The sale of machinery for more than the original cost basis (before
depreciation), used in a trade or business, and held for more than one year
results in the following types of gain or loss:
·
Section
1245 and Section 1231
·
Ordinary only
·
Capital and ordinary
·
Capital and Section 1231
Tone Loc and 89 of his biggest fans formed an S corporation, 2hit, Inc.,
as the original ninety shareholders. Tone then transferred some of his stock to
his grandfather, four of Tone’s cousins, five of Tone’s children, three of
Tone’s grandchildren, and 2 close friends. For the S corporation shareholder
limit rules, how many shareholders does 2hit, Inc. have?
·
92
·
97
·
90
·
95
What is the minimum ownership percentage an owner must have in the
entity to avoid gain recognition when property is contributed?
·
S corporation – No minimum ownership
percentage is required.
·
Partnership – 80% after the property
contribution
·
Taxable corporation – 80% before
property contribution
·
LLC
– No minimum ownership percentage is required.
20
When must a partnership file its return?
·
By the 15th day of the 2nd month after
the partnership’s tax year-end
·
By the 15th day of the 3rd month after
the partnership’s tax year-end
·
By
the 15th day of the 4th month after the partnership’s tax year-end
·
By the 6th month after the original due
date if an extension is filed
Which of the following requirements do not have to be
met in a Section 351 transaction?
·
Only property transferred to a
corporation is eligible for deferral.
·
All transfers of property to a
corporation must be made simultaneously to qualify for deferral.
·
In the aggregate, the transferors of
property to the corporation must collectively control the corporation
immediately after the transfers.
·
Each
transferor of property must receive stock equal to at least 80 percent of the
fair market value of the property transferred.
Which of the following has the highest authoritative weight?
·
Private letter ruling
·
Revenue
ruling
·
Tax article
·
Text book
Clampett, Inc. (an S corporation) previously operated as a C
corporation. Distributions from Clampett, Inc. are deemed to be paid in the
following order:
·
Prior C corporation earnings and
profit, the AAA account, shareholder’s remaining stock basis
·
Shareholder’s remaining stock basis,
prior C corporation earnings and profit, the AAA account
·
Shareholder’s remaining stock basis,
the AAA account, prior C corporation earnings and profit
·
The
AAA account, prior C corporation earnings and profit, shareholder’s remaining
stock basis
Gerald received a 33% capital and profit (loss) interest in XYZ Limited
Partnership (LP). In exchange for this interest, Gerald contributed a building
with an FMV of $30,000. His adjusted basis in the building was $15,000. In
addition, the building was encumbered with a $9,000 nonrecourse mortgage that
XYZ, LP assumed at the time the property was contributed. What is Gerald’s
outside basis immediately after his contribution?
·
$24,000
·
$6,000
·
$21,000
·
$9,000
25
A budget deficit would result when a person’s or family’s
·
actual
expenses are greater than planned expenses.
·
actual expenses are less than planned
expenses.
·
assets exceed liabilities.
·
net worth decreases.
A family with $45,000 in assets and $22,000 of liabilities would have a
net worth of
·
$23,000
·
$22,000
·
$45,000
·
$67,000
7
Rhianna and Jay are married filing jointly in 2009. They have six
children for whom they may claim the child tax credit. Their AGI was $123,440.
What amount of child tax credit may they claim on their 2009 tax return?
·
$4,000
·
$5,300
·
$6,000
·
$12,000
BTW Corporation has taxable income in the current year that can be
offset with an NOL from a previous year. What is the nature of the book-tax
difference created by the net operating loss deduction in the current year?
·
Temporary; unfavorable
·
Temporary;
favorable
·
Permanent; favorable
·
Permanent; unfavorable
29
The unified credit is
·
is set at $1 million for any single
transfer.
·
designed to apply to amounts not
already eliminated by the exemption equivalent.
·
designed
to prevent taxation of cumulative transfers that do not exceed a certain
minimum amount.
·
designed to apply only to taxable
transfers included in the gross estate.
30
The regulation with the highest authoritative weight is the
__________________.
·
proposed regulation
·
procedural regulation
·
legislative
regulation
·
interpretative regulation
Which of the following would be considered active income?
·
Rental real estate income
·
Dividends
·
Salary
for part-time job
·
Capital gains from sale of mutual funds
Which of the following would be considered portfolio income?
·
Dividends
·
Salary for part-time job
·
Rental real estate income
·
Self-employment income for a business
Graham has accepted an offer to do graduate work in the chemistry
department at State University. The chemistry department offered Graham a scholarship
that will pay $5,000 toward his tuition, $500 toward his university fees, and
$3,500 toward the cost of room and meals. Under the terms of the scholarship,
Graham must work in the chemistry labs during the summer. What amount must
Graham include in his gross income?
·
$3,500
·
$9,000
·
$4,000
·
$5,500
The tax base for an individual tax return is
·
adjusted gross income.
·
realized income from whatever source
derived.
·
adjusted
gross income minus from AGI deductions.
·
gross income.
Which of the following statements is true when property is contributed
in exchange for a partnership interest?
·
Any contributed property in a partnership
has a carryover basis, and the character of the property is determined by the
way the contributing partner used the property.
·
Services are not allowed to be
contributed to a partnership in return for a partnership interest.
·
The partnership’s inside basis is
typically increased by any gain the partner recognizes from the property
contribution.
·
The
holding period for a partner’s partnership interest depends on the type of
assets a partner contributes.
Which requirement must be satisfied in order to specially allocate
partnership income or losses to partners?
·
Special allocations must reduce the
combined tax liability of all the partners.
·
At least one partner must agree to the
special allocations.
·
Special
allocations must have economic effect.
·
Special allocations must be
insignificant.
What is the tax impact to a taxable corporation or an S corporation when
it makes a property distribution to a shareholder?
·
Recognizes loss only
·
Recognizes
gain only
·
Recognizes either gain or loss
·
Does not recognize gain or loss
8
Studios reported a net capital loss of $30,000 in year 5. It reported
net capital gains of $14,000 in year 4 and $27,000 in year 6. What is the
amount and nature of the book-tax difference in year 6 related to the net capital
carryover?
·
$11,000 favorable
·
$16,000 unfavorable
·
$11,000 unfavorable
·
$16,000
favorable
As customary, Jayden gave Olivia a ring when she agreed to marry him. The ring
is a family heirloom valued at $67,000. What is the amount of the taxable gift?
·
$54,000
·
Zero – The marital deduction offsets
the gift as long as Jayden and Olivia are married by year-end.
·
Zero – This transfer is not gratuitous.
·
$67,000
0
Ilene rents her second home. During 2009, Ilene reported a net loss of
$15,000 from the rental. If Ilene is an active participant in the rental and
her AGI is $140,000, how much of the loss can she deduct against ordinary
income in 2009?
·
$5,000
·
$15,000
·
$0
·
$10,000
41
A personal balance sheet presents
·
earnings on savings and investments.
·
amounts budgeted for spending.
·
income and expenses for a period of
time.
·
items
owned and amounts owed.
42
Which of the following is a completed taxable gift?
·
$15,000 in cash given to Valley
Hospital for the care of a neighbor who was in an auto accident.
·
$55,000 in cash transferred to a former
spouse under a written property settlement shortly after a divorce.
·
$18,000
in cash given to a needy student to pay for college tuition.
·
$20,000 in cash contributed to the
committee to reelect Senator Cone.
Camille transfers property with a tax basis of $800 and a fair market value of
$1,200 to a corporation in exchange for stock with a fair market value of $850
and $350 in a transaction that qualifies for deferral under Section 351.
Camille also incurred selling expenses of $100. What is the amount realized by
Camille in the exchange?
·
$1,100
·
$1,200
·
$750
·
$850
Jaime recently found a “favorable” trial level court
opinion directly on point for her tax question. Which trial level court
would he prefer to have issued the opinion?
·
Divorce Court
·
Circuit Court
·
Tax
Court
·
District Court
Which of the following statements is true when property is contributed
in exchange for a partnership interest?
·
The
holding period for a partner’s partnership interest depends on the type of
assets a partner contributes.
·
Any contributed property in a partnership
has a carryover basis, and the character of the property is determined by the
way the contributing partner used the property.
·
The partnership’s inside basis is
typically increased by any gain the partner recognizes from the property
contribution.
·
Services are not allowed to be
contributed to a partnership in return for a partnership interest.
Tammy owns 100 shares in Star Struck Corporation. The other 100 shares
are owned by her husband Tommy. Which of the following statements is true?
·
A
stock redemption that completely terminates Tammy’s direct interest in a
corporation will be treated as a dividend if Tammy waives the family
attribution rules and files a “triple i” agreement with the IRS.
·
A stock redemption that completely
terminates Tammy’s direct interest in a corporation will be treated as an
exchange for tax purposes.
·
A stock redemption that completely
terminates Tammy’s direct interest in a corporation will be treated as a
dividend for tax purposes.
·
A stock redemption that completely
terminates Tammy’s direct interest in a corporation will be treated as an
exchange if Tammy waives the family attribution rules and files a “triple
i” agreement with the IRS.
Which of the following is a miscellaneous itemized deduction that is not
subject to the 2 percent of AGI floor?
·
Tax preparation fees
·
Employee business expenses
·
Gambling
losses to the extent of gambling winnings
·
Fees for investment advice
Dan recently purchased a partnership
interest in XYZ, Limited Partnership for $6,000. His share of debt in the
partnership is $2,500, but he is not personally responsible for paying back the
debt if the partnership cannot pay. Dan’s share of XYZ, LP’s loss for the year
is $3,000. In addition, Dan reported $5,000 in long-term capital gains from the
sale of a stock and $3,000 of income from another real estate partnership. What
is Dan’s tax basis in XYZ, LP?
·
$8,500
·
$6,000
·
$11,500
·
$16,500
Grand River Corporation reported taxable income of $500,000 in 2010 and
paid federal income taxes of $170,000. Not included in the computation was a
disallowed meals and entertainment expense of $2,000, tax-exempt income of
$1,000, and deferred gain on an installment sale of $25,000. The corporation’s
current earnings and profits for 2010 would be
·
$524,000
·
$331,000
·
$354,000
·
$500,000
Comet Company is owned equally by Pat and his sister Pam, each of whom
hold 100 shares in the company. Pam wants to reduce her ownership in the
company, and it was decided that the company will redeem 50 of her shares for
$1,000 per share on December 31, 2010. Pam’s income tax basis in each share is
$500. Comet has total E&P of $250,000. What are the tax consequences to Pam
as a result of the stock redemption?
·
$25,000 capital gain and a tax basis in
each of her remaining shares of $100
·
$50,000 dividend and a tax basis in
each of her remaining shares of $100
·
$25,000
capital gain and a tax basis in each of her remaining shares of $500
·
$50,000 dividend and a tax basis in
each of her remaining shares of $50
1
Which of the following are prohibited from being an S corporation
shareholder?
·
Corporations
·
51 unrelated individuals
·
Foreign citizens that are U.S.
residents
·
U.S. citizens
Which of the following would be
considered passive income?
·
Salary for part-time
job
·
Rental real estate income
·
Capital gains from
sale of mutual funds
·
Dividends
Which legal entity provides the least flexible legal arrangement for
owners?
·
Sole Proprietorship
·
Partnership
·
LLC
·
Corporation
Which of the following statements regarding disproportionate distributions is
false?
·
Disproportionate
distributions will only occur in liquidating distributions.
·
The tax provisions related to
disproportionate distributions attempt to preserve the partners’ share of
ordinary income potential.
·
A disproportionate distribution occurs
when a partner receives more than his or her proportionate share of the
partnership’s hot assets.
·
A disproportionate distribution occurs
when a partner receives less than his or her proportionate share of the
partnership’s hot assets.
