1) Identify which of the following statements is false.
A. Members from both the House and the Senate are on the Conference Committee.
B. When tax advisors speak of the tax law, they usually have in mind just the Internal Revenue Code.
C. Records of committee hearings are helpful in determining Congressional intent.
D. All are false.
2) Which of the following courts is not a trial court for tax cases?
A. U.S. District Court
B. U.S. Court of Federal Claims
C. U.S. Bankruptcy Court
D. U.S. Tax Court
3) The Term tax law includes
A. legislation
B. treasury regulations
C. judicial decisions
D. all of the above
4) Which of the following statements about a partnership is true?
A. Partners are taxed on distributions from a partnership.
B. Partners are considered employees of the partnership.
C. A partnership is a taxpaying entity.
D. Partners are taxed on their allocable share of income whether it is distributed or not.
5) Which of the following statements is incorrect?
A. Limited partners’ liability for partnership debt is limited to their amount of investment.
B. In a general partnership, all partners have unlimited liability for partnership debts.
C. In a limited partnership, all partners participate in managerial decision-making.
D. All of the statements are correct.
6) Which of the following statements is correct?
A. S shareholders are only taxed on distributions.
B. S shareholders are taxed on their proportionate share of earnings whether or not distributed.
C. An owner of a C corporation is taxed on his or her proportionate share of earnings.
D. S shareholders are taxed on their proportionate share of earnings that are distributed.
7) Identify which of the following statements is true.
A. Under the check-the-box regulations, an LLC that has one member (owner) may be disregarded as an entity separate from its owner.
B. An unincorporated business may not be taxed as a corporation.
C. A new LLC that is owned by four members elects to be taxed under its default classification (as a partnership) in its first year of operations. The entity is prohibited from changing its tax classification at any time in the future.
D. All are false.
8) Three members form an LLC in the current year. Which of the following statements is ncorrect?
A. The LLC can elect to have its default classification ignored.
B. If the LLC elects to use its default classification, it can elect to change its status to being taxed as a C corporation beginning with the third tax year after the initial classification.
C. The LLC’s default classification under the check-the-box rules is as a partnership.
D. The LLC can elect to be taxed as a C corporation with no special tax consequences.
9) Identify which of the following statements is false.
A. Under the check-the-box regulations, an LLC that has only two members (owners) must be taxed as a partnership.
B. Once an election is made to change its classification, an entity cannot change again for 60 months.
C. The check-the-box regulations permit an LLC to be taxed as a C corporation.
D. A business need not be incorporated under state or federal law to be taxed as a corporation.
10) Barry, Dan, and Edith together form a new corporation; Barry and Dan each contribute property in exchange for stock. Within 2 weeks after the formation, the corporation issues additional stock to Edith in exchange for property. Barry and Dan each hold 10,000 shares and Edith will receive 9,000 shares. Which transactions will qualify for nonrecognition?
A. Only the second transaction will qualify for nonrecognition.
B. Both transactions will qualify under Sec. 351 if they are part of the same plan of incorporation.
C. Only the first transaction will qualify for nonrecognition.
D. Because of the step transaction doctrine neither transaction will qualify.
11) Identify which of the following statements is true.
A. A transferor’s gain or loss that goes unrecognized when Sec. 351 applies is permanently exempt from taxation.
B. If a taxpayer transfers property and services as part of a transaction meeting the Sec. 351 requirements, all of the stock received is counted in determining whether the property transferors have acquired control.
C. If a taxpayer transfers property and services as part of a transaction meeting the Sec. 351 requirements, the nonrecognition of gain or loss will apply to the services.
D. All are false.
12) Identify which of the following statements is true.
A. The exchange of stock for services rendered is not a taxable transaction.
B. The repeal of Sec. 351 would result in more existing businesses being incorporated.
C. Section 351 was enacted to allow taxpayers to incorporate without incurring adverse tax consequences.
D. All are false.
13) Once a corporation has elected a taxable year it can change the taxable year without IRS permission if
A. the resulting short period does not have a net operating loss
B. the corporation has not changed its accounting period within the last 10 years
C. the annualized income for the short period is at least 80% of the corporation’s income for the preceding taxable year
D. All of these
14) A new corporation may generally select one of the following accounting methods with the exception of
A. accrual method
B. hybrid method
C. cash method
D. retail method
15) Identify which of the following statements is true.
A. A corporation that accrues compensation payable to an employee must pay the amount within two and one-half months after the close of the taxable year to deduct the amount in the year of the accrual.
B. Accrued compensation that is deductible in the year of accrual is considered to be part of an IRS deferred compensation plan.
C. Accrued compensation not paid within three and one-half months after the close of the corporation tax year is deducted in the year following the accrual.
D. All are false.
16) Island Corporation has the following income and expense items for the year.
Gross receipts from sales $60,000
Dividends received from 15%-owned domestic corporation 40,000
Expenses connected with sales 30,000
The taxable income of Island Corporation is
A. $70,000
B. $42,000
C. $100,000
D. $47,000
17) Maxwell Corporation reports the following results:
Gross income from operations $ 90,000
Dividends received from 18%-owned domestic corporation 70,000
Expenses 100,000
Maxwell’s dividends-received deduction is
A. $49,000
B. $70,000
C. $42,000
D. $56,000
18) Green Corporation is incorporated on March 1 and begins business on June 1. Green’s first tax year ends on October 31, i.e., a short year. Green incurs the following expenses during the year:
Date Type Amount
February Draft charter $ 2,000
March Stock commission 30,000
March Accounting fees to set up books 2,000
April Temporary director fees 2,000
December Charter modification fee 1,000
What is the deduction for organizational expenses if Green chooses to deduct its costs as soon as possible?
A. $5,028
B. $667
C. $500
D. $36,000
19) Tax-exempt interest income on state and local municipal bonds which are not a private activity is
A. a positive adjustment in calculating alternative minimum taxable income (AMTI)
B. a negative adjustment in calculating alternative minimum taxable income (AMTI)
C. included in calculating ACE (adjusted current earnings)
D. a tax preference item
20) Which of the following is not an adjustment in calculating AMTI?
A. The regular tax NOL deduction
B. Production activities deduction
C. The difference between the gains for AMTI and regular tax purposes
D. Gain on installment sales of noninventory property
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