ACC 455 Final Exam
1) Which of the following statements regarding proposed regulations is not correct?
A. Proposed and temporary regulations are generally issued simultaneously.
B. Proposed regulations do not provide any insight into the IRS’s interpretation of the tax law.
C. Proposed regulations expire after 3 years.
D. Practitioners and other interested parties may comment on proposed regulations.
2) Regulations are
A. presumed to be valid and to have almost the same weight as the IRC
B. equal in authority to legislation if interpretative
C. equal in authority to legislation
D. equal in authority to legislation if statutory
3) Which of the following courts is not a trial court for tax cases?
A. U.S. Tax Court
B. U.S. Court of Federal Claims
C. U.S. Bankruptcy Court
D. U.S. District Court
4) 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.
5) Which of the following is an advantage of a sole proprietorship over other business forms?
A. Low tax rates on dividends
B. Ease of formation
C. Tax-exempt treatment of fringe benefits
D. The deduction for compensation paid to the owner
6) Which of the following statements is correct?
A. S shareholders are taxed on their proportionate share of earnings that are distributed.
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 only taxed on distributions.
7) Three members form an LLC in the current year. Which of the following statements is incorrect?
A. The LLC can elect to be taxed as a C corporation with no special tax consequences.
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 have its default classification ignored.
8) 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.
9) Identify which of the following statements is true.
A. The check-the-box regulations permit an LLC to be taxed as a C corporation.
B. Under the check-the-box regulations, an LLC that has only two members (owners) default classification is as a partnership.
C. Once an election is made to change its classification, an entity cannot change again for 60 months.
D. All of the statements are true.
10) Rose and Wayne form a new corporation. Rose contributes cash for 85% of the stock and Wayne contributes services for 15% of the stock. The tax effect is
A. Rose and Wayne are not required to recognize their realized gains.
B. Wayne must report the FMV of the stock received as capital gain.
C. Rose and Wayne must recognize their realized gains, if any.
D. Wayne must report the FMV of the stock received as ordinary income.
11) Matt and Sheila form Krupp Corporation. Matt contributes property with a FMV of $55,000 and a basis of $35,000. Sheila contributes property with a FMV of $75,000 and a basis of $40,000. Matt sells his stock to Paul shortly after the exchange. The transaction will
A. qualify with respect to Sheila under Sec. 351 whether Matt qualifies or not
B. qualify under Sec. 351 if Matt can show the sale to Paul was not part of a prearranged plan
C. not qualify under Sec. 351
D. qualify under Sec. 351 only if an advance ruling has been obtained
12) For Sec. 351 purposes the term property does not include
13) Identify which of the following statements is true.
14) A new corporation may generally select one of the following accounting methods with the exception of
15) Identify which of the following statements is false.
16) Edison Corporation is organized on July 31. The corporation starts business on August 10. The corporation adopts a November 30 fiscal year end. The following expenses are incurred during the year:
Date Type Amount
6-30 Attorneys fees associated with obtaining charter $10,000
7-10 Underwriter fees for stock sale 25,000
7-15 Transfer cost for property contributed to the corporation for stock 3,000
6-30 Costs of organizational meetings 2,000
12-6 Legal fees to modify charter 4,000
What is the maximum amount of organizational expenditures that can be deducted by the corporation for its first tax year ending November 30?
17) Maxwell Corporation reports the following results:
Gross income from operations $ 90,000
Dividends received from 18%-owned domestic corporation 70,000
Maxwell’s dividends-received deduction is
18) 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
19) Which of the following is not an adjustment in calculating AMTI?
20) Tax-exempt interest income on state and local municipal bonds which are not a private activity is
21) Which of the following statements about the alternative minimum tax depreciation rules is correct?
22) Maxwell Corporation reports the following results:
Year Current E&P Distributions
2005 $6,000 $4,000
2006 5,000 1,000
2007 1,000 -0-
Maxwell’s dividends-received deduction is
23) Grant Corporation sells land (a noninventory item) with a basis of $57,000 for $100,000. Nichole will be paid on an installment basis in five equal annual payments starting in the current year. The E&P for the year of sale will be increased as a result of the sale (excluding federal income taxes) by
24) Identify which of the following statements is false.
25) Identify which of the following statements is true.
26) Identify which of the following statements is true.
27) For purposes of determining current E&P, which of the following items cannot be deducted in the year incurred?
28) A corporation distributes land and the related liability to Meg, its sole shareholder. The land has a FMV of $60,000 and is subject to a liability of $70,000. The corporation has current and accumulated E&P of $80,000. The corporation’s adjusted basis for the property is $70,000. What effect does the transaction have on the corporation?
29) Hogg Corporation distributes $30,000 to its sole shareholder, Ima. At the time of the distribution, Hoggs’ E&P is $14,000 and Ima’s basis in her stock is $10,000. Ima’s gain from this transaction is
30) One consequence of a property distribution by a corporation to a shareholder is
A. the shareholder’s basis in the distributed property is the same as the distributing corporation’s basis
B. the amount of the distribution is increased by any liability assumed by the shareholder
C. the holding period of the distributed property includes the holding period of the distributing corporation
D. any liabilities assumed by the shareholder do not reduce the shareholder’s basis
31) Which of the following is not a reason for a stock redemption?
32) Elijah owns 20% of Park Corporation’s single class of stock. Elijah’s basis in the stock is $8,000. Park’s E&P is $28,000. If Park redeems all of Elijah’s stock for $48,000, Elijah must report dividend income of
33) Which of the following is not a condition that permits a stock redemption to be treated as a sale?
34) Identify which of the following statements is true.
35) Identify which of the following statements is true.
36) The definition of a partnership does not include
37) Which of the following items is not separately stated for an S corporation?
38) Cactus Corporation, an S Corporation, had accumulated earnings and profits of $100,000 at the beginning of 2008. Tex and Shirley each own 50% of the stock. Cactus does not make any distributions during 2008, but had $200,000 of ordinary income. In 2009, ordinary income was $100,000 and distributions were $100,000. What is Tex’s ordinary income for 2008?
39) Cactus Corporation, an S Corporation, had accumulated earnings and profits of $100,000 at the beginning of 2008. Tex and Shirley each own 50% of the stock. Cactus does not make any distributions during 2008, but had $200,000 of ordinary income. In 2009, ordinary income was $100,000 and distributions were $100,000. What is Tex’s ordinary income for 2009?
40) On January 1, Helmut pays $2,000 for a 10% capital, profits and loss interest in a partnership, which has recourse liabilities of $20,000. The partners share economic risk of loss from recourse liabilities in the same way they share partnership losses. In the same year, the partnership incurs losses of $6,000 and the recourse liabilities increase by $5,000. Helmut and the partnership use a calendar tax year-end. Helmut’s basis at year-end is
41) On January 2 of the current year, Calloway and Taylor contribute cash equally to form the CT Partnership. Calloway and Taylor share profits and losses in a ratio of 75% and 25%, respectively. The partnership’s ordinary income for the year was $40,000. Calloway received a distribution of $5,000 during the year. What is Calloway’s share of taxable income for the year?
42) On the first day of the partnership’s tax year, Karen purchases a 50% interest in a general partnership for $30,000 cash and she materially participates in the operation of the partnership for the entire year. The partnership has $40,000 in recourse liabilities when Karen enters the partnership. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. There is no minimum gain related to the nonrecourse liability. During the year the partnership incurs a $120,000 loss and a $20,000 increase in liabilities. How much of the loss can Karen report on her tax return for the current year?
43) The total bases of all distributed property in the partner’s hands following a nonliquidating distribution is limited to
44) The Internal Revenue Code includes which of the following assets in the definition of Sec. 751 properties?
45) Identify which of the following statements is true.
46) Which of the following conditions will not cause an S election to be terminated?
47) Identify which of the following statements is true.
48) Identify which of the following statements is false.