ACC 455 Final Exam MCQ;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;A. inventory;B. accounts receivable;C. cash;D. services rendered;13) Identify which of the following statements is true.;A. In computing an NOL for the current year, a deduction is allowed for NOLs from previous years.;B. An election to forgo an NOL carryback must be made on or before the return due date (including extensions) for the year in which the NOL is incurred.;C. A corporate NOL can be carried back 2 years and forward 15 years.;D. All are false.;14) A new corporation may generally select one of the following accounting methods with the exception of;A. retail method;B. accrual method;C. cash method;D. hybrid method;15) Identify which of the following statements is false.;A. A new corporation can elect a fiscal year that runs from February 16 to February 15 of the following year.;B. A fiscal year may not end on December 31.;C. A corporation's fiscal year generally must end on the last day of the month.;D. A corporation's first tax year may not cover a full 12-month period.;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?;A. $5,156;B. $12,000;C. $16,000;D. $800;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. $56,000;B. $49,000;C. $42,000;D. $70,000;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;A. $47,000;B. $70,000;C. $100,000;D. $42,000;19) Which of the following is not an adjustment in calculating AMTI?;A. Production activities deduction;B. The regular tax NOL deduction;C. Gain on installment sales of non-inventory property;D. The difference between the gains for AMTI and regular tax purposes;20) Tax-exempt interest income on state and local municipal bonds which are not a private activity is;A. a negative adjustment in calculating alternative minimum taxable income (AMTI);B. a positive adjustment in calculating alternative minimum taxable income (AMTI);C. a tax preference item;D. included in calculating ACE (adjusted current earnings);21) Which of the following statements about the alternative minimum tax depreciation rules is correct?;A. A 31.5-year recovery period is used when calculating the commercial real property depreciation deduction for alternative minimum taxable income purposes.;B. The excess of the gain reported on the disposition of tangible personal property for income tax purposes over the gain reported for alternative minimum tax purposes is a positive adjustment to taxable income in arriving at alternative minimum taxable income.;C. The MACRS depreciation rules are used to calculate the depreciation deduction when calculating alternative minimum taxable income regardless of the date the property was placed in service.;D. No depreciation adjustment is made when computing AMT for real property acquired after 1998.;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;A. $5,000;B. $7,000;C. $0;D. $12,000;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;A. $43,000;B. $0;C. $8,600;D. $100,000;24) Identify which of the following statements is false.;A. At formation, a corporation's E&P depends on the amount of capital contributed by the shareholders.;B. For E&P dividend distribution purposes, property as defined in Sec. 317(a) includes money.;C. The function of E&P is to provide a measure of a corporation's economic ability to pay dividends.;D. Adjustments to taxable income when computing E&P do not include tax exempt interest.;25) Identify which of the following statements is true.;A. Section 179 property must be expensed ratably over a 5-year period when computing E&P.;B. Losses on property sales to related parties are not deductible when computing E&P.;C. Distributions made out of accumulated E&P are allocated ratably between multiple distributions made during the tax year.;D. All are false.;26) Identify which of the following statements is true.;A. If both the current and accumulated E&P have deficit balances, a corporate distribution cannot be characterized as a dividend.;B. The shareholder's basis in property received in a nonliquidating distribution is the property's FMV reduced by liabilities assumed by the shareholder.;C. A corporation recognizes gain when distributing money as a dividend to its shareholders.;D. All are false.;27) For purposes of determining current E&P, which of the following items cannot be deducted in the year incurred?;A. Life insurance premiums (in excess of the increase in cash surrender value for the policy) paid on the lives of key employees;B. Charitable contribution in excess of the 10% limitation;C. Capital losses in excess of capital gains;D. Dividends-received deduction;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?;A. No recognized gain or loss and its E&P is reduced by $60,000.;B. A recognized loss of $10,000 and its E&P is reduced by $70,000.;C. A recognized loss of $10,000 and its E&P is unchanged.;D. No recognized gain or loss and its E&P is unchanged by the distribution.;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;A. $20,000 capital gain;B. $6,000 capital gain;C. $14,000 capital gain;D. $30,000 capital gain;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?;A. Redemption of shares is a good corporate investment.;B. desire by remaining shareholders to retain control;C. desire by shareholders to reduce the corporate tax liability;D. No outside market exists for the stock.;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;A. $40,000;B. $0;C. $28,000;D. $48,000;33) Which of the following is not a condition that permits a stock redemption to be treated as a sale?;A. The redemption is substantially disproportionate.;B. It provides funds for payment of income taxes.;C. It is not essentially equivalent to a dividend.;D. The redemption completely terminates the shareholder's interest.;34) Identify which of the following statements is true.;A. Formation of a partnership requires legal documentation.;B. An individual engaged in the active conduct of a business must elect not to be taxed as a partnership.;C. If two people (or business entities) work together to carry on any business or financial operation with the intention of making a profit and sharing that profit as co-owners, a partnership exists for federal income tax purposes.;D. All are false.;35) Identify which of the following statements is true.;A. A partnership can be an S corporation shareholder.;B. A nonresident alien can be an S corporation shareholder.;C. An S corporation can have more than 100 shareholders since families are treated as a single shareholder.;D. All are false.;36) The definition of a partnership does not include;A. a syndicate;B. a group;C. a pool;D. All are included;37) Which of the following items is not separately stated for an S corporation?;A. Section 1245 income;B. Short-term capital gain;C. Dividend income;D. Charitable contribution;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?;A. $100,000;B. $0;C. $50,000;D. $200,000;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?;A. $100,000;B. $0;C. $50,000;D. $200,000;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;A. $2,000;B. $3,900;C. $1,500;D. $3,500;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?;A. $10,000;B. $30,000;C. $5,000;D. $20,000;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?;A. $40,000;B. $60,000;C. $30,000;D. $50,000;43) The total bases of all distributed property in the partner's hands following a nonliquidating distribution is limited to;A. the FMV of the property distributed;B. thepredistribution FMV of the partner's partnership interest;C. the partner's predistribution basis in his partnership interest;D. the partnership's bases in the distributed property;44) The Internal Revenue Code includes which of the following assets in the definition of Sec. 751 properties?;A. Cash;B. Sec. 1231 assets;C. Inventory, which is substantially appreciated;D. Capital assets;45) Identify which of the following statements is true.;A. If a partner sells property received in a partnership distribution for a gain and the property was inventory in the hands of the distributing partnership, the partner will always recognize ordinary income.;B. The primary purpose of Sec. 751 is to prevent partnerships from converting capital gains into ordinary income.;C. Unrealized receivables include rights to payments on the sale of a capital asset.;D. All are false.;46) Which of the following conditions will not cause an S election to be terminated?;A. Creating a second class of stock having a dividend preference;B. Failing to file a timely tax return;C. Exceeding the 100 shareholder limit;D. Selecting an improper tax year;47) Identify which of the following statements is true.;A. All of the shareholders of an S corporation must consent to a revocation of the S election.;B. A revocation of an S corporation election can be retrospective to any date.;C. An S election will not be terminated due to excess passive income if the corporation does not have Subchapter C E&P.;D. All are true.;48) Identify which of the following statements is false.;A. If the termination of an S election is considered to be inadvertent, then the election is permitted to continue in place as if the termination had never occurred.;B. A corporation can obtain relief for a late S election if the IRS consents.;C. A C corporation short year income tax liability must be determined on an annualized basis.;D. If an S election is terminated and the termination is not considered to be inadvertent, a 10-tax-year waiting period is required before making a new election.
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