ACC 455 Final Exam

ACC 455 Final Exam 1) Which of the following statements regarding proposed regulations is not correct? A. Proposed & 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 & other interested parties may comment on proposed regulations. 2) Regulations are A. presumed to be valid & 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 & Wayne form a new corporation. Rose contributes cash for 85% of the stock & Wayne contributes services for 15% of the stock. The tax effect is A. Rose & Wayne are not required to recognize their realized gains. B. Wayne must report the FMV of the stock received as capital gain. C. Rose & Wayne must recognize their realized gains, if any. D. Wayne must report the FMV of the stock received as ordinary income. 11) Matt & Sheila form Krupp Corporation. Matt contributes property with a FMV of $55,000 & a basis of $35,000. Sheila contributes property with a FMV of $75,000 & 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 & 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 & 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 noninventory property D. The difference between the gains for AMTI & regular tax purposes 20) Tax-exempt interest income on state & 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 & 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 non liquidating 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 & the related liability to Meg, its sole shareholder. The land has a FMV of $60,000 & is subject to a liability of $70,000. The corporation has current & 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 & its E&P is reduced by $60,000. B. A recognized loss of $10,000 & its E&P is reduced by $70,000. C. A recognized loss of $10,000 & its E&P is unchanged. D. No recognized gain or loss & 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 & 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 . $40,000 . $0 . $28,000 . $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 & 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 B. Short-term capital gain C. Dividend income D. Charitable contribution 38) Cactus Corporation, an S Corporation, had accumulated earnings & profits of $100,000 at the beginning of 2008. Tex & 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 & 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 & profits of $100,000 at the beginning of 2008. Tex & 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 & distributions were $100,000. What is Tex's ordinary income for 2009? . $100,000 B. $0 $50,000 D. $200,000 40) On January 1, Helmut pays $2,000 for a 10% capital, profits & 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 & the recourse liabilities increase by $5,000. Helmut & the partnership use a calendar tax year-end. Helmut's basis at year-end is . $2,000 . $3,900 . $1,500 . $3,500 41) On January 2 of the current year, Calloway & Taylor contribute cash equally to form the CT Partnership. Calloway & Taylor share profits & losses in a ratio of 75% & 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 & 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 & 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 . $60,000 . $30,000 . $50,000 43) The total bases of all distributed property in the partner's hands following a nonliquidating distribution is limited to . the FMV of the property distributed . the predistribution FMV of the partner's partnership interest . the partner's predistribution basis in his partnership interest . 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? . Cash . Sec. 1231 assets . Inventory, which is substantially appreciated . 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 & 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? . Creating a second class of stock having a dividend preference . Failing to file a timely tax return . 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 & the termination is not considered to be inadvertent, a 10-tax-year waiting period is required before making a new election. 6) The real wage will rise if the nominal wage A. falls more rapidly than the general price level B. increases at the same rate as labor productivity C. increases more rapidly than the general price level D. falls at the same rate as the general price level 7) Construction workers frequently sponsor political lobbying in support of greater public spending on highways & public buildings. One reason they dothis is to . restrict the supply of construction workers . increase the elasticity of demand for construction workers[ . increase the demand for construction workers . increase the price of substitute inputs 8) Paying an above-equilibrium wage rate might reduce unit labor costs by . permitting the firm to attract lower-quality labor[ . increasing the cost to workers of being fired for shirking] . increasing voluntary worker turnoverD. increasing the supply of labor 9) A good real-world example of monopolistic competition is A. lawyers B. gas stationsC. Time Warner CableD. groceries stores 10) An industry comprising a small number of firms, each of which considers thepotential reactions of its rivals in making price-output decisions, is called A. monopolistic competition B. oligopoly C. pure monopoly D. pure competition 11) Price is constant or given to the individual firm selling in a purelycompetitive market because A. the firm's demand curve is downward sloping B. of product differentiation reinforced by extensive advertising[ C. each seller supplies a negligible fraction of total supply D. there are no good substitutes for its product