Complete Q&A Study Guide Tax 2 Final Exam 2023/2024
Tax 2 Final Exam – 2023/2024 Complete
Q&A with Correct Answers
Prepared for Advanced Taxation Students
Date: June 15, 2025
Introduction
This comprehensive study guide is crafted for students preparing for the Taxation II Final Exam
for the 2023/2024 academic year, covering advanced U.S. federal taxation topics in a second-
semester undergraduate or graduate tax course. It includes 70 verified multiple-choice practice
questions with 100% correct answers and detailed step-by-step solutions, aligned with the In-
ternal Revenue Code (IRC) as of 2023/2024. The questions span five key domains: Corporate
Taxation, Partnership Taxation, S Corporations, Tax-Exempt Organizations, and International
Taxation, with 14 questions per domain. Each question provides four answer choices, the correct
answer, and an in-depth explanation to ensure conceptual mastery. The guide also offers prepa-
ration tips, curated resources, a practice strategy, and common pitfalls to avoid, empowering
you to excel in your Tax 2 final exam and build expertise in complex tax concepts.
1 Verified Questions and Solutions
1. What is the maximum number of shareholders permitted for an S corporation under
IRC §1361?
A. 75
B. 100
C. 125
D. 150
Correct Answer: B. 100
Step-by-Step Solution:
1. Identify rule: IRC §1361(b)(1)(A) limits S corporations to 100 shareholders, including
certain trusts and estates.
2. Analyze options: 75 (A) is outdated, 125 (C) and 150 (D) exceed the statutory limit.
3. Confirm: The 100-shareholder rule ensures S corporation eligibility.
Study Tip: Memorize S corporation restrictions in IRC §1361(b).
2. Which entity is subject to the accumulated earnings tax under IRC §531?
A. Partnership
B. S corporation
C. C corporation
D. LLC
Correct Answer: C. C corporation
Step-by-Step Solution:
1. Define tax: IRC §531 imposes a penalty tax on C corporations for retaining excessive
earnings to avoid shareholder taxes.
2. Eliminate options: Partnerships (A), S corporations (B), and LLCs (D) are pass-
through entities not subject to this tax.
3. Confirm: C corporations face the accumulated earnings tax.
Page 1
,Complete Q&A Study Guide Tax 2 Final Exam 2023/2024
Study Tip: Review IRC §§531–537 for penalty tax rules.
3. How is a partnership’s ordinary income allocated to partners?
A. Form 1040, Schedule C
B. Form 1065, Schedule K-1
C. Form 1120, Schedule D
D. Form 990-T
Correct Answer: B. Form 1065, Schedule K-1
Step-by-Step Solution:
1. Review reporting: Partnerships file Form 1065, with income allocated to partners via
Schedule K-1 (IRC §6031).
2. Eliminate options: Schedule C (A) is for sole proprietors, Schedule D (C) is for capital
gains, 990-T (D) is for tax-exempt UBTI.
3. Confirm: Schedule K-1 reports partner allocations.
Study Tip: Study partnership tax reporting forms.
4. What is the tax rate for a C corporation’s long-term capital gains in 2023?
A. 15%
B. 21%
C. 25%
D. 28%
Correct Answer: B. 21%
Step-by-Step Solution:
1. Review IRC: IRC §11(b) applies a flat 21% rate to all C corporation income, including
long-term capital gains.
2. Eliminate options: 15% (A) and 28% (D) apply to individuals, 25% (C) is for unre-
captured §1250 gain.
3. Confirm: C corporations pay 21% on capital gains.
Study Tip: Compare corporate and individual capital gain rates.
5. Which organization qualifies for tax-exempt status under IRC §501(c)(3)?
A. Trade association
B. Social club
C. Charitable organization
D. Political organization
Correct Answer: C. Charitable organization
Step-by-Step Solution:
1. Review IRC: IRC §501(c)(3) exempts organizations for charitable, educational, or re-
ligious purposes.
2. Eliminate options: Trade associations (A) are §501(c)(6), social clubs (B) are §501(c)(7),
political organizations (D) are §527.
3. Confirm: Charitable organizations qualify for §501(c)(3).
Study Tip: Study IRC §501 subsections.
6. What is the purpose of the foreign tax credit under IRC §901?
A. Encourage foreign investment
B. Prevent double taxation
C. Defer foreign income
D. Eliminate U.S. tax liability
Correct Answer: B. Prevent double taxation
Page 2
, Complete Q&A Study Guide Tax 2 Final Exam 2023/2024
Step-by-Step Solution:
1. Define credit: IRC §901 allows a credit for taxes paid to foreign governments on foreign
income.
2. Eliminate options: Investment (A) is unrelated, deferral (C) applies to Subpart F,
elimination (D) is incorrect.
3. Confirm: The credit avoids taxing the same income twice.
Study Tip: Study IRC §§901–905 for credits.
7. Which form is used to report a C corporation’s taxable income?
A. Form 1040
B. Form 1065
C. Form 1120
D. Form 990
Correct Answer: C. Form 1120
Step-by-Step Solution:
1. Review forms: Form 1120 reports taxable income for C corporations (IRC §6012).
2. Eliminate options: 1040 (A) is for individuals, 1065 (B) is for partnerships, 990 (D) is
for tax-exempt entities.
3. Confirm: Form 1120 is correct.
Study Tip: Memorize entity-specific tax forms.
8. What is the partnership’s basis in property contributed by a partner?
A. Fair market value
B. Partner’s adjusted basis
C. Zero basis
D. Appraised value
Correct Answer: B. Partner’s adjusted basis
Step-by-Step Solution:
1. Review IRC: IRC §723 sets the partnership’s basis as the partner’s adjusted basis at
contribution.
2. Eliminate options: Fair market value (A) and appraised value (D) apply to other con-
texts, zero basis (C) is incorrect.
3. Confirm: Adjusted basis carries over to the partnership.
Study Tip: Study IRC §§721–723 for contributions.
9. Which entity files Form 2553 to elect S corporation status?
A. Partnership
B. C corporation
C. Sole proprietorship
D. Tax-exempt organization
Correct Answer: B. C corporation
Step-by-Step Solution:
1. Review IRC: IRC §1362 allows a C corporation to elect S status by filing Form 2553.
2. Eliminate options: Partnerships (A), sole proprietorships (C), and tax-exempts (D) are
ineligible.
3. Confirm: C corporations use Form 2553.
Study Tip: Study S corporation election requirements.
10. What is the tax consequence of a C corporation’s complete liquidation?
A. No gain or loss recognized
Page 3
Tax 2 Final Exam – 2023/2024 Complete
Q&A with Correct Answers
Prepared for Advanced Taxation Students
Date: June 15, 2025
Introduction
This comprehensive study guide is crafted for students preparing for the Taxation II Final Exam
for the 2023/2024 academic year, covering advanced U.S. federal taxation topics in a second-
semester undergraduate or graduate tax course. It includes 70 verified multiple-choice practice
questions with 100% correct answers and detailed step-by-step solutions, aligned with the In-
ternal Revenue Code (IRC) as of 2023/2024. The questions span five key domains: Corporate
Taxation, Partnership Taxation, S Corporations, Tax-Exempt Organizations, and International
Taxation, with 14 questions per domain. Each question provides four answer choices, the correct
answer, and an in-depth explanation to ensure conceptual mastery. The guide also offers prepa-
ration tips, curated resources, a practice strategy, and common pitfalls to avoid, empowering
you to excel in your Tax 2 final exam and build expertise in complex tax concepts.
1 Verified Questions and Solutions
1. What is the maximum number of shareholders permitted for an S corporation under
IRC §1361?
A. 75
B. 100
C. 125
D. 150
Correct Answer: B. 100
Step-by-Step Solution:
1. Identify rule: IRC §1361(b)(1)(A) limits S corporations to 100 shareholders, including
certain trusts and estates.
2. Analyze options: 75 (A) is outdated, 125 (C) and 150 (D) exceed the statutory limit.
3. Confirm: The 100-shareholder rule ensures S corporation eligibility.
Study Tip: Memorize S corporation restrictions in IRC §1361(b).
2. Which entity is subject to the accumulated earnings tax under IRC §531?
A. Partnership
B. S corporation
C. C corporation
D. LLC
Correct Answer: C. C corporation
Step-by-Step Solution:
1. Define tax: IRC §531 imposes a penalty tax on C corporations for retaining excessive
earnings to avoid shareholder taxes.
2. Eliminate options: Partnerships (A), S corporations (B), and LLCs (D) are pass-
through entities not subject to this tax.
3. Confirm: C corporations face the accumulated earnings tax.
Page 1
,Complete Q&A Study Guide Tax 2 Final Exam 2023/2024
Study Tip: Review IRC §§531–537 for penalty tax rules.
3. How is a partnership’s ordinary income allocated to partners?
A. Form 1040, Schedule C
B. Form 1065, Schedule K-1
C. Form 1120, Schedule D
D. Form 990-T
Correct Answer: B. Form 1065, Schedule K-1
Step-by-Step Solution:
1. Review reporting: Partnerships file Form 1065, with income allocated to partners via
Schedule K-1 (IRC §6031).
2. Eliminate options: Schedule C (A) is for sole proprietors, Schedule D (C) is for capital
gains, 990-T (D) is for tax-exempt UBTI.
3. Confirm: Schedule K-1 reports partner allocations.
Study Tip: Study partnership tax reporting forms.
4. What is the tax rate for a C corporation’s long-term capital gains in 2023?
A. 15%
B. 21%
C. 25%
D. 28%
Correct Answer: B. 21%
Step-by-Step Solution:
1. Review IRC: IRC §11(b) applies a flat 21% rate to all C corporation income, including
long-term capital gains.
2. Eliminate options: 15% (A) and 28% (D) apply to individuals, 25% (C) is for unre-
captured §1250 gain.
3. Confirm: C corporations pay 21% on capital gains.
Study Tip: Compare corporate and individual capital gain rates.
5. Which organization qualifies for tax-exempt status under IRC §501(c)(3)?
A. Trade association
B. Social club
C. Charitable organization
D. Political organization
Correct Answer: C. Charitable organization
Step-by-Step Solution:
1. Review IRC: IRC §501(c)(3) exempts organizations for charitable, educational, or re-
ligious purposes.
2. Eliminate options: Trade associations (A) are §501(c)(6), social clubs (B) are §501(c)(7),
political organizations (D) are §527.
3. Confirm: Charitable organizations qualify for §501(c)(3).
Study Tip: Study IRC §501 subsections.
6. What is the purpose of the foreign tax credit under IRC §901?
A. Encourage foreign investment
B. Prevent double taxation
C. Defer foreign income
D. Eliminate U.S. tax liability
Correct Answer: B. Prevent double taxation
Page 2
, Complete Q&A Study Guide Tax 2 Final Exam 2023/2024
Step-by-Step Solution:
1. Define credit: IRC §901 allows a credit for taxes paid to foreign governments on foreign
income.
2. Eliminate options: Investment (A) is unrelated, deferral (C) applies to Subpart F,
elimination (D) is incorrect.
3. Confirm: The credit avoids taxing the same income twice.
Study Tip: Study IRC §§901–905 for credits.
7. Which form is used to report a C corporation’s taxable income?
A. Form 1040
B. Form 1065
C. Form 1120
D. Form 990
Correct Answer: C. Form 1120
Step-by-Step Solution:
1. Review forms: Form 1120 reports taxable income for C corporations (IRC §6012).
2. Eliminate options: 1040 (A) is for individuals, 1065 (B) is for partnerships, 990 (D) is
for tax-exempt entities.
3. Confirm: Form 1120 is correct.
Study Tip: Memorize entity-specific tax forms.
8. What is the partnership’s basis in property contributed by a partner?
A. Fair market value
B. Partner’s adjusted basis
C. Zero basis
D. Appraised value
Correct Answer: B. Partner’s adjusted basis
Step-by-Step Solution:
1. Review IRC: IRC §723 sets the partnership’s basis as the partner’s adjusted basis at
contribution.
2. Eliminate options: Fair market value (A) and appraised value (D) apply to other con-
texts, zero basis (C) is incorrect.
3. Confirm: Adjusted basis carries over to the partnership.
Study Tip: Study IRC §§721–723 for contributions.
9. Which entity files Form 2553 to elect S corporation status?
A. Partnership
B. C corporation
C. Sole proprietorship
D. Tax-exempt organization
Correct Answer: B. C corporation
Step-by-Step Solution:
1. Review IRC: IRC §1362 allows a C corporation to elect S status by filing Form 2553.
2. Eliminate options: Partnerships (A), sole proprietorships (C), and tax-exempts (D) are
ineligible.
3. Confirm: C corporations use Form 2553.
Study Tip: Study S corporation election requirements.
10. What is the tax consequence of a C corporation’s complete liquidation?
A. No gain or loss recognized
Page 3
