WGU C239 Pre-Assessment Advanced Tax Concepts Exam (100 OUT OF 100) Questions and Answers (Latest Update)

1. An individual has taxable income of $60,000. The first $20,000 is taxed at 20%, the next $20,000 is taxed at 20%, and all income above $40,000 is taxed at 20%. Which tax structure is being applied to the individual's taxable income? Your Answer Base Regressive Progressive Proportional Correct 2. Which federal income tax structure imposes an increasing marginal tax rate as the tax base increases? Your Answer Regressive tax Incremental tax Progressive tax Proportional tax Correct 3. Which tax rate informs taxpayers the amount of tax they will pay when earning the next dollar? Your Answer Marginal Average Effective Statutory Correct 4. What describes a gift tax? Tax on the retail sale of particular products Tax on the fair market value of property transfers Tax on the retail price of goods and services Tax on income earned by an individual Correct 5. Which provision is an encouragement to improve social conditions? Accident and health insurance Research and development Tax depreciation Rapid expensing of pollution control facilities Correct 6. Taxpayer A and Taxpayer B are both single and live in the same state. Taxpayer A has income of $60,000, and Taxpayer B has income of $40,000. They each pay $3,000 in sales tax during the year. This represents 5% of Taxpayer A’s income and 7.5% of Taxpayer B’s income. The state considers equality through its tax structure. Which type of tax structure is represented? Your Answer Regressive Progressive Flat Proportional Correct 7. Which type of goal is achieved when tax law provides incentives for installing solar energy systems? Your Answer Economic Your Answer Social Revenue Equity Correct 8. Which entity is usually treated as a partnership? Your Answer S corporation LLC C corporation Sole proprietorship Correct 9. An Eleventh Circuit client who files in the U.S. Court of Federal Claims wants to know whether to include the terms of multiple options to renew a sale-leaseback to calculate a deduction. What is the authoritative reference? A Second Circuit case which used disjunctive analysis A tax court decision which used economic substance An Eleventh Circuit Case which analyzed sale-leaseback transactions that generate tax deductions A U.S. Court of Federal Claims case which analyzed sale-leaseback transactions for operating equipment Correct 10. Which tax rate calculation is an appropriate step in tax planning strategy to reduce tax? The average tax rate, because it represents the percent of tax on each dollar The tax-exempt tax rate, because effective tax planning utilizes tax exempt bonds The effective tax rate, because economic income is less broad than taxable income The marginal tax rate, because it represents the tax applicable to the next taxable dollar Correct 11. Which federal tax law is the only attempt to create consistency in the multistate income tax process? Uniform Division of Income for Tax Purposes Act (UDITPA) Public Law 86-272 Nexus tax Tax Cuts and Jobs Act (TCJA) Correct 12. What is a primary source of tax law? Your Answer U.S. Constitution Tax publications Treatises Legal opinions Correct 13. Which court’s decision has no precedential value? The U.S. Tax Court Small Cases Division The U.S. Tax Court The U.S. District Court The U.S. Court of Federal Claims Correct 14. Which court allows a jury trial? The U.S. District Court The U.S. Tax Court The U.S. Court of Federal Claims The U.S. Court of Appeals Correct 15. What is the difference between realized gain and recognized gain? The cash amount received The fair market value assigned The amount reported on a tax return The adjusted basis in a general ledger Correct 16. Which term indicates the difference between the amount from sale or disposition of an asset and the adjusted basis? Your Answ Realized gain (loss) Relevant gain (loss) Revenue gain (loss) Recognized gain (loss) Correct 17. How is basis determined when converting property from personal to business use? The lower of its adjusted basis or fair market value at the date of conversion The greater of its adjusted basis or fair market value at the date of conversion The lower of its adjusted basis or original cost less accumulated depreciation at the date of conversion The greater of its adjusted basis or original cost less accumulated depreciation at the date of conversion Correct 18. What is considered a capital asset? A computer used by a taxpayer for personal use Inventory used by a business Accounts receivable Patents Correct 19. An investor purchased 100 shares of Corporation Y stock on January 1, 2013 for $1,000. On January 1, 2014 the investor sells 25 shares of Corporation Y stock for $200. How should the sale of shares on January 1, 2014 be classified? You Ans Long-term capital gain Long-term capital loss Short-term capital gain Short-term capital loss Correct 20. A non-corporate taxpayer has two transactions involving the sale of capital assets during the year. As a result of the transactions, he has a short-term capital gain of $2,000 and a long-term capital loss of $6,000. A corporate taxpayer has the identical transactions occur during the year. Which amounts will be added or deducted from ordinary income for the non-corporate and corporate taxpayer capital gains, respectively? $4,000 deduction, $4,000 deduction $5,000 deduction, $3,000 deduction $3,000 deduction, no deduction or addition No deduction or addition, $3,000 deduction Correct 21. What is the excluded gain for qualified small business stock acquired after September 27, 2010? Your Answer 25% 50% 75% 100% Correct 22. How much of the excess is offset against ordinary income for an individual taxpayer on a dollar-fordollar basis if net long-term capital losses exceed net short-term capital gains? Your Answer $1,000 $2,000 $3,000 $4,000 Correct 23. How is the netting process for capital gains and losses applied? Short-term losses offset the highest-taxed gain first. Short-term losses offset the lowest-taxed gain first. Long-term losses offset the highest-taxed gain first. Long-term losses do not offset short-term gains. Correct 24. An individual has a rental property in Oregon that has a basis of $200,000 and a fair market value (FMV) of $290,000. The individual exchanges the Oregon property for a rental property in Colorado with an FMV of $300,000 and a basis of $275,000. What is this individual’s recognized gain in the exchange? Your Answer $0 $25,000 $90,000 $100,000 Correct 25. What should be deferred in an involuntary conversion? Loss on the conversion of a principal residence Gain on the immediate resale of a replacement property Loss on the immediate resale of a replacement property Gain on personal property compensated by insurance proceeds Correct 26. When can taxpayers defer realized gains on indirect conversions? They acquire qualified replacement property within two years. They acquire qualified replacement property within five years. They acquire qualified replacement property within 12 months. They acquire qualified replacement property within 18 months. Correct 27. A taxpayer's bowling alley (basis of $600,000) is destroyed by fire, and he receives $800,000 in insurance proceeds. The taxpayer will spend $1,000,000 to build another bowling alley. How much is the gain and could it be deferred under the functional-use test? $200,000 gain; could defer $200,000 gain; could not defer $400,000 gain; could defer $400,000 gain; could not defer Correct 28. Which provision found in the home sale rules encourages home ownership? Interest on unsecured debt is deductible by an individual or married couple. $500,000 of gain on sale of primary residence owned for two years may be excluded by a single taxpayer. Interest on up to $100,000 of home equity debt may be deducted. $250,000 of gain on sale of primary residence owned for two years may be excluded by a single taxpayer. Correct 29. Which situation would qualify for a partial exclusion of gain when a primary residence is sold and the taxpayer fails one or more of the time period requirements? The birth of a child Cessation of employment resulting in ineligibility for unemployment benefits Criminal activity arising in the taxpayer’s neighborhood The taxpayer suffering from a chronic disease and being unable to care for themselves Correct 30. A married couple occupied a residence for 26 months and recently sold the residence. Which qualification is needed to exclude gain from taxable income? Residence qualifies as second home. Taxpayers must file married separately. Both spouses own the residence, but neither occupied the home as a primary residence. One spouse owned the residence, and both occupied the home as a primary residence. Correct 31. A married couple owned and occupied a residence for 10 months and recently sold the residence. Which situation would qualify this couple to exclude a gain on the sale from their taxable income? The residence qualifies as a second home. The couple files taxes as married filing separately. The couple experienced a multiple birth. At least one member of the couple owned the residence. Correct 32. Which asset qualifies as Section 1231 property? Timber owned by a company for at least six months and cut for sale Timber owned by a company for at least one year and cut for sale Timber owned by a company for at least six months and held for investment Timber owned by a company for at least one year and held for investment Correct 33. A taxpayer's gains and losses that pertain to business assets qualifying as Section 1231 property for the year are as follows: • Loss due to insurance reimbursement for theft of a nonpersonal use asset: $(20,000) • Gain due to insurance reimbursement for fire damage of a nonpersonal use asset: $8,000 • Gain due to building condemnation: $23,000 • Loss due to sale of property: $(10,000) There are no nonrecaptured net Section 1231 losses from previous years. What is the tax treatment for the casualty and theft transactions? Net Section 1231 gain of $1,000 Net Section 1231 loss of $12,000 Ordinary gain of $8,000 and an ordinary loss of $20,000 Ordinary gain of $31,000 and an ordinary loss of $30,000 Correct 34. A taxpayer transfers inventory (basis of $80,000 and fair market value of $90,000) to a corporation in exchange for 60% of its stock. The stock's fair market value is $90,000. What is the immediate tax consequence to this taxpayer? $0 recognized gain $10,000 recognized gain $80,000 realized gain $90,000 realized gain Correct 35. A taxpayer transfers inventory (basis of $70,000 and fair market value of $100,000) to a corporation in exchange for 100% of its stock. The stock's fair market value is $130,000. How much is this taxpayer's basis in the stock? Your Answer $60,000 $70,000 $100,000 $130,000 Correct 36. An individual transfers property with an adjusted basis of $32,000 and a $45,000 FMV in exchange for 80 shares of stock of a newly formed corporation. A second individual is able to donate legal services in exchange for the remaining 20 shares of corporation stock, valued at $15,000. What is the control and gain for both Individuals? The first individual controls 80% of the corporation and recognizes a gain of $13,000. The second individual controls 20% The first individual controls 80% of the corporation and is able to defer a gain of $32,000. The second individual controls gain of $15,000. The first individual controls 80% of the corporation and is able to defer the gain of $45,000. The second individual contro but does recognize $15,000 in ordinary income. The first individual controls 80% of the corporation and is able to defer the gain of $13,000. The second individual contro but does recognize $15,000 in ordinary income. Correct 37. An individual transfers $5,000 and a piece of land to a corporation in exchange for all of its stock. At the time of transfer, the land has an adjusted basis of $50,000 and a fair market value (FMV) of $75,000. The corporation assumes a $60,000 mortgage on the land as part of the transfer for a bona fide business purpose. What is the effect of the transfer? The individual will have a recognized gain of $0. The individual will have a recognized gain of $5,000. The individual will have a recognized gain of $50,000. The individual will have a recognized gain of $60,000. Correct 38. What allows an individual to transfer property to a corporation at formation without recognizing gain? Transferring the property in exchange for cash Transferring the property in exchange for debt Transferring the property in exchange for common stock Transferring the property in exchange for nonqualified preferred stock Correct 39. What is considered property in § 351, the nonrecognition of gain or loss on transfers to controlled corporations provision? Your Answ Services Patentable inventions Cash Securities Correct 40. A corporation reports taxable income of $500,000 for the year, including the receipt of $100,000 of dividends and a $70,000 dividends-received deduction. What should be the corporation's current earnings and profit (E&P)? Your Answer $370,000 $400,000 $500,000 $570,000 Correct 41. Which adjustment results in a subtraction to earnings and profits (E&P)? Entertainment expenses Proceeds from life insurance Tax-exempt interest income Excess MACRS cost recovery over E&P depreciation Correct 42. Shareholders A and B own 400 shares each of the outstanding stock of a corporation. Shareholder C owns the remaining 600 shares. None of the shareholders are related. The corporation has $500,000 in current earnings and profits. The corporation redeems 150 shares from Shareholder A and 100 shares from Shareholder B for $1,000 each. Shareholder A’s basis in her redeemed shares is $90,000, and Shareholder B’s basis in his redeemed shares is $35,000. What is the amount and type of income that Shareholder B must report as a result of the redemption of his stock? Your Answ $65,000 capital gain $65,000 dividend $100,000 capital gain $100,000 dividend Correct 43. Diego owns 70% of Endothon Corporation’s stock, while Maria owns the remaining 30%. Diego and Maria have a tax basis in Endothon’s stock of $32,000 and $12,000, respectively. Endothon has current earnings and profits (E&P) of $25,000 and no accumulated E&P. At year-end, Endothon makes a $75,000 distribution: $56,250 to Diego and $18,750 to Maria. What amount of Diego’s distribution is treated as a nontaxable return of capital? Your Answer $3,000 $17,500 $18,750 $32,000 Correct 44. How does a shareholder allocate tax basis to newly issued stock in a non-taxable stock distribution? The new per share tax basis is the original tax basis divided by the total number of shares held, including the new shares The new per share tax basis is the original tax basis divided by the total number of shares held, excluding the new share The new shares have no tax basis. The new shares have 50% of the original tax basis. Correct 45. A corporation is undergoing a complete liquidation. It distributes land to an individual shareholder in exchange for all of the shareholder’s stock. The land has a fair market value (FMV) of $900,000 and an adjusted basis of $500,000. The shareholder’s basis in the corporation’s stock is $400,000. Which gain must this shareholder recognize on the distribution? Your Answer $100,000 $400,000 $500,000 $900,000 Correct 46. When does a corporate liquidation occur? When a corporation distributes greater than 50% of its assets When a corporation ceases to exist for state law When a corporation distributes more than 80% of its assets When a corporation ceases to exist as a going concern Correct 47. A corporation is undergoing a complete liquidation and distributes land to an individual shareholder in exchange for all of the shareholder's stock. The land has a basis of $300,000 and a FMV of $400,000 on the corporation's books and also has a $325,000 liability. The shareholder assumes the liability on the property, and their basis in the corporation's stock is $100,000. Which gain or loss must the shareholder recognize on the distribution? Your Answer $25,000 gain $25,000 loss $75,000 gain $75,000 loss Correct 48. C Corporation owns 100% of the stock of B Corporation. The adjusted basis of its stock investment is $100,000. A plan of liquidation is adopted. B Corporation distributes to C Corporation assets with a $325,000 FMV and a $275,000 adjusted basis. B also distributes liabilities in the amount of $40,000. B Corporation has a $150,000 earnings and profit (E & P) balance. What is C Corporation's gain and/or loss on the redemption of B Corporation's stock? $50,000 realized gain, but no recognized gain $150,000 realized and recognized gain $185,000 realized gain, but no recognized gain $225,000 realized and recognized gain Correct 49. Where does a self-employed person operating as a sole proprietorship report fees received and expenses incurred in such a proprietorship on an individual tax return? Schedule C, profit and loss Form 1040, line on wages Schedule E, supplemental income and loss Form 1040, line on hobby income Correct 50. Which form or schedule reports self-employment income? Your Answer Form SE Form 941 Schedule 941 Schedule SE Correct 51. Which tax rate should tax professionals use in planning for tax clients? Your Answer Marginal tax rate Average tax rate Effective tax rate Adjusted tax rate Correct 52. Who must complete Form 2120 (Multiple Support Declaration) and file it with their tax return? The individual designated as meeting the support test under the multiple support agreement All individuals who are part of the multiple support agreement All individuals who provided over 50% of support The individual who provided over 50% of support Correct 53. Who qualifies for the relationship test in order to be eligible for a multiple support agreement? A grandparent An unrelated household member A close friend A neighborhood sitter Correct 54. What is the threshold for the lowest percent tax to apply to a qualified dividend? Maximum zero rate amount Maximum 15% rate amount Maximum 20% rate amount Maximum 25% rate amount Correct 55. A taxpayer is single with no dependents. The individual's taxable income is $75,000 for 2021. What is this taxpayer's federal income tax, using the tax rate schedule? Your Answer $4,295 $8,113 $9,488 $12,249 Correct 56. A calendar-year corporation reports taxable income of $250,000 for 2021. What is this corporation’s regular tax liability? Your Answer $25,000 $52,500 Your Answer $87,500 $92,500 Correct 57. A taxpayer who files as a single individual had a $1,200 short-term capital gain and a $9,000 long-term capital gain in 2018. There was also a $5,000 short-term capital loss carryover from 2017. What is the reported capital gain for 2018? Your Answer $5,200 $7,200 $9,000 $10,200 Correct 58. Which amount must income be in excess of in order to have a 3.8% tax on the lesser of investment income or Adjusted Gross Income (AGI) beginning in 2013 for married filing joint couples? Your Answer $150,000 $200,000 Your Answer $250,000 $300,000 Correct 59. How do businesses recover the cost of capitalized, tangible assets? Your Answer Depreciation Amortization Single deduction Direct write-off Correct 60. How do businesses recover the cost of capitalized, intangible assets? Your Answer Depreciation Amortization Single deduction Your Answer Direct write-off Correct 61. A retired individual is unmarried, has no dependents, and holds a part-time job that pays $10,500 per year. The individual also has corporate bonds that pay interest income each year. What is the minimum amount of interest the corporate bonds must pay for this individual to be required to file income taxes in 2021? Your Answer $1,901 $2,051 $7,301 $8,301 Correct 62. A retired 65-year-old individual is married, has no dependents, and holds a part-time job that pays $19,000 per year. The individual’s spouse is 69 and blind. The individual also has corporate bonds that pay interest income each year. What is the minimum amount of interest the corporate bonds must pay for the individual to be required to file income taxes for 2021? Your Answer $6,101 Your Answer $9,501 $10,151 $11,201 Correct 63. An individual is operating a business as a sole proprietorship and has revenue of $100,000 and expenses of $50,000 in a given year. The individual also earns $5,000 from an outside part-time job. What is this individual’s self-employment tax liability? Your Answer $7,065 $15,300 $14,130 $16,500 Correct 64. An individual owns 45% of a partnership. The partnership sustained total operating losses of $45,000 in the current tax year, and the basis in the partnership is adequate to sustain the loss. What is the amount of this individual's recognized loss for the current tax year? Your Answer $0 $20,250 $29,250 $45,000 Correct 65. A company is considering alternative organizational forms. The business has net revenue of $110,000 and business expenses of $30,000, not including compensation for services or charitable contributions. The owner is single and has $3,000 of personal income from other sources and itemized deductions of $11,000. The owner receives compensation for services of $50,000 from the company. Business charitable contributions are $4,000. What is this corporation's income tax liability if the business is operated as a C corporation? Your Answer $3,150 $5,460 $6,300 $16,800 Correct 66. Corporation K, a subchapter of Corporation A, has $1,200,000 of net income for 2021. Corporation K distributed $500,000 in dividends and paid $200,000 in estimated tax payments. What is Corporation K’s federal tax liability for 2021? Your Answer $(53,000) $52,000 $147,000 $252,000 Correct 67. An individual owns 40% of the stock in an S corporation, and the individual’s spouse owns 30% of the stock. The tax year is the calendar year. The corporation reports $104,000 of ordinary taxable income in 2021 and pays no corporate income tax. Ignore any possible effect of a qualified business income (QBI) deduction. What is the amount of tax this individual must pay if income taxes are filed separately rather than jointly? Your Answer $1,781 $2,663 $3,287 $3,416