Verified Study Guide Tax 2 Final Exam 2023/2024
Tax 2 Final Exam 2023/2024 – Verified
Test Questions & Solutions
Prepared for Advanced Taxation Students
Date: June 14, 2025
Introduction
This comprehensive study guide is designed for students preparing for the Taxation II Final
Exam for the 2023/2024 academic year, focusing on advanced U.S. federal taxation topics typ-
ically covered in a second-semester undergraduate or graduate tax course. The guide provides
70 verified multiple-choice practice questions with 100% correct answers and detailed step-by-
step solutions, aligned with the Internal Revenue Code (IRC) as of 2023/2024. The questions
cover five key domains: Corporate Taxation, Partnership Taxation, S Corporations, Tax-Exempt
Organizations, and International Taxation. Each question includes four answer choices, the cor-
rect answer, and an explanation to ensure mastery. Additional sections offer preparation tips,
curated resources, a practice strategy, and common pitfalls to avoid, equipping you to excel in
your Tax 2 final exam and deepen your understanding of complex tax concepts.
1 Verified Questions and Solutions
1. What is the maximum number of shareholders an S corporation may have?
A. 50
B. 75
C. 100
D. 150
Correct Answer: C. 100
Step-by-Step Solution:
1. Review IRC: IRC §1361(b)(1)(A) limits S corporations to 100 shareholders.
2. Eliminate alternatives: 50 (A) and 75 (B) are too low, 150 (D) exceeds the limit.
3. Confirm: 100 is the statutory maximum.
Study Tip: Study S corporation eligibility rules.[](https://www.irs.gov/tax-professionals/enrolled-
agents/see-sample-test-questions-part-2)
2. Which entity is subject to the accumulated earnings tax?
A. S corporation
B. C corporation
C. Partnership
D. Sole proprietorship
Correct Answer: B. C corporation
Step-by-Step Solution:
1. Define tax: IRC §531 imposes the accumulated earnings tax on C corporations retain-
ing excessive earnings.
2. Eliminate alternatives: S corporations (A) pass through income, partnerships (C) and
sole proprietorships (D) are not corporations.
3. Confirm: Only C corporations face this tax.
Study Tip: Review IRC §§531–537.[](https://www.irs.gov/tax-professionals/enrolled-agents/see-
Page 1
,Verified Study Guide Tax 2 Final Exam 2023/2024
sample-test-questions-part-2)
3. How is a partnership’s ordinary business income reported?
A. Form 1040, Schedule C
B. Form 1065, Schedule K
C. Form 1120, Schedule D
D. Form 990
Correct Answer: B. Form 1065, Schedule K
Step-by-Step Solution:
1. Review reporting: Partnerships file Form 1065, with income allocated on Schedule K.
2. Eliminate alternatives: Schedule C (A) is for sole proprietors, Schedule D (C) is for
capital gains, Form 990 (D) is for tax-exempt entities.
3. Confirm: Schedule K reports partnership income.
Study Tip: Study partnership tax forms.
4. What is the tax rate for long-term capital gains of a C corporation in 2023?
A. 15%
B. 21%
C. 28%
D. 37%
Correct Answer: B. 21%
Step-by-Step Solution:
1. Review IRC: IRC §11(b) sets a flat 21% rate for C corporations, including capital
gains.
2. Eliminate alternatives: 15% (A) applies to individuals, 28% (C) is for collectibles,
37% (D) is individual top rate.
3. Confirm: C corporations pay 21% on all income.
Study Tip: Compare corporate vs. individual tax rates.
5. Which organization is exempt from federal income tax under IRC §501(c)(3)?
A. Political campaign
B. Social club
C. Charitable organization
D. Business league
Correct Answer: C. Charitable organization
Step-by-Step Solution:
1. Review IRC: IRC §501(c)(3) exempts charitable, religious, and educational organiza-
tions.
2. Eliminate alternatives: Political campaigns (A), social clubs (B), and business leagues
(D) fall under other IRC sections.
3. Confirm: Charitable organizations qualify for §501(c)(3).
Study Tip: Study IRC §501 exemptions.[](https://www.stuvia.com/en-us/doc/3371627/test-
bank-income-taxation-cpar.doc-version-1questions-en-answers-2023-2024-latest-exam)
6. What is the foreign tax credit designed to prevent?
A. Tax evasion
B. Double taxation
C. Tax deferral
D. Tax avoidance
Correct Answer: B. Double taxation
Page 2
, Verified Study Guide Tax 2 Final Exam 2023/2024
Step-by-Step Solution:
1. Define credit: IRC §901 allows a credit for foreign taxes paid to avoid taxing the same
income twice.
2. Eliminate alternatives: Evasion (A) and avoidance (D) are illegal or strategic, deferral
(C) delays tax.
3. Confirm: Credit prevents double taxation.
Study Tip: Study international tax credits.
7. Which form reports a corporation’s taxable income?
A. Form 1040
B. Form 1065
C. Form 1120
D. Form 1120-S
Correct Answer: C. Form 1120
Step-by-Step Solution:
1. Review forms: Form 1120 is for C corporations’ taxable income.
2. Eliminate alternatives: 1040 (A) is for individuals, 1065 (B) for partnerships, 1120-S
(D) for S corporations.
3. Confirm: Form 1120 is correct.
Study Tip: Memorize entity tax forms.
8. What is the basis of property contributed to a partnership?
A. Fair market value
B. Partner’s adjusted basis
C. Book value
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.
2. Eliminate alternatives: Fair market value (A) applies to other contexts, book value (C)
is accounting, appraised value (D) is irrelevant.
3. Confirm: Adjusted basis carries over.
Study Tip: Study IRC §§721–723.
9. Which entity elects S corporation status using Form 2553?
A. Partnership
B. C corporation
C. Sole proprietorship
D. LLC
Correct Answer: B. C corporation
Step-by-Step Solution:
1. Review IRC: IRC §1362 allows C corporations to elect S status via Form 2553.
2. Eliminate alternatives: Partnerships (A), sole proprietorships (C), and LLCs (D) can-
not directly elect S status.
3. Confirm: C corporations file Form 2553.
Study Tip: Study S election rules.[](https://www.irs.gov/tax-professionals/enrolled-agents/see-
sample-test-questions-part-2)
10. What is the tax consequence of a liquidating distribution from a C corporation?
A. No gain or loss
Page 3
Tax 2 Final Exam 2023/2024 – Verified
Test Questions & Solutions
Prepared for Advanced Taxation Students
Date: June 14, 2025
Introduction
This comprehensive study guide is designed for students preparing for the Taxation II Final
Exam for the 2023/2024 academic year, focusing on advanced U.S. federal taxation topics typ-
ically covered in a second-semester undergraduate or graduate tax course. The guide provides
70 verified multiple-choice practice questions with 100% correct answers and detailed step-by-
step solutions, aligned with the Internal Revenue Code (IRC) as of 2023/2024. The questions
cover five key domains: Corporate Taxation, Partnership Taxation, S Corporations, Tax-Exempt
Organizations, and International Taxation. Each question includes four answer choices, the cor-
rect answer, and an explanation to ensure mastery. Additional sections offer preparation tips,
curated resources, a practice strategy, and common pitfalls to avoid, equipping you to excel in
your Tax 2 final exam and deepen your understanding of complex tax concepts.
1 Verified Questions and Solutions
1. What is the maximum number of shareholders an S corporation may have?
A. 50
B. 75
C. 100
D. 150
Correct Answer: C. 100
Step-by-Step Solution:
1. Review IRC: IRC §1361(b)(1)(A) limits S corporations to 100 shareholders.
2. Eliminate alternatives: 50 (A) and 75 (B) are too low, 150 (D) exceeds the limit.
3. Confirm: 100 is the statutory maximum.
Study Tip: Study S corporation eligibility rules.[](https://www.irs.gov/tax-professionals/enrolled-
agents/see-sample-test-questions-part-2)
2. Which entity is subject to the accumulated earnings tax?
A. S corporation
B. C corporation
C. Partnership
D. Sole proprietorship
Correct Answer: B. C corporation
Step-by-Step Solution:
1. Define tax: IRC §531 imposes the accumulated earnings tax on C corporations retain-
ing excessive earnings.
2. Eliminate alternatives: S corporations (A) pass through income, partnerships (C) and
sole proprietorships (D) are not corporations.
3. Confirm: Only C corporations face this tax.
Study Tip: Review IRC §§531–537.[](https://www.irs.gov/tax-professionals/enrolled-agents/see-
Page 1
,Verified Study Guide Tax 2 Final Exam 2023/2024
sample-test-questions-part-2)
3. How is a partnership’s ordinary business income reported?
A. Form 1040, Schedule C
B. Form 1065, Schedule K
C. Form 1120, Schedule D
D. Form 990
Correct Answer: B. Form 1065, Schedule K
Step-by-Step Solution:
1. Review reporting: Partnerships file Form 1065, with income allocated on Schedule K.
2. Eliminate alternatives: Schedule C (A) is for sole proprietors, Schedule D (C) is for
capital gains, Form 990 (D) is for tax-exempt entities.
3. Confirm: Schedule K reports partnership income.
Study Tip: Study partnership tax forms.
4. What is the tax rate for long-term capital gains of a C corporation in 2023?
A. 15%
B. 21%
C. 28%
D. 37%
Correct Answer: B. 21%
Step-by-Step Solution:
1. Review IRC: IRC §11(b) sets a flat 21% rate for C corporations, including capital
gains.
2. Eliminate alternatives: 15% (A) applies to individuals, 28% (C) is for collectibles,
37% (D) is individual top rate.
3. Confirm: C corporations pay 21% on all income.
Study Tip: Compare corporate vs. individual tax rates.
5. Which organization is exempt from federal income tax under IRC §501(c)(3)?
A. Political campaign
B. Social club
C. Charitable organization
D. Business league
Correct Answer: C. Charitable organization
Step-by-Step Solution:
1. Review IRC: IRC §501(c)(3) exempts charitable, religious, and educational organiza-
tions.
2. Eliminate alternatives: Political campaigns (A), social clubs (B), and business leagues
(D) fall under other IRC sections.
3. Confirm: Charitable organizations qualify for §501(c)(3).
Study Tip: Study IRC §501 exemptions.[](https://www.stuvia.com/en-us/doc/3371627/test-
bank-income-taxation-cpar.doc-version-1questions-en-answers-2023-2024-latest-exam)
6. What is the foreign tax credit designed to prevent?
A. Tax evasion
B. Double taxation
C. Tax deferral
D. Tax avoidance
Correct Answer: B. Double taxation
Page 2
, Verified Study Guide Tax 2 Final Exam 2023/2024
Step-by-Step Solution:
1. Define credit: IRC §901 allows a credit for foreign taxes paid to avoid taxing the same
income twice.
2. Eliminate alternatives: Evasion (A) and avoidance (D) are illegal or strategic, deferral
(C) delays tax.
3. Confirm: Credit prevents double taxation.
Study Tip: Study international tax credits.
7. Which form reports a corporation’s taxable income?
A. Form 1040
B. Form 1065
C. Form 1120
D. Form 1120-S
Correct Answer: C. Form 1120
Step-by-Step Solution:
1. Review forms: Form 1120 is for C corporations’ taxable income.
2. Eliminate alternatives: 1040 (A) is for individuals, 1065 (B) for partnerships, 1120-S
(D) for S corporations.
3. Confirm: Form 1120 is correct.
Study Tip: Memorize entity tax forms.
8. What is the basis of property contributed to a partnership?
A. Fair market value
B. Partner’s adjusted basis
C. Book value
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.
2. Eliminate alternatives: Fair market value (A) applies to other contexts, book value (C)
is accounting, appraised value (D) is irrelevant.
3. Confirm: Adjusted basis carries over.
Study Tip: Study IRC §§721–723.
9. Which entity elects S corporation status using Form 2553?
A. Partnership
B. C corporation
C. Sole proprietorship
D. LLC
Correct Answer: B. C corporation
Step-by-Step Solution:
1. Review IRC: IRC §1362 allows C corporations to elect S status via Form 2553.
2. Eliminate alternatives: Partnerships (A), sole proprietorships (C), and LLCs (D) can-
not directly elect S status.
3. Confirm: C corporations file Form 2553.
Study Tip: Study S election rules.[](https://www.irs.gov/tax-professionals/enrolled-agents/see-
sample-test-questions-part-2)
10. What is the tax consequence of a liquidating distribution from a C corporation?
A. No gain or loss
Page 3
