Latest Questions & Verified Solutions Tax 2 Final Exam 2023/2024
Tax 2 Final Exam 2023/2024 – Latest
Questions and Verified Solutions
Prepared for Advanced Taxation Students
Date: June 15, 2025
Introduction
This comprehensive study guide is designed 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 55 new multiple-choice prac-
tice questions with 100% verified solutions, aligned with the Internal 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 11 questions per
domain. Each question provides four answer choices, the correct answer, and an in-depth expla-
nation to ensure conceptual mastery. The guide also offers preparation 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. Under IRC §1361, which type of trust is permitted as an S corporation shareholder?
A. Charitable remainder trust
B. Qualified subchapter S trust (QSST)
C. Complex trust
D. Foreign trust
Correct Answer: B. Qualified subchapter S trust (QSST)
Step-by-Step Solution:
1. Identify rule: IRC §1361(c)(2) allows certain trusts, including QSSTs, as S corporation
shareholders.
2. Analyze options: Charitable remainder trusts (A), complex trusts (C), and foreign
trusts (D) do not qualify under §1361.
3. Confirm: QSSTs meet specific requirements for S corporation eligibility.
Study Tip: Review S corporation shareholder eligibility in IRC §1361(c).
2. What is the purpose of the corporate dividends received deduction under IRC §243?
A. Avoid double taxation on dividends
B. Defer corporate income tax
C. Eliminate capital gains tax
D. Reduce ordinary income tax
Correct Answer: A. Avoid double taxation on dividends
Step-by-Step Solution:
1. Define deduction: IRC §243 allows C corporations a deduction for dividends received
from domestic corporations to mitigate double taxation.
2. Eliminate options: Deferral (B), capital gains (C), and ordinary income (D) are unre-
lated.
3. Confirm: The deduction reduces tax on intercorporate dividends.
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, Latest Questions & Verified Solutions Tax 2 Final Exam 2023/2024
Study Tip: Study IRC §§243–246 for dividend deductions.
3. Which IRC section governs the tax treatment of partnership formations?
A. IRC §351
B. IRC §721
C. IRC §731
D. IRC §754
Correct Answer: B. IRC §721
Step-by-Step Solution:
1. Review IRC: IRC §721 provides nonrecognition of gain or loss on property contribu-
tions to partnerships.
2. Eliminate options: §351 (A) is for corporations, §731 (C) is for distributions, §754 (D)
is for basis adjustments.
3. Confirm: §721 governs partnership formations.
Study Tip: Study partnership formation rules under IRC §721.
4. What is the tax consequence of a C corporation’s stock redemption under IRC §302?
A. Always treated as a dividend
B. Treated as a sale if substantially disproportionate
C. Tax-exempt
D. Deferred until liquidation
Correct Answer: B. Treated as a sale if substantially disproportionate
Step-by-Step Solution:
1. Review IRC: IRC §302(b) treats redemptions as a sale if they meet tests like substantial
disproportion.
2. Eliminate options: Dividend (A), exempt (C), and deferred (D) are incorrect.
3. Confirm: Sale treatment applies if qualifying.
Study Tip: Study redemption rules under IRC §302.
5. Which activity is prohibited for a §501(c)(3) organization?
A. Charitable distributions
B. Political campaign intervention
C. Educational programs
D. Religious services
Correct Answer: B. Political campaign intervention
Step-by-Step Solution:
1. Review IRC: IRC §501(c)(3) prohibits political campaign activities to maintain tax-
exempt status.
2. Eliminate options: Distributions (A), education (C), and services (D) are permitted.
3. Confirm: Political intervention is prohibited.
Study Tip: Study §501(c)(3) restrictions.
6. What is the purpose of the controlled foreign corporation (CFC) rules under IRC
§957?
A. Tax foreign corporations’ U.S. income
B. Prevent deferral of U.S. tax on foreign income
C. Eliminate foreign tax credits
D. Encourage foreign investment
Correct Answer: B. Prevent deferral of U.S. tax on foreign income
Step-by-Step Solution:
Page 2
Tax 2 Final Exam 2023/2024 – Latest
Questions and Verified Solutions
Prepared for Advanced Taxation Students
Date: June 15, 2025
Introduction
This comprehensive study guide is designed 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 55 new multiple-choice prac-
tice questions with 100% verified solutions, aligned with the Internal 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 11 questions per
domain. Each question provides four answer choices, the correct answer, and an in-depth expla-
nation to ensure conceptual mastery. The guide also offers preparation 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. Under IRC §1361, which type of trust is permitted as an S corporation shareholder?
A. Charitable remainder trust
B. Qualified subchapter S trust (QSST)
C. Complex trust
D. Foreign trust
Correct Answer: B. Qualified subchapter S trust (QSST)
Step-by-Step Solution:
1. Identify rule: IRC §1361(c)(2) allows certain trusts, including QSSTs, as S corporation
shareholders.
2. Analyze options: Charitable remainder trusts (A), complex trusts (C), and foreign
trusts (D) do not qualify under §1361.
3. Confirm: QSSTs meet specific requirements for S corporation eligibility.
Study Tip: Review S corporation shareholder eligibility in IRC §1361(c).
2. What is the purpose of the corporate dividends received deduction under IRC §243?
A. Avoid double taxation on dividends
B. Defer corporate income tax
C. Eliminate capital gains tax
D. Reduce ordinary income tax
Correct Answer: A. Avoid double taxation on dividends
Step-by-Step Solution:
1. Define deduction: IRC §243 allows C corporations a deduction for dividends received
from domestic corporations to mitigate double taxation.
2. Eliminate options: Deferral (B), capital gains (C), and ordinary income (D) are unre-
lated.
3. Confirm: The deduction reduces tax on intercorporate dividends.
Page 1
, Latest Questions & Verified Solutions Tax 2 Final Exam 2023/2024
Study Tip: Study IRC §§243–246 for dividend deductions.
3. Which IRC section governs the tax treatment of partnership formations?
A. IRC §351
B. IRC §721
C. IRC §731
D. IRC §754
Correct Answer: B. IRC §721
Step-by-Step Solution:
1. Review IRC: IRC §721 provides nonrecognition of gain or loss on property contribu-
tions to partnerships.
2. Eliminate options: §351 (A) is for corporations, §731 (C) is for distributions, §754 (D)
is for basis adjustments.
3. Confirm: §721 governs partnership formations.
Study Tip: Study partnership formation rules under IRC §721.
4. What is the tax consequence of a C corporation’s stock redemption under IRC §302?
A. Always treated as a dividend
B. Treated as a sale if substantially disproportionate
C. Tax-exempt
D. Deferred until liquidation
Correct Answer: B. Treated as a sale if substantially disproportionate
Step-by-Step Solution:
1. Review IRC: IRC §302(b) treats redemptions as a sale if they meet tests like substantial
disproportion.
2. Eliminate options: Dividend (A), exempt (C), and deferred (D) are incorrect.
3. Confirm: Sale treatment applies if qualifying.
Study Tip: Study redemption rules under IRC §302.
5. Which activity is prohibited for a §501(c)(3) organization?
A. Charitable distributions
B. Political campaign intervention
C. Educational programs
D. Religious services
Correct Answer: B. Political campaign intervention
Step-by-Step Solution:
1. Review IRC: IRC §501(c)(3) prohibits political campaign activities to maintain tax-
exempt status.
2. Eliminate options: Distributions (A), education (C), and services (D) are permitted.
3. Confirm: Political intervention is prohibited.
Study Tip: Study §501(c)(3) restrictions.
6. What is the purpose of the controlled foreign corporation (CFC) rules under IRC
§957?
A. Tax foreign corporations’ U.S. income
B. Prevent deferral of U.S. tax on foreign income
C. Eliminate foreign tax credits
D. Encourage foreign investment
Correct Answer: B. Prevent deferral of U.S. tax on foreign income
Step-by-Step Solution:
Page 2
