Question 1

In 2012,José,a widower,sells land (fair market value of $100,000)to his daughter,Linda,for $50,000.José has made a taxable gift of $50,000.

Accepted Answer

A) True 
 B)False

Question 2

Lucinda is a 60% shareholder in Rhea Corporation,a calendar year S corporation.During the year,Rhea Corporation had gross income of $550,000 and operating expenses of $380,000.In addition,the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000.During the year,Rhea Corporation distributed $50,000 to Lucinda.With respect to this information,which of the following statements is correct?

Accepted Answer

A) Rhea Corporation will pay tax on taxable income of $200,000. 
B) Lucinda reports ordinary income of $50,000. 
C) Lucinda reports ordinary income of $120,000. 
D) Lucinda reports ordinary income of $102,000 and a short-term capital gain of $18,000. 
E) None of the above. 
A) Rhea Corporation will pay tax on taxable income of $200,000. 
B) Lucinda reports ordinary income of $50,000. 
C) Lucinda reports ordinary income of $120,000. 
D) Lucinda reports ordinary income of $102,000 and a short-term capital gain of $18,000. 
E) None of the above.

Question 3

Property can be transferred within the family group by gift or at death.One motivation for preferring the gift approach is:

Accepted Answer

A) To take advantage of the higher unified transfer tax credit available under the gift tax. 
B) To avoid a future decline in value of the property transferred. 
C) To take advantage of the per donee annual exclusion. 
D) To shift income to higher bracket donees. 
E) None of the above. 
A) To take advantage of the higher unified transfer tax credit available under the gift tax. 
B) To avoid a future decline in value of the property transferred. 
C) To take advantage of the per donee annual exclusion. 
D) To shift income to higher bracket donees. 
E) None of the above.

Question 4

Burt and Lisa are married and live in a common law state.Burt wants to make gifts to their four children in 2013.What is the maximum amount of the annual exclusion they will be allowed for these gifts?

Accepted Answer

A) $14,000. 
B) $28,000. 
C) $56,000. 
D) $112,000. 
E) None of the above. 
A) $14,000. 
B) $28,000. 
C) $56,000. 
D) $112,000. 
E) None of the above.

Question 5

In 2011,Deborah became 65 years old.In 2012 she added a swimming pool,and in 2013 she converted the residence to rental property and moved into an assisted living facility.Since 2010,Deborah's ad valorem property taxes have decreased once and increased twice.Explain.

Accepted Answer

The decrease probably came in

Question 6

There is a Federal excise tax on hotel occupancy.

Accepted Answer

A) True 
 B)False

Question 7

Pablo,a sole proprietor,sold stock held as an investment for a $40,000 long-term capital gain.Pablo's marginal tax rate is 33%.Loon Corporation,a C corporation,sold stock held as an investment for a $40,000 long-term capital gain.Loon's marginal tax rate is 35%.What tax rates are applicable to these capital gains?

Accepted Answer

A) 15% rate applies to Pablo and 35% rate applies to Loon. 
B) 15% rate applies to Loon and 33% rate applies to Pablo. 
C) 35% rate applies to Loon and 33% rate applies to Pablo. 
D) 15% rate applies to both Pablo and Loon. 
E) None of the above. 
A) 15% rate applies to Pablo and 35% rate applies to Loon. 
B) 15% rate applies to Loon and 33% rate applies to Pablo. 
C) 35% rate applies to Loon and 33% rate applies to Pablo. 
D) 15% rate applies to both Pablo and Loon. 
E) None of the above.

Question 8

Taxes levied by all states include:

Accepted Answer

A) Tobacco excise tax. 
B) Individual income tax. 
C) Inheritance tax. 
D) General sales tax. 
E) None of the above. 
A) Tobacco excise tax. 
B) Individual income tax. 
C) Inheritance tax. 
D) General sales tax. 
E) None of the above.

Question 9

A parent employs his twin daughters,age 17,in his sole proprietorship.The daughters are not subject to FICA coverage.

Accepted Answer

A) True 
 B)False

Question 10

Nancy is a 40% shareholder and president of Robin Corporation,a regular corporation.The board of directors of Robin has decided to pay Nancy a $75,000 bonus for the year based on her outstanding performance.The directors want to pay the $75,000 as salary,but Nancy would prefer to have it paid as a dividend.If Robin Corporation is in the 34% marginal tax bracket and Nancy is in the 33% marginal tax bracket irrespective of the treatment of the bonus,discuss which form of payment would be most beneficial for each party.(Ignore any employment tax considerations.)

Accepted Answer

Robin Corporation prefers treating the p

Question 11

Paige is the sole shareholder of Citron Corporation.During the year,Paige leases a building to Citron for a monthly rental of $80,000.If the fair rental value of the building is $60,000,what are the income tax consequences to the parties involved?

Accepted Answer

The rent charged by Paige is not "arms l

Question 12

A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.

Accepted Answer

A) True 
 B)False

Question 13

The Federal estate and gift taxes are examples of progressive taxes.

Accepted Answer

A) True 
 B)False

Question 14

Dawn is the sole shareholder of Thrush Corporation,a C corporation.In the current year,Thrush earned $350,000 and distributed $75,000 to Dawn.Kirk is the sole shareholder of Swallow Corporation,an S corporation.In the current year,Swallow earned $350,000 and distributed $75,000 to Kirk.Contrast the tax treatment of Thrush Corporation and Dawn with the tax treatment of Swallow Corporation and Kirk.

Accepted Answer

A C corporation is a separate taxable en

Question 15

Which of the following statements is incorrect about LLCs and the check-the-box Regulations?

Accepted Answer

A) If a limited liability company with more than one owner does not make an election,the entity is taxed as a corporation. 
B) All 50 states have passed laws that allow LLCs. 
C) An entity with more than one owner and formed as a corporation cannot elect to be taxed as a partnership. 
D) If a limited liability company with one owner does not make an election,the entity is taxed as a sole proprietorship. 
E) A limited liability company with one owner can elect to be taxed as a corporation. 
A) If a limited liability company with more than one owner does not make an election,the entity is taxed as a corporation. 
B) All 50 states have passed laws that allow LLCs. 
C) An entity with more than one owner and formed as a corporation cannot elect to be taxed as a partnership. 
D) If a limited liability company with one owner does not make an election,the entity is taxed as a sole proprietorship. 
E) A limited liability company with one owner can elect to be taxed as a corporation.

Question 16

Don,the sole shareholder of Pastel Corporation (a C corporation),has the corporation pay him a salary of $600,000 in the current year.The Tax Court has held that $200,000 represents unreasonable compensation.Don must report a salary of $400,000 and a dividend of $200,000 on his individual tax return.

Accepted Answer

A) True 
 B)False

Question 17

Norma formed Hyacinth Enterprises,a proprietorship,in 2013.In its first year,Hyacinth had operating income of $400,000 and operating expenses of $240,000.In addition,Hyacinth had a long-term capital loss of $10,000.Norma,the proprietor of Hyacinth Enterprises,withdrew $75,000 from Hyacinth during the year.Assuming Norma has no other capital gains or losses,how does this information affect her taxable income for 2013?

Accepted Answer

A) Increases Norma's taxable income by $157,000 ($160,000 ordinary business income - $3,000 long-term capital loss). 
B) Increases Norma's taxable income by $150,000 ($160,000 ordinary business income - $10,000 long-term capital loss). 
C) Increases Norma's taxable income by $75,000. 
D) Increases Norma's taxable income by $160,000. 
E) None of the above. 
A) Increases Norma's taxable income by $157,000 ($160,000 ordinary business income - $3,000 long-term capital loss). 
B) Increases Norma's taxable income by $150,000 ($160,000 ordinary business income - $10,000 long-term capital loss). 
C) Increases Norma's taxable income by $75,000. 
D) Increases Norma's taxable income by $160,000. 
E) None of the above.

Question 18

On transfers by death,the Federal government relies on an estate tax,while states impose an estate tax,an inheritance tax,both taxes,or neither tax.

Accepted Answer

A) True 
 B)False

Question 19

Flycatcher Corporation,a C corporation,has two equal individual shareholders,Nancy and Pasqual.In the current year,Flycatcher earned $100,000 net profit and paid a dividend of $10,000 to each shareholder.Regardless of any tax consequences resulting from their interests in Flycatcher,Nancy is in the 33% marginal tax bracket and Pasqual is in the 15% marginal tax bracket.With respect to the current year,which of the following statements is incorrect?

Accepted Answer

A) Flycatcher cannot avoid the corporate tax altogether by paying out all $100,000 of net profit as dividends to the shareholders. 
B) Nancy incurs income tax of $1,500 on her dividend income. 
C) Pasqual incurs income tax of $1,500 on his dividend income. 
D) Flycatcher pays corporate tax of $22,250. 
E) None of the above. 
A) Flycatcher cannot avoid the corporate tax altogether by paying out all $100,000 of net profit as dividends to the shareholders. 
B) Nancy incurs income tax of $1,500 on her dividend income. 
C) Pasqual incurs income tax of $1,500 on his dividend income. 
D) Flycatcher pays corporate tax of $22,250. 
E) None of the above.

Question 20

Donald owns a 45% interest in a partnership that earned $130,000 in the current year.He also owns 45% of the stock in a C corporation that earned $130,000 during the year.Donald received $20,000 in distributions from each of the two entities during the year.With respect to this information,Donald must report $78,500 of income on his individual income tax return for the year.

Accepted Answer

A) True 
 B)False

In 2012,José,a widower,sells land (fair market value of $100,000)to his daughter,Linda,for $50,000.José has made a taxable gift of $50,000.

Property can be transferred within the family group by gift or at death.One motivation for preferring the gift approach is:

Burt and Lisa are married and live in a common law state.Burt wants to make gifts to their four children in 2013.What is the maximum amount of the annual exclusion they will be allowed for these gifts?

In 2011,Deborah became 65 years old.In 2012 she added a swimming pool,and in 2013 she converted the residence to rental property and moved into an assisted living facility.Since 2010,Deborah's ad valorem property taxes have decreased once and increased twice.Explain.

There is a Federal excise tax on hotel occupancy.

Taxes levied by all states include:

A parent employs his twin daughters,age 17,in his sole proprietorship.The daughters are not subject to FICA coverage.

Paige is the sole shareholder of Citron Corporation.During the year,Paige leases a building to Citron for a monthly rental of $80,000.If the fair rental value of the building is $60,000,what are the income tax consequences to the parties involved?

A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.

The Federal estate and gift taxes are examples of progressive taxes.

Which of the following statements is incorrect about LLCs and the check-the-box Regulations?

On transfers by death,the Federal government relies on an estate tax,while states impose an estate tax,an inheritance tax,both taxes,or neither tax.

Working With the Tax Law

Taxes on the Financial Statements

Gross Income

Business Deductions

Losses and Loss Limitations

Property Transactions: Basis, gain and Loss, and Nontaxable Exchange

Property Transactions: Capital Gains and Losses, section 1231, and Recapture Provisions

Corporations: Organization, capital Structure, and Operating Rules

Corporations: Earnings Profits and Distributions

Partnerships and Limited Liability Entities

S Corporations

Multijurisdictional Taxation

Business Tax Credits and Corporate Alternative Minimum Tax

Comparative Forms of Doing Business

Introduction to the Taxation of Individuals

Individuals As Employees and Proprietors

Filters

Exam 1: Introduction to Taxation

In 2012,José,a widower,sells land (fair market value of $100,000)to his daughter,Linda,for $50,000.José has made a taxable gift of $50,000.

Property can be transferred within the family group by gift or at death.One motivation for preferring the gift approach is:

Burt and Lisa are married and live in a common law state.Burt wants to make gifts to their four children in 2013.What is the maximum amount of the annual exclusion they will be allowed for these gifts?

In 2011,Deborah became 65 years old.In 2012 she added a swimming pool,and in 2013 she converted the residence to rental property and moved into an assisted living facility.Since 2010,Deborah's ad valorem property taxes have decreased once and increased twice.Explain.

There is a Federal excise tax on hotel occupancy.

Taxes levied by all states include:

A parent employs his twin daughters,age 17,in his sole proprietorship.The daughters are not subject to FICA coverage.

Paige is the sole shareholder of Citron Corporation.During the year,Paige leases a building to Citron for a monthly rental of $80,000.If the fair rental value of the building is $60,000,what are the income tax consequences to the parties involved?

A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.

The Federal estate and gift taxes are examples of progressive taxes.

Which of the following statements is incorrect about LLCs and the check-the-box Regulations?

On transfers by death,the Federal government relies on an estate tax,while states impose an estate tax,an inheritance tax,both taxes,or neither tax.

Working With the Tax Law

Taxes on the Financial Statements

Gross Income

Business Deductions

Losses and Loss Limitations

Property Transactions: Basis, gain and Loss, and Nontaxable Exchange

Property Transactions: Capital Gains and Losses, section 1231, and Recapture Provisions

Corporations: Organization, capital Structure, and Operating Rules

Corporations: Earnings Profits and Distributions

Partnerships and Limited Liability Entities

S Corporations

Multijurisdictional Taxation

Business Tax Credits and Corporate Alternative Minimum Tax

Comparative Forms of Doing Business

Introduction to the Taxation of Individuals

Individuals As Employees and Proprietors

Filters