Question 1

The check-the-box regulations permit an LLC to be taxed as a C corporation.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is incorrect?

Accepted Answer

A) Limited partners' liability for partnership debt is limited to their amount of investment. 
B) In a general partnership, all partners have unlimited liability for partnership debts. 
C) In a limited partnership, all partners participate in managerial decision making. 
D) All of the above are correct. 
A) Limited partners' liability for partnership debt is limited to their amount of investment. 
B) In a general partnership, all partners have unlimited liability for partnership debts. 
C) In a limited partnership, all partners participate in managerial decision making. 
D) All of the above are correct.

Question 3

Brad forms Vott Corporation by contributing equipment, which has a basis of $50,000 and an FMV of $40,000 in exchange for Vott stock. Brad also contributes $5,000 in cash. If the transaction meets the Sec. 351 control and ownership tests, what are the tax consequences to Brad?

Accepted Answer

A) He recognizes a $5,000 loss. 
B) He recognizes a $5,000 gain and a $10,000 loss. 
C) He recognizes neither a gain nor a loss. 
D) He recognizes a $10,000 loss. 
A) He recognizes a $5,000 loss. 
B) He recognizes a $5,000 gain and a $10,000 loss. 
C) He recognizes neither a gain nor a loss. 
D) He recognizes a $10,000 loss.

Question 4

Azar, who owns 100% of Hat Corporation, transfers land having a $50,000 FMV and a $30,000 adjusted basis to Hat. In return, Azar receives additional shares of Hat common stock having a $40,000 FMV and Cap Corporation common stock having a $10,000 FMV. The Cap Corporation common stock, a capital asset, has a $2,500 basis on Hat's books. What is Azar's realized and recognized gain? Does Hat Corporation recognize a gain on the stock transfer to Azar?

Accepted Answer

Azar realizes a $20,000 ($40,000 + $10,0

Question 5

S corporations are flow-through entities in which S income is allocated to shareholders.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is incorrect?

Accepted Answer

A) S corporations must allocate income and expenses to their shareholders based on their proportionate ownership interest. 
B) The number of S corporation shareholders is unlimited. 
C) S corporation income is taxed to shareholders when earned. 
D) S corporation losses can offset shareholder income from other sources. 
A) S corporations must allocate income and expenses to their shareholders based on their proportionate ownership interest. 
B) The number of S corporation shareholders is unlimited. 
C) S corporation income is taxed to shareholders when earned. 
D) S corporation losses can offset shareholder income from other sources.

Question 7

Section 351 applies to an exchange if the contributing shareholders own more than 50% of a corporation's stock after the transfer.

Accepted Answer

A) True 
 B)False

Question 8

Identify which of the following statements is true.

Accepted Answer

A) The exchange of stock for services rendered is not a taxable transaction. 
B) The repeal of Sec. 351 would result in more existing businesses being incorporated. 
C) Section 351 was enacted to allow taxpayers to incorporate without incurring adverse tax consequences. 
D) All of the above are false. 
A) The exchange of stock for services rendered is not a taxable transaction. 
B) The repeal of Sec. 351 would result in more existing businesses being incorporated. 
C) Section 351 was enacted to allow taxpayers to incorporate without incurring adverse tax consequences. 
D) All of the above are false.

Question 9

Ralph transfers property with an adjusted basis of $65,000 and an FMV of $70,000 to Lake Corporation in a Sec. 351 transaction. Ralph receives stock worth $60,000 and a short-term note having a $10,000 FMV. Ralph's basis in the stock is

Accepted Answer

A) $75,000. 
B) $70,000. 
C) $65,000. 
D) $60,000. 
A) $75,000. 
B) $70,000. 
C) $65,000. 
D) $60,000.

Question 10

A medical doctor incorporates her medical practice, which is operated as a sole proprietorship. The proprietorship uses the cash method of accounting. Among the assets contributed to the new corporation are unrealized receivables worth $40,000. The receivables are collected by the corporation. Which of the following statements is correct?

Accepted Answer

A) The $40,000 of receivables is included as ordinary income on the doctor's personal income tax return when collected by the corporation. 
B) The doctor must include the $40,000 as ordinary income in her personal income tax return at the time of incorporation. 
C) The $40,000 of receivables is included as ordinary income in the corporation's income tax return at the time of incorporation. 
D) The $40,000 of receivables is included as ordinary income in the corporation's income tax return when collected. 
A) The $40,000 of receivables is included as ordinary income on the doctor's personal income tax return when collected by the corporation. 
B) The doctor must include the $40,000 as ordinary income in her personal income tax return at the time of incorporation. 
C) The $40,000 of receivables is included as ordinary income in the corporation's income tax return at the time of incorporation. 
D) The $40,000 of receivables is included as ordinary income in the corporation's income tax return when collected.

Question 11

The transferor's holding period for any boot property received in a Sec. 351 stock exchange

Accepted Answer

A) includes the holding period for the boot transferred. 
B) begins on the day after the exchange. 
C) begins on the day of the exchange. 
D) is the same as the holding period of the stock received in the exchange. 
A) includes the holding period for the boot transferred. 
B) begins on the day after the exchange. 
C) begins on the day of the exchange. 
D) is the same as the holding period of the stock received in the exchange.

Question 12

Identify which of the following statements is true.

Accepted Answer

A) The assignment of income doctrine requires a cash method of accounting for a transferor/shareholder to recognize income when accounts receivable are transferred by the shareholder to the corporation in a Sec. 351 exchange in which no gain is otherwise recognized. 
B) The assignment of income doctrine is a legislative requirement that income be taxed to the person who earns it. 
C) The assignment of income doctrine does not apply if the transferor in a Sec. 351 exchange in which no gain is otherwise recognized transfers when a sole proprietor transfers substantially all the assets and liabilities of the transferor's trade or business to a controlled corporation. 
D) All of the above are false. 
A) The assignment of income doctrine requires a cash method of accounting for a transferor/shareholder to recognize income when accounts receivable are transferred by the shareholder to the corporation in a Sec. 351 exchange in which no gain is otherwise recognized. 
B) The assignment of income doctrine is a legislative requirement that income be taxed to the person who earns it. 
C) The assignment of income doctrine does not apply if the transferor in a Sec. 351 exchange in which no gain is otherwise recognized transfers when a sole proprietor transfers substantially all the assets and liabilities of the transferor's trade or business to a controlled corporation. 
D) All of the above are false.

Question 13

Ra Corporation issues a twenty-year obligation at its $1,000 face amount. Rames purchases the obligation for $1,000 on the issue date. Due to a decline in interest rates, Ra calls the obligation by paying $1,010 to each of the holders of the twenty-year obligations. What is the tax treatment of the $1,010 by Ra and Rames?

Accepted Answer

Rames will recognize a $10 cap

Question 14

The tax disadvantages of the C corporation form of doing business include "double taxation." What is meant by the term "double taxation" as used in this context?

Accepted Answer

Double taxation occurs when corporate ea

Question 15

Henry transfers property with an adjusted basis of $90,000 and an FMV of $100,000 to a newly-formed corporation in a Sec. 351 exchange. Henry receives stock with an FMV of $80,000 and a short-term note with a $20,000 FMV. Henry's recognized gain is

Accepted Answer

A) $0. 
B) $5,000. 
C) $10,000. 
D) $20,000. 
A) $0. 
B) $5,000. 
C) $10,000. 
D) $20,000.

Question 16

Joan transfers land (a capital asset)having a $20,000 adjusted basis to Jet Corporation in a transaction qualifying under Sec. 351. In exchange, she received 50 shares of Jet Corporation common stock valued at $50,000, a $15,000 Jet Corporation bond due in 10 years, and a $10,000 Jet Corporation note due in 3 years. What tax issues should Joan consider with respect to the transfer?
a)What is the amount of Joan's realized gain or loss? What is the amount of Joan's recognized gain or loss? What is the character of Joan's recognized gain or loss?
b)What is Joan's basis in her stock? What is Joan's basis in the bond? What is Joan's basis in the note?
c)What is Jet Corporation's basis in the land?

Accepted Answer

a) @#IMG-DLM& b)Basis of stock and ten-year bond:

Question 17

Three members form an LLC in the current year. Which of the following statements is incorrect?

Accepted Answer

A) The LLC's default classification under the check-the-box rules is as a partnership. 
B) The LLC can elect to have its default classification ignored. 
C) The LLC can elect to be taxed as a C corporation with no special tax consequences. 
D) If the LLC elects to use its default classification, it can elect to change its status to being taxed as a C corporation beginning with the third tax year after the initial classification. 
A) The LLC's default classification under the check-the-box rules is as a partnership. 
B) The LLC can elect to have its default classification ignored. 
C) The LLC can elect to be taxed as a C corporation with no special tax consequences. 
D) If the LLC elects to use its default classification, it can elect to change its status to being taxed as a C corporation beginning with the third tax year after the initial classification.

Question 18

For Sec. 351 purposes, the term "property" does not include

Accepted Answer

A) cash. 
B) accounts receivable. 
C) inventory. 
D) services rendered. 
A) cash. 
B) accounts receivable. 
C) inventory. 
D) services rendered.

Question 19

S corporations must allocate income to shareholders based on their proportionate stock ownership.

Accepted Answer

A) True 
 B)False

Question 20

The City of Portland gives Data Corporation $60,000 cash and land worth $100,000 to induce it to move. The cash was not spent during the 12 months following contribution. The contribution results in

Accepted Answer

A) income recognition in the amount of $160,000 to the corporation at the time of contribution. 
B) income recognition in the amount of $60,000 to the corporation 12 months after the time of contribution. 
C) a zero basis in the land and $60,000 ordinary income to the corporation 24 months after the time of contribution if the cash is not used to purchase an asset. 
D) a zero basis in the land and a $60,000 basis reduction in other assets. 
A) income recognition in the amount of $160,000 to the corporation at the time of contribution. 
B) income recognition in the amount of $60,000 to the corporation 12 months after the time of contribution. 
C) a zero basis in the land and $60,000 ordinary income to the corporation 24 months after the time of contribution if the cash is not used to purchase an asset. 
D) a zero basis in the land and a $60,000 basis reduction in other assets.

The check-the-box regulations permit an LLC to be taxed as a C corporation.

Which of the following statements is incorrect?

Brad forms Vott Corporation by contributing equipment, which has a basis of $50,000 and an FMV of $40,000 in exchange for Vott stock. Brad also contributes $5,000 in cash. If the transaction meets the Sec. 351 control and ownership tests, what are the tax consequences to Brad?

S corporations are flow-through entities in which S income is allocated to shareholders.

Which of the following statements is incorrect?

Section 351 applies to an exchange if the contributing shareholders own more than 50% of a corporation's stock after the transfer.

Identify which of the following statements is true.

Ralph transfers property with an adjusted basis of $65,000 and an FMV of $70,000 to Lake Corporation in a Sec. 351 transaction. Ralph receives stock worth $60,000 and a short-term note having a $10,000 FMV. Ralph's basis in the stock is

The transferor's holding period for any boot property received in a Sec. 351 stock exchange

Identify which of the following statements is true.

The tax disadvantages of the C corporation form of doing business include "double taxation." What is meant by the term "double taxation" as used in this context?

Henry transfers property with an adjusted basis of $90,000 and an FMV of $100,000 to a newly-formed corporation in a Sec. 351 exchange. Henry receives stock with an FMV of $80,000 and a short-term note with a $20,000 FMV. Henry's recognized gain is

Three members form an LLC in the current year. Which of the following statements is incorrect?

For Sec. 351 purposes, the term "property" does not include

S corporations must allocate income to shareholders based on their proportionate stock ownership.

The City of Portland gives Data Corporation $60,000 cash and land worth $100,000 to induce it to move. The cash was not spent during the 12 months following contribution. The contribution results in

Tax Research

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

Us Taxation of Foreign-Related Transactions

Filters

Exam 2: Corporate Formations and Capital Structure

The check-the-box regulations permit an LLC to be taxed as a C corporation.

Which of the following statements is incorrect?

Brad forms Vott Corporation by contributing equipment, which has a basis of $50,000 and an FMV of $40,000 in exchange for Vott stock. Brad also contributes $5,000 in cash. If the transaction meets the Sec. 351 control and ownership tests, what are the tax consequences to Brad?

S corporations are flow-through entities in which S income is allocated to shareholders.

Which of the following statements is incorrect?

Section 351 applies to an exchange if the contributing shareholders own more than 50% of a corporation's stock after the transfer.

Identify which of the following statements is true.

Ralph transfers property with an adjusted basis of $65,000 and an FMV of $70,000 to Lake Corporation in a Sec. 351 transaction. Ralph receives stock worth $60,000 and a short-term note having a $10,000 FMV. Ralph's basis in the stock is

The transferor's holding period for any boot property received in a Sec. 351 stock exchange

Identify which of the following statements is true.

The tax disadvantages of the C corporation form of doing business include "double taxation." What is meant by the term "double taxation" as used in this context?

Henry transfers property with an adjusted basis of $90,000 and an FMV of $100,000 to a newly-formed corporation in a Sec. 351 exchange. Henry receives stock with an FMV of $80,000 and a short-term note with a $20,000 FMV. Henry's recognized gain is

Three members form an LLC in the current year. Which of the following statements is incorrect?

For Sec. 351 purposes, the term "property" does not include

S corporations must allocate income to shareholders based on their proportionate stock ownership.

The City of Portland gives Data Corporation $60,000 cash and land worth $100,000 to induce it to move. The cash was not spent during the 12 months following contribution. The contribution results in

Tax Research

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

Us Taxation of Foreign-Related Transactions

Filters