Question 1

A participant has an adjusted basis of $0 in any nondeductible contributions to a traditional IRA.

Accepted Answer

A) True 
 B)False

Question 2

A retirement plan covers 72% of the non-highly compensated individuals.The plan benefits 48 of the 131 employees.Which is true?

Accepted Answer

A)  The 70% coverage requirement is not met. 
B)  The plan meets the minimum participation test. 
C)  The plan meets the 70% coverage requirement, but fails the minimum participation test. 
D)  The plan does not meet the 70% coverage requirement, but does meet the minimum participation test. 
E)  None of the above is true. 
A)  The 70% coverage requirement is not met. 
B)  The plan meets the minimum participation test. 
C)  The plan meets the 70% coverage requirement, but fails the minimum participation test. 
D)  The plan does not meet the 70% coverage requirement, but does meet the minimum participation test. 
E)  None of the above is true.

Question 3

A qualified plan must provide,at a minimum,that all employees in the covered group who are 21 years of age are eligible to participate after completing one year of service.

Accepted Answer

A) True 
 B)False

Question 4

An employer obtains a tax deduction at the same time and to the extent that ordinary income is recognized by the employee who receives nonqualified stock options.

Accepted Answer

A) True 
 B)False

Question 5

Paul is a participant in a qualified retirement plan in 2012.In which situation would he be considered highly compensated?

Accepted Answer

A)  He owns 4% of the company. 
B)  He receives a total salary of $110,000 from the company. 
C)  He is a member of the top-paid group and receives a salary of $75,000. 
D)  He is vice-president and receives a salary of $55,000. 
E)  None of the above. 
A)  He owns 4% of the company. 
B)  He receives a total salary of $110,000 from the company. 
C)  He is a member of the top-paid group and receives a salary of $75,000. 
D)  He is vice-president and receives a salary of $55,000. 
E)  None of the above.

Question 6

Yvonne exercises incentive stock options (ISOs)for 100 shares of Apple Corporation stock at the option price of $100 per share on May 21,2012,when the fair market value is $120 per share.She holds the stock for only two years and sells the shares for $115 per share.Determine the recognized gain on the sale and classify it as capital or ordinary.

Accepted Answer

A)  $2,000 ordinary income and $2,000 STCG. 
B)  $2,000 ordinary income and $2,000 LTCG. 
C)  $4,000 ordinary income. 
D)  $1,500 LTCG. 
E)  None of the above. 
A)  $2,000 ordinary income and $2,000 STCG. 
B)  $2,000 ordinary income and $2,000 LTCG. 
C)  $4,000 ordinary income. 
D)  $1,500 LTCG. 
E)  None of the above.

Question 7

Pony,Inc.,issues restricted stock to employees in July 2012,with a two-year vesting period and an SRF.An employee must remain a full-time employee of Pony for two years after the restricted stock is issued.The stock is trading at $10 per share when the stock is issued.An employee,Sam,decides to make the § 83(b)election with his 1,000 shares.At the end of 2012,the stock is selling for $13 per share.What amount,if any,can Pony take as a compensation deduction?

Accepted Answer

A)  $0. 
B)  $10,000 in 2012. 
C)  $13,000 in 2012. 
D)  $10,000 when stock is sold. 
E)  $13,000 when stock is sold. 
A)  $0. 
B)  $10,000 in 2012. 
C)  $13,000 in 2012. 
D)  $10,000 when stock is sold. 
E)  $13,000 when stock is sold.

Question 8

Yvonne exercises incentive stock options (ISOs)for 100 shares of Apple Corporation stock at the option price of $100 per share on May 21,2012,when the fair market value is $120 per share.She holds the stock for only seven months and sells the shares for $140 per share.Determine the recognized gain on the sale and classify it as capital or ordinary.

Accepted Answer

A)  $2,000 ordinary income and $2,000 STCG. 
B)  $2,000 ordinary income and $2,000 LTCG. 
C)  $4,000 ordinary income. 
D)  $4,000 LTCG. 
E)  None of the above. 
A)  $2,000 ordinary income and $2,000 STCG. 
B)  $2,000 ordinary income and $2,000 LTCG. 
C)  $4,000 ordinary income. 
D)  $4,000 LTCG. 
E)  None of the above.

Question 9

Low- and middle-income taxpayers may make nondeductible contributions up to $4,000 per child per year to a Coverdell Education Savings Account (CESA).

Accepted Answer

A) True 
 B)False

Question 10

Pony,Inc.,issues restricted stock to employees in July 2012,with a two-year vesting period and an SRF.An employee must remain a full-time employee of Pony for two years after the restricted stock is issued.The stock is trading at $10 per share when Sam is issued 1,000 shares,and he does not make a § 83(b)election.At the end of 2012,the stock is selling for $13 per share.Sam remains a full-time employee of Pony for the required two-year vesting period,at which time the stock is worth $30 per share (in 2014).Sam sells his 1,000 shares in 2016 at $36 per share.What amount and type of income will Sam recognize in 2016?

Accepted Answer

A)  $6,000 ordinary income. 
B)  $6,000 capital gain. 
C)  $26,000 capital gain. 
D)  $6,000 capital gain; $20,000 ordinary income. 
E)  $20,000 capital gain; $6,000 ordinary income. 
A)  $6,000 ordinary income. 
B)  $6,000 capital gain. 
C)  $26,000 capital gain. 
D)  $6,000 capital gain; $20,000 ordinary income. 
E)  $20,000 capital gain; $6,000 ordinary income.

Question 11

If a person has funds from sources other than retirement assets when he or she retires,which retirement asset should be spent first?

Accepted Answer

The most tax-efficient result is to post

Question 12

Debby is a self-employed accountant with a qualified defined benefit plan (a Keogh plan).She has the following income items for the year:
  What is the maximum amount Debby can deduct as a contribution to her retirement plan in 2012,assuming the self-employment tax rate is 15.3%?

Accepted Answer

A)  $9,235. 
B)  $12,000. 
C)  $50,000. 
D)  $55,761. 
E)  None of the above. 
A)  $9,235. 
B)  $12,000. 
C)  $50,000. 
D)  $55,761. 
E)  None of the above.

Question 13

Higher compensation does not necessarily guarantee commensurate performance.

Accepted Answer

A) True 
 B)False

Question 14

The five-year cliff vesting alternative minimizes administrative expenses for a company and provides more vesting for long-term employees.

Accepted Answer

A) True 
 B)False

Question 15

A participant who is at least age 59 1/2 can make a tax-free qualified withdrawal from a Roth IRA after a five-year holding period.

Accepted Answer

A) True 
 B)False

Question 16

Dianna participates in a defined benefit plan that uses a fixed formula providing an employee with a benefit of 2% for each year of service,up to a maximum of 30 years.The total percentage accumulated before retirement is applied to the average of her three highest years of salary.Dianna works for 21 years,and the average of her three highest years of salary is $290,000.Calculate the amount of retirement benefits she will receive each year.

Accepted Answer

A)  $0. 
B)  $102,800. 
C)  $110,000. 
D)  $250,000. 
E)  None of the above. 
A)  $0. 
B)  $102,800. 
C)  $110,000. 
D)  $250,000. 
E)  None of the above.

Question 17

Income is not taxed if a taxpayer's control over the amount earned is subject to substantial restrictions.

Accepted Answer

A) True 
 B)False

Question 18

If an individual is ineligible to make a deductible contribution to a traditional IRA,nondeductible contributions of any amount can be made to a traditional IRA.

Accepted Answer

A) True 
 B)False

Question 19

If a taxpayer receives an early distribution from a qualified retirement plan,a 10% additional tax is levied on the full amount of any distribution includible in gross income.

Accepted Answer

A) True 
 B)False

Question 20

Under a defined benefit plan,the annual benefit payable to an employee is limited to the smaller of $200,000 (in 2012)or 100% of the employee's average compensation for the highest 3 years of employment.

Accepted Answer

A) True 
 B)False

A participant has an adjusted basis of $0 in any nondeductible contributions to a traditional IRA.

A retirement plan covers 72% of the non-highly compensated individuals.The plan benefits 48 of the 131 employees.Which is true?

A qualified plan must provide,at a minimum,that all employees in the covered group who are 21 years of age are eligible to participate after completing one year of service.

An employer obtains a tax deduction at the same time and to the extent that ordinary income is recognized by the employee who receives nonqualified stock options.

Paul is a participant in a qualified retirement plan in 2012.In which situation would he be considered highly compensated?

Low- and middle-income taxpayers may make nondeductible contributions up to $4,000 per child per year to a Coverdell Education Savings Account (CESA).

If a person has funds from sources other than retirement assets when he or she retires,which retirement asset should be spent first?

Debby is a self-employed accountant with a qualified defined benefit plan (a Keogh plan).She has the following income items for the year: What is the maximum amount Debby can deduct as a contribution to her retirement plan in 2012,assuming the self-employment tax rate is 15.3%?

Higher compensation does not necessarily guarantee commensurate performance.

The five-year cliff vesting alternative minimizes administrative expenses for a company and provides more vesting for long-term employees.

A participant who is at least age 59 1/2 can make a tax-free qualified withdrawal from a Roth IRA after a five-year holding period.

Income is not taxed if a taxpayer's control over the amount earned is subject to substantial restrictions.

If an individual is ineligible to make a deductible contribution to a traditional IRA,nondeductible contributions of any amount can be made to a traditional IRA.

If a taxpayer receives an early distribution from a qualified retirement plan,a 10% additional tax is levied on the full amount of any distribution includible in gross income.

Under a defined benefit plan,the annual benefit payable to an employee is limited to the smaller of $200,000 (in 2012)or 100% of the employee's average compensation for the highest 3 years of employment.

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Tax Formula and Tax Determination; an Overview of Property Transactions

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, cost Recovery, amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions: Determination of Gain or Loss and Basis Considerations

Property Transactions: Nontaxable Exchanges

Property Transactions: Capital Gains and Losses

Property Transactions: Section 1231 and Recapture Provisions

Accounting Periods and Methods

Corporations and Partnerships

Filters

Exam 19: Deferred Compensation

A participant has an adjusted basis of $0 in any nondeductible contributions to a traditional IRA.

A retirement plan covers 72% of the non-highly compensated individuals.The plan benefits 48 of the 131 employees.Which is true?

A qualified plan must provide,at a minimum,that all employees in the covered group who are 21 years of age are eligible to participate after completing one year of service.

An employer obtains a tax deduction at the same time and to the extent that ordinary income is recognized by the employee who receives nonqualified stock options.

Paul is a participant in a qualified retirement plan in 2012.In which situation would he be considered highly compensated?

Low- and middle-income taxpayers may make nondeductible contributions up to $4,000 per child per year to a Coverdell Education Savings Account (CESA).

If a person has funds from sources other than retirement assets when he or she retires,which retirement asset should be spent first?

Debby is a self-employed accountant with a qualified defined benefit plan (a Keogh plan).She has the following income items for the year: What is the maximum amount Debby can deduct as a contribution to her retirement plan in 2012,assuming the self-employment tax rate is 15.3%?

Higher compensation does not necessarily guarantee commensurate performance.

The five-year cliff vesting alternative minimizes administrative expenses for a company and provides more vesting for long-term employees.

A participant who is at least age 59 1/2 can make a tax-free qualified withdrawal from a Roth IRA after a five-year holding period.

Income is not taxed if a taxpayer's control over the amount earned is subject to substantial restrictions.

If an individual is ineligible to make a deductible contribution to a traditional IRA,nondeductible contributions of any amount can be made to a traditional IRA.

If a taxpayer receives an early distribution from a qualified retirement plan,a 10% additional tax is levied on the full amount of any distribution includible in gross income.

Under a defined benefit plan,the annual benefit payable to an employee is limited to the smaller of $200,000 (in 2012)or 100% of the employee's average compensation for the highest 3 years of employment.

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Tax Formula and Tax Determination; an Overview of Property Transactions

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, cost Recovery, amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions: Determination of Gain or Loss and Basis Considerations

Property Transactions: Nontaxable Exchanges

Property Transactions: Capital Gains and Losses

Property Transactions: Section 1231 and Recapture Provisions

Accounting Periods and Methods

Corporations and Partnerships

Filters