UOP ACC547 final exam

Which of the following statements is true?

·

All income, whether realized or unrealized, is reported on the individual tax return.

·

Individuals generally report all excluded income on statements supporting their tax returns.

·

Always report annual licensing fees.

·

Individuals generally report deferred income on their tax returns.

The estate and gift taxes share several common features. Which of the following characteristics are common to both the estate and gift taxes?

·

A unified credit and a marital deduction

·

A charitable deduction and the amount of the exemption equivalent

·

A gift-skipping election and a deduction for income taxes paid by the fiduciary

·

A charitable deduction and an annual exclusion

Beth's business purchased only one asset during the current year. It placed in service machinery (7-year property) on December 1 with a basis of $50,000. Calculate the maximum depreciation expense (ignoring Section 179 or bonus expensing):

·

$7,145

·

$10,000

·

$1,785

·

$2,500

Hector is a married self-employed taxpayer, and this year he paid $3,000 for his health insurance premiums. Under which of the following alternative conditions can Hector deduct the cost of the premiums for AGI?

·

Hector's spouse participates in an employer-sponsored plan, but Hector is not eligible to participate in this plan.

·

Hector can deduct the health insurance premiums regardless of the insurance status of his spouse.

·

Neither Hector nor his spouse participates in an employer-sponsored plan although both are eligible to participate in a plan.

·

Hector chose not to participate in the employer-sponsored plan of his spouse.

Sue and Andrew form SA general partnership. Each person receives an equal interest in the newly created partnership. Sue contributes $10,000 of cash and land with a FMV of $55,000. Her basis in the land is $20,000. Andrew contributes equipment with a FMV of $12,000 and a building with a FMV of $33,000. His basis in the equipment is $8,000, and his basis in the building is $20,000. How much gain must the SA general partnership recognize on the transfer of these assets from Sue and Andrew?

·

$0

·

$48,000

·

$4,000

·

$52,000

Roberta transfers property with a tax basis of $400 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $350 in a transaction that qualifies for deferral under Section 351. The corporation assumed a liability of $150 on the property transferred. What is the amount realized by Roberta in the exchange?

·

$250

·

$350

·

$500

·

$400

Clampett, Inc. has been an S corporation since its inception. On July 15, 2011, Clampett, Inc. distributed $50,000 to J.D. His basis in his Clampett, Inc. stock on January 1, 2011, was $45,000. For 2011, J.D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. What is the amount of income J.D. recognizes related to Clampett, Inc. in 2011?

·

$60,000

·

$20,000

·

$50,000

·

$10,000

Clampett, Inc. has been an S corporation since its inception. On July 15, 2011, Clampett, Inc. distributed $50,000 to J.D. His basis in his Clampett, Inc. stock on January 1, 2011, was $45,000. For 2011, J.D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. What is the amount of income J.D. recognizes related to Clampett, Inc. in 2011?

·

$60,000

·

$20,000

·

$50,000

·

$10,000

Congress allows self-employed taxpayers to deduct the cost of health insurance above the line (for AGI) because

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self-employed taxpayers need an alternate mechanism for reducing the cost of health care.

·

health insurance premiums cannot be deducted otherwise.

·

this deduction provides a measure of equity between employees and the self-employed.

·

employers are allowed to deduct social security (FICA) taxes as a business expense.

Vanessa contributed $20,000 of cash and land with a fair market value of $100,000 and an adjusted basis of $40,000 to Cook, Inc. (an S corporation) when it was formed. The land was encumbered by a $30,000 mortgage executed two years before. What is Vanessa's tax basis in Cook, Inc. after formation?

·

$20,000

·

$80,000

·

$60,000

·

$30,000

Which of the following stock dividends would be tax-free to the shareholder?

·

Stock dividend where the shareholder could choose between cash and stock

·

A 2-for-1 stock split to all holders of common stock

·

A stock dividend to all holders of preferred stock

·

All answers are correct.

After a meeting with a prospective client, Holly paid for dinner. After dinner, Holly took the prospective client to the theatre. Holly paid $290 for the meal and $250 for the tickets, amounts that were reasonable under the circumstances. What amount of these expenditures can Holly deduct as a business expense?

·

$415

·

$270

·

$540

·

None—the meals and entertainment are not deductible except during travel.

Which of the following statements regarding tax credits is true?

·

Tax credits reduce taxes payable dollar for dollar.

·

Tax credits reduce taxable income dollar for dollar.

·

Tax credits provide a greater tax benefit the greater the taxpayer's marginal tax rate.

·

None of the answer choices are correct.

Suppose at the beginning of 2010, Jamaal's basis in his S corporation stock was $27,000 and that Jamaal has loaned the S corporation $10,000. During 2010, the S corporation reported an $80,000 ordinary business loss and no separately stated items. How much of the ordinary loss is deductible by Jamaal if he owns 50% of the S corporation?

·

$27,000

·

$40,000

·

$10,000

·

$37,000

What happens when a taxpayer experiences a net loss from a rental home?

·

If the taxpayer is not allowed to deduct the loss due to the passive activity limitations, the loss is suspended and carried forward until the taxpayer generates passive income or until the taxpayer sells the property.

·

The loss is fully deductible against the taxpayer's ordinary income, no matter the circumstances.

·

If the taxpayer is not an active participant in the rental, the taxpayer may be allowed to deduct the loss even if the taxpayer does not have any sources of passive income.

·

The taxpayer will not be allowed to deduct the loss under any circumstance if the taxpayer does not have passive income from other sources.

5

At his death, Trevor had a probate estate consisting of $4 million of property. Which of the following is a true statement about Trevor's estate or estate tax?

·

Trevor must have a gross estate of at least $4 million.

·

Trevor must have a taxable estate of at least $4 million.

·

Trevor must have estate tax base (cumulative taxable transfers) of at least $4 million.

·

Trevor must have an adjusted gross estate of at least $4 million.

Foreaker LLC sold a piece of land that it uses in its business for $52,000. Foreaker bought the land two years ago for $42,500. What is the character of Foreaker's gain?

·

$9,500 Section 1231

·

$9,500 Section 1250

·

$9,500 Section 1221

·

$9,500 Section 1245

The sale of machinery for more than the original cost basis (before depreciation), used in a trade or business, and held for more than one year results in the following types of gain or loss:

·

Section 1245 and Section 1231

·

Ordinary only

·

Capital and ordinary

·

Capital and Section 1231

Tone Loc and 89 of his biggest fans formed an S corporation, 2hit, Inc., as the original ninety shareholders. Tone then transferred some of his stock to his grandfather, four of Tone's cousins, five of Tone's children, three of Tone's grandchildren, and 2 close friends. For the S corporation shareholder limit rules, how many shareholders does 2hit, Inc. have?

·

92

·

97

·

90

·

95

What is the minimum ownership percentage an owner must have in the entity to avoid gain recognition when property is contributed?

·

S corporation – No minimum ownership percentage is required.

·

Partnership – 80% after the property contribution

·

Taxable corporation – 80% before property contribution

·

LLC – No minimum ownership percentage is required.

20

When must a partnership file its return?

·

By the 15th day of the 2nd month after the partnership’s tax year-end

·

By the 15th day of the 3rd month after the partnership’s tax year-end

·

By the 15th day of the 4th month after the partnership’s tax year-end

·

By the 6th month after the original due date if an extension is filed

Which of the following requirements do not have to be met in a Section 351 transaction?

·

Only property transferred to a corporation is eligible for deferral.

·

All transfers of property to a corporation must be made simultaneously to qualify for deferral.

·

In the aggregate, the transferors of property to the corporation must collectively control the corporation immediately after the transfers.

·

Each transferor of property must receive stock equal to at least 80 percent of the fair market value of the property transferred.

Which of the following has the highest authoritative weight?

·

Private letter ruling

·

Revenue ruling

·

Tax article

·

Text book

Clampett, Inc. (an S corporation) previously operated as a C corporation. Distributions from Clampett, Inc. are deemed to be paid in the following order:

·

Prior C corporation earnings and profit, the AAA account, shareholder's remaining stock basis

·

Shareholder's remaining stock basis, prior C corporation earnings and profit, the AAA account

·

Shareholder's remaining stock basis, the AAA account, prior C corporation earnings and profit

·

The AAA account, prior C corporation earnings and profit, shareholder's remaining stock basis

Gerald received a 33% capital and profit (loss) interest in XYZ Limited Partnership (LP). In exchange for this interest, Gerald contributed a building with an FMV of $30,000. His adjusted basis in the building was $15,000. In addition, the building was encumbered with a $9,000 nonrecourse mortgage that XYZ, LP assumed at the time the property was contributed. What is Gerald's outside basis immediately after his contribution?

·

$24,000

·

$6,000

·

$21,000

·

$9,000

25

A budget deficit would result when a person's or family's

·

actual expenses are greater than planned expenses.

·

actual expenses are less than planned expenses.

·

assets exceed liabilities.

·

net worth decreases.

A family with $45,000 in assets and $22,000 of liabilities would have a net worth of

·

$23,000

·

$22,000

·

$45,000

·

$67,000

7

Rhianna and Jay are married filing jointly in 2009. They have six children for whom they may claim the child tax credit. Their AGI was $123,440. What amount of child tax credit may they claim on their 2009 tax return?

·

$4,000

·

$5,300

·

$6,000

·

$12,000

BTW Corporation has taxable income in the current year that can be offset with an NOL from a previous year. What is the nature of the book-tax difference created by the net operating loss deduction in the current year?

·

Temporary; unfavorable

·

Temporary; favorable

·

Permanent; favorable

·

Permanent; unfavorable

29

The unified credit is

·

is set at $1 million for any single transfer.

·

designed to apply to amounts not already eliminated by the exemption equivalent.

·

designed to prevent taxation of cumulative transfers that do not exceed a certain minimum amount.

·

designed to apply only to taxable transfers included in the gross estate.

30

The regulation with the highest authoritative weight is the __________________.

·

proposed regulation

·

procedural regulation

·

legislative regulation

·

interpretative regulation

Which of the following would be considered active income?

·

Rental real estate income

·

Dividends

·

Salary for part-time job

·

Capital gains from sale of mutual funds

Which of the following would be considered portfolio income?

·

Dividends

·

Salary for part-time job

·

Rental real estate income

·

Self-employment income for a business

Graham has accepted an offer to do graduate work in the chemistry department at State University. The chemistry department offered Graham a scholarship that will pay $5,000 toward his tuition, $500 toward his university fees, and $3,500 toward the cost of room and meals. Under the terms of the scholarship, Graham must work in the chemistry labs during the summer. What amount must Graham include in his gross income?

·

$3,500

·

$9,000

·

$4,000

·

$5,500

The tax base for an individual tax return is

·

adjusted gross income.

·

realized income from whatever source derived.

·

adjusted gross income minus from AGI deductions.

·

gross income.

Which of the following statements is true when property is contributed in exchange for a partnership interest?

·

Any contributed property in a partnership has a carryover basis, and the character of the property is determined by the way the contributing partner used the property.

·

Services are not allowed to be contributed to a partnership in return for a partnership interest.

·

The partnership's inside basis is typically increased by any gain the partner recognizes from the property contribution.

·

The holding period for a partner's partnership interest depends on the type of assets a partner contributes.

Which requirement must be satisfied in order to specially allocate partnership income or losses to partners?

·

Special allocations must reduce the combined tax liability of all the partners.

·

At least one partner must agree to the special allocations.

·

Special allocations must have economic effect.

·

Special allocations must be insignificant.

What is the tax impact to a taxable corporation or an S corporation when it makes a property distribution to a shareholder?

·

Recognizes loss only

·

Recognizes gain only

·

Recognizes either gain or loss

·

Does not recognize gain or loss

8

Studios reported a net capital loss of $30,000 in year 5. It reported net capital gains of $14,000 in year 4 and $27,000 in year 6. What is the amount and nature of the book-tax difference in year 6 related to the net capital carryover?

·

$11,000 favorable

·

$16,000 unfavorable

·

$11,000 unfavorable

·

$16,000 favorable

As customary, Jayden gave Olivia a ring when she agreed to marry him. The ring is a family heirloom valued at $67,000. What is the amount of the taxable gift?

·

$54,000

·

Zero – The marital deduction offsets the gift as long as Jayden and Olivia are married by year-end.

·

Zero – This transfer is not gratuitous.

·

$67,000

0

Ilene rents her second home. During 2009, Ilene reported a net loss of $15,000 from the rental. If Ilene is an active participant in the rental and her AGI is $140,000, how much of the loss can she deduct against ordinary income in 2009?

·

$5,000

·

$15,000

·

$0

·

$10,000

41

A personal balance sheet presents

·

earnings on savings and investments.

·

amounts budgeted for spending.

·

income and expenses for a period of time.

·

items owned and amounts owed.

42

Which of the following is a completed taxable gift?

·

$15,000 in cash given to Valley Hospital for the care of a neighbor who was in an auto accident.

·

$55,000 in cash transferred to a former spouse under a written property settlement shortly after a divorce.

·

$18,000 in cash given to a needy student to pay for college tuition.

·

$20,000 in cash contributed to the committee to reelect Senator Cone.

Camille transfers property with a tax basis of $800 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $850 and $350 in a transaction that qualifies for deferral under Section 351. Camille also incurred selling expenses of $100. What is the amount realized by Camille in the exchange?

·

$1,100

·

$1,200

·

$750

·

$850

Jaime recently found a "favorable" trial level court opinion directly on point for her tax question. Which trial level court would he prefer to have issued the opinion?

·

Divorce Court

·

Circuit Court

·

Tax Court

·

District Court

Which of the following statements is true when property is contributed in exchange for a partnership interest?

·

The holding period for a partner's partnership interest depends on the type of assets a partner contributes.

·

Any contributed property in a partnership has a carryover basis, and the character of the property is determined by the way the contributing partner used the property.

·

The partnership's inside basis is typically increased by any gain the partner recognizes from the property contribution.

·

Services are not allowed to be contributed to a partnership in return for a partnership interest.

Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are owned by her husband Tommy. Which of the following statements is true?

·

A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as a dividend if Tammy waives the family attribution rules and files a "triple i" agreement with the IRS.

·

A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as an exchange for tax purposes.

·

A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as a dividend for tax purposes.

·

A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as an exchange if Tammy waives the family attribution rules and files a "triple i" agreement with the IRS.

Which of the following is a miscellaneous itemized deduction that is not subject to the 2 percent of AGI floor?

·

Tax preparation fees

·

Employee business expenses

·

Gambling losses to the extent of gambling winnings

·

Fees for investment advice

Dan recently purchased a partnership interest in XYZ, Limited Partnership for $6,000. His share of debt in the partnership is $2,500, but he is not personally responsible for paying back the debt if the partnership cannot pay. Dan's share of XYZ, LP's loss for the year is $3,000. In addition, Dan reported $5,000 in long-term capital gains from the sale of a stock and $3,000 of income from another real estate partnership. What is Dan's tax basis in XYZ, LP?

·

$8,500

·

$6,000

·

$11,500

·

$16,500

Grand River Corporation reported taxable income of $500,000 in 2010 and paid federal income taxes of $170,000. Not included in the computation was a disallowed meals and entertainment expense of $2,000, tax-exempt income of $1,000, and deferred gain on an installment sale of $25,000. The corporation's current earnings and profits for 2010 would be

·

$524,000

·

$331,000

·

$354,000

·

$500,000

Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 50 of her shares for $1,000 per share on December 31, 2010. Pam's income tax basis in each share is $500. Comet has total E&P of $250,000. What are the tax consequences to Pam as a result of the stock redemption?

·

$25,000 capital gain and a tax basis in each of her remaining shares of $100

·

$50,000 dividend and a tax basis in each of her remaining shares of $100

·

$25,000 capital gain and a tax basis in each of her remaining shares of $500

·

$50,000 dividend and a tax basis in each of her remaining shares of $50

1

Which of the following are prohibited from being an S corporation shareholder?

·

Corporations

·

51 unrelated individuals

·

Foreign citizens that are U.S. residents

·

U.S. citizens

Which of the following would be considered passive income?

·

Salary for part-time job

·

Rental real estate income

·

Capital gains from sale of mutual funds

·

Dividends

Which legal entity provides the least flexible legal arrangement for owners?

·

Sole Proprietorship

·

Partnership

·

LLC

·

Corporation

Which of the following statements regarding disproportionate distributions is false?

·

Disproportionate distributions will only occur in liquidating distributions.

·

The tax provisions related to disproportionate distributions attempt to preserve the partners' share of ordinary income potential.

·

A disproportionate distribution occurs when a partner receives more than his or her proportionate share of the partnership's hot assets.

·

A disproportionate distribution occurs when a partner receives less than his or her proportionate share of the partnership's hot assets.