Bryant - Course 4. Tax Planning. Comprehensive Course Exam for Tax Planning

Question 1

Any contributions that exceed the deductible gift limitations may be carried over and deducted in the subsequent __ ____??____ __.
* five years
* two years
* three years
* ten years

Answer 1

five years

Any contributions that exceed the deductible gift limitations may be carried over and deducted in the subsequent five years.

Question 1

The gift to the remainder person is a gift of a __ ____??____ __.
* future interest
* lump sum
* present interest
* disclaimed amount

Answer 1

future interest

• The gift to the remainder person is a gift of a future interest. It therefore cannot qualify for the annual gift tax exclusion.

Question 2

To be considered a qualifying person for the Child and Dependent Care Credit, a dependent must be under age __ ____??____ __ when the care is provided.
* 16
* 13
* 17
* 24

Answer 2

13

• A qualifying person for the Child and Dependent Care Credit is a dependent who is under age 13 when the care is provided.

Question 3

If a seller should die prior to receiving all of the scheduled payments using a Self-Cancelling Installment Note (SCIN), the present value of the future payments __ ____??____ __.
* will be included the buyer’s gross estate
* will be divided between the buyer and seller’s gross estates.
* will not be included the seller’s gross estate
* will be included the seller’s gross estate

Answer 3

will not be included the seller’s gross estate

• If a seller should die prior to receiving all of the scheduled payments using a SCIN, the present value of the future payments will not be included the seller’s gross estate.

Question 4

A taxpayer must first pay the tax deficiency when beginning litigation in which of the following courts? (Select all that apply)
* U.S. Tax Courts
* U.S. District Courts
* U.S. Court of Federal Claims
* U.S. Supreme Court

Answer 4

U.S. District Courts
U.S. Court of Federal Claims

• A taxpayer who wants to litigate either in a U.S. District Court or in the U.S. Court of Federal Claims must first pay the deficiency.
• The taxpayer then files a claim for a refund, which the IRS will deny. A suit for a refund of the taxes must follow this denial. If the taxpayer wins the refund suit, he or she receives a refund of the taxes in question plus interest.

Question 5

The __ ____??____ __ issues regulations that expound upon the IRC.
* House of Representatives
* Treasury Department
* Ways & Means Committee
* Executive Branch

Answer 5

Treasury Department

• The Treasury Department issues regulations that expound upon the Internal Revenue Code.
• Treasury Regulations often contain examples with computations that provide valuable assistance in understanding the statutory language.

Question 6

If a taxpayer was already subject to AMT, then the optimal strategy would be to:
I. delay income until an AMT year
II. accelerate allowable itemized deductions in a regular tax year
* I only
* Neither I nor II
* Both I and II
* II only

Answer 6

Neither I nor II

• If a taxpayer was already subject to AMT, then the optimal strategy would be to accelerate income into the AMT year and delay allowable itemized deductions until a regular tax year.

Question 7

Identify items that would NOT be considered constructively received. (Select all that apply)
* The amount is unavailable to the taxpayer.
* It is subject to substantial limitations or restrictions.
* The payer does not have the funds necessary to make payment.
* Interest credited to a bank savings account.
* Salary available to an employee who does not accept payment

Answer 7

The amount is unavailable to the taxpayer.
It is subject to substantial limitations or restrictions.
The payer does not have the funds necessary to make payment.

• An amount is not constructively received if:
  It is subject to substantial limitations or restrictions.
  The payer does not have the funds necessary to make payment.
  The amount is unavailable to the taxpayer.

Question 8

Child support payments are categorized as __ ____??____ __.
* exclusions
* deductions
* exemptions
* gross income

Answer 8

exclusions

• An exclusion is a source of income that is omitted from the tax base, whereas a deduction is an expense that is subtracted in arriving at taxable income.
• Child support is categorized as an exclusion.

Question 9

Choose the filing status(es) that require that the taxpayer has a dependent. (Select all that apply).
* Married filing separately
* Head of household
* Married filing jointly
* Single
* Qualifying widow(er)

Answer 9

Head of household

Qualifying widow(er)

Question 10

Which of the following requirements must be met to claim a dependency exemption for an individual who is considered a qualifying child? (Select all that apply)
* An earned income test
* A relationship test
* An age test
* An abode test
* A support test

Answer 10

A relationship test
An age test
An abode test
A support test

• To claim a dependency exemption for an individual who is considered a qualifying child, the following additional requirements must be met:
  A relationship test
  An age test
  An abode test
  A support test

Question 11

The passive loss limitation rules apply to:
* Any closely held C corporation
* Any personal service corporation
* Individuals, estates, and trusts
* Certain publicly traded partnerships

Answer 11

Any closely held C corporation
Any personal service corporation
Individuals, estates, and trusts
Certain publicly traded partnerships
* Each of these entities is subject to passive loss rules.

Question 12

Identify the qualifying like-kind exchange.
* Real property in the U.S. for real property in the U.S.
* Real property in the U.S. for personal-use property in the U.S.
* Personal-use property in the U.S. for personal-use property in the U.S.
* Real property in the U.S. for real property in Canada.

Answer 12

Real property in the U.S. for real property in the U.S.

• In general, IRC Section 1031 does not allow exchanges between a U.S. property and a foreign-based property. The IRC specifically states that property held in the U.S. is not of a like-kind with foreign-held property.
• Under the Tax Cuts and Jobs Act (TCJA), Section 1031 now applies only to exchanges of real property and not to exchanges of personal or intangible property.

Question 13

Match the type of capital gain or loss to the correct definition.
Short Term Capital Gain (STCG)
Long-Term Capital Gain (LTCG)
Long-Term Capital Loss (LTCL)
Short Term Capital Loss (STCL)

• Asset is held for 12 months or less with a gain
• Asset is held for 12 months or less with a loss
• The capital asset is held for more than 12 months with a gain
• The capital asset is held for more than 12 months with a loss

Answer 13

• Short Term Capital Gain (STCG) - Asset is held for 12 months or less with a gain
• Short Term Capital Loss (STCL) - Asset is held for 12 months or less with a loss
• Long-Term Capital Gain (LTCG) - The capital asset is held for more than 12 months with a gain
• Long-Term Capital Loss (LTCL) - The capital asset is held for more than 12 months with a loss

Question 14

While representing a client before the IRS, an attorney, CPA, Enrolled Agent, or Enrolled Actuary is morally obliged to __ ____??____ __ of any tax noncompliance, error(s), and/or omission(s) in their case.
* inform the IRS
* advise the client’s financial planner
* issue an itemized list of penalties
* advise the client promptly

Answer 14

advise the client promptly
* The concerned authority is morally obliged to advise the client promptly of the fact of such noncompliance, error, or omission.

Question 15

Application for permission to change accounting periods is made on __ ____??____ __.
* Form 2553
* Form 8716
* Form 1128
* Form 3115

Answer 15

Form 1128

• Application for permission to change accounting periods is made on Form 1128. The application must be sent to the Commissioner of the IRS, Washington, D.C.

Question 16

Amounts of alternative minimum tax base exceeding $220,700 are taxed at a rate of __ ____??____ __ in 2023.
* 21%
* 28%
* 25%
* 26%

Answer 16

28%

2023 Tax rate:
* 26% of first $220,700
* 28% of amounts in excess of $220,700

Question 17

The standard deduction is available to which category of taxpayers?
* An individual filing a return for a period less than twelve months because of a change in an accounting period.
* A married taxpayer filing a separate return in instances where the other spouse itemizes.
* Individuals over 65 and blind
* Non-resident aliens

Answer 17

Individuals over 65 and blind

Individuals over 65 and blind qualify for the standard deduction.

The standard deduction is unavailable to three categories of taxpayers:
* An individual filing a return for a period less than twelve months because of a change in an accounting period.
* A married taxpayer filing a separate return in instances where the other spouse itemizes.
* Non-resident aliens.

Question 18

A 1099-NEC (Non-employee Compensation) must be filed if payment is equal to or exceeds __ ____??____ __.
$1,200
$300
$600
$5,000

Answer 18

$600

Question 19

Losses generated in one passive activity may be used to offset income from __ ____??____ __.
* other passive activities
* portfolio income
* active income sources
* income derived from all sources

Answer 19

other passive activities

• Taxpayers compute income and loss in the passive category separately for each passive activity in which they have invested. In general, for any tax year, losses generated in one passive activity may be used to offset income from other passive activities, but may not offset either active or portfolio income.

Question 20

Generally, if you have an NOL for a tax year ending in 2023, you may carry back the entire amount of the NOL to __ ____??____ __ before the NOL year and carry forward any remaining NOL __ ____??____ __.
* zero years; indefinitely
* ten years; fifteen years
* five years; twenty years
* two years; twenty years

Answer 20

zero years; indefinitely

Generally, if you have an NOL for a tax year ending in 2023:
* You cannot carry back your NOL, but you can carry it forward an indefinite number of years, and
* Your NOL can offset only up to 80 percent of your taxable income before your 20 percent Section 199A deduction.

Question 21

Identify the property that is NOT classified as a capital asset. (Select all that apply)
* Copyrights; a literary, musical, or artistic composition; a letter or memorandum; or similar property.
* Depreciable property used in a trade or business and (e.g., Section 1231 assets).
* Inventory or property held primarily for sale to customers in the ordinary course of a trade or business.
* Accounts or notes receivable acquired in the ordinary course of a trade or business for services.

Answer 21

The IRC describes capital assets by defining what is NOT a capital asset.

Property that is not classified as a capital asset includes the following:
* Accounts or notes receivable acquired in the ordinary course of a trade or business for services.
* Copyrights; a literary, musical, or artistic composition; a letter or memorandum; or similar property
* Inventory or property held primarily for sale to customers in the ordinary course of a trade or business.
* Depreciable property used in a trade or business and (e.g., Section 1231 assets).

Question 22

In the current year, Clifford makes one gift of property with a $37,500 basis to Jimmy when the property has a $88,000 FMV. Clifford pays a gift tax of $22,500.
Calculate Jimmy’s basis for the property for determining both gain and loss.
* $37,500
* $66,875
* $88,000
* $53,503

Answer 22

$53,503

Since the donor, Clifford, paid gift tax on the transfer of property, the donee’s basis increases because the fair market value (FMV) of the property exceeds the donor’s basis on the date of the gift.
The following formula is used to determine the amount to be added on to the donee’s basis:
Gift tax paid ×(FMV at time of gift − Donor’s basis) / (FMV at the time of gift − Annual exclusion)
$22,500 ×($88,000 − $37,500 / $88,000 − $17,000) =
$22,500 ×($50,500/$71,000) =
$22,500 ×0.7113 =$16,003
$16,003 + $37,500 (original basis) = $53,503

Question 23

Jalen has recently purchased an old factory in Milltown and intends to convert the space into apartment lofts. Which of the following BEST categorizes Jalen’s new factory/apartment building? (Select all that apply)
* Intangible
* Tangible
* Real
* Personal-Use
* Personal

Answer 23

Tangible
Real

• Tangible property that has physical substance, such as land, buildings, natural resources, equipment, etc.
• Tangible property is further classified as either real property or personal property. Real property (often referred to as real estate or realty) is defined as land or any structure permanently attached to the land, such as buildings.

Jalen’s building is tangible, real property.

Question 24

If a stock that is sold or exchanged is not adequately identified, the __ ____??____ __ must be used to identify the stock.
* specific identification method
* last-in, first-out (LIFO) method
* first-in, first-out (FIFO) method
* hybrid method

Answer 24

first-in, first-out (FIFO) method

• If the stock sold or exchanged is not adequately identified, the first-in, first-out (FIFO) method must be used to identify the stock.
• With the FIFO method, the stock sold or exchanged is presumed to come from the first lot or lots acquired.

Question 25

Cash contributions to public charities have a __ ____??____ __ of AGI limitation.
* 60%
* 30%
* 50%
* 20%

Answer 25

60%

• Cash contributions to public charities have a 60% of AGI limitation.

Question 26

Suzu Inc. is a general contracting firm. This year, Eli, the business owner, purchases a pickup truck for $40,000 and pays sales taxes of $3,000 and a title for $750.
Based on this information, calculate the basis of Suzu Inc.’s new pickup truck.
* $40,000
* $43,750
* $43,000
* $42,250

Answer 26

$43,750

• Cost basis for the pickup is $40,000 + $3,000 (sales tax) + $750 (title) = $43,750

Question 27

If a donee receives a gift with an FMV below the adjusted basis of the donor, and eventually sells the gifted property for an amount that is GREATER than the adjusted basis of the donor, __ ____??____ __ is used to calculate the gains.
* the sale price
* the gift tax basis
* the donor’s adjusted basis
* the FMV on the date of the gift

Answer 27

the donor’s adjusted basis

• When loss property is gifted and the final sale price is above the original basis of the donor’s adjusted basis, the donee (gift recipient) will use the donor’s adjusted basis to calculate the gains AND will inherit the donor’s holding period.

Question 28

When determining basis of a personal residence, which of the following will increase basis?
* Painting the exterior of the home
* Complete replacement of a roof
* Installation of a new window
* Replacing several damaged shingles

Answer 28

Complete replacement of a roof

• A new roof is considered a capital addition which increases basis. The remaining items are categorized as repairs and are not accounted for in determining basis.

Question 29

In an involuntary conversion, the principal requirement of the __ ____??____ __ test is that the owner-investor must lease out the replacement property that is acquired.
* related service
* taxpayer-use
* functional-use
* like-kind

Answer 29

taxpayer-use

• The taxpayer-use test applies to the involuntary conversion of rental property owned by an investor. The principal requirement is that the owner-investor must lease out the replacement property that is acquired.

Question 30

With a __ ____??____ __, the grantor retains a right to payment of a fixed amount for a fixed number of years.
* Grantor Retained Unitrust (GRUT)
* Qualified Personal Residence Trust (QPRT)
* Grantor Retained Income Trust (GRIT)
* Grantor Retained Annuity Trust (GRAT)

Answer 30

Grantor Retained Annuity Trust (GRAT)
* In a Grantor Retained Annuity Trust (GRAT), the grantor retains a right to payment of a fixed amount for a fixed number of years.

Question 31

According to the wash sale rules, a taxpayer realizes a loss on a sale of a security and acquires a substantially identical security within a __ ____??____ __ period.
* 60-day
* 30-day
* 31-day
* 61-day

Answer 31

61-day
* A wash sale occurs when:
* A taxpayer realizes a loss on the sale of stock or securities, and
* The taxpayer acquires “substantially identical” stock or securities within a 61-day period of time that extends from 30 days before the date of sale to 30 days after the date of sale.

Question 32

Corporate charitable deductions are limited to __ ____??____ __ of the corporation’s taxable income for the year.
* 21%
* 25%
* 15%
* 20%

Answer 32

25%

• Corporate charitable deductions are limited to 25% of the corporation’s taxable income for the year.

Question 33

Each of the following is a requirement for a valid prenuptial agreement EXCEPT:
* The agreement must not be intended to promote the procurement of divorce.
* Full and complete disclosure of parties’ liabilities must be made with no designed concealment.
* The agreement must be in writing and signed by both parties.
* Both parties must execute the agreement willingly without duress or coercion.

Answer 33

Full and complete disclosure of parties’ liabilities must be made with no designed concealment.

The four requirements for a valid agreement that will stand up in court are:
* The agreement must be in writing and signed by both parties,
* Full and complete disclosure of parties’ net worth must be made with no designed concealment,
* The agreement must not be intended to promote the procurement of divorce, and
* Both parties must execute the agreement willingly without duress or coercion.

Question 34

During inflationary periods, LIFO normally results in __ ____??____ __ taxable income.
* the highest
* deferred
* the lowest
* prorated

Answer 34

the lowest

• During inflationary periods, LIFO normally results in the lowest taxable income.

Question 35

Chyou is a general surgeon that recently contributed her services to a blood drive in a federally declared disaster area. To travel to the blood drive, she drove her car a total of 300 miles. During her trip, Chyou purchased a special set of scrubs for the event for $75 and had two meals at a cost of $80. Chyou earns $250/hour in her surgical work and spent 8 hours volunteering.
Calculate the deduction available to Chyou for her contribution of services.
* $197
* $82
* $2,157
* $2,000

Answer 35

$197

• Deductible items include out-of pocket transportation expenses, the cost of lodging, meal expenses [100% deductible if purchased from a restaurant while away from home (in 2021 and 2022)], and the cost of a uniform without general utility that is required to be worn in performing the donated services.
• The law permits a deduction of 14 cents per mile.
• Volunteers contributing their services are not able to use their hourly rate as a deduction.

Therefore, Chyou can deduct the special scrubs ($75), 100% of her meals ($80), and her mileage at a special rate of $0.14/mile (300 x $0.14 = $42)
$75 + $80 + $42 = $197

Question 36

One of the exceptions to the passive loss rules is __ ____??____ __.
* involvement in a closely held C corp
* a personal service corporation
* a working interest in an oil or gas property
* a trade or business that manages rental operations

Answer 36

a working interest in an oil or gas property

• One of the exceptions to the passive loss rules is a working interest in an oil or gas property.
• A working interest is an interest that is responsible for the cost of the development or operation of the oil and gas property.

Question 37

The monthly penalty for failure to pay is __ ____??____ __.
* 5.0%
* 25%
* 20%
* 0.5%

Answer 37

0.5%

• A penalty of 0.5% per month (or fraction thereof) up to a maximum of 25% for failure to pay the tax that is due.

Question 38

Which of the following purposes do citations serve in tax research?
I. They substantiate propositions.
II. They enable the reader to locate underlying authority.
* Neither I nor II
* II only
* I only
* Both I and II

Answer 38

Both I and II

• Citations serve two purposes in tax research.
  They substantiate propositions.
  They enable the reader to locate underlying authority.

Question 39

In a qualifying like-kind exchange, Josef realized a gain of $55,000 and received $40,000 of net boot. Select Josef’s recognized gain on the transaction.
* $15,000
* $55,000
* $40,000
* $0

Answer 39

$40,000

• In a like-kind exchange the recognized gain is the lesser of:
• realized gain, or
• net boot received

For Josef, the realized gain was $55,000 and the net boot received was $40,000. As a result, Josef recognizes $40,000 on the transaction (i.e., the lesser of realized gain or net boot received).

Question 40

If appreciated property is transferred to a GRAT, GRUT, or QPRT, the tax on any gain will eventually be paid by the __ ____??____ __.
* trust
* beneficiaries
* grantor
* any of these

Answer 40

any of these

• If appreciated property is transferred to a GRAT, GRUT, or QPRT, the tax on any gain will eventually be paid by:
• the grantor,
• the trust, or
• the beneficiaries.

Question 41

If an individual is engaged in a trade or business as a sole proprietor, depreciation, cost recovery, depletion, and amortization deductions are initially computed and reported on __ ____??____ __ and the totals are then carried to Schedule C.
* Form 4562
* Form 1065
* Schedule K-1
* Schedule E

Answer 41

Form 4562

• If an individual is engaged in a trade or business as a sole proprietor, depreciation, cost recovery, depletion, and amortization deductions are initially computed and reported on Form 4562 (Depreciation and Amortization) and the totals are then carried to Schedule C.

Question 42

If an expenditure either improves the efficiency of an asset or extends the life of an asset beyond the end of the year, the expenditure should generally be __ ____??____ __.
* amortized
* sold
* expensed
* capitalized

Answer 42

capitalized

• If an expenditure either improves the efficiency of an asset or extends the life of an asset beyond the end of the year, the expenditure should generally be capitalized.

Question 43

Alternative minimum tax (AMT) adjustments represent the following:
I. Standard deduction
II. Timing differences relating to the deferral of income or acceleration of deductions.
* I only
* II only
* Neither I nor II
* Both I and II

Answer 43

II only

• Alternative minimum taxable income (AMTI) equals taxable income as modified by certain adjustments and increased by tax preference items.
• Alternative minimum tax (AMT) adjustments represent the following:
  Itemized deductions that are not allowed in computing AMTI, and
  Timing differences relating to the deferral of income or acceleration of deductions.