Exam 3 in-class review questions

Question 1

Due to recent tax law changes, C corporations are no longer subject to double taxation.
T/F

Answer 1

False

Question 2

All taxpayers must account for taxable income using a calendar year
T/F

Answer 2

False

Question 3

S corporations have considerable flexibility in making special profit and loss allocations of operating income
T/F

Answer 3

False

Question 4

Which of the following statements best describes the tax benefits that arise from the sale of section 1244 stock?

A. deduct up to $50,000 of the loss from sale of stock as ordinary loss
B. exempt gain from sale of the stock from tax
C. deduct all of the loss from sale of stock as ordinary income

Answer 4

A. deduct up to $50,000 of the loss from sale of stock as ordinary loss

Question 5

Generally, before gain or loss is realized for tax purposes, the taxpayer must engage in a transaction
T/F

Answer 5

True

Question 6

To compute taxable income, most corporations begin with ________ and then make _________ adjustments

A. Book; book-tax difference
B. Tax; book-tax difference

Answer 6

A. Book; book-tax difference

Question 7

A liquidation of a corporation always is a taxable event for shareholder(s) of the liquidated corporation
T/F

Answer 7

False

Question 8

C corporations and S corporations are separate taxpaying entities that pay tax on their own income
T/F

Answer 8

False

Question 9

An S corporation shareholder calculates his initial basis upon formation like a C corporation shareholder
T/F

Answer 9

True

Question 10

The ______ is designed to mitigate extent to which corporate earnings are subject to tax layers
A. foreign tax credit
B. stock ownership
C. Book-tax difference
D. dividends received deduction

Answer 10

D. dividends received deduction

Question 11

Sole proprietors must use the same tax years as the proprietor if business
T/F

Answer 11

true

Question 12

The taxpayer must engage in a transaction before a gain or loss is realized for tax purposes
T/F

Answer 12

True

Question 13

Which legal entity is generally best suited for going public

Answer 13

corporation

Question 14

What would not be classified as a separately stated item?
A. MACRS depreciation expense
B. Charitable contributions
C. short-term capital gains
D. guaranteed payments

Answer 14

A. MACRS depreciation

Question 15

Corporations calculate AGI the same way as individuals
T/F

Answer 15

False

Question 16

Which statement best describes the concept of realization as it applies to gain or loss?

A. realization is the excess of adjusted basis over amount realized
B. realization is the recording of gain or loss on a tax return
C. realization is the result of property transaction
D. realization is the excess of amount realized over adjusted basis

Answer 16

C. realization is the result of property transaction

Question 17

Which of the following entities is not considered flow through entity
A. LLC
B. Partnership
C. S coro
D. C corp

Answer 17

D. C corp

Question 18

_________________ deals with the US tax rules that apply to the US persons doing business outside the US

Answer 18

outbound taxation

Question 19

_________ is the ability for the jurisdiction to claim the right to tax income

Answer 19

nexus

Question 20

A corporation does not recognize losses on non liquidating distributions of property to shareholders
T/F

Answer 20

True

Question 21

Which of the following is a requirement to be an S corporation?

A. have at least one corporate shareholder
B. be a domestic or foreign corporation
C. have fewer than 75 shareholders
D. have only one class of stock

Answer 21

D. have only one class of stock

Question 22

which of the following flow-though entities can elect to be treated as a C corp

Answer 22

LLC (limited partnerships, general partnership

Question 23

The same requirements for forming and contributing property govern S corps and partnerships
True or false

Answer 23

False

Question 24

Which of the following does not adjust a partner’s basis?
A. all of these choices adjust a partner’s basis
B. tax exempt income
C. ordinary business income (loss)
D. Change in amount of partnership debt

Answer 24

A. all of these choices adjust a partner’s basis

Question 25

The double taxation of corporate income refers to the taxation of income at both the entity and shareholder levels True/ False

Answer 25

True

Question 26

Which of the following would not result in an S election termination? A. issuing a second class of stock B. having a C corp as a shareholder C. having 120 unrelated shareholders D. Having excess passive investment income for 2 consecutive years

Answer 26

D. Having excess passive investment income for 2 consecutive years

Question 27

A corp's "E&P" account is calculated the same way as a company's "retained earnings" account on its balance sheet T/F

Answer 27

False

Question 28

Which of the following amounts is not included in the computation if amount realized in an exchange? A. adjusted basis of property transferred B. fair market value of property received C . cash received D. selling expenses

Answer 28

A. adjusted basis of property transferred

Question 29

a taxpayer always will have a tax basis in boot received in a section 351 transaction equal to its fair market value T/F

Answer 29

True

Question 30

Which of the following statements best describes the impact of receiving boot in 351 transaction

Answer 30

causes gain realized to be recognized but not loss realized

Question 31

S corps generally determine their account periods and make accounting method elections at the entity level T/F

Answer 31

true

Question 32

corps are legally formed by ____________________________

Answer 32

filing articles of incorporation with the states in which the corps was created

Question 33

partnership tax rules incorporate both the entity and aggregate approaches True/ False

Answer 33

True

Question 34

Sole proprietorships are not treated as legal entities separate from their individual owners T/F

Answer 34

True

Question 35

A single-member LLC is taxed as a partnership T/F

Answer 35

False

Question 36

debt is allocated from the partnership to each partner in the following manenr

Answer 36

recourse (to partners ultimately responsible) non recourse (profit sharing)

Question 37

a partner can generally apply passive activity losses against passive activity income for the year T/F

Answer 37

True

Question 38

if the tax law characterizes the distribution as a dividend, the corporation may ___________ the amount paid in computing its taxable income

Answer 38

may not deduct

Question 39

guaranteed payments included in the partnerships's ordinary business income and are also ____________

Answer 39

separately stated items

Question 40

Nexus involves___________ A. Where a US person engages in a transaction that occurs outside the US B. subpart F income C. the criteria chosen to assert the right to tax a person or transaction D. keeping an individual's worldwide ETR from exceeding the US statutory rate

Answer 40

C. the criteria chosen to assert the right to tax a person or transaction

Question 41

In what order are the loss limitations for partnerships applies? A. tax basis; passive activity loss; at-risk amount B. passive activity loss; tax basis; at-risk amount C. tax basis; at-risk amount; passive activity loss D. at-risk amount; tax basis, passive activity loss

Answer 41

C. tax basis; at-risk amount; passive activity loss

Question 42

Stock distributions are always tax-free to the recipient shareholder true/ false

Answer 42

false

Question 43

publicly traded corporations cannot be treated as S corporations True/ False

Answer 43

true

Question 44

non recourse debt is generally allocated according to the profit sharing ratios of the partnerships T/F

Answer 44

True

Question 45

Which of the following classes of stock is not allowed to be used in a section 351 transaction? A. voting common stock B. nonvoting preferred stock C. voting preferred stock D. all of these classes of stock can be used in a section 351 transaction

Answer 45

D. all of these classes of stock can be used in a section 351 transaction

Question 46

corporations taxed as S corps offer the same legal protection to its owners as corporations taxed as C corps True/ False

Answer 46

true

Question 47

A shareholders distribution is not deductible if the IRS successfully asserts that the distribution a constructive div true/false

Answer 47

true

Question 48

a partner's outside basis must first be decreased by negative basis adjustments and then increased by any positive adjustments true/ false

Answer 48

false

Question 49

corporations have a standard deduction like individuals true/ false

Answer 49

false

Question 50

s corporation are not entitled to a dividends received deduction true/ false

Answer 50

true

Question 51

which person would generally be treated as a material participant in an activity? A. a participant in a rental activity B. general partner C. a limited partner D. an LLC member not involved with management of the LLC

Answer 51

B. general partner

Question 52

which person would generally be treated as a material participant in an activity

Answer 52

a general partner

Question 53

A partnership can elect to amortize organization and start-up costs; however, syndication costs are not deductible T/F

Answer 53

True

Question 54

The character of each separately stated item is determined at the partner level True/ false

Answer 54

False

Question 55

__________ objectives should be considered when choosing the entity type for a new business A. tax B. none C. nontax D. tax and nontax

Answer 55

D. tax and nontax

Question 56

Income that is included in book income, but excluded from taxable income, results in a A. unfavorable temporary BTD B. unfavorable permanent BTD C. favorable temporary BTD D. favorable permanent BTD

Answer 56

D. favorable permanent BTD

Question 57

a purchased partnership interest has a holding period beginning on the date of purchase true/ false

Answer 57

true

Question 58

What items are subject to the net investment income tax when a partnership is not material participant

Answer 58

partner's distributive share of dividends, share of interest, ordinary business income

Question 59

if an individual forms a sole proprietorship which nontax factor will be of greatest benefit to the sole proprietor

Answer 59

minimal time and costs to organize

Question 60

partners must generally treat the value of profits interests they receive in exchange for services as ordinary income true/ false

Answer 60

false

Question 61

which of the following book-tax differences is most likely to be a temporary difference

Answer 61

depreciation expense

Question 62

in general, an S corp shareholder makes increasing adjustments to her basis first, followed by decreasing adjustment true/ false

Answer 62

true

Question 63

control as it relates to a 351 transaction is a strictly defines to be 80% or more of the voting power of the stock true/ false

Answer 63

false

Question 64

S corps may have no more than 100 shareholders but members of the same family only count as one shareholder True/ False

Answer 64

True

Question 65

Which of the following does not represent a tax election available to either partners or partnerships

Answer 65

electing to expense a portion of syndication costs