NINJA

Question 1

IRC Section 1231 assets are

Answer 1

depreciable assets and real estate used in a trade or business and held for more than one year.

Question 2

IRC Section 1245 assets are

Answer 2

assets include tangible and intangible personal property, including equipment used in trade and business and all ACRS or MACRS property other than real property for which a straight-line recovery election was made, and many types of real property.

Question 3

What type of capitalized costs may be amortized over a 15-year period?

Answer 3

section 179 intangibles (goodwill, going concern value, patents, copyrights, franchises, trademarks, trade names, and various other intangibles)

Question 4

The IRS may assess additional tax up until which of the following dates?

Answer 4

The IRS generally has three years from the time a return is filed to assess a deficiency.

Question 5

T/F-IF the return is fraudulent, there is no statute of limitations.

Answer 5

TRUE

Question 6

What is the basis used if you contribute long term capital gain asset to a charity?

Answer 6

long-term capital gain property may be eligible for deduction of its fair market value rather than its lower cost basis.

Question 7

What is the basis used if you contribute short term capital gain asset to a charity?

Answer 7

limited to the basis.

Question 8

What is the test for a personal holding company?

Answer 8

1) at any time during the last half of the year more than 50% in value of its outstanding stock is owned, directly or indirectly, by five or fewer individuals, and
2) at least 60% of its adjusted ordinary gross income is PHC income.

Question 9

What is PHC income?

Answer 9

1) dividends, taxable interest, royalties (except copyright or software royalties), and annuities.
2) rents, unless they constitute 50% or more of the adjusted ordinary gross income.
3) mineral, oil, and gas royalties, unless they constitute 50% or more of the adjusted ordinary gross income.

Question 10

New basis equals

Answer 10

New property cost – Deferred gain – Recognized gain

Question 11

How is a gain treated for the sale of an asset on the installment basis

Answer 11

Gain or loss will be deferred and a percentage recognized when each payment is received.

Question 12

In an involuntary conversion, if a gain results, all or part of the gain may be deferred if

Answer 12

qualifying like-kind property is purchased within the specified time period (normally two years after the end of the tax year in which the realized gain occurs). The deferred gain (realized gain less recognized gain) reduces the basis of the new property.

Question 13

Under Section 12 of the Securities Exchange Act of 1934, in addition to companies whose securities are traded on a national exchange, what class of companies is subject to the SEC’s continuous disclosure system?

Answer 13

Companies whose securities are traded over-the-counter, whose assets exceed $10 million, who have 500 or more shareholders, and whose securities are traded in interstate commerce

Question 14

IRC 501(c)(3) organizations are prohibited from participating in or intervening in

Answer 14

prohibited from: any political campaign on behalf of (or in opposition to) any candidate for public office and lobbying

Question 15

A mechanic’s lien is

Answer 15

arises from the making of improvements to real property. This is a statutory lien controlled by state law whereby the lienholder (creditor) generally is required to file a written notice of the lien within a specific time period.

Question 16

An artisans lien

Answer 16

is a common-law security device whereby a creditor can recover for work done on personal property of the debtor. If the debtor fails to pay for the work performed, the creditor can retain possession of the property and sell it in satisfaction of the lien. (This is a “possessory” lien.)

Question 17

An organization which engages in insubstantial nonexempt activities will not lose its tax-exempt organization status, but it will be

Answer 17

taxed on its unrelated business income.

Question 18

Income is constructively received by a taxpayer in the taxable year during which it is

Answer 18

credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time.

Question 19

What’s the contribution deduction limit on an estate?

Answer 19

There are no other limits on the charitable contribution deduction of an estate.

Question 20

Organization expenses may be amortized over

Answer 20

5 years

Question 21

When a corporation receives a dividend from its wholly owned subsidiary,

Answer 21

the dividend is included in gross income and a 100% dividends-received deduction is allowed.

Question 22

DRD under 20%

Answer 22

70 % DRD

Question 23

DRD Over 20% under 80%

Answer 23

80% DRD

Question 24

What is IRC 1244 stock

Answer 24

IRC Section 1244 stock is corporate stock (either common or preferred) that qualifies under IRC Section 1244. If an individual taxpayer generates a loss by sale, exchange, or the stock becoming worthless, such loss can be treated as an ordinary loss rather than a capital loss. Section 1244 stock is also known as small business stock.

Question 25

Annual limits of loss deductions on sale of Section 1244 stock are

Answer 25

50000 single 100000married

Question 26

AMT Adjustments for individual taxpayers include such things as adding back the following Schedule A itemized deductions:

Answer 26

Allowed miscellaneous itemized deductions
State, local, and foreign taxes paid
Certain investment interest expense
Other additions include the following:

Personal exemptions
Standard deduction (if the taxpayer does not itemize)

Question 27

Under the uniform capitalization rules, which of the following expenses is not included in the cost of inventory?

Answer 27

Research and experimental

Question 28

Under the uniform capitalization rules, which of the following expenses are included in the cost of inventory?

Answer 28

storage, quality control, depletion

Question 29

A C corporation net operating loss in 2015 is carried back and carried forward for how many years?

Answer 29

2/ 20

Question 30

Business equipment purchased in tax year 2015 had available three methods of cost recovery:

Answer 30

The Section 179 expensing should be applied first; 100% of the amount chosen is expensed and then reduces the basis in the property.

Question 31

What is IRC Section 179

Answer 31

is a provision of the tax law that allows the taxpayer to elect to expense up to a certain amount of tangible depreciable personal property placed in service during the year. The basis of the asset(s) is reduced by the amount of the IRC Section 179 property expensed.

Question 32

Taxpayers using a flexible spending account are allowed:

Answer 32

a $500 carryover balance to the following year or a grace period for the unused balance through March 15 of the following year.

Question 33

When a partnership terminates yet some of the partners continue the partnership, there will have been a

Answer 33

“deemed” distribution from the old partnership and a “deemed” recontribution of assets to the new partnership.

Question 34

In the absence of an election to adopt an annual accounting period, the required tax year for a partnership is:

Answer 34

a tax year of one or more partners with a more than 50% interest in profits and capital.

Question 35

In computing the ordinary income of a partnership, a deduction is allowed for:

Answer 35

guaranteed payments.

NOTE: The guaranteed payment is deductible by the partnership as a business expense.

Question 36

Charitable contributions made by the partnership and capital losses of the partnership flow through the partnership

Answer 36

on Form 1065 K-1 to the individual partners. The partners then enter these items on their Forms 1040.

Question 37

The basis of property received in a distribution, other than in liquidation of a partner’s interest, will ordinarily be the same as

Answer 37

the basis in the hands of the partnership immediately prior to distribution.

Question 38

A value-added tax is a tax

Answer 38

passed on to the consumer and an estimated market value added onto a product or material at each stage of the manufacturing process. Unlike the sales tax, which is collected at the cash register, the VAT is imposed at each stage of the production process.

Question 39

Generally, no gain or loss is recognized by the partnership on a distribution of money or other property to a partner.

Answer 39

A partner realizes a gain only if the cash received exceeds the basis of the partnership interest. Where the partner receives property other than cash, unrealized receivables, and inventory, no loss is recognized.

Question 40

The inclusion of Social Security benefits in gross income depends on the taxpayer’s filing status and the combined income, but will never exceed

Answer 40

85% of the Social Security benefits being taxed. Taxpayers with modified AGI as follows plus half of the social security benefits exceed either of the 2 thresholds amounts below may be taxed on up to 85% of the social security as follows:

Tier I: If the Modified AGI exceeds a base amount, include in gross income the lesser of:

50% of the benefits received that year; or

50% of the excess of Modified AGI over the base amount

Question 41

What is modified AGI means AGI:

Answer 41

Determined without including the social security; and other items such as education loan interest and education expenses deducted
Increased by tax-exempt income earned during the year

Question 42

Tax credits are amounts deducted from

Answer 42

tentative tax to compute income tax payable.

Question 43

What are examples of tax credits?

Answer 43

1) credit for the elderly or disabled,
2) the credit for child and dependent care,
3) the foreign tax credit,
4) the general business credits,
5) the earned income credit,
6) the adoption credit, the child credit,
7) lifetime learning credit.

Question 44

A security interest for consumer interests is perfected

Answer 44

upon attachment if the seller lends the buyer funds to purchase the goods.

Question 45

When a principal debtor defaults and a surety pays the creditor the entire obligation, which of the following remedies gives the surety the best method of collecting from the debtor?

Answer 45

subrogation

Question 46

T/F - In a S corporation, income is taxed when earned, not when distributed, unless distributions exceed owners’ share of earnings + basis. distribtuions lower basis

Answer 46

True

Question 47

Intercompany dividends are not taxable on a consolidated return

Answer 47

100% DRD- TRUE

Question 48

Ordinary and necessary administration expenses paid by the fiduciary of an estate are deductible:

Answer 48

on either the fiduciary income tax return (Form 1041) or the federal estate tax return (Form 706) but not both.

Question 49

Smith filed his individual income tax return on April 15, 20X1. What is the general time limit for the IRS to assess a deficiency?

Answer 49

3 years

Question 50

If the return omits an amount of income greater than 25% of the gross income shown on the return, the statute of limitations is extended to

Answer 50

six years

Question 51

The statute of limitations does not begin running until a return is filed

Answer 51

true

Question 52

COrporate capital gains are taxed the same as ordinary income.

Answer 52

true

Question 53

When a corporation completely liquidates, the corporation will recognize a gain or loss “as if” the property were sold at fair market value

Answer 53

tru

Question 54

The safe harbor rules protect a small corporation from

Answer 54

a penalty on current-year underpayment as long as the business had a prior-year tax liability,

Question 55

An accrual-basis corporation is allowed to take a charitable contribution deduction in the year prior to payment if the contribution was

Answer 55

authorized by the board of directors in the prior year and paid within 2-1/2 months of the prior year-end.

Question 56

A corporation is allowed a charitable contribution deduction

Answer 56

of 10% of taxable income without regard to the following:

The deduction for charitable contributions
The deduction for dividends received
Any net operating loss carryback
The deduction for domestic production activities
Any capital loss carryback

Question 57

Having two classes of stock will prevent a corporation from qualifying as an

Answer 57

S corporation

Question 58

A single class of stock is allowed to have different voting rights for different shareholders and does not affect S Corp status.

Answer 58

true

Question 59

Which court listens to an appeal from a taxpayer or the government when there is a disagreement with the trial court’s decision?

Answer 59

US Federal Court of Appeals

Question 60

Any time a corporation has earnings and profits and makes a PROPERTY (not cash) nonliquidating distribution to its shareholders, the corporation must recognize a taxable gain (not a loss) equal to the difference between the FMV and its basis. (IRC Section 311(b)(1))

Answer 60

True

Question 61

For a nonliquidating distribution, any amount received in excess of basis in the stock is a

Answer 61

taxable capital gain.

Question 62

How to calculate AMT

Answer 62

Regular taxable income is adjusted for certain items computed differently for AMT (i.e., preference items) such as depreciation and medical expenses.

Question 63

How to calculate AMTI

Answer 63

Taxable Income
ADD: preference items
ADD OR SUBTRACT: adjustments to arrive at AMTI.
=AMTI individual

A corporate taxpayer adds preference items, adds or subtracts adjustments, and subtracts any alternative minimum tax net operating loss (AMTNOL) deduction to arrive at AMTI.

Question 64

Phase out threshold for AMT

Answer 64

$150,000

Question 65

A newly formed single member domestic limited liability company is eligible to file an election to be taxed as a:

Answer 65

Corporation or disregarded entity.

A single member entity is disregarded as separate from their owner. Therefore, an LLC with one member may submit IRS Form 8832 (Entity Classification Election) and elect to be a corporation or a disregarded entity for federal tax purposes.

Question 66

Payments received on an inherited installment obligation?

Answer 66

Is taxable to the beneficiary at the same gross profit percentage used by the deceden

Question 67

What is the general safe harbor rule?

Answer 67

To avoid any penalty for underpayment of estimated taxes,

1) Pay 100% of the prior-year tax paid
2) 90% of the current-year tax due.

Question 68

What is the Special Safe Harbor Rule?

Answer 68

If the taxpayer had taxable income in the previous year in excess of $150,000, then the safe harbor for avoiding underpayment penalties is 110% of the prior-year tax.

Question 69

Unless the IRS consents to a change of method, the accrual method of tax reporting is mandatory for a sole proprietor with average annual gross receipts of over $1 million when there are:

Answer 69

year-end retail trade merchandise inventories.

Question 70

Any taxpayer (including farmers) that has inventories

Answer 70

must use the accrual basis of accounting for purchases and sales.
( with exception of the small business rule)

Question 71

SMALL BUSINESS RULE : The IRS allows small businesses with average annual gross receipts of less than $1 million (even if they have inventories)

Answer 71

to use cash basis method

Question 72

Absent specific directions, which of the following parties will ordinarily receive the assets of a terminated trust?

Answer 72

The remaindermen.

(or principal beneficiaries) receive the assets of a terminated trust.

Question 73

The ordinary business income for a partnership is computed as:

Answer 73

Gross receipts or sales less cost of goods sold plus other partnership income, less
salaries and wages,
repairs and maintenance,
bad debts,
rent,
taxes and licenses,
interest,
depreciation,
retirement plans, and
other deductions.

Question 74

Items that are separately stated on the partnership return and included as separate items on the partners’ returns are:

Answer 74

ordinary income or loss from trade or business activities,
net income or loss from rental real estate activities,
net income or loss from other rental activities,
guaranteed payments to partners,
interest income, dividends, and royalties,
gains and losses from sales or exchanges of property described in IRC Section 1231,
dividends (passed through to corporate partners) that are eligible for the dividends-received deduction,
taxes paid or accrued to foreign countries and U.S. possessions, and
other items of income, gain, loss, deduction (e.g., IRC Section 179, charitable contributions), or credit, as provided by regulations. Examples include nonbusiness expenses, intangible drilling and development costs, and soil and water conservation expenses.

Question 75

Where does federal tax legislation originate?

Answer 75

(house of way and means committee) House of reps. (Senate approves)

Question 76

Each shareholder of an S corporation will include in his taxable income his pro rata share of corporate items of income, deduction, loss, and credit in his tax year in which the corporation’s tax year ends.

Answer 76

true

Question 77

What type of organization would generally qualify for exemption from federal income tax?

Answer 77

Title holding organization organized as a corporation`

Question 78

A labor organization’s members must primarily be employees in order to be tax exempt under IRC Section 501(c)(5).

Answer 78

true

Question 79

In order to be tax exempt under IRC Section 501(c)(4), a civic organization must operate for the promotion of social welfare.

Answer 79

This means it must promote the common good and general welfare of the people of the community. By benefiting only its members, the organization is not benefiting all residents of a particular community.

Question 80

All of the following are true concerning the formation of an S corporation for tax years beginning after December 31, 2004, except:

Answer 80

1) must have the consent of ALL shareholders.
2) election must be made at any time in the preceding year or before the 15th day of the third month of the taxable year.
3) consent is filed by the corporation on Form 2553.
4) it must have no more than 100 shareholders.

Question 81

The claim for refund must be filed

Answer 81

within three years from the date on which the tax return that relates to the refund was filed or
within two years of the actual payment of the tax, whichever is later.

(If no return was filed, the claim for refund must be filed within two years from the date of payment.)

Question 82

Organizational expenses include

Answer 82

(1) Expenses of temporary directors
(2) Fees paid to a state for incorporation
(3) Accounting and legal fees incident to organization

Question 83

What are not considered org expenses?

Answer 83

Printing costs for stock certificates,

professional fees for issuance of stock,

broker’s commission on sale of stock

Question 84

In which type of business entity is the entire ownership interest most freely transferable?

Answer 84

A corporation (one must simply sell stock)

Question 85

the estate income tax return will be due on

Answer 85

on the 15th day of the fourth month after the tax year ends.

Question 86

Initial basis in a partnership interest is the sum of

Answer 86

cash
+adjusted basis of other property contributed
+ share of partnership debt assumed
- debt transferred to the partnership

Question 87

Organization expenses are those expenses connected directly with the creation of the corporation. These include:

Answer 87

Expenses of temporary directors
Fees paid to a state for incorporation
Accounting and legal fees incident to organization

Question 88

How much can you deduct for organizational expenses?

Answer 88

Taxpayers may deduct up to $5,000 in the taxable year in which the business begins; however, the $5,000 amount is reduced by the amount by which the cumulative cost of organizational expenditures exceeds $50,000. Since the amount over $50,000 is $10,000, the $5,000 would be reduced to $0. The entire amount must be capitalized and amortized over 180 months ($60,000 × (12 ÷ 180) = $4,000).

Question 89

Corporate charitable contribution deductions are limited to

Answer 89

10% of the corporate taxable income before charitable contributions and dividends-received deductions and before any NOL carryback or capital loss carryback.

Question 90

Income from a trust where the grantor has a reversionary interest exceeding 5% of the value of the assets is taxed to the:

Answer 90

the grantor

Question 91

The installment method allows for a taxpayer to spread the recognition of gain over the years of receipt of payment. The gross profit is determined by

Answer 91

total payments received ($200,000 payments received and $50,000 mortgage assumed by the buyer) less the taxpayers basis ($75,000) and selling expenses incurred ($10,000):

Question 92

The postmark of the post office determines the filing date.

Answer 92

true

Question 93

The statute of limitation begins based on the following rules

Answer 93

1) The date the return is filed

2) If the return is filed early, it is considered filed on the due date of the return.

Question 94

If an exempt organization is a corporation, the tax on unrelated business taxable income is:

Answer 94

computed at corporate income tax rates.

Question 95

Unrelated business income of charitable trusts is taxed at

Answer 95

trust rates

Question 96

If the partner’s basis is more than the cash received from the partnership, there would not be any gain to recognize on the liquidation.

Answer 96

True

Question 97

The basis in the property received would be the partner’s share of the fair market value (FMV) of the distributed property less any cash received in the liquidation.

Answer 97

2

Question 98

AMT preferences (always add backs) include

Answer 98

1) Interest on specified private activity bonds that is excluded from income for regular tax calculations depletion
2) excess intangible drilling costs,
3) accelerated depreciation on property placed in service before 1987,
4) exclusion of gain on qualified small business stock.

(NOTE: Charitable contributions are not considered a preference)

Question 99

If the Internal Revenue Service is forced to seize an individual’s weekly paycheck in order to pay past-due taxes owed by the individual, the individual has the legal right to keep an amount of weekly income equal to:

Answer 99

the individual’s standard deduction and allowable personal exemptions divided by 52.

Question 100

For C- Corps, when a capital loss is carried to another year, it is treated as a

Answer 100

short-term loss. It does not retain its original identity.