Federal Taxes II- Final Exam

Under the terms of Robert's will, annual payments are to be made from the estate's income as follows: Spouse $10,000 Daughter $5,000 Son $5,000 There are no charitable contributions for the year and the distributable net income is $10,000. How much should each beneficiary include in their respective gross income? Spouse / Daughter / Son

$ 5,000 / $2,500 / $2,500

Jason owns a 55% capital interest in ABC Partnership. His brother owns 60% interest in XYZ Partnership. ABC sold a piece of property with an adjusted basis of $50,000 and a fair market value of $55,000 to XYZ for $45,000. What is ABC's recognized loss?

$0

Joan's adjusted basis in the So-Lo Partnership is $15,000. She received a non-liquidating cash distribution of $2,500 and a piece of land with an adjusted basis of $7,500 and a fair market value of $5,000. What is Joan's gain or loss to be recognized at the time of the distribution?

$0

On February 20, 2021, Michael prepares his 2020 calendar year tax return, showing $70,000 net profit from his first year in business (amount carried from Schedule C to Form 1040). He wants to establish a money purchase qualified plan and contribute the maximum deductible amount. He has no employees. The most Michael can contribute to his qualified plan for 2020 is:

$0

Roger is an employee at James River Roofing. His employer told him that he is eligible to participate in the SEP IRA starting in 2020. What is the maximum amount Roger can contribute to his SEP IRA for 2020?

$0

Scott contributed property having an adjusted basis to him of $10,000, to LMN Partnership for a 45% interest in the partnership. At the time of the contribution, the property had a fair market value of $20,000. What is the amount and character of Scott's gain on this transaction to be reported on his tax return?

$0

The decedent died on June 30. The decedent used the cash method of accounting and a calendar year-end. What total amount of the following is includible in the decedent's final return (Form 1040)? Total received during the tax year $5,000: Taxable Interest (earned and received equally all year) $2,000 Dividends (declared on June 15 and received on July 10) $500 Final wages (received July 10) $2,500

$1,000

Farmer Judy is a calendar-year taxpayer who uses the cash method of accounting. She normally sells 200 head of sheep a year. Because of a drought, she sold 250 head of sheep in 20X1. Farmer Judy realized $50,000 from the sale. The affected area was declared a disaster area eligible for federal assistance on March 12, 20X1. How much, if any, income can Farmer Judy postpone to 20X2?

$10,000

Taxpayer A contributed stock with a FMV of $10,000 and a basis of $ 5,000 to ABC Partnership (which would be treated as an investment company if it had been incorporated) for a 50% interest. What is the partnership's basis in the stock?

$10,000

Partner A received inventory items with a basis of $20,000 in complete dissolution of a partnership. Within five years, Partner A sells the entire inventory for $30,000. What amount and type of gain should Partner A report?

$10,000 ordinary gain

Mrs. A died on June 30. According to the terms of her will, $20,000 was paid to each of her three children prior to the end of the year. Additionally, the estate was to pay from income, $20,000 to each child during the year. For the year, the estate had net earnings of $30,000. Without considering any exemptions or deductions on the estate income tax return, how much income will each child report?

$10,000 ordinary income

Bryan had a 50% interest in a partnership and he materially participates in the partnership business. Bryan's adjusted basis in the partnership was $40,000 at the beginning of the year. There were no distributions to Bryan during the year. During the year, the partnership borrowed $180,000 from a local bank for the following reasons: Purchased business equipment $120,000 Paid off existing liabilities in full $60,000 All of the partners are personally liable for all the partnership debts. The partnership incurred a $300,000 loss for the current year. What amount of the loss can Bryan claim on his current year individual tax return?

$100,000

Sharon's basis in S & P partnership is $185,000. In a complete liquidation of Sharon's interest in S & P, Sharon received the following: S & P's Basis Fair Market Value Cash. $5,000. $5,000 Building $50,000. $100,000 Land $40,000. $50,000 What is Sharon's basis in the building?

$120,000

Farmer John, a cash basis farmer, operates a cow-calf breeding operation. The breeder cows are NOT primarily held for sale. In addition to the calves raised on his farm, John also purchases calves for resale. During 20X1, John had the following acquisitions and dispositions of cattle: Purchase of 30 calves for resale $3,420 Sale of 30 calves purchased for resale $6,100 Sale of 45 calves raised by John $10,400 Sale of 10 breeder cows $6,750 Original cost of breeder cows $5,500 Accumulated depreciation on breeder cows $2,860 What amount should John include in gross income on his Schedule F for 20X1?

$13,080

Deb, age 45, is self-employed and has no other employees. Her net earnings, after the deduction for one-half of self-employment tax but before deducting any contributions she makes to her own SIMPLE, are $15,000. What is the most that can be contributed to Deb's SIMPLE for 2020 (employer and employee contributions)?

$13,950 ($13,500 deferral + $450 employer match)

John owns 100% of a residential contracting business. Capital is a material income-producing factor. John's services to the business during the year were worth $30,000. John's son, Alex is interested in eventually working in his father's business. On January 1, Alex receives a gift of 20% of his father's interest in the business. Alex performed no services for the business during the year. If the resulting partnership had a profit of $100,000 for the current tax year, how much of the partnership profit should be allocated to Alex?

$14,000

Susan has a 25% interest in the Boggs Partnership. The adjusted basis of her interest at the end of the current year is $40,000. She sells her interest in Boggs Partnership to Brian for $53,000 cash. The basis and fair market value of the partnership's assets (there are no liabilities) are listed below. There was no agreement between Susan and Brian for any allocation of the sales price. Basis FMV Cash $60,000 $60,000 Unrealized receivables 0 32,000 Inventory 40,000 80,000 Fixed Assets 60,000 40,000 Total Assets $160,000 $212,000 What is the amount and character of Susan's gain or loss?

$18,000 ordinary income, $5,000 capital loss

In return for a 20% partnership interest, Kathy contributed land having a $60,000 fair market value and a $30,000 basis to the partnership. The partnership assumes Kathy's $15,000 liability arising from her purchase of the land. The partnership had a liability balance of $4,000 immediately prior to the contribution. What is Kathy's basis in her partnership interest?

$18,800

Lucy, age 24, is a public school teacher. She wants to take advantage of elective deferrals into her 403(b) retirement plan. What is the maximum amount she can contribute for 2020?

$19,500

The 2020 basic limit on elective deferrals in 401(k) plans (excluding SIMPLE plans) for participants under age 50 is:

$19,500.

The Up and Down Partnership has several revenues and expenses this year. Sales of inventory amounted to $600,000, cost of goods sold and other operating expenses were $410,000, dividend revenue was $8,000, long-term capital gains were $9,000, and charitable contributions amounted to $11,000. For income tax purposes, what is the ordinary business income for this partnership that should be allocated to the various partners?

$190,000

Farmer Bob sold a breeding cow for $2,500. Expenses related to the sale were $250. Farmer Bob deducted $1,000 in costs of raising the cow during the years the cow was raised. What is Farmer Bob's gain (loss) on the sale of the breeding cow, without regard to the Uniform Capitalization Rules?

$2,250

After Mary's death on August 1, 20X1, her estate received the following: $50,000 life insurance proceeds $1,000 interest income from a certificate of deposit that matured on August 5, 20X1 $2,000 annual royalty on a patent What is the amount of taxable income (after any applicable exemption) reported by the fiduciary on the 20X1 Income Tax Return for Estate and Trusts (Form 1041)?

$2,400

Maria qualifies to participate in her employer's 403(b) plan. She has a second job and participates in a 401(k) that employer. Her 2020 401(k) contribution is $17,000. What is the most she can contribute to her 403(b) for 2020?

$2,500

Under a partnership agreement, Sherry is to receive 25% of the partnership income, but not less than $10,000. The partnership has net income of $30,000 for the year before any allocation. Calculate Sherry's guaranteed payment from the partnership for the year.

$2,500

Lenore, who is 43 years old, opened a SIMPLE IRA on January 19, 20X1. On September 22, 20X2, she withdrew the entire $10,000 value of the account. The distribution does not meet any early withdrawal exceptions to the additional tax on early distributions. What is the total amount of additional tax on this distribution?

$2,500 (10,000 × 25% = 2,500)

The Alan Trust must distribute all of its income annually. Shown below are the trust's income and expenses for the year ($100 of the fiduciary fee is allocable to the nontaxable interest). Based on this information, how much taxable income will be passed through to the trust's beneficiaries? Taxable interest $3,000 Tax-exempt interest $1,000 Fiduciary fee $400

$2,700

Tracy has a one-fourth interest in the TANY Partnership. The adjusted basis of her interest at the end of the current year is $30,000. She sells her interest in the TANY Partnership to Roy for $50,000 cash. There was no agreement between Tracy and Roy for any allocation of the sales price. The basis and fair market value of the partnership's assets (there are no liabilities) are as follows: Adjusted Basis Fair Market Value Cash $40,000 $40,000 Unrealized receivables 0 36,000 Inventory 40,000 92,000 Land 40,000 32,000 Total $120,000 $200,000 What is the amount and character of Tracy's gain or loss?

$22,000 ordinary income, $2,000 capital loss

Columbus is a partner in New World Partnership. He also works in the operations of this business. He receives a guaranteed salary for his work of $2,000 per month. At the end of the year, he also receives a distribution that is equal to 32 percent of the profits for that year. On December 31 of this year, he received a check for $38,000 as his portion of the profits. In determining the ordinary income of the partnership for tax purposes this year, how much of these payments will be viewed as an expense?

$24,000

Sharon provides services to a partnership in exchange for a capital interest of 30% worth $25,000. Sharon's basis in the partnership is?

$25,000, which must be reported by her as income in the year of receipt if the interest is vested.

What is the maximum amount of 2020 compensation an employer may consider when determining qualified plan contributions and benefits for an employee?

$285,000

The ABC Trust has only nondisabled beneficiaries. The trust is not required to distribute its net income to its beneficiaries, but it does make discretionary distributions. From the information below, determine the amount of taxable income that will be taxed to the trust on its tax return (deduct the exemption amount before selecting the answer): Adjusted total income $70,000 Distribution deduction $40,000 Exemption ?

$29,900 $70,000adjusted total income - 40,000distribution deduction - 100exemption for complex trust = $29,900trust taxable income

Betsy is a dairy cow raised on Ronald's Dairy Farm. Ronald sold Betsy for $3,800. He incurred $300 in transportation expenses that were included in the sales price. Ronald estimates that Betsy cost $2,000 for food and other expenses to raise her. He deducted these expenses. What is Ronald's gain from the sale of Betsy?

$3,500

The MLN Trust had the following income and deductions: Taxable interest $4,000 Capital gain $1,000 Fiduciary fee $500 Assuming that capital gains are allocable to corpus, determine the trust's distributable net income.

$3,500

The adjusted basis in Carol's partnership interest is $50,000. She receives a distribution of $10,000 cash, land that has an adjusted basis of $30,000 and a FMV of $50,000. What is Carol's adjusted basis in the land?

$30,000

Anissa's father died in February 20X1. Anissa is the sole beneficiary of her father's estate. The estate was closed December 20X1 and the executor is filing one (first and final) Form 1041. After all expenses of the estate were paid, the following amounts were paid out to Anissa in 20X1: Cash $12,000 IRA distribution of $300,000 (decedent had no basis) Wages paid after death $6,000 Stock $75,000 Life insurance $150,000 How much, if any, of the amounts paid, will be reported on Anissa's 20X1 Form 1040 income tax return?

$306,000

Clyde is a limited partner in Marathon Marchers Partnership. He contributed $40,000 in cash on the formation of the partnership. His current adjusted basis in the partnership is $50,000, which includes his share of partnership liabilities of $10,000. Clyde's share of unrealized receivables in the partnership is $12,000. Clyde sold his partnership interest for $85,000 cash. What is the amount and character of Clyde's gain? Capital Gain / Ordinary Gain

$33,000 / $12,000

Under a partnership agreement, Gil is to receive 40% of the partnership income, but not less than $20,000. The partnership has net income of $100,000 for the current year without regard to the minimum guarantee and before any allocation. What is the amount and character of the income Gil is to receive for the current year?

$40,000 distributive share

Leonard Brown operated a cattle and grain farm in 20X1. Leonard sold $42,000 of grain and $23,000 of cattle held for breeding purposes. Leonard also received patronage dividends from the local feed store of $432, feed assistance payments of $1,200, and $1,500 for haying a neighbor's meadow. Leonard should report the following on Schedule F of his federal income tax return for 20X1:

$45,132

Carmine is a self-employed consultant who has one employee, Devin, who earned $48,000 in 20X1. Devin contributed the maximum amount to his SIMPLE 401(k) plan under which an employee can choose to make salary contributions of up to 15% of pay. Carmine made a 3% matching contribution. Which of the following correctly represents the amount that Carmine will deduct for compensation and benefits paid to Devin in 20X1?

$48,000 wages and $1,440 retirement plan contribution

Bill, a partner in Williams-Sonic, is a calendar-year taxpayer. Williams-Sonic's partnership year ends on June 30. For the partnership year ending June 30, 20X1, Bill's distributive share of partnership profits is $4,000. On August 20, 20X1, Bill dies and his estate succeeds to his partnership interest. For the partnership year ending June 30, 20X2, Bill and his estate's distributive share is $6,000. What is Bill's self-employment income for self-employment tax purposes in 20X1?

$5,000

Jane and Bill are equal partners in J & B Partnership. The partnership incurred a $10,000 loss last year. Jane and Bill's adjusted basis in the partnership at the beginning of last year was $2,000 each. Under the partnership agreement, Jane and Bill share all partnership profits and losses equally. The partnership borrowed $20,000 last year to purchase depreciable equipment to be used in the partnership's business. Jane was required under the partnership agreement to pay the creditor if the partnership defaulted. Based upon these facts, what is Jane and Bill's allowable loss on last year's tax return? Jane / Bill

$5,000 / $2,000

Scott became a limited partner in the S&N Partnership with a $10,000 contribution on the formation of the partnership. The adjusted basis of his partnership interest at the end of the current year is $20,000, which includes his $15,000 share of partnership liabilities. He was paid his share of the partnership income for the current year. There are no unrealized receivables or inventory items. Scott sells his interest in the partnership for $10,000. Which of the following is correct regarding his gain or loss from the sale?

$5,000 capital gain

ABC Trust had the following income and deductions: Taxable interest $5,000 Capital gain $1,000 Fiduciary fee $700 The trust had no tax-exempt income for the year. Per the trust instrument, capital gains are NOT allocated to corpus. What is the distributable net income (DNI)?

$5,300

Comfy Chairs Manufacturing, Ltd. operates as a partnership and files Form 1065. Comfy manufactures inflatable lounge chairs. During the tax year ended December 31, Comfy generated income and expenses as stated below. What is the correct amount of ordinary income (loss) from trade or business activities Comfy should report on Schedule(s) K-1 for the current year? Employee wages $15,000 Income from rental real estate $20,000 Charitable contributions $500 Cost of goods sold $10,000 Income from chair sales $75,000

$50,000

On January 1, Year One, Ramierez contributes cash of $30,000 and equipment with a tax basis of $12,000 but a fair value of $21,000 to a new business called STR Partnership. As a result, Ramierez becomes a partner with a 40 percent ownership. In Year One, the business reports total income of $70,000 and paid each partner $20,000 in cash. What was Ramierez's basis in this business at the end of Year One?

$50,000

Trust B has distributable net income of $60,000, which includes $5,000 of tax-exempt income. The trustee distributed $75,000 to the trust's sole beneficiary. What amount will be shown as the distribution deduction on the trust's Form 1041?

$55,000

The adjusted basis of Paul's partnership interest is $10,000. He receives a distribution of $4,000 cash and property that has an adjusted basis to the partnership of $8,000. (This was not a distribution in liquidation.) What is the basis of the distributed property in Paul's hands?

$6,000

Jessica turns 50 on December 31, 2020. What is the maximum catch-up contribution allowable for 2020 into her 401(k) plan?

$6,500

What is the maximum catch-up contribution for a 403(b) plan?

$6,500

John and his daughter each own 50% of a partnership. The partnership has $80,000 profit this year before deducting any guaranteed payments. Capital is a material income-producing factor. John performed services worth $55,000, which is reasonable compensation. The daughter performed no services. How much income will John claim on his individual tax return?

$67,500

Joseph is a partner in JKL Partnership. The adjusted basis of his partnership interest is $38,000, which includes his $30,000 share of partnership liabilities. The partnership has no unrealized receivables or inventory items. Joseph sells his interest in the partnership for $15,000 in cash. He had been paid his share of the partnership income for the tax year. What is Joseph's gain (loss) on the sale?

$7,000

A partnership is formed when A contributes $70,000 in cash and B contributes $50,000. The partners share all profits and losses evenly. The partnership borrows $10,000 from the bank. What is partner A's at-risk balance?

$75,000

A trust was required to distribute $10,000 a year to its sole beneficiary out of the trust's income for the year. For the current year, the distributable net income of the trust was $8,000 and the actual amount distributed was $7,000. How much income must the beneficiary report for the current year?

$8,000

Stan is the personal representative of his brother Bruce who died June 30. Stan has obtained an identification number for Bruce's estate and has notified the IRS on Form 56 that he has been appointed executor. He has filed his brother's final Form 1040 return and has the following information regarding Bruce's remaining estate. What will be the taxable income of the estate? $6,000Unpaid salary not received by Bruce before he died$600Dividend check on XYZ stock received August 15$2,000Form 1099 interest earned on savings after death$10,000Sales price of coin collection sold to unrelated person$9,000Value of the coins at the date of death$1,000Attorney's fees for administration of the estate

$8,000

Peter is a sole proprietor with $100,000 net profit on his Schedule C. He took a deduction for self-employment tax on Form 1040 of $7,650. What is the most he can contribute to his own account if the contribution rate for his SEP plan for employees is 10%? Note: Round his contribution rate 6 decimal places.

$8,395

Sandy had the following total gross income for 20X1: Taxable interest $45,000. Dividends $1,000. Real estate rental income (Schedule E) $1,500. Farm income from sales of produce grown on the farm (Schedule F) $75,000. Gain from sale of farm animals raised for sale $5,000. How much of Sandy's gross income qualifies as gross income from farming?

$80,000

Brittani holds a 30 percent ownership interest in the Holden Partnership with an adjusted basis in this business of $13,000. The partnership conveys cash of $4,000 to her along with land that had a tax basis to the partnership of $10,000 but a fair value of $17,000. The partnership is not going out of business so this transfer is a nonliquidating distribution. Once Brittani receives the cash and the land, what is the tax basis of the land on her personal financial records?

$9,000

Josh is a cattle farmer who uses the cash method of accounting. He files his returns on a calendar year basis. Normally, he sells 100 head of beef cattle a year; however, as a result of drought he had to sell 135 head during 20X1. He realized $35,100 from the sale. On August 9, 20X1, due to the drought, Josh's area was declared eligible for federal assistance. How much of the income from the sale of the cattle can Josh defer until 20X2?

$9,100

How many years of service does an employee need to be eligible for an additional $3,000 contribution into a 403(b) plan?

15

Amy, a self-employed consultant, contributes more to her profit-sharing plan than she can deduct for the year. Amy can carry over and deduct the excess in later years combined with her normal contributions. Her contribution in later years is limited to which of the following?

25% of the participating employee compensation.

Chad needs to take out a loan from his retirement plan. Which of the following accounts may permit Chad to borrow money from his account balance?

401(k)

Justin is a farmer who owes an estimated tax. He determined this because he owes at least $1,000 for the current year and is expecting his withholding and refundable credits to be less than what percentage of the tax due?

66 2/3%

Maggie and Simon each have a 50% interest in a partnership that started business October 1. Maggie uses a calendar year while Simon has a fiscal year ending November 30. Which of the following is correct? A) The partnership may use the fiscal year ending September 30 provided a section 444 election and payment are made. B) The partnership may use the fiscal year ending November 30th as that results in the least deferral. C) The partnership may use the calendar year. D) A & B above are both correct.

A & B above are both correct.

A farmer sold a 3-year old raised dairy cow for $600. It cost him $75 for shipping and commissions to sell the cow. He reports this sale as follows on his tax return:

A Section 1231 gain of $525 reported on Part I of Form 4797.

Which of the following organizations is not required to file an annual information return such as Form 990 or 990-EZ, Return of Organization Exempt From Income Tax?

A convention or association of churches with annual gross receipts exceeding $50,000.

Which of the following is NOT an example of income in respect of a decedent?

A dividend check that was received by the decedent, but cashed after death

Who can an employer exclude from covering under a SEP IRA, provided all other requirements are met?

A nonresident alien employee with no US source income.

Who of the following may use farm income averaging, assuming farm income rules are met?

A partner in a partnership engaged in a farming or fishing business, and a shareholder in an S Corporation engaged in a farming or fishing business.

A partner's basis in a partnership interest includes the partner's share of a partnership liability in all of the following, EXCEPT:

A partner's share of accrued but unpaid expenses of a cash basis partnership

Of the organizations listed below, which organization could not receive approval for tax-exempt status under Internal Revenue Code section 501(C)(3)?

A partnership for scientific research

For purposes of the estimated tax for qualified farmers, all of the following statements are true EXCEPT:

A qualified farmer does not have to make any estimated payments if he files by the first day of the third month after the close of the tax year and pays 100% of the previous year's taxes with the return.

Which of the following can establish their own 403(b) plan?

A tax-exempt organization established under Section 501(c)(3).

In a sale or exchange of a partner's interest in a partnership, which of the following partnership assets is treated as unrealized receivables?

All of the above

John, a self-employed carpenter, died on January 8. Which of the following, if allowable, could be deducted on John's final Form 1040? Unused net operating loss carryover from prior year The full amount of his standard deduction (without proration) Medical expenses paid by the estate within one year of death All of the above

All of the above

Which of the following organizations may request exempt status under the Internal Revenue Code as charitable organizations? Religious organization. School. Animal welfare organization. All of the above.

All of the above.

Which return might a tax-exempt organization be required to file? Employment tax returns. Annual information return, Form 990. Report of cash received. All of the above.

All of the above.

Who is a highly compensated employee for purposes of employer retirement plan calculations?

An employee that owns more than 5% interest in the business at any time during the year, regardless of compensation amount.

Which of the following items is NOT an allowable deduction on a decedent's estate tax return?

Bequest to a surviving ex-spouse

Salary reduction contributions to a SIMPLE IRA are subject to which of the following?

Both FICA and FUTA taxes

Christopher wants to create a revocable grantor trust that will own all of his stocks and rental properties. Which statement regarding income of the trust is true?

Christopher will be taxed on all income of the trust, regardless of distributions.

Members of a family who must meet special requirements to be recognized as partners for determining a partner's distributive share include all of the following EXCEPT:

Cousins

What tax year is an executor of an estate required to use for filing Form 1041?

Either a calendar year or a fiscal year.

The trustee of a grantor type trust must never:

File a trust return, figuring the tax on all income and deductions of the trust

Which of the following statements is true regarding estate income tax returns filed on Form 1041?

Form 1041 has its own tax rate schedule

For purposes of estimated tax exceptions for farmers, all of the following are considered gross income from farming EXCEPT:

Gains from the sale of investment stock (securities).

Which of the following items does not pass through directly to the partners of a partnership but is included in arriving at the ordinary income of the partnership?

Guaranteed payments made to partners to compensate them for work done in the partnership

Kasemi is a single taxpayer who has $4,000 in long-term capital gains, $7,000 in short-term capital gains, and $2,000 in short-term capital losses. He is also a 50 percent partner in the OK partnership which had a long-term capital loss this year of $20,000. Kasemi is currently preparing his tax return for the year. Which of the following statements is correct?

He can deduct a capital loss for the year on his tax return of $1,000.

Jeff, age 30, began participating in a SIMPLE retirement account in 2019. After one year he needed some money and took an early distribution. Which of the following is true in 2020?

He will not owe a penalty if the distribution is due to a coronavirus-related distribution

Review the list of tax credits below. I. Earned Income Credit II. Child Tax Credit III. Saver's Credit IV. American Opportunity Tax Credit Which of the credits listed above may a decedent claim on their final income tax return, assuming they met all eligibility requirements for the tax year prior to death?

I, II, III and IV

All of the following are true regarding Income in Respect of a Decedent (IRD) EXCEPT:

If an individual receives IRD and includes it on their return, they are not allowed to claim a deduction for the estate tax paid on that income if Form 706 was filed.

The Haskins Society is a tax-exempt organization. Which of the following statements is not true about tax-exempt organizations?

If an organization is tax-exempt, then donations that it accepts can be taken as itemized deductions by the individuals making the gift.

Harland A. Heathcliff is a partner in a major law firm. His basis in this partnership is $32,000. Heathcliff is given a nonliquidating distribution of land with a fair value of $50,000. Which of the following statements is true?

If the land has a tax basis to the partnership of $43,000, Heathcliff's basis in the land is $32,000.

Otis has a tax basis in the Barney and Otis partnership of $52,000. Title to an acre of land is conveyed to Otis as a nonliquidating distribution from this partnership. Which of the following is correct?

If the land has a tax basis to the partnership of $53,000 but a fair value of $57,000, Otis records the land as having a tax basis of $52,000.

Nancy and Drew have been equal partners in the Mystery Partnership for a number of years. During the current year, Nancy was given a cash distribution of $5,000 along with land having a tax basis of $30,000 and a fair value of $40,000. Which of the following statements is true?

If this is a liquidating distribution and Nancy has a basis in the partnership of $46,000, she will have a tax basis for the land of $41,000.

Which of the following is compensation used to determine employer retirement plan allocations? Wages and Salaries Fees for professional services Tips Include all of these amounts in compensation

Include all of these amounts in compensation

Which of the following statements regarding grantor trusts is true?

Income from a grantor trust is taxed to the grantor in the same manner as if no trust existed.

Bob and Zelda have owned a partnership together for seven years. Bob holds a 25 percent share with Zelda owning the remainder. This year, the partnership bought land with a building for $300,000. Cash of $50,000 was paid from the partnership assets and a note was signed for the rest. How does that transaction impact the at-risk basis that Bob has in this partnership?

Increases by $62,500

All of the following are reporting requirements of a qualified retirement plan EXCEPT:

Information on certain contributions, conversions, and distributions to retirement plans reported on Form 8606

Jane gave each of her two children, Jake & Jeff, a 30% interest in her clothing store. Capital is not a material income-producing factor. Jeff is 21 and has worked in the store since he was 15 and has developed significant sales skills and helps his mom with the management duties. Jake is 25, married and has a job in another state and does not participate in any of the store's management decisions. Who is(are) recognized as a partner(s) for tax purposes?

Jane and Jeff

The XYZ Partnership is comprised of three partners. Sam and Earl each own 30% of the capital and profits, and Tim owns 40% of capital and profits. Sam and Earl each use a tax year ending June 30. Tim's tax year ends September 30. What is the partnership's required tax year end?

June 30

On December 15, 20X1, Kyle received a $10,000 distribution from his father's estate. On March 30, 20X2, Kyle was issued Schedule K-1 for the estate's first fiscal year (February 1, 20X1 through January 31, 20X2). The Schedule K-1 from the estate showed taxable interest income of $200 and had no other entries. Based on the information above, which of the following statements are true?

Kyle must report $200 interest income on his 20X2 return

New ABC Partnership is organized with three general partners. The partners include a corporation with a tax year ending on March 31 and a 60% interest in partnership capital and profits, and two individuals, each having a calendar tax year and a 20% interest in partnership capital and profits. The partnership's required tax year ends on:

March 31

Joaquin is a small business owner who maintains a SEP for his employees: Jan, a 42-year-old part-timer who has worked for Joaquin in this business since 2008. She works 15 hours per week. She earned $13,500 in 2020. Malik, a 72-year old seasonal worker who works from September through December. He has worked for Joaquin in this business since 2012 and earned $6,000 in 2020 Monica is 21 years old and works 10 hours per week, all year. She has worked for Joaquin since June 2018 and earned $4,800 in 2020. Joaquin's business had net taxable income in 2020 of $62,300. All employees and Joaquin are U.S. citizens and none of them are union members. Which of the individuals listed below can be excluded from coverage under the SEP in 2020?

Monica

The date of death plays a significant role in the treatment of income or expenses related to a deceased taxpayer. Which of the following statements about the final income tax return of the decedent is NOT true?

NOL or capital losses not used on the final income tax return can be carried over for deduction on the estate's income tax return.

PLC Company has a SIMPLE IRA which offers a 3% matching contribution. Which of the following scenarios regarding the employer matching contribution is correct?

Neil's annual compensation is $75,000. Neil contributes $10,000. PLC can contribute $2,250.

Samantha owns 2% of Creative Corporation stock. Creative paid her an annual salary of $100,000 in 2020 and each of the three prior years. In 2020, she receives an additional bonus of $40,000 for her achievements on a design project for a major client. Her 2020 total compensation from Creative is $145,000. Is Samantha a highly compensated employee for purposes of Creative's 2020 qualified retirement plan contributions?

No, because she did not exceed the threshold in the preceding year.

Archie sells his 50% interest in XYZ partnership to Hal for $5,000 cash. His outside basis in the partnership is $3,500. The partnership has the following assets: Basis FMV Inventory $6,000 $8,000 Capital Asset $2,000 $1,000 Archie should properly recognize? Ordinary income of $2,000 and a capital loss of $500 Capital gain of $1,500 on the sale of his partnership interest Ordinary income of $1,500, the amount of cash he received None of the above

None of the above

Mike is self-employed. His business files schedule C. He is a calendar year taxpayer. If he wants to set up a SEP plan for his business for the year 2020, he must do so by (including extensions):

October 15, 2021

Abby sells her 50% interest in the ABC partnership to Marty for $1,000 cash. Her outside basis at that time is $775. The partnership has inventory and a capital asset with respective basis of $1,200 and $300 and respective fair market values of $1,500 and $450. Abby should properly recognize?

Ordinary income of $150 and a capital gain of $75

Select the organization that could not receive approval for tax-exempt status under Section 501(c)(3).

Partnership for scientific research.

For the current year, a partnership has sales revenue of $500,000, cost of goods sold of $300,000, capital gains of $60,000, salary expenses of $120,000, and charitable contributions of $30,000. If there are two equal partners, what does each report on their separate income tax returns for the current year?

Partnership income of $40,000, capital gains of $30,000, and charitable contributions of $15,000

In which one of the following ownership combinations of Pete and Louie partnership would Pete be treated as owning more than 50% of the partnership?

Pete 10 percent, Pete's Wife's Corporation 90 percent

All of the following items are treated as unrealized receivables in a sale of a partnership interest EXCEPT:

Property distributed that has a fair market value in excess of the partner's basis

Jayne's basis in her partnership interest is $55,000. In a distribution in liquidation of her entire interest, she receives a rental house and vacant lot, neither of which is inventory or unrealized receivables. The rental house has an adjusted basis to the partnership of $5,000 and a fair market value of $40,000. The vacant lot has an adjusted basis to the partnership of $10,000 and a fair market value of $10,000. What is Jayne's basis in each property after the distribution?

Rental house $44,000; vacant lot $11,000

Which of the following is income in respect of a decedent?

Royalties received on deceased father's published book; the right to receive these royalties was distributed from the father's estate

Which of the listed retirement plans is available to a self-employed individual?

SEP

In filing a partnership income tax return, what is the purpose of Schedule K?

Schedule K is a summary schedule of all the partners' shares of the partnership's income, credits, and deduction.

A small university which operates as a private not-for-profit organization has received tax exempt status from the Internal Revenue Service. Thus, the charity gets to use a nonprofit postal permit for its mailings which reduces its costs significantly. In addition, except for unrelated business income, the charity pays no federal income taxes. Gifts made to the organization are tax deductible by the donor. What is the label that is attached to this tax exempt status?

Section 501 (c) (3)

Jill has a SEP IRA for her employees. She bases contributions on a written allocation formula. In prior years, her contributions were 25% of employee compensation. In 20X1, her company had its most profitable year ever. She took a large distribution to fund a private investment and doesn't have enough to contribute to the plan. What are her options for making the 20X1 contribution?

She can skip the contribution in 20X1

Which of the following retirement plans does not have a salary reduction (elective deferral) component to it?

Simplified Employee Pension Plan (SEP)

The computation of distributable net income of a trust takes into account which of the following items?

Tax-exempt interest

Ted and Jane form a cash basis general partnership with cash contributions of $20,000 each. They share all partnership profits and losses equally. They borrow $60,000 and purchase depreciable business equipment. Jane, however, is required to pay the creditor if the partnership defaults. Which of the following is correct?

Ted has a basis of $20,000 and Jane has a basis of $80,000 in the partnership.

Income in respect of a decedent must not be included in the income of which of the following?

The decedent's final Form 1040 filing

Which of the following is NOT a participation requirement for employees under a SEP IRA plan?

The employee works at least 100 hours during the year

Which of the following is not true about a SEP IRA?

The employer can contribute up to 100% of compensation up to the annual limit.

Which of the following statements about contributions to a SIMPLE IRA is true?

The employer must contribute either a matching contribution up to 3% or a 2% nonelective contribution

Mark died on December 22, 20X1. The executor of his estate chose a calendar year. In 20X2, the estate had a tax liability of $2,000. It is expected that the estate will have an adjusted gross income of $43,000 and a tax liability of $3,000 in 20X3. All of the income is from interest and dividends from which no tax was withheld. Which of the following statements regarding estimated tax payments for this estate are true?

The executor should make equal estimated payments totaling at least $2,000 (last year's tax liability) to avoid a penalty for underpayment of tax.

Andrew buys land on July 9, Year One. Later, on October 2, Year Four, he and Jackson form a partnership. Andrew contributes the property to the partnership as part of his capital investment. On February 6, Year Five, this partnership sells the land and is now trying to determine the capital gain or loss to pass through to the two partners. What is the holding period of this land as reported by this partnership?

The holding period begins on July 9, Year One.

What is the tax consequence of a taxpayer receiving the wages that were due to a decedent at the time of their death?

The income is considered ordinary income just as it would have been considered for the decedent.

Which of the following statements is correct about crop insurance and disaster payments?

The insurance proceeds can be deferred only if the farmer can show that the income from the crops would normally be reported in a tax year following the year of damage

The Haynes and Jackson Partnership pays rent for its retail store in Year One of $42,000. How is this expense reported for federal income tax purposes?

The partnership deducts the rent in arriving at the ordinary partnership business income for the period.

Which of the following statements about the effect of a sale or exchange of a partner's interest in a partnership is correct?

The partnership may make an election for an optional adjustment to the basis of partnership assets in the year the interest is transferred.

The Morrison Trust requires that all trust income be distributed at least annually. There are no provisions for charitable contributions. To be treated as a simple trust, what must also be true?

There were no other distributions of corpus in the current year

What are the requirements to establish a SEP IRA? The employer must execute a formal written agreement to provide benefits to all eligible employees. Each eligible employee must receive certain information about the SEP. A SEP-IRA must be set up for each eligible employee. These are all requirements.

These are all requirements

Regarding family partnerships, if a husband and wife carry on a business together and share in the profits and losses:

They could each carry his or her share of the partnership income or loss from the Form 1065 Schedule K-1 to their joint or separate individual income tax returns

The tax on early distributions is imposed on distributions made from a qualified retirement plan made before the recipient reaches age 59 1/2. An exception to the tax on early distributions applies:

To distributions made after separation from service after the year the recipient reached age 55 (age 50 for qualified public safety officials).

Bytes, Ltd is a partnership formed by Warren Corporation, JCL Corporation, and Mike (an individual), to build and repair personal computers. The partners' profits interest in Bytes and their respective taxable year's are stated below. Assuming there is no business purpose for any particular year and no Section 444 election has been made, determine the most appropriate answer regarding the partnership's required taxable year.

Under the required tax year rules, the partnership must adopt a calendar year since this is the tax year of the majority of the partners.

In November of 20X1, Farmer Smith, a cash basis taxpayer, sells 100 additional beef feeder cattle (raised for resale) due to severe lack of water in his area. On December 1, 20X1, as a result of drought, the affected area was declared a disaster area eligible for federal assistance. Normally, these feeders sell in February 20X2. The transaction is correctly reported:

Upon election, as ordinary farm income in either 20X1 or 20X2.

If you sell more livestock than you normally would in a year because of a drought, flood, or other weather related condition, you may be able to postpone reporting the gain from selling the additional animals until the next year. You must meet all of the following conditions to make the election EXCEPT:

You use the accrual method of accounting.

Owners of the Granger Partnership have decided to liquidate and go out of business. Hermione is one of the partners who holds a partnership interest with a basis of $5,000. The only thing she receives from the liquidation is a machine with a book value of $7,000 but a fair value of $7,600. Hermione held a 20 percent ownership in the partnership. What gain does Hermione recognize for tax purposes on the receipt of this liquidation distribution?

Zero

The partnership of Randolph and Macon operates in central Virginia. Total capital is $200,000, $150,000 for Randolph, and $50,000 for Macon. They allow Ashland to enter the partnership with a 30 percent ownership by contributing land and a building. This property has a fair value of $120,000 but a tax basis to Ashland of $92,000. What gain should Ashland recognize on this exchange of the property for ownership in this partnership?

Zero

An organization may qualify under Section 501(c)(3) if it is organized exclusively for which of the following purposes?

charitable

A paycheck issued after the date of death to a taxpayer for work performed prior to death is considered?

income in respect of a decedent

Generally, the deadline to file Form 5500, Annual Return/Report of Employee Benefit Plan is the

last day of the seventh month after the end of the plan year

All of the following returns would include income in respect of a decedent EXCEPT:

the final Form 1040 for the decedent