ACC372 Test Study Guide
An S shareholder's stock basis can be reduced below zero.
False
NOL carryforwards from C years can be used in an S corporation year against ordinary income.
False
If a seller assumes the buyer's liability on the property acquired, the buyer's adjusted basis for the property is increased by the amount of the liability assumed.
False
If the value of the gross estate is lower on the alternate valuation date than on the date of death, the date of death valuation cannot be used.
False
In a limited liability company, all members may participate in management (the operating agreement cannot limit participation), and all entity debts are treated as nonrecourse liabilities for purposes of allocating the LLC's liabilities to basis.
False
Permanent differences include items that appear in the Federal income tax return as income or deduction and in the GAAP financial statements as revenue or expense but in different reporting periods.
False
Roughly 20% of all taxes paid by businesses in the United States are to state, local, and municipal jurisdictions.
False
Sandy pays a local college for her boyfriend's tuition. The payment is subject to the Federal gift tax.
False
Section 501(c)(3) exempt organizations are permitted to engage in substantial lobbying activities.
False
The League of Women Voters is a § 501(c)(3) organization.
False
The exchange of unimproved real property located in Topeka, KS, for improved real property located in Atlanta, GA, does not qualify as a like-kind exchange.
False
The income tax expense recorded by a corporation on its GAAP financial statements includes its Federal and state income taxes but not its foreign income taxes.
False
The primary purpose of the partnership agreement is to document the various tax elections made by the partners regarding items such as depreciation methods, treatment of research and experimental costs, and the § 754 election.
False
To satisfy the "not-for-profit" requirement for exempt status, the entity may not be engaged in a trade or business.
False
Expenditures made for ordinary repairs and maintenance of property are not added to the original basis in the determination of the property's adjusted basis, whereas capital expenditures are added to the original basis.
True
General requirements for exempt status include the organization serving the common good and the organization being a not-for-profit entity.
True
Generally, an advantage to using the cash method of accounting is that gross income is not recognized until it is collected, rather than being taxed as soon as the taxpayer has the right to collect the income.
True
IRS computers use document matching programs for both individuals and business taxpayers to keep the audit rate low.
True
If a capital asset is sold at a gain, the holding period is important.
True
In a letter ruling, the IRS responds to a taxpayer's request concerning the tax treatment of a proposed transaction.
True
In computing the amount realized when the fair market value of the property received cannot be determined, the fair market value of the property surrendered may be used.
True
In general, the purpose of ASC 740 is to ensure that all of the income tax consequences related to current-year book income are reported in the current-year financial statements.
True
In most states, a taxpayer's income is apportioned on the basis of a formula measuring the extent of business contact and allocated according to the location of property owned or used.
True
In the current year, Oriole Corporation donated a painting worth $30,000 to the Texas Art Museum, a qualified public charity. The museum included the painting in its permanent collection. Oriole Corporation purchased the painting five years ago for $10,000. Oriole's charitable contribution deduction is $30,000 (ignoring the taxable income limitation).
True
Inbound and offshore asset transfers by a U.S. business can be subject to immediate Federal income taxation under § 367.
True
Liabilities affect the owner's basis differently in an S corporation than they do in a partnership.
True
Most states begin the computation of corporate taxable income with an amount from the Federal income tax return.
True
One of the disadvantages of the partnership form is that the partner's share of the partnership's taxable income is taxed to the partner even if it is not distributed.
True
Property taxes generally are collected by local taxing jurisdictions, not the state or Federal governments.
True
Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property's adjusted basis at the date of disposition.
True
S corporation status allows shareholders to realize tax benefits from corporate losses immediately (assuming sufficient stock basis).
True
Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.
True
Some states impose inheritance taxes, but the Federal tax system does not.
True
Temporary differences involve items that appear in both the GAAP financial statements and the Federal income tax return but not in the same reporting period.
True
The AAA begins with a zero balance on the first day of an S corporation's first tax year.
True
The Code contains two major depreciation recapture provisions: § 1245 and § 1250.
True
The IRS can require that the taxpayer produce its financial accounting records to determine whether taxable income is computed correctly.
True
The Section 179 expense deduction is a Schedule K item on the Form 1120S.
True
The United States has in force income tax treaties with about 70 countries.
True
The property factor includes business assets that the taxpayer owns and those used under a lease agreement.
True
The property factor includes land and buildings used for business purposes.
True
The sourcing rules of Federal income taxation apply to deductions as well as to income items.
True
The tax law requires that capital gains and losses be separated from other types of gains and losses because there are limitations on the deduction of net capital losses.
True
The taxable income of a partnership flows through to the partners, who report the income on their tax returns.
True
The unrelated business income tax (UBIT) is calculated by multiplying unrelated business taxable income by the appropriate Federal income tax rate.
True
The use tax is designed to complement the sales tax. A use tax typically covers purchases made out of state and brought into the jurisdiction.
True
Thrush Corporation, a calendar year C corporation, files its current year Form 1120, which reports taxable income of $200,000 for the year. The corporation's tax is $42,000.
True
To compute the holding period, start counting on the day after the property was acquired and include the day of disposition.
True
To make the election to split gifts, spouses must file a Form 709 (Federal gift tax return).
True
When Kevin and Marshall formed the equal KM LLC, the fair market values of their interests were each $100,000. Kevin contributed $60,000 cash, equipment with a basis of $0 and a fair market value of $10,000, and a small parcel of land in which he had a basis of $50,000 and that was valued at $30,000. Marshall contributed a cash basis account receivable that was valued at $100,000 and in which his basis was $0. Kevin has a basis in his partnership interest of $110,000 and Marshall's basis is $0.
True
Tara and Robert formed the TR Partnership four years ago. Because they decided the company needed some expertise in multimedia presentations, they offered Katie a one-third interest in partnership capital if she would come to work for the partnership. On July 1 of the current year, the unrestricted partnership interest (fair market value of $25,000) was transferred to Katie. How should Katie treat the receipt of the partnership interest in the current year? a. $25,000 ordinary income. b. $25,000 long-term capital gain. c. Carried interest. d. Nontaxable.
a. $25,000 ordinary income.
Elk, a C corporation, has $370,000 operating income and $290,000 operating expenses during the current year. In addition, Elk has a $10,000 long-term capital gain and a $17,000 short-term capital loss. Elk's taxable income is: a. $80,000. b. $63,000. c. $90,000. d. $73,000.
a. $80,000.
Politicians frequently use tax credits and exemptions to create economic development incentives.
True
The Statements on Standards for Tax Services are issued by the: a. AICPA. b. SEC. c. ABA. d. IRS.
a. AICPA.
Clipp, Inc., earns book net income before tax of $600,000. Clipp puts into service a depreciable asset this year, and its first-year tax depreciation exceeds book depreciation by $120,000. Clipp has recorded no other temporary or permanent book-tax differences. Assuming that the applicable tax rate is 21%, what is Clipp's deferred tax liability reported on its GAAP financial statements? a. $126,000 b. $25,200 c. $100,800 d. $151,200
b. $25,200
Which statement is correct as to the conduct of IRS income tax audits? a. The most common type of Federal income tax audit is an office audit. b. A correspondence audit is conducted by mail. c. A correspondence audit usually is concluded after a meeting with the taxpayer at the IRS auditor's office. d. Field audits are most common for Forms 1040.
b. A correspondence audit is conducted by mail.
Which of the following entity owners cannot participate in the management of an entity? a. A partner in a limited liability partnership. b. A limited partner in a limited partnership. c. A general partner in a general partnership. d. A member of a limited liability company.
b. A limited partner in a limited partnership.
Which one of the following statements regarding partnership taxation is incorrect? a. A partnership is required to file a return with the IRS. b. A partnership is a tax-paying entity for Federal income tax purposes. c. Partnership income is comprised of ordinary partnership income or loss and separately stated items. d. A partner's profit-sharing percentage may differ from the partner's loss-sharing percentage.
b. A partnership is a tax-paying entity for Federal income tax purposes.
In 2019, Zhang purchased a classic car that he planned to restore for $12,000. However, Zhang is too busy to work on the car and he gives it to his daughter Jun in 2023. At that time, the fair market value of the car had declined to $10,000. Zhang paid no gift tax on the transaction. Jun completes some of the restoration herself with out-of-pocket costs of $5,000. She later sells the car for $30,000. What is Jun's recognized gain or loss on the sale of the car? a. $15,000 b. $0 c. $13,000 d. $18,000
c. $13,000
Income tax information can be found in an entity's GAAP financial statements in the: a. Balance sheet. b. Income statement. c. Both "Balance sheet" and "Income statement". d. Neither "Balance sheet" nor "Income statement".
c. Both "Balance sheet" and "Income statement".
Which of the following statements correctly reflects the rules governing interest to be paid on an individual's Federal tax deficiency or claim for refund? a. The simple interest method for calculating interest is used. b. Congress sets the IRS interest rate twice each year. c. IRS interest compounds daily. d. The IRS has full discretion in determining the rate that will apply.
c. IRS interest compounds daily.
Question Content Area In the current year, Red Corporation (a calendar year C corporation), which owns stock in Blue Corporation, had net operating income of $200,000 for the year. Blue pays Red a dividend of $40,000. Red takes a dividends received deduction of $20,000. Which of the following statements is correct? a. Red owns 80% or more of Blue Corporation. b. Red owns 80% of Blue Corporation. c. Red owns less than 20% of Blue Corporation. d. Red owns 20% or more, but less than 80% of Blue Corporation.
c. Red owns less than 20% of Blue Corporation.
Which of the following statements is true? a. An analysis of earnings before interest, taxes, depreciation, and amortization (EBITDA) is often a better approach to comparing the operating results of two companies. b. The breakdown of tax expense between current and deferred may provide useful information regarding the comparison of tax burdens between companies. c. One-time effects within a company's effective tax rate should be removed before comparing the effective tax rates across companies (or across years for the same company). d. All of these observations are correct.
d. All of these observations are correct.
Which of the following attributes are associated with exempt organizations? a. Net earnings do not benefit the members of the organization. b. The organization serves some type of common good. c. The organization is not a for-profit entity. d. All of these statements are true.
d. All of these statements are true.
Which of the following statements regarding a 52-53 week tax year is not correct? a. The year-end must be the same day of the week in all years. b. Whether the particular tax year includes 52 weeks or 53 weeks is not elective. c. Some tax years will include more than 366 calendar days. d. All of these.
d. All of these.
The tax penalty imposed on appraisers: a. Can be as much as 200% of the appraisal fee that was charged. b. Is waived if the taxpayer also was charged with their own valuation penalty. c. Equals 25% of the appraised value of the property with a $10,000 minimum penalty. d. Applies if the appraiser knew that the appraisal would be used in preparing a Federal income tax return.
d. Applies if the appraiser knew that the appraisal would be used in preparing a Federal income tax return.
Young-Eagle files her 2020 Form 1040 on March 1, 2022. The Federal tax statute of limitations for this return expires on: a. March 1, 2025. b. April 15, 2028. c. April 15, 2029. d. April 15, 2025.
d. April 15, 2025.
The possible holding periods for capital assets include: a. Long-term = greater than six months. b. Short-term = held 14 months or less. c. Short-term = greater than 12 months. d. Long-term = greater than 12 months.
d. Long-term = greater than 12 months.
Under P.L. 86-272, which of the following transactions by itself would create nexus with a state? a. Executing a sales campaign using an advertising agency acting as an independent contractor for the taxpayer. b. Using a manufacturer's representative for the taxpayer through a sales office in the state. c. Having a sales employee inspect customer's inventory for specific product lines. d. Maintaining inventory in the state by an independent contractor under a consignment plan.
d. Maintaining inventory in the state by an independent contractor under a consignment plan.
Question Content Area Which of the following taxpayers is required to use the accrual method of accounting? a. A retail business with average annual gross receipts of $8,000,000. b. An insurance agency with average annual gross receipts of $5 million. c. An attorney with average annual gross receipts of $2 million. d. None of these choices are required to use the accrual method.
d. None of these choices are required to use the accrual method.
Which of the following exempt organizations are required to file a Form 990? a. Exempt organizations whose annual gross receipts do not exceed $50,000. b. Federal agencies. c. Churches. d. None of these entities must file Form 990.
d. None of these entities must file Form 990.
A corporation must file a Federal income tax return even if it has no taxable income for the year.
True
A lifetime transfer that is supported by full and adequate consideration is not a gift.
True
A partnership is an association formed by two or more taxpayers (which may be any type of entity) to carry on a trade or business.
True
Barry pays State University for his daughter's room and board. Barry has made a transfer that is subject to the Federal gift tax.
False
A C corporation that does not have a natural business year must use a calendar year as its tax year.
False
A business taxpayer sells depreciable business property with an adjusted basis of $40,000 for $32,000. The taxpayer held the property for more than a year and has an $8,000 capital loss.
False
A corporation may alternate between S corporation and C corporation status each year, depending on which results in more tax savings.
False
A newly formed S corporation does not receive any tax benefit from a C corporation's NOL incurred in its first election tax year.
False
A partner's profit-sharing, loss-sharing, and capital-sharing ownership percentages are the same.
False
A personal service corporation must use a calendar year, and is not permitted to use a fiscal year.
False
A typical state taxable income addition modification is for the state's NOL allowed the taxpayer for the tax year.
False
All organizations that are exempt from Federal income tax are "charities."
False
An example of a book-tax difference resulting in a deferred tax asset is the excess of accelerated MACRS depreciation over GAAP straight-line depreciation.
False
An exempt entity is not subject to any Federal income tax.
False
At least 51% of the shareholders must consent to an S election.
False
A qualified business unit of a U.S. corporation that operates in Germany generally uses the Euro as its functional currency.
True
A realized gain on the sale or exchange of a personal use asset is recognized, but a realized loss on the sale, exchange, or condemnation of a personal use asset is not recognized.
True
A unitary group of entities files a combined return that includes all of the affiliates' income and apportionment data.
True
A valuation allowance expresses in the financial statements that there exists uncertainty that the taxpayer will be able to recover a deferred tax asset.
True
ASC 740 addresses how an entity should report uncertain tax positions in its financial statements.
True
Almost all of the states assess some form of consumer-level sales/use tax.
True
An LLC apportions and allocates its annual taxable income in the same manner used by any other business operating in the state.
True
An S corporation's AAA can have a negative balance.
True
A C corporation's selection of a tax year generally is independent of the tax year of its principal shareholders.
True
Which of the following assets held by a manufacturing business is a § 1231 asset? a. A factory building used in the business and held more than one year. b. Accounts receivable. c. Office furniture used in the business and held less than one year. d. Inventory.
a. A factory building used in the business and held more than one year.
Which of the following is a correct definition of a concept related to partnership taxation? a. A partner's capital-sharing ratio is defined as the percentage of partnership assets (capital) that would be allocated to the partner upon liquidation of the partnership. b. A special allocation is defined as an amount that could differently affect the tax liabilities of two or more partners. c. The partnership's outside basis is defined as the sum of each partner's capital account balance. d. The aggregate concept treats partners and partnerships as separate units and gives the partnership its own tax personality.
a. A partner's capital-sharing ratio is defined as the percentage of partnership assets (capital) that would be allocated to the partner upon liquidation of the partnership.
Question Content Area The usual three-year statute of limitations on additional tax assessments applies in the following situation(s). a. A taxpayer discovers an inadvertent overstatement of deductions equal to 30% of gross income. b. An investment in a marketable security is worthless. c. No return at all is filed. d. A taxpayer inadvertently omits an amount of gross income equal to 30% of the gross income stated on the return.
a. A taxpayer discovers an inadvertent overstatement of deductions equal to 30% of gross income.
On January 1 of the current year, Anna and Jason form an equal partnership. Anna contributes $50,000 cash and a parcel of land (adjusted basis of $200,000; fair market value of $150,000) in exchange for her interest in the partnership. Jason contributes property (adjusted basis of $180,000; fair market value of $200,000) in exchange for his partnership interest. Which of the following statements is true concerning the income tax results of this partnership formation? a. Anna has a $250,000 tax basis for her partnership interest. b. The partnership has a $150,000 adjusted basis in the land contributed by Anna. c. Jason recognizes a $20,000 gain on his property transfer. d. Jason has a $200,000 tax basis for his partnership interest.
a. Anna has a $250,000 tax basis for her partnership interest.
Which of the following statements regarding the unrelated business income tax is correct? a. Churches are subject to the unrelated business income tax. b. The exchange or rental of membership lists with other exempt and nonexempt organizations is not an unrelated trade or business. c. Bingo games are not subject to the unrelated business income tax if they are conducted by an exempt organization. d. All of these statements are correct.
a. Churches are subject to the unrelated business income tax.
The best estimate of the income tax reflected on a corporation's current-year tax returns is the: a. Current tax expense. b. Change in the deferred tax liability account balance. c. Change in the deferred tax asset account balance. d. Total tax expense.
a. Current tax expense.
On December 31, 2023, Peregrine Corporation, an accrual method, calendar year taxpayer, accrued a performance bonus of $100,000 to Charles, a cash basis, calendar year taxpayer. Charles is president and sole shareholder of the corporation. When can Peregrine deduct the bonus? a. In 2024, if payment was made at any time during that year. b. In 2024, but only if payment was made on or before April 15, 2024. c. In 2023, if payment was made on or before April 15, 2024. d. In 2023, if the bonus was authorized by the Board of Directors and payment was made on or before April 15, 2024.
a. In 2024, if payment was made at any time during that year.
In working with Schedule M-2 (analysis of unappropriated retained earnings per books) of Form 1120, which of the following is an addition to beginning retained earnings? a. Net income per books. b. Net loss per books. c. Property dividends. d. Cash dividends.
a. Net income per books.
U.S. income tax treaties typically: a. Provide rules by which multinational taxpayers avoid double taxation. b. Provide for taxation exclusively by the source country. c. Provide that the country with the highest tax rate will be allowed exclusive tax collection rights. d. Provide for taxation exclusively by the country of residence.
a. Provide rules by which multinational taxpayers avoid double taxation.
Which of the following is not immune from state income taxation even if P.L. 86-272 is in effect? a. Sale of a warehouse used in the taxpayer's business. b. Sale of office equipment that constitutes inventory to the purchaser. c. Sale of office equipment that is used in the taxpayer's business. d. All of these choices are protected by P.L. 86-272 immunity provisions.
a. Sale of a warehouse used in the taxpayer's business.
Question Content Area Property is acquired in a qualifying like-kind exchange. The acquired property is sold three months after it is acquired. Which of the following is correct? a. Since the holding period of the property given up in the exchange tacks to the holding period of the acquired property, the holding period of the acquired property could be long-term. b. The holding period of the acquired property is short-term. c. The holding period of property acquired in a like-kind exchange is always long-term. d. When property acquired in a like-kind exchange is disposed of, the holding period is not relevant.
a. Since the holding period of the property given up in the exchange tacks to the holding period of the acquired property, the holding period of the acquired property could be long-term.
Which of the following is a requirement that will enable mortgaged land acquired by an exempt organization for later exempt use to be excluded from debt-financed property, for purposes of the unrelated business income tax? a. The land is used within 10 years of the acquisition date in the organization's exempt purpose. b. The principal purpose of acquiring the land is for investment. c. The land is located in the United States. d. Only "The principal purpose of acquiring the land is for investment" and "The land is used within 10 years of the acquisition date in the organization's exempt purpose" are correct.
a. The land is used within 10 years of the acquisition date in the organization's exempt purpose.
Which one of the following is an example of a special allocation of partnership income? a. The partnership agreement provides that all charitable contributions will be allocated to a specific partner rather than the partner's 20% distributive share. b. The Schedule K-1 reports each partner's share of the information they need to calculate the § 199A (qualified business income) deduction. c. Distributions from the partnership to the partner are shown on Schedule K-1 line 20. d. The partnership's capital gains and losses are shown separately on Schedule K-1.
a. The partnership agreement provides that all charitable contributions will be allocated to a specific partner rather than the partner's 20% distributive share.
Question Content Area Megan prepared a Federal income tax return for Joan for compensation. Joan's return included an aggressive interpretation of the rules concerning overnight business travel. Megan is not liable for a preparer penalty for taking an unreasonable tax return position if: a. There was substantial authority for Joan's interpretation of the travel deduction rules. b. The IRS found that the travel deduction was frivolous, but Joan had disclosed the position in an attachment to the return. c. There was a reasonable basis for Joan's interpretation of the travel deduction rules. d. The tax reduction attributable to the disputed deduction did not exceed $5,000.
a. There was substantial authority for Joan's interpretation of the travel deduction rules.
Question Content Area Which of the following statements is correct regarding the unrelated business income tax (UBIT)?
a. To be subject to the UBIT, the exempt organization must conduct a trade or business, the trade or business is not substantially related to the exempt purpose of the organization, and the trade or business is regularly carried on by the organization.
Public Law 86-272: a. Was enacted by Congress. b. Was written by the Multistate Tax Commission. c. Provides nexus definitions for the sale of medical and legal services. d. Provides nexus definitions for sales of stocks and bonds.
a. Was enacted by Congress.
The following assets in Jack's business were sold in 2023: Office equipment, purchased for $8,000, had a zero adjusted basis. The automobile was purchased for $2,000 and sold for $1,200. The ABC stock was purchased for $1,800 and sold for $3,200. In 2023 (the year of sale), Jack should report what amount of net capital gain and net ordinary income? a. $1,700 LTCG. b. $1,400 LTCG and $300 ordinary gain. c. $2,500 LTCG and $800 ordinary loss. d. $600 LTCG and $300 ordinary gain.
b. $1,400 LTCG and $300 ordinary gain.
Phyllis, Inc., earns book net income before tax of $600,000. Phyllis puts into service a depreciable asset this year, and its first-year tax depreciation exceeds book depreciation by $120,000. Phyllis has recorded no other temporary or permanent book-tax differences. Assuming that the applicable tax rate is 21%, what is Phyllis's total income tax expense reported on its GAAP financial statements? a. $100,800 b. $126,000 c. $25,200 d. $151,200
b. $126,000
Concerning a taxpayer's requirement to make quarterly estimated tax payments: a. A C corporation must make estimated payments if its Federal income tax liability for the year will exceed $250. b. An individual must make estimated payments if their balance due for the Federal income tax for the year will exceed $1,000. c. The due dates of the payments for a calendar year C corporation are March, June, September, and December 15. d. A C corporation's estimates must total at least 90% of the current-year tax to avoid the penalty.
b. An individual must make estimated payments if their balance due for the Federal income tax for the year will exceed $1,000.
Stanley operates a restaurant as a sole proprietorship. Which of the following items are capital assets in his hands? a. The restaurant's tables and chairs. b. An interest-bearing savings account used to keep the restaurant's excess cash. c. A portable sound system used to play theme music for the restaurant. d. The restaurant building that is an asset of the sole proprietorship.
b. An interest-bearing savings account used to keep the restaurant's excess cash.
A business taxpayer sells inventory for $80,000. The adjusted basis of the property is $58,000 at the time of the sale and the inventory had been held more than one year. The taxpayer has: a. No gain or loss. b. An ordinary gain. c. Sold a long-term capital asset. d. Sold a short-term capital asset.
b. An ordinary gain.
Question Content Area Generally, a taxpayer's business income is: a. Allocated. b. Apportioned. c. Both "Apportioned" and "Allocated". d. Neither "Apportioned" nor "Allocated".
b. Apportioned.
An individual is likely to be incarcerated upon a conviction for: a. Using an improper appraisal to compute a tax deduction. b. Committing criminal tax fraud. c. Filing a tax refund claim that the Tax Court denies. d. Failure to pay to the Treasury one pay period's withholdings from employees.
b. Committing criminal tax fraud.
Multistate income tax planning can be effective for the taxpayer because: a. State income tax rates generally are steeply progressive. b. Different states use different definitions of taxable income. c. Both "Different states use different definitions of taxable income" and "State income tax rates generally are steeply progressive". d. Neither "Different states use different definitions of taxable income" nor "State income tax rates generally are steeply progressive".
b. Different states use different definitions of taxable income.
The tax law requires that all paid tax preparers: a. Complete at least 20 hours or continuing education courses every year. b. Have a current Preparer Tax Identification Number (PTIN). c. Hold a bachelor's degree. d. Hold a bachelor's degree in business or economics.
b. Have a current Preparer Tax Identification Number (PTIN).
A GAAP financial statement includes footnotes that: a. Give estimates of the dates on which the deferred tax liability will be paid. b. Include a reconciliation of the book effective tax rate with the applicable statutory tax rate. c. Break down the state-by-state profitability of the entity. d. Show the journal entries to determine the deferred income tax expense.
b. Include a reconciliation of the book effective tax rate with the applicable statutory tax rate.
If a former employee wants to give information to the IRS about shady tax dealings about the employer when the disputed amount is $500,000, the best approach is to use the: a. Whistleblower Program. b. Informants program. c. Either "Informants program" or "Whistleblower Program" but not both. d. Neither "Informants program" nor "Whistleblower Program".
b. Informants program.
Which of the following statements is always correct regarding assets acquired by a newly formed partnership? If a partner contributes: a. Depreciable property: The partnership treats the property as newly acquired depreciable property and may claim a § 179 deduction. b. Inventory (in the partner's hands): The partnership reports ordinary income if the property is held as a capital asset and sold within five years of the contribution date. c. Land valued at less than its basis: The partnership reports a § 1231 (ordinary) loss if the property is sold at a loss within five years of the contribution date. d. Unrealized (cash-basis) receivables: The partnership will report a capital gain when the receivable is collected.
b. Inventory (in the partner's hands): The partnership reports ordinary income if the property is held as a capital asset and sold within five years of the contribution date.
In the case of an accrual basis taxpayer, an item of income: a. Is not recognized if the customer can return the goods. b. Is recognized when all the events have occurred to fix the taxpayer's right to receive the income and the amount of the income can be determined with reasonable accuracy. c. Is not recognized until cash is received. d. From services is never recognized until the services are performed.
b. Is recognized when all the events have occurred to fix the taxpayer's right to receive the income and the amount of the income can be determined with reasonable accuracy.
Mona purchased a business from Judah for $1,000,000. Judah's records and an appraiser provided her with the following information regarding the assets purchased. What is Mona's adjusted basis for the land, building, and equipment? a. Land $195,000, building $310,000, equipment $95,000. b. Land $270,000, building $450,000, equipment $180,000. c. Land $270,000, building $521,429, equipment $208,571. d. Land $195,000, building $575,000, equipment $230,000.
b. Land $270,000, building $450,000, equipment $180,000
Which of the following statements is correct regarding the taxation of C corporations? a. Corporations can receive an automatic extension of nine months for filing the corporate return by filing Form 7004 by the due date for the return. b. Schedule M-1 is used to reconcile net income computed for financial accounting purposes with taxable income reported on the corporation's tax return. c. The corporate tax return is filed on Form 1120S. d. A corporation with total assets of $7,500,000 or more is required to file Schedule M-3.
b. Schedule M-1 is used to reconcile net income computed for financial accounting purposes with taxable income reported on the corporation's tax return.
Which of the following is not an example of an exempt organization? a. Private high school. b. Stock exchange. c. Farmers' cooperative. d. Public high school.
b. Stock exchange.
The model law relating to the assignment of income among the states for corporations is: a. The Multistate Tax Treaty. b. The Uniform Division of Income for Tax Purposes Act (UDITPA). c. The Multistate Tax Commission (MTC). d. Public Law 86-272.
b. The Uniform Division of Income for Tax Purposes Act (UDITPA).
Question Content Area Marquardt Corporation realized $900,000 taxable income from the sales of its products in States X and Z. Marquardt's activities establish nexus for income tax purposes in both states. Marquardt's sales, payroll, and property among the states include the following. Z utilizes an equally weighted three-factor apportionment formula. Marquardt is incorporated in X. How much of Marquardt's taxable income is apportioned to Z? a. $675,000 b. $0 c. $225,000 d. $3,000,000
c. $225,000
The bank forecloses on Lisa's apartment complex. The property had been pledged as security on a nonrecourse mortgage whose principal amount at the date of foreclosure is $750,000. The adjusted basis of the property is $480,000, and the fair market value is $750,000. What is Lisa's recognized gain or loss? a. $0 b. ($750,000) c. $270,000 d. ($480,000)
c. $270,000
Carrot Corporation, a C corporation, has a net short-term capital gain of $65,000 and a net long-term capital loss of $250,000 during 2023. Carrot Corporation had taxable income from other sources of $720,000. Prior years' transactions included the following: Compute the amount of Carrot's capital loss carryover to 2024. a. $185,000 b. $0 c. $45,000 d. $32,000
c. $45,000
Question Content Area In computing asset basis, capital recoveries include: a. The cost of capital improvements. b. Payments made on the principal of a mortgage on taxpayer's building. c. Amortization of bond premium. d. Ordinary repair and maintenance expenditures.
c. Amortization of bond premium.
Question Content Area To determine whether an out-of-state entity has income tax nexus, some states use: a. A factor-presence test. b. An economic presence test. c. Both "A factor-presence test" and "An economic presence test" are used by certain states. d. Neither "A factor-presence test" nor "An economic presence test" is used by the states.
c. Both "A factor-presence test" and "An economic presence test" are used by certain states.
Question Content Area A § 501(c)(3) organization that otherwise would be classified as a private foundation can avoid such classification if it satisfies: a. Only an internal support test. b. Only an external support test. c. Both an external support test and an internal support test. d. An external support test, an internal support test, and a good faith test.
c. Both an external support test and an internal support test.
After receiving a 90-day letter, the taxpayer has 90 days to: a. Appeal the dispute to the Tax Court. b. Pay any outstanding tax, interest, and penalties. c. Either "Pay any outstanding tax, interest, and penalties" or "Appeal the dispute to the Tax Court". d. Neither "Pay any outstanding tax, interest, and penalties" nor "Appeal the dispute to the Tax Court".
c. Either "Pay any outstanding tax, interest, and penalties" or "Appeal the dispute to the Tax Court".
Question Content Area Which one of the following statements is true regarding a partner's personal liability for partnership debts? a. In a limited partnership, all partners have limited liability for partnership debts. b. LLC members can never be liable for entity debts. c. In a general partnership, all partners are liable for entity debts. d. In a limited liability partnership, a partner might be subject to liability for other partners' malpractice.
c. In a general partnership, all partners are liable for entity debts.
Under P.L. 86-272, which of the following transactions by itself would create nexus with a state? a. Order solicitation for a computer approved and filled from another state. b. Order solicitation for a machine with credit approval from another state. c. Order solicitation for a plot of real estate approved and filled from another state. d. Providing an automobile to a salesperson.
c. Order solicitation for a plot of real estate approved and filled from another state.
Question Content Area Beige Corporation, a C corporation, purchases a warehouse on August 1, 2007, for $1,000,000. Straight-line depreciation is taken in the amount of $411,750 before the property is sold on June 12, 2023, for $1,200,000. What is the amount and character of the gain recognized by Beige on the sale of the realty? a. Ordinary income of $117,650 and § 1231 gain of $494,100. b. Ordinary income of $0 and § 1231 gain of $611,750. c. Ordinary income of $82,350 and § 1231 gain of $529,400. d. Ordinary income of $411,750 and § 1231 gain of $200,000.
c. Ordinary income of $82,350 and § 1231 gain of $529,400.
Third Church operates a gift shop in its parish house. The total income of the church is $800,000. Of this amount, $300,000 comes from offerings and $500,000 comes from the net income of the gift shop. The gift shop operations are conducted by six full-time, paid employees. Which of the following statements is correct? a. The $300,000 is unrelated business income because the gift shop is a feeder organization. b. The $800,000 is unrelated business income. c. The $500,000 of gift shop net income is unrelated business income. d. None of the $800,000 is unrelated business income.
c. The $500,000 of gift shop net income is unrelated business income.
Without the foreign tax credit, double taxation would result when: a. A foreign country taxes the foreign-source income of a nonresident alien. b. The United States taxes the U.S.-source income of a U.S. resident. c. The United States and a foreign country both tax the foreign-source income of a U.S. resident. d. Terms of a tax treaty assign income taxing rights to the United States.
c. The United States and a foreign country both tax the foreign-source income of a U.S. resident.
Which of the following statements is correct? a. If a broad public support test is satisfied, an exempt organization that otherwise would be classified as a private foundation is not classified as such. b. A private foundation may be subject to certain types of Federal income tax. c. A private foundation is, in general, exempt from Federal income tax. d. "A private foundation is, in general, exempt from Federal income tax," "A private foundation may be subject to certain types of Federal income tax," and "If a broad public support test is satisfied, an exempt organization that otherwise would be classified as a private foundation is not classified as such" are correct.
d. "A private foundation is, in general, exempt from Federal income tax," "A private foundation may be subject to certain types of Federal income tax," and "If a broad public support test is satisfied, an exempt organization that otherwise would be classified as a private foundation is not classified as such" are correct.
The tax law requires that capital gains and losses be separated from other types of gains and losses. Among the reasons for this treatment are: a. Long-term capital gains may be taxed at a lower rate than ordinary gains. b. Short-term capital losses are not deductible. c. Net capital loss is deductible only up to $3,000 per year for individual taxpayers. d. "Long-term capital gains may be taxed at a lower rate than ordinary gains" and "Net capital loss is deductible only up to $3,000 per year for individual taxpayers".
d. "Long-term capital gains may be taxed at a lower rate than ordinary gains" and "Net capital loss is deductible only up to $3,000 per year for individual taxpayers".
Question Content Area Which of the following statements is correct regarding the disclosure of tax documents by exempt entities? a. Posting the required tax forms on the Internet is an acceptable technique for satisfying the "widely available" requirement. b. Copies of the three most recent Forms 990 must be made available to the public. c. Forms 990 and 1023 must be readily available to the general public. d. "Posting the required tax forms on the Internet is an acceptable technique for satisfying the "widely available" requirement," "Forms 990 and 1023 must be readily available to the general public," and "Copies of the three most recent Forms 990 must be made available to the public" are all correct.
d. "Posting the required tax forms on the Internet is an acceptable technique for satisfying the "widely available" requirement," "Forms 990 and 1023 must be readily available to the general public," and "Copies of the three most recent Forms 990 must be made available to the public" are all correct.
Ivory Fast Delivery Company, an accrual basis taxpayer, frequently has claims for damages to property the company delivered. Often the claim is not filed until a month after the delivery. In the past, Ivory has paid approximately 80% of the claims. In 2023, claims for $80,000 were filed. The company refused to pay $20,000 of the claims (believing they were not valid) and paid $50,000. The remaining $10,000 in claims were processed and paid in January 2024. In January 2024, claims for $8,000 were filed for deliveries made in 2023, and $6,000 was paid on these claims by March 15, 2024. Ivory has not elected to use the recurring item exception to economic performance. Under the all-events and economic performance tests, Ivory can accrue which of the following as an expense for 2023? a. $68,000. b. $66,000. c. $60,000. d. $50,000.
d. $50,000.
Ramirez Corporation, which is subject to income tax only in State A, generated the following income and deductions. Federal taxable income-$500,000 State A income tax expense-45,000 Depreciation allowed for Federal tax purposes-300,000 Depreciation allowed for state tax purposes-250,000 Federal taxable income is the starting point in computing A taxable income. State income taxes are not deductible for A tax purposes. Ramirez's A taxable income is: a. $500,000 b. $495,000 c. $545,000 d. $595,000
d. $595,000
Question Content Area In the current year, the POD Partnership received revenues of $200,000 and paid the following amounts: $50,000 in rent and utilities and $20,000 as a distribution to partner Olivia. In addition, the partnership earned $6,000 of long-term capital gains during the year. Partner Donald owns a 50% interest in the partnership. How much income must Donald report for the tax year? a. $65,000 ordinary income; $3,000 of long-term capital gains. b. $68,000 ordinary income. c. $78,000 ordinary income. d. $75,000 ordinary income; $3,000 of long-term capital gains.
d. $75,000 ordinary income; $3,000 of long-term capital gains.
Which of the following statements regarding the distribution of low-cost articles by an exempt entity is correct? a. Any contributions received that trigger the distribution of low-cost articles is included in unrelated business income. b. The distribution of low-cost articles can be classified as not being an unrelated trade or business. c. For 2023, a low-cost article is one that costs the entity $12.50 or less. d. Only "The distribution of low-cost articles can be classified as not being an unrelated trade or business" and "For 2023, a low-cost article is one that costs the entity $12.50 or less" are correct.
d. Only "The distribution of low-cost articles can be classified as not being an unrelated trade or business" and "For 2023, a low-cost article is one that costs the entity $12.50 or less" are correct.
Which of the following items is not included in the GAAP financial statement income tax footnote's effective tax rate reconciliation? a. Hypothetical tax on book income at U.S. Federal corporate tax rate. b. Total tax expense per the GAAP financial statements. c. Tax effect of permanent differences. d. Tax effect of temporary differences.
d. Tax effect of temporary differences.
Which of the following events causes the purchaser of an option to add its cost to the basis of the property to which the option relates? a. The option is sold. b. The option is rescinded. c. The option lapses. d. The option is exercised.
d. The option is exercised.
Which of the following is correct concerning short sales of stock at the time the short sale is made? a. The taxpayer does not deliver to the purchaser the shares sold short. b. The taxpayer may already own the shares sold short. c. The taxpayer always already owns the shares sold short. d. The taxpayer delivers to the purchaser the shares sold short.
d. The taxpayer delivers to the purchaser the shares sold short.
