ACC454 - Taxes for Corp. Accts. Vocab no Math multi. choice Part I

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The three different levels of government (federal, state, and local) must impose taxes to carry out their functions. For each of the types of taxes below, discuss which level of government primarily uses that type of tax. a. Property taxes b. Excise taxes c. Sales taxes d. Income taxes e. Employment taxes a. Property taxes are primarily used by ? government(s) and ?. b. Excise taxes are primarily used by the ? government(s) and are imposed on items such as ?. c. Sales taxes are primarily used by ? government(s) and ?. d. Income taxes are the primary domain of the ? government(s) and ?. e. Employment taxes are primarily used by the ? government(s) and constitute ?.

a. Property taxes ---> local government(s) ---> include both real property taxes and personal property taxes. b. Excise taxes ---> federal government(s) ---> are imposed on items such as alcohol, tobacco, telephone usage, and other goods. c. Sales taxes a---> state and local government(s) --->constitute a major revenue source. d. Income taxes---> domain of the federal and state government(s) ---> constitute a major revenue source. e. Employment taxes ---> the federal and state government(s) ---> constitute a major revenue source.

Business assets of a sole proprietorship are owned by

an individual.

Limited liability companies (LLCs) are generally taxed as ?. Therefore, the LLC ? subject to income tax on its taxable income but such income ? allocated to the members (owners) of the LLC. Thus, ? of taxation is imposed. The same allocation rules that pertain to ? also apply to LLCs.

partnerships is not is single-level partnerships

Statements on Standards for Tax Services are issued by

the AICPA.

An accrual of a reserve for bad debt expense by an accrual-basis taxpayer meets the standards of all-events and economic performance. (T/F)

False

If an exchange qualifies as a like-kind exchange, nonrecognition of gain or loss is elective. (T/F)

False

Demarcus is a 50% partner in the DJ partnership. DJ has taxable income for the year of $200,000. Demarcus received a $75,000 distribution from the partnership. What amount of income related to DJ must Demarcus recognize?

$100,000

John and Mary each exchange property worth $50,000 for 100 shares of New Corporation stock. Peter exchanges services for 98 shares of New stock and $1,000 in cash for two shares of New stock. Are the Sec. 351 requirements met? Explain why or why not. What advice would you give the shareholders?

The Sec. 351 requirements are not met because Peter is not considered a transferor of property. John and Mary are deemed to have transferred property and, since they own only 2/3 of the stock, they are not in control. Advice: -The shareholders might have Peter provide fewer services and a larger amount of cash to the corporation and still receive 100 shares of stock. -The shareholders might restructure the transaction by having Peter provide a larger amount of cash to the corporation and take more shares of stock.

List three requirements that apply to written advice under Treasury Department Circular 230.

-Base the advice on reasonable assumptions. -Identify the facts relevant to the advice. -Consider relevant facts and circumstances.

Name three primary sources of authority that tax professionals should check against the citator before relying on those sources for important matters.

-Judicial decisions -Revenue rulings -Revenue procedures

What are the Sec. 351 reporting requirements?

-Parties included in the Sec. 351 exchange must attach a statement to his or her tax return for the period that includes the date of the exchange including all pertinent facts. -The transferee must attach a statement to its tax return for the year in which the exchange took place, including a description of property, liabilities, and the stock and property transferred in the exchange.

Why might a taxpayer want to avoid having an exchange qualify as a like-kind exchange? A.A taxpayer may want to recognize a gain if the taxpayer is in a low tax bracket or has other losses that can be used to offset the gain. B.A taxpayer may want to recognize a loss on the exchange to offset other gains. C.Both A and B are valid reasons a taxpayer might want to avoid having an exchange qualify as a like-kind exchange. Your answer is correct. D.There are no valid reasons to avoid having an exchange qualify as a like-kind exchange.

.Both A and B are valid reasons a taxpayer might want to avoid having an exchange qualify as a like-kind exchange. Your answer is correct.

Walt is the sole shareholder and President/COO of MillerCo, Inc. In 2019 MillerCo loaned Walt $450,000 on an interest-free demand loan. The loan was properly documented in the minutes of the Board of Directors and included on the balance sheet of MillerCo as an outstanding note receivable. Under §7872 and the related regulations, this loan will most likely be treated as:

A corporation shareholder loan

What restrictions apply to S corporations selecting a tax year? (select all that apply) A.S corporations may elect a fiscal year involving a deferral period of three months or less if the S corporation makes a required tax payment. B.S corporations may elect a natural business year even if it differs from the calendar year. C.There are no restrictions to S corporations selecting a tax year. D.S corporations may elect a fiscal year involving a deferral period of five months or more if the S corporation makes a required tax payment. E.S corporations are generally required to adopt a calendar year.

A, B, E

Identify which of the following statements is true. A.A corporate capital loss can be carried back three years, and then can be carried forward five years. B.At the election of a corporation, a net capital loss carryback can be forgone and carried forward only. C.Corporate capital loss carrybacks can offset corporate ordinary income earned in previous years. D.All of the above are false.

A.A corporate capital loss can be carried back three years, and then can be carried forward five years.

Which of the following statements is false regarding involuntary conversions? A.A taxpayer must replace the destroyed property within the same tax year in which the gain is realized. B.If deferral of gain is elected, the holding period of the converted property carries over to the replacement property. C.Gain may be deferred if the property is involuntarily converted into property that is similar or related in service or use to the converted property. D.A taxpayer cannot elect to defer recognition of a loss resulting from an involuntary conversion.

A.A taxpayer must replace the destroyed property within the same tax year in which the gain is realized.

Why does the tax concept of income more closely resemble the accounting concept of income than the economic concept? A.Administering the tax law based on the accounting concept of income is easier and wherewithal-to-pay is greater when income is taxed as it is realized. B.The tax concept of income is based primarily on changes in an individual's wealth. The wherewithal-to-pay is not considered when determining when taxes should be assessed. C.Under the tax concept of income, unrealized gains, as well as gifts and inheritances are income. This is deemed the most objective measure of income and is consistent with the accounting concept of income. D.Both B & C are correct.

A.Administering the tax law based on the accounting concept of income is easier and wherewithal-to-pay is greater when income is taxed as it is realized.

What is meant by the term "double taxation" of corporations? A.Double taxation refers to the taxing of the same income twice. This type of taxation typically results from a C corporation paying tax on its taxable income and shareholders paying income tax on any dividends received from the C corporation. B.Double taxation refers to 100% of a corporation's income being taxed. Corporations are unable to take any deductions, thus corporations must pay tax on all income. C.Double taxation refers to the taxing of the same income twice. This type of taxation typically results from an S corporation paying tax on its taxable income and the shareholders also paying income tax on any dividends received from the S corporation. D. Double taxation refers to a corporation not being allowed standard deductions.

A.Double taxation refers to the taxing of the same income twice. This type of taxation typically results from a C corporation paying tax on its taxable income and shareholders paying income tax on any dividends received from the C corporation.

Frontier Construction, Inc. maintains a comprehensive employee business expense reimbursement program. Among the expenses Frontier will reimburse are qualified employee moving expenses associated with company-mandated moves. During the current tax year, Frontier required Stan, one of its senior development managers, to move from Wisconsin to Oregon. The move was mandatory - Stan had no choice if he wanted to stay employed with Frontier. Frontier reimbursed Stan $1,500 for costs he incurred in transporting his car and personnel items from Wisconsin to Oregon. The Company paid directly, $5,000 to a moving company for the costs of moving Stan's household goods (e.g., furniture, appliances) from Wisconsin to Oregon. Assume Frontier's employee business expense reimbursement program constitutes an "accountable plan" for federal income tax purposes. Given the forgoing, please choose the best answer (apply current law). A.Frontier must include the entire $6,500 paid/reimbursed as moving expenses in Stan's gross income (wages). B.As the amounts associated with this move were paid or reimbursed pursuant to an accountable plan, Frontier may exclude the entire $6,500 from Stan's gross income (wages). C.While most moving expense payments or reimbursements are fully includible in an employee's gross income, since Frontier mandated this move, a special rule applies and the full $6,500 may be excluded from Stan's gross income (wages). D.Frontier may exclude only the $1,500 it reimbursed Stan from his income. It must include the $5,000 paid to the moving company in his gross income (wages).

A.Frontier must include the entire $6,500 paid/reimbursed as moving expenses in Stan's gross income (wages).

Why is it desirable for a new taxpayer to select an appropriate tax year? A.Once a tax year is elected, it normally cannot be changed without IRS approval. The appropriate tax year can make record keeping easier. If the year ends during the slow season, inventories may be lower and employees are available to take inventory and perform other accounting duties associated with the year end. B.Once a tax year is elected, it normally cannot be changed without IRS approval. The appropriate tax year will ensure that the taxpayer will pay less tax by allowing the taxpayer to elect a lower tax rate. C.Although a tax year can easily be changed without IRS approval, selecting the appropriate tax year will allow the taxpayer to defer significant revenues each year. D.Although a tax year can easily be changed without IRS approval, selecting the appropriate tax year will save the taxpayer the fees that the IRS assesses for changing the tax year.

A.Once a tax year is elected, it normally cannot be changed without IRS approval. The appropriate tax year can make record keeping easier. If the year ends during the slow season, inventories may be lower and employees are available to take inventory and perform other accounting duties associated with the year end.

If Pam transfers an asset to Fred and the asset is subject to a liability that is assumed by Fred, how does Fred's assumption of the liability affect the amount realized by Pam? How does Fred's assumption of the liability affect his basis for the property? A.The amount realized by Pam is increased by the amount of the liability assumed by Fred. Fred's basis is increased by the amount of the assumed liability. B.The amount realized by Pam is decreased by the amount of the liability assumed by Fred. Fred's basis is increased by the amount of the assumed liability. C.The amount realized by Pam is not affected by the amount of the liability assumed by Fred. Fred's basis is not affected by the amount of the assumed liability. D.The amount realized by Pam is decreased by the amount of the liability assumed by Fred. Fred's basis is decreased by the amount of the assumed liability.

A.The amount realized by Pam is increased by the amount of the liability assumed by Fred. Fred's basis is increased by the amount of the assumed liability.

The uniform capitalization rules (UNICAP) require the capitalization of some overhead costs that are expensed for financial accounting purposes. (T/F)

True

What conditions must be met in order to use the installment method? A.The installment sales method is applicable only to transactions involving gains where at least one payment is to be received after the close of the taxable year in which the disposition occurs. It may not be used in connection with the sale of publicly traded property or inventory. B.The installment sales method is applicable only to transactions involving gains where at least one payment is to be received after the close of the taxable year in which the disposition occurs. There is no exception, all type of property or inventory sold qualify for the installment method. C.The installment sales method is applicable to transactions involving gains or losses where at least one payment is to be received after the close of the taxable year in which the disposition occurs. It may not be used in connection with the sale of publicly traded property or inventory. D.The installment sales method is applicable only to transactions involving gains where at least two payments are to be received after the close of the taxable year in which the disposition occurs. It may not be used in connection with the sale of publicly traded property or inventory.

A.The installment sales method is applicable only to transactions involving gains where at least one payment is to be received after the close of the taxable year in which the disposition occurs. It may not be used in connection with the sale of publicly traded property or inventory.

When does a nonsimultaneous exchange qualify as a like-kind exchange? A.The property must be identified within 45 days after the date on which the taxpayer transfers the property relinquished in the exchange and received within 180 days after the date on which the taxpayer transfers the property relinquished in the exchange (but not later than the due date for filing a return for the year in which the transfer of the relinquished property occurs). B.It is considered a like-kind exchange when it occurs between three parties instead of two parties. The parties have 2 years to complete the exchange. C.It is considered a like-kind exchange when the property is identified and received within 6 months of the agreed upon exchange (this time period can span two different tax years and still qualify as a like-kind exchange). D.The property must be identified within 60 days after the date the parties agree on the exchange and received within 200 days after the date on which the taxpayer transfers the property relinquished in the exchange.

A.The property must be identified within 45 days after the date on which the taxpayer transfers the property relinquished in the exchange and received within 180 days after the date on which the taxpayer transfers the property relinquished in the exchange (but not later than the due date for filing a return for the year in which the transfer of the relinquished property occurs).

CPAs, attorneys, enrolled agents and others who practice before the IRS must comply with various duties, rules and regulations. Among these is the requirement that when such a tax professional discovers that a client has made an error in or omission from a tax return filed with the IRS, the professional must advise the client promptly of the fact of such error or omission. These specific rules of practice before the IRS are found in the: A.Treasury Department Circular 230 B.Sarbanes-Oxley Act. C.IRS Penalty Handbook. D.AICPA Statements on Standards for Tax Services.

A.Treasury Department Circular 230

For most any taxpayer that is not a) insolvent nor b) under bankruptcy proceedings, the discharge/cancellation of debt is generally? A.taxable. B.partially taxable. C.nontaxable. D.None of the above.

A.taxable.

Explain how the IRS has interpreted the phrase "in control immediately after the exchange" for purposes of a Sec. 351 exchange.

According to the IRS, transferors must control the transferee corporation immediately after the Sec. 351 exchange, but they do not specify how long this control must be maintained. However, there cannot be a prearranged plan to dispose of the transferors stock outside the control group.

DanaCorp is a law firm that specializes in family law. DanaCorp uses the cash method of accounting and is a calendar-year taxpayer. Last year, DanaCorp represented a client in a lawsuit and billed the client $5,000 for its services. Although the company made repeated attempts, DanaCorp was unable to collect the outstanding receivable. Finally, in November of the current year, DanaCorp determined the client had moved without leaving any forwarding address. DanaCorp's attempts to locate the individual are futile. What is the amount of deduction that DanaCorp may take with respect to this bad debt? A.DanaCorp may take a deduction up to 85% of the $5,000 with respect to this bad debt. Though the amount was billed at $5,000, only 85% is allowed as a deduction since DanaCorp is a cash method taxpayer. B.DanaCorp may not take any deduction with respect to this bad debt. Although it is a bad debt that had been incurred in the business, the company has no basis in the debt because it is a cash method taxpayer and did not report the receivable in income. C.DanaCorp may not take any deduction with respect to this bad debt unless it waits a three year waiting period and the amount is still not received. This is what makes a bad debt fully uncollectible and deductible to a cash method taxpayer. D.DanaCorp may take a $5,000 deduction with respect to this bad debt. The amount was billed to the client during the year and included in its receivables during the year.

B. DanaCorp may not take any deduction with respect to this bad debt. Although it is a bad debt that had been incurred in the business, the company has no basis in the debt because it is a cash method taxpayer and did not report the receivable in income.

List three methods of searching the major tax service databases. A.Author, groupings, or content B.Keyword, citation, or index C.Citation, date, or author D.Groupings, date, or author

B.Keyword, citation, or index

Why would a taxpayer elect not to use the installment method? A.One reason to elect out of the installment method could relate to the application of lower tax rates in the current year where higher tax rates are anticipated during the installment period. Also, a taxpayer with current operating and/or capital losses or expiring loss carryovers may prefer to offset a gain against the losses in the following year. B. One reason to elect out of the installment method could relate to the application of lower tax rates in the current year where higher tax rates are anticipated during the installment period. Also, a taxpayer with current operating and/or capital losses or expiring loss carryovers may prefer to offset a gain against the losses in the current year. C. One reason to elect out of the installment method could relate to the application of higher tax rates in the current year where lower tax rates are anticipated during the installment period. Also, a taxpayer with current operating and/or capital losses or expiring loss carryovers may prefer to offset a gain against the losses in the current year. D.None of the above. There are no advantages for not electing to use the installment method.

B.One reason to elect out of the installment method could relate to the application of lower tax rates in the current year where higher tax rates are anticipated during the installment period. Also, a taxpayer with current operating and/or capital losses or expiring loss carryovers may prefer to offset a gain against the losses in the current year.

The Internal Revenue Code is the most authoritative source of income tax law. In trying to resolve an income tax question, however, a tax researcher also consults administrative rulings (Income Tax Regulations, Revenue Rulings, etc.) and court decisions. Why wouldn't the tax researcher just consult the Code since it is the highest authority? Similarly, why is there a need for administrative rulings and court decisions? A.Administrative rulings and court decisions contain tax laws that are inconsistent with the Code. Tax researchers can use administrative rulings and court decisions in place of the law stated in the Code when it is more beneficial. B.The Code contains general language and does not address the many specific situations and transactions that occur. To resolve tax questions concerning specific situations, administrative rulings and court decisions are an integral part of the income tax law. C.Administrative rulings and court decisions contain rulings that can override the Code and that provide greater tax savings. D.The Code does not include all tax laws. Administrative rulings and court decisions contain tax laws that are not included in the Code.

B.The Code contains general language and does not address the many specific situations and transactions that occur. To resolve tax questions concerning specific situations, administrative rulings and court decisions are an integral part of the income tax law.

Can the IRS require a taxpayer to change accounting methods? A.The IRS can require a taxpayer to change accounting methods if they determine that the accounting method will result in greater taxable income over the life of the organization. B.The IRS can require a taxpayer to change accounting methods if the method that has been used does not clearly reflect income. C.If the accounting method used by a taxpayer clearly reflects income, the IRS can require a change to another method, as long as that method would also clearly reflect income. D.The IRS cannot require a taxpayer to change accounting methods.

B.The IRS can require a taxpayer to change accounting methods if the method that has been used does not clearly reflect income.

An accrual basis taxpayer wishes to take advantage of the recurring item exception to the economic performance requirement in order to accelerate a deduction. Which of the following is not correct regarding the taxpayer's ability to apply the recurring item exception? A.The amount is immaterial or the accelerated deduction results in better matching of income and expense. B.The independent all-events test need not be satisfied. C.The taxpayer consistently treats similar items meeting these criteria in the same manner. D.Payment is made within 8.5 months after the close of the tax year.

B.The independent all-events test need not be satisfied.

Why did Congress enact the wash sale provisions? Congress enacted the wash sale provisions to prevent taxpayers from A.increasing the tax basis of the stock or securities. B.generating artificial tax losses in situations where taxpayers do not intend to reduce their holdings in the stock or securities that are sold. C.acquiring "substantially identical" stock or securities within a 91-day period of time that extends from 30 days before the date of sale to 60 days after the date of sale. D.generating tax losses in situations where taxpayers intend to reduce their holdings in the stock or securities that are sold.

B.generating artificial tax losses in situations where taxpayers do not intend to reduce their holdings in the stock or securities that are sold.

Which of the following documents is issued by the IRS to a specific taxpayer? A.revenue procedure B.letter ruling C.regulation D.information release

B.letter ruling

Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays tax of $12,000 on $120,000. The tax is a? A.regressive tax. B.proportional tax. C.progressive tax. D.None of the above.

B.proportional tax.

Double taxation of income results when the entity distributes dividends to shareholders or, effectively, when shareholders sell their stock.

C Corps

Shareholder-employees are entitled to nontaxable fringe benefits.

C Corps

The entity can use a fiscal instead of a calendar year as its reporting period without demonstrating a business purpose or making a special election.

C Corps

Ray is starting a new business with a friend and trying to decide between a C corporation, S corporation, and partnership. Which of the following statements regarding his decision is correct? A.S corporations pay taxes on their current year income. B.An S corporation owner must pay income taxes only on the salary received. C.A partner in a partnership is taxed on his or her share of partnership income. D.A shareholder in a C corporation is taxed on his or her share of corporate income.

C.A partner in a partnership is taxed on his or her share of partnership income.

Firefly Corporation is a C corporation. Freya owns all of the stock. During the current year Firefly earned taxable income of $500,000 and paid a $300,000 dividend to Freya. Which of the following statements is correct? A.Firefly's income will flow through to Freya's tax return, and she will pay the taxes on the $500,000 of corporate income. B.Only Firefly will pay taxes. Freya will not pay any taxes due to her holdings in Firefly. C.Firefly will pay corporate income tax on its earnings, and Freya will pay individual income tax on the dividends. D.Firefly will not pay any taxes, but Freya will pay taxes on the dividend received.

C.Firefly will pay corporate income tax on its earnings, and Freya will pay individual income tax on the dividends.

Which of the following statements is incorrect? A.Property taxes are levied on real estate. B.The estate tax is based on the fair market value of the property at death or the alternate valuation date. C.Gift taxes are imposed on the recipient of a gift. D.Excise taxes are assessed on items such as gasoline and telephone use.

C.Gift taxes are imposed on the recipient of a gift.

Explain the difference between closed-fact and open-fact situations. A.In a closed-fact situation, the facts have not yet occurred, and the tax advisor's task is to plan them or shape them into a favorable tax result. In an open-fact situation, the facts have occurred, and the tax advisor's task is to analyze them to determine the appropriate tax treatment. B.In a closed-fact situation, the facts have occurred, and the tax advisor's task is to plan or shape the facts into a favorable tax result. In an open-fact situation, the facts have not yet occurred, and the tax advisor's task is to analyze them to determine the appropriate tax treatment. C.In a closed-fact situation, the facts have occurred, and the tax advisor's task is to analyze them to determine the appropriate tax treatment. In an open-fact situation, the facts have not yet occurred, and the tax advisor's task is to plan them or shape them into a favorable tax result. D.None of the above.

C.In a closed-fact situation, the facts have occurred, and the tax advisor's task is to analyze them to determine the appropriate tax treatment. In an open-fact situation, the facts have not yet occurred, and the tax advisor's task is to plan them or shape them into a

Which of the following serves as the highest authority for tax research, planning, and compliance activities? A.Income Tax Regulations B.Revenue Rulings C.Internal Revenue Code D.Revenue Procedures

C.Internal Revenue Code

What is the impact of having the entire gain on an installment sale consist of ordinary income from depreciation recapture? A.The tax law permits taxpayers to spread the gain from the depreciation recapture over the collection period. B.The installment method is available because the entire gain is ordinary income. The income can be recognized over a period of years. C.In effect, the installment sale method is not available because the entire amount of ordinary income must be reported in the year of the sale. D.There is no impact of having the entire gain on an installment sale consist of ordinary income from depreciation recapture.

C.In effect, the installment sale method is not available because the entire amount of ordinary income must be reported in the year of the sale.

The governor of your state stated in a recent political speech that he has never supported any income tax increases as the tax rates have remained at the same level during his entire term of office. Yet, you believe that you are paying more tax this year than in previous years even though your income has not increased. How can both you and the governor be correct? In other words, is it possible for the government to raise taxes without raising tax rates? A.No, it is not possible because taxes can only be raised by increasing the tax rate. Therefore, the Governor's statement that the tax rates have remained at the same level is incorrect since taxes did increase. B.Yes, it is possible because there are two components in computing a taxpayer's tax, earned income and the tax rate. However, taxes can only be raised by increasing earned income. Thus, even though the Governor proclaimed that tax rates have remained at the same level, adjustments to earned income, such as the elimination of deductions, result in tax increases which can be as much, or more, as increases in tax rates. C.Yes, it is possible because there are two components in computing a taxpayer's tax, the tax base and the tax rate. Taxes can be raised by increasing either component. Thus, even though the Governor proclaimed that tax rates have remained at the same level, adjustments to the tax base, such as the elimination of deductions, result in tax increases which can be as much, or more, as increases in tax rates. D.Yes, it is possible because there are two components in computing a taxpayer's tax, the tax base and the tax rate. However, taxes can only be raised by increasing the tax base. Thus, even though the Governor proclaimed that tax rates have remained at the same level, adjustments to the tax base, such as the reduction of exemptions, result in tax increases which can be as much, or more, as increases in tax rates.

C.Yes, it is possible because there are two components in computing a taxpayer's tax, the tax base and the tax rate. Taxes can be raised by increasing either component. Thus, even though the Governor proclaimed that tax rates have remained at the same level, adjustments to the tax base, such as the elimination of deductions, result in tax increases which can be as much, or more, as increases in tax rates.

In which of the following situations is the individual more likely to be classified as an independent contractor rather than an employee? A.a nurse who is directly supervised by doctors in an office B.a computer programmer who is instructed as to what projects to undertake, programming language and format, and hours of work C.a nurse who travels to several different patients; she sets her own hours and is responsible for the delivery of nursing care and end result D.a teacher whose hours, classroom responsibilities, content and methods of instruction are established by the school

C.a nurse who travels to several different patients; she sets her own hours and is responsible for the delivery of nursing care and end result

All of the following qualify as a like-kind exchange except? A.improved real estate held for investment for unimproved real estate held for investment. B.an apartment building held for investment for a warehouse used in a trade or business. C.a printer used in trade or business for a computer used in trade or business. D.all of the exchanges qualify as like-kind exchanges.

C.a printer used in trade or business for a computer used in trade or business.

Horizontal equity means that? A.taxpayers with larger amounts of income should pay more tax than taxpayers with lower amounts of income. B.all taxpayers should pay the same tax. C.taxpayers with the same amount of income should pay the same amount of tax. D.None of the above.

C.taxpayers with the same amount of income should pay the same amount of tax.

How is "control" defined for purposes of Sec. 351(a)?

Control requires the transferors as a group to own at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the total number of share of all other classes of stock. The nonvoting stock ownership is tested on a class-by-class basis.

For purposes of the accrual method of accounting, the economic performance test is met when? A.all events have occurred that establish the fact of a liability. B.the amount of the item can be reasonably estimated. C.the property or services are actually provided. D.all events have occurred that fix the taxpayer's right to receive income.

C.the property or services are actually provided.

Which of the following is most likely not considered a casualty? A.water damage caused by the bursting of a water heater B.death of pine trees on a Christmas tree farm due to a two-day infestation of pine beetles C.water damage to the walls and ceiling of a building as the result of gradual deterioration of the roof D.fire loss

C.water damage to the walls and ceiling of a building as the result of gradual deterioration of the roof

Charles and Ruth develop a plan to form Tiny Corporation. On June 3 of this year, Charles transfers property worth $50,000 for 50 shares of Tiny stock. On August 1, Ruth transfers $50,000 cash for 50 shares of Tiny stock.

Control is met

Pete transfers property to Target Corporation for 60% of Target stock, and Robert transfers property worth $15,000 and performs services worth $25,000 for the remaining 40% of Target stock.

Control is met

Charles has a prearranged plan to sell 30 of his shares to Sam on October 1.

Control is not met

Herb and his wife, Wilma, each have owned 50 of the 100 outstanding shares of Vast Corporation stock since it was formed three years ago. In the current year, their son, Sam, transfers property to Vast for 50 newly issued shares of Vast stock.

Control is not met

Olive transfers property to Quick Corporation for 75% of Quick stock, and Mary provides services to Quick for the remaining 25% of Quick stock.

Control is not met

The Tax Cuts and Jobs Act changed the NOL carryover rules. Prior to the tax law change, taxpayers could carry back an NOL for 2 years and carry forward for 20 years. After the tax law change, taxpayers can carry forward the NOL indefinitely. Compare the advantages and disadvantages of the two sets of rules. A.The carry back provision of the prior rules meant that taxpayers could get a refund currently on previous taxes paid. Under the new rules, the fact that the NOL is carried forward indefinitely means that the taxpayer will eventually get to use the NOL (which under the previous rules would expire after 10 years) and the taxpayer is eligible for a current refund. Finally, the new rules also limit the amount of tax benefit that the taxpayer can claim for the NOL in a given year. The NOL cannot exceed 50% of the taxable income computed before any NOL deduction taken. B.The carry back provision of the prior rules meant that taxpayers could get a refund in the future on previous taxes paid. Under the new rules, the fact that the NOL is carried forward indefinitely means that the taxpayer will eventually get to use the NOL (which under the previous rules would expire after 15 years). The NOL has a current refund and will also have future tax benefits. The NOL cannot exceed 75% of the taxable income computed after any NOL deduction taken. C.The carry back provision of the prior rules meant that taxpayers could get a refund currently on previous taxes paid. Under the new rules, the fact that the NOL is carried forward indefinitely means that the taxpayer will eventually get to use the NOL (which under the previous rules would expire after 25 years); however, it will only have future tax benefits and does not allow for a current refund of taxes like the previous rules. Finally, the new rules also limit the amount of tax benefit that the taxpayer can claim for the NOL in a given year. The NOL cannot exceed 50% of the taxable income computed before any NOL deduction taken.

D. The carry back provision of the prior rules meant that taxpayers could get a refund currently on previous taxes paid. Under the new rules, the fact that the NOL is carried forward indefinitely means that the taxpayer will eventually get to use the NOL (which under the previous rules would expire after 20 years); however, it will only have future tax benefits and does not allow for a current refund of taxes like the previous rules. Finally, the new rules also limit the amount of tax benefit that the taxpayer can claim for the NOL in a given year. The NOL cannot exceed 80% of the taxable income computed before any NOL deduction taken. TCJA --->80%!!!!! 20 years!!!! You will get this if that is all you recall LOL

Galvin Corporation has owned all of the stock of Rialto Corporation for five years. Rialto Corporation has been actively engaged in manufacturing in Kansas, but it is now bankrupt, and the stock is worthless. Galvin Corporation will recognize a long-term capital loss. (T/F)

False

The primary objective of the federal income tax law is to raise revenue. What are its secondary objectives? A.Encouraging certain activities such as research and development and small business investment. B.Economic objectives such as stimulating private investment, reducing unemployment, and mitigating the effects of inflation. C.Social and public policy objectives, (e.g. encouraging charitable contributions and discouraging illegal bribes). D.All of the above

D.All of the above

What documentation is required in order for a travel or entertainment expense to be deductible? A.For travel or entertainment expenses to be deductible, the documentation must substantiate the amount, the time and place, the business purpose, and the business relationship with the person entertained. B.Statements of witnesses and paid bills are necessary documentation, for travel or entertainment expenses to be deductible. C.For travel or entertainment expenses to be deductible, documentation such as account books, expense logs, and receipts must exist. D.All of the above.

D.All of the above.

Partnerships and S corporations are flow-through entities. In connection with filing annual tax returns, these entities must include Form K-1 in the returns. What is Form K-1, what is its purpose, and who receives the form? A.Form K-1 is prepared for each shareholder in an S corporation and is filed with Form 1120S. It reports the separate income, deductions, losses, and credits that flow through to each shareholder. The shareholders, in turn, take the information from their schedule K-1 and report the various items on their individual returns. B.Form K-1 is prepared for each partner in a partnership and is filed with Form 1065. It reports the separate income, deductions, losses, and credits that flow through to the partners. The partners, in turn, take the information from their schedule K-1 and report the various items on their individual returns. C.Form K-1 reports the results of the partnership's operations as a whole. This form is prepared for the partnership and is filed with Form 1041. It reports the income that the partnership generates during the year. The partners each receive a copy of the form for their records. D.Both A and B.

D.Both A and B.

Why should tax researchers note the date on which a Treasury Regulation was adopted? A.Discrepancies can occur between the IRC and Treasury Regulations when the Treasury Department does not update the regulation to reflect the amended statute. B.The date should be noted on a Treasury Regulation because the IRC may have been revised subsequent to that date, meaning the regulation may not interpret the current version of the IRC. C.The date should be noted to know how far apart the law was created until when the Treasury Regulations came out. The closer the dates are, the more valid the tax research is. D.Both A and B.

D.Both A and B.

Rick is a sole proprietor who has a small business currently operating at a loss. He would like to discontinue depreciating the fixed assets of the business for the next few years and to carry the deductions over to a future period. What tax consequences would result if Rick implements the plan to discontinue depreciation and then sells some of the depreciable assets several years later? A.The basis of the property must be reduced on a consistent basis by depreciation computed using one of several accounting methods provided under the tax law. If no method had previously been used, allowable is defined as the slowest possible method allowed by law. Rick could wind up recognizing a gain to the extent the asset is sold for more than its adjusted basis. B.Depreciation deductions are not discretionary. The basis of property must be reduced by the amount of depreciation that should have been taken (allowable depreciation) even if no depreciation was claimed. Rick could wind up recognizing a gain to the extent the asset is sold for more than its adjusted basis. C.Depreciation deductions are discretionary. Therefore, the basis of property would be higher by the amount of depreciation that is carried over. This strategy would be effective in reducing any possible gain on the sale. D.Both a and b are correct.

D.Both a and b are correct.

What two functions does a citator serve? A.Citators (1) trace the history of the case in question and (2) assist in internet-based tax research by grouping words together. B.Citators (1) list common words together during a search so you can refine your results after the initial query and (2) list other authorities that have cited such cases. C.Citators (1) assist in internet-based tax research by grouping words together and (2) list common words together during a search so you can refine your results after the initial query. D.Citators (1) trace the history of the case in question and (2) list other authorities that have cited such cases.

D.Citators (1) trace the history of the case in question and (2) list other authorities that have cited such cases.

Which of the following is secondary authority? A.Treasury Regulations B.Revenue Ruling C.Internal Revenue Code D.RIA and CCH tax services

D.RIA and CCH tax services

If a capital asset held for one year or more is sold at a gain, the gain is classified as long-term capital gain. (T/F)

False

The Internal Revenue Code is the most authoritative source of income tax law. In trying to resolve an income tax question, however, a tax researcher also consults administrative rulings (Income Tax Regulations, Revenue Rulings, etc.) and court decisions. Why wouldn't the tax researcher just consult the Code since it is the highest authority? Similarly, why is there a need for administrative rulings and court decisions? A.The Code does not include all tax laws. Administrative rulings and court decisions contain tax laws that are not included in the Code. B.Administrative rulings and court decisions contain rulings that can override the Code and that provide greater tax savings. C.Administrative rulings and court decisions contain tax laws that are inconsistent with the Code. Tax researchers can use administrative rulings and court decisions in place of the law stated in the Code when it is more beneficial. D.The Code contains general language and does not address the many specific situations and transactions that occur. To resolve tax questions concerning specific situations, administrative rulings and court decisions are an integral part of the income tax law.

D.The Code contains general language and does not address the many specific situations and transactions that occur. To resolve tax questions concerning specific situations, administrative rulings and court decisions are an integral part of the income tax law.

Atkon Corporation acquired 90% of the stock of Beta Corporation three years ago. Both corporations are located in the United States. Beta has been an energy drink producer, but unfortunately has suffered substantial losses due to government fines and lawsuits. All of its revenues had been from the sales of the energy drinks. Beta has now filed for bankruptcy and is closing the business with no assets remaining for shareholders. Atkon Corporation will recognize? A. long-term capital loss. B. short-term capital loss. C.no gain or loss. D.an ordinary loss.

D.an ordinary loss.

The largest source of revenues for the federal government comes from A. Social Security and Medicare taxes (FICA). B.corporate income taxes. C.estate and gift taxes. D.individual income taxes.

D.individual income taxes

The largest source of revenues for the federal government comes from? A.Social Security and Medicare taxes (FICA). B.corporate income taxes. C.estate and gift taxes. D.individual income taxes.

D.individual income taxes.

In a contributory defined contribution pension plan, all of the following are true with the exception of? A.amounts are contributed to the plan based upon a specific formula. B.a separate account is established for each participant. C.both the employee and employer can make contributions to the plan. D.retirement benefits are a fixed amount based on the level of compensation earned by the employee during the working years.

D.retirement benefits are a fixed amount based on the level of compensation earned by the employee during the working years.

What is meant by the term "double taxation" of corporations?

Double taxation refers to the taxing of the same income twice. This type of taxation typically results from a C CORP---> on its taxable INCOME AND SH ---> on any DIVIDENDS received!!!!! from the C corporation.

Alice and Bill plan to go into business together. For the first two or three years of operations, they anticipate losses, which they would like to use to offset income from other sources. They also are concerned about exposing their personal assets to business liabilities. Advise Alice and Bill as to what business form would best meet their needs.

Either: -LLC. While offering Alice and Bill the limited liability of a corporation, a limited liability company (LLC) with more than one owner generally is treated as a partnership for tax purposes. -Or S corporation. This will permit the losses incurred during the first few years to be passed through to Alice and Bill and be used to offset income from other sources, and affords them limited liability.

Ralph's business records were lost as a result of Hurricane Katrina. CPA Jane prepares Ralph's return using estimates. What do the Statements on Standards for Tax Services state about the use of estimates?

Estimates may be used, but Jane should disclose their use to the IRS.

(T/F) A partner is generally considered to be an employee of the partnership.

False

(T/F) A sole proprietor is considered to be an employee of the business.

False

(T/F) A sole proprietorship is a separate taxable entity.

False

(T/F) A solely owned corporation is a sole proprietorship.

False

(T/F) C corporation operating losses are deductible by the individual shareholders.

False

(T/F) Capital losses incurred by a C corporation can be used to offset the corporation's ordinary income.

False

(T/F) If a C corporation does not distribute its income to its shareholders annually, double taxation cannot occur.

False

(T/F) Regular corporation and S corporation are synonymous terms.

False

(T/F) Tronco Inc. placed in service a truck costing $40,000 on January 15 of this year. On November 1, the company placed in service $200,000 of construction equipment. Tronco is a calendar--year taxpayer. When calculating MACRS depreciation, Tronco must apply the mid--quarterconvention to the construction equipment, but will use the half--yearconvention for the truck.

False

Tronco Inc. placed in service a truck costing $40,000 on January 15 of this year. On November 1, the company placed in service $200,000 of construction equipment. Tronco is a calendar-year taxpayer. When calculating MACRS depreciation, Tronco must apply the mid-quarter convention to the construction equipment, but will use the half-year convention for the truck. (T/F)

False

Unger Coporation, a distributor of photographic supplies, uses an allowance method (i.e., aging method) to calculate bad debt expense for purposes of its GAAP-basis financial statements. For income tax purposes, Unger will also use the allowance method to calculate its bad debt deduction. (True/False)

False

A friend notices that you are reading the Internal Revenue Code of 1986. Your friend inquires why you are consulting a 1986 publication, especially when tax laws change so frequently. What is your response?

It is updated for every statutory change to Title 26 subsequent to 1986. Therefore it includes the post-1986 tax law changes enacted by Congress and today reflects the current state of the law.

List three methods of searching the major tax service databases.

Keyword, citation, or index

Shareholders generally can contribute money to or withdraw money from this entity without recognizing gain.

LLCS, LLPs, Partnerships, S Corps, and Sole-proprietorships

Offers its owners some form of limited liability.

LLCs, LLPs, Partnerships, S Corps, and C Corps

All profits are taxed to the owner(s)/partner(s) and/or shareholder(s) when earned, even if not distributed.