Corporate Income Tax Exam 2

Jonas is a 60% owner of Ard, an S corporation. At the beginning of the year, his stock basis is zero. Jonas's basis in a $20,000 loan made to Ard and evidenced by Ard's note has been reduced to $0 by prior losses. During the year, Jonas's net share of Ard's taxable income is $10,000. At the end of the year, Ard makes a $15,000 cash distribution to Jonas. If an amount is zero, enter "0". After these transactions, Jonas has a basis of _________for his stock and a basis of _____________ for the debt. In addition, Jonas recognizes _________________of _________________.

$0, $0, a capital gain, $5,000

The beginning balance in Swan, Inc.'s OAA is $6,700, and the following transactions occur. Depreciation recapture income$21,600Payroll tax penalty(4,200)Tax exempt interest income4,012Nontaxable life insurance proceeds100,000Life insurance premiums paid (nondeductible)(3,007) What is Swan's ending OAA balance?

$107,705

Kaiwan, Inc., a calendar year S corporation, is partly owned by Sharrod, whose beginning stock basis is $32,000. During the year, Sharrod's share of a Kaiwan long-term capital gain (LTCG) is $5,000, and his share of an ordinary loss is $18,000. Sharrod then receives a $20,000 cash distribution. If an amount is zero, enter "0". Sharrod's deductible loss is ______________, suspended loss is _________________ and his basis in the stock is _______________

$17,000 , $1,000 , $0

Perk Corporation is subject to tax only in State A. Perk generated the following income and deductions: Federal taxable income$300,000State A income tax expense15,000Refund of State A income tax3,000Depreciation allowed for Federal tax purposes200,000Depreciation allowed for state tax purposes120,000 Federal taxable income is the starting point in computing State A's taxable income. State income taxes are not deductible for State A's tax purposes. Determine Perk's State A taxable income. Perk's State A taxable income is $fill in the blank 1

$392,000

Browne and Red, both C corporations, formed the BR Partnership on January 1, 2020. Neither Browne nor Red is a personal service corporation, and BR is not a tax shelter. BR's gross receipts were $22,000,000, $28,000,000, $34,000,000, and $36,000,000, respectively, for 2020 to 2023. Indicate the methods of accounting available to BR in each tax year. 2020 2021 2022 2023

2020 Accrual Cash Hybrid 2021Accrual Cash Hybrid 2022 Accrual Cash Hybrid 2023 Accrual

Isle Corporation's entire operations are located in State A. Of Isle's $600,000 sales, 60% are made in State A and 40% are made in State B. Isle's solicitation of sales in State B is limited to mailing a monthly catalog to its customers in that state. However, Isle's employees do pick up and replace damaged merchandise in State B. The pickup and replacement of damaged goods establish nexus with State A. Isle's activities in State B are sufficient (as determined by State A's law) to subject Isle to a positive tax, based on its income. Therefore, Isle is permitted to apportion its income between States A and B. However, B's definition of activities necessary to create nexus is less strict than that imposed by A; in B, the mere pickup and replacement of damaged goods do not subject a corporation's income to tax. Isle's taxable income is $60,000. Both states impose a 10% corporate income tax and include only the sales factor in their apportionment formulas. a. If State A has not adopted a throwback rule, Isle's effective state income tax rate is _________%. b. If State A has adopted a throwback rule, Isle's effective state income tax rate is _________%

6 , 10

When is partnership income subject to self-employment tax or the net investment income tax by an individual partner? ___________must pay self-employment tax on his or her distributive share of partnership income. __________must pay self-employment tax on any guaranteed payments for services. The net investment income tax __________to "income on investment of working capital which ___________guaranteed payments for use of a partner's capital.

A General Partner, Any Partner (General or Limited), Applies, Includes

Tax Drill - S Corporation Election Complete the following statements regarding the election of S corporation status. A qualifying election requires the consent of the ____________ of the corporation's shareholders. The election is made on ____________ . For S corporation status to apply in the current tax year, the election must be filed either ___________ or on or before the fifteenth day of the ___________ of the current year.

All, Form 2553, in the previous year, third

In which of the following cases will Federal law prohibit a state from imposing an income tax on net income? a.The business has a retail outlet store in the state. b.The business has its corporate headquarters in the state and generates sales from there. c.Orders are taken within the state and accepted at corporate headquarters outside of the state and shipped from a location outside of the state. d.Orders are taken within the state and accepted at corporate headquarters outside of the state and shipped from a location inside the state.

C

Olinto, Inc., has taxable income (before special deductions and the net operating loss deduction) of $92,000. Included in that amount is $12,000 of interest and dividend income. Forty percent of Olinto's property, payroll, and sales are in its home state. What amount of this taxable income will be taxed by Olinto, Inc.'s home state? a.$12,000 b.$36,800 c.$44,000 d.$90,000

C

The________concept treats partners and partnerships as separate units and gives the partnership its own tax "personality" by (1) requiring a partnership to file an information tax return and (2) treating partners as separate and distinct from the partnership in certain transactions between a partner and the partnership. The__________concept treats the partnership as a channel through which income, credits, deductions, and other items flow to the partners.

Entity , Aggregate

A special allocation of various items to specified partners may not allocate items in a different proportion from the general profit and loss sharing ratios.

False

Evaluate this statement by completing the sentences below: "An S corporation can facilitate the meeting of its state income tax filing obligations by developing a common spreadsheet that allocates and apportions income among the states with which it has nexus. This spreadsheet is attached to each of the state returns to be filed." _________________ block filing or composite returns from multiple-shareholder S corporations. Such a return essentially is a spreadsheet that discloses and computes the _____________________ , on a per-state and per-shareholder basis.

Many states accept , allocation of ordinary income and separately stated items.

Forward, Inc., is an exempt organization that assists disabled individuals by training them in digital TV repair. Used digital TVs are donated to Forward, Inc., by both organizations and individuals. Some of the donated digital TVs are operational, but others are in disrepair. After being used in the training program, the digital TVs, all of which are now operational, are sold to the general public. Forward's revenues and expenses for the current period are reported as follows. Contributions$700,000Revenues from digital TV sales3,600,000Administrative expenses500,000Materials and supplies for digital TV repairs800,000Utilities25,000Wages paid to disabled individuals in the training program (at minimum-wage rate)1,200,000Rent for building and equipment250,000 Any revenues not expended during the current period are deposited in a reserve fund to finance future activities. If an amount is zero, enter "0". Question Content Area a. Is the digital TV repair and sales activity an unrelated trade or business? ______ , because the eventual sale of the digital TVs is treated as ________________ to the exempt purpose of Forward. Question Content Area b. Calculate the net income of Forward, Inc., and the UBIT liability, if any. The total net income is _________________ and the UBIT is __________________

No , Related, $1,525,000 , $0

Complete the paragraph below regarding how a proportionate current distribution of cash from a partnership to a partner compares with one from a Subchapter C corporation to a shareholder. A proportionate current distribution of cash from a partnership results in a __________ to the partner only to the extent the distribution ____________ the partner's basis in the partnership interest. If the distribution _________________ the partner's basis,____________- is recognized. A distribution of cash from a C corporation is treated as a ________________ to the extent it is made from the corporation's _______________ .

Taxable Capital Gain, Exceeds, Is Less Than, No Gain or Income, Dividend, Current or Accumulated Earnings and Profits

Capital interest is measured by a partner's capital sharing ratio, which is the partner's percentage ownership of the capital of the partnership.

True

Inside basis refers to the partnership's adjusted tax basis for each asset it owns.

True

Outside basis represents each partner's basis in the partnership interest.

True

Desi's adjusted basis of her partnership interest was $40,000 immediately before she received a distribution in full liquidation of her Makris partnership interest. (The partnership had no hot assets and also liquidated.) The distribution consisted of $25,000 in cash and land with a fair market value of $30,000. Makris's basis in the land was $10,000 immediately prior to the distribution. During the year, Desi sold the land for $50,000. How will Desi report the liquidating distribution and the sale on her income tax return? Liquidating DistributionSale of the Land a.No gain or loss $35,000 capital gain b.No gain or loss $40,000 capital gain c.$15,000 gain $20,000 capital gain d.$5,000 loss $40,000 capital gain

a

Gray is a 50% partner in Fabco Partnership. Gray's tax basis in Fabco on January 1, year 4, was $5,000. Fabco made no distributions to the partners during year 4 and recorded the following. Ordinary income$20,000Tax-exempt income8,000Portfolio income4,000 What is Gray's tax basis in Fabco on December 31, year 4? a.$21,000 b.$16,000 c.$12,000 d.$10,000

a

Peter, a 25% partner in Gold & Stein Partnership, received a $20,000 guaranteed payment in the current year for deductible services rendered to the partnership. Guaranteed payments were not made to any other partner. Gold & Stein's current-year partnership income consisted of: Net business income before guaranteed payments$80,000Net long-term capital gains10,000 What amount of income should Peter report from Gold & Stein Partnership on his current-year tax return? (Disregard the character of the income and just calculate the total increase to Peter's income.) a.$37,500 b.$27,500 c.$22,500 d.$20,000

a

When a partner's share of partnership liabilities increases, that partner's basis in the partnership interest: a.Increases by the partner's share of the liabilities. b.Decreases by the partner's share of the liabilities. c.Decreases, but not to less than zero. d.Is not affected.

a

Really Welcome, Inc., a tax-exempt organization, receives 30% of its support from disqualified persons. Another disqualified person has agreed to match this support if Really Welcome will appoint him to the organization's board of directors. Complete the sentence below regarding the tax issue that is relevant to Really Welcome as it makes this decision. Accepting the additional support from the disqualified person could result in Really Welcome, Inc., being classified as .

a private foundation

Jaxson, Inc., a calendar year S corporation, is partly owned by Jean Michele, whose beginning stock basis is $125,000. During the year, Jean Michele's share of a Jaxson long-term capital gain (LTCG) is $14,900, and her share of an ordinary loss is $64,800. Jean Michele also receives an $11,000 cash distribution. If an amount is zero, enter "0". a. How much of the loss may Jean currently deduct? b. Jean's has a suspended loss of c. Jean's new basis in the Jaxson stock is

a. $64,800 b. $0 c. $64,100

In preparing for accounting students' club discussion, classify the following items as either a major "Exemption" from the sales/use tax base of most states or "Not an exemption". a. Sales for resale b. Casual or occasional sales that occur infrequently c. Purchases by exempt organizations d. Sales of targeted items, such as groceries and medicine e. Sales to manufacturers, producers, and processors f. Sales from retailers to consumers

a. Exemption b. Exemption c. Exemption d. Exemption e. Exemption f. Not an exemption

Indicate whether the following statements are "True" or "False" regarding the computation of a multistate corporation's state tax liability. a. Most states have their own state-specific definitions of gross and taxable income that is used in computing the tax base rather than using taxable income from the Federal 1120 form. b. Most states piggyback onto the IRS's audit process. c. State tax credits typically are designed to encourage increased hiring and investment in local facilities.

a. False b. True c. True

Indicate whether the following statements are "True" or "False" regarding the property factor. a. Property owned by the corporation typically is valued at its carrying value or adjusted basis. b. The property factor generally is a fraction whose numerator is the average value of the corporation's real property and its tangible personal property owned and used or rented and used in the state during the taxable year. c. In the case of property that is in transit between locations of the taxpayer or between a buyer and seller, the assets are included in the numerator of the destination state.

a. False b. True c. True

Indicate whether the following statements are "True" or "False" regarding unrelated business income tax (UBIT). a. It is the use of the business profits that triggers the UBIT. b. The tax is levied because the organization is engaging in substantial commercial activities. c. The UBIT applies to all organizations that are exempt from Federal income tax under § 501(c), except Federal agencies.

a. False b. True c. True

Indicate whether the following items are a "Positive adjustment" or "Negative adjustment" when computing unrelated business taxable income (UBTI). a. The amount of charitable contributions in excess of 10% of UBTI. b. Income from dividends, interest, and annuities, net of all deductions directly related to producing such income. c. Unrelated debt-financed income net of the unrelated debt-financed deductions. d. Rent income from real property and from certain personal property net of all deductions directly related to producing such income. e. Gains from the sale, exchange, or other disposition of property except for inventory.

a. Positive Adjustment b. Negative Adjustment c. Positive Adjustment d. Negative Adjustment e. Negative Adjustment

Regarding the apportionment formula used to compute state taxable income, does each of the following independent characterizations describe a taxpayer that likely is based in state or out of state? Select "Probably in state" or "Probably out of state", whichever is applicable. a. The sales factor is positively correlated with the payroll, but not the property, factor. b. The sales factor is much higher than the property and payroll factors. c. The property and payroll factors are much higher than those for other nexus states. d. The sales and payroll factors are low, but the property factor is very high. e. The sales factor is remaining constant, but the payroll factor is decreasing.

a. Probably out of state b. Probably out of state c. Probably in state d. Probably in state e. Probably out of state

Tax Drill - Nonseparately and Separately Stated Items Indicate whether the following items are treated as "Separately stated item" or "Nonseparately stated item" stated item for a S corporation. a. Tax-exempt income b. Trade or business expenses c. Ordinary income d. Long-term and short-term capital gains and losses e. Charitable contributions f. Depreciation recapture

a. Separately Stated Item b. Nonseparately Stated Item c. Nonseparately Stated Item d. Separately Stated Items e. Separately Stated Items f. Nonseparately Items

Keystone, your tax consulting client, is considering an expansion program that would entail the construction of a new logistics center in State Q. You are preparing an analysis of a state's apportionment formula. Select either "Yes" or "No" to identify which of the following are key questions to ask when determining whether an asset that is owned by the taxpayer is to be included in the state's property factor numerator. a. Is the property tangible or intangible? b. Where is the property located? c. For what portion of the tax year was the property used in this state? d. Who owned the property prior to the taxpayer? e. Was the property used in the taxpayer's productive or other active business? f. Was the property in transit, idle, or obsolete on the last day of the tax year? g. What was the original purchase price of the property? h. What is the tax basis of the property?

a. Yes b. Yes c. Yes d. No e. Yes f. Yes g. Yes h. Yes

eBook Print Item Question Content Area Tax Drill - State Modifications Indicate whether the following items are an "Addition" to or "Subtraction" from the starting point when computing corporate state income tax liability. a. The amount by which the state deductions for depreciation, amortization, or depletion exceed the deductions permitted for Federal tax purposes. b. Interest income received on state and municipal obligations and any other interest income that is exempt from Federal income tax. For this purpose, some states exempt interest earned on their own obligations. c. The amount by which the state gain or loss from the disposal of assets differs from the Federal gain or loss. d. Interest on U.S. obligations or obligations of Federal agencies to the extent included in Federal taxable income but exempt from state income taxes under U.S. law.

a. Subtraction b. Addition c. Addition d. Subtraction

Indicate whether the following statements are "True" or "False" regarding state sales tax. a. Almost all of the states that have adopted a sales/use tax are members of the Streamlined Sales Tax Project (SSTP), but only about half of them automatically adopt model SSTP laws. b. Services such as transactions involving hotels and restaurants, hair and beauty salons, and entertainment events are exempt from sales tax. c. A separate set of nexus rules applies in determining whether a seller must collect a sales/use tax from a customer. Strictly, the tax must be collected only if the seller has a physical presence in the state.

a. True b. False c. True

Shane is the treasurer for Jain Clinics, and Brittany is the treasurer for EmPowerMentors, both of which are § 501(c)(3) exempt organizations. Each year Jain files a Form 990, while EmPowerMentors files a Form 990-PF. Regarding the public disclosure requirements for each tax-exempt entity, for each statement below select either "True" or "False". a. Jain's organization must file Form 1023 [Application for Recognition of Exemption under § 501(c)(3)] in addition to the Form 990. b. Form 990-PF requires less disclosure information than Form 990. c. If an individual requests a copy in person, Jain must provide a copy immediately. If the request is received in writing or by e-mail, the copy must be provided within 30 days. d. EmPowerMentors's organization must only file Form 990-PF (Return of Private Foundation) and have it available for public inspection.

a. True b. False c. True d. True

Indicate whether the following statements are "True" or "False" regarding tax planning for S corporations. a. Before disposing of stock, a shareholder should increase the basis of the stock to utilize any net loss carried forward. b. To avoid excessive passive investment income, which may cause an S corporation to incur a penalty tax, the corporation should reduce taxable income below the excess net passive income. c. The taxable income limitation discourages an S corporation to create deductions or accelerate deductions in the years that built-in gains are recognized.

a. True b. True c. False

Indicate whether the following statements are "True" or "False" regarding the unitary theory. a. The unitary theory ignores the separate legal existence of the entities and focuses instead on practical business realities. b. A corporation is required to file a combined (consolidated) return that includes the results from all of the operations of the related corporations, not just from those that transacted business in the state. c. The unitary approach usually results in a smaller portion of the corporation's income being taxable in states where the compensation, property values, and sales prices are high relative to other states.

a. True b. True c. False

Indicate whether the following statements are "True" or "False" regarding a shareholder's basis in S corporation stock. a. A shareholder's basis is increased by nonseparately computed income and separately stated income items. b. Once stock basis is zero, any additional basis reductions from losses or deductions, but not distributions, decrease (but not below zero) the shareholder's basis in loans made to the S corporation. c. If a loss and a distribution occur in the same year, the distribution reduces the stock basis last, after the loss. d. Corporate borrowing has no effect on S corporation shareholder basis.

a. True b. True c. False d. True

Indicate whether the following statements are "True" or "False" regarding a corporation's state and local tax liability. a. A corporation may benefit by storing inventory in a low- or no-tax state because the average property value in the state in which the manufacturing operation is located is reduced significantly. b. When the corporation must operate in a high-tax state, divisions that generate losses also should be located there. c. By identifying the states that have adopted the unitary method and the criteria under which a particular state defines a unitary business, a taxpayer may reduce its overall state tax by restructuring its corporate relationships to create or guard against a unitary relationship. d. Significant tax savings may be realized when nonbusiness assets are located in a state that levies an income tax.

a. True b. True c. True d. False

You are working with one of your client's top management to select the U.S. location for a new manufacturing operation. The CEO requires information to use in discussions with the economic development representatives of several candidate states. Identify the list of tax incentives the CEO should request from the candidate states by labeling each of the following as "Yes" should request or "No" do not request. a. Economic development incentives b. Sales and use tax exemptions reducing a customer's acquisition price c. Assistance in obtaining favorable interest rates on loans to business d. To be reclassified as a tax-exempt organization e. Property tax deferrals or forgiveness for a period of time f. Income tax credits for new jobs created and retained g. Income tax credits for new investment in business equipment or realty h. Reduction in FICA payroll tax rate

a. Yes b. Yes c. Yes d. No e. Yes f. Yes g. Yes h. no

Collette's S corporation holds a small amount of accumulated earnings and profits (AEP), thereby requiring the use of a more complex set of distribution rules. Collette's accountant tells her that this AEP requires the maintenance of the AAA figure each year. Regarding the issues that arise with respect to distributions when an S corporation holds AEP, select either "Yes" it is an issue to consider or "No" it is not. a. Is a bypass election available to an S corporation? b. Will the distribution be taxable to the shareholders, and will any AEP be eliminated? c. If the corporation chooses to make a bypass election, does the election require the consent of all shareholders? d. Even without AEP, should the S corporation maintain the AAA?

a. Yes b. Yes c. Yes d. Yes

Indicate whether the following taxes are applicable to private foundations. Select "Yes" or "No", whichever is applicable. a. Tax on failure to distribute income. b. Tax based on investment income. c. Tax on self-dealing. d. Tax on excess business holdings. e. Tax on investments that jeopardize charitable purposes. f. Tax on nontaxable expenditures

a. Yes b. Yes c. Yes d. Yes e. Yes f. No

Tax Drill - Tax Year of a Partnership Indicate the required sequencing of rules in determining a partnership's required taxable. a. Principal partners' tax year. b. Majority partners' tax year rule. c. The least aggregate deferral tax year rule.

a. applied second b. applied first c. applied third

Tax Drill - Measuring and Reporting Income Indicate whether the following statements are "True" or "False" regarding measuring and reporting partnership income. a. A nonseparately stated item is any item with tax attributes that could affect partners differently. b. The partnership's Form 1065 organizes and reports the transactions of the entity for the tax year. Each of the partnership's tax items is reported on Schedule K of that return. c. A partnership is allowed to claim a deduction for net operating losses.

a. false b. true c. false

Tax Drill - Tax Planning for Partnerships Indicate whether the following statements are "True" or "False" regarding tax planning for partnerships. a. For partnerships, income or loss allocations or distributions are required to be proportionate to the ownership interest of each partner. b. Any partner can make a tax-deferred contribution of assets to the entity either at the inception of the partnership or later. c. If a partnership incurs a loss for the taxable year, careful planning will help ensure that the partners can claim the deduction, such as an additional contribution to the partnership before the end of the tax year. d. A partner who owns a majority of the partnership generally should not sell property at a loss to the partnership because the loss is disallowed.

a. false b. true c. true d. true

Indicate whether the following statements are "True" or "False" regarding the requirements for S corporation status. a. S corporations are subject to sales and capitalization restrictions. b. S corporations may only issue one class of stock. c. S corporations are limited to a theoretical maximum of 100 shareholders. d. S corporations may be U.S. (domestic) or non-U.S. corporations. e. S corporations shareholders may only be individuals, estates, and certain trusts and exempt organizations. f. Nonresident alien shareholders are not allowed for S corporations.

a. false b. true c. true d. false e. true f. true

Indicate whether the following elections are made by the "Partnership" or the "Individual partners". a. Cost recovery methods and assumptions.PartnershipIndividual partners b. Whether to reduce the basis of depreciable property first when excluding income from discharge of indebtedness c. Section 179 deductions for certain tangible personal property d. Inventory Method. e. Whether to claim cost or percentage depletion for oil and gas wells f. Whether to take a deduction or a credit for taxes paid to foreign countries and U.S. possessions.

a. partnership b. individual partner c. partnership d. partnership e. individual partner f. individual partner

Indicate whether the following statements are "True" or "False" regarding a partner's capital account. a. The capital account analysis (sometimes called a "roll forward" or "reconciliation") is shown on the partner's Schedule K-1. b. The basis of a partner's interest can be negative. c. The capital account analysis can be prepared using any of several methods, including the tax basis, GAAP, or the § 704(b) book method. d. The partner's ending capital account balance is rarely the same amount as the partner's tax basis.

a. true b. false c. true d. true

Your client, HillTop, is a retailer of women's clothing. It has increased sales during the holiday season by advertising gift cards for in-store and online use. HillTop has found that gift card holders who come into the store tend to purchase goods that total more than the amount of the gift card. Further, about one-third of the gift cards never are redeemed, thereby yielding cash to the company without a reduction of inventory. Complete the paragraph below that covers the tax issues confronting HillTop related to the gift cards. All of the U.S. states enforce rules that allow them to take possession of certain unclaimed property. Because unclaimed property rules ___________ enacted as a taxing statute, the usual nexus and apportionment tests ____________ apply. The property is taken by the state in which the ______________________ .

are not, do not, business is incorporated

Fox Corp., an S corporation, had an ordinary loss of $36,500 for the year ended December 31, year 2. At January 1, year 2, Duffy owned 50% of Fox's stock. Duffy held the stock for 40 days in year 2 before selling the entire 50% interest to an unrelated third party. Duffy's basis for the stock was $10,000. Duffy was a full-time employee of Fox until the stock was sold. Assume a 365 day year. Duffy's share of Fox's loss was: a.$0 b.$2,000 c.$10,000 d.$18,250

b

Gearty's adjusted basis in Worthington Company, a partnership, was $18,000 at the time Gearty received the following proportionate nonliquidating distributions of partnership property. Cash$6,000LandAdjusted basis14,000Fair market value12,000InventoryAdjusted basis7,000Fair market value10,000 What is Gearty's tax basis in the land received from the partnership? a.$0 b.$5,000 c.$12,000 d.$14,000

b

Hart's adjusted basis of his interest in a partnership was $30,000. He received a proportionate nonliquidating distribution of $24,000 cash plus a parcel of land with a fair market value and partnership basis of $9,000. Hart's basis for the land is: a.$9,000 b.$6,000 c.$3,000 d.$0

b

An S corporation has 30,000 shares of voting common stock and 20,000 shares of nonvoting common stock issued and outstanding. The S election can be revoked voluntarily with the consent of the shareholders holding, on the day of the revocation, the following number of outstanding shares. Shares ofVoting StockShares ofNonvoting Stock a.020,000 b.7,5005,000 c.10,00016,000 d.20,0000

c

Duffy Associates is a partnership engaged in real estate development. Olinto, a civil engineer, billed Duffy $40,000 in the current year for consulting services rendered. In full settlement of this invoice, Olinto accepted a $15,000 cash payment plus the following. Fair Market ValueCarrying Amount on Duffy's Books10% partnership interest in Duffy$10,000N/AAutomobile7,000$3,000 What amount should Olinto, a cash basis taxpayer, report on his current-year return as income for the services rendered to Duffy? a.$15,000 b.$28,000 c.$32,000 d.$40,000

c

Which of the following activities will not trigger nexus in a state in which a company operates? a.Providing installation services with the purchase of tangible personal property. b.Acceptance of an order within the state. c.Delivery by a common carrier. d.Collection of delinquent accounts.

c

Which of the following is a false statement? a.An annual information return (Form 990) stating gross income, receipts, contributions, and disbursements is required of many exempt organizations that are exempt from tax. b.For organizations that normally have less than $50,000 in annual gross receipts, a Form 990 or 990-EZ is not required; however, an "electronic postcard" (Form 990-N) is filed with the IRS and provides only limited information. c.An organization operated primarily for the purposes of carrying on a trade or business for profit can claim exemption from tax if all of its profits are payable to exempt organizations. d.If an organization fails to file the required return for three consecutive years, the tax-exempt status of the organization will be revoked.

c

Which of the following statements best describes a multistate corporation's approach to the apportionment and allocation of its income? I. The corporation will allocate its nonbusiness income. II. The corporation will apportion its business income. a.I only. b.II only. c.Both I and II. d.Neither I nor II.

c

An S corporation may deduct: a.Charitable contributions within the percentage of income limitation applicable to corporations. b.Net operating loss carryovers. c.Foreign income taxes. d.Compensation of officers.

d

At partnership inception, Black acquires a 50% interest in Decorators Partnership by contributing property with an adjusted basis of $250,000. Black recognizes a gain if: I. The fair market value of the contributed property exceeds its adjusted basis. II. The property is encumbered by a mortgage with a balance of $100,000. a.I only b.II only c.Both I and II d.Neither I nor II

d

Nick, Chris, Stacey, and Mike are each 25% partners in Liberty Partnership, a general partnership. During the current year, the partnership had revenues of $300,000 and nonseparately allocated business expenses of $100,000, including a guaranteed payment of $30,000 to Nick for services rendered. Also, during the current year, the partnership had interest income of $10,000 and charitable contributions of $16,000. With regard to activity in the partnership, what should Stacey report on her income tax return for the current year? Ordinary incomeInterest IncomeCharitable Contributions a.$200,000 $10,000 $16,000 b.$80,000 $2,500 $4,000 c.$57,500 $2,500 $4,000 d.$50,000 $2,500 $4,000

d

On December 31 of the current year, after receipt of his share of partnership income, Fox sold his interest in a limited partnership for $50,000 of cash plus relief of all liabilities. On that date, the adjusted basis of Fox's partnership interest was $60,000, consisting of his capital account of $35,000 and his share of the partnership liabilities of $25,000. The partnership has no unrealized receivables or substantially appreciated inventory. What is Fox's gain or loss on the sale of his partnership interest? a.Ordinary loss of $10,000 b.Ordinary gain of $15,000 c.Capital loss of $10,000 d.Capital gain of $15,000

d

Reiki Inc. operates stores in Massachusetts and Vermont. Reiki's payroll, property, and sales by state are as follows. StatePayrollProperty(Ending)Property(Average)SalesMassachusetts$200,000$175,000$195,000$750,000Vermont350,000225,000200,000900,000Total550,000400,000395,0001,650,000 What is Reiki's apportionment factor for Massachusetts (round to two decimal places)? a.41.86% b.44.12% c.45.45% d.43.73%

d

Unrelated business income (UBI): a.includes unrelated income from an activity where all the work is performed by volunteers. b.is not created if the activity results in a loss. c.is 100% taxable on the exempt organization's tax return. d.excludes income from the research of a college or hospital.

d

Rexco Inc., a § 501(c)(3) organization, received a total of $120,000 in support during the taxable year from the following: Governmental unit A for services rendered: $50,000 General public for services rendered: $15,000 Contributions from individual substantial contributors (disqualified persons): $40,000 Gross investment income: $10,000 Unrelated business taxable income minus the related tax: $5,000 Because Rexco __________ satisfy the external support and ___________ satisfy the internal support test, it _____________ qualify as an organization that is broadly supported. Therefore, Rexco __________ a private foundation.

does not, does, does not, is

Wren, Inc., a private foundation, generated $46,000 of gross receipts this year. Question Content Area a. What form should be used by Wren to file an annual information return?Wren ._______________________ Question Content Area b. Assume instead that Wren is a § 501(c)(3) organization that is not classified as a private foundation. Must Wren file an annual information return? Wren ________________________ .

must file a form 990-pf, must file a form 990-n

Joey lives in North Carolina, a common law state. He is a shareholder in an S corporation. If he marries a nonresident alien, will the S election terminate? If Joey lives in North Carolina, the S election will ___________________________ Would your answer change if he lived in Louisiana?If he lives in Louisiana, a community property state, the election will ___________________________ .

not terminate, terminate

Complete the following statements regarding feeder organizations. A feeder organization carries on a trade or business for the benefit of an exempt organization and ________________ the exempt organization. Such organizations ________________ exempt from Federal income tax.

remits its profits to, are not