Corporate Income Taxes 2023
Which of the following reduces a shareholder's S corporation stock basis? a.A 20% QBI deduction. b.Nontaxable income. c.Illegal kickbacks paid. d.Depletion deductions in excess of the basis of property.
Illegal kickbacks paid.
Which of the following attributes are associated with exempt organizations? a.The organization is not a for-profit entity. b.The organization serves some type of common good. c.Net earnings do not benefit the members of the organization. d.All of these statements are true.
All of these statements are true
Generally, a taxpayer's business income is: a.Apportioned. b.Allocated. c.Both "Apportioned" and "Allocated". d.Neither "Apportioned" nor "Allocated".
Apportioned
Which item does not appear on Schedule K of Form 1120S? a.Recovery of a tax benefit. b.Foreign loss. c.Intangible drilling costs. d.Utilities expense.
Utilities expense
The maximum number of actual shareholders in an S corporation is: a.200. b.Unlimited c.100. d.75.
Unlimited
Which one of the following statements regarding partnership taxation is incorrect? a.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. c.A partnership is required to file a return with the IRS. d.Partnership income is comprised of ordinary partnership income or loss and separately stated items.
b.A partnership is a tax-paying entity for Federal income tax purposes.
Misty and John formed the MJ Partnership. Misty contributed $50,000 of cash in exchange for her 50% interest in the partnership capital and profits. During the first year of partnership operations, the following events occurred: the partnership had a net taxable income of $20,000; Misty received a distribution of $12,000 cash from the partnership; and Misty had a 50% share in the partnership's $60,000 of recourse liabilities on the last day of the partnership year. Misty's adjusted basis for her partnership interest at year end is: a.$48,000. b.$78,000. c.$60,000. d.$88,000.
b.$78,000.
Concerning a partnership's Form 1065, which of the following statements is not true? a.The partnership's equivalent of taxable income is reported in the "Analysis of Income (Loss)." b.All taxable/deductible partnership income and expense items are reported on Form 1065, page 1. c.The partnership balance sheet on Schedule L can be presented on a financial (book) basis. d.The partnership reconciles its "Income (Loss) per Books" with "Income (Loss) per Return" on Schedule M-1 or M-3
b.All taxable/deductible partnership income and expense items are reported on Form 1065, page 1.
An S corporation is subject to the following tax(es). a.Built-in gains tax. b.Corporate income tax. c.Alternative minimum tax. d.None of these choices are correct.
Built-in gains tax
Which entity is eligible to make the S election? a.Non-U.S. corporation. b.Insurance company. c.One-person limited liability company. d.U.S. bank.
One-person limited liability company
Typically, state taxable income includes: a.Apportionable income only. b.Nonapportionable income only. c.Both "Apportionable income only" and "Nonapportionable income only". d.Neither "Apportionable income only" nor "Nonapportionable income only". These are not the terms typically used in the computation.
Both "Apportionable income only" and "Nonapportionable income only".
Which of the following is not immune from state income taxation even if P.L. 86-272 is in effect? a.Sale of office equipment that is used in the taxpayer's business. b.Sale of a warehouse used in the taxpayer's business. c.Sale of office equipment that constitutes inventory to the purchaser. d.All of these choices are protected by P.L. 86-272 immunity provisions.
Sale of a warehouse used in the taxpayer's business
Molly is a 30% partner in the MAP Partnership. During the current tax year, the partnership reported ordinary income of $200,000 before any permitted deduction for guaranteed payments and distributions to partners. The partnership made an ordinary cash distribution of $20,000 to Molly and made guaranteed payments to partners Molly, Amber, and Pat of $20,000 each ($60,000 total guaranteed payments). How much will Molly's adjusted gross income increase as a result of these items? a.$42,000 b.$60,000 c.$36,000 d.$62,000
d.$62,000
The benefits of a passive investment company employed in a nonunitary state typically include: a.Exclusion of the subsidiary's portfolio income from the parent corporation's apportionment formula denominator in other nonunitary states. b.Reduced state income taxes. c.Isolation of the entity's portfolio income from taxation in other nonunitary states. d.All of these choices are benefits.
All of these choices are benefits
Which of the following taxes can be imposed on private foundations? a.Tax on failure to distribute income. b.Tax on excess business holdings. c.Tax on self-dealing. d.All of these choices are correct.
All of these choices are correct
An S corporation must possess which of the following characteristics? a.Not more than 100 shareholders. b.Corporation organized in the United States. c.Only one class of stock. d.All of these choices are correct.
All of these choices are correct.
In conducting multistate tax planning, the taxpayer should: a.Consider the tax effects of the plan after accounting for any new compliance and administrative costs that it generates. b.Review tax opportunities in light of their effect on the overall business. c.Exploit inconsistencies among the taxing statutes and formulas of the states. d.All of these choices are true.
All of these choices are true
Which statement is incorrect with respect to an S shareholder's consent? a.Both spouses must consent if one owns the stock as community property. b.A consent must be in writing. c.An S election requires a consent from all of the S corporation's shareholders. d.All of these statements are correct.
All of these statements are correct.
A state's escheat laws: a.Are applied only if the entity has nexus with the customer's state. b.Allow the state to take over property that a taxpayer has not claimed. c.Both "Allow the state to take over property that a taxpayer has not claimed" and "Are applied only if the entity has nexus with the customer's state". d.Neither "Allow the state to take over property that a taxpayer has not claimed" nor "Are applied only if the entity has nexus with the customer's state".
Allow the state to take over property that a taxpayer has not claimed.
In most states, a limited liability company (LLC) is subject to the state income tax: a.As a flow-through entity, similar to its Federal income tax treatment. b.As though it were a unitary business. c.LLCs typically are exempted from state income taxation. d.As though it were a C corporation
As a flow-through entity, similar to its Federal income tax treatment.
Application of the unitary principle generally works to the taxpayer's benefit when: a.The other affiliates operate in low-tax states. b.The other affiliates generate net operating losses. c.Both "The other affiliates generate net operating losses" and "The other affiliates operate in low-tax states". d.Neither "The other affiliates generate net operating losses" nor "The other affiliates operate in low-tax states".
Both "The other affiliates generate net operating losses" and "The other affiliates operate in low-tax states".
A § 501(c)(3) organization that otherwise would be classified as a private foundation can avoid such classification if it satisfies: a.An external support test, an internal support test, and a good faith test. b.Only an internal support test. c.Both an external support test and an internal support test. d.Only an external support test.
Both an external support test and an internal support test
Gallery, a public charity, reports annual gross receipts of $100,000 and has total assets of $425,000. It should file a(n): a.Form 990-N (e-Postcard). b.Form 990-PF. c.Form 990. d.Form 990-EZ.
Form 990-EZ
In determining state taxable income, all of the following are adjustments to Federal income except: a.Dividends received from other U.S. corporations. b.Federal net operating loss. c.Fringe benefits paid to officers and executives. d.State income tax expense.
Fringe benefits paid to officers and executives
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.Having a sales employee inspect customer's inventory for specific product lines. c.Using a manufacturer's representative for the taxpayer through a sales office in the state. d.Maintaining inventory in the state by an independent contractor under a consignment plan.
Maintaining inventory in the state by an independent contractor under a consignment plan
Several individuals acquire assets on behalf of Skip Corporation on May 28, purchased assets on June 3 and began business on June 11. They subscribe to shares of stock, file articles of incorporation for Skip, and become shareholders on June 21. The S election must be filed no later than two and one-half months after: a.June 21. b.June 3. c.June 11. d.May 28.
May 28.
A new S corporation shareholder can revoke the S election unilaterally, if they own how much of the existing S corporation's stock? a.The election can be revoked only if all of the shareholders consent. b.More than 50%. c.50% or more. d.The election cannot be revoked during the first year of the new shareholder's ownership.
More than 50%.
Typically, a local property tax: a.Applies to the inventories of a business. b.Applies to an individual's stock portfolio. c.Both "Applies to the inventories of a business" and "Applies to an individual's stock portfolio". d.Neither "Applies to the inventories of a business" nor "Applies to an individual's stock portfolio".
Neither "Applies to the inventories of a business" nor "Applies to an individual's stock portfolio".
In most states, a consolidated corporate income tax return: a.Is filed by a unitary group. b.Is required by most of the states. c.Both "Is filed by a unitary group" and "Is required by most of the states". d.Neither "Is filed by a unitary group" nor "Is required by most of the states
Neither "Is filed by a unitary group" nor "Is required by most of the states".
Which of the following, if any, can be eligible shareholders of an S corporation? a.A non-U.S. corporation. b.A Roth IRA. c.A partnership. d.None of these choices are correct.
None of these choices are correct.
Which of the following would be currently taxable as ordinary income to the service partner if received in exchange for services performed for the partnership? (In all cases, assume that the interest is not sold within two years after the time it is granted to the service partner.) a. A 25% interest in the capital of the partnership when there are no restrictions on transferability of the interest. b. A 10% interest in the capital of the partnership that will vest if the partner remains in the partnership for three years. c. A 20% interest in the future profits of the partnership received in exchange for future services to be performed for the partnership. d. A 30% interest in the capital of the partnership when the partner contributes intangible property with a $0 basis that the partner developed.
a. A 25% interest in the capital of the partnership when there are no restrictions on transferability of the interest.
On January 1, Bobby and Alice equally own all of the stock of an electing S corporation called Prairie Dirt Delight. The entity incurs a $60,000 loss for a nonleap year. On the 200th day of the year (not a leap year), Bobby sells his one-half of the stock to his son, Saul. How much of the $60,000 loss, if any, is allocated to Bobby? a.$32,877 b.$13,562 c.$-0- d.$16,438
$16,438
Samuel is the managing general partner of STU in which he owns a 25% interest. For the year, STU reported ordinary income of $400,000 (after deducting all guaranteed payments). In addition, the LLC reported interest income of $12,000. Samuel received a guaranteed payment of $120,000 for services he performed for STU. How much income from self-employment did Samuel earn from STU? a.$220,000 b.$120,000 c.$100,000 d.$223,000
$220,000 Guaranteed payment + $400,000 X 25%
Mark and Addison formed a partnership. Mark received a 25% interest in partnership capital and profits in exchange for land with a basis of $40,000 and a fair market value of $60,000. Addison received a 75% interest in partnership capital and profits in exchange for $180,000 of cash. Three years after the contribution date, the land contributed by Mark is sold by the partnership to a third party for $76,000. How much taxable gain will Mark recognize from the sale? a.$24,000 b.$0 c.$9,000 d.$16,000
$24,000 76,000 - 40,000 - 60,000 = 24,000
Ting, a regional sales manager, works from her office in State W. Her region includes several states as indicated in the following sales report. Determine how much of Ting's $300,000 compensation is assigned to the payroll factor of State W. State Sales Generated Ting's Time Spent There U $ 1,000,000 15% V 5,000,000 55% W 4,000,000 30% $10,000,000 100% a.$300,000. b.$0. c.$90,000. d.$120,000.
$300,000
Samantha owned 1,000 shares in Evita, Inc., an S corporation, that uses the calendar year. On October 11, Samantha sells all of her Evita stock. Her stock basis at the beginning of the tax year was $60,000. Evita's ordinary income for the year was $22,000 through the date of sale, and Samantha receives a distribution of $35,000 on May 3rd. Her stock basis at the time of the sale is: a.$82,000. b.$47,000. c.$60,000. d.$117,000.
$47,000.
Ryan is a 25% partner in the ROCC Partnership. At the beginning of the tax year, his basis in the partnership interest was $90,000, including his share of partnership liabilities. During the current year, ROCC reported net ordinary income of $100,000. In addition, ROCC distributed $10,000 to each of the partners ($40,000 total). At the end of the year, Ryan's share of partnership liabilities increased by $10,000. His basis in the partnership interest at the end of the year is: a.$100,000. b.$125,000. c.$90,000. d.$115,000.
d.$115,000.
Allison is a 40% partner in the BAM Partnership. At the beginning of the tax year, her basis in the partnership interest was $100,000, including her share of partnership liabilities. During the current year, BAM reported an ordinary loss of $60,000 (before the following payments to the partners). In addition, BAM made an ordinary distribution of $8,000 to Allison and paid partner Brian a $20,000 consulting fee. At the end of the year, Allison's share of partnership liabilities decreased by $10,000. Assuming loss limitation rules do not apply, Allison's basis in the partnership interest at the end of the year is: a.$58,000. b.$70,000. c.$2,000. d.$50,000.
d.$50,000.
Federal taxable income is used as the starting point in computing the state's income tax base, but various state adjustments or modifications generally are required to: a.Reflect differences between state and Federal tax statutes. b.Allow for all states to use the same definition of taxable income. c.Remove income that a state is constitutionally prohibited from taxing. d."Reflect differences between state and Federal tax statutes" and "Remove income that a state is constitutionally prohibited from taxing".
"Reflect differences between state and Federal tax statutes" and "Remove income that a state is constitutionally prohibited from taxing".
General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its State A headquarters to a customer in State B. General has not established nexus with State B. State A does not apply a throwback rule. In which state(s) will the sale be included in the sales factor numerator? a.$100,000 in State A. b.$100,000 in State B. c.$0 in State A and $0 in State B. d.In all of the states, according to the apportionment formulas of each, as the U.S. government is present in all states.
$0 in State A and $0 in State B
General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its State A headquarters to a customer in State B. This activity is not sufficient for General to create nexus with State B. State B applies a throwback rule, but State A does not. In which state(s) will the sale be included in the sales factor numerator? a.$100,000 in State A. b.$100,000 in State B. c.$0 in State A and $0 in State B. d.In both States A and B, according to the apportionment formulas of each.
$0 in State A and $0 in State B
Britta Corporation's entire operations are located in State A. Of Britta's sales, 80% ($800,000) are made in State A and the remaining sales ($200,000) are made in State B, which has not adopted a corporate income tax. If State A has adopted a throwback rule, the numerator of Britta's State A sales factor is: a.$200,000. b.$0. c.$1,000,000. d.$800,000.
$1,000,000
Hopper Corporation's property holdings in State E are as follows. Compute the numerator of Hopper's E property factor. Item Property Factor Valuation ($M) Manufacturing equipment $100 Land held for potential appreciation 25 Manufacturing equipment that is not currently needed and sits idle 15 Manufacturing equipment that is not currently needed and is leased to another taxpayer 20 a.$160 million. b.$135 million. c.$100 million. d.$140 million.
$100 million
General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its State A headquarters to the State B office of the Federal Bureau of Investigation. In which state(s) will the sale be included in the sales factor numerator? a.$50,000 in A with the balance exempted from other states' sales factors under the Altria doctrine. b.$100,000 in A. c.$100,000 in B. d.$0 in A and $0 in B.
$100,000 in A
General Corporation is taxable in a number of states. This year, General made a $100,000 sale from its State A headquarters to a customer in State B. This activity is not sufficient for General to create nexus with State B. State A applies a throwback rule but State B does not. In which state(s) will the sale be included in the sales factor numerator? a.In both State A and State B, according to the apportionment formulas of each. b.$100,000 in State A. c.$0 in both State A and State B. d.$100,000 in State B
$100,000 in State A
A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to S status on February 10. By the end of the year, $60,000 of these receivables have been collected. Calculate any built-in gains tax, assuming that there is sufficient taxable income. a.$35,000 b.$-0- c.$21,000 d.$12,600
$12,600
Riverside Show Choir reports $20,000 of sales of pizzas at the local high school ballgames this year. Related expenses total $6,000. UBTI equals: a.$20,000. b.$14,000. c.$-0-. d.$13,000.
$13,000.
A museum's lobbying nontaxable amount is $600,000. Its grass roots nontaxable amount is: a.$0. b.$150,000. c.$300,000. d.$600,000
$150,000
Kristie is a 30% partner in the KKM Partnership. During the current year, KKM reported gross receipts of $280,000 and a charitable contribution of $30,000. The partnership paid office expenses of $80,000. In addition, KKM distributed $20,000 each to partners Kaylyn and Megan, and paid partner Kaylyn $20,000 for administrative services. Kristie reports the following income from KKM during the current tax year. a.$33,000 ordinary income. b.$60,000 ordinary income; $9,000 charitable contribution. c.$54,000 ordinary income; $9,000 charitable contribution. d.$54,000 ordinary income.
$54,000 ordinary income; $9,000 charitable contribution.
Mock Corporation converts to S corporation status in 2023. Mock used the LIFO inventory method in 2022 and had a LIFO inventory of $435,000 (FIFO value of $550,000) on the date of the S election. How much tax must be added to Mock's 2022 corporate tax liability? a.$115,000 b.$-0- c.$24,150 d.$6,038
$6,038
If the beginning balance in OAA is zero and the following transactions occur, what is the ending OAA balance? Depreciation recapture income $21,000 Payroll tax penalty 4,200 Tax-exempt interest 5,700 Nontaxable life insurance proceeds 3,900 Insurance premiums paid (nondeductible) 2,900 Charitable contributions 17,000 a.$27,500. b.$23,300. c.$1,300. d.$6,700..
$6,700..
Given the following transactions for the year, determine Comp Corporation's D payroll factor denominator. State D has adopted the principles of UDITPA. Compensation of sales force $ 600,000 Compensation paid to independent contractors 300,000 Compensation paid to managers of nonbusiness rental property 100,000 Total compensation $1,000,000 a.$600,000 b.$900,000 c.$1,000,000 d.$700,000
$600,000
Ballet's lobbying nontaxable amount is $600,000. Its lobbying expenditures ceiling is: a.$1,200,000. b.$900,000. c.$600,000. d.$0.
$900,000.
Which of the following statements is correct regarding the disclosure of tax documents by exempt entities? a.Copies of the three most recent Forms 990 must be made available to the public. b.Forms 990 and 1023 must be readily available to the general public. c.Posting the required tax forms on the Internet is an acceptable technique for satisfying the "widely available" requirement. 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.
."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
Which of the following statements regarding the unrelated business income tax is not correct? a.The unrelated business income tax is levied because the exempt organization is engaging in substantial commercial activities. b.If the unrelated business income tax were not levied, nonexempt organizations would be placed at a substantial disadvantage when trying to compete with the exempt organization. c.Unrelated business income is income from activities not related to the exempt purpose of the organization. d.A flat 30% tax rate is applied to unrelated business taxable income.
A flat 30% tax rate is applied to unrelated business taxable income
Question Content Area A use tax applies when a State A resident purchases: a.A new automobile from a State A dealership. b.A used automobile from the website of a State A dealership. c.A new automobile from a State B dealership and then uses the car back at home in State A. d.A new automobile that is purchased from an online seller.
A new automobile from a State B dealership and then uses the car back at home in State A.
Which of the following statements regarding the unrelated business income tax is correct? a.Churches are subject to the unrelated business income tax. b.Bingo games are not subject to the unrelated business income tax if they are conducted by an exempt organization. c.The exchange or rental of membership lists with other exempt and nonexempt organizations is not an unrelated trade or business. d.All of these statements are correct.
Churches are subject to the unrelated business income tax
Which of the following is not a specific adjustment to the partners' basis in the partnership interest? a.Decreased by any decrease in the partner's share of partnership liabilities. b.Increased by contributions the partner made to the partnership. c.Decreased by the amount of guaranteed payments shown on the partner's Schedule K-1. d.Increased by the partner's share of tax-exempt income.
Decreased by the amount of guaranteed payments shown on the partner's Schedule K-1
Which item does not appear on Schedule K of Form 1120S? a.Tax-exempt interest income. b.Section 179 depreciation deduction. c.Section 1231 gain. d.Depreciation recapture income.
Depreciation recapture income.
Multistate income tax planning can be effective for the taxpayer because: a.Different states use different definitions of taxable income. b.State income tax rates generally are steeply progressive. 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".
Different states use different definitions of taxable income.
Which item is not included in an S corporation's nonseparately computed income? a.Cost of goods sold. b.Dividends received. c.Net sales. d.Depreciation recapture.
Dividends received.
A state sales tax usually falls upon: a.Sales of real estate. b.Sales of widgets made to out-of-state customers. c.Sales of widgets made to an in-state final consumer of the product or service. d.Sales of groceries.
Sales of widgets made to an in-state final consumer of the product or service
For most taxpayers, which of the traditional apportionment factors yields the greatest opportunities for tax reduction? a.Sales (gross receipts). b.Property. c.Unitary. d.Payroll.
Sales (gross receipts).
Which of the following is not a requirement of the substantial economic effect test? a.An allocation of income must increase the partner's § 704(b) book capital account balance, and an allocation of deduction must decrease the partner's § 704(b) book capital account balance. b.A partner with a negative § 704(b) book capital account balance must restore that capital account, generally by contributing cash to the partnership. c.On liquidation of the partner's interest in the partnership, the partner must receive assets that have a fair market value equal to that partner's (positive) § 704(b) book capital account balance. d.Income, gains, losses, and deductions must be allocated to the partners in accordance with their capital contributions.
Income, gains, losses, and deductions must be allocated to the partners in accordance with their capital contributions.
The Form 990-N: a.Is filed by newly exempt entities. b.No longer exists. c.Records the asset holdings and liabilities of the exempt organization. d.Is also known as the e-Postcard.
Is also known as the e-Postcard
Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2? a.Taxable interest. b.Payroll penalty. c.Life insurance proceeds (nontaxable to the recipient S corporation). d.Unreasonable compensation.
Life insurance proceeds (nontaxable to the recipient S corporation).
The most commonly used state income tax apportionment formula is: a.Sales factor double-weighted. b.Payroll factor only. c.Sales factor equally weighted with property and payroll. d.Sales factor only.
Sales factor only
Which of the following statements is/are correct? a.If an exempt organization records annual gross receipts of less than $50,000, it files Form 990-N. b.An exempt organization with less than $250,000 in gross receipts may file a Form 990-EZ. c.Private foundations must file Form 990-PF (Return of Private Foundation). d.Only "If an exempt organization records annual gross receipts of less than $50,000, it files Form 990-N" and "Private foundations must file Form 990-PF (Return of Private Foundation)" are correct.
Only "If an exempt organization records annual gross receipts of less than $50,000, it files Form 990-N" and "Private foundations must file Form 990-PF (Return of Private Foundation)" are correct
Which of the following excise taxes are imposed on private foundations? a.Tax on excess business holdings. b.Tax on excess charitable contributions. c.Tax on failure to distribute income. d.Only "Tax on failure to distribute income" and "Tax on excess business holdings".
Only "Tax on failure to distribute income" and "Tax on excess business holdings
Which of the following requirements must be satisfied for a bingo game to be classified as not being an unrelated trade or business? a.The bingo game is legal under both state and local law. b.The bingo game is conducted by volunteers. c.For-profit bingo games ordinarily are not permitted in the jurisdiction. d.Only "The bingo game is legal under both state and local law" and "For-profit bingo games ordinarily are not permitted in the jurisdiction" must be satisfied.
Only "The bingo game is legal under both state and local law" and "For-profit bingo games ordinarily are not permitted in the jurisdiction" must be satisfied
Which of the following statements regarding the distribution of low-cost articles by an exempt entity is correct? a.For 2022, a low-cost article is one that costs the entity $11.70 or less. b.Any contributions received that trigger the distribution of low-cost articles is included in unrelated business income. c.The distribution of low-cost articles can be classified as not being an unrelated trade or business. d.Only "The distribution of low-cost articles can be classified as not being an unrelated trade or business" and "For 2022, a low-cost article is one that costs the entity $11.70 or less" are correct.
Only "The distribution of low-cost articles can be classified as not being an unrelated trade or business" and "For 2022, a low-cost article is one that costs the entity $11.70 or less" are correct
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 plot of real estate approved and filled from another state. c.Providing an automobile to a salesperson. d.Order solicitation for a machine with credit approval from another state.
Order solicitation for a plot of real estate approved and filled from another state
Oxen Corporation incurs the following transactions.Net income from operations$100,000Interest income from savings account3,000Long-term capital gain from sale of securities10,000Short-term capital loss from sale of securities4,000Oxen maintains a valid S election and does not distribute any assets (cash or property) to its sole shareholder, Megan. As a result, Megan must recognize (ignore 20% QBI deduction): a.Ordinary income of $103,000. b.Ordinary income of $109,000. c.Ordinary income of $103,000 and long-term capital gain of $6,000. d.Ordinary income of $103,000, long-term capital gain of $10,000, and $4,000 short-term capital loss.
Ordinary income of $103,000, long-term capital gain of $10,000, and $4,000 short-term capital loss.
Lemon Corporation incurs the following transactions. Net income from operations $110,000 Interest income from saving account 5,000 L-term capital gain from sale of securities 9,000 Short-term capital loss from sale of securities 4,000 Lemon maintains a valid S election and does not distribute any dividends to its shareholder, Nina. As a result, which of the following must Nina recognize? Ignore the 20% QBI deduction. a.Ordinary income of $120,000. b.Ordinary income of $115,000 and long-term capital gain of $5,000. c.Ordinary income of $115,000, long-term capital gain of $9,000, and $4,000 short-term capital loss. d.Capital gain of $120,000.
Ordinary income of $115,000, long-term capital gain of $9,000, and $4,000 short-term capital loss.
In the broadest application of the unitary theory, the U.S. unitary business files a combined tax return using factors and income amounts for all affiliates: a.Organized anywhere in the world. b.As dictated by the tax treaties between the United States and other countries. c.Organized in the U.S., Canada, and Mexico. d.Organized in the United States.
Organized anywhere in the world
Which of the following statements is correct regarding potential partnership or C corporation taxes? a.C corporations pay a single level of tax on corporate income at rates up to 35%. b.Partnership income is always taxed at higher rates than for a Subchapter C corporation because the individual tax rates are higher than corporate tax rates. c.Partnership income is preferred because the income is not subject to employment taxes and the income might be eligible for the qualified business income deduction. d.Partners pay a single tax on their distributive shares of income at the tax rate that applies to the partner.
Partners pay a single tax on their distributive shares of income at the tax rate that applies to the partner.
What method is used to allocate S corporation income or losses (unless an election to the contrary is made)? a.LIFO method. b.Per-day allocation. c.FIFO method. d.Any method agreed to by all of the shareholders.
Per-day allocation
By default, an exempt entity is a: a.Public charity. b.Private charity. c.Private foundation. d.Feeder organization.
Private foundation
Which statement is incorrect? a.Distributions of appreciated property are taxable to the S corporation. b.S corporations are treated as partnerships for Federal income tax purposes. c.S corporations are treated as corporations under state law. d.All of these choices are correct.
S corporations are treated as partnerships for Federal income tax purposes.
Identify a disadvantage of being an S corporation. a.Estates can be shareholders. b.Tax-exempt income flows through as excludible to shareholders. c.Section 1202 treatment (qualified small business stock) is not available. d.Losses flow through immediately to the shareholders.
Section 1202 treatment (qualified small business stock) is not available
Which of the following items, if any, decreases an S corporation's AAA? a.Distribution from earnings and profits. b.Section 1231 loss. c.Depletion in excess of basis. d.Expenses related to tax-exempt income.
Section 1231 loss.
Which of the following is not an example of an exempt organization? a.Stock exchange. b.Private high school. c.Public high school. d.Farmers' cooperative.
Stock exchange.
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 $800,000 is unrelated business income. b.The $300,000 is unrelated business income because the gift shop is a feeder organization. c.The $500,000 of gift shop net income is unrelated business income. d.None of the $800,000 is unrelated business income.
The $500,000 of gift shop net income is unrelated business income.
Which of the following items, if any, has no effect on the stock basis of an S corporation shareholder? a.The 20% QBI deduction. b.Short-term capital gain. c.Operating income. d.Advertising expenses.
The 20% QBI deduction
Which of the following are qualified corporate sponsorship payments? a.The corporation's payment is determined by the number of likes on the exempt organization's Facebook page for the advertiser's products. b.The advertiser's payment to the exempt organization results in it's corporate logo appearing in the exempt organization's daily Instagram post. c.The amount of the advertiser's payment to the exempt organization is contingent on the attendance at one or more events. d.Only "The corporation's payment is determined by the number of likes on the exempt organization's Facebook page for the advertiser's products" and "The advertiser's payment to the exempt organization results in it's corporate logo appearing in the exempt organization's daily Instagram post".
The advertiser's payment to the exempt organization results in it's corporate logo appearing in the exempt organization's daily Instagram post
In determining a corporation's taxable income for state income tax purposes, which of the following does not constitute a subtraction modification from Federal income? a.Interest on U.S. obligations. b.The amount by which the Federal depreciation deduction exceeds the corresponding state amount. c.The amount by which the state depreciation deduction exceeds the corresponding Federal amount. d.Expenses that are directly or indirectly related to state and municipal interest that is taxable for state purposes.
The amount by which the Federal depreciation deduction exceeds the corresponding state amount.
Which one of the following is an example of a special allocation of partnership income? a.The partnership's capital gains and losses are shown separately on Schedule K-1. 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 agreement provides that all charitable contributions will be allocated to a specific partner rather than the partner's 20% distributive share.
The partnership agreement provides that all charitable contributions will be allocated to a specific partner rather than the partner's 20% distributive share.
Fern, Inc., Ivy, Inc., and Jeremy formed a general partnership. Fern owns a 50% interest, and Ivy and Jeremy both own 25% interests. Fern, Inc. files its tax return on an October 31 year-end; Ivy, Inc., files with a May 31 year-end, and Jeremy is a calendar year taxpayer. Which of the following statements is true regarding the taxable year the partnership can choose? a.The partnership can request permission from the IRS to use a January 31 fiscal year under § 444. b.The partnership must choose the calendar year because it has no principal partners. c.The partnership must choose an October year-end because Fern, Inc., is a principal partner. d.The partnership must use the least aggregate deferral method to determine its required taxable year.
The partnership must use the least aggregate deferral method to determine its required taxable year.
A state sales tax usually falls upon: a.The sale of a Bible to a member of the church. b.The sale of a case of Bibles by the publisher to a church bookstore. c.The sale of a dinette set by the manufacturer to a furniture retailer. d.The sale of a used dinette set sold at a rummage sale. e.All of these choices are exempt transactions.
The sale of a Bible to a member of the church
Which of the following statements is correct regarding the unrelated business income tax (UBIT)? a.An exempt entity that conducts a business that competes with for-profit businesses automatically is subject to the UBIT. b.To be subject to the UBIT, the exempt organization must conduct a trade or business, the trade or business must be substantially related to the exempt purpose of the organization, and the trade or business must be regularly carried on by the organization. c.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. d.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 carried on during more than half the year.
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
At the beginning of the year, Heather's tax basis capital account balance in the HEP Partnership was $85,000. During the tax year, Heather contributed property with a basis of $6,000 and a fair market value of $10,000. Her share of the partnership's ordinary income and separately stated income and deduction items was $40,000. At the end of the year, the partnership distributed $15,000 of cash to Heather. In addition, the partnership allocated $12,000 of recourse debt and $10,000 of nonrecourse debt to Heather. What is Heather's ending capital account balance determined using the tax basis method? a.$116,000 b.$120,000 c.$128,000 d.$126,000
a.$116,000
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.Jason has a $200,000 tax basis for his partnership interest. c.The partnership has a $150,000 adjusted basis in the land contributed by Anna. d.Jason recognizes a $20,000 gain on his property transfer.
a.Anna has a $250,000 tax basis for her partnership interest.
Which of the following is not shown on the partnership's Schedule K of Form 1065? a.The partnership's net operating loss carryforward. b.The partnership's tax preference and adjustment items. c.The partnership's separately stated income and deductions. d.The partnership's self-employment income.
a.The partnership's net operating loss carryforward.
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.
ABC LLC reported the following items on the LLC's Schedule K: ordinary income, $100,000; interest income, $3,000; long-term capital loss, ($4,000); charitable contributions, $1,000; AMT depreciation adjustment, $10,000; and cash distributions to partners, $50,000. How much will ABC show as net income (loss) on its Analysis of Income (Loss)? a.$95,000 b.$78,000 c.$98,000 d.$68,000
c.$98,000
Which of the following is a correct definition of a concept related to partnership taxation? a.A special allocation is defined as an amount that could differently affect the tax liabilities of two or more partners. b.The partnership's outside basis is defined as the sum of each partner's capital account balance. c.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. d.The aggregate concept treats partners and partnerships as separate units and gives the partnership its own tax personality.
c.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.
Tim, Al, and Pat contributed assets to form the equal TAP Partnership. Tim contributed cash of $40,000 and land with a basis of $80,000 (fair market value of $60,000). Al contributed cash of $60,000 and land with a basis of $50,000 (fair market value of $40,000). Pat contributed cash of $60,000 and a fully depreciated property ($0 basis) valued at $40,000. Which of the following tax treatments is not correct? a.TAP has a basis of $80,000, $50,000, and $0 in the land and property (excluding cash) contributed by Tim, Al, and Pat, respectively. b.Tim's basis in his partnership interest is $120,000. c.Al realizes and recognizes a loss of $10,000. d.Pat realizes a gain of $40,000 but recognizes $0 gain.
c.Al realizes and recognizes a loss of $10,000.
Which of the following is an election or calculation made by the partner rather than the partnership? a.Claiming a § 179 deduction related to property acquired by the partnership. b.Tax treatment (e.g., credit, amortization) of research and experimental costs. c.Calculation of a § 199A (qualified business income) deduction amount. d.The partnership's accounting method (e.g., cash, accrual).
c.Calculation of a § 199A (qualified business income) deduction amount
Which of the following entity owners cannot participate in the management of an entity? a.A member of a limited liability company. b.A partner in a limited liability partnership. c.A general partner in a general partnership. d.A limited partner in a limited partnership.
d.A limited partner in a limited partnership.
Which of the following statements is always true regarding accounting methods available to a partnership? a.If a partnership is a tax shelter, it can use the cash method of accounting. b.If a partnership has a partner that is a C corporation, it cannot use the cash method. c.If a partnership has a partner that is a personal service corporation, it cannot use the cash method. d.If a nontax-shelter partnership had average annual gross receipts of less than $27,000,000 (2022) for the last three tax years, it can use the cash method.
d.If a nontax-shelter partnership had average annual gross receipts of less than $27,000,000 (2022) for the last three tax years, it can use the cash method.