WGU C239 PA
In a non-liquidating reorganization, Company A transfers assets with a $200,000 adjusted basis to Company X in exchange for $400,000 of Company X stock and $100,000 of boot property. Company A has five shareholders, each of whom owns a 20% share in the company. During the reorganization, none of the boot property is distributed to shareholders. What is the taxable gain that shareholders must recognize in this situation? $0 $200,000 $300,000 $500,000
$0
An individual owns 50% of the stock in an S corporation, while the individual's spouse owns 30% of the stock. The tax year is the calendar year. The corporation reports $44,000 of ordinary taxable income and pays no corporate income tax. The individual's standard deduction is $12,000. The individual has a 12% marginal tax rate for all of the income. Ignore any possible effect of a QBI deduction. What is the amount of tax the individual must pay if income taxes are filed separately rather than jointly? $672 $1,200 $10,000 $11,200
$1,200
Business A is a calendar-year taxpayer and purchased office equipment for $10 million on March 1, 2018. The items were placed in service on May 1, 2018. The asset has a 10-year recovery period for GAAP accounting purposes. What is the amount of 2018 tax cost recovery on this asset? $500,000 $952,381 $1,000,000 $1,428,571
$1,428,571 This is somewhat tricky. It states that it is 10yr for book, but it is only 7yr for tax. MACRS for 7yr is 14.29% so 10,000,000 x 14.29%= 1,429,000
C Corporation owns 100% of the stock of B Corporation. The adjusted basis of its stock investment is $100,000. A plan of liquidation is adopted. B Corporation distributes to C Corporation assets with a $325,000 FMV and a $275,000 adjusted basis. B also distributes liabilities in the amount of $40,000. B Corporation has a $150,000 earnings and profit (E & P) balance. What is C Corporation's gain and/or loss on the redemption of B Corporation's stock? $50,000 realized gain, but no recognized gain $150,000 realized and recognized gain $185,000 realized gain, but no recognized gain $225,000 realized and recognized gain
$185,000 realized gain, but no recognized gain
A taxpayer's bowling alley (basis of $600,000) is destroyed by fire, and he receives $800,000 in insurance proceeds. The taxpayer will spend $1,000,000 to build another bowling alley. How much is the gain and could it be deferred under the functional-use test? $200,000 gain; could defer $200,000 gain; could not defer $400,000 gain; could defer $400,000 gain; could not defer
$200,000 gain; could defer
A corporation is undergoing a complete liquidation and distributes land to an individual shareholder in exchange for all of the shareholder's stock. The land has a basis of $300,000 and a FMV of $400,000 on the corporation's books and also has a $325,000 liability. The shareholder assumes the liability on the property, and their basis in the corporation's stock is $100,000. Which gain or loss must the shareholder recognize on the distribution? $25,000 gain $25,000 loss $75,000 gain $75,000 loss
$25,000 loss
Which amount must income be in excess of in order to have a 3.8% tax on the lesser of investment income or Adjusted Gross Income (AGI) beginning in 2013 for married filing joint couples? $150,000 $200,000 $250,000 $300,000
$250,000
Which provision found in the home sale rules encourages home ownership? Interest on unsecured debt is deductible by an individual or married couple. $500,000 of gain on sale of primary residence owned for two years may be excluded by a single taxpayer. Interest on up to $100,000 of home equity debt may be deducted. $250,000 of gain on sale of primary residence owned for two years may be excluded by a single taxpayer.
$250,000 of gain on sale of primary residence owned for two years may be excluded by a single taxpayer.
How much of the excess is offset against ordinary income for an individual taxpayer on a dollar-for-dollar basis if net long-term capital losses exceed net short-term capital gains? $1,000 $2,000 $3,000 $4,000
$3,000
A non-corporate taxpayer has two transactions involving the sale of capital assets during the year. As a result of the transactions, he has a short-term capital gain of $2,000 and a long-term capital loss of $6,000. A corporate taxpayer has the identical transactions occur during the year. Which amounts will be added or deducted from ordinary income for the non-corporate and corporate taxpayer capital gains, respectively? $4,000 deduction, $4,000 deduction $5,000 deduction, $3,000 deduction $3,000 deduction, no deduction or addition No deduction or addition, $3,000 deduction
$3,000 deduction, no deduction or addition
Diego owns 70% of Endothon Corporation's stock, while Maria owns the remaining 30%. Diego and Maria have a tax basis in Endothon's stock of $32,000 and $12,000, respectively. Endothon has current earnings and profits (E&P) of $25,000 and no accumulated E&P. At year-end, Endothon makes a $75,000 distribution: $56,250 to Diego and $18,750 to Maria. What amount of Diego's distribution is treated as a nontaxable return of capital? $3,000 $17,500 $18,750 $32,000
$32,000 The nontaxable return of capital is limited by how much capital he has. His distribution was more than capital. Anything over the 32K is taxable.
A single individual has formed a partnership, which is not a qualified business, in which the individual owns 33.33%. The first year of the partnership, it earns gross income of $150,000 for the tax year of 2018. What is the total tax that will be paid by the individual this year if the individual's marginal tax rate is 12% and the corporate marginal rate is 21%? $7,980 $6,672 $4,560 $3,840
$4,560 Not qualified means no QBI deduction (50K-12K) * .12 = $4,560 again, the corporate tax rate does not matter
A corporation had taxable income of $11,000,000 and made federal tax payments of $2,725,000 in 2019. What is the corporation's amount of federal taxes or refund due? $415,000 taxes due $2,725,000 refund due $2,310,000 taxes due $415,000 refund due
$415,000 refund due
A corporation reports taxable income of $500,000 for the year, including the receipt of $100,000 of dividends and a $70,000 dividends-received deduction. What should be the corporation's current earnings and profit (E&P)? $370,000 $400,000 $500,000 $570,000
$570,000
A taxpayer is single with no dependents and has a taxable income of $50,000. What is the taxpayer's federal income tax using the tax rate schedule? $5,810 $6,000 $6,940 $11,000
$6,940 If your taxable income is: Over - But not over - The tax is: $0 -$9,525 10% of the amount over $0 $9,525-$38,700 $952.50+ 12% of the amount over $9,525 $38,700-$82,500 $4,453.50 + 22% of the amount over $38,700
In 2018, a single individual operates a business as a sole proprietorship. The business sells shoes on the internet. Other than inventory, accounts receivable, and fully depreciated computers, the business has no assets. The business has revenue of $450,000 and expenses of $200,000 in a given year, of which $80,000 is for wages. The individual also earns $10,000 from an outside part-time job. The individual's average tax rate is 32% on the given income, and the corporate tax rate is 21%. Assume the individual does not itemize and that the standard deduction is $12,000. What is this individual's income tax liability? $52,500 $53,760 $63,360 $66,560
$66,560 450K revenue (200K) expenses 10K part-time job (12K) standard deduction (40K) 50% of wages as QBI equals 208K * .32 = 66,560 The corporate tax rate does not come into play here.
In 2018, a company is considering alternative organizational forms. The gross business earnings are $100,000. The owner is single and has $3,000 of income from other sources, itemized deductions of $11,000, and a standard deduction of $12,000. Compensation for services is $50,000. Business charitable contributions are $4,000. The owner's dividends from the corporation are $15,000. What will be the individual's adjusted gross income (AGI) if the business is operated as a C Corporation? $53,000 $57,000 $68,000 $72,000
$68,000 Compensation for services 50K Dividends from corp 15K other income source 3K
A client owns an apartment building with a fair market value of $250,000, an adjusted basis of $175,000, and a mortgage of $150,000. The client exchanges the building and $40,000 cash for a different apartment that has a fair market value of $220,000. The client assumes the $80,000 mortgage on the building to be acquired. Which tax amount will the client realize as a result of the exchange? $0 gain or loss $30,000 gain $45,000 gain $75,000 gain
$75,000 gain
For 2018, an unmarried taxpayer reports $17,000 of capital losses on Schedule D and $8,000 of capital gains on Schedule D. What amount would the taxpayer deduct against ordinary income in 2018? ($9,000) ($3,000) $8,000 $9,000
($3,000)
In a forward triangular merger, the acquisition subsidiary must acquire "substantially all" of the target corporation's properties in the exchange. What does the IRS interpret "substantially all" to mean? 90% of the fair market value of the target corporation's net properties and 70% of the fair market value of the target corporation's gross properties 70% of the fair market value of the target corporation's net properties and 70% of the fair market value of the target corporation's gross properties 70% of the fair market value of the target corporation's net properties and 90% of the fair market value of the target corporation's gross properties 90% of the fair market value of the target corporation's net properties and 90% of the fair market value of the target corporation's gross properties
90% of the fair market value of the target corporation's net properties and 70% of the fair market value of the target corporation's gross properties
An Eleventh Circuit client who files in the U.S. Court of Federal Claims wants to know whether to include the terms of multiple options to renew a sale-leaseback to calculate a deduction. What is the authoritative reference? A Second Circuit case which used disjunctive analysis A tax court decision which used economic substance An Eleventh Circuit Case which analyzed sale-leaseback transactions that generate tax deductions A U.S. Court of Federal Claims case which analyzed sale-leaseback transactions for operating equipment
A U.S. Court of Federal Claims case which analyzed sale-leaseback transactions for operating equipment
What is allowed by the multiple support declaration (Form 2120)? A custodial parent to claim another person as a dependent A non-custodial parent to claim another person as a dependent A taxpayer to claim another person as a dependent without providing over one-half of support A taxpayer to claim another person as a dependent while also providing over one-half of support
A taxpayer to claim another person as a dependent without providing over one-half of support
A liquidating corporation does not recognize loss if the property is distributed to a related party and the asset distributed is disqualified property. Which property would be considered disqualified property? Acquired within 18 months of the date of distribution Acquired within 12 months of the date of distribution Acquired within five years of the date of distribution Acquired within three years of the date of distribution
Acquired within five years of the date of distribution
How do businesses recover the cost of capitalized, intangible assets? Depreciation Amortization Single deduction Direct write-off
Amortization
A tax service arranged by the IRC section
Annotated Tax Service
What is classified as a capital asset for tax purposes? Automobile held for personal use Copyright for property produced by the taxpayer Notes receivable acquired in the ordinary course of a trade or business Accounts receivable acquired in the ordinary course of a trade or business
Automobile held for personal use
Assets held for investment purposes. Assets held for personal purposes.
Capital Assets
Which partnership item would flow through to an individual's tax return? Capital gains Gross income Partnership exemptions Dividends received deduction
Capital Gains
Means taxpayers should be able to determine when, where, and how much to pay
Certainty
Which activity of the tax advisor exemplifies the nature of tax compliance as a closed situation? Shaping the facts that detail the transaction Planning for the facts that have not yet occurred Considering the facts that have already occurred Communicating the facts that detail the transaction
Considering the facts that have already occurred
A tax system should minimize compliance and administration costs
Convenience
What is a key operating element of doing business as an S corporation? Fiscal year ends can be chosen without establishing a business purpose. Corporate profits are taxed at the shareholders level in the year earned. Shareholders are not subject to the at-risk or passive activity limitations. Nontaxable fringe benefits are available to S corporation employee shareholders.
Corporate profits are taxed at the shareholders level in the year earned.
A corporation distributes property with a fair market value of $50,000, an adjusted basis of $20,000 for taxable income purposes, and an adjusted basis of $15,000 for earnings and profit (E&P) purposes to one of its shareholders in a non-liquidating distribution. The property is encumbered by a $60,000 mortgage which the shareholder assumes. The corporation pays tax at a 34% marginal tax rate. What is the effect of the income tax paid on any gain on the corporation's E&P? Increase of $10,000 Increase of $35,000 Decrease of $10,200 Decrease of $13,600
Decrease of $13,600 (20K) loss from adjusted basis 60K gain from debt relief 40K * .34 = $13,600 tax payable which decreases corporations E&P
Which objective of the federal tax law requires that a good tax system minimizes the compliance and administration costs? Equity Convenience Certainty Economy
Economy
What is considered a like-kind exchange? Exchange of a computer server for two personal computers by an individual Exchange of a computer server for two personal computers by a computer store Exchange of a mountain home for an uptown condominium by an individual Exchange of an investment of stock for bonds of the same corporation by an individual
Exchange of a mountain home for an uptown condominium by an individual
1) understand facts 2) identify issues 3) locate relevant authorities 4) analyze tax authorities 5) document and communicate results
Five steps for tax research
Which form deals with US Individual Income Tax Return?
Form 1040
Which form deals with Return of Partnership Income
Form 1065
Which form deals with Corporation Income Tax Return?
Form 1120
Which form deals with Income Tax from an S Corporation?
Form 1120S
Which form deals with Estate Tax Return?
Form 706
Which form deals with Gift Tax Return?
Form 709
Which form deals with Sales and Other Dispositions of Capital Assets?
Form 8949
What should be deferred in an involuntary conversion? Gain on the destruction of a principal residence Gain on the immediate resale of replacement property Loss on the immediate resale of replacement property Loss on personal property compensated by insurance proceeds
Gain on the destruction of a principal residence
One taxpayer is a rancher who lives in Texas. One year the herd of cattle was infested with hoof-and-mouth disease and had to be destroyed. The taxpayer's insurance policy reimburses for an amount in excess of the tax basis in the cattle, thereby creating an insurance gain. Which tax form governs the treatment of this event? Trade or business losses-Schedule C Farm income or loss/Schedule F Sale or exchange of investment-Schedule D Involuntary exclusion-Form 4797
Involuntary exclusion-Form 4797
Which type of insurance premium is an itemized deduction for tax purposes? Life Disability Long-term care Accidental death
Long-term care
Which term is used when net Section 1231 gains are recharacterized as ordinary income? Look-back rule Depreciation recapture Asset appreciation Loss disallowance rule
Look-back rule
Which tax rate should tax professionals use in planning for tax clients? Marginal tax rate Average tax rate Effective tax rate Adjusted tax rate
Marginal tax rate
What is the threshold for the lowest percent tax to apply to a qualified dividend? Maximum zero rate amount Maximum 15% rate amount Maximum 20% rate amount Maximum 25% rate amount
Maximum zero rate amount
A retired individual is unmarried, has no dependents, and holds a part-time job that pays $10,500 per year. The individual also has corporate bonds that pay interest income each year. What is the minimum amount of interest the corporate bonds must pay for the individual to be required to file income taxes in 2018? More than $1,500 More than $2,500 More than $5,400 More than $7,500
More than $1,500
A taxpayer's gains and losses pertaining to business assets for the year are as follows: Gain due to insurance reimbursement for vehicle theft: $20,000 Loss due to insurance reimbursement for fire damage to a building: $(7,000) Gain due to building condemnation: $2,000 Loss on sale of investment property: $(18,000) There are no non-recaptured net section 1231 losses from previous years. What is the tax treatment for the casualty and theft transactions? Ordinary gain of $20,000 Ordinary loss of $25,000 Net section 1231 loss of $3,000 Net section 1231 gain of $13,000
Net section 1231 gain of $13,000
Assets created or used in a taxpayer's trade or business. Business Assets held for one year or less
Ordinary Assets
Which federal income tax structure imposes an increasing marginal tax rate as the tax base increases? Regressive tax Incremental tax Progressive tax Proportional tax
Progressive
What would a graph look like for Progressive, Proportional, Incremental, and Regressive tax structures?
Progressive- ascending Proportional- flat line Incremental- stair-steps Regressive- descending
An individual has taxable income of $60,000. The first $20,000 is taxed at 20%, the next $20,000 is taxed at 20%, and all income above $40,000 is taxed at 20%.Which tax structure is being applied to the individual's taxable income? Base Regressive Progressive Proportional
Proportional
Consider how the tax burden should be distributed across taxpayers
Questions of Equity
Which term indicates the difference between the amount from sale or disposition of an asset and the adjusted basis? Realized gain (loss) Relevant gain (loss) Revenue gain (loss) Recognized gain (loss)
Realized gain (loss)
A taxpayer performs legal services (fair market value of $50,000) to a corporation in exchange for 10% of its stock (fair market value of $70,000). What is the immediate tax consequence to the taxpayer? Recognize $20,000 gain Recognize $20,000 loss Recognize $50,000 of ordinary income Recognize $70,000 of ordinary income
Recognize $70,000 of ordinary income
Above the line deductions
Reduce AGI, more valuage than from AGI deductions, and are often referred to as For AGI
What is a key element of an economy tax structure? Attracts and stimulates investment Helps ensure equality and ability to pay Assists in reducing unemployment and inflation Requires minimal compliance and administration costs
Requires minimal compliance and administration costs
A limited liability company (LLC) is expected to earn $200,000 in annual profits. The LLC is owned equally by three people who have no other income. What is the appropriate tax-minimizing entity classification decision for this business? Disregarded entity Partnership S corporation C corporation
S corporation
Which form deals with Itemized Deductions?
Schedule A
Which form deals with Interest and Ordinary Dividends?
Schedule B
Which form deals with Profit or Loss from Business?
Schedule C
Where does a self-employed person operating as a sole proprietorship report fees received and expenses incurred in such a proprietorship on an individual tax return? Schedule C, profit and loss Form 1040, line on wages Schedule E, supplemental income and loss Form 1040, line on hobby income
Schedule C, profit and loss
Which form deals with Capital Gains and Losses?
Schedule D
Which form deals with Supplemental Income and Loss?
Schedule E
Which form deals with Beneficiary's Share of Income, Deductions, Credits, Etc.?
Schedule K-1
Which form deals with Shareholder's Share of Income, Deductions, Credit's, Etc.?
Schedule K-1
Which form deals with Net Income (Loss) Reconciliation for Corporations
Schedule M-3
Which form deals with Self-Employment Tax?
Schedule SE
Depreciable assets and land used in a trade or business held for more than one year
Section 1231 assets
Personal property and amortizable intangible assets The lesser of (1) gain recognized or (2) accumulated depreciation is recaptured (Characterized) as ordinary income under_____. Any remaining gain is section 1231 gain. There is no depreciation recapture on assets sold at a loss.
Section 1245 Assets
Depreciable real property such as an office building or a warehouse
Section 1250 asset
An investor purchased 100 shares of Corporation Y stock on January 1, 2013 for $1,000. On January 1, 2014 the investor sells 25 shares of Corporation Y stock for $200. How should the sale of shares on January 1, 2014 be classified? Long-term capital gain Long-term capital loss Short-term capital gain Short-term capital loss
Short-term capital loss
What describes a gift tax? Tax on the retail sale of particular products Tax on the fair market value of wealth transfers Tax on the retail price of goods and services Tax on income earned by an individual
Tax on the fair market value of wealth transfers
A taxpayer occupied a primary residence for one year and then sold the residence. Which qualification is needed to exclude a gain from taxable income? Taxpayer moved because of taxpayer's marriage. Taxpayer moved because of noise from nearby windmills. Taxpayer moved to a different state to care for a recently injured friend. Taxpayer moved to a different state to receive medical treatment for a significant health issue.
Taxpayer moved to a different state to receive medical treatment for a significant health issue.
An individual transfers property with an adjusted basis of $32,000 and a $45,000 FMV in exchange for 80 shares of stock of a newly formed corporation. A second individual is able to donate legal services in exchange for the remaining 20 shares of corporation stock, valued at $15,000. What is the control and gain for both Individuals? The first individual controls 80% of the corporation and recognizes a gain of $13,000. The second individual controls 20% of the corporation and realizes a $15,000 gain. The first individual controls 80% of the corporation and is able to defer a gain of $32,000. The second individual controls 20% of the corporation and is able to defer a gain of $15,000. The first individual controls 80% of the corporation and is able to defer the gain of $45,000. The second individual controls 20% of the corporation and realizes $0 gain, but does recognize $15,000 in ordinary income. The first individual controls 80% of the corporation and is able to defer the gain of $13,000. The second individual controls 20% of the corporation and realizes $0 gain, but does recognize $15,000 in ordinary income.
The first individual controls 80% of the corporation and is able to defer the gain of $13,000. The second individual controls 20% of the corporation and realizes $0 gain, but does recognize $15,000 in ordinary income.
How should the sale of property on an installment basis be treated for tax purposes? The proceeds of the sale will be subject to tax in the year of sale. The gain associated with the sale will be subject to tax in the year of sale. The proceeds of each payment will be subject to tax in the year of collection. The gain associated with each payment will be subject to tax in the year of collection.
The gain associated with each payment will be subject to tax in the year of collection.
An individual owns land with an adjusted basis of $55,000 and a FMV of $85,000. The land is paid in full with no liabilities outstanding. The individual needs to obtain $15,000 in cash for personal use. The individual mortgages the land to obtain the cash. The individual wholly owns a corporation and subsequently transfers the land and the mortgage to the corporation for additional stock. What is the effect of the liability transfer from the individual to the corporation? The individual will have a recognized gain of $0. The individual will have a recognized gain of $15,000. The individual will have a recognized gain of $30,000. The individual will have a recognized gain of $55,000.
The individual will have a recognized gain of $15,000.
Which tax rate calculation is an appropriate step in tax planning strategy to reduce tax? The average tax rate, because it represents the percent of tax on each dollar The tax-exempt tax rate, because effective tax planning utilizes tax exempt bonds The effective tax rate, because economic income is less broad than taxable income The marginal tax rate, because it represents the tax applicable to the next taxable dollar
The marginal tax rate, because it represents the tax applicable to the next taxable dollar
How does a shareholder allocate tax basis to newly issued stock in a non-taxable stock distribution? The new per share tax basis is the original tax basis divided by the total number of shares held, including the new shares. The new per share tax basis is the original tax basis divided by the total number of shares held, excluding the new shares. The new shares have no tax basis. The new shares have 50% of the original tax basis.
The new per share tax basis is the original tax basis divided by the total number of shares held, including the new shares.
Which type of assets must an acquiring corporation continue In a tax-deferred reorganization? The target corporation's historical business assets The acquiring corporation's historical business assets Both the target corporation's and acquiring corporation's business assets Neither the target corporation's nor the acquiring corporation's business assets
The target corporation's historical business assets
Rule designed to require taxpayers who recognize net 1231 gains in the current year to recapture current-year gains as ordinary to the extent the taxpayer deducted ordinary net losses in the prior years. It is requires the tax-payer to go back five years preceding the current year.
This is the Look-back rule
Which asset qualifies as Section 1231 property? Timber owned by a company for at least six months and cut for sale Timber owned by a company for at least one year and cut for sale Timber owned by a company for at least six months and held for investment Timber owned by a company for at least one year and held for investment
Timber owned by a company for at least one year and cut for sale
Where is a corporation's non-business income allocated when computing the corporation's state taxable income? To multiple states per the functional test To one state per the transaction test To the state of the corporate headquarters of the payer To each state where the income is earned
To the state of the corporate headquarters of the payer
What is a basic type of tax service? Topical Audited Proprietary Strategized
Topical The other type of service is Annotated.
Topical arrangement of services such as taxable forms of income, tax exempt income, and trade or business expense
Topical Tax Service
What allows an individual to transfer property to a corporation at formation without recognizing gain? Transferring the property in exchange for cash Transferring the property in exchange for debt Transferring the property in exchange for common stock Transferring the property in exchange for nonqualified preferred stock
Transferring the property in exchange for common stock
A corporation is audited by the IRS and does not agree with the findings. The case has been heard by the U.S. Court of Federal Claims. Which court does the company's tax attorney turn to next? U.S. Tax Court U.S. District Court U.S. Supreme Court U.S. Court of Appeals for Federal Circuit
U.S. Court of Appeals for Federal Circuit
What is the court hierarchy for the federal claims?
US Court of Federal Claims -> Us Circuit Court of Appeals (Federal Claims) -> US Supreme Court
Which court is the highest?
US Supreme Court
What is the court hierarchy for other claims?
US Tax Court OR US District Court -> US Circuit Court of Appeals (Districts and DC) -> US Supreme Court
Which tax court has no appeals?
US Tax Court Small Claims
The US Tax court and US District courts have the same authority. In which court can appeals from these two courts be filed
US. Circuit Court of Appeals (1st-11th districts & DC Circuit)
When does a complete liquidation of a corporation occur? When it acquires all stock from its shareholders for all of its net assets, but the corporation does not cease to do business When it acquires all stock from its shareholders in exchange for 50% of its net assets When it acquires more than 50% of stock from its shareholders in exchange for all of its net assets When it acquires all stock from its shareholders in exchange for all of its net assets, after which the corporation ceases to do business
When it acquires all stock from its shareholders in exchange for all of its net assets, after which the corporation ceases to do business
Below the line deductions
deductions taken from adjusted gross income in determining taxable income also known as From AGI
Commerce Clearing House's (CCH) Standard Federal Tax Reporter Research Institute of America's (RIA) United States Tax Reporter
examples of annotated tax service
BNA's Tax Management Portfolios CCH's Tax Research Consultant RIA's Federal Tax Coordinator
examples of topical tax services
