ACT400 - Mastery Exercise

cQuestion 1 0 out of 1 points Jason, an architect, is the sole shareholder of Purple Corporation, a personal service corporation.
The corporation paid Jason a salary of $120,000 during its fiscal year ending November 30, 2010. How much salary must Purple pay Jason during the period December 1 through December 31, 2010, to permit the corporation to continue to use its fiscal year without negative tax effects? Answer Selected Answer: $110,000 Response Feedback: The salary for the deferral period. Question 2 1 out of 1 points Ted is the sole shareholder of a C corporation, and Sue owns a sole proprietorship. Both businesses were started in 2010, and each business sustained a $5,000 net capital loss for the year. Which of the following statements is correct? Answer Selected Answer: Ted's corporation can't deduct the $5,000 capital loss in 2010. Response Feedback: Question 3 1 out of 1 points A technical advice memorandum is issued by: Answer Selected Answer: National Office of the IRS Response Feedback: The IRS issues the technical advice memorandum Question 4 0 out of 1 points Elk, a C corporation, has $500,000 operating income and $350,000 operating expenses during the year. In addition, Elk has a $20,000 long-term capital gain and a $52,000 short-term capital loss. Elk's taxable income is: Answer Selected Answer: $118,000 Response Feedback: $500,000 (operating income) - $350,000 (operating income) + $20,000 (LTCG) - $20,000 (STCL) = $150,000 taxable income. A corporation cannot deduct a net capital loss in the year incurred. The net capital loss ($32,000) can be carried back three years and offset against capital gain in the carryback years. If the capital loss is not used in the carryback, it can be carried forward five years. Capital gains of corporations are included in taxable income and are not subject to the favorable rates applicable to individuals. 1 out of 1 points Which of the following statements is incorrect about the check-the-box Regulations? Answer Selected A corporation can't deduct a net capital loss in the year incorrect (option b). Individuals cannot carry back net capital losses (option c.), and can deduct net capital losses against ordinary income only to the extent of $3,000 in any year (option d.)
Question 5
Answer: Response Feedback: Question 6
An entity with more than one owner and formed as a corporation can elect to be taxed as a partnership. The check-the-box Regulations are not available for an entity incorporated under state law. The other statements are correct. 0 out of 1 points
Rodney, the sole shareholder of a calendar year, accrual basis C corporation, loaned the corporation a substantial amount of money on January 1, 2010. The corporation accrued $25,000 of interest expense on the loan on December 31, 2010. It pays the interest to Rodney, a cash basis taxpayer, on February 1, 2011. Under these facts: Answer Selected Answer: Response Feedback: Question 7 0 out of 1 points Glen and Michael are equal partners in Trout Enterprises, a calendar year partnership. During the year, Trout Enterprises had gross income of $400,000 and operating expenses of $220,000. In addition, the partnership sold land that had been held for investment purposes for a long-term capital gain of $100,000. During the year, Glen withdrew $60,000 from the partnership, and Michael withdrew $60,000. Discuss the impact of this information on the taxable income of Trout, Glen, and Michael. Answer Selected Answer: Response Feedback: Trout pays tax on $0 income, Glen's taxable income increases by $200,000, and Michael's taxable income increases by $200,000. Trout, a partnership, is not a taxpaying entity. Its profit (loss) and separate items flow through to the partners. The partnership's Form 1065 reports ordinary business income of $180,000 ($400,000 income - $220,000 expenses). The partnership also reports the $100,000 long-term capital gain as a separately stated item on Form 1065. Glen and Michael both receive a Schedule K-1 reporting ordinary business income of $90,000 and separately stated long-term capital gain of $50,000. Each partner reports ordinary business income of $90,000 and long-term capital gain of $50,000 on his own return. The withdrawals do not affect taxable income for the partners but decrease their basis in the partnership. 0 out of 1 points Geneva, a sole proprietor, sold one of her business assets for a $5,000 long-term capital gain. Geneva's marginal tax rate is 25%. Gulf, a C corporation, sold one of its assets for a $5,000 long-term capital gain. Gulf's marginal tax rate is 25%. What tax rates are applicable to these capital gains? Answer Selected Answer: 15% rate applies to both Geneva and Gulf. Response Feedback: Question 9 0 out of 1 points Geneva reports the long-term capital gain on her individual tax return, and it is subject to a maximum tax rate of 15%. Corporations do not receive special tax treatment for long-term capital gains. Therefore, Gulf's gain will be taxed at 25%. The corporation will be allowed to deduct the interest expense in 2010 and Rodney will be required to report the interest income in 2011. A corporation that uses the accrual method cannot claim a deduction for an accrual owed to a related party until the recipient reports that amount as income. Rodney, a cash basis taxpayer, must report the income in the year he receives the payment from the corporation.
Question 8
Which provision could best be justified as a means of controlling the economy? Answer Selected Answer: The rehabilitation tax credit Response Feedback: The accelerated depreciation will save on taxes. Question 10 0 out of 1 points Which provision is not justified by social considerations? Answer Selected Answer: Adoption tax credit Response Feedback: The like-kind exchange treatment does not tie to social considerations. Question 1 0 out of 1 points Regarding technical advice memoranda, which statement is incorrect? Answer Selected Answer: Issued by the National Office of IRS Response Feedback: This may not be used as precedent. Question 2 1 out of 1 points Which provision is not justified by social considerations? Answer Selected Answer: Like-kind exchange treatment Response Feedback: The like-kind exchange treatment does not tie to social considerations. Question 3 0 out of 1 points Bjorn owns a 35% interest in an S corporation that earned $200,000 in 2010. He also owns 10% of the stock in a C corporation that earned $200,000 during the year. The S corporation distributed $10,000 to Bjorn and the C corporation paid dividends of $10,000 to Bjorn. How much income must Bjorn report from these businesses? Answer Selected Answer: $70,000 income from the S corporation and $0 income from the C corporation. Response Feedback: Question 4 0 out of 1 points Jason, an architect, is the sole shareholder of Purple Corporation, a personal service corporation. The corporation paid Jason a salary of $120,000 during its fiscal year ending November 30, 2010. How much salary must Purple pay Jason during the period December 1 through December 31, 2010, to permit the corporation to continue to use its fiscal year without negative tax effects? Answer Bjorn must report his $70,000 share ($200,000 ? 35%) of the S corporation's income on his individual tax return. He will report $10,000 of dividend income from the C corporation.
Selected Answer: $20,000 Response Feedback: The salary for the deferral period. Question 5 1 out of 1 points Juanita owns 45% of the stock in a C corporation that had a profit of $120,000 in 2010. Carlos owns a 45% interest in a partnership that had a profit of $120,000 during the year. The corporation distributed $20,000 to Juanita, and the partnership distributed $20,000 to Carlos. Which of the following statements relating to 2010 is incorrect? Answer Selected Answer: Carlos must report $20,000 of income from the partnership. Response Feedback: Question 6 0 out of 1 points Regulations may first be found in: Answer Selected Answer: Internal Revenue Bulletin Response Feedback: Regulations are first published in the Federal Register Question 7 1 out of 1 points Rodney, the sole shareholder of a calendar year, accrual basis C corporation, loaned the corporation a substantial amount of money on January 1, 2010. The corporation accrued $25,000 of interest expense on the loan on December 31, 2010. It pays the interest to Rodney, a cash basis taxpayer, on February 1, 2011. Under these facts: Answer Selected Answer: Response Feedback: Question 8 0 out of 1 points Glen and Michael are equal partners in Trout Enterprises, a calendar year partnership. During the year, Trout Enterprises had gross income of $400,000 and operating expenses of $220,000. In addition, the partnership sold land that had been held for investment purposes for a long-term capital gain of $100,000. During the year, Glen withdrew $60,000 from the partnership, and Michael withdrew $60,000. Discuss the impact of this information on the taxable income of Trout, Glen, and Michael. Answer Selected Answer: None of the above. Response Feedback: Trout, a partnership, is not a taxpaying entity. Its profit (loss) and separate items flow through to the partners. The partnership's Form 1065 reports ordinary business income of $180,000 ($400,000 income - $220,000 expenses). The partnership also reports the $100,000 long-term capital gain as a separately stated item on Form 1065. Glen and Michael both receive a Schedule K-1 reporting The corporation will be allowed to deduct the interest expense in 2011 and Rodney will be required to report the interest income in 2011. A corporation that uses the accrual method cannot claim a deduction for an accrual owed to a related party until the recipient reports that amount as income. Rodney, a cash basis taxpayer, must report the income in the year he receives the payment from the corporation. Carlos must report his share of the partnership income without regard to distributions, or $54,000 ($120,000 x 45% partnership interest)
ordinary business income of $90,000 and separately stated long-term capital gain of $50,000. Each partner reports ordinary business income of $90,000 and long-term capital gain of $50,000 on his own return. The withdrawals do not affect taxable income for the partners but decrease their basis in the partnership. Question 9 1 out of 1 points Which provision could best be justified as a means of controlling the economy? Answer Selected Answer: Accelerated depreciation method for depreciable capital expenditures. Response Feedback: The accelerated depreciation will save on taxes. Question 10 1 out of 1 points A technical advice memorandum is issued by: Answer Selected Answer: National Office of the IRS Response Feedback: The IRS issues the technical advice memorandum Question 1 1 out of 1 points Rodney, the sole shareholder of a calendar year, accrual basis C corporation, loaned the corporation a substantial amount of money on January 1, 2010. The corporation accrued $25,000 of interest expense on the loan on December 31, 2010. It pays the interest to Rodney, a cash basis taxpayer, on February 1, 2011. Under these facts: Answer Selected Answer: Response Feedback: Question 2 1 out of 1 points Regulations may first be found in: Answer Selected Answer: Federal Register Response Feedback: Regulations are first published in the Federal Register Question 3 1 out of 1 points Glen and Michael are equal partners in Trout Enterprises, a calendar year partnership. During the year, Trout Enterprises had gross income of $400,000 and operating expenses of $220,000. In addition, the partnership sold land that had been held for investment purposes for a long-term capital gain of $100,000. During the year, Glen withdrew $60,000 from the partnership, and Michael withdrew $60,000. Discuss the impact of this information on the taxable income of Trout, Glen, and Michael. Answer The corporation will be allowed to deduct the interest expense in 2011 and Rodney will be required to report the interest income in 2011. A corporation that uses the accrual method cannot claim a deduction for an accrual owed to a related party until the recipient reports that amount as income. Rodney, a cash basis taxpayer, must report the income in the year he receives the payment from the corporation.
Selected Answer: Response Feedback:
Trout pays tax on $0 income, Glen's taxable income increases by $140,000, and Michael's taxable income increases by $140,000. Trout, a partnership, is not a taxpaying entity. Its profit (loss) and separate items flow through to the partners. The partnership's Form 1065 reports ordinary business income of $180,000 ($400,000 income - $220,000 expenses). The partnership also reports the $100,000 long-term capital gain as a separately stated item on Form 1065. Glen and Michael both receive a Schedule K-1 reporting ordinary business income of $90,000 and separately stated long-term capital gain of $50,000. Each partner reports ordinary business income of $90,000 and long-term capital gain of $50,000 on his own return. The withdrawals do not affect taxable income for the partners but decrease their basis in the partnership. 1 out of 1 points
Question 4 A technical advice memorandum is issued by: Answer Selected Answer: National Office of the IRS Response Feedback: The IRS issues the technical advice memorandum Question 5 1 out of 1 points Elk, a C corporation, has $500,000 operating income and $350,000 operating expenses during the year. In addition, Elk has a $20,000 long-term capital gain and a $52,000 short-term capital loss. Elk's taxable income is: Answer Selected Answer: $150,000 Response Feedback: $500,000 (operating income) - $350,000 (operating income) + $20,000 (LTCG) - $20,000 (STCL) = $150,000 taxable income. A corporation cannot deduct a net capital loss in the year incurred. The net capital loss ($32,000) can be carried back three years and offset against capital gain in the carryback years. If the capital loss is not used in the carryback, it can be carried forward five years. Capital gains of corporations are included in taxable income and are not subject to the favorable rates applicable to individuals. 1 out of 1 points Which provision could best be justified as a means of controlling the economy? Answer Selected Answer: Accelerated depreciation method for depreciable capital expenditures. Response Feedback: The accelerated depreciation will save on taxes. Question 7 1 out of 1 points Geneva, a sole proprietor, sold one of her business assets for a $5,000 long-term capital gain. Geneva's marginal tax rate is 25%. Gulf, a C corporation, sold one of its assets for a $5,000 long-term capital gain. Gulf's marginal tax rate is 25%. What tax rates are applicable to these capital gains? Answer Selected Answer: 15% rate applies to Geneva and 25% rate applies to Gulf.
Question 6
Response Feedback: Question 8
Geneva reports the long-term capital gain on her individual tax return, and it is subject to a maximum tax rate of 15%. Corporations do not receive special tax treatment for long-term capital gains. Therefore, Gulf's gain will be taxed at 25%. 0 out of 1 points
Douglas and Sue, related parties, are landlord and tenant as to certain business property. If the IRS questions the amount of rent Sue is paying to Douglas, this is an illustration of the: Answer Selected Answer: Substance over form concept Response Feedback: Arm's length means that they pay what they would pay someone else. Question 9 0 out of 1 points Jason, an architect, is the sole shareholder of Purple Corporation, a personal service corporation. The corporation paid Jason a salary of $120,000 during its fiscal year ending November 30, 2010. How much salary must Purple pay Jason during the period December 1 through December 31, 2010, to permit the corporation to continue to use its fiscal year without negative tax effects? Answer Selected Answer: $120,000 Response Feedback: The salary for the deferral period. Question 10 1 out of 1 points Juanita owns 45% of the stock in a C corporation that had a profit of $120,000 in 2010. Carlos owns a 45% interest in a partnership that had a profit of $120,000 during the year. The corporation distributed $20,000 to Juanita, and the partnership distributed $20,000 to Carlos. Which of the following statements relating to 2010 is incorrect? Answer Selected Answer: Carlos must report $20,000 of income from the partnership. Response Feedback: Carlos must report his share of the partnership income without regard to distributions, or $54,000 ($120,000 x 45% partnership interest)
1 out of 1 points
Question 1
Bjorn owns a 35% interest in an S corporation that earned $200,000 in 2010. He also owns 10% of the stock in a C corporation that earned $200,000 during the year. The S corporation distributed $10,000 to Bjorn and the C corporation paid dividends of $10,000 to Bjorn. How much income must Bjorn report from these businesses?
Answer Selected Answer:
$70,000 income from the S corporation and $10,000 of dividend income from the C corporation. Bjorn must report his $70,000 share ($200,000 ? 35%) of the S corporation's income on his individual tax return. He will report $10,000 of dividend income from the C corporation.
1 out of 1 points
Response Feedback:
Question 2
Douglas and Sue, related parties, are landlord and tenant as to certain business property. If the IRS questions the amount of rent Sue is paying to Douglas, this is an illustration of the:
Arm's length concept

Response Feedback:
Arm's length means that they pay what they would pay someone else.
1 out of 1 points
Question 3
Glen and Michael are equal partners in Trout Enterprises, a calendar year partnership. During the year, Trout Enterprises had gross income of $400,000 and operating expenses of $220,000. In addition, the partnership sold land that had been held for investment purposes for a long-term capital gain of $100,000. During the year, Glen withdrew $60,000 from the partnership, and Michael withdrew $60,000. Discuss the impact of this information on the taxable income of Trout, Glen, and Michael.
Trout pays tax on $0 income, Glen's taxable income increases by $140,000, and Michael's taxable income increases by $140,000. Trout, a partnership, is not a taxpaying entity. Its profit (loss) and separate items flow through to the partners. The partnership's Form 1065 reports ordinary business income of $180,000 ($400,000 income - $220,000 expenses). The partnership also reports the $100,000 long-term capital gain as a separately stated item on Form 1065. Glen and Michael both receive a Schedule K-1 reporting ordinary business income of $90,000 and separately stated long-term capital gain of $50,000. Each partner reports ordinary business income of $90,000 and longterm capital gain of $50,000 on his own return. The withdrawals do not affect taxable income for the partners but decrease their basis in the partnership.
1 out of 1 points
Response Feedback:
Question 4
Which of the following statements is incorrect about the check-the-box Regulations?

An entity with more than one owner and formed as a corporation can elect to be taxed as a partnership. The check-the-box Regulations are not available for an entity incorporated under state law. The other statements are correct.
0 out of 1 points
Response Feedback:
Question 5
Regarding technical advice memoranda, which statement is incorrect?

Issued by the National Office of IRS

Response Feedback:
This may not be used as precedent.

1 out of 1 points
Question 6
Juanita owns 45% of the stock in a C corporation that had a profit of $120,000 in 2010. Carlos owns a 45% interest in a partnership that had a profit of $120,000 during the year. The corporation distributed $20,000 to Juanita, and the partnership distributed $20,000 to Carlos. Which of the following statements relating to
2010 is incorrect?
Carlos must report $20,000 of income from the partnership.

Response Feedback:
Carlos must report his share of the partnership income without regard to distributions, or $54,000 ($120,000 x 45% partnership interest)
1 out of 1 points
Question 7
Which provision is not justified by social considerations?

Like-kind exchange treatment

Response Feedback:
The like-kind exchange treatment does not tie to social considerations.

1 out of 1 points
Question 8
Elk, a C corporation, has $500,000 operating income and $350,000 operating expenses during the year. In addition, Elk has a $20,000 long-term capital gain and a $52,000 short-term capital loss. Elk's taxable income is:
$150,000
Response Feedback:
$500,000 (operating income) - $350,000 (operating income) + $20,000 (LTCG) - $20,000 (STCL) = $150,000 taxable income. A corporation cannot deduct a net capital loss in the year incurred. The net capital loss ($32,000) can be carried back three years and offset against capital gain in the carryback years. If the capital loss is not used in the carryback, it can be carried forward five years. Capital gains of corporations are included in taxable income and are not subject to the favorable rates applicable to individuals.
1 out of 1 points
Question 9
Geneva, a sole proprietor, sold one of her business assets for a $5,000 long-term capital gain. Geneva's marginal tax rate is 25%. Gulf, a C corporation, sold one of its assets for a $5,000 long-term capital gain. Gulf's marginal tax rate is 25%. What tax rates are applicable to these capital gains?
15% rate applies to Geneva and 25% rate applies to Gulf.

Response Feedback:
Geneva reports the long-term capital gain on her individual tax return, and it is subject to a maximum tax rate of 15%. Corporations do not receive special tax treatment for long-term capital gains. Therefore, Gulf's gain will be taxed at 25%.
1 out of 1 points
Question 10
Rodney, the sole shareholder of a calendar year, accrual basis C corporation, loaned the corporation a substantial amount of money on January 1, 2010. The corporation accrued $25,000 of interest expense on the loan on December 31, 2010. It pays the interest to Rodney, a cash basis taxpayer, on February 1, 2011. Under these facts:
Answer Selected
Answer:
The corporation will be allowed to deduct the interest expense in 2011 and Rodney will be required to report the interest income in 2011. A corporation that uses the accrual method cannot claim a deduction for an accrual owed to a related party until the recipient reports that amount as income. Rodney, a cash basis taxpayer, must report the income in the year he receives the payment from the corporation.
1 out of 1 points
Response Feedback:
Question 1
Which provision is not justified by social considerations?

Like-kind exchange treatment

Response Feedback:
The like-kind exchange treatment does not tie to social considerations.

1 out of 1 points
Question 2
Regulations may first be found in:

Federal Register
Response Feedback:
Regulations are first published in the Federal Register

1 out of 1 points
Question 3
Which provision could best be justified as a means of controlling the economy?

Accelerated depreciation method for depreciable capital expenditures.

Response Feedback:
The accelerated depreciation will save on taxes.

1 out of 1 points
Question 4
Which of the following statements is incorrect about the check-the-box Regulations?

An entity with more than one owner and formed as a corporation can elect to be taxed as a partnership. The check-the-box Regulations are not available for an entity incorporated under state law. The other statements are correct.
1 out of 1 points
Response Feedback:
Question 5
Geneva, a sole proprietor, sold one of her business assets for a $5,000 long-term capital gain. Geneva's marginal tax rate is 25%. Gulf, a C corporation, sold one of its assets for a $5,000 long-term capital gain. Gulf's marginal tax rate is 25%. What tax rates are applicable to these capital gains?
15% rate applies to Geneva and 25% rate applies to Gulf.

Response
Geneva reports the long-term capital gain on her individual tax return, and it is subject to a
Feedback:
maximum tax rate of 15%. Corporations do not receive special tax treatment for long-term capital gains. Therefore, Gulf's gain will be taxed at 25%.
1 out of 1 points
Question 6
Douglas and Sue, related parties, are landlord and tenant as to certain business property. If the IRS questions the amount of rent Sue is paying to Douglas, this is an illustration of the:
Arm's length concept

Response Feedback:
Arm's length means that they pay what they would pay someone else.
1 out of 1 points
Question 7
Elk, a C corporation, has $500,000 operating income and $350,000 operating expenses during the year. In addition, Elk has a $20,000 long-term capital gain and a $52,000 short-term capital loss. Elk's taxable income is:
$150,000
Response Feedback:
$500,000 (operating income) - $350,000 (operating income) + $20,000 (LTCG) - $20,000 (STCL) = $150,000 taxable income. A corporation cannot deduct a net capital loss in the year incurred. The net capital loss ($32,000) can be carried back three years and offset against capital gain in the carryback years. If the capital loss is not used in the carryback, it can be carried forward five years. Capital gains of corporations are included in taxable income and are not subject to the favorable rates applicable to individuals.
1 out of 1 points
Question 8
Jason, an architect, is the sole shareholder of Purple Corporation, a personal service corporation. The corporation paid Jason a salary of $120,000 during its fiscal year ending November 30, 2010. How much salary must Purple pay Jason during the period December 1 through December 31, 2010, to permit the corporation to continue to use its fiscal year without negative tax effects?
$10,000
Response Feedback:
The salary for the deferral period.

1 out of 1 points
Question 9
Bjorn owns a 35% interest in an S corporation that earned $200,000 in 2010. He also owns 10% of the stock in a C corporation that earned $200,000 during the year. The S corporation distributed $10,000 to Bjorn and the C corporation paid dividends of $10,000 to Bjorn. How much income must Bjorn report from these businesses?
$70,000 income from the S corporation and $10,000 of dividend income from the C corporation. Bjorn must report his $70,000 share ($200,000 ? 35%) of the S corporation's income on his individual tax return. He will report $10,000 of dividend income from the C corporation.
Response Feedback:
Question 10
1 out of 1 points
Glen and Michael are equal partners in Trout Enterprises, a calendar year partnership. During the year, Trout Enterprises had gross income of $400,000 and operating expenses of $220,000. In addition, the partnership sold land that had been held for investment purposes for a long-term capital gain of $100,000. During the year, Glen withdrew $60,000 from the partnership, and Michael withdrew $60,000. Discuss the impact of this information on the taxable income of Trout, Glen, and Michael.
Trout pays tax on $0 income, Glen's taxable income increases by $140,000, and Michael's taxable income increases by $140,000. Trout, a partnership, is not a taxpaying entity. Its profit (loss) and separate items flow through to the partners. The partnership's Form 1065 reports ordinary business income of $180,000 ($400,000 income - $220,000 expenses). The partnership also reports the $100,000 long-term capital gain as a separately stated item on Form 1065. Glen and Michael both receive a Schedule K-1 reporting ordinary business income of $90,000 and separately stated long-term capital gain of $50,000. Each partner reports ordinary business income of $90,000 and longterm capital gain of $50,000 on his own return. The withdrawals do not affect taxable income for the partners but decrease their basis in the partnership.
Response Feedback:
Question 1
0 out of 1 points
Which of the following statements does not reflect the rules regarding pass-through entities and DPAD?
The entity allocates to each owner his or her share of any QPAI.
Response Feedback:
Guaranteed payments do not count as wages (choice c), but a partner can count other W-2 wages paid (choice c).
1 out of 1 points
Question 2
Bacon Corporation manufactures an exercise machine at a cost of $800 and sells the machine to Kirby Corporation for $1,000 in 2010. Kirby incurs TV advertising expenses of $300 and sells the machine by phone order for $1,700. If Bacon and Kirby corporations are members of an expanded affiliated group (EAG), their QPAI is:
$600
Response Feedback:
QPAI is $600 ($1,700 - $800 - $300).

0 out of 1 points
Question 3
Yvonne Corporation manufactures and sells ceramic dinnerware. The company also sells dinnerware that is purchased from unrelated foreign producers. During tax year 2010, Yvonne had a U. S. profit of $1.2 million (QPAI) and a loss from the imported merchandise of $100,000. What is Yvonne's DPAD?
$66,000
Response Feedback:
$99,000 (9% x $1.1 million). The taxable income limitation applies.

0 out of 1 points
Question 4
Lemon, Inc., has taxable income of $13 million in 2010. What is the maximum DPAD tax savings for this C corporation?
$273,000
Response Feedback:
$13 million x 9% x 35% = $409,500

0 out of 1 points
Question 5
Julie's sole proprietorship consists of a bakery and retail food sales. The bakery's DPGR is $700,000, but after CGS, direct expenses, and a ratable portion of indirect expenses are deducted, QPAI is $100,000. W-2 wages related to DPGR are significant. The retail food sales have a loss of $1 million. If Julie files a joint return and her modified AGI is $119,500, what is her allowable DPAD, if any, for 2010?
$6,000
Response Feedback:
$100,000 QPAI x 9% = $9,000
Question 6
0 out of 1 points
Eileen transfers property worth $200,000 (basis of $60,000) to Goldfinch Corporation. In return, she receives 80% of the stock in Goldfinch Corporation (fair market value of $180,000) and a long-term note (fair market value of $20,000) executed by Goldfinch and made payable to Eileen. Eileen recognizes gain on the transfer of:
$140,000
Response Feedback:
The long-term obligation of Goldfinch Corporation constitutes boot. Thus, Eileen receives boot in the amount of $20,000 and will recognize gain to that extent.
0 out of 1 points
Question 7
Tara incorporates her sole proprietorship, transferring it to newly formed Black Corporation. The assets transferred have an adjusted basis of $240,000 and a fair market value of $300,000. Also transferred was $10,000 in liabilities, $1,000 of which was personal and the balance of $9,000 being business related. In return for these transfers, Tara receives all of the stock in Black Corporation.
Black Corporation has a basis of $240,000 in the property.

Response Feedback:
Tara has a recognized gain of $10,000 that is the amount of the boot she is treated as having received. Thus, her basis in the Black Corporation stock is $240,000 [$240,000 (basis of the property given up) - $10,000 (boot received) + $10,000 (gain recognized)]. Black Corporation's basis in the property is $250,000 [$240,000 (Tara's basis in the property) + $10,000 (gain recognized by Tara)]. In terms of the $10,000 boot, 357(b) taints all liabilities even though some are supported by a bona fide business purpose.
0 out of 1 points
Question 8
Eve transfers property (basis of $120,000 and fair market value of $400,000) to Green Corporation for 80% of its stock (worth $350,000) and a long-term note (worth $50,000), executed by Green Corporation and made payable to Eve. As a result of the transfer:
Eve recognizes a gain of $230,000.

Response Feedback:
A long-term note is treated as boot. Thus, Eve is taxed on the value of the note received.
0 out of 1 points
Question 9
Kim owns 100% of the stock of Cardinal Corporation. In the current year Kim transfers an installment obligation, tax basis of $30,000 and fair market value of $200,000, for additional stock in Cardinal worth $200,000.
Kim has a basis of $200,000 in the additional stock she received in Cardinal Corporation.
Response Feedback:
An installment obligation qualifies as "property" under 351. Thus, Kim recognizes no gain on the transfer. Cardinal has a basis of $30,000 in the installment obligation.
Question 10
0 out of 1 points
Sarah and Tony (mother and son) form Dove Corporation with the following investments: cash by Sarah of $55,000; land by Tony (basis of $35,000 and fair market value of $45,000). Dove Corporation issues 200 shares of stock, 100 each to Sarah and Tony. Thus, each receives stock in Dove worth $50,000.
As a result of the transfer, Tony recognizes a gain of $10,000.

Response Feedback:
The fact that the stock was not in proportion to the value of the property transferred (choice a.) does not prevent 351 from applying. Since 351 applies and no boot was received, Tony does not recognize a gain (choice b.). His basis in the stock is $35,000 plus $5,000, the basis of the stock implicitly gifted by Sarah to Tony (not $50,000 as in choice c.).
1 out of 1 points
Question 1
$9,000
Response Feedback:
$100,000 QPAI x 9% = $9,000

1 out of 1 points
Question 2
None of the above

Response Feedback:
0 out of 1 points
Question 3
In the case of partnerships, guaranteed payments are not regarded as W-2 wages.
Response Feedback:
1 out of 1 points
Question 4
Eileen transfers property worth $200,000 (basis of $60,000) to Goldfinch Corporation. In return, she receives 80% of the stock in Goldfinch Corporation (fair market value of $180,000) and a long-term note (fair market value of $20,000) executed by Goldfinch and made payable to Eileen. Eileen recognizes gain on the transfer of:
$20,000
Response Feedback:
0 out of 1 points
Question 5
Jane and Walt form Yellow Corporation. Jane transfers equipment worth $950,000 (basis of $200,000) and cash of $50,000 to Yellow Corporation for 50% of its stock. Walt transfers a building and land worth $1,050,000 (basis of $400,000) for 50% of Yellow's stock and $50,000 cash.
Jane recognizes a gain of $750,000; Walt recognizes a gain of $650,000.

Response Feedback:
Walt's realized gain of $650,000 is recognized to the extent of the $50,000 of "boot" received.
1 out of 1 points
Question 6
Kim recognizes no taxable gain on the transfer.

Response Feedback:
0 out of 1 points
Question 7
Erica transfers land worth $500,000, basis of $100,000, to a newly formed corporation, Robin Corporation, for all of Robin's stock, worth $300,000, and a 10-year note. The note was executed by Robin and made payable to Erica in the amount of $200,000. As a result of the transfer:
Erica recognizes gain of $400,000.

Response Feedback:
Erica has a recognized gain of $200,000 which is the amount of the boot she is treated as having received through her receipt of the securities in Robin Corporation. The basis of the land to Robin would be equal to the basis Erica had in the land, $100,000, plus the gain recognized by Erica, $200,000, or $300,000.
0 out of 1 points
Question 8
Which statement is false?

The DPAD is not limited to C corporations.

Response Feedback:
This is not a deduction from adjusted gross income for a sole proprietor.
1 out of 1 points
Question 9
Lemon, Inc., has taxable income of $13 million in 2010. What is the maximum DPAD tax savings for this C corporation?
$409,500
Response Feedback:
$13 million x 9% x 35% = $409,500

0 out of 1 points
Question 10
Maria Corporation manufactures and sells ceramic dinnerware. The company also sells dinnerware that is purchased from unrelated foreign producers. During the tax year 2010, Maria had a U.S. profit of $1.2 million (QPAI) and a profit from the imported merchandise of $100,000. What is Maria's DPAD?
$72,000
Response Feedback:
$108,000 (9% x $1.2 million). The $100,000 profit from the imported goods is not QPAI.
0 out of 1 points
Question 1
Sarah and Emily form Red Corporation with the following investments: Sarah transfers computers worth $200,000 (basis of $80,000), while Emily transfers real estate worth $180,000 (basis of $40,000) and services (worth $20,000) rendered in organizing the corporation. Each is issued 600 shares in Red Corporation. With respect to the transfers:
Red Corporation has a basis of $60,000 in the real estate.

Response Feedback:
Sarah has no recognized gain and Emily recognizes income of $20,000 representing the stock received for services rendered. Red Corporation has a basis of $80,000 in the computers and $40,000 in the real estate. Emily has a basis of $60,000 in the stock [$40,000 (basis of real estate) + $20,000 (income recognized from services rendered)].
1 out of 1 points
Question 2
Maria Corporation manufactures and sells ceramic dinnerware. The company also sells dinnerware that is purchased from unrelated foreign producers. During the tax year 2010, Maria had a U.S. profit of $1.2 million (QPAI) and a profit from the imported merchandise of $100,000. What is Maria's DPAD?
$108,000
Response Feedback:
$108,000 (9% x $1.2 million). The $100,000 profit from the imported goods is not QPAI.
1 out of 1 points
Question 3
Eileen transfers property worth $200,000 (basis of $60,000) to Goldfinch Corporation. In return, she receives
80% of the stock in Goldfinch Corporation (fair market value of $180,000) and a long-term note (fair market value of $20,000) executed by Goldfinch and made payable to Eileen. Eileen recognizes gain on the transfer of:
$20,000
Response Feedback:
0 out of 1 points
Question 4
In the case of partnerships, guaranteed payments are not regarded as W-2 wages.
Response Feedback:
0 out of 1 points
Question 5
None of the above

Response Feedback:
The fact that the stock was not in proportion to the value of the property transferred (choice a.) does not prevent 351 from applying. Since 351 applies and no boot was received, Tony does not recognize a gain (choice b.). His basis in the stock is $35,000 plus $5,000, the basis of the stock implicitly gifted by Sarah to Tony (not $50,000 as in choice c.).
1 out of 1 points
Question 6

Response Feedback:
1 out of 1 points
Question 7
$9,000
Response Feedback:
$100,000 QPAI x 9% = $9,000

1 out of 1 points
Question 8
Yvonne Corporation manufactures and sells ceramic dinnerware. The company also sells dinnerware that is purchased from unrelated foreign producers. During tax year 2010, Yvonne had a U. S. profit of $1.2 million (QPAI) and a loss from the imported merchandise of $100,000. What is Yvonne's DPAD?
$99,000
Response Feedback:
$99,000 (9% x $1.1 million). The taxable income limitation applies.

1 out of 1 points
Question 9
None of the above

Response Feedback:
1 out of 1 points
Question 10
$600
Response Feedback:
QPAI is $600 ($1,700 - $800 - $300).

1 out of 1 points
Question 1
Sarah and Emily form Red Corporation with the following investments: Sarah transfers computers worth $200,000 (basis of $80,000), while Emily transfers real estate worth $180,000 (basis of $40,000) and services (worth $20,000) rendered in organizing the corporation. Each is issued 600 shares in Red Corporation. With respect to the transfers:
Emily has a basis of $60,000 in the shares of Red Corporation.
Response Feedback:
Sarah has no recognized gain and Emily recognizes income of $20,000 representing the stock received for services rendered. Red Corporation has a basis of $80,000 in the computers and $40,000 in the real estate. Emily has a basis of $60,000 in the stock [$40,000 (basis of real estate) + $20,000 (income recognized from services rendered)].
1 out of 1 points
Question 2
$9,000
Response Feedback:
$100,000 QPAI x 9% = $9,000

1 out of 1 points
Question 3
Which statement is false?

In the case of a sole proprietor, the DPAD is a deduction from adjusted gross income.
Response Feedback:
This is not a deduction from adjusted gross income for a sole proprietor.
1 out of 1 points
Question 4
None of the above

Response Feedback:
1 out of 1 points
Question 5
Erica transfers land worth $500,000, basis of $100,000, to a newly formed corporation, Robin Corporation, for all of Robin's stock, worth $300,000, and a 10-year note. The note was executed by Robin and made payable to Erica in the amount of $200,000. As a result of the transfer:
Robin Corporation has a basis of $300,000 in the land.

Response Feedback:
Erica has a recognized gain of $200,000 which is the amount of the boot she is treated as having received through her receipt of the securities in Robin Corporation. The basis of the land to Robin would be equal to the basis Erica had in the land, $100,000, plus the gain recognized by Erica, $200,000, or $300,000.
1 out of 1 points
Question 6
Tara incorporates her sole proprietorship, transferring it to newly formed Black Corporation. The assets transferred have an adjusted basis of $240,000 and a fair market value of $300,000. Also transferred was
$10,000 in liabilities, $1,000 of which was personal and the balance of $9,000 being business related. In return for these transfers, Tara receives all of the stock in Black Corporation.
None of the above

Response Feedback:
1 out of 1 points
Question 7

Response Feedback:
1 out of 1 points
Question 8
Section 351 may apply because stock need not be issued to Sarah and Tony in proportion to the value of the property transferred. The fact that the stock was not in proportion to the value of the property transferred (choice a.) does not prevent 351 from applying. Since 351 applies and no boot was received, Tony does not recognize a gain (choice b.). His basis in the stock is $35,000 plus $5,000, the basis of the stock implicitly gifted by Sarah to Tony (not $50,000 as in choice c.).
1 out of 1 points
Response Feedback:
Question 9
$600
Response Feedback:
QPAI is $600 ($1,700 - $800 - $300).

1 out of 1 points
Question 10
Eve transfers property (basis of $120,000 and fair market value of $400,000) to Green Corporation for 80% of its stock (worth $350,000) and a long-term note (worth $50,000), executed by Green Corporation and made payable to Eve. As a result of the transfer:
Eve recognizes a gain of $50,000.

Response Feedback:
A long-term note is treated as boot. Thus, Eve is taxed on the value of the note received.
Question 1
0 out of 1 points
Crow Corporation has 800 shares of stock outstanding. Ted owns 300 shares, Ted's mother owns 100 shares, Ted's sister owns 80 shares, and Ted's granddaughter owns 120 shares. Bluebird Corporation owns the remaining 200 shares of stock in Crow. Ted owns 30% of the stock in Bluebird Corporation. In applying the 318 stock attribution rules, how many shares does Ted own in Crow Corporation?
300
Response Feedback:
Ted owns 520 shares, 300 shares directly and 220 shares constructively, in Crow Corporation. Ted owns the shares of his mother (100 shares) and his granddaughter (120 shares). Ted is not deemed to own the stock of his sister or Bluebird Corporation (in which he owns less than 50%).
0 out of 1 points
Question 2
Currently, Brown Corporation (E & P of $800,000) has 1,000 shares of common stock outstanding. Pat owns 300 shares. His wife owns 300 shares, his daughter owns 200 shares, and his father owns 200 shares. Two years ago, Pat transferred $50,000 to Brown Corporation in exchange for 100 newly issued shares of nonvoting preferred stock. In the current year, Brown Corporation redeems Pat's preferred stock for $60,000, its fair market value. With respect to the distribution in redemption of the preferred stock:
Pat has a long-term capital gain of $60,000.

Response Feedback:
As a result of the stock attribution rules, Pat owns 100% of the stock in Brown Corporation before and after the redemption. Thus, the distribution does not satisfy any of the qualifying stock redemption provisions. Instead, the entire distribution is taxed as dividend income. The $50,000 basis in the preferred stock redeemed attaches to the basis of Pat's common stock.
0 out of 1 points
Question 3
Orange Corporation distributes property worth $300,000, basis of $340,000, to a shareholder in a distribution that is a qualifying stock redemption. The property is subject to a liability of $110,000, which the shareholder assumes. The basis of the property to the shareholder is:
$230,000
Response Feedback:
The shareholder's basis in property received in a qualifying stock redemption is the fair market value of the property.
0 out of 1 points
Question 4
Hazel, Emily, and Frank, unrelated individuals, own all of the stock in Wren Corporation (E & P of $900,000) as follows: Hazel, 250 shares; Emily, 250 shares; and Frank, 1,000 shares. Wren redeems 400 of Frank's shares (basis of $40,000) for $200,000. With respect to the distribution in redemption of the stock:
Frank has dividend income of $160,000.

Response Feedback:
The distribution does not satisfy any of the qualifying stock redemption provisions and, as such,
is taxed as dividend income. Frank's ownership interest in Wren Corporation after the redemption is 54.5% (600 shares owned after redemption 1,100 shares outstanding after redemption). Since he continues to control Wren Corporation after the redemption, the transaction fails both the not essentially equivalent redemption provision and the disproportionate redemption provision. The $40,000 basis in the stock redeemed attaches to that of Frank's remaining stock in Wren.
Question 5
1 out of 1 points
Hawk Corporation has 300 shares of stock outstanding: Marina owns 60 shares, Kent owns 90 shares, and Tom owns 75 shares. Blackbird Partnership owns the remaining 75 shares of stock in Hawk Corporation. Marina, Kent, and Tom, all unrelated, are equal partners of Blackbird Partnership. With respect to the stock attribution rules under 318:
Marina owns, directly and indirectly, 85 shares in Hawk Corporation.

Response Feedback:
A partner is deemed to own stock held by the partnership in proportion to the partner's interest in the partnership. Thus, Marina owns 85 shares in Hawk Corporation [60 shares directly plus 25 shares indirectly from Blackbird Partnership (1/3 ? 75 shares)]. Similarly, Kent owns 115 shares (90 shares directly plus 25 shares indirectly) and Tom owns 100 shares (75 shares directly plus 25 shares indirectly) in Hawk Corporation. A partnership is deemed to own all of the stock owned by its partners; thus, Blackbird Partnership owns all 300 shares in Hawk (75 shares directly plus 225 shares indirectly from the three partners).
0 out of 1 points
Question 6
Blue Corporation, a cash basis taxpayer, has taxable income of $700,000 for the current year. Blue elected $80,000 of 179 expense. It also had a related party loss of $30,000 and a realized (not recognized) gain from an involuntary conversion of $85,000. It paid Federal income tax of $185,000 and a nondeductible fine of $20,000. Blue's current E & P is:
$630,000
Response Feedback:
Taxable income is reduced by Federal income tax paid, the related party loss, and the nondeductible fine. Eighty percent of the 179 expense is added back. Thus, $700,000 $185,000 - $30,000 - $20,000 + $64,000 = $529,000. The involuntary conversion has no effect since realized gain was not recognized.
1 out of 1 points
Question 7
Brenda owns 900 shares of Eagle Corporation stock at a time when Eagle has 1,500 shares of stock outstanding. The remaining shareholders are unrelated to Brenda. What is the minimum number of shares Eagle must redeem from Brenda so that the transaction will qualify as a disproportionate redemption?
347 shares
Response Feedback:
Before the redemption, Brenda owns 60% of the outstanding shares of Eagle stock. To qualify as a disproportionate redemption, Brenda must own, after the redemption, less than 48% (80% ? 60%) of the remaining outstanding shares of Eagle stock. Using a simple algebraic formula, the minimum number of shares (rounded up to the next whole number) that must be redeemed is
347 shares.
Question 8
0 out of 1 points
Pheasant Corporation ended its first year of operations with taxable income of $225,000. At the time of Pheasant's formation, it incurred $50,000 of organizational expenses. In calculating its taxable income for the year, Pheasant claimed an $8,000 deduction for the organizational expenses. What is Pheasant's current E & P?
$225,000
Response Feedback:
In determining E & P, there is no allowance for the amortization of organizational expenses. Any such expense deducted when computing taxable income must be added back to determine E & P. Consequently, Pheasant's E & P is $233,000 ($225,000 of current year E & P plus $8,000 of organizational expenses).
0 out of 1 points
Question 9
Five years ago, Eleanor transferred property she had used in her sole proprietorship to Blue Corporation for 1,000 shares of Blue Corporation in a transaction that qualified under 351. The assets had a tax basis to her of $300,000 and a fair market value of $450,000 on the date of the transfer. In the current year, Blue Corporation (E & P of $600,000) redeems 200 shares from Eleanor for $190,000 in a transaction that does not qualify for sale or exchange treatment. With respect to the redemption, Eleanor will have a:
$130,000 dividend
Response Feedback:
The transaction is treated as a return from her investment, and she has dividend income to the extent of the entire distribution.
0 out of 1 points
Question 10
Kingbird Corporation (E & P of $800,000) has 1,000 shares of stock outstanding. That stock is held by Amata (550 shares) and Esteban (450 shares), who are unrelated individuals. Kingbird redeems 200 of Amata's shares for $1,000 per share. Amata paid $300 per share for her Kingbird stock nine years ago. Which of the following statements is correct with respect to the stock redemption?
Amata's basis in her remaining 350 shares is $60,000.

Response Feedback:
The transaction qualifies for sale or exchange treatment as a disproportionate redemption. Amata's 43.8% (350 shares 800 shares) postredemption interest in Kingbird is less than both 80% of her preredemption interest [43.8% < 44% (80% ? 550 shares 1,000 shares) and 50%. The stock was held for more than one year; thus, the result is a long-term capital gain of $140,000 [$200,000 (amount realized) - $60,000 (basis of 200 shares redeemed)]. The basis of Amata's remaining shares is $105,000 (350 shares ? $300). The reduction in Kingbird's E & P as a result of the qualifying stock redemption is limited to $160,000 [20% (percentage of shares outstanding redeemed)? $800,000 (E & P at time of redemption)].
0 out of 1 points
Question 1
Hazel, Emily, and Frank, unrelated individuals, own all of the stock in Wren Corporation (E & P of
$900,000) as follows: Hazel, 250 shares; Emily, 250 shares; and Frank, 1,000 shares. Wren redeems 400 of Frank's shares (basis of $40,000) for $200,000. With respect to the distribution in redemption of the stock:
None of the above

Response Feedback:
The distribution does not satisfy any of the qualifying stock redemption provisions and, as such, is taxed as dividend income. Frank's ownership interest in Wren Corporation after the redemption is 54.5% (600 shares owned after redemption 1,100 shares outstanding after redemption). Since he continues to control Wren Corporation after the redemption, the transaction fails both the not essentially equivalent redemption provision and the disproportionate redemption provision. The $40,000 basis in the stock redeemed attaches to that of Frank's remaining stock in Wren.
0 out of 1 points
Question 2
Tracy and Lance, equal shareholders in Macaw Corporation, receive $250,000 each in distributions on December 31 of the current year. During the current year, Macaw sold an appreciated asset for $500,000 (basis of $150,000). Payment for the sale of the asset will be made as follows: 50% next year and 50% in the following year, with interest payable at a rate of 7.5%. Before considering the effect of the asset sale, Macaw's current year E & P is $400,000 and it has no accumulated E & P. How much of Tracy's distribution will be taxed as a dividend?
$200,000
Response Feedback:
Accounting methods used for determining E & P are generally more conservative than those allowed for calculating income tax. As a consequence, the installment method is not permitted for E & P purposes. Thus, an adjustment is required for the deferred gain from property sales made during the year. All principal payments are treated as having been received in the year of the sale. Macaw's E & P of $400,000 in the current year is thereby increased by the $350,000 of gain on the sale. Since Macaw now has $750,000 of E & P ($400,000 of current E & P plus $350,000 of deferred gain), Tracy's entire distribution of $250,000 is a dividend.
1 out of 1 points
Question 3
$529,000
Response Feedback:
0 out of 1 points
Question 4
Which of the following statements is incorrect with respect to determining current E & P?
Answer
Selected Answer:
Charitable contributions in excess of the 10% of taxable income limit should be subtracted from taxable income. All the adjustments are correct. Tax-exempt income and Federal income tax refunds are added to taxable income because they increase the company's capacity to pay a dividend (choices a. and d.). The dividends received deduction is added back because it does not represent a reduction in the company's assets available for distribution (choice b.). Finally, disallowed charitable contributions decrease the corporation's ability to make distributions to shareholders, so they reduce E & P (choice c.).
0 out of 1 points
Response Feedback:
Question 5
Cardinal Corporation has 1,000 shares of common stock outstanding. John owns 400 of the shares, John's father owns 300 shares, John's daughter owns 200 shares, and Redbird Corporation owns 100 shares. John owns 70% of the stock in Redbird Corporation. How many shares is John deemed to own in Cardinal Corporation under the attribution rules of 318?
1,000
Response Feedback:
John is deemed to own the shares of his father, his daughter, and since he is a 50% or greater shareholder in Redbird, a proportionate number of shares owned by Redbird. Thus, John is deemed to own 970 shares: his 400 shares plus his father's 300 shares plus his daughter's 200 shares plus 70 of Redbird's shares [100 (shares owned by Redbird)? 70% (John's ownership interest in Redbird)].
1 out of 1 points
Question 6
On January 2, 2010, Orange Corporation purchased equipment for $300,000 with an ADS recovery period of 10 years and a MACRS useful life of 7 years. Section 179 was not elected. MACRS depreciation properly claimed on the asset, including depreciation in the year of sale, totaled $79,605. The equipment was sold on July 1, 2011, for $290,000. As a result of the sale, the adjustment to taxable income needed to arrive at current E & P is:
Decrease $49,605
Response Feedback:
Gain on sale of the equipment for purposes of determining taxable income is $69,605, computed as follows: $290,000 (selling price) - $220,395 (adjusted basis). The adjusted basis is determined by subtracting the MACRS depreciation ($79,605) from the cost of $300,000. For purposes of computing E & P, the gain is $20,000 [$290,000 (selling price) - $270,000 (E & P adjusted basis)]. For E & P purposes, depreciation is computed using the straight-line method over 10 years, with the half-year convention. Thus, the corporation deducts $30,000 annually for depreciation ($300,000 10 years). In the years of purchase and sale, the company deducts 1/2 year of depreciation, or $15,000 per year. Therefore, total E & P depreciation is $30,000 and the adjusted basis for E & P purposes is $270,000 [$300,000 (cost) - $30,000 (depreciation)]. The adjustment to taxable income to account for the difference in gain for tax and E & P purposes is a decrease in taxable income of $49,605 [$20,000 (E & P gain) - $69,605 (taxable gain)].
1 out of 1 points
Question 7
Amata has a long-term capital gain of $140,000.

Response Feedback:
1 out of 1 points
Question 8

Response Feedback:
1 out of 1 points
Question 9
$190,000 dividend
Response Feedback:
1 out of 1 points
Question 10
Brenda owns 900 shares of Eagle Corporation stock at a time when Eagle has 1,500 shares of stock outstanding. The remaining shareholders are unrelated to Brenda. What is the minimum number of shares
Eagle must redeem from Brenda so that the transaction will qualify as a disproportionate redemption?
347 shares
Response Feedback:
Before the redemption, Brenda owns 60% of the outstanding shares of Eagle stock. To qualify as a disproportionate redemption, Brenda must own, after the redemption, less than 48% (80% ? 60%) of the remaining outstanding shares of Eagle stock. Using a simple algebraic formula, the minimum number of shares (rounded up to the next whole number) that must be redeemed is 347 shares.
1 out of 1 points
Question 1
$529,000
Response Feedback:
0 out of 1 points
Question 2
Frank has a capital gain of $160,000.

Response Feedback:
1 out of 1 points
Question 3
347 shares
Response Feedback:
Before the redemption, Brenda owns 60% of the outstanding shares of Eagle stock. To qualify as a disproportionate redemption, Brenda must own, after the redemption, less than 48% (80% ?
60%) of the remaining outstanding shares of Eagle stock. Using a simple algebraic formula, the minimum number of shares (rounded up to the next whole number) that must be redeemed is 347 shares.
Question 4
1 out of 1 points
$233,000
Response Feedback:
1 out of 1 points
Question 5
None of the above

Response Feedback:
1 out of 1 points
Question 6
$190,000 dividend
Response Feedback:
1 out of 1 points
Question 7
Crow Corporation has 800 shares of stock outstanding. Ted owns 300 shares, Ted's mother owns 100 shares, Ted's sister owns 80 shares, and Ted's granddaughter owns 120 shares. Bluebird Corporation owns the
remaining 200 shares of stock in Crow. Ted owns 30% of the stock in Bluebird Corporation. In applying the 318 stock attribution rules, how many shares does Ted own in Crow Corporation?
520
Response Feedback:
1 out of 1 points
Question 8

Response Feedback:
0 out of 1 points
Question 9
The tax treatment of corporate distributions at the shareholder level does not depend on:
None of the above

Response Feedback:
While the character of distributed property can impact the tax treatment of gain recognized by the corporation, it will have no impact on the shareholder.
0 out of 1 points
Question 10
Federal income tax refunds should be added back to taxable income.

Response Feedback:
All the adjustments are correct. Tax-exempt income and Federal income tax refunds are added to taxable income because they increase the company's capacity to pay a dividend (choices a. and d.). The dividends received deduction is added back because it does not represent a reduction in the company's assets available for distribution (choice b.). Finally, disallowed charitable contributions decrease the corporation's ability to make distributions to shareholders, so they reduce E & P (choice c.).
Question 1
1 out of 1 points

Response Feedback:
1 out of 1 points
Question 2
$250,000
Response Feedback:
1 out of 1 points
Question 3
Decrease $49,605
Response Feedback:
Gain on sale of the equipment for purposes of determining taxable income is $69,605, computed as follows: $290,000 (selling price) - $220,395 (adjusted basis). The adjusted basis is determined by subtracting the MACRS depreciation ($79,605) from the cost of $300,000. For purposes of computing E & P, the gain is $20,000 [$290,000 (selling price) - $270,000 (E & P
adjusted basis)]. For E & P purposes, depreciation is computed using the straight-line method over 10 years, with the half-year convention. Thus, the corporation deducts $30,000 annually for depreciation ($300,000 10 years). In the years of purchase and sale, the company deducts 1/2 year of depreciation, or $15,000 per year. Therefore, total E & P depreciation is $30,000 and the adjusted basis for E & P purposes is $270,000 [$300,000 (cost) - $30,000 (depreciation)]. The adjustment to taxable income to account for the difference in gain for tax and E & P purposes is a decrease in taxable income of $49,605 [$20,000 (E & P gain) - $69,605 (taxable gain)].
Question 4
1 out of 1 points
$190,000 dividend
Response Feedback:
1 out of 1 points
Question 5
520
Response Feedback:
1 out of 1 points
Question 6

Response Feedback:
The transaction qualifies for sale or exchange treatment as a disproportionate redemption. Amata's 43.8% (350 shares 800 shares) postredemption interest in Kingbird is less than both 80% of her preredemption interest [43.8% < 44% (80% ? 550 shares 1,000 shares) and 50%. The stock was held for more than one year; thus, the result is a long-term capital gain of $140,000 [$200,000 (amount realized) - $60,000 (basis of 200 shares redeemed)]. The basis of
Amata's remaining shares is $105,000 (350 shares ? $300). The reduction in Kingbird's E & P as a result of the qualifying stock redemption is limited to $160,000 [20% (percentage of shares outstanding redeemed)? $800,000 (E & P at time of redemption)].
Question 7
1 out of 1 points
$233,000
Response Feedback:
1 out of 1 points
Question 8
None of the above statements are incorrect.

Response Feedback:
0 out of 1 points
Question 9
The basis of stock in the hands of the shareholder

Response Feedback:
1 out of 1 points
Question 10
$529,000
Response
Taxable income is reduced by Federal income tax paid, the related party loss, and the
Feedback:
nondeductible fine. Eighty percent of the 179 expense is added back. Thus, $700,000 $185,000 - $30,000 - $20,000 + $64,000 = $529,000. The involuntary conversion has no effect since realized gain was not recognized.
1 out of 1 points
Question 1
347 shares
Response Feedback:
1 out of 1 points
Question 2
520
Response Feedback:
0 out of 1 points
Question 3
Dividends received deductions should be added back to taxable income.

Response Feedback:
0 out of 1 points
Question 4
Whether the distributed property is received by an individual or a corporation

Response Feedback:
1 out of 1 points
Question 5

Response Feedback:
1 out of 1 points
Question 6
$250,000
Response Feedback:
1 out of 1 points
Question 7
None of the above
Response Feedback:
1 out of 1 points
Question 8

Response Feedback:
1 out of 1 points
Question 9

Response Feedback:
1 out of 1 points
Question 10
Decrease $49,605
Response
Gain on sale of the equipment for purposes of determining taxable income is $69,605, computed
Feedback:
as follows: $290,000 (selling price) - $220,395 (adjusted basis). The adjusted basis is determined by subtracting the MACRS depreciation ($79,605) from the cost of $300,000. For purposes of computing E & P, the gain is $20,000 [$290,000 (selling price) - $270,000 (E & P adjusted basis)]. For E & P purposes, depreciation is computed using the straight-line method over 10 years, with the half-year convention. Thus, the corporation deducts $30,000 annually for depreciation ($300,000 10 years). In the years of purchase and sale, the company deducts 1/2 year of depreciation, or $15,000 per year. Therefore, total E & P depreciation is $30,000 and the adjusted basis for E & P purposes is $270,000 [$300,000 (cost) - $30,000 (depreciation)]. The adjustment to taxable income to account for the difference in gain for tax and E & P purposes is a decrease in taxable income of $49,605 [$20,000 (E & P gain) - $69,605 (taxable gain)].
1 out of 1 points
Question 1
$529,000
Response Feedback:
1 out of 1 points
Question 2

Response Feedback:
1 out of 1 points
Question 3
Answer
Selected Answer:
347 shares
Response Feedback:
1 out of 1 points
Question 4

Response Feedback:
1 out of 1 points
Question 5
$250,000
Response Feedback:
1 out of 1 points
Question 6
Answer
Selected Answer:

Response Feedback:
1 out of 1 points
Question 7
$190,000 dividend
Response Feedback:
1 out of 1 points
Question 8
None of the above

Response Feedback:
1 out of 1 points
Question 9
Decrease $49,605
Response Feedback:
Gain on sale of the equipment for purposes of determining taxable income is $69,605, computed as follows: $290,000 (selling price) - $220,395 (adjusted basis). The adjusted basis is
determined by subtracting the MACRS depreciation ($79,605) from the cost of $300,000. For purposes of computing E & P, the gain is $20,000 [$290,000 (selling price) - $270,000 (E & P adjusted basis)]. For E & P purposes, depreciation is computed using the straight-line method over 10 years, with the half-year convention. Thus, the corporation deducts $30,000 annually for depreciation ($300,000 10 years). In the years of purchase and sale, the company deducts 1/2 year of depreciation, or $15,000 per year. Therefore, total E & P depreciation is $30,000 and the adjusted basis for E & P purposes is $270,000 [$300,000 (cost) - $30,000 (depreciation)]. The adjustment to taxable income to account for the difference in gain for tax and E & P purposes is a decrease in taxable income of $49,605 [$20,000 (E & P gain) - $69,605 (taxable gain)].
Question 10
1 out of 1 points
$233,000
Response Feedback:
Question 1
0 out of 1 points
Which of the following is false regarding a "Type A" reorganization?

Generally, the dissenting shareholders of the target may have their shares appraised and bought outright if they so desire. The acquiring corporation must assume all the liabilities of the target corporation as a matter of law.
1 out of 1 points
Response Feedback:
Question 2
Silver Corporation redeems all of Alluvia's 3,000 shares and distributes to her 1,000 shares of Gold Corporation stock plus $20,000 cash. Alluvia's basis in her 30% interest in Silver is $80,000 and the stock's market value is $120,000. At the time Silver is acquired by Gold, the accumulated earnings and profits of Silver are $100,000 and Gold's are $50,000. How does Alluvia treat this transaction for tax purposes?
Alluvia reports a $20,000 recognized dividend.

Response Feedback:
Alluvia has a realized gain of $40,000 ($120,000 - $80,000) and a recognized dividend of $20,000. Her proportionate share of Silver Corporation's accumulated earnings and profits is in excess of $20,000 ($100,000 x 30% = $30,000).
1 out of 1 points
Question 3
Staff, Inc., has taxable income of $10 million in 2010. What is the maximum DPAD tax savings for this C corporation?
$306,000
Response Feedback:
$10 million x 9% x 34% = $306,000.

0 out of 1 points
Question 4
Beige Corporation (a calendar year taxpayer) has taxable income of $150,000, and its financial records reflect the following for the year.
Federal income taxes paid $75,000 Net operating loss carryforward deducted currently $35,000 Gain recognized this year on an installment sale from a prior year $22,000 Depreciation deducted on tax return (ADS depreciation would have been $5,000) $20,000 Interest income on Iowa state bonds $4,000 Beige Corporation's current E & P is:
$77,000
Response Feedback:
To determine E & P, the Federal income tax is subtracted from taxable income and the net operating loss carryforward is added. The gain recognized currently from the prior year's installment sale is subtracted. The excess of depreciation deducted on the tax return over ADS depreciation and the interest from Iowa state bonds are added.
Question 5
0 out of 1 points
One of the tenets of U.S. tax policy is to encourage business development. Which of the following Code sections does not support this tenet?
All of the above provisions support the tenet.

Response Feedback:
Like-kind exchange rules do not apply to exchanges of corporate stock.

0 out of 1 points
Question 6
Red Corporation, a calendar year taxpayer, has taxable income of $600,000. Among its transactions for the year are the following:
Collection of proceeds from insurance policy on life of corporate officer (in excess of cash surrender value)$10,000 Realized gain (not recognized) on an involuntary conversion $5,000 Nondeductible fines and penalties $35,000 Disregarding any provision for Federal income taxes, Red Corporation's current E & P is:
$565,000
Response Feedback:
To taxable income, the proceeds from insurance policy on life of corporate officer (in excess of cash surrender value) is added and the nondeductible fines and penalties are subtracted. The realized gain (not recognized) on the involuntary conversion has no effect on E & P.
0 out of 1 points
Question 7
Target Corporation is merging into Acquiring Corporation under state law requirements. Target has 3,000 shares outstanding, with a value of $100 per share. Joey, one of Target's shareholders, exchanges his 500 Target shares, for which he paid $80 per share, for 1,000 shares of Crow stock, valued at $30 per share, and $5,000 cash. Acquiring owns 40% of Crow stock. How does Joey treat this transaction for tax purposes?
Joey recognizes no gain or loss.

Response Feedback:
This is a taxable transaction because Joey received no stock in Acquiring in exchange for his stock in Target. Acquiring's ownership of Crow is an investment. Thus, Crow is not a party to the reorganization. 500 x $80 = $40,000 basis - $30,000 Crow stock - $5,000 cash = $5,000 loss for Joey.
0 out of 1 points
Question 8
Which, if any, of the following is a characteristic of the DPAD?

Applicable only to manufactured goods that are exported from the U.S
Response Feedback:
As long as the domestic portion of the production is substantial, DPGR results (choice d. ). DPAD applies to most entities including S corporations (choice a. ). Not only can DPGR result from the performance of engineering and architectural services, but certain embedded services can qualify (choice c.). There are no restrictions or requirements on where the manufactured goods have to be sent or sold (choice b. ).
1 out of 1 points
Question 9
Gabriella and Juanita form Luster Corporation. Gabriella transfers cash of $50,000 for 50 shares of stock, while Juanita transfers a secret process (basis of zero and fair market value of $50,000) for 50 shares of stock.
Neither Gabriella nor Juanita will recognize gain on the transfer.

Response Feedback:
The transfers are nontaxable to both Gariella and Juanita. Each of them qualifies as a property transferor and together control the corporation. Therefore, the transfer is subject to tax deferred treatment under 351.
1 out of 1 points
Question 10
Yellow Corporation and Green Corporation enter into a "Type A" reorganization. Raul currently holds a 15year $100,000 Green bond paying 6% interest. In exchange for his Green bond, Raul receives a 5-year $125,000 Yellow bond paying 5% interest. Raul is happy with the Yellow bond because, even though it pays a lower interest rate, the yield provides slightly more interest than the Green bond, and both bonds mature on the same date. How does Raul treat this transaction on his tax return?
Raul recognizes gain of $25,000 on the exchange ($125,000 - $100,000).

Response Feedback:
Raul recognizes gain to the extent that the principal amounts of the bonds received are in excess of the bonds given up, or $25,000.
0 out of 1 points
Question 11
Norma formed Hyacinth Enterprises, a proprietorship, in 2010. In its first year, Hyacinth had operating income of $200,000 and operating expenses of $100,000. In addition, Hyacinth had a long-term capital loss of $9,000. Norma, the proprietor of Hyacinth Enterprises, withdrew $50,000 from Hyacinth during the year. Assuming Norma has no other capital gains or losses, how does this information affect her taxable income for 2010?
Increases Norma's taxable income by $41,000 ($50,000 ordinary business income - $9,000 long-term capital loss) A proprietorship is not a separate taxable entity. As a proprietor, Norma reports profit or loss from Hyacinth on her individual return. Norma's taxable income for 2010 will be increased by $97,000 ($200,000 - $100,000 = $100,000 net ordinary business income - $3,000 capital loss deduction). The $50,000 she withdrew from Hyacinth has no effect on her taxable income.
0 out of 1 points
Response Feedback:
Question 12
Which of the following statements regarding "Type B" reorganizations is true?

Since the shareholders of the target are likely to have greater than a 50 percentage point ownership change, the 382 limitation usually apply to "Type B" reorganizations. "Type B" reorganizations are considered to be simple rather than complicated (choice a. ). There is no acquisition of liabilities in a "Type B" reorganization (choice c.). Since the target corporation continues, there is no acquisition of its loss attributes (choice d. ).
Response Feedback:
Question 13
0 out of 1 points
Which of the following is not a reorganization designated under 368(a)(1)?

Transfers due to a bankruptcy or receivership proceeding

Response Feedback:
Answer (a) is a "Type G," b. is a "Type E," c. is a divisive "Type D," d. is a "Type B. "
1 out of 1 points
Question 14
Domingo and Juan, brothers, each own 300 shares in White Corporation (E & P of $700,000). Heron Partnership owns the remaining 400 shares of stock in White Corporation, and Juan has a 25% interest in Heron Partnership. White Corporation redeems 200 shares of Juan's stock for $120,000. Juan paid $150 a share for the stock five years ago. With respect to the redemption:
Juan has a long-term capital gain of $90,000.

Response Feedback:
The redemption meets both tests of 302(b)(2) and qualifies for sale or exchange treatment. Before and after the redemption, Juan is deemed to own a proportionate number of the White shares owned by Heron Partnership, but none of the shares owned by Domingo. (The family attribution rules do not include siblings.) Thus, before the redemption, Juan has a 40% interest in White: 300 shares directly plus 100 shares indirectly from Heron (25% x 400). After the redemption, Juan owns 25% of the stock in White Corporation: [200 shares (100 directly plus 100 indirectly from Heron) x 800 postredemption shares outstanding]. The 25% ownership interest is less than 50% of the total voting power and less than 80% of Juan's original ownership [25% is less than 32% (80% x 40%)]. Thus, the distribution is a disproportionate redemption and Juan has a long-term capital gain of $90,000 [$120,000 (amount realized) $30,000 (stock basis)].
0 out of 1 points
Question 15
Gravity Corporation creates Earth Corporation. It transfers most of its assets (net value $900,000) to Earth. At approximately the same time, Magnet Corporation also transfers all of its assets (net value $90,000) to Earth. Gravity liquidates by transferring its remaining assets, $100,000 cash and 1,000 shares of Earth, to its sole shareholder, Zia, in exchange for all of her Gravity stock. Zia's basis in her Gravity stock was $300,000. Magnet liquidates by transferring 100 shares of Earth to its sole shareholder, Amos, in exchange for all of his Magnet stock. Amos's basis in his Magnet stock was $150,000. How will this transaction be treated for tax purposes?
This qualifies as a "Type C" reorganization. Zia recognizes $100,000 gain, Gravity also recognizes $100,000 gain, but Amos will not recognize his loss. With "Type A" consolidations, the stock exchanged can be common or preferred. The continuity of interest requirement is met.
0 out of 1 points
Response Feedback:
Question 16
Perry owns 80% of Weed Corporation and Aimee owns the other 20%. In exchange for all of the Weed stock, Perry receives 3,400 shares of Grass Corporation common stock (value $70,000), and Aimee receives 50 shares of Grass preferred (value $20,000). Perry also receives $10,000 in bonds. The exchange qualifies
as what type of transaction?

Acquisitive "Type D" reorganization

Response Feedback:
The exchange qualifies as a "Type A" reorganization. Preferred stock can be used in a "Type A" reorganization to meet the continuity of interest test. Perry received more than 50% of the consideration in the form of stock. He recognizes gain to the extent of the bond received ($10,000).
0 out of 1 points
Question 17
Which provision could best be justified as encouraging small business?

Percentage depletion
Response Feedback:
The S corporation was designed to encourage small business growth.

0 out of 1 points
Question 18
A shareholder bought 2,000 shares of Zee Corporation for $90,000 several years ago. When the stock is valued at $200,000, Zee redeems these shares in exchange for 6,000 shares of Yea Corporation stock. This transaction meets the requirements of 368. Which of the following statements is true with regard to this transaction?
Gain or loss cannot be determined because the value of the Yea stock is not given.
Response Feedback:
No gain or loss is recognized on the transaction; therefore, the realized gain of $110,000 is postponed.
1 out of 1 points
Question 19
All of the following statements are true about gains recognized in a corporate reorganization except:
Corporate shareholders would prefer taxable amounts in a reorganization be classified as a capital gain. Corporations prefer dividend treatment because of the dividends received deduction.
0 out of 1 points
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Question 20
Flycatcher Corporation, a C corporation, has two equal individual shareholders, Nancy and Pasqual. In the current year, Flycatcher earned $200,000 net profit and paid a dividend of $40,000 to each shareholder. Regardless of any tax consequences resulting from their interests in Flycatcher, Nancy is in the 28% marginal tax bracket and Pasqual is in the 35% marginal tax bracket. With respect to the current year, which of the following statements is incorrect?
Flycatcher pays corporate tax on $200,000.

Response Feedback:
Dividend distributions are not deductible by a corporation; thus, Flycatcher still incurs
corporate tax on $200,000 even if all profits were distributed to shareholders. A preferential tax rate of 15% applies to the dividends for both shareholders, resulting in additional tax of $6,000 ($40,000 x 15%) for each.
Question 1
1 out of 1 points
$575,000
Response Feedback:
1 out of 1 points
Question 2

S corporation election
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1 out of 1 points
Question 3

The acquiring corporation assumes only those liabilities of the target corporation that are associated with assets. The acquiring corporation must assume all the liabilities of the target corporation as a matter of law.
1 out of 1 points
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Question 4
Increases Norma's taxable income by $97,000 ($100,000 ordinary business income - $3,000 long-term capital loss) A proprietorship is not a separate taxable entity. As a proprietor, Norma reports profit or loss from Hyacinth on her individual return. Norma's taxable income for 2010 will be increased by
Response Feedback:
$97,000 ($200,000 - $100,000 = $100,000 net ordinary business income - $3,000 capital loss deduction). The $50,000 she withdrew from Hyacinth has no effect on her taxable income.
Question 5
1 out of 1 points
$306,000
Response Feedback:
$10 million x 9% x 34% = $306,000.

1 out of 1 points
Question 6

All of the above are reorganizations listed in 368(a)(1)

Response Feedback:
1 out of 1 points
Question 7
Flycatcher can avoid the corporate tax altogether by paying out all $200,000 of net profit as dividends to the shareholders. Dividend distributions are not deductible by a corporation; thus, Flycatcher still incurs corporate tax on $200,000 even if all profits were distributed to shareholders. A preferential tax rate of 15% applies to the dividends for both shareholders, resulting in additional tax of $6,000 ($40,000 x 15%) for each.
0 out of 1 points
Response Feedback:
Question 8
None of the above

Response Feedback:
To determine E & P, the Federal income tax is subtracted from taxable income and the net
operating loss carryforward is added. The gain recognized currently from the prior year's installment sale is subtracted. The excess of depreciation deducted on the tax return over ADS depreciation and the interest from Iowa state bonds are added.
Question 9
0 out of 1 points
Carlos purchased 20% of Target Corporation's stock five years ago for $50,000. In a transaction qualifying as a "Type A" reorganization, Carlos received $40,000 cash and 6% of Acquiring Corporation's stock (valued at $60,000) in exchange for his Target stock. Target had $300,000 accumulated earnings and profits prior to the reorganization. How does Carlos treat the exchange for tax purposes?
As a sale of stock and recognizes a $10,000 long-term capital loss

Response Feedback:
If Carlos had received only stock, he would have received 10% of Acquiring. Since Carlos owns 6% of Acquiring, which is less than 80% of the stock he would have owned (6% 10% is less than 80%), and he owns less than 50% of Acquiring, he meets the 302(b)(2) qualifications for redemption treatment.
1 out of 1 points
Question 10

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1 out of 1 points
Question 11

The requirement that only voting stock may be used as consideration in a "Type B" reorganization by the acquiring corporation is a distinct disadvantage. "Type B" reorganizations are considered to be simple rather than complicated (choice a. ). There is no acquisition of liabilities in a "Type B" reorganization (choice c.). Since the target corporation continues, there is no acquisition of its loss attributes (choice d. ).
1 out of 1 points
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Question 12
Section 1031, which allows the exchange of stock of one corporation for stock of another
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Question 13
0 out of 1 points
Which of the following is an incorrect statement regarding the application of the 318 stock attribution rules?
An individual is deemed to own the shares owned by his or her spouse, children, grandchildren, or parents. All of the statements are correct with respect to the application of the 318 attribution rules.
1 out of 1 points
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Question 14
1 out of 1 points
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Question 15

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1 out of 1 points
Question 16

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0 out of 1 points
Question 17

Answer
Selected Answer:
None of the above

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1 out of 1 points
Question 18

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1 out of 1 points
Question 19
Perry owns 80% of Weed Corporation and Aimee owns the other 20%. In exchange for all of the Weed stock, Perry receives 3,400 shares of Grass Corporation common stock (value $70,000), and Aimee receives 50 shares of Grass preferred (value $20,000). Perry also receives $10,000 in bonds. The exchange qualifies as what type of transaction?
"Type A" reorganization

Response Feedback:
1 out of 1 points
Question 20
Answer
Selected Answer:
Joey has a recognized loss of $5,000.

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1 out of 1 points
Question 1
1 out of 1 points
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Question 2

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1 out of 1 points
Question 3

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Question 4
1 out of 1 points
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Question 5

The requirement that only voting stock may be used as consideration in a "Type B" reorganization by the acquiring corporation is a distinct disadvantage. "Type B" reorganizations are considered to be simple rather than complicated (choice a. ). There is no acquisition of liabilities in a "Type B" reorganization (choice c.). Since the target corporation continues, there is no acquisition of its loss attributes (choice d. ).
0 out of 1 points
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Question 6
Jupiter Corporation acquires all of Titian Corporation's stock in exchange for its voting stock. Iris received 1,000 shares of Jupiter valued at $50,000 for her 8,000 shares of Titian that cost Iris $100,000 five years ago. In addition to the Jupiter stock, she receives a $30,000 bond. How does Iris treat this transaction for tax purposes?
Iris recognizes a loss of $20,000. Her Jupiter stock basis is $80,000.

Response Feedback:
Iris has a realized loss of $20,000; however, losses are not recognized in reorganizations. Her basis in her Jupiter stock will be $70,000 ($100,000 - $30,000 bond received).
1 out of 1 points
Question 7
$306,000
Response Feedback:
$10 million x 9% x 34% = $306,000.

1 out of 1 points
Question 8
$575,000
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1 out of 1 points
Question 9
0 out of 1 points
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Question 10

Not applicable in situations involving S corporations

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1 out of 1 points
Question 11

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1 out of 1 points
Question 12


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1 out of 1 points
Question 13

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1 out of 1 points
Question 14

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1 out of 1 points
Question 15
As a stock redemption and recognizes a $40,000 long-term capital gain

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0 out of 1 points
Question 16
Cardinal Corporation redeems all of its voting common stock. Cardinal then exchanges this redeemed stock
with Wren corporation for 40% of Wren's voting common and nonvoting preferred stock. The Wren stock was distributed to the Cardinal shareholders. After the transaction, both Cardinal and Wren corporations still exist. The former Cardinal shareholders are now shareholders of Wren. This transaction qualifies as a(n):
"Type C" reorganization

Response Feedback:
This does not qualify as a "Type B" reorganization because Wren used preferred stock as well as voting stock in the exchange. The acquiring corporation can use only voting stock. For the other types of reorganizations, assets of one of the corporations would have to be transferred to the other.
1 out of 1 points
Question 17

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0 out of 1 points
Question 18
Xian Corporation and Win Corporation would like to combine into one entity. Xian exchanges 40% of its common and preferred stock plus $200,000 cash for 60% of Win's assets and liabilities. Win distributes the Xian stock, cash, unwanted assets, and liabilities to its shareholders in exchange for their outstanding stock. Win then liquidates.
This restructuring will qualify as a "Type B" reorganization.

Response Feedback:
This restructuring does not qualify as a "Type A" statutory merger because all of the Win liabilities were not transferred to Xian. A stock for stock exchange is necessary for a "Type B" reorganization, which was not the case here. The transaction does not qualify as a "Type C" reorganization because at least 80% of Win's assets are not obtained with voting stock. The restructuring is not an acquisitive "Type D" reorganization because Xian is transferring stock to Win, not assets. Therefore, this transaction is not one of the reorganizations provided in 368.
1 out of 1 points
Question 19
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1 out of 1 points
Question 20

1 out of 1 points
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Question 1

1 out of 1 points
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Question 2

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1 out of 1 points
Question 3

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1 out of 1 points
Question 4

The requirement that only voting stock may be used as consideration in a "Type B"
reorganization by the acquiring corporation is a distinct disadvantage.

Response Feedback:
"Type B" reorganizations are considered to be simple rather than complicated (choice a. ). There is no acquisition of liabilities in a "Type B" reorganization (choice c.). Since the target corporation continues, there is no acquisition of its loss attributes (choice d. ).
0 out of 1 points
Question 5
Cardinal Corporation redeems all of its voting common stock. Cardinal then exchanges this redeemed stock with Wren corporation for 40% of Wren's voting common and nonvoting preferred stock. The Wren stock was distributed to the Cardinal shareholders. After the transaction, both Cardinal and Wren corporations still exist. The former Cardinal shareholders are now shareholders of Wren. This transaction qualifies as a(n):

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1 out of 1 points
Question 6
None of the above

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1 out of 1 points
Question 7

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1 out of 1 points
Question 8
Federal income taxes paid $75,000 Net operating loss carryforward deducted currently $35,000
Gain recognized this year on an installment sale from a prior year $22,000 Depreciation deducted on tax return (ADS depreciation would have been $5,000) $20,000 Interest income on Iowa state bonds $4,000 Beige Corporation's current E & P is:
$107,000
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1 out of 1 points
Question 9

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1 out of 1 points
Question 10
This does not qualify as a reorganization under 368.

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1 out of 1 points
Question 11


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1 out of 1 points
Question 12
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1 out of 1 points
Question 13
1 out of 1 points
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Question 14

Can sometimes apply when some of the components of a product are manufactured in foreign countries As long as the domestic portion of the production is substantial, DPGR results (choice d. ). DPAD applies to most entities including S corporations (choice a. ). Not only can DPGR result from the performance of engineering and architectural services, but certain embedded services can qualify (choice c.). There are no restrictions or requirements on where the manufactured goods have to be sent or sold (choice b. ).
1 out of 1 points
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Question 15
Flycatcher Corporation, a C corporation, has two equal individual shareholders, Nancy and Pasqual. In the current year, Flycatcher earned $200,000 net profit and paid a dividend of $40,000 to each shareholder. Regardless of any tax consequences resulting from their interests in Flycatcher, Nancy is in the 28% marginal tax bracket and Pasqual is in the 35% marginal tax bracket. With respect to the current year, which
of the following statements is incorrect?

1 out of 1 points
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Question 16

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1 out of 1 points
Question 17
The shareholder has a postponed gain of $110,000.

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1 out of 1 points
Question 18
$306,000
Response Feedback:
$10 million x 9% x 34% = $306,000.

1 out of 1 points
Question 19
Yellow Corporation and Green Corporation enter into a "Type A" reorganization. Raul currently holds a 15year $100,000 Green bond paying 6% interest. In exchange for his Green bond, Raul receives a 5-year $125,000 Yellow bond paying 5% interest. Raul is happy with the Yellow bond because, even though it pays
a lower interest rate, the yield provides slightly more interest than the Green bond, and both bonds mature on the same date. How does Raul treat this transaction on his tax return?

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1 out of 1 points
Question 20

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1 out of 1 points
Question 1

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1 out of 1 points
Question 2

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1 out of 1 points
Question 3

1 out of 1 points
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Question 4
Beige Corporation (a calendar year taxpayer) has taxable income of $150,000, and its financial records
reflect the following for the year.

$107,000
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1 out of 1 points
Question 5
1 out of 1 points
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Question 6

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1 out of 1 points
Question 7

Response Feedback:
The redemption meets both tests of 302(b)(2) and qualifies for sale or exchange treatment. Before and after the redemption, Juan is deemed to own a proportionate number of the White shares owned by Heron Partnership, but none of the shares owned by Domingo. (The family attribution rules do not include siblings.) Thus, before the redemption, Juan has a 40% interest in White: 300 shares directly plus 100 shares indirectly from Heron (25% x 400). After the
redemption, Juan owns 25% of the stock in White Corporation: [200 shares (100 directly plus 100 indirectly from Heron) x 800 postredemption shares outstanding]. The 25% ownership interest is less than 50% of the total voting power and less than 80% of Juan's original ownership [25% is less than 32% (80% x 40%)]. Thus, the distribution is a disproportionate redemption and Juan has a long-term capital gain of $90,000 [$120,000 (amount realized) $30,000 (stock basis)].
Question 8
0 out of 1 points
Acquisitive "Type D" reorganization

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1 out of 1 points
Question 9


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1 out of 1 points
Question 10
1 out of 1 points
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Question 11
Collection of proceeds from insurance policy on life of corporate officer (in excess of cash surrender value)$10,000 Realized gain (not recognized) on an involuntary conversion $5,000
Nondeductible fines and penalties $35,000 Disregarding any provision for Federal income taxes, Red Corporation's current E & P is:
$575,000
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1 out of 1 points
Question 12

1 out of 1 points
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Question 13

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1 out of 1 points
Question 14
None of the above

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1 out of 1 points
Question 15
Which of the following is an incorrect statement regarding the application of the 318 stock attribution
rules?
None of the above.

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All of the statements are correct with respect to the application of the 318 attribution rules.
1 out of 1 points
Question 16
1 out of 1 points
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Question 17

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1 out of 1 points
Question 18

Response Feedback:
This restructuring does not qualify as a "Type A" statutory merger because all of the Win liabilities were not transferred to Xian. A stock for stock exchange is necessary for a "Type B" reorganization, which was not the case here. The transaction does not qualify as a "Type C" reorganization because at least 80% of Win's assets are not obtained with voting stock. The
restructuring is not an acquisitive "Type D" reorganization because Xian is transferring stock to Win, not assets. Therefore, this transaction is not one of the reorganizations provided in 368.
Question 19
1 out of 1 points
$306,000
Response Feedback:
$10 million x 9% x 34% = $306,000.

1 out of 1 points
Question 20
This qualifies as a "Type A" reorganization. Zia recognizes $100,000 gain, but Amos will not recognize any loss. With "Type A" consolidations, the stock exchanged can be common or preferred. The continuity of interest requirement is met.
1 out of 1 points
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Question 1
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1 out of 1 points
Question 2
This qualifies as a "Type A" reorganization. Zia recognizes $100,000 gain, but Amos will not recognize any loss.
Response Feedback:
With "Type A" consolidations, the stock exchanged can be common or preferred. The continuity of interest requirement is met.
1 out of 1 points
Question 3


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1 out of 1 points
Question 4
Which of the following is an incorrect statement regarding the application of the 318 stock attribution rules?
None of the above.

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All of the statements are correct with respect to the application of the 318 attribution rules.
1 out of 1 points
Question 5
None of the above

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1 out of 1 points
Question 6

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1 out of 1 points
Question 7
Xian Corporation and Win Corporation would like to combine into one entity. Xian exchanges 40% of its common and preferred stock plus $200,000 cash for 60% of Win's assets and liabilities. Win distributes the Xian stock, cash, unwanted assets, and liabilities to its shareholders in exchange for their outstanding stock.
Win then liquidates.


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1 out of 1 points
Question 8
1 out of 1 points
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Question 9

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1 out of 1 points
Question 10
$107,000
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1 out of 1 points
Question 11

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1 out of 1 points
Question 12

1 out of 1 points
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Question 13
1 out of 1 points
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Question 14
Yellow Corporation and Green Corporation enter into a "Type A" reorganization. Raul currently holds a 15year $100,000 Green bond paying 6% interest. In exchange for his Green bond, Raul receives a 5-year $125,000 Yellow bond paying 5% interest. Raul is happy with the Yellow bond because, even though it pays
a lower interest rate, the yield provides slightly more interest than the Green bond, and both bonds mature on the same date. How does Raul treat this transaction on his tax return?

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1 out of 1 points
Question 15

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1 out of 1 points
Question 16

1 out of 1 points
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Question 17
$575,000
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1 out of 1 points
Question 18
Silver Corporation redeems all of Alluvia's 3,000 shares and distributes to her 1,000 shares of Gold Corporation stock plus $20,000 cash. Alluvia's basis in her 30% interest in Silver is $80,000 and the stock's
market value is $120,000. At the time Silver is acquired by Gold, the accumulated earnings and profits of Silver are $100,000 and Gold's are $50,000. How does Alluvia treat this transaction for tax purposes?

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1 out of 1 points
Question 19
Taxable event
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1 out of 1 points
Question 20
Joey has a recognized loss of $5,000.

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Question 1
0 out of 1 points
ParentCo owned 100% of SubCo for the entire year. ParentCo uses the accrual method of tax accounting, whereas SubCo uses the cash method. During the year, SubCo sold raw materials to ParentCo for $35,000 under a contract that requires no payment to SubCo until the following year. Exclusive of this transaction, ParentCo had income for the year of $80,000, and SubCo had income of $50,000. The group's consolidated taxable income for the year was:
$95,000
Response Feedback:
Since SubCo uses the cash method of accounting, it will not recognize the $35,000 of income for the materials sold to ParentCo until the next tax period (when payment is received). ParentCo's related deduction must also be deferred until the later year. The group's consolidated taxable income is $130,000, the sum of ParentCo's and SubCo's separate incomes.
0 out of 1 points
Question 2
ParentCo purchased all of the stock of SubCo on January 2, 2009, and the two companies filed consolidated returns for 2009 and thereafter. Both entities were incorporated in 2008. Taxable income computations for the members include the following. Neither group member incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions. No 382 limit applies.
2008 ParentCo's Taxable Income $100,000 and SubCo's Taxable Income ($75,000) and Consolidated Taxable Income N/A. 2009 ParentCo's Taxable Income $100,000 and SubCo's Taxable Income ($40,000) and Consolidated Taxable Income $60,000. 2010 ParentCo's Taxable Income $100,000 and SubCo's Taxable Income $20,000 and Consolidated Taxable Income ? 2011 ParentCo's Taxable Income $100,000 and SubCo's Taxable Income $125,000 and Consolidated Taxable Income ?
To what extent can SubCo's 2008 losses be used by the group in 2011?
$125,000
Response Feedback:
The $40,000 2009 loss is absorbed in the current year against ParentCo's income. Because the 2008 loss arose in a separate return year, its use as a deduction against group income is limited to the lesser of SubCo's current-year or cumulative positive contribution to consolidated taxable income. For 2009 and 2010, this amount is less than zero. After 2011, SubCo's cumulative contribution to consolidated taxable income was $105,000 = $40,000 loss for 2009 + 2010's $20,000 income + 2011's income of $125,000. Thus, all of the 2008 separate return year $75,000 loss is applied against 2011 income.
1 out of 1 points
Question 3
ParentCo purchased all of the stock of SubCo on January 1, 2009, for $500,000. SubCo produced a loss for 2009 of $150,000 and distributed cash of $25,000 to ParentCo. In 2010, SubCo generated a loss of $750,000; in 2011, it recognized net income of $45,000. What is ParentCo's capital gain or loss if it sells all of its SubCo stock to a nongroup member on January 1, 2012, for $50,000?
$430,000
Response Feedback:
When accumulated deficits in the subsidiary's post-acquisition earnings and profits exceed the acquisition price, an excess loss account is created to permit the group to recognize current subsidiary losses while avoiding a negative stock basis. If the subsidiary stock is sold to a nongroup member, the balance of the excess loss account is recognized as capital gain income
by the seller.
Question 4
1 out of 1 points
Alb, Bud, and Coe constitute an affiliated group of corporations. Which of the following tax effects becomes more restrictive if an election is made to file on a consolidated basis?
Choice of members' tax year ends

Response Feedback:
The others are treated alike even if no election to consolidate is made, because the controlled group rules apply.
0 out of 1 points
Question 5
The consolidated net operating loss of Parent includes all of the following except:
Parent's portfolio income

Response Feedback:
The charitable deduction has its own carryover period.

0 out of 1 points
Question 6
The Philstrom consolidated group reported the following taxable income amounts. Parent owns all of the stock of both Junior and Minor. Determine the net operating loss (NOL) that is apportioned to Minor. Parent($600,000) and Junior ($400,000) and Minor $100,000
$0. All NOLs of a consolidated group are apportioned to the parent.

Response Feedback:
Only members with separate NOLs are apportioned any of the consolidated NOL.
0 out of 1 points
Question 7
How do the members of a consolidated group split among themselves the benefits of the lower tax brackets on the first $75,000 of taxable income?
According to an internal tax-sharing agreement, which may be modified by the IRS upon audit This agreement is respected by the government if all group members agree to it in writing.
0 out of 1 points
Response Feedback:
Question 8
How are the members of a Federal consolidated group affected by computations related to E & P?
E & P is computed solely on a consolidated basis.

Response Feedback:
There is no such concept as consolidated E & P.

0 out of 1 points
Question 9
Which of the following potentially is a disadvantage of electing to file a Federal corporate income tax consolidated return?
Deferral of gains realized in transactions between group members

Response Feedback:
All of the items may be computed on a group basis and be used to manage the tax liabilities of the group as a whole.
1 out of 1 points
Question 10
ParentCo purchased all of SubCo's stock on January 1, 2010, and the companies have filed consolidated returns since then. Taxable income computations for the members include the following. Neither group member incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions. 2009 ParentCo's Taxable Income $100,000 and SubCo's Taxable Income $70,000 and Consolidated Taxable Income N/A. 2010 ParentCo's Taxable Income $100,000 and SubCo's Taxable Income ($70,000) and Consolidated Taxable Income $30,000. 2011 ParentCo's Taxable Income $9,000 and SubCo's Taxable Income ($20,000) and Consolidated Taxable Income ? 2012 ParentCo's Taxable Income $100,000 and SubCo's Taxable Income $230,000 and Consolidated Taxable Income ? The 2011 net operating loss:
either a or b, but not both

Response Feedback:
The $11,000 (not $20,000) 2011 net operating loss may be carried back against SubCo's 2009 taxable income, as SubCo is solely responsible for generating the loss. Alternatively, ParentCo could elect to forgo the carryback of the 2011 consolidated loss, thus preserving the loss deduction for the group's subsequent years.
1 out of 1 points
Question 1
Parent's charitable contributions

Response Feedback:

0 out of 1 points
Question 2
ParentCo, SubOne and SubTwo have filed consolidated returns since 2009. All of the entities were incorporated in 2008. Taxable income computations for the members include the following. None of the group members incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions.
2008 ParentCo's Taxable Income $200,000 and SubOne's Taxable Income $50,000 and SubTwo's Taxable Income $150,000 and Consolidated Taxable Income N/A. 2009 ParentCo's Taxable Income $200,000 and SubOne's Taxable Income ($60,000) and SubTwo's Taxable Income $70,000 and Consolidated Taxable Income $210,000. 2010 ParentCo's Taxable Income $60,000 and SubOne's Taxable Income ($80,000) and SubTwo's Taxable Income ($40,000) and Consolidated Taxable Income ?.
2011 ParentCo's Taxable Income $200,000 and SubOne's Taxable Income $130,000 and SubTwo's Taxable Income $10,000 and Consolidated Taxable Income ?.
How should the 2010 consolidated net operating loss be apportioned among the group members?
$20,000 ParentCo, $20,000 SubOne, $20,000 SubTwo

Response Feedback:
SubOne's Apportioned NOL=$40,000=$60,000 x [$80,000 ($80,000 + $40,000)]SubTwo's Apportioned NOL=$20,000=$60,000 x [$40,000 ($80,000 + $40,000)]
0 out of 1 points
Question 3
The Rub, Sal, and Ton Corporations file Federal income tax returns on a consolidated basis. The group's tax return currently is under audit. Under a valid tax-sharing agreement, each corporation is liable for one-third of the group's consolidated tax liability. The affiliates have agreed with the auditor that the group's unpaid liability for the year is $90,000. Because of an incorrect tax return position, another $3,000 in interest and an $1,800 penalty is attributable solely to Ton. At present, only Rub is solvent and has the cash with which to make such a tax payment. What is the maximum amount for which the government could be successful in forcing Rub to satisfy the outstanding liabilities of the consolidated group?
$91,800
Response Feedback:
Each member has joint and several liability for the entire amount of the group's income taxes, interest, and penalties outstanding.
1 out of 1 points
Question 4

Response Feedback:
0 out of 1 points
Question 5
Which of the following potentially is a disadvantage of electing to file a Federal consolidated corporate income tax return?
The capital loss of one member is not offset against the capital gain of another member of the group. Deferred transactions can be deferred which is not usually a good thing.
1 out of 1 points
Response Feedback:
Question 6
Which of the following is eligible to file Federal income tax returns on a consolidated basis?
U.S. corporation engaged in the oil and gas industry
Response Feedback:
The U.S. corporation is the only entity that would be eligible to file this on a consolidated basis.
0 out of 1 points
Question 7
Dividends received deduction for payments from a subsidiary to the group's parent
Response Feedback:
0 out of 1 points
Question 8
According to a tax-sharing agreement that must be approved by the IRS by the end of the first quarter of the tax year This agreement is respected by the government if all group members agree to it in writing.
1 out of 1 points
Response Feedback:
Question 9
Each member keeps its own E & P account.

Response Feedback:

0 out of 1 points
Question 10
Which of the following items is not computed on a consolidated basis?

Net operating losses

Response Feedback:
Each group member may continue to apply the depreciation method best suited for its needs.
0 out of 1 points
Question 1
ParentCo purchased all of SubCo's stock on January 1, 2010, and the companies have filed consolidated returns since then. Taxable income computations for the members include the following. Neither group member incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions. 2009 ParentCo's Taxable Income $100,000 and SubCo's Taxable Income $70,000 and Consolidated Taxable Income N/A. 2010 ParentCo's Taxable Income $100,000 and SubCo's Taxable Income ($70,000) and Consolidated Taxable Income $30,000.
2011 ParentCo's Taxable Income $9,000 and SubCo's Taxable Income ($20,000) and Consolidated Taxable Income ? 2012 ParentCo's Taxable Income $100,000 and SubCo's Taxable Income $230,000 and Consolidated Taxable Income ? The 2011 net operating loss:
may be carried back to offset SubCo's 2009 taxable income

Response Feedback:
1 out of 1 points
Question 2

Response Feedback:

0 out of 1 points
Question 3
Deferral of gains realized in transactions between group members

Response Feedback:
1 out of 1 points
Question 4
According to an internal tax-sharing agreement

Response Feedback:
This agreement is respected by the government if all group members agree to it in writing.
1 out of 1 points
Question 5

Response Feedback:
Question 6
1 out of 1 points
$130,000
Response Feedback:
1 out of 1 points
Question 7
$0. Minor did not report an NOL of its own.

Response Feedback:
1 out of 1 points
Question 8
ParentCo purchased all of the stock of SubCo on January 2, 2009, and the two companies filed consolidated returns for 2009 and thereafter. Both entities were incorporated in 2008. Taxable income computations for the members include the following. Neither group member incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions. No 382 limit applies.
2008 ParentCo's Taxable Income $100,000 and SubCo's Taxable Income ($75,000) and Consolidated Taxable Income N/A. 2009 ParentCo's Taxable Income $100,000 and SubCo's Taxable Income ($40,000) and Consolidated Taxable Income $60,000. 2010 ParentCo's Taxable Income $100,000 and SubCo's Taxable Income $20,000 and Consolidated Taxable Income ? 2011 ParentCo's Taxable Income $100,000 and SubCo's Taxable Income $125,000 and Consolidated Taxable Income ?
To what extent can SubCo's 2008 losses be used by the group in 2011?
$75,000
Response Feedback:
The $40,000 2009 loss is absorbed in the current year against ParentCo's income. Because the 2008 loss arose in a separate return year, its use as a deduction against group income is limited to the lesser of SubCo's current-year or cumulative positive contribution to consolidated taxable income. For 2009 and 2010, this amount is less than zero. After 2011, SubCo's cumulative contribution to consolidated taxable income was $105,000 = $40,000 loss for 2009 + 2010's $20,000 income + 2011's income of $125,000. Thus, all of the 2008 separate return year $75,000 loss is applied against 2011 income.
0 out of 1 points
Question 9
ParentCo, SubOne and SubTwo have filed consolidated returns since 2009. All of the entities were incorporated in 2008. Taxable income computations for the members include the following. None of the
group members incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions.
2008 ParentCo's Taxable Income $200,000 and SubOne's Taxable Income $50,000 and SubTwo's Taxable Income $150,000 and Consolidated Taxable Income N/A. 2009 ParentCo's Taxable Income $200,000 and SubOne's Taxable Income ($60,000) and SubTwo's Taxable Income $70,000 and Consolidated Taxable Income $210,000. 2010 ParentCo's Taxable Income $60,000 and SubOne's Taxable Income ($80,000) and SubTwo's Taxable Income ($40,000) and Consolidated Taxable Income ?. 2011 ParentCo's Taxable Income $200,000 and SubOne's Taxable Income $130,000 and SubTwo's Taxable Income $10,000 and Consolidated Taxable Income ?.
$20,000 ParentCo, $20,000 SubOne, $20,000 SubTwo

Response Feedback:
SubOne's Apportioned NOL=$40,000=$60,000 x [$80,000 ($80,000 + $40,000)]SubTwo's Apportioned NOL=$20,000=$60,000 x [$40,000 ($80,000 + $40,000)]
1 out of 1 points
Question 10

Response Feedback:
1 out of 1 points
Question 1

Response Feedback:
0 out of 1 points
Question 2
Answer
Selected Answer:
may be carried forward only and applied against group income if so elected by ParentCo
Response Feedback:
1 out of 1 points
Question 3

Response Feedback:

1 out of 1 points
Question 4

Response Feedback:
1 out of 1 points
Question 5
$130,000
Response Feedback:
0 out of 1 points
Question 6
Dividends received deduction for payments from a subsidiary to the group's parent
Response Feedback:
Question 7
0 out of 1 points
The Rub, Sal, and Ton Corporations file Federal income tax returns on a consolidated basis. The group's tax return currently is under audit. Under a valid tax-sharing agreement, each corporation is liable for one-third of the group's consolidated tax liability. The affiliates have agreed with the auditor that the group's unpaid liability for the year is $90,000. Because of an incorrect tax return position, another $3,000 in interest and an $1,800 penalty is attributable solely to Ton. At present, only Rub is solvent and has the cash with which to make such a tax payment. What is the maximum amount for which the government could be successful in forcing Rub to satisfy the outstanding liabilities of the consolidated group?
$4,800
Response Feedback:
Each member has joint and several liability for the entire amount of the group's income taxes, interest, and penalties outstanding.
1 out of 1 points
Question 8

Response Feedback:
1 out of 1 points
Question 9
Parent's charitable contributions

Response Feedback:

1 out of 1 points
Question 10
ParentCo, SubOne and SubTwo have filed consolidated returns since 2009. All of the entities were incorporated in 2008. Taxable income computations for the members include the following. None of the group members incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions.
2008 ParentCo's Taxable Income $200,000 and SubOne's Taxable Income $50,000 and SubTwo's Taxable Income $150,000 and Consolidated Taxable Income N/A. 2009 ParentCo's Taxable Income $200,000 and SubOne's Taxable Income ($60,000) and SubTwo's Taxable Income $70,000 and Consolidated Taxable Income $210,000. 2010 ParentCo's Taxable Income $60,000 and SubOne's Taxable Income ($80,000) and SubTwo's Taxable Income ($40,000) and Consolidated Taxable Income ?. 2011 ParentCo's Taxable Income $200,000 and SubOne's Taxable Income $130,000 and SubTwo's Taxable Income $10,000 and Consolidated Taxable Income ?.
$0 ParentCo, $40,000 SubOne, $20,000 SubTwo

Response
SubOne's Apportioned NOL=$40,000=$60,000 x [$80,000 ($80,000 + $40,000)]SubTwo's
Feedback:
Apportioned NOL=$20,000=$60,000 x [$40,000 ($80,000 + $40,000)]

1 out of 1 points
Question 1

Response Feedback:
1 out of 1 points
Question 2
ParentCo purchased all of the stock of SubCo on January 1, 2009, for $500,000. SubCo produced a loss for 2009 of $150,000 and distributed cash of $25,000 to ParentCo. In 2010, SubCo generated a loss of $750,000; in 2011, it recognized net income of $45,000. What is ParentCo's capital gain or loss if it sells all of its SubCo stock to a nongroup member on January 1, 2012, for $50,000?
$430,000
Response Feedback:
When accumulated deficits in the subsidiary's post-acquisition earnings and profits exceed the acquisition price, an excess loss account is created to permit the group to recognize current subsidiary losses while avoiding a negative stock basis. If the subsidiary stock is sold to a nongroup member, the balance of the excess loss account is recognized as capital gain income by the seller.
1 out of 1 points
Question 3
$130,000
Response Feedback:
1 out of 1 points
Question 4
Which of the following items is not computed on a consolidated basis?

Cost recovery deduction

Response Feedback:
Each group member may continue to apply the depreciation method best suited for its needs.
Question 5
1 out of 1 points
Which of the following potentially is a disadvantage of electing to file a Federal consolidated corporate income tax return?
Recognition of losses from certain intercompany transactions is deferred.

Response Feedback:
Deferred transactions can be deferred which is not usually a good thing.

1 out of 1 points
Question 6
either a or b, but not both

Response Feedback:
1 out of 1 points
Question 7
$0. Minor did not report an NOL of its own.

Response Feedback:
1 out of 1 points
Question 8
Response Feedback:
1 out of 1 points
Question 9

Response Feedback:
1 out of 1 points
Question 10

Response Feedback:
Question 1
0 out of 1 points
Martin has a basis in a partnership interest of $100,000. At the end of the current year, the partnership distributed to Martin, in a proportionate nonliquidating distribution, cash of $10,000, inventory (basis to the partnership of $6,000 and fair market value of $12,000), and land (basis to the partnership of $20,000 and fair market value of $15,000). In addition, Martin's share of partnership debt decreased by $10,000 during the year. What basis does Martin take in the inventory and land and in the partnership interest following the distribution?
$12,000 basis in inventory; $15,000 basis in land, $53,000 basis in partnership

Response Feedback:
Basis of Martin's interest $100,000 Less: Cash and deemed cash distribution (20,000), Basis before property distributions $80,000 Less: Inventory distribution (6,000) *Less: Land distribution (20,000)*Basis after property distributions $54,000 Martin's basis in the inventory and land equals the partnership's basis in these properties. Whether the property is appreciated or depreciated does not matter in this case since his basis in these properties is not limited.
0 out of 1 points
Question 2
A partnership will take a carryover basis in an asset it acquires when:

The partnership acquires the asset through a 1031 like-kind exchange.

Response Feedback:
When a partner contributes an asset to a partnership in exchange for a partnership interest under 721(a), the partnership takes a carryover basis for the asset under 723. Under 1031, a partnership takes a substituted basis for the asset received in the exchange so choice "a" is incorrect. The purchase of an asset from either a partner or an outside party will result in the asset taking a cost basis to the partnership, therefore choice "b" is also incorrect. Choice "d" is incorrect because when a partnership leases an asset from a partner under a shortterm lease the asset is not a partnership asset and is not recorded on the partnership books.
Question 3
0 out of 1 points
Partner Tom transferred property (basis of $20,000; fair market value of $50,000) to the TUV Partnership in exchange for a partnership interest. At a later date when Tom's outside basis for his partnership interest was $70,000, Tom received a $50,000 cash distribution from the partnership. Which one of the following statements is not true?
If the IRS treated the transaction as a disguised sale, the partnership's basis in the property would be $50,000. e. None of these statements are correct. A contribution and distribution are presumed to be a disguised sale if they occur within two years (choice a. is true). Conversely, if there is entrepreneurial risk related to the future distribution, the transaction is not generally treated as a disguised sale (choice c. is true). If a transaction is treated as a disguised sale it is treated as a sale for all calculations: The partnership takes a cost ($50,000) basis in the property (choice d. is true).
0 out of 1 points
Response Feedback:
Question 4
Wendy receives a proportionate nonliquidating distribution from the WXY Partnership. The distribution consists of $75,000 cash and property with an adjusted basis to the partnership of $20,000 and a fair market value of $25,000. Immediately before the distribution, Wendy's adjusted basis for her partnership interest is $90,000. Wendy's basis in the noncash property received is:
$25,000
Response Feedback:
Wendy's basis in the partnership interest is first reduced to $15,000 by the $75,000 cash distribution. Because this is a nonliquidating distribution, the basis in the noncash property is the lesser of $15,000 (remaining basis in the partnership interest) or the partnership's $20,000 basis in the property. The basis in the property, therefore, is $15,000, and Wendy's basis in the partnership interest is reduced to $0.
0 out of 1 points
Question 5
On a partnership's Form 1065, which of the following statements is always true?

The partnership balance sheet is required to be presented on a tax basis.

Response Feedback:
The partnership reconciles the "taxable income equivalent"-Net Income (Loss) from the Analysis of Income (Loss) to book income (choice a. is not true). The partnership's balance sheet (on Schedule L) will typically be reported on a book basis (choice b is not true). The partnership reports income from operations on Form 1065, page 1, and it reports other types of income and expenses (separately stated items) on Form 1065, Schedule K (choice c. is not true).
0 out of 1 points
Question 6
Which of the following partnership owners is personally liable for the entity's debts to general creditors?
A member of a limited liability company

Response Feedback:
General partners are jointly and severally liable for the partnership's debts. Limited partners are not required to make contributions to the entity beyond their contractual obligation for deferred capital contributions. Members of an LLC are generally not liable for entity debts. For states in which limited liability limited partnerships may be formed, neither the general nor the limited partners are liable for entity debts.
1 out of 1 points
Question 7
William's basis in the WAM Partnership interest was $100,000 just before he received a proportionate liquidating distribution consisting of investment land (basis of $30,000, fair market value $40,000), and inventory (basis of $30,000, fair market value $70,000). After the distribution, William's recognized gain or loss and his basis in the land and inventory are:
$0 gain or loss; $70,000 (land); $30,000 (inventory)

Response Feedback:
Under the ordering rules for distributions, cash is distributed first, followed by unrealized receivables and inventory; other assets are distributed last. For William, the inventory is distributed first and takes a carryover basis of $30,000. This reduces William's basis to $70,000. The land is distributed next. Because this is a liquidating distribution, the land absorbs
William's remaining basis in WAM of $70,000. William cannot claim a loss because he has received property other than cash, inventory, and unrealized receivables.
Question 8
0 out of 1 points
Catherine's basis was $50,000 in the CAR Partnership interest just before she received a proportionate nonliquidating distribution consisting of land held for investment (basis of $40,000, fair market value of $60,000) and inventory (basis of $40,000, fair market value of $40,000). After the distribution, Catherine's bases in the land and inventory are respectively:
$40,000 and $10,000

Response Feedback:
Under the ordering rules for distributions, cash is distributed first, followed by unrealized receivables and inventory; other assets are distributed last. For Catherine the inventory is distributed first and takes a carryover basis of $40,000. This reduces Catherine's basis to $10,000. The land is distributed next and takes the $10,000 remaining basis.
0 out of 1 points
Question 9
Kevin, Chuck, and Greg contributed assets to form the equal KCG Partnership. Kevin contributed cash of $50,000 and land with a basis of $80,000 (fair market value of $50,000). Chuck contributed cash of $30,000 and land with a basis of $40,000 (fair market value of $70,000). Greg 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?
All of these statements are correct.

Response Feedback:
Chuck's basis in the partnership interest equals the $30,000 cash plus his $40,000 basis in the property contributed. The other three statements are correct. Kevin's basis equals the cash contribution plus the $80,000 basis in the land. Greg's basis equals the $60,000 cash contribution since he had no basis in the property he contributed. The partnership takes a carryover basis in the three contributed properties.
0 out of 1 points
Question 10
Which of the following is an election or calculation made by the partner rather than the partnership?
The taxable year of the partnership

Response Feedback:
The partner determines the amount of the 199 deduction based on information provided by the partnership and taking into account the taxpayer's other domestic production activities.
1 out of 1 points
Question 1
Wendy receives a proportionate nonliquidating distribution from the WXY Partnership. The distribution consists of $75,000 cash and property with an adjusted basis to the partnership of $20,000 and a fair market value of $25,000. Immediately before the distribution, Wendy's adjusted basis for her partnership interest is $90,000. Wendy's basis in the noncash property received is:
$15,000
Response Feedback:
Wendy's basis in the partnership interest is first reduced to $15,000 by the $75,000 cash distribution. Because this is a nonliquidating distribution, the basis in the noncash property is the lesser of $15,000 (remaining basis in the partnership interest) or the partnership's $20,000 basis in the property. The basis in the property, therefore, is $15,000, and Wendy's basis in the partnership interest is reduced to $0.
0 out of 1 points
Question 2
None of the above

Response Feedback:
1 out of 1 points
Question 3
Chuck's basis in his partnership interest is $100,000.

Response Feedback:
0 out of 1 points
Question 4
None of these owners are personally liable for entity debts

Response Feedback:
1 out of 1 points
Question 5
Marty receives a proportionate nonliquidating distribution when the basis of her partnership interest is
$50,000. The distribution consists of $60,000 cash and noninventory property (adjusted basis to the partnership of $20,000; fair market value of $23,000). How much gain or loss does Marty recognize and what is her basis in the distributed property and in her partnership interest following the distribution?
$10,000 capital gain; $0 basis in property; $0 basis in partnership interest

Response Feedback:
Because Marty received a cash distribution in excess of her basis in the partnership interest before the distribution, she must recognize a capital gain in the amount of that excess, or $10,000 ($60,000 distribution - $50,000 basis before distribution). Her basis in the property she received is limited to the amount of the basis in the partnership interest following the cash distribution, or $0. Her basis in the partnership interest following all distributions remains $0.
0 out of 1 points
Question 6
Cardinal, LLC incurred $20,000 of startup expenses, $3,000 of organizational costs, and paid $10,000 in transfer taxes to change the title (ownership) of a building contributed by one of the LLC's members. Which of the following statements is correct regarding these three amounts?
Cardinal may deduct the full amount of the organizational costs.

Response Feedback:
Cardinal can deduct the first $5,000 of startup expenses and the remaining $15,000 of such expenses can be amortized over 180 months. Cardinal can deduct the entire $3,000 of organizational costs because the amount is less than $5,000. Cardinal must capitalize the $10,000 transfer tax as part of the basis in the building; this basis is treated as a new asset and depreciated in the same manner in which the underlying building is depreciated.
1 out of 1 points
Question 7

Response Feedback:
Under the ordering rules for distributions, cash is distributed first, followed by unrealized receivables and inventory; other assets are distributed last. For William, the inventory is distributed first and takes a carryover basis of $30,000. This reduces William's basis to $70,000. The land is distributed next. Because this is a liquidating distribution, the land absorbs William's remaining basis in WAM of $70,000. William cannot claim a loss because he has received property other than cash, inventory, and unrealized receivables.
1 out of 1 points
Question 8
The amount of the 199 (domestic production activities) deduction related to partnership activities The partner determines the amount of the 199 deduction based on information provided by
Response
Feedback:
the partnership and taking into account the taxpayer's other domestic production activities.
0 out of 1 points
Question 9
Barry owns a 25% interest in a continuing partnership. The partnership distributes a $20,000 year-end cash bonus to all the partners. In a proportionate nonliquidating distribution, the partnership also distributed property (basis of $2,000; fair market value of $3,000) to Barry. Immediately before the distribution, Barry's basis in the partnership interest was $30,000. As a result of the distribution, Barry recognizes:
Capital loss of $7,000

Response Feedback:
On a nonliquidating distribution, the partner does not recognize a loss. Instead, the basis in the partnership interest is reduced by the cash received and by the partnership's basis in the property received. Barry's basis in his partnership interest immediately following the distribution is $8,000 ($30,000 - $20,000 - $2,000).
0 out of 1 points
Question 10
When property is contributed to a partnership for a capital and profits interest, the holding period of the contributing partner's interest:
Always starts the day the property was contributed

Response Feedback:
Generally, the holding period of a partner's interest includes the holding period of any capital assets or 1231 property contributed by the partner. The holding period related to other property starts on the day the partnership interest is acquired.
0 out of 1 points
Question 1
A partner in a limited liability limited partnership

Response Feedback:
1 out of 1 points
Question 2
When property is contributed to a partnership for a capital and profits interest, the holding period of the contributing partner's interest:
May include the holding period of the contributed property

Response Feedback:
Generally, the holding period of a partner's interest includes the holding period of any capital assets or 1231 property contributed by the partner. The holding period related to other property starts on the day the partnership interest is acquired.
Question 3
1 out of 1 points
The amount of the 199 (domestic production activities) deduction related to partnership activities The partner determines the amount of the 199 deduction based on information provided by the partnership and taking into account the taxpayer's other domestic production activities.
1 out of 1 points
Response Feedback:
Question 4
Cardinal, LLC incurred $20,000 of startup expenses, $3,000 of organizational costs, and paid $10,000 in transfer taxes to change the title (ownership) of a building contributed by one of the LLC's members. Which of the following statements is correct regarding these three amounts?
All of the above statements are true.

Response Feedback:
Cardinal can deduct the first $5,000 of startup expenses and the remaining $15,000 of such expenses can be amortized over 180 months. Cardinal can deduct the entire $3,000 of organizational costs because the amount is less than $5,000. Cardinal must capitalize the $10,000 transfer tax as part of the basis in the building; this basis is treated as a new asset and depreciated in the same manner in which the underlying building is depreciated.
1 out of 1 points
Question 5
No gain or loss
Response Feedback:
On a nonliquidating distribution, the partner does not recognize a loss. Instead, the basis in the partnership interest is reduced by the cash received and by the partnership's basis in the property received. Barry's basis in his partnership interest immediately following the distribution is $8,000 ($30,000 - $20,000 - $2,000).
1 out of 1 points
Question 6

Response Feedback:
Under the ordering rules for distributions, cash is distributed first, followed by unrealized receivables and inventory; other assets are distributed last. For William, the inventory is
distributed first and takes a carryover basis of $30,000. This reduces William's basis to $70,000. The land is distributed next. Because this is a liquidating distribution, the land absorbs William's remaining basis in WAM of $70,000. William cannot claim a loss because he has received property other than cash, inventory, and unrealized receivables.
Question 7
1 out of 1 points
Partner Tom transferred property (basis of $20,000; fair market value of $50,000) to the TUV Partnership in exchange for a partnership interest. At a later date when Tom's outside basis for his partnership interest was $70,000, Tom received a $50,000 cash distribution from the partnership. Which one of the following statements is not true?
If the transaction is treated as a disguised sale, Tom's basis in the partnership interest will be $20,000. A contribution and distribution are presumed to be a disguised sale if they occur within two years (choice a. is true). Conversely, if there is entrepreneurial risk related to the future distribution, the transaction is not generally treated as a disguised sale (choice c. is true). If a transaction is treated as a disguised sale it is treated as a sale for all calculations: The partnership takes a cost ($50,000) basis in the property (choice d. is true).
0 out of 1 points
Response Feedback:
Question 8
Landon received $30,000 cash and a capital asset (basis of $60,000 and fair market value of $80,000) in a proportionate liquidating distribution. His basis in his partnership interest was $100,000 prior to the distribution. How much gain or loss does Landon recognize and what is his basis in the asset received?
$10,000 gain; $80,000 basis

Response Feedback:
Because Landon has received property other than cash and unrealized receivables or inventory, no loss may be recognized on the liquidating distribution. The capital asset will take a substituted basis of $70,000, which was Landon's remaining basis in his partnership interest after the cash distribution is considered.
1 out of 1 points
Question 9

Response Feedback:
1 out of 1 points
Question 10
$10,000 and $40,000

Response Feedback:
1 out of 1 points
Question 1
A general partner in a general partnership

Response Feedback:
1 out of 1 points
Question 2

Response Feedback:
1 out of 1 points
Question 3
No gain or loss
Response Feedback:
On a nonliquidating distribution, the partner does not recognize a loss. Instead, the basis in the partnership interest is reduced by the cash received and by the partnership's basis in the property
received. Barry's basis in his partnership interest immediately following the distribution is $8,000 ($30,000 - $20,000 - $2,000).
Question 4
1 out of 1 points

Response Feedback:
Under the ordering rules for distributions, cash is distributed first, followed by unrealized receivables and inventory; other assets are distributed last. For William, the inventory is distributed first and takes a carryover basis of $30,000. This reduces William's basis to $70,000. The land is distributed next. Because this is a liquidating distribution, the land absorbs William's remaining basis in WAM of $70,000. William cannot claim a loss because he has received property other than cash, inventory, and unrealized receivables.
1 out of 1 points
Question 5
Marty receives a proportionate nonliquidating distribution when the basis of her partnership interest is $50,000. The distribution consists of $60,000 cash and noninventory property (adjusted basis to the partnership of $20,000; fair market value of $23,000). How much gain or loss does Marty recognize and what is her basis in the distributed property and in her partnership interest following the distribution?
$10,000 capital gain; $0 basis in property; $0 basis in partnership interest

Response Feedback:
Because Marty received a cash distribution in excess of her basis in the partnership interest before the distribution, she must recognize a capital gain in the amount of that excess, or $10,000 ($60,000 distribution - $50,000 basis before distribution). Her basis in the property she received is limited to the amount of the basis in the partnership interest following the cash distribution, or $0. Her basis in the partnership interest following all distributions remains $0.
1 out of 1 points
Question 6
Landon received $30,000 cash and a capital asset (basis of $60,000 and fair market value of $80,000) in a proportionate liquidating distribution. His basis in his partnership interest was $100,000 prior to the distribution. How much gain or loss does Landon recognize and what is his basis in the asset received?
$0 gain or loss; $70,000 basis

Response Feedback:
Because Landon has received property other than cash and unrealized receivables or inventory, no loss may be recognized on the liquidating distribution. The capital asset will take a substituted basis of $70,000, which was Landon's remaining basis in his partnership interest after the cash distribution is considered.
1 out of 1 points
Question 7
Catherine's basis was $50,000 in the CAR Partnership interest just before she received a proportionate
nonliquidating distribution consisting of land held for investment (basis of $40,000, fair market value of $60,000) and inventory (basis of $40,000, fair market value of $40,000). After the distribution, Catherine's bases in the land and inventory are respectively:
$10,000 and $40,000

Response Feedback:
1 out of 1 points
Question 8
The amount of the 199 (domestic production activities) deduction related to partnership activities The partner determines the amount of the 199 deduction based on information provided by the partnership and taking into account the taxpayer's other domestic production activities.
1 out of 1 points
Response Feedback:
Question 9
A partnership will take a carryover basis in an asset it acquires when:

The partnership acquires the asset from a partner as a contribution to partnership capital under 721(a). When a partner contributes an asset to a partnership in exchange for a partnership interest under 721(a), the partnership takes a carryover basis for the asset under 723. Under 1031, a partnership takes a substituted basis for the asset received in the exchange so choice "a" is incorrect. The purchase of an asset from either a partner or an outside party will result in the asset taking a cost basis to the partnership, therefore choice "b" is also incorrect. Choice "d" is incorrect because when a partnership leases an asset from a partner under a shortterm lease the asset is not a partnership asset and is not recorded on the partnership books.
Response Feedback:
Question 10
1 out of 1 points
Martin has a basis in a partnership interest of $100,000. At the end of the current year, the partnership distributed to Martin, in a proportionate nonliquidating distribution, cash of $10,000, inventory (basis to the partnership of $6,000 and fair market value of $12,000), and land (basis to the partnership of $20,000 and fair market value of $15,000). In addition, Martin's share of partnership debt decreased by $10,000 during the year. What basis does Martin take in the inventory and land and in the partnership interest following the distribution?
$6,000 basis in inventory; $20,000 basis in land, $54,000 basis in partnership

Response Feedback:
Basis of Martin's interest $100,000 Less: Cash and deemed cash distribution (20,000), Basis before property distributions $80,000 Less: Inventory distribution (6,000) *Less: Land
distribution (20,000)*Basis after property distributions $54,000 Martin's basis in the inventory and land equals the partnership's basis in these properties. Whether the property is appreciated or depreciated does not matter in this case since his basis in these properties is not limited.
Question 1
0 out of 1 points
The maximum number of S shareholders is:

Indeterminable
Response Feedback:
They are limited to 100 shareholders.

1 out of 1 points
Question 2
Which, if any, of the following can be eligible shareholders of an S corporation?

A resident alien
Response Feedback:
A resident alien can own stock in an S corporation.

0 out of 1 points
Question 3
On January 2, 2009, David loans his S corporation $10,000, and by the end of 2009 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2010, the company's operating income is $10,000. The company also makes distributions to David of $11,000. Which statement is correct?
$11,000 LTCG
Response Feedback:
The $11,000 distribution reduced the $10,000 income, so there is no "net increase" to be applied to the loan basis. Thus, the $11,000 distribution reduces the new $10,000 stock basis to zero, with a $1,000 LTCG.
0 out of 1 points
Question 4
During 2010, Shirley Nutt, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. On December 31, 2009, her stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. It has no accumulated E & P. Which statement is correct?
Nutt's stock basis will be $2,000.

Response Feedback:
$11,000 ordinary income; $15,000 return of capital, $1,000 capital gain. Nutt's stock basis is increased by the $11,000 ordinary income allocable to her, giving a basis of $15,000 before the distribution. The first $15,000 of the distribution is a return of capital, reducing the stock basis to zero. The remaining $1,000 constitutes capital gain (the excess over stock basis).
0 out of 1 points
Question 5
How large must total assets on Schedule L be at the end of the year for an S corporation to be required to file Schedule M-3?
Not required to file

Response Feedback:
$10 million will require them to file a different schedule.
Question 6
0 out of 1 points
Samantha owned 1,000 shares in Evita, Inc., an S corporation, that uses the calendar year. On October 11, 2010, Samantha sells all of her Evita stock. Her basis at the beginning of 2010 was $60,000. Her share of the corporate income for 2010 was $22,000, and she receives a distribution of $37,000 between January 1 and October 11, 2010. Her basis at the time of the sale is:
$60,000
Response Feedback:
$60,000 + $22,000 - $37,000 = $45,000.

0 out of 1 points
Question 7
Which statement is incorrect with respect to filing for an S election?

An extension of time is available for filing Form 2553.

Response Feedback:
All items are correct.

0 out of 1 points
Question 8
What statement is correct with respect to an S corporation?

An S corporation can own 85% of an insurance company.

Response Feedback:
Shareholders can include estates.

0 out of 1 points
Question 9
Which equity arrangement would stop a corporation from being an S corporation?

Stock appreciation rights

Response Feedback:
An S corporation can't have an insurance company structure.

1 out of 1 points
Question 10
Which type of distribution from an S corporation is taxed at the 0/15% rate?

AEP
Response Feedback:
AEP is taxed at this rate level.

1 out of 1 points
Question 1

A resident alien
Response Feedback:

1 out of 1 points
Question 2
$45,000
Response Feedback:
$60,000 + $22,000 - $37,000 = $45,000.

1 out of 1 points
Question 3
How large must total assets on Schedule L be at the end of the year for an S corporation to be required to file Schedule M-3?
$10 million
Response Feedback:
$10 million will require them to file a different schedule.

1 out of 1 points
Question 4

AEP
Response Feedback:

1 out of 1 points
Question 5

An insurance company structure

Response Feedback:

1 out of 1 points
Question 6
On January 1, 2010, Kinney, Inc. , an electing S corporation, has $4,000 of AEP and a balance of $10,000 in AAA. Kinney has two shareholders, Erin and Maine, each of whom owns 500 shares of Kinney's stock. Kinney's 2010 taxable income is $5,000. Kinney distributes $6,000 to each shareholder on February 1, 2010, and distributes another $3,000 to each shareholder on September 1. How is Erin taxed on this distribution?
$1,500 dividend income

Response Feedback:
AAA is $15,000 ($10,000 + $5,000) as of December 31, 2010, before taking into account the two distributions. Thus, the sum of the distributions ($18,000) exceeds Kinney's AAA by
$3,000. A portion of the $15,000 AAA balance is allocated to each of the February 1 and September 1 distributions, based upon the respective sizes of the distributions, as follows. February 1: $12,000/$18,000 x $15,000 = $10,000 September 1: $6,000/$18,000 x $15,000 = $5,000 Thus, Erin and Maine must both report dividend income of $1,000 for the February 1 distribution and $500 each for the September 1 distribution. Assuming that the shareholders have sufficient basis in their stock, both Erin and Maine each have a $7,500 return of capital from AAA.
Question 7
0 out of 1 points
Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?
Unreasonable compensation
Response Feedback:
None of these are adjustments on the M-2 to the other adjustments account.
1 out of 1 points
Question 8
$1,000 LTCG
Response Feedback:
1 out of 1 points
Question 9
The maximum number of S shareholders is:

100
Response Feedback:
They are limited to 100 shareholders.

0 out of 1 points
Question 10
An S corporation may be subject to the following tax.

None of the above is paid by S corporations.

Response Feedback:
S Corporations can be charged a built-in gains tax.

1 out of 1 points
Question 1

A resident alien
Response Feedback:

1 out of 1 points
Question 2
$1,000 LTCG
Response Feedback:
1 out of 1 points
Question 3
An S corporation may be subject to the following tax.

Built-in gains tax

Response Feedback:
S Corporations can be charged a built-in gains tax.

1 out of 1 points
Question 4
What statement is correct with respect to an S corporation?

An estate may be a shareholder.

Response Feedback:
Shareholders can include estates.

1 out of 1 points
Question 5
Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?
None of the above

Response Feedback:
None of these are adjustments on the M-2 to the other adjustments account.
1 out of 1 points
Question 6
$45,000
Response Feedback:
$60,000 + $22,000 - $37,000 = $45,000.
Question 7
1 out of 1 points

An insurance company structure

Response Feedback:

1 out of 1 points
Question 8
Which statement is incorrect?

None of the above

Response Feedback:
All of these statements are correct.

1 out of 1 points
Question 9

AEP
Response Feedback:

1 out of 1 points
Question 10
During 2010, Shirley Nutt, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. On December 31, 2009, her stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. It has no accumulated E & P. Which statement is correct?
Nutt recognizes a $1,000 LTCG.

Response Feedback:
$11,000 ordinary income; $15,000 return of capital, $1,000 capital gain. Nutt's stock basis is increased by the $11,000 ordinary income allocable to her, giving a basis of $15,000 before the distribution. The first $15,000 of the distribution is a return of capital, reducing the stock basis to zero. The remaining $1,000 constitutes capital gain (the excess over stock basis).
Question 1
0 out of 1 points
The tax rules regarding the income taxation of trusts and estates are included in which Subchapter of the Internal Revenue Code?
K
Response Feedback:
Subchapter J covers income taxation of trusts and estates.

0 out of 1 points
Question 2
Which corporation is eligible to make the S election?

Foreign corporation
Response Feedback:
This is the only corporation on the list that is allowed to make the S election.
0 out of 1 points
Question 3
Which of the following is not generally a disadvantage of filing Federal corporate income tax returns on a consolidated basis?
The election generally is binding for future tax years.

Response Feedback:
This is an advantage of consolidation.

1 out of 1 points
Question 4
Which of the following taxpayers use a Schedule K and K-1 to pass through income, loss, and credit amounts to the owners or beneficiaries?
All of the above taxpayers use Schedule K and K-1

Response Feedback:
All of these taxpayers are considered pass through entities.

0 out of 1 points
Question 5
The Jain Estate is required to pay its entire annual accounting income to Sam and Janet. The estate's personal exemption is:
$300
Response Feedback:
Estates have a personal exemption of $600.

0 out of 1 points
Question 6
Which statement is incorrect about an S corporation?

An S corporation can be a partner in a partnership.

Response Feedback:
A partnership can't own S corporation stock.

1 out of 1 points
Question 7
Which of the following is not a requirement that must be met before a group files a consolidated return?
All of the corporations must be members of an affiliated group.

Response Feedback:
This does not need to be in place for a group to file a consolidated return.
0 out of 1 points
Question 8

S corporations resemble partnerships under the Federal income tax law.

Response Feedback:
S corporations don't have alternative minimum tax since they don't pay tax.
0 out of 1 points
Question 9
At the beginning of the year, Elsie's basis in the E&G Partnership interest is $60,000. She receives a proportionate nonliquidating distribution from the partnership consisting of $10,000 of cash, unrealized accounts receivable (basis of $0, fair market value $30,000), and inventory (basis of $10,000, fair market value of $20,000). After the distribution, Elsie's bases in the accounts receivable, inventory, and partnership interest are:
$30,000; $20,000; and $0

Response Feedback:
Elsie's $60,000 basis is first reduced by the cash distribution of $10,000 to $50,000. The accounts receivable and inventory are distributed next and take carryover bases of $0 and $10,000, respectively. This reduces the basis in the partnership interest to $40,000.
1 out of 1 points
Question 10
Which of the following is a typical duty of a trustee?

Determine the date on which trust terminates

Response Feedback:
Trustees need to determine the date on which the trust terminates.

0 out of 1 points
Question 11
The distributable net income (DNI) of a fiduciary taxpayer:

Specifies the character of the distributions in the hands of the year's income beneficiaries
Response Feedback:
All of these items are true of DNI.
Question 12
1 out of 1 points
During the current year, the Madison Trust received $40,000 of taxable interest income, paid trustee's commissions of $4,000, and had no other income or expenses. The trust instrument requires that $20,000 be paid annually to Marilyn, and $40,000 be paid annually to Domingo. How much gross income must Marilyn and Domingo recognize?
$12,000 by Marilyn and $24,000 by Domingo

Response Feedback:
On the first tier, distributable net income of $36,000 is attributable to the two income beneficiaries, pro rata to the amounts required to be distributed to each. Thus, Marilyn recognizes $12,000 (2/6 x $36,000), and Domingo recognizes $24,000 (4/6 x $36,000).
0 out of 1 points
Question 13
The Roz Trust has distributable net income for the year of $100,000 and no income from tax-exempt sources. Under the terms of the trust instrument, the trustee must distribute $30,000 to Roger and $30,000 to Sally. After paying these amounts, the trustee is empowered to make additional distributions at its discretion. Exercising this authority, the trustee distributes an additional $10,000 to Roger and $30,000 to Sally. How much gross income from the trust must Sally recognize?
$80,000
Response Feedback:
Sally is taxed on $30,000 for the first-tier distribution and $30,000 on the second-tier, computed as follows. First tier distributions Roger $30,000 + Sally $30,000 = $60,000 total. Total distributable net income is ($100,000). DNI available for second-tier distribution is $40,000 (difference between $100,000 and $60,000). Second-tier distributions Roger $10,000 + Sally $30,000 = $40,000. Second-tier amount taxable to Roger is 10/40 x $40,000 = $10,000. Secondtier amount taxable to Sally is 30/40 x $40,000 = $30,000.
1 out of 1 points
Question 14
Which of the following is a correct definition of a concept related to partnership taxation?

The entity concept treats partners and partnerships as separate units and gives the partnership its own tax "personality." he entity concept treats the partnership as a distinct unit; this is the theory under which the partnership is required to file an information return. Choice a. is the definition of a profit sharing ratio. Choice d. is the definition of a separately stated item. For choice b., the partnership's inside basis equals the partnership's basis in its assets, as contrasted with the partners' outside basis (not capital account) in the partnership interest.
0 out of 1 points
Response Feedback:
Question 15
The trustee of the Epsilon Trust distributed an asset to Telly, a qualifying income beneficiary. The asset's basis to the trust was $10,000, and its fair market value on the distribution date was $25,000. Which of the following statements is true?
Answer Selected
Answer:
Assuming that the trustee made an election under 643(e), the trust is allowed a $10,000 distribution deduction for this transaction. The beneficiary will take on the basis of the asset to the trust.
1 out of 1 points
Response Feedback:
Question 16
The Jain Trust is required to pay its entire annual accounting income to the Daytona Museum, a qualifying charity. The trust's personal exemption is:
$300
Response Feedback:
Only a complex trust can make a charitable contribution.

0 out of 1 points
Question 17
The Code defines a "simple trust" as which of the following?

One whose grantor was not a corporation

Response Feedback:
A trust that distributes the income each year is called a simple trust.
0 out of 1 points
Question 18
This year, the Nano Trust reported $50,000 entity accounting income and $40,000 distributable net income (DNI). Nano distributed $30,000 cash to Horatio, its sole income beneficiary. Nano is a complex trust. Nano's distribution deduction is:
$0. Because the distributions of a complex trust are discretionary, no deduction is allowed.
Response Feedback:
The distribution deduction is the lesser of DNI or the amounts actually paid.
0 out of 1 points
Question 19
Which one of the following statements regarding partnership taxation is always correct?
A partnership is a taxable entity for Federal income tax purposes.

Response Feedback:
The partnership reports income from operations on Form 1065, page 1, and it reports other types of income and expenses (separately stated items) on Form 1065, Schedule K (choice b. is correct). A partnership is not taxed (choice a.). A partnership must file a tax return (choice c.). A partner's capital-sharing ratio may differ from that partner's profit- or loss-sharing ratio (choice d.).
1 out of 1 points
Question 20
The Roz Trust has distributable net income for the year of $100,000 and no income from tax-exempt sources. Under the terms of the trust instrument, the trustee must distribute $80,000 to Roger and $80,000 to Sally. After paying these amounts, the trustee is empowered to make additional distributions at its discretion. Exercising this authority, the trustee distributes an additional $20,000 to Roger and $20,000 to Sally. How
much gross income from the trust must Sally recognize?

$50,000
Response Feedback:
DNI is distributed in full with the first-tier distributions for the tax year. Thus, Sally is taxed on her 80/160 share of the DNI, or $50,000.
1 out of 1 points
Question 1

100% owned corporation

Response Feedback:
1 out of 1 points
Question 2
$600
Response Feedback:

0 out of 1 points
Question 3
Delphi is a complex trust. This year it distributed all of its accounting income and $1,000 from corpus. Delphi's taxable income for the year is:
($1,000)
Response Feedback:
After computing distributable net income and the distribution deduction, a fiduciary entity that distributes all of its accounting income generally "wastes" its personal exemption.
1 out of 1 points
Question 4
Gains from one affiliate can be offset by losses from another. This reduces the tax liabilities of the group as a whole. This is an advantage of consolidation.
1 out of 1 points
Response Feedback:
Question 5
Answer
Selected Answer:

Response Feedback:

0 out of 1 points
Question 6

An S corporation may not allocate income and deduction items to specific shareholders, like a partnership does. S corporations don't have alternative minimum tax since they don't pay tax.
1 out of 1 points
Response Feedback:
Question 7
$300
Response Feedback:

1 out of 1 points
Question 8
$30,000
Response Feedback:
1 out of 1 points
Question 9

Response Feedback:
1 out of 1 points
Question 10
$50,000
Response Feedback:
1 out of 1 points
Question 11
J
Response Feedback:

1 out of 1 points
Question 12
Lacking any election by the trustee, Telly's basis in the asset is $10,000.
Response Feedback:
The beneficiary will take on the basis of the asset to the trust.
1 out of 1 points
Question 13


Response Feedback:

1 out of 1 points
Question 14
$0; $10,000; and $40,000

Response Feedback:
0 out of 1 points
Question 15
The Watson Trust incurred the following items during the year.
Taxable interest received $60,000, Tax-exempt interest received $40,000, Tax preparation fees paid $10,000. What is Watson's deduction for the tax preparation fees?
$10,000
Response Feedback:
No deduction is allowed for the proportionate amount deemed paid from the exempt income.
1 out of 1 points
Question 16

All of the above

Response Feedback:

1 out of 1 points
Question 17

Response Feedback:
1 out of 1 points
Question 18

One which must distribute its accounting income every year

Response Feedback:
0 out of 1 points
Question 19

The partnership's inside basis is defined as the sum of each partner's capital account balance.
Response Feedback:
The entity concept treats the partnership as a distinct unit; this is the theory under which the partnership is required to file an information return. Choice a. is the definition of a profit sharing ratio. Choice d. is the definition of a separately stated item. For choice b., the partnership's inside basis equals the partnership's basis in its assets, as contrasted with the
partners' outside basis (not capital account) in the partnership interest.

Question 20
0 out of 1 points
Members of a controlled group share all but which of the following tax attributes?
The $40,000 AMT exemption.

Response Feedback:
The 179 deduction is not a common tax attribute shared.

1 out of 1 points
Question 1
Sam receives a proportionate nonliquidating distribution when the basis of his partnership interest is $40,000. He received a cash distribution of $25,000 and a property distribution (basis of $10,000 and fair market value of $12,000). In addition, Sam's share of partnership liabilities was reduced by $20,000 during the year. How much gain or loss does Sam recognize; what is his basis in the property he received; and what is his remaining basis in the partnership interest?
$5,000 gain; $0 basis in property; $0 remaining basis

Response Feedback:
Sam's basis is first reduced by the $25,000 cash distribution and the $20,000 relief of liabilities (treated as a cash distribution). As the $45,000 distribution exceeds Sam's basis by $5,000, a $5,000 gain results and Sam's basis is reduced to $0. The property distributed takes the lesser of a carryover basis ($10,000) or Sam's remaining basis in the partnership interest ($0); therefore, Sam has no basis in the property he received and no remaining basis in the partnership interest.
1 out of 1 points
Question 2
The 179 depreciation amount allowed.

Response Feedback:

1 out of 1 points
Question 3
$0; $10,000; and $40,000

Response Feedback:
0 out of 1 points
Question 4
The Watson Trust incurred the following items during the year. Taxable interest received $60,000, Tax-exempt interest received $40,000, Tax preparation fees paid $10,000. What is Watson's deduction for the tax preparation fees?
$0
Response Feedback:
1 out of 1 points
Question 5
$300
Response Feedback:

1 out of 1 points
Question 6
Partnership income is comprised of ordinary partnership income or loss and separately stated items. The partnership reports income from operations on Form 1065, page 1, and it reports other types of income and expenses (separately stated items) on Form 1065, Schedule K (choice b. is correct). A partnership is not taxed (choice a.). A partnership must file a tax return (choice c.). A partner's capital-sharing ratio may differ from that partner's profit- or loss-sharing ratio (choice d.).
1 out of 1 points
Response Feedback:
Question 7
$600
Response Feedback:

1 out of 1 points
Question 8
Response Feedback:

1 out of 1 points
Question 9
Response Feedback:
1 out of 1 points
Question 10

Response Feedback:
0 out of 1 points
Question 11
Beneficiary Terry received $40,000 from the Urgent Trust. Trust accounting income for the year was $50,000. The trust generated $30,000 in cost recovery deductions. How much can Terry deduct with respect to the cost recovery deductions that Urgent generated?
$30,000
Response Feedback:
$30,000 (cost recovery deductions) X [$40,000 (accounting income received by Terry) $50,000 (entity accounting income)].
1 out of 1 points
Question 12

A partnership can own S corporation stock.

Response Feedback:

1 out of 1 points
Question 13

The alternative minimum tax applies to some S corporations.

Response Feedback:
1 out of 1 points
Question 14

Response Feedback:
1 out of 1 points
Question 15

1 out of 1 points
Response Feedback:
Question 16
$50,000
Response Feedback:
1 out of 1 points
Question 17

Response Feedback:
1 out of 1 points
Question 18

Response Feedback:
1 out of 1 points
Question 19
$60,000
Response Feedback:
0 out of 1 points
Question 20
$0.
Response Feedback:
1 out of 1 points
Question 1

1 out of 1 points
Response Feedback:
Question 2


Response Feedback:
Question 3
1 out of 1 points


Response Feedback:

1 out of 1 points
Question 4

Response Feedback:
1 out of 1 points
Question 5

Response Feedback:

1 out of 1 points
Question 6

All of the above

Response Feedback:

0 out of 1 points
Question 7
($300)
Response Feedback:
1 out of 1 points
Question 8
Response Feedback:

1 out of 1 points
Question 9
$24,000
Response Feedback:
1 out of 1 points
Question 10

Response Feedback:
1 out of 1 points
Question 11
$0; $10,000; and $40,000

Response Feedback:
1 out of 1 points
Question 12
Response Feedback:

1 out of 1 points
Question 13
$60,000
Response Feedback:
1 out of 1 points
Question 14


Response Feedback:
1 out of 1 points
Question 15


Response Feedback:

1 out of 1 points
Question 16

Response Feedback:
1 out of 1 points
Question 17
$300
Response Feedback:

1 out of 1 points
Question 18
$50,000
Response Feedback:
1 out of 1 points
Question 19
Response Feedback:
1 out of 1 points
Question 20
$600
Response Feedback:

1 out of 1 points
Question 1
$50,000
Response Feedback:
1 out of 1 points
Question 2

Response Feedback:
1 out of 1 points
Question 3


Response Feedback:

1 out of 1 points
Question 4
J
Response Feedback:

1 out of 1 points
Question 5
$60,000
Response Feedback:
Sally is taxed on $30,000 for the first-tier distribution and $30,000 on the second-tier, computed as follows. First tier distributions Roger $30,000 + Sally $30,000 = $60,000 total. Total distributable net income is ($100,000). DNI available for second-tier distribution is $40,000 (difference between $100,000 and $60,000). Second-tier distributions Roger $10,000 + Sally
$30,000 = $40,000. Second-tier amount taxable to Roger is 10/40 x $40,000 = $10,000. Secondtier amount taxable to Sally is 30/40 x $40,000 = $30,000.
Question 6
1 out of 1 points

1 out of 1 points
Response Feedback:
Question 7
Partnership income is comprised of ordinary partnership income or loss and separately stated items. The partnership reports income from operations on Form 1065, page 1, and it reports other types of income and expenses (separately stated items) on Form 1065, Schedule K (choice b. is correct). A partnership is not taxed (choice a.). A partnership must file a tax return (choice c.). A partner's capital-sharing ratio may differ from that partner's profit- or loss-sharing ratio (choice d.).
1 out of 1 points
Response Feedback:
Question 8
Response Feedback:
1 out of 1 points
Question 9


Response Feedback:

1 out of 1 points
Question 10
Delphi is a complex trust. This year it distributed all of its accounting income and $1,000 from corpus.
Delphi's taxable income for the year is:

($100)
Response Feedback:
1 out of 1 points
Question 11

All of the above

Response Feedback:

1 out of 1 points
Question 12

Response Feedback:

1 out of 1 points
Question 13
$0; $10,000; and $40,000

Response Feedback:
1 out of 1 points
Question 14

Response Feedback:
1 out of 1 points
Question 15

Answer
Selected Answer:
The alternative minimum tax applies to some S corporations.

Response Feedback:
1 out of 1 points
Question 16
$24,000
Response Feedback:
1 out of 1 points
Question 17

Response Feedback:

1 out of 1 points
Question 18
$30,000
Response Feedback:
1 out of 1 points
Question 19
Gains from one affiliate can be offset by losses from another. This reduces the tax liabilities of the group as a whole. This is an advantage of consolidation.
0 out of 1 points
Response Feedback:
Question 20
The Watson Trust incurred the following items during the year. Taxable interest received $60,000, Tax-exempt interest received $40,000, Tax preparation fees paid $10,000.
What is Watson's deduction for the tax preparation fees?

$4,000
Response Feedback:

ACT400 - Mastery Exercise

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cQuestion 1 0 out of 1 points Jason, an architect, is the sole shareholder of Purple Corporation, a personal service corporation.

Answer: Response Feedback: Question 6

Selected Answer: Response Feedback:

Response Feedback: Question 8

Arm's length concept

Which of the following statements is incorrect about the check-the-box Regulations?

Regarding technical advice memoranda, which statement is incorrect?

Issued by the National Office of IRS

This may not be used as precedent.

Carlos must report $20,000 of income from the partnership.

Which provision is not justified by social considerations?

Like-kind exchange treatment

The like-kind exchange treatment does not tie to social considerations.

15% rate applies to Geneva and 25% rate applies to Gulf.

Which provision is not justified by social considerations?

Like-kind exchange treatment

The like-kind exchange treatment does not tie to social considerations.

Regulations may first be found in:

Regulations are first published in the Federal Register

Which provision could best be justified as a means of controlling the economy?

Accelerated depreciation method for depreciable capital expenditures.

The accelerated depreciation will save on taxes.

Which of the following statements is incorrect about the check-the-box Regulations?

15% rate applies to Geneva and 25% rate applies to Gulf.

Arm's length concept

The salary for the deferral period.

QPAI is $600 ($1,700 - $800 - $300).

$99,000 (9% x $1.1 million). The taxable income limitation applies.

$13 million x 9% x 35% = $409,500

$100,000 QPAI x 9% = $9,000

Black Corporation has a basis of $240,000 in the property.

Eve recognizes a gain of $230,000.

As a result of the transfer, Tony recognizes a gain of $10,000.

$100,000 QPAI x 9% = $9,000

None of the above

Jane recognizes a gain of $750,000; Walt recognizes a gain of $650,000.

Kim recognizes no taxable gain on the transfer.

Erica recognizes gain of $400,000.

Which statement is false?

The DPAD is not limited to C corporations.

$13 million x 9% x 35% = $409,500

Red Corporation has a basis of $60,000 in the real estate.

None of the above

Kim recognizes no taxable gain on the transfer.

$100,000 QPAI x 9% = $9,000

$99,000 (9% x $1.1 million). The taxable income limitation applies.

None of the above

QPAI is $600 ($1,700 - $800 - $300).

Emily has a basis of $60,000 in the shares of Red Corporation.

$100,000 QPAI x 9% = $9,000

Which statement is false?

None of the above

Robin Corporation has a basis of $300,000 in the land.

None of the above

Kim recognizes no taxable gain on the transfer.

QPAI is $600 ($1,700 - $800 - $300).

Eve recognizes a gain of $50,000.

Pat has a long-term capital gain of $60,000.

Frank has dividend income of $160,000.

Marina owns, directly and indirectly, 85 shares in Hawk Corporation.

Amata's basis in her remaining 350 shares is $60,000.

None of the above