1.Sandra Sherman incorporates her apartment building. It has a basis of $50,000, a value of$150,000, is subject to a mortgage of $70,000 and has a depreciation recapture potential of $12,000. If Sandra receives stock worth $80,000, she will recognize:

a. No gain.

b. $30,000 of gain, $12,000 of which is ordinary.

c. $12,000 of ordinary income.

d. $20,000 of gain, $12,000 of which is ordinary.

One year Potter, Inc. had gross income from sales of $210,000, business expenses of $230,000, and dividend income from U.S. corporations of $150,000. Potter's 80 percent dividends-received deduction was:

a. $104,000

b. $120,000

c. $0

d. $150,000

Exclusive of capital transactions, Pixie Corp. had $100,000 of taxable income. Its capital gains and losses were:

Short-term gain	$10,000
Long-term gain	12,000
Short-term loss	(20,000)
Long-term loss	5,000

Pixie's taxable income for the year was:

a. $97,000

b. $122,000

c. $100,000

d. $107,000

Black & White, Inc. has $20,000 in taxable income, plus a long-term capital gain of $10,000. Its tax liability is:

a. $4,500

b. $10,200

c. $5,800

d. $7,500

Two sole proprietors in the same business join their businesses by incorporating. Harvey Holmes transfers assets with a total basis of $10,000 and a value of $40,000 for 40 shares of stock. Mortimer Morgan transfers assets with a total basis of $15,000, subject to liabilities of $50,000, with a value of $110,000, for 60 shares of stock. The following statements about the transaction are all false, except:

a. Since transferred liabilities of $50,000 exceed aggregate basis of $25,000, both parties must recognize gain.

b. Harvey may have a different basis and holding period in different shares of the stock received.

c. Most likely, there will be some general business tax credit recapture upon the transfer of assets to the corporation.

d. At least one of the parties may have compensation income in the above transaction.

When comparing corporate and individual taxation the following statements are true, except:

a. Individuals have exemptions and a standard deduction, corporations do not.

b. Both types of taxpayers have percentage limitations on the charitable contribution deduction, coupled with a carryover of the excess contribution.

c. All taxpayers may carry net operating losses back two years, forward 20.

d. Both corporate and individual taxpayers may have a long-term capital loss carryforward.

Kevin Broid owns all the stock of Dana Corporation. During the year, Kevin sold a building to Dana for $150,000. The building cost $120,000, its adjusted basis was $94,000, and it was depreciated under the straight-line method. Dana intends to use the building in its operations. Kevin's tax consequences of the sale are:

a. $56,000 dividend income

b. $56,000 ordinary income

c. $56,000 Code Sec. 1231 gain

d. $26,000 ordinary income and $30,000 Code Sec. 1231 gain

e. $56,000 long-term capital gain

Future, Inc. reported the following results for the year:

Net income per books	$110000
Federal income taxes	36170
Life insurance proceeds on key employee	15000
Tax-exempt interest income	13000
Net capital loss	25000

Future's taxable income for the year was:

a. $123,170

b. $143,170

c. $72,000

d. $135,000

e. $107,000

Centor Corporation's unappropriated retained earnings on January 1, 2015, were $678,000. For 2015 its net income per books was $120,000. It paid cash dividends of $93,000 in 2015 and it appropriated $75,000 of retained earnings during 2015. Centor Corporation's unappropriated retained earnings on December 31, 2015, were:

a. $630,000

b. $798,000

c. $603,000

d. $510,000

e. $585,000

f. $705,000

Comic Books Corporation, a calendar year corporation, had a net operating loss of $50,000 for 2015. Comic Books made a proper election to forgo the carryback period. For 2016, Comic Books correctly deducted $40,000 of the 2015 loss. Comic Books will lose the remaining $10,000 if it cannot be deducted by the end of which tax year?

a. 2022

b. 2025

c. 2030

d. 2035

11. Grounded Air Flight Company had E&P of $50,000 when it distributed land held as an investment with a basis of $10,000, a value of $50,000, but subject to a liability of $30,000 to an individual shareholder. After the distribution, E&P equals:

a. $50,000

b. $70,000

c. $30,000

d. $60,000

12. Bulls & Bears, Inc., a securities dealer, had E&P of $2,000 when it distributed securities with a basis of $3,000 and a value of $10,000 to a 30 percent shareholder, Eunice. As a result of the distribution, E&P is:

a. Reduced by $3,000

b. Increased by $7,000

c. Increased by $7,000, then reduced by $9,000

d. Reduced by $10,000

13. Nirvana Corporation has accumulated E&P of $5,000, but a current deficit of $2,000. If Nick Normans, the sole shareholder, has a basis of $7,000 in his stock and receives a distribution of $13,000 in the beginning of the year, his gross income equals:

a. $0

b. $13,000

c. $6,000

d. $7,000

.Minerva, Inc. has one class of stock, owned 20 percent by Mr. Peters, 20 percent by Mrs. Peters, 15 percent by Mrs. Peters's brother, 10 percent by Mr. & Mrs. Peters' grandchild, and 35 percent by an irrevocable trust with Mrs. Peters' son from a previous marriage as beneficiary. Mr. and Mrs. Peters own the following percentage of Minerva, Inc. directly and constructively:

a. Mr. Peters: 50%; Mrs. Peters: 100%

b. Mr. Peters: 50%; Mrs. Peters: 85%

c. Mr. Peters: 65%; Mrs. Peters: 85%

d. Mr. Peters: 65%; Mrs. Peters: 100%

15. A shareholder may receive a long-term capital gain on the following transactions, except (assume ample E&P):

a. Liquidating distribution

b. Complete redemption of stock, not coupled with a 10-year agreement

c. Sale of stock to another shareholder, while retaining the position as president and board member

d. Sale of 50 percent of the stock in one corporation in which he is a 100 percent owner to another corporation in which he has only 50 percent control

16. The following statements about family attribution under Code Sec. 318 for purposes of redemptions under Code Sec. 302 are all true, except:

a. Entities may waive family attribution on complete terminations by filing a 10-year agreement.

b. Grandchildren, but not grandparents, are "related" taxpayers.

c. Siblings are deemed to own stocks owned by each other.

d. Options are included as if they were stocks.

17. General Company has four equal shareholders who are unrelated. Each shareholder owns 300 shares of stock. During the year General redeemed 150 shares from Michael, 75 shares from Joseph, and 40 shares from John. The redemption was substantially disproportionate for:

a. Michael and Joseph

b. Michael and John

c. Joseph only

d. Michael only

e. None

18. Harold Hampter owns 100 percent of Clawson Company. Clawson's E&P is $500,000. Harold needs to withdraw $100,000 from the company. Which of the following transactions might be reclassified as a constructive (disguised) dividend?

a. $100,000 bonus; Harold's compensation (before the bonus) is $350,000, relatively equal to what other presidents of similarly sized companies earn.

b. $100,000 in return for a promissory note from Harold, due upon demand but not having a fixed due date.

c. $100,000 in return for property Harold would lease to the corporation.

d. $100,000 gift from the corporation to Harold.

e. All of the above.

19. Cookies Corporation distributed land to its sole shareholder. On the date of distribution, the land had a fair market value of $85,000 and an adjusted basis to Cookies of $42,000. What is the amount of Cookies's gain on the distribution?

a. $0

b. $42,000

c. $43,000

d. $85,000

20. Jennifer owns 56 percent of Jimbo Corporation. Jimbo Corporation redeemed some of her shares during the year. After the redemption she owned 46 percent of the company. The redemption will qualify for sale or exchange treatment under:

a. Code Sec. 302(b)(1)

b. Code Sec. 302(b)(2)

c. Code Sec. 302(b)(3)

d. Code Sec. 302(b)(4)

e. none of the above

21. The Trap Corporation liquidates. One shareholder, who owned 30 percent of the stock, receives for the stock, inventory worth $90,000 with a basis of $70,000. Trap Corporation will recognize:

a. $20,000 of capital gain

b. $20,000 of ordinary income

c. $20,000 of Sec. 1231 gain

d. No gain

22. Rapid, Inc., a cash basis corporation, distributes $30,000 of accounts receivable to Sylvester, an individual shareholder, in cancellation of his stock, pursuant to a plan of complete liquidation. If Sylvester's basis in his stock is $10,000 the tax result is:

a. Rapid has no gain, but Sylvester has ordinary income of $20,000.

b. Rapid recognizes $30,000 of ordinary income and Sylvester has no gain or loss.

c. Rapid recognizes $30,000 of ordinary income and Sylvester has a capital gain of $20,000.

d. Rapid recognizes no gain and Sylvester recognizes a capital gain of $20,000 under Section 331.

INK, Ltd. distributes inventory with a basis of $20,000 to a shareholder in complete liquidation. The shareholder, who has a basis of $10,000 for the stock, immediately sells the inventory independently for $50,000. Tax results to the parties are:

a. INK recognizes $30,000 of ordinary income, and the shareholder recognizes $40,000 of capital gain.

b. INK recognizes no gain or loss, but the shareholder recognizes $40,000 of ordinary income.

c. INK recognizes $30,000 of ordinary income and the shareholder recognizes no gain or loss.

d. INK recognizes no gain or loss and the shareholder recognizes $30,000 of ordinary income and $10,000 of capital gain.

24. Link, Inc. liquidated and distributed its only asset with a basis of $100,000 and a value of $250,000 to its only shareholder, Lincoln Adams, who has a basis of $50,000 for his stock. The tax consequences, in part, are as follows, if both parties are in the 30 percent tax bracket:

a. Basis of property to shareholder: $200,000; combined tax liability: $105,000

b. Basis of property to shareholder: $250,000; combined tax liability: $91,500

c. Basis of property to shareholder: $150,000; combined tax liability: $90,000

d. Basis of property to shareholder: $200,000; combined tax liability: $120,000

25. The following statements regarding a corporation's liquidating distribution of loss assets to shareholders are all false, except:

a. The liquidating corporation cannot recognize a loss on a liquidating distribution.

b. A loss can be recognized on a subsidiary liquidating distribution to which Code Sec. 332 applies.

c. The liquidating corporation cannot recognize a loss on a distribution to a shareholder who is a "related taxpayer."

d. The general rule is that all losses are realized and recognized, subject to some exceptions.