3. (TCO 2) Bow Inc., a closely held corporation (not a PSC), has a $350,000 loss from a passive activity, $135,000 of active income, and $160,000 of portfolio income. How much is Bow's taxable income? (Points : 5)

($55,000) $0 $135,000 $295,000 $160,000

Question 4.4. (TCO 2) Tranquil Corporation, a calendar-year corporation, has alternative minimum taxable income (before any exemption) of $1.28 million. The company is not a small corporation. If the regular corporate tax is $209,000, which is Tranquil's alternative minimum tax? (Points : 5)

$47,000 $209,000 $256,000 $1,280,000 None of the above

Question 5.5. (TCO 3) As of January 1, Exact Corporation has a deficit in accumulated E and P of $37,500. For tax year, current E and P (all of which accrued ratably) is $20,000 (prior to any distribution). On July 1, Exact Corporation distributes $25,000 to its sole, noncorporate shareholder. Which is the amount of the distribution that is a dividend? (Points : 5)

$0 $20,000 $25,000 $37,500 None of the above

Question 6.6. (TCO 3) Hammer Corporation has E and P of $75,000. It distributes land with a fair market value of $60,000 (adjusted basis of $25,000) to its sole shareholder, Rodney. The land is subject to a liability of $20,000 that Rodney assumes. How does this information impact Rodney's taxable dividend or basis in the land? (Points : 5)

Rodney has a taxable dividend of $60,000. Rodney has a taxable dividend of $40,000. Rodney has a taxable dividend of $35,000. Rodney has a taxable dividend of $20,000. Rodney's basis in the land is $25,000.

Question 7.7. (TCO 4) Aztec, a C corporation, distributed an asset to Burn, a shareholder. The asset had a fair market value of $30,000 and was subject to a $40,000 liability, assumed by Burn. The asset had an adjusted basis of $25,000. What amount of gain must Aztec recognize? (Points : 5)

$0 $5,000 $10,000 $15,000

Question 8.8. (TCO 5) Jennifer exchanges her 20% interest in Dove Corporation for 10,000 shares of Relish Corporation (value $200,000) and $40,000 cash. Jennifer's basis in her Dove stock is $95,000. The accumulated earnings of Dove are $325,000, and the accumulated earnings of Relish are $225,000 at the time of the reorganization. How does Jennifer treat this transaction for tax purposes? (Points : 5)

No gain is recognized by Jennifer in this reorganization. Jennifer reports a $40,000 recognized dividend Jennifer reports a $40,000 recognized capital gain. Jennifer reports a $35,000 recognized dividend and a $5,000 capital gain. None of the above

Question 9.9. (TCO 6) How are the members of a consolidated group affected by computations related to E and P? (Points : 5)

E and P is computed solely on a consolidated basis. Consolidated E and P is computed as the sum of the E and P balances of each of the group members. Members E and P balances are frozen as long as the consolidation election is in place. Each member keeps its own E and P account. None of the above

Question 10.10. (TCO 11) Which statement, if any, does not reflect the rules governing the negligence accuracy-related penalty? (Points : 5)

The penalty rate is 20%. The penalty is imposed only on the part of the deficiency attributable to negligence. The penalty applies to all federal taxes, except when fraud is involved. The penalty is waived if the taxpayer uses Form 8275 to disclose a return position that is reasonable, though contrary, to the IRS position. None of the above

1. (TCO 7) Christina is a partner in the Fence Partnership, which is not publicly traded. Her allocable share of Fence's passive ordinary losses from a nonrealty activity for the current year is ($200,000). Christina has a $140,000 adjusted basis (outside basis) for her interest in Fence (before deduction of any of the passive losses). Her amount at risk under 465 is $110,000 (before deduction of any of the passive losses). She also has $75,000 of passive income from other sources. How much of the $200,000 passive loss allocated to her can Christina deduct on her current year's tax return? (Points : 5)

$75,000 $110,000 $140,000 $200,000 None of the above

Question 2.2. (TCO 7) Ruth contributed property ($80,000 basis and fair market value of $120,000) to the HRS Partnership in exchange for a 50% interest in partnership capital and profits. During the first year of partnership operations, HRS had net taxable income of $60,000 and tax-exempt income of $56,000. The partnership distributed $24,000 cash to Ruth. Her share of partnership recourse liabilities on the last day of the partnership year was $32,000. Which is Ruth's adjusted basis (outside basis) for her partnership interest at year-end? (Points : 5)

$110,000 $146,000 $144,000 $196,000 None of the above

Question 3.3. (TCO 7) Aretha and Alan formed the AA Partnership. Aretha contributed $50,000 cash in exchange for her 50% interest in the partnership capital and profits. During the first year of partnership operations, the following events occurred: the partnership had net taxable income of $70,000, Aretha received a distribution of $17,000 cash from the partnership, and she had a 50% share in the $40,000 of partnership recourse liabilities on the last day of the partnership year. Which is Aretha's adjusted basis for her partnership interest at year-end? (Points : 5)

$105,000 $88,000 $90,000 $50,000 None of the above

Question 4.4. (TCO 8) Bristol Corp. was formed as a C corporation on January 1, Year 1, and elected S corporation status on January 1,Year 3. At the time of the election, Bristol had accumulated C corporation earnings and profits, which have not been distributed. Bristol has had the same 25 shareholders throughout its existence. In Year 6, Bristol's S election will terminate if it (Points : 5)

increases the number of shareholders to 100. adds a decedent's estate as a shareholder to the existing shareholders. takes a charitable contribution deduction. has passive investment income exceeding 90% of gross receipts in each of the three consecutive years ending December 31, Year 5.

Question 5.5. (TCO 8) Which transaction affects the other adjustments account on an S corporation's Schedule M-2? (Points : 5)

Taxable dividends Stock dividend (taxable) 1245 gain Tax-exempt income None of the above

Question 6.6. (TCO 9) Tony (single) gives his married daughter Diane $50,000 as a gift. Which of the following is true? (Points : 5)

Diane must pay tax on the gift, less the $14,000 exemption. Tony can deem the gift as $25,000 to Diane and $25,000 to her husband, and then reduce each gift by $14,000 so only $22,000 is considered a taxable gift to him. Tony can reduce the gift by $14,000 so only $36,000 is a taxable gift to him. Because the gift is less than Tony's lifetime exemption, he can ignore it. None of the above

Question 7.7. (TCO 9) Jay and Ivana are husband and wife and live in Pennsylvania. Using joint funds, in 1990 they purchase an insurance policy on Jay's life and designated their daughter, Debby, as the beneficiary. The policy has a maturity value of $2,000,000. Jay dies first, and the insurance proceeds are paid to Debby. As to the proceeds, (Points : 5)

Jay's taxable estate includes $0, and no other tax consequences ensue. Jay's taxable estate includes $2,000,000. Jay's taxable estate includes $0, and Ivana makes a gift of $2,000,000 to Debby. Jay's taxable estate includes $1,000,000, and Hillary makes a gift to Debby of $1,000,000. None of the above

Question 8.8. (TCO 10) The trustee of the Pennsylvania Trust is not required to distribute all of the current-year annual accounting income of the trust to its sole beneficiary, Sherry. Which is the trust's personal exemption? (Points : 5)

$600 $300 $100 $0 None of the above

Question 9.9. (TCO 10) The standard deduction for a trust or an estate in the fiduciary income tax return is(Points : 5)

$0. $650. $750. $800.

Question 10.10. (TCO 10) Carter purchased 100 shares of stock for $50 per share. Ten years later, Carter died on February 1 and bequeathed the 100 shares of stock to a relative, Boone, when the stock had a market price of $100 per share. One year later, on April 1, the stock split 2 for 1. Boone gave 100 shares of the stock to another of Carter's relatives, Dixon, on June 1 that same year when the market value of the stock was $150 per share. What was Dixon's basis in the 100 shares of stock when acquired on June 1? (Points : 5)

$5,000 $5,100 $10,000 $15,000

1. (TCO 8) Gulf Corporation elects S status effective for tax year 2014. As of January 1, 2014, Gulf's assets were appraised as follows.

	Adjusted Basis	Fair Market Value
Cash	$16,010	$16,010
Accounts receivable	--0--	$55,400
Inventory (FIFO)	$70,000	$90,000
Investment in land	$110,000	$195,000
Building	$220,000	$275,000
Goodwill	--0--	$93,000

In each of the following situations, calculate any built-in gains tax, assuming that the highest corporate tax rate is 35%. C corporation taxable income would have been $100,000. (I) During 2014, Gulf collects $48,000 of the accounts receivable and sells 80% of the inventory for $99,000. (II) In 2015, Gulf sells the land held for investment for $203,000. (III) In 2016, the building is sold for $270,000. (Points : 30)

Question 2.2. (TCO 7) Ruth owns a 25% capital and profits interest in the calendar-year RDV Partnership. Her adjusted basis for her partnership interest on July 1 of the current year is $170,000. On that date, she receives a proportionate nonliquidating distribution of the following assets.

	Partnership's Basis in Asset	Asset's Fair Market Value
Cash	$90,000	$90,000
Inventory	$110,000	$140,000
Land (held for investment)	$100,000	$160,000

(I) Calculate Ruth's recognized gain or loss on the distribution, if any. (II) Calculate Ruth's basis in the inventory received. (III) Calculate Ruth's basis in land received. The land is a capital asset. (IV) Calculate Ruth's basis for her partnership interest after the distribution. (Points : 30)

Question 3.3. (TCO 9) Paul owns an insurance policy on the life of his father, Rick. Upon Rick's death, the policy proceeds of $2,000,000 are paid to the designated beneficiary, Candace. What are the tax consequences resulting from Rick's death based on the following assumptions? (I) Candace is Paul's daughter. (II) Candace is Paul's wife. (III) What are the tax consequences if Paul dies first (i.e., predeceases both Candace and Rick)? (Points : 30)

Question 4.4. (TCO 10) In each of the following independent situations, describe the effect of the disclaimer procedure on Floyd's taxable estate. In this regard, advise as to how much should be disclaimed, by whom, and whether a disclaimer should be made. Assume the year involved is 2014. (I) Floyd's will leaves $5,540,0000 to his adult son and the remainder ($900,000) to Ann (Floyd's surviving wife). (II) Floyd's will leaves $8,340,000 to Ann (Floyd's surviving wife) and the remainder ($2,000,000) to his adult daughter. (III) Floyd's will leaves $5,590,000 to Ann (Floyd's surviving wife) and the remainder ($500,000) to a qualified charity. (Points : 30)

Question 5.5. (ALL TCOs) You are the director of a Washington, D.C., think tank focusing on tax and economic policy issues. You were recently (and informally) contacted by staff of the Congressional Joint Committee on Taxation to weigh in on a number of issues currently under consideration by the committee. In particular, the committee asked you to reflect upon the following proposed changes and issues. (I) The committee has proposed phasing out the corporate alternate minimum tax (AMT). (II) The committee has considered repealing the estate tax permanently, but it plans on retaining the gift tax. (III) The committee is intrigued by the idea of eliminating the double taxation of corporate earnings. The members are, however, unsure which level of taxation should be eliminated. The committee would like for you to summarize your conclusions regarding the potential effectsboth good and badof these potential changes. In formulating your answer, please discuss all of the possible tax and economic implications that you see arising from these transactions on all taxpayers. (Points : 30)