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Page 03 Page 04 1) Which of the following statements regarding proposed regulations is not correct? A. Proposed and temporary regulations are generally issued simultaneously. B. Practitioners and other interested parties may comment on proposed regulations. C. Proposed regulations do not provide any insight into the IRS's interpretation of the tax law. D. Proposed regulations expire after 3 years. 2) Which of the following documents is issued by the IRS to a specific taxpayer? A. Letter ruling B. Revenue procedure C. Information release D. Regulation 3) Regulations are A. presumed to be valid and to have almost the same weight as the IRC B. equal in authority to legislation if statutory C. equal in authority to legislation if interpretative D. equal in authority to legislation 4) Which of the following statements about a partnership is true? A. Partners are taxed on their allocable share of income whether it is distributed or not. B. Partners are considered employees of the partnership. C. A partnership is a taxpaying entity. D. Partners are taxed on distributions from a partnership. A. Partners are taxed on their allocable share of income whether it is distributed or not. 5) Which of the following statements is incorrect? A. Limited partners' liability for partnership debt is limited to their amount of investment. B. In a general partnership, all partners have unlimited liability for partnership debts. C. In a limited partnership, all partners participate in managerial decision-making. D. All of the statements are correct. 6) Which of the following statements is correct? A. S shareholders are taxed on their proportionate share of earnings that are distributed. B. S shareholders are taxed on their proportionate share of earnings whether or not distributed. C. An owner of a C corporation is taxed on his or her proportionate share of earnings. D. S shareholders are only taxed on distributions. 7) Three members form an LLC in the current year. Which of the following statements is incorrect? A. The LLC can elect to be taxed as a C corporation with no special tax consequences. B. If the LLC elects to use its default classification, it can elect to change its status to being taxed as a C corporation beginning with the third tax year after the initial classification. C. The LLC's default classification under the check-the-box rules is as a partnership. D. The LLC can elect to have its default classification ignored. 8) Identify which of the following statements is false. A. A business need not be incorporated under state or federal law to be taxed as a corporation. B. Once an election is made to change its classification, an entity cannot change again for 60 months. C. The check-the-box regulations permit an LLC to be taxed as a C corporation. D. Under the check-the-box regulations, an LLC that has only two members (owners) must be taxed as a partnership. A. A business need not be incorporated under state or federal law to be taxed as a corporation. 9) Identify which of the following statements is true. A. Under the check-the-box regulations, an LLC that has one member (owner) may be disregarded as an entity separate from its owner. B. An unincorporated business may not be taxed as a corporation. C. A new LLC that is owned by four members elects to be taxed under its default classification (as a partnership) in its first year of operations. The entity is prohibited from changing its tax classification at any time in the future. D. All are false. 10) Identify which of the following statements is true. A. A transferor's gain or loss that goes unrecognized when Sec. 351 applies is permanently exempt from taxation. B. If a taxpayer transfers property and services as part of a transaction meeting the Sec. 351 requirements, all of the stock received is counted in determining whether the property transferors have acquired control. C. If a taxpayer transfers property and services as part of a transaction meeting the Sec. 351 requirements, the nonrecognition of gain or loss will apply to the services. D. All are false. 11) Matt and Sheila form Krupp Corporation. Matt contributes property with a FMV of $55,000 and a basis of $35,000. Sheila contributes property with a FMV of $75,000 and a basis of $40,000. Matt sells his stock to Paul shortly after the exchange. The transaction will A. qualify with respect to Sheila under Sec. 351 whether Matt qualifies or not B. qualify under Sec. 351 only if an advance ruling has been obtained C. not qualify under Sec. 351 D. qualify under Sec. 351 if Matt can show the sale to Paul was not part of a prearranged plan 12) Rose and Wayne form a new corporation. Rose contributes cash for 85% of the stock and Wayne contributes services for 15% of the stock. The tax effect is A. Rose and Wayne are not required to recognize their realized gains. B. Wayne must report the FMV of the stock received as ordinary income. C. Rose and Wayne must recognize their realized gains, if any. D. Wayne must report the FMV of the stock received as capital ACC/455 Final Exam 13) Identify which of the following statements is true. A. In computing an NOL for the current year, a deduction is allowed for NOLs from previous years. B. All are false. C. A corporate NOL can be carried back 2 years and forward 15 years. D. An election to forgo an NOL carryback must be made on or before the return due date (including extensions) for the year in which the NOL is incurred. 14) Identify which of the following statements is true. A. A corporation that accrues compensation payable to an employee must pay the amount within two and one-half months after the close of the taxable year to deduct the amount in the year of the accrual. B. Accrued compensation that is deductible in the year of accrual is considered to be part of an IRS deferred compensation plan. C. Accrued compensation not paid within three and one-half months after the close of the corporation tax year is deducted in the year following the accrual. D. All are false. 15) Identify which of the following statements is true. A. A corporation is a separate taxpaying entity that must file a tax return annually. B. A newly formed corporation must select its basic accounting method. 13) Identify which of the following statements is true. A. In computing an NOL for the current year, a deduction is allowed for NOLs from previous years. B. All are false. C. A corporate NOL can be carried back 2 years and forward 15 years. D. An election to forgo an NOL carryback must be made on or before the return due date (including extensions) for the year in which the NOL is incurred. A. A corporation is a separate taxpaying entity that must file a tax return annually. C. The terms regular corporation and C corporation are synonymous. D. All of the statements are true. 16) Edison Corporation is organized on July 31. The corporation starts business on August 10. The corporation adopts a November 30 fiscal year end. The following expenses are incurred during the year: Type Attorneys fees associated with obtaining charter Underwriter fees for stock sale Transfer cost for property contributed to the corporation for stock Costs of organizational meetings Legal fees to modify charter What is the maximum amount of organizational expenditures that can be deducted by the corporation for its first tax year ending November 30? A. $5,156 B. $800 C. $16,000 D. $12,000 17) Trail Corporation has gross profits on sales of $140,000 and deductible expenses of $180,000. In addition, Trail has a net capital gain of $60,000. Trail's taxable income is 13) Identify which of the following statements is true. A. In computing an NOL for the current year, a deduction is allowed for NOLs from previous years. B. All are false. C. A corporate NOL can be carried back 2 years and forward 15 years. D. An election to forgo an NOL carryback must be made on or before the return due date (including extensions) for the year in which the NOL is incurred. A. $60,000 B. $20,000 C. $20,000 loss D. $40,000 loss 18) Island Corporation has the following income and expense items for the year. Gross receipts from sales Dividends received from 15%-owned domestic corporation Expenses connected with sales The taxable income of Island Corporation is A. $42,000 B. $100,000 C. $70,000 D. $47,000 19) Which of the following items are adjustments made to arrive at alternative minimum taxable income? A. Statutory exemption B. Excess percentage depletion 13) Identify which of the following statements is true. A. In computing an NOL for the current year, a deduction is allowed for NOLs from previous years. B. All are false. C. A corporate NOL can be carried back 2 years and forward 15 years. D. An election to forgo an NOL carryback must be made on or before the return due date (including extensions) for the year in which the NOL is incurred. A. Statutory exemption C. Excess of depreciation claimed on personally acquired in the current year for taxable income purposes over that claimed for alternative minimum tax purposes D. Tax-exempt interest income earned on private activity bonds 20) When computing a corporation's alternative minimum taxable income, its taxable income is A. increased by 75% of the excess of adjusted current earnings over taxable income B. only increased (never decreased) by tax preference items C. only increased (never decreased) by adjustments D. increased by the statutory exemption of $40,000 21) Which of the following is not an adjustment in calculating AMTI? A. The difference between the gains for AMTI and regular tax purposes B. Gain on installment sales of noninventory property C. The regular tax NOL deduction D. Production activities deduction ACC/455 Final Exam 22) Boxer Corporation buys equipment in January of the current year with a 7-year class life for $15,000. The corporation expensed the $15,000 under Sec. 179. The deduction in the year of purchase for E&P purposes due to the acquisition and expensing of the equipment is A. $15,000 B. $1,500 C. $3,000 D. $14,000 23) Identify which of the following increases Earnings & Profits. A. A capital contribution B. Life insurance proceeds payable to the spouse C. Tax-exempt interest income D. All of these increase E & P of a corporation. 24) Identify which of the following statements is false. A. Adjustments to taxable income when computing E&P do not include tax exempt interest. B. For E&P dividend distribution purposes, property as defined in Sec. 317(a) includes money. C. The function of E&P is to provide a measure of a corporation's economic ability to pay dividends. D. At formation, a corporation's E&P depends on the amount of capital contributed by the shareholders. 25) Identify which of the following statements is true. A. If both the current and accumulated E&P have deficit balances, a corporate distribution cannot be characterized as a dividend. B. The shareholder's basis in property received in a nonliquidating distribution is the property's FMV reduced by liabilities assumed by the shareholder. C. A corporation recognizes gain when distributing money as a dividend to its shareholders. D. All are false. 22) Boxer Corporation buys equipment in January of the current year with a 7-year class life for $15,000. The corporation expensed the $15,000 under Sec. 179. The deduction in the year of purchase for E&P purposes due to the acquisition and expensing of the equipment is A. $15,000 B. $1,500 C. $3,000 D. $14,000 26) Identify which of the following statements is true. A. Section 179 property must be expensed ratably over a 5-year period when computing E&P. B. Losses on property sales to related parties are not deductible when computing E&P. C. Distributions made out of accumulated E&P are allocated ratably between multiple distributions made during the tax year. D. All are false. 27) Current E&P does not include A. tax-exempt interest income B. life insurance proceeds where the corporation is the beneficiary C. federal income tax refunds from prior years D. All of the these are included 28) Hogg Corporation distributes $30,000 to its sole shareholder, Ima. At the time of the distribution, Hoggs' E&P is $14,000 and Ima's basis in her stock is $10,000. Ima's gain from this transaction is A. $30,000 capital gain B. $6,000 capital gain C. $14,000 capital gain D. $20,000 capital gain 22) Boxer Corporation buys equipment in January of the current year with a 7-year class life for $15,000. The corporation expensed the $15,000 under Sec. 179. The deduction in the year of purchase for E&P purposes due to the acquisition and expensing of the equipment is A. $15,000 B. $1,500 C. $3,000 D. $14,000 29) Wills Corporation, which has accumulated and current E&P totaling $65,000, distributes land to its sole shareholder, an individual. The land has a FMV of $75,000 and an adjusted basis of $55,000. The shareholder assumes a $15,000 liability associated with the land. The shareholder will recognize A. $65,000 of dividend income and have a $65,000 basis in the land B. $65,000 of dividend income and have a $75,000 basis in the land C. $60,000 of dividend income and have a $60,000 basis in the land D. $60,000 of dividend income and have a $75,000 basis in the land 30) Wills Corporation, which has accumulated and current E&P totaling $70,000, distributes land to its sole shareholder, an individual. The land has a FMV of $75,000 and an adjusted basis of $60,000. The shareholder assumes a $15,000 liability associated with the land. The transaction will have the following tax consequences. A. The corporation will recognize no gain; the shareholder will recognize dividend income of $60,000. B. The corporation will recognize no gain; the shareholder will recognize dividend income of $75,000. C. The corporation will recognize a $15,000 gain; the shareholder will recognize dividend income of $75,000. D. The corporation will recognize a $15,000 gain; the shareholder will recognize dividend income of $60,000. 31) Joshua owns 100% of Steeler Corporation's stock. Joshua's basis in the stock is $8,000. Steeler Corporation has E&P of $40,000. If Steeler Corporation redeems 60% of Joshua's stock for $50,000, Joshua must report dividend income of 22) Boxer Corporation buys equipment in January of the current year with a 7-year class life for $15,000. The corporation expensed the $15,000 under Sec. 179. The deduction in the year of purchase for E&P purposes due to the acquisition and expensing of the equipment is A. $15,000 B. $1,500 C. $3,000 D. $14,000 A. $50,000 B. $8,000 C. $0 D. $40,000 32) Elijah owns 20% of Park Corporation's single class of stock. Elijah's basis in the stock is $8,000. Park's E&P is $28,000. If Park redeems all of Elijah's stock for $48,000, Elijah must report dividend income of A. $48,000 B. $28,000 C. $0 D. $40,000 33) Which of the following is not a condition that permits a stock redemption to be treated as a sale? A. The redemption completely terminates the shareholder's interest. B. It is not essentially equivalent to a dividend. C. It provides funds for payment of income taxes. D. The redemption is substantially disproportionate