Which form of business organization is limited by the Internal Revenue Code (IC) concerning the number and type of shareholders?

• A partnership
• An S corporation
• A C corporation
• A sole proprietorship

What is one tax advantage of a sole proprietorship?

• It uses the same accounting period for business and personal uses.
• It may not deduct compensation paid to owner-employees
• It is not subject to taxation as a separate entity.
• It is taxed based on the profits of the business, whether the profits are kept in the business or used for personal use.

What is an advantage of the partnership form of business?

• The income of a partnership is taxed at the partnership level.
• A partner is subject to self-employment tax rather than the partnership tax.
• Partners report their share of partnership losses on their annual returns.
• A partnership files an entity return, and the partners file separate returns.

Why would it be beneficial for a C corporation to avoid making distributions to its shareholders?

0 If retained in the business, the corporate earnings cannot be reinvested and used to reduce debt.

0 The corporation's marginal rate may be lower than the owners' marginal rates.

0 Shareholders are not taxed on the corporation's earnings unless the earnings are distributed.

0 If the earnings are retained, the corporation is subject to the accumulated earnings tax but not the Foreign Repatriation Tax.

How can a C corporation make payments to shareholders and avoid double taxation of its corporate income?

O By distributing property instead of cash to the shareholders

O By paying its shareholder-employees a salary instead of a dividend

OBy retaining its earnings and not pay out dividends for several years

OBy using net operating loss carryforwards to offset corporate income

What is one advantage of an S corporation?

O Dividends usually received by an S corporation are eligible for the dividends received deduction.

O An S corporation's income is typically exempt from a corporate level tax.

O The S corporation's earnings are taxed to the shareholders whether or not they are distributed.

O The tax rate on the first $50,000 of S corporation income is 15%.

If a large publicly traded corporation in the U.S. has a June 30 year-end, which year-end must the corporation use when preparing its federal corporate tax return?

O December 31

OJune 30

OJuly 1

O January 1

A calendar-year, accrual-basis corporation expects to have $2.000,000 in gross income for the current year. it implements a long-term bonus program for its employees. To do

this, they plan to pay out $500,000 in bonuses to their top 20 outstanding salespeople

The corporation immediately signs a promise to pay these bonuses to the employees. The bonuses will be paid out in equal annual increments each February for the next four years.

Assuming the corporation has $600,000 in other deductions this year, how much will its taxable income for the current year be?

O $900,000

O$1,275,000

O$1,500,000

O$1,875,000

A February 28 fiscal-year, accrual-basis corporation donates $25,000 cash to a national charity foundation on March 31, 2022. The board of directors approved the donation on February 1, 2022.

On which tax return can this corporation deduct the charitable contributions?

O December 31, 2021

O February 28, 2022

O December 31, 2022

O February 28, 2023

A corporation has a taxable income of $100,000.

What is this corporation's income tax liability?

O $15,000

O $21,000

O $25,000

0 $34,000

How do corporations account for capital gains for tax purposes?

O Capital gains may be carried forward five years to offset capital losses.

O Capital gains are taxed at the corporation's ordinary rates.

O Capital gains are taxed at preferential rates.

O Capital gains may be carried back three years to offset capital losses.

How do corporations account for federal income tax expense for tax purposes?

O As a favorable temporary adjustment

O As a favorable permanent adjustment

O As an unfavorable permanent adjustment

O As an unfavorable temporary adjustment

How do corporations account for entertainment expense for tax purposes?

O As an unfavorable permanent adjustment

O As an unfavorable temporary adjustment

O As a favorable permanent adjustment

O As a favorable temporary adjustment

What is an advantage of using debt in a corporation's capital structure?

O The full value of the debt is taxed at the capital gains tax rate.

O The interest paid on the debt is deducted from the firm's taxable income.

O The interest paid on the debt is taxed at the capital gains tax rate.

O The full value of the debt is deducted from the firm's taxable income.

What creates a book-tax difference that must be reconciled on a Schedule M-1 or Schedule M-3 for a corporation?

O Salaries paid to shareholder employees

O Bonuses paid to employees

OMeal expenses incurred in a lunch meeting during which business is directly discussed

OBad debt expense when the corporation used the direct write-off method for book accounting purposes.

A corporation has taxable income of $500,000 including tax-exempt interest of $40,000. It has federal income tax liability of $170,000 and non-deductible penalties paid to the Securities and Exchange Commission of $300,000

What are the firm's earnings and profits?

O $70.000

O $350,000

O $850,000

O $10,000

A calendar ear corporation has $300,000 of current earnings and profits and $100,000 of accumulated earnings and profits, as of January 1.

The corporation distributes $500,000 to its sole shareholder.

How much dividend income should this shareholder recognize?

O $0

O $300,000

O $400,000

O $500,000

A sole individual shareholder in Company A has a stock basis at the beginning of the year of $25,000. Company A has current earnings and profits of $75,000 and a $50,000 deficit in accumulated earnings and profits. Company A distributes $120.000 to the shareholder on the last day of the year.

How much capital gain should this shareholder recognize from the distribution?

O $O

O $20,000

O $50,000

O $95,000

A corporation is giving its shareholders a distribution of $10 per share or one additional share of stock for every five shares that the shareholders currently own

O Is this a taxable distribution under current tax law, and how does this affect the ownership?

O It is not a taxable distribution, and the distribution amount is based on proportional ownership interests.

O It is a taxable distribution, and the distribution amount is not based on proportional ownership interests.

O It is a taxable distribution and has the potential to change the ownership structure of the corporation.

It is not a taxable distribution and has the potential to change the ownership structure of the corporation.

How are a corporation's earnings and profits (E&P) adjusted when a redemption is treated as a distribution?

O The current E&P is reduced by the cash distributed and the fair market value (FMV) of the other property distributed.

O Then accumulated E&P is reduced by the cash distributed and the greater of the fair market value (FM) of the adjusted tax basis

O The accumulated E&P is reduced by the cash distributed and the fair market value (FMV) of the other property distributed

O The current E&P is reduced by the cash distributed and the greater of the fair market value (FMV) or adjusted tax basis of the other property distributed.

What is one of the three requirements to be able to treat a distribution as substantially disproportionate?

O The shareholder's percentage ownership of voting stock after the redemption is less than 60% of their percentage ownership before the redemption.

O Immediately after the exchange, the shareholder owns less than 70% of the total combined voting power of all classes of stock entitled to vote.

O The shareholder's percentage ownership of the aggregate fair market value of the corporation's common stock after the redemption is less far 80% of their percentage ownership before the redemption.

O Immediately after the exchange, the shareholder owns less than 90% of the total combined voting power of all classes of stock entitled to vote.

When does the complete liquidation of a corporation occur?

O When a corporation discontinues to do business due to product failure.

O When a corporation declares bankruptcy after a major customer declared bankruptcy.

O When a corporation acquires all of its stock, after which it ceases to do business.

O When a corporation terminates one of several businesses.

What is an advantage of an S corporation?

O The corporation's income is not split among family members.

O The corporation is exempt from corporate income tax.

The corporation's earnings are not taxed as net passive income.

O The corporation's earnings are taxed to the shareholders.

What is a disadvantage of an S corporation?

O The corporation is not exempt from corporate income tax.

O The corporation is not treated as a separate tax entity from its shareholders.

The corporation cannot split income among family members

O The corporation is subject to the personal holding company tax.

What is a disadvantage of using equity in a corporation's capital structure?

O The corporation cannot deduct interest payments on debt.

O Dividends cannot be deducted from the corporation's taxable income.

O Shareholders will not recognize income in a debt retirement.

O Common and preferred stock is distributed to common shareholders.

Which type of shareholder is eligible to hold stock in S corporations?

Alien individuals who are U.S. residents or are married to a U.S. citizen

Domestic partnerships that have elected to be treated as a corporation

C corporations with fewer than 100 shareholders

O Domestic insurance companies

Which type of event will cause an S corporation election to terminate?

O A tax-exempt public charity inherits the S corporation stock from a wealthy donor.

A stock transfer by one shareholder causes the S corporation to have 51 shareholders.

O A shareholder who is a U.S. citizen moves out of the country.

O AC corporation holds the S corporation stock for one day out of the year.

What is included in the calculation of ordinary income for an S corporation?

O Rent expense

Capital gain

O Owner withdrawal

O Dividend income

What is a separately stated item of an S corporation?

O Cost of goods sold

O Sales revenue

Employee compensation

O Tax-exempt interest income

What is the limitation on an S corporation shareholder's deduction for their share of corporate losses?

O Basis of the shareholder's stock plus the basis of any debt from the shareholder to the corporation

O Current fair market value of the shareholder's stock

O Fair market value of the shareholder's stock when it was first acquired

O Basis of the shareholder's stock plus any corporate debt guaranteed by the shareholder

Which item is separately stated for an S corporation shareholder?

O Gross revenue

O Commissions

OWages

ODividends

What is an adjustment that is made annually to a stockholder's stock basis?

O Increase for the shareholder's share of nondeductible expenses

O Decrease for distributions during the year

O Decrease for the shareholder's share of ordinary business income

O Increase for distributions during the year\

An individual owns 100% of an S corporation and is also owed $100,000 by the corporation at the start of the year. The stock basis at the start of the year is $300,000

During the year, the corporation has a $50,000 operating loss.

What is the individual's debt basis at the end of the year?

O $250,000

O $150,000

O $100,000

0 $50,000

A corporation expects to have $500,000 in taxable income, but wants to lower its tax bill. To do

this, they donate a painting that the corporation has owned for the last 10 years to a local nonprofit museum, so that the corporation may deduct a charitable contribution.

The museum intends to display the painting to the public as part of its collection. The painting originally cost the corporation $20,000 and is now valued at $50,000.

What is the corporation's new expected taxable income?

O $420,000

O $465,000

O $480,000

O $450,000

How may S corporation shareholders increase their ability to deduct a corporate loss?

O By selling assets to the corporation at fair market value

By loaning funds to the corporation

O By guaranteeing a debt owed by the corporation

O By receiving a cash distribution from the corporation

Which election may be made to allocate an S corporation's income based on its accounting methods following the termination of the S corporation election?

Changing the corporation's tax year

O Making a deemed distribution out of accumulated earnings and profits

O Using the specific identification method to allocate income

Changing the corporation's accounting method

How does a limited partnership (LP) differ from a general partnership?

O Limited partners of the LP can lose more than the partner's investment.

O General partners of the LP number two or more.

Limited partners of the LP are inactive in the partnership's management.

O General partners of the LP automatically have limited liability.

In which type of business entity do

all partners have the right to participate in the management of the business but also face personal liability?

O Limited partnership

O General partnership

OC corporation

OLimited liability corporation

What is true regarding the taxation of a partnership?

The partnership is subject to two layers of income tax.

O The partnership's gains and losses are allocated among the partners.

O The partnership pays a 15% marginal tax rate on the first $50,000 of income.

O The partnership is assigned a tax year by the IRS.

If a mortgaged property is contributed to a partnership, how will it affect the contributing partners' basis?

O The contributing partner's basis will increase by the amount of the debt relief and increase by their share of the mortgage.

O The contributing partner's basis will decrease by the amount of the debt relief and increase by their share of the mortgage.

O Each partner's basis will be decreased by their ownership proportion of the mortgage.

O Each partner's basis will decrease by the total amount of the mortgage.

What is a possible consequence of a partner and a partnership having different year-ends?

O Income from a partnership must be recognized by the partner in the same time period as it was earned by the partnership.

O The partner will recognize his or her share of the partnership's income in a time period earlier than when it was earned.

O The partner may elect a different year-end if it reflects the natural business cycle

O The partner will recognize his or her share of the partnership's income in a time period later than when it was earned.

Which information should be reported in ordinary income from a partnership?

Gross profit on sales

O Capital gains

O Section 1231 gains

O Items with individual limitations

Individual A joins Partnership AB with Individual B, and Individual A contributes a piece of land with a fair market value of $50,000 to the partnership. Individual A's cost basis for the land is $80,000. Three years later, the land now has a fair market value of $60,000 and is sold to an independent third party for its fair market value. Individuals A and B are equal 50% profit-loss partners. What is the tax treatment for each partner?

O Individual A has a $20,000 precontribution loss while Individual B is allocated $10,000 of post contribution gain.

O Individual A has a $20,000 precontribution loss while Individual B is allocated $60,000 of gain.

O Individual A has a $20,000 precontribution loss while Individual B is allocated no gain or loss.

O Individual A has a $30,000 precontribution loss while Individual B is allocated $50,000 of post contribution gain.

Individual A joins a partnership and contributes land with a fair market value of $50,000 and $10,000 cash to the partnership. Individual A's cost basis for the land is $20,000.

Three years later, the land is sold for $60,000. From this sale, $10,000 is distributed to Individual B, who has a cost basis in the partnership of $5,000 after any allocation of gain resulting from the sale of the property.

What is the tax treatment for both partners?

O individual A has a $40,000 precontribution gain while Individual B is allocated $5,000 of postcontribution gain from the sale and O recognizes a $5,000 gain from the distribution.

O Individual A has a $30,000 precontribution gain while Individual B has a $10,000 gain from the sale.

O Individual A has a $40,000 precontribution gain while Individual B has a $10,000 postcontribution gain from the sale.

O Individual A has a $30,000 precontribution gain while Individual B is allocated $5,000 of gain from the sale and recognizes a $5,000 gain from the distribution.

Use the table below to calculate income tax liability:

Taxable Income Over.	But not over	The tax is	Of the amount over
$0	$50,000	15%	$0
$50,000	$75,000	$7,500 + 25%	$50,000
$75,000	$100,000	$13,750 + 34%	$75,000
$100,000	$335,000	$22,250 + 39%	$100,000
$335,000	$10,000,000	$113,900 + 34%	$335,000
$10,000,000	$15,000,000	$3,400,000 + 35%	$10,000,000
$15,000,000	$18,333,333	$5,150,000 + 38%	$15,000,000
$18,333,333		$6,416,667 + 35%	$18,333,333

What is the tax liability for a corporation with taxable income of $250,000?

O $37,500

0 $58,500

O $80,750

O $119,750

An individual receives a 20% share in a partnership in exchange for contributing some property with a fair market value of $80,000 to the partnership. The property had a $25,000 basis to the partnership, and the partnership also assumes the individual's $11,000 in liabilities related to the purchase of the property.

What is the individual's basis in the partnership if the partnership had $40,000 in liabilities prior to this transaction?

O $24,200

0 $33,000

O $41,800

O $10,200

An individual who runs a solo practice agrees to merge his business with a large partnership in return for a 15% share in the partnership. The individual's solo practice has a fair market value of $300,000 and $200,000 basis to the individual. The partnership also assumes the individual's $90.000 in liabilities related to the solo practice.

What is the individual's basis in the partnership if the partnership had $1,000,000 in liabilities prior to this transaction?

O $373.500

O $273.500

O $450.000

$350,000

Which type of service contribution should a partnership capitalize?

O Accounting foes for a waste reclamation partnership

O Survey costs for a real estate partnership

O Management fees for a general construction partnership

O Legal fees for a retail partnership

A calendar year-end partnership consisting of Partners A, B, and C made it's only no liquidating distribution for the year on December 31.

Each partner will receive $35,000 in cash. Partner A has an outside basis of $45,000. Partner B has an outside basis of $35,000, and Partner C has an outside basis of $25,000.

Which partner will report a capital gain?

O Partner A

OPartner B

OPartner C

O None of the partners

Partners A and B formed a partnership five years ago by contributing $50,000 each. Prior to any distributions, Partner A had a basis of $44,000. On December 31, the partnership made a no liquidating distribution of $50,000 cash.

What is the amount of recognized gain or loss and the resulting basis in the partnership from this distribution?

O $0 gain, $0 basis

O $6,000 capital gain, $0 basis

O $6,000 capital loss, $0 basis

O $6,000 capital gain, $44,000 basis

An individual is liquidating a stake in a partnership. The individual's predistribution basis for the partnership is $50,000, and the individual contributed $80,000 in cash when entering the partnership.

In a liquidating distribution, a partner will receive $19,500 in cash.

What are the tax consequences to the partner?

The partner will recognize a $30,500 loss.

O The partner will recognize a $60,500 loss.

O The partner will recognize neither a gain nor a loss

O The partner will recognize a $10,500 loss.

An individual is liquidating a 50% stake in a partnership. The individual's predistribution basis for the partnership is $50,000, and they contributed $80.000 in cash when they entered the partnership. The individual receives $90,000 in cash as a liquidating distribution.

What are the tax consequences of this transaction?

O The individual's liquidation will leave them with a gain of $40,000.

O The individual's liquidation will leave them with a gain of $5,000 based on the 50% stake in the partnership.

O The individual's liquidation will leave them with a gain of $20,000 based on the 50% stake in the partnership.

O The individual's liquidation will leave them with a gain of $10,000.

What is a characteristic of a limited liability company (LLC)?

LLCs are treated like a limited liability partnership (LLP) for tax purposes.

LLCs are treated like a partnership from a legal perspective.

LLCs are treated like a limited liability partnership (LLP) from a legal perspective.

O LLCs are treated like a partnership by default for tax purposes.

Use the table below to calculate income tax liability:

Taxable Income Over.	But not over	The tax is	Of the amount over
$0	$50,000	15%	$0
$50,000	$75,000	$7,500 + 25%	$50,000
$75,000	$100,000	$13,750 + 34%	$75,000
$100,000	$335,000	$22,250 + 39%	$100,000
$335,000	$10,000,000	$113,900 + 34%	$335,000
$10,000,000	$15,000,000	$3,400,000 + 35%	$10,000,000
$15,000,000	$18,333,333	$5,150,000 + 38%	$15,000,000
$18,333,333		$6,416,667 + 35%	$18,333,333

What is the tax liability of a corporation with taxable income of $5,000,000?

O $1,950,000

O $1,700,000

O $750,000

O $1,586,100

What is generated for a completed transaction by an IRS agent during an audit?

O Tax litigation

O A 30-day letter

O A 90-day letter

O Technical Advice Memorandum

Which document is issued in response to a taxpayer's request related to a proposed transaction?

Private letter ruling

O Action on decision

O Technical-advice memorandum

O Determination letter

What is the due date for a partnership's tax returns?

O The first day of the fourth month after the partnership's year-end

O The fifteenth day of the third month after the partnership's year-end

The fifteenth day of the fourth month after the partnership's year-end

The first day of the third month after the partnership's year-end

What is the failure-to-pay penalty rate?

O 25% per month

O 1% per month

O 0.5% per month

O 5% per month

What is the penalty imposed on a taxpayer for a tax underpayment due to transactions lacking economic substance?

O 25%, or 75% of understatement

O 10%, or 15% of understatement

O 5%, or 25% of understatement

O 20%, or 40% of understatement

Under which circumstance would the statute of limitations increase to six years?

O Substantial omission of income

Death of the taxpayer

O Fraudulent omission of income

O Gift tax returns

Which action refers to a situation where the facts have not yet occurred?

O Consultation for a closed-fact pattern

O Consultation for a completed transaction

O Preparing a federal tax return

O Evaluation for an open-fact pattern

Which title of the United States Code contains the Internal Revenue Code (IRC)?

O Title 32

O Title 31

O Title 23

O Title 26

In which court may a taxpayer have a jury trial?

U.S. Court of Federal Claims

O U.S. Tax Court

O U.S. Supreme Court

O U.S. District Court

A business is considering whether or not to claim certain resource extraction tax credits. The treasury regulations issued before the effective date of recent legislation imply that such credits are not allowable in this particular case, but the recent legislative action by Congress allows the credits.

What should the company do in this case?

O The treasury regulations should be treated as authoritative, and the company may not claim the credits.

O The recent legislation should be treated as authoritative, and the company may claim the credits.

O The recent legislation should be treated as authoritative, but the company may not claim the credits.

O The treasury regulations should be treated as authoritative, but the company may claim the credits.

According to Statement on Standards for Tax Services No. 1, in which case can a tax practitioner recommend a tax return position?

O If the position is frivolous and disclosed on the tax return

O Only if the position meets the "clear and convincing evidence" standard

OIf the position complies with the standards imposed by the applicable tax authority

Only if the position meets the "more likely than not" standard