ACC 455 final Exams

ACC 455 final Exam

1)
Which of the following statements
regarding proposed regulations is not correct?
A. Proposed and temporary regulations are generally issued
simultaneously.
B. Proposed regulations do not provide any insight into the IRS’s interpretation
of the tax law.
C. Proposed regulations expire after 3 years.
D. Practitioners and other interested parties may comment on proposed
regulations.

2) Regulations are
A. presumed to be valid and to have almost the same weight as the IRC
B. equal in authority to legislation if interpretative
C. equal in authority to legislation
D. equal in authority to legislation if statutory

3) Which of the following courts is not
a trial court for tax cases?
A. U.S. Tax Court
B. U.S. Court of Federal Claims
C. U.S. Bankruptcy Court
D. U.S. District Court

4) 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.

5) Which of the following is an advantage of a sole proprietorship over other
business forms?
A. Low tax rates on dividends
B. Ease of formation
C. Tax-exempt treatment of fringe benefits
D. The deduction for compensation paid to the owner

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 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.

9) Identify which of the following statements is true.
A. The check-the-box regulations permit an LLC to be taxed as a C
corporation.
B. Under the check-the-box regulations, an LLC that has only two members
(owners) default classification is as a partnership.
C. Once an election is made to change its classification, an entity
cannot change again for 60 months.
D. All of the statements are true.

10) 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 capital gain.
C. Rose and Wayne must recognize their realized gains, if any.
D. Wayne must report the FMV of the stock received as ordinary income.

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 if Matt can show the sale to Paul was not part
of a prearranged plan
C. not qualify under Sec. 351
D. qualify under Sec. 351 only if an advance ruling has been obtained

12) For Sec. 351 purposes the term property does not include

13) Identify which of the following statements is true.

14) A new corporation may generally select one of the following accounting
methods with the exception of

15) Identify which of the following statements is false.

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: Date
Type Amount
What is the maximum amount of organizational expenditures that can be deducted
by the corporation for its first tax year ending November 30?

17) Maxwell Corporation reports the following results:

Gross income from operations $ 90,000
Dividends received from 18%-owned domestic corporation 70,000
Expenses 100,000

18) Island Corporation has the following income and expense items for the
year.
Gross receipts from sales $60,000
Dividends received from 15%-owned domestic corporation 40,000
Expenses connected with sales 30,000
The taxable income of Island Corporation is

19) Which of the following is not an adjustment in calculating AMTI?

20) Tax-exempt interest income on state and local municipal bonds which are not
a private activity is

21) Which of the following statements about the alternative minimum tax
depreciation rules is correct?

22) Maxwell Corporation reports the following results:
Year Current E&P Distributions
2005 $6,000 $4,000
2006 5,000 1,000
2007 1,000 -0-

23)
Grant Corporation sells land (a no inventory item) with a basis of $57,000 for
$100,000. Nichole will be paid on an installment basis in five equal annual
payments starting in the current year. The E&P for the year of sale will be
increased as a result of the sale (excluding federal income taxes) by

24) Identify which of the following statements is false.

25) Identify which of the following statements is true.

26) Identify which of the following statements is true.

27) For purposes of determining current E&P, which of the following items
cannot be deducted in the year incurred?

28) A corporation distributes land and the related liability to Meg, its sole
shareholder. The land has a FMV of $60,000 and is subject to a liability of
$70,000. The corporation has current and accumulated E&P of $80,000. The
corporation’s adjusted basis for the property is $70,000. What effect does the
transaction have on the corporation?

29) 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

30) One consequence of a property distribution by a corporation to a
shareholder is

31) Which of the following is not a reason for a stock redemption?

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

33) Which of the following is not a condition that permits a stock redemption
to be treated as a sale?

34) Identify which of the following statements is true.

35) Identify which of the following statements is true.
36)
The definition of a partnership does not include
37)
Which of the following items is not separately stated for an S
corporation?

38) Cactus Corporation, an S Corporation, had accumulated earnings and profits
of $100,000 at the beginning of 2008. Tex and Shirley each own 50% of the
stock. Cactus does not make any distributions during 2008, but had $200,000 of
ordinary income. In 2009, ordinary income was $100,000 and distributions were
$100,000. What is Tex’s ordinary income for 2008?

39) Cactus Corporation, an S Corporation, had accumulated earnings and profits
of $100,000 at the beginning of 2008. Tex and Shirley each own 50% of the stock.
Cactus does not make any distributions during 2008, but had $200,000 of
ordinary income. In 2009, ordinary income was $100,000 and distributions were
$100,000. What is Tex’s ordinary income for 2009?

40) On January 1, Helmut pays $2,000 for a 10% capital, profits and loss
interest in a partnership, which has recourse liabilities of $20,000. The
partners share economic risk of loss from recourse liabilities in the same way
they share partnership losses. In the same year, the partnership incurs losses
of $6,000 and the recourse liabilities increase by $5,000. Helmut and the
partnership use a calendar tax year-end. Helmut’s basis at year-end is

41) On January 2 of the current year, Calloway and Taylor contribute cash
equally to form the CT Partnership. Calloway and Taylor share profits and
losses in a ratio of 75% and 25%, respectively. The partnership’s ordinary
income for the year was $40,000. Calloway received a distribution of $5,000
during the year. What is Calloway’s share of taxable income for the year?

42) On the first day of the partnership’s tax year, Karen purchases a 50%
interest in a general partnership for $30,000 cash and she materially
participates in the operation of the partnership for the entire year. The
partnership has $40,000 in recourse liabilities when Karen enters the
partnership. Partners share the economic risk of loss from recourse liabilities
in the same way they share partnership losses. There is no minimum gain related
to the nonrecourse liability. During the year the partnership incurs a $120,000
loss and a $20,000 increase in liabilities. How much of the loss can Karen
report on her tax return for the current year?

43) The total bases of all distributed property in the partner’s hands
following a nonliquidating distribution is limited to

44) The Internal Revenue Code includes which of the following assets in the
definition of Sec. 751 properties?

45) Identify which of the following statements is true.

46) Which of the following conditions will not cause an S election to be
terminated?

47) Identify which of the following statements is true.

48) Identify which of the following statements is false.