Parent and Subsidiary Corporations have filed calendar-year consolidated tax returns for several years. Parent Corporation uses the cash method of accounting while Subsidiary Corporation uses the accrual method of accounting. If Parent lends Subsidiary money Answer the interest expense is deductible when accrued. the interest expense and interest income may be reported in different consolidated return years. the interest income is reported when the interest expense is accrued by Subsidiary. the interest expense deduction is taken when Parent reports the interest income. Question 2 A consolidated return’s tax liability is owed by Answer all group members in equal portions. the group member responsible for that portion of the tax liability. all group members who are severely liable. the parent corporation. Question 3 Albert contributes a Sec. 1231 asset to a partnership on June 1 of this year in exchange for a 10% partnership interest. He had purchased the asset on March 1 2002. His holding period for the partnership interest begins Answer March 1 2002. March 2 2002. June 1 of the current year. June 2 of the current year. Question 4 Meg and Abby are equal partners in the AM Partnership which earns $40000 ordinary income $6000 long-term capital gain (LTCG) and $2000 Sec. 1231 loss during the current year. What is the amount and character of income that must be reported on Abby’s tax return for this year’s partnership operations? Answer $20000 ordinary income $3000 LTCG $1000 Sec. 1231 loss $19000 ordinary income $3000 LTCG $23000 ordinary income $1000 Sec. 1231 loss $22000 ordinary income Question 5 Allen contributed land which was being held for sale to Allen’s customers to a partnership in exchange for a 20% interest. The partnership uses the land in its business for three years and then sells the property. When the property was contributed it had a basis in Allen’s hands of $500000 and an FMV of $600000. The partnership sells the land for $700000. The gain reported by the partnership is Answer $100000 of ordinary income and $100000 of Sec. 1231 gain. $100000 of Sec. 1231 gain and $100000 of capital gain. $200000 of ordinary income. $200000 of Sec. 1231 gain. Question 6 The AB Partnership has a machine with an FMV of $25000 and a basis of $20000. The partnership has taken an $8000 depreciation on the machine. The unrealized receivable related to the machine is Answer $0 $5000 $8000 $20000 Question 7 The definition of inventory for purposes of Sec. 751 includes Answer cash. land held for investment. marketable securities not held by dealers. depreciation recapture potential on Sec. 1231 assets. Question 8 An S corporation is not treated as a corporate taxpayer with respect to which one of the following fringe benefits? Answer stock options qualified retirement plans group term life insurance premiums nonqualified deferred compensation Question 9 Which one of the following individuals or entities is ineligible to be an S corporation shareholder? Answer an estate resident alien of the United States a voting trust where all of the beneficiaries are U.S. citizens a partnership where all of the partners are U.S. citizens. 0 The recognition period for the built-in gains tax extends for how many years after the S election takes effect? Answer one year three years five years ten years 1 In 1998 Delores made taxable gifts to her son of property with an FMV of $200000. In the current year when Delores dies the property is worth $800000. The amount included in Delores’s estate tax base because of the 1998 gift is Answer $0 $189000 $200000 $800000 2 Hu makes a gift of his home to a local homeless shelter (a 501(c)(3) charity). Hu will retain his home for 10 years after which the homeless shelter will take possession. The value of Hu’s 10-year interest is $30000 and the remainder interest is valued at $120000. Which of the following statements is correct? Answer Hu is allowed a charitable deduction on his gift tax return for $150000 in the current year. Hu is allowed an exclusion of $12000 on his gift of $120000 to the charity. Hu is not allowed to deduct the contribution until the charity takes possession in 10 years. Hu has a charitable contribution deduction of $120000 on his current gift tax return 3 Gordon died on January 1 and by his will left land with an adjusted basis of $60000 and an FMV of $100000 to Becky. Becky disclaims the property on December 31 of the year of death when the land was still worth $100000. Becky has made a gift (before the annual gift tax exclusion) of Answer $100000 $60000 $50000 $0 4 In 2012 Paul transfers $1000000 to a trust benefiting his three children. As trustee he has the power to determine the amount of distributions each year. Paul dies in the current year when the trust has a value of $1200000. How much of the trust’s value is included in Paul’s estate? Answer $0 $400000 $1000000 $1200000 5 Following are the fair market values of Wilma’s assets at her date of death: Personal effects and jewelry $150000 Land which Wilma bought and held as a joint tenant with right of survivorship with her sister 800000 The executor of Wilma’s estate did not elect the alternate valuation date. The amount includible in Wilma’s gross estate is Answer $150000 $550000 $800000 $950000 6 Four years ago David gave land to Mike that he purchased for $70000 which is presently worth $100000. Three years ago Mike exchanged the land (then worth $150000) along with a $100000 cash contribution made by David for a new piece of land worth $250000. The new land is titled with David and Mike as joint tenants with the right of survivorship. When Mike dies this year the land is worth $300000. Mike’s estate will include Answer $0 $150000 $180000 $300000 7 Administration expenses incurred by an estate Answer are deductions in respect of a decedent and may be deducted on both the estate tax return (Form 706) and the estate income tax return (Form 1041). an executor must elect where to deduct administration expenses (Form 706 or Form 1041). such expenses are only deductible on Form 706. such expenses are only deductible on Form 1041 8 The conduit approach for fiduciary income tax means Answer the distributed income has the same character in the hands of the beneficiary as it has to the trust. the distributed income goes to all beneficiaries proportionately. the distributed income is determined by the trustee annually. the distributed income of a remainder interest is determined by the property. 9 Which of the following activities is protected by accountant-client privilege? Answer written communications between a CPA and a corporation regarding a tax shelter communications related to tax return preparation communications related to criminal tax evasion advice given regarding tax issues in a divorce Question 20 Terry files his return on March 31. The return shows taxes of $6000 and Terry pays this entire amount when he files his return. By what time must he file a claim of refund? Answer the later of two years from the return filing or three years from the date the tax is paid the later of three years from the return due date or two years from the date the tax is paid two years from the payment of tax date if the IRS mails a notice of deficiency in the third year following the due date of the return four years from the payment of tax date if the IRS mails a notice of deficiency Question 21 Gerald requests an extension for filing his last year’s individual income tax return. His tax liability is $10000 of which $8000 was withheld leaving a balance due of $2000 when he files on August 1 of the current year. His penalty for failure to pay the tax on time is Answer $0 $40 $300 $400 Question 22 U.S. citizen Barry is a bona fide resident of a foreign country for all of 2013. Barry uses a calendar year as his tax year and receives $158000 in salary and allowances from his employer. Included in the $158000 is a $25000 housing allowance. Barry’s housing costs are $30000. The base housing amount for the current year is $15616. What amount related to his housing can Barry exclude on his Form 2555? Answer $14384 $25000 $30000 $13545 Question 23 U.S. citizen who has a calendar tax year establishes a tax home and residence in a foreign country and qualifies for the foreign-earned income exclusion for 60 days in 2010; 365 days in 2011; and 60 days this year 2012. The maximum earned income exclusion for this year is? Answer $13733 $16044 $13151 $17522 Question 24 What are the carryback and carr forward periods for the foreign tax credit? Answer back two years; forward five years back three years; forward ten years back one year; forward ten years back two years; forward twenty years Question 25 Charitable contributions made by a fiduciary Answer are limited to 50% of fiduciary income. must be authorized in the trust instrument in order to be deductible. flows through to be deducted on the beneficiary’s tax return. are subject to the 2% floor. Question 26 Administration expenses incurred by an estate Answer are deductions in respect of a decedent and may be deducted on both the estate tax return (Form 706) and the estate income tax return (Form 1041). an executor must elect where to deduct administration expenses (Form 706 or Form 1041). such expenses are only deductible on Form 706. such expenses are only deductible on Form 1041.
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