Chapter 5

Question 1

does a corp recognize gain on the sale of treasury stock?

Answer 1

no, a corp will never recognize gain/loss on the receipt of money or other property in exchange for its stock, including treasury

Question 2

Who does the Accumulated Earnings Tax not apply to?

Answer 2

Personal Holding Companies

Question 3

What are the requirements for a Type A reorg?

Answer 3

Most of the assets of the target firm are exchanged for stock in the acquiring firm

Question 4

What are the requirements for a Type B reorg?

Answer 4

The acquiring firm must exchange its own voting stock for the stock of the target. Stock for stock.
The acquiring firm must own at least 80% of the stock of the target firm after the acquisition.
Any consideration other than voting shares in the acquiring corporation will violate the requirements of the reorganization.

Question 5

What are the requirements for a Type C reorg?

Answer 5

The acquiring firm acquires substantially all of the assets of the target in exchange for substantially all of the voting stock.
The target firm distributes stock and other assets to its shareholders.
“Substantially all” is 90% of net asset value and 70% of gross asset value.

Question 6

What are the requirements for a Type D reorg?

Answer 6

Divisive reorg (not acquisitive) in that the parent corp divides by transferring assets to a subsidiary in exchange for subsidiary shares.
The parent corp must receive and distribute control of the subsidiary in the exchange (80% of the vote and other classes of stock)

Question 7

When an organization is reorganized, what gain or loss, if any, is required to be recognized by the acquiring corporation?

Answer 7

The acquiring corporation does not recognize gain or loss on the transfer of its stock for the acquired corporation; if it transfers assets, then gain (but not losses) in the assets is recognized.

Question 8

Foreign Tax credit

Answer 8

can be carried back one year and carried forward 10 years

Question 9

how is the foreign tax credit limitation calculated?

Answer 9

US tax on worldwide income x (Foreign Source taxable income / worldwide taxable income)

Question 10

what is subpart F income?

Answer 10

income earned by a controlled foreign corp that is not connected economically to the country in which it is organized

Question 11

how does an individual qualify for the foreign earned income exclusion?

Answer 11

if the individual has a tax home in a foreign country and is present in one or more foreign countries for at least 330 days during any 12 consecutive months

Question 12

do partners recognize a G/L on contributions to a partnership?

Answer 12

no

Question 13

What is the general gain recognition rule in partnership liquidations?

Answer 13

Distributions do not create gain or loss unless a partner receives cash (or deemed cash) in excess of his/her adjusted basis.

Question 14

Can partners recognize a loss on a liquidating distribution?

Answer 14

yes, they can recognize a loss if the distribution consists only of cash, inventory and/or unrealized receivables. Since a partnership interest is a capital asset, the loss will be a LTCL

Question 15

If a partner receives nonliquidating distribution of property, what is the partners basis in the property?

Answer 15

the partnerships basis before distribution

Question 16

hot assets

Answer 16

unrealized receivables
inventory
if a P has hot assets at the time a P interest is sold, the selling partner must allocate a portion of the sale proceeds to these assets and recognize ordinary income

Question 17

once terminated, when can S status be elected again?

Answer 17

5 years

Question 18

Simple trust

Answer 18

a trust that is:

• required to distribute all its income to designated beneficiaries every year
• has no beneficiaries that are qualifying charitable orgs
• makes no distribution of trust corpus during the year

Question 19

Complex trust

Answer 19

a trust that is not a simple trust.
Permits accumulation of current income, provides for charitable contributions, or distributes principal during the taxable year.

Question 20

what year must an estate have

Answer 20

May be either a calendar year, or a fiscal year beginning on the date of the decedent’s death.

Question 21

If the grantor of a trust retains substantial control over the trust, such as the power to revoke the income and remainder interests who will be taxed on the trusts income?

Answer 21

the grantor, and not to the trust or beneficiaries

Question 22

what is the maximum amount of the distribution to be included in the beneficiary’s gross income limited to?

Answer 22

the estates distributable net income

Question 23

Do estates have to pay estimated taxes?

Answer 23

Trusts and estates must make quarterly estimated tax payments, except that an estate is exempt from making estimated tax payments for taxable years ending within two years of the decedent’s death.

Question 24

What is the Foreign tax credit

Answer 24

The U.S. taxes income from all sources, including income from foreign countries. The purpose of this credit is to prevent double taxation of foreign income that is subject to income tax in the foreign jurisdiction.

Question 25

how is the foreign tax credit calc

Answer 25

The credit is limited to the lower of the foreign tax paid, or the proportion of U.S. tax allocable to foreign sourced income (known as the foreign tax credit limitation) which is calc: US tax x (foreign taxable income/worldwide taxable income)

Question 26

how long can excess foreign tax credit be carried forward/back

Answer 26

back one year, forward 10 years

Question 27

An executor of a decedent’s estate that has only U.S. citizens as beneficiaries is required to file a fiduciary income tax return, if the estate’s gross income for the year is at least

Answer 27

$600