Exam 1 Review

Question 1

What is the accumulated earnings tax?

Answer 1

A 20% tax that is assessed on the excess accumulated earnings and profits of a C Corporation

Question 2

To what entities do accumulated earnings tax apply?

Answer 2

Only C corporations

Question 3

If a taxpayer exchanges a property for control of a company (351 exchange) what is the holding period for the business that receives the property?

Answer 3

The holding period of the taxpayer

Question 4

Are livestock held for draft, breeding, sporting, or dairy purposes considered inventory for a farming business?

Answer 4

No, only livestock held for sale to customers which is typically called “Market livestock” would be treated as inventory

Question 5

Is “Market Livestock” considered inventory for a marketing business?

Answer 5

Yes

Question 6

The test rate used to determine if a loan is a below-market loan is the:

Answer 6

Long-term applicable Federal rate as of the day the loan is made

Question 7

The rules for below-market loans apply to:

Answer 7

• Gift loans
• Compensation-related loans
• Corporation-shareholder loans
• Tax avoidance loans
• Other below-market loans

Question 8

What is the tax rate applicable to built-in gains for an S corporation?

Answer 8

21%

Question 9

To which entities do “Built-In” gains apply?

Answer 9

Only to S corporations that were previously C corporations

Question 10

Does a partnership or S corporation my Federal Income Tax?

Answer 10

No, because they are pass-through entities the taxpayer would pay Federal Income Tax on their own

Question 11

What business entities can claim QBI?

Answer 11

• Individual owners of sole proprietorships, rental properties, S corporations, or partnerships
• Trusts and estates that own an interest in the businesses listed above

Question 12

The following business formed after 1996 are automatically taxed as corporations:

Answer 12

• A business formed under a federal or state law that refers to it as a corporation
• A joint-stock company or joint-stock association
• Insurance companies and certain banks
• A business owned by a state or local government
• A business specifically required to be taxed as a corporation by the IRC
• Certain foreign businesses
• Any other business that elects to be taxed as a corporation and files From 8832

Question 13

What is the normal due date for Form 1041?

Answer 13

15th day of the 4th month following the end of the entity’s tax year (unless it falls on a weekend or holiday)

Question 14

In what situations does a 351 exchange not apply?

Answer 14

• The corporation is an investment company
• The transferor transfers property during a bankruptcy in exchange for stock used to pay creditors

Question 15

A 3115 is used by a business to:

Answer 15

Apply for a change in accounting method

Question 16

What does an S corporation’s accumulated adjustments account (AAA) include?

Answer 16

All items of income and expenses of the S corporation, with the exception of tax-exempt income (and expenses related to tax-exempt income)

Question 17

The fiduciary must file Form 1041 for a domestic trust that has:

Answer 17

• Any taxable income for the tax year
• Gross income of $600 or more (regardless of whether the income is taxable or not)
• A beneficiary who is a nonresident alien

Question 18

What is the normal (unextended) due date of a 501(c)(3) tax return that operates on a calendar year?

Answer 18

They must file their 990 by May 15

Question 19

What form is used by a 501(c)(3) to request a filing extension?

Answer 19

8868 and the extension is 6 months

Question 20

Who cannot own stock in an S corporation?

Answer 20

C or other S corporations

Question 21

What is a 1041 used for?

Answer 21

Report any income that an estate or trust earns that is over $600

Question 22

Can corporate net capital losses be carried back?

Answer 22

Yes, up to a maximum of the years

Question 23

In general, which entities do not require any type of written document or state filing in order to be established?

Answer 23

A general partnership and a sole proprietorship

Question 24

If a partnership earns income and only distributes part of the income to a partner how is each part taxed?

Answer 24

The partner will pay tax on the full amount but then the undistributed amount will added to their basis

Question 25

A corporation whose S election is revoked or terminated by generally waits how long before making an S corporation election again?

Answer 25

60 months

Question 26

A C corporation can carry over any unused charitable contributions for:

Answer 26

5 years

Question 27

Distributions of stock dividends are generally made tax-free to shareholders except when:

Answer 27

Some shareholders can receive cash or other property, and other shareholders receive stock

Question 28

If an election is made to forego bonus depreciation deduction, then a business can choose to:

Answer 28

use Section 179

Question 29

Fiscal-year estates and trusts must file a 1041 by:

Answer 29

the 15th day of the 4th month following the close of the entity’s tax year

Question 30

What best describes a controlled group?

Answer 30

A group of corporations that are related through common ownership and are subject to rules regarding related party transactions

Question 31

What is a 4868 used for?

Answer 31

To report casualty loss and theft

Question 32

What amount can a business deduct for Snacks and beverages for an employee breakroom?

Answer 32

50% of the expense

Question 33

Can a business add the cost of shipping fees and installation costs to the basis of an asset?

Answer 33

Yes

Question 34

Dividend deduction: Less than 20% ownership

Answer 34

50%

Question 35

Dividend deduction: 20-80% ownership

Answer 35

65%

Question 36

Dividend deduction: greater than 80% ownership

Answer 36

100%

Question 37

When is a C corporation’s final return due after it dissolves?

Answer 37

On the 15th day of the 4th month after the corporation has disolved

Question 38

Under the Affordable Care Act, employers with at least 50 full-time employees are required to offer what type of insurance coverage?

Answer 38

Health insurance that provides minimum value

Question 39

Mileage Rate: 1/1 - 6-30

Answer 39

58.5 cents per mile

Question 40

Mileage Rate: 7/1 - 12/31

Answer 40

62.5 cents per mile

Question 41

An activity is presumed to be engaged in for profit, rather than a hobby, if:

Answer 41

The activity show a profit for three out of the last 5 years, including the current year

Question 42

What special form must a taxpayer use to report their interest in a foreign partnership?

Answer 42

8865

Question 43

If a partnership is subject to a CPAR and must designate a representative, where would this be reported on the partnership return?

Answer 43

On the Schedule B of the partnership return

Question 44

When is a partnership 1065 due?

Answer 44

On the 15h day of the 3rd month following the close of their tax year

Question 45

How are Unreimbursed Partnership Expenses deducted by a partner?

Answer 45

If a partner has unreimbursed Partnership Expenses, they can deduct those expenses on their Schedule E and label them as “UPE”

Question 46

What form is used to request an extension on a partnership return?

Answer 46

7004

Question 47

What form can a partnership use to request a change to their tax year?

Answer 47

1128

Question 48

Guaranteed payments are included in income in the partner’s tax year in which:

Answer 48

The partnership’s tax year ends

Question 49

A partner’s tax basis capital account (sometimes referred to simply as “tax capital” represents:

Answer 49

The entity’s equity as calculated using tax principles, (not based on GAAP, or other accounting principles)

Question 50

Individual shareholders of an S corporation generally have to make estimated tax payments if they expect to owe tax of:

Answer 50

$1,000 or more when their return is filed

Question 51

An estate is allowed the income distribution deduction (IDD) for the tax year for any:

Answer 51

Income that must be distributed currently and for other amounts that are property paid, credited, or required to be distributed to beneficiaries. This deduction is limited to the distributable net income of the estate.

Question 52

Where would a farmer report the sale of old dairy cows and the sale of used machinery?

Answer 52

These would be report on Form 4797 (not Scheule F)