Progress Test Review

Question 0

With regard to S corporations & their stockholders, the “at-risk” rules applicable to losses:

Answer 0

Apply at the shareholder level rather than at the corporate level

Question 1

A corporations penalty for underpaying federal estimated taxes is:

Answer 1

Not Deductible

Question 2

S-corp contributed equipment with a FMV $20,000 and a basis of $6,000 subject to $12,000 liability. What amount of gain if any, that the shareholder must recognize?

Answer 2

This is a nontaxable transaction. However, liabilities assumed by the corporation are in excess of basis in property contributed. So, (12,000 - 6,000) = 6,000

Question 3

Tax treatment of net losses in excess of the “at-risk” amount for an activity ?

Answer 3

Any losses in excess of the at-risk amount are suspended and carried forward w/o expiration & are deductible against income in future years from that activity

Question 4

Section 1231

Answer 4

1) property normally included in inventory or held for sale to customers in ordinary course of business.
2) depreciable property & real estate used in business
3) accounts and notes receivable arising from sales or services in the taxpayer’s business
4) copyrights, literary, musical or artistic compositions
5) treasury stock

Question 5

I’m a partnership with a liquidating distribution of land.

Answer 5

In a complete liquidation of a partnership, a partner recognizes gain only to the extent that the money received (if any) exceeds that’s partner’s basis in the partnership immediately before the distribution. When no money is distributed = no gain.

Question 6

Cash basis taxpayer, gain or loss on a year-end sale of listed stock arises:

Answer 6

Trade date

Question 7

Issue stock options to employees under an employee stock purchase plan.

Answer 7

1) option exercise price must be less then the lesser of 85% of the FMV of the stock when granted or exercised.
2) option cannot be exercised more than 27 months after grant date

Question 8

Greatest authoritative value for tax planning of transactions ?

Answer 8

Internal revenue code = IRC

Question 9

If an S corporation has no accumulated earnings & profits, the amount distributed to a shareholder:

Answer 9

Decreases the shareholders basis in the stock

Question 10

Allocation of nonseparately stated income/loss for an S corporation shareholder that changed his ownership interest during the year is computed based on which of the following ownership percentages ?

Answer 10

Ownership percentage computed on a per-share per-day basis

Question 11

Adjustments to Gross Income: 2014 AGI does not exceed

Answer 11

Single: 60,000-70,000
MFJ: 96,000 - 116,000

Question 12

Maximum deductible for 2014 is lesser of:

Answer 12

5,500 or individuals compensation. An individual over 50 can make $1,000 catch up contribution

Question 13

How may taxes paid by an individual to a foreign country be treated ?

Answer 13

As a credit against federal income taxes due

Question 14

When there is an underpayment of estimated tax

Answer 14

90% of current year tax liability
100% of LY tax liability 
Unless:
AGI is in excess of $150,000
You use the PY tax liability and multiply by 110%

Question 15

When a corporation has an unused net capital loss that is carried back or carried forward to another tax year:

Answer 15

It is treated as a short-term capital loss whether or not it was short-term when sustained

Question 16

Accrual basis purchases formula:

Answer 16

Beginning balance
Add: purchases
Subtract: cash payments
Ending balance

Question 17

Maximum amount of the distribution to be included in the beneficiary’s gross income is limited to the estates:

Answer 17

Distributable net income (DNI)

Question 18

Validity of a contract between a corporation and a director of the corporation:

Answer 18

The director must disclose the interest to the independent members of the members of the board and refrain from voting

Question 19

A debtor who filed voluntarily and received a discharge under the provisions of chapter 7 of the federal bankruptcy code:

Answer 19

Must surrender for distribution to the creditors any amount received as an inheritance if received within 180 days after filing the petition.

Question 20

Contributions of Long term Property

Contributions of short-term property

Answer 20

LT property: deductible at FMV at date of the gift

ST property: deductible at lower of cost or FMV

Question 21

MACRS 5-year property includes:

Answer 21

Automobiles, light trucks, computers, typewriters, copiers, duplicating equipment, and other such items.

Question 22

Entities that are entitled to the Net operating loss deduction?

Answer 22

1) Trusts and estates
2) individuals
3) taxable C corps

Question 23

An incorporated exempt organization subject to tax on its unrelated business income:

Answer 23

Must comply with code provisions regarding installment payments of estimated income tax by corporations

Question 24

Capital Assets include

Answer 24

Capital assets are defined as all property held by the taxpayer
1) land held in investment
2) personal automobile
3) furniture and fixtures
4) personal property of taxpayer not used in business
5) stock and securities
6$ interest in partnership
7. Goodwill of a corporation
8. Copyrights, literary, musical or artistic