Question Examples Flashcards
Which of the following organizations would not qualify for exemption from federal income tax?
A. College alumni association
B. Social clubs that allow only limited usage by general public
C. Fraternal society not operating under a lodge system
D. Political organization
C. Fraternal society not operating under a lodge system
- Under IRC Section 501(c)(10), domestic fraternal societies must operate under the lodge system to be exempt from federal income taxation.*
- College alumni associations generally qualify for exemption from federal income tax under IRC Section 501(c)(3). If it does not meet the characteristics required by IRC Section 501(c)(3), it may still be exempt as a social club if it meets the requirements described by IRC Section 501(c)(7).*
- A social or recreation club under IRC Section 501(c)(7) is allowed to receive up to 35% of its gross receipts from sources outside of its membership without losing its status as a tax-exempt organization. The club must have an established membership, which must be limited in some manner.*
- Under IRC Section 527, a political organization is considered a tax-exempt organization. It is subject to tax only on nonexempt income. Examples of exempt income include contributions, membership dues, and proceeds from a political fund-raising event.*
- IRS Publication 557, chapter 4 (Rev 10-2013); IRC Section 501(c)*
Which of the following actions between a debtor and its creditors will generally cause the debtor’s release from its debts?
A. Composition of creditors
B. Assignment for the benefit of creditors
C. Both composition of creditors and assignment for the benefit of creditors
D. Neither composition of creditors nor assignment for the benefit of creditors
A. Composition of creditors
- In a composition agreement, a debtor enters into an agreement with his creditors whereby the debtor agrees to pay the creditors some fraction of the amount of the outstanding debt. Such an agreement discharges the debtor once the debt is actually paid.*
- An assignment for the benefit of creditors is a transfer by the debtor of all of his assets to a trustee, with the assigned funds to be used to pay off outstanding debts. This does not have the effect of releasing the debtor from the debts.*
Brown transfers property to a trust. A local bank was named trustee. Brown retained no powers over the trust. The trust instrument provides that current income and $6,000 of principal must be distributed annually to the beneficiary. What type of trust was created?
A. Simple
B. Grantor
C. Complex
D. Revocable
C. Complex
The trust is a complex trust. A complex trust is any trust that does not qualify as a simple trust.
- The trust is not a simple trust. One of the requirements of a simple trust is that the trust not distribute principal (corpus). This trust provides that current income and $6,000 of principal be distributed annually.
- The trust is not a grantor trust. A grantor trust is one in which the grantor retains beneficial enjoyment or substantial control over the trust property or income. The grantor (Brown) of this trust retains no powers over the trust and is not the trustee.
- The trust is not revocable. A revocable trust is one in which the grantor retains the power to revest all or part of the trust property. Brown retained no powers over the trust.
Which of the following is not considered personal property for purposes of local taxes?
A. Land
B. Jewelry
C. Boats
D. Shed
A. Land
Since land cannot be moved, it is not considered personal property. Land is real property and would be taxed as real property.
al property and would be taxed as real property.
What are the requirements to be an S Corp?
- 100 or fewer shareholders
- One class of stock
- Unanimous consent
- Shareholders must be individuals and not other forms of business
In the transfer of a partnership interest, the new partner obtains only the right to
A share of the old partner’s profit
What type of claim can NOT be discharged in bankruptcy
Alimony or maintenance and child support claims
