REG 6

Question 1

In relation to an author’s life, how long does a copywrite last?

Answer 1

The life of the author, plus 70 years.

Question 2

A long-lost relative of Albert Einstein’s recently filed for a patent for Einstein’s famous formula, E = MC2. Which of the following is true?

Answer 2

A is correct, because the application was filed in extremely untimely fashion. B is correct, because abstract ideas are not patentable.

Question 3

Lanny files for a utility patent on January 1, 2011. The patent is granted on January 1, 2015. The patent will expire just before January 1:

Answer 3

Lanny files for a utility patent on January 1, 2011. The patent is granted on January 1, 2015. The patent will expire just before January 1:

Question 4

What are the benefits of an LLP (limited liability partnership)?

Answer 4

an LLP can have multiple owners, corporate owners, and pass-through taxation.

Question 5

Assuming all other requirements are met, a corporation may elect to be treated as an S corporation under the Internal Revenue Code if it has

Answer 5

The maximum number of permissible Subchapter S corporation shareholders has risen over the years, from 35 to 75 to (now) 100.

Question 6

Under the Revised Uniform Limited Partnership Act, which of the following statements is correct regarding limited partnerships?

Answer 6

Limited partners may lose limited liability if they participate in management activities.

Question 7

Which of the following statements is correct concerning the similarities between a limited partnership and a corporation?

Answer 7

Both of these organizations require special steps in their creation. One of these steps is the filing of a certificate, usually with the Secretary of State.

Question 8

Under the Revised Model Business Corporation Act (RMBCA), which of the following items of information must be included in a corporation’s articles of incorporation (charter)?

Answer 8

The articles of incorporation must include (1) the name of the corporation; (2) the number of shares it is authorized to issue; (3) the street address of its registered office and the name of its agent at that address; and (4) the name and address of each incorporator.

Question 9

An owner of common stock will not have any liability beyond actual investment unless the owner

Answer 9

When stock has a par value, it must be sold for at least that par value in an original issue. If it is sold for less, it is “watered stock.”
A shareholder who buys watered stock is liable to the corporation for the difference between the price actually paid and the par value of the shares purchased.

Question 10

Slinger, Hurl, and Macomb are partners in a small real estate business. The three partners discuss whether to purchase a vacant strip mall and attempt to renovate it. Slinger and Macomb vote against, because the partnership already owns a strip mall across the highway from this one, so the purchase does not occur. However, a week later, Hurl purchases the land in his own name.

Answer 10

Hurl has wrongfully gone into competition with the partnership.

Question 11

Which of the following positions best describes the nature of relationship of the Board of Directors of XYZ Co to the company as a whole?

Answer 11

The core of the directors’ relationship to the company is that they owe it a fiduciary duty - the duty of highest loyalty.

Question 12

On behalf of a general partnership that operates an appliance store, a partner, Locke, contracts to buy 15 stoves from Gage. Unknown to Gage, Locke was not authorized by the partnership agreement to make such contracts. Another partner, Vorst, refuses to allow the partnership to accept delivery of the stoves and Gage seeks to enforce the contract. Gage will?

Answer 12

Win, because Locke had apparent authority to bind the partnership.

Question 13

Simmons gives her child a gift of publicly-traded stock with a basis of $40,000 and a fair market value of $30,000. No gift tax is paid. The child subsequently sells the stock for $36,000. What is the child’s recognized gain or loss, if any?

Answer 13

The recipient of a gift has a gain basis and a loss basis in the asset received. The gain basis is the donor’s adjusted basis ($40,000) and the loss basis is the lower of the fair market value or the adjusted basis ($30,000). If the asset is later sold for an amount in-between the gain and loss basis ($36,000 is in-between $40,000 and $30,000), no gain or loss is recognized.

Question 14

Carter purchased 100 shares of stock for $50 per share. Ten years later, Carter died on February 1 and bequeathed the 100 shares of stock to a relative, Boone, when the stock had a market price of $100 per share. One year later, on April 1, the stock split 2 for 1.
Boone gave 100 shares of the stock to another of Carter’s relatives, Dixon, on June 1 that same year, when the market value of the stock was $150 per share.

What was Dixon’s basis in the 100 shares of stock when acquired on June 1?

Answer 14

When the shares are bequeathed to Boone, his basis in the shares is the fair market value at the date of death, which is $100 per share. When the stock splits 2 for 1, Boone then owns 200 shares of stock with a basis of $50 each. When the shares are gifted to Dixon, she takes the basis in the stock that Boone had, or $50. Therefore, Boone’s total basis is $5,000 (100 shares x $50 per share).

Question 15

Lee inherits a partnership interest from Dale. The adjusted basis of Dale’s partnership interest is $50,000, and its fair market value on the date of Dale’s death (the estate valuation date) is $70,000.
What was Lee’s original basis for the partnership interest?

Answer 15

For property received from a decedent through inheritance, a taxpayer generally assumes a basis equal to the fair market value of the property at the date of the decedent’s death.
Therefore, Lee’s original basis in the partnership was $70,000 - the fair market value of Dale’s partnership interest at the date of his death.

Question 16

What types of assets are listed as Code 1221?

Answer 16

Capital assets are defined as all those assets held by the taxpayer, except for those listed in Code Section 1221. Those assets listed in Code Section 1221 include inventory, accounts receivable and depreciable property or real estate used in business.

Question 17

The sale of which of the following types of business property should be reported as Section 1231 (Property Used in the Trade or Business and Involuntary Conversions) property?

Answer 17

The land is business property owned for more than a year, so gain on its sale would generate Section 1231 gain.

Question 18

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

Answer 18

Whether or not a net capital loss was short-term when sustained, the carryover (five years) and carryback (three years) is treated as a short-term capital loss.

Question 19

A C corporation’s net capital losses are

Answer 19

For corporations, net capital losses can be carried back three years and forward five years and are allowed only to the extent that the carryback does not lead to a net operating loss for the year that it is carried back.

Question 20

Summer, a single individual, had a net operating loss of $20,000 three years ago. A Code Sec. 1244 stock loss made up three-fourths of that loss. Summer had no taxable income from that year until the current year. In the current year, Summer has gross income of $80,000 and sustains another loss of $50,000 on Code Sec. 1244 stock. Assuming that Summer can carry the entire $20,000 net operating loss to the current year, what is the amount and character of the Code Sec. 1244 loss that Summer can deduct for the current year?

Answer 20

Even though the NOL includes $15,000 ($20,000 × 3/4) of Section 1244 loss that can be combined with the current Section 1244 loss of $50,000, the maximum deduction for a given tax year is $50,000 for a Section 1244 loss ($100,000 if married filing jointly).