remember

Question 1

There is no option to have a jury trial in a case tried in

Answer 1

U.S. Court of Federal Claims, U.S. Tax Court, or the Small Cases Division of the U.S. Tax Court.

Question 2

Which tax cases have the option of a jury trial?

Answer 2

Cases tried in the Federal District Court

Question 3

Which tax cases have no appeal?

Answer 3

Cases tried in the Small Cases Division of the U.S. Tax Court

Question 4

A taxpayer contemplates entering into a complex transaction. The taxpayer wants assurance that there will be no adverse tax effects from the transaction. The taxpayer should apply for which of the following?

Answer 4

Private Letter Ruling

Question 5

A contract to purchase real property is

Answer 5

Generally assignable

Question 6

In general, a contract may be assigned unless it involves

Answer 6

personal services or a confidential relationship or the duties of the obligor would be materially increased. In this fact situation, there is no evidence given as to why this contract could not be assigned.

Question 7

In a sale-or-return contract, risk of loss is borne by

Answer 7

the buyer while the goods are in the buyer’s possession and during the return of the goods to the seller.

Question 8

Which of the following rights is(are) generally given to a lessee of residential property?

Answer 8

A covenant of quiet enjoyment

An implied warranty of habitability

Question 9

Risk of loss passes upon tender of delivery when

Answer 9

the seller is not a merchant

Question 10

If the seller was a merchant, risk of loss would pass

Answer 10

upon the buyer’s receipt of the goods

Question 11

Contracts to purchase which of the following cannot be assigned without consent of the other party to the contract?

Answer 11

Personal services.

Contracts involving personal services cannot be assigned or delegated unless both parties consent to it. Personal services are difficult to assign without the consent of all parties. As an example, if you hire someone to do your taxes, the tax preparer cannot assign it to someone without your consent. All others can be permissible.

Question 12

Under the Sales Article of the UCC, the remedies available to a seller when a buyer breaches a contract for the sale of goods may include

Answer 12

Under the Sales Article of the UCC, when a buyer breaches a contract for the sale of goods, the seller has the right to resell the goods identified to the contract and the right to stoppage of delivery of goods in the possession of a carrier or other bailee. The seller also could cancel the contract or choose to recover damages without resale.

Question 13

The antifraud provisions of Rule 10b-5 of the Securities Exchange Act of 1934

Answer 13

Require that the wrongful act must be accomplished through the mail, any other use of interstate commerce, or through a national securities exchange

s per the liability provisions of Section 10, Rule 10 b-5 of the Securities Exchange Act of 1934, it is unlawful to make any untrue statement of a material fact or to omit to state a material fact. It prohibits fraud in connection with the purchase or sale of any security. Rule 10b-5 applies whether or not the securities are of a registered company, it applies even if registration is not required. Anyone who sells or buys securities using fraud can be liable. Since this is a Federal Law, anyone who commits fraud through agencies that are regulated by the government such as mail, interstate commerce or national exchange, has violated Section 10, Rule 10b-5 and is subject to prosecution.

Question 14

Imperial Corp. is offering $450,000 of its securities under Rule 504 of Regulation D of the Securities Act of 1933. Under Rule 504, Imperial is required to

Answer 14

Notify the SEC within 15 days after the first sale of the securities

Question 15

Regulation D establishes two important exempt transactions in Rules 504 and 506. Under Rule 504 of Regulation D,

Answer 15

offerings up to $5MM are to be completed within 12 months and one of the requirements is that the SEC must be notified within 15 days of the first sale.

Question 16

is an owner of 5% of the corps outstanding debentures an insider of a corporation subject to the Securities Exchange Act of 1934 registration and reporting requirements?

Answer 16

no

Question 17

Under Rule 506 of Regulation D, what is the limit on investors

Answer 17

there is no limit on the number of accredited investors, but sales to non-accredited investors are limited to a maximum of 35.

Question 18

A $10,000,000 offering of corporate stock intended to be made pursuant to the provisions of Rule 506 of Regulation D of the Securities Act of 1933 would not be exempt under Rule 506 if

Answer 18

The offering was made through a general solicitation or advertising.

Question 19

Shareholders have the right to vote for

Answer 19

the directors and their removal.

Question 20

The appointment and removal of officers as well as the declaration of dividends are at the

Answer 20

board of directors’ discretion; shareholders have no direct voice in such actions

Question 21

Inherited property has a basis of the property’s

Answer 21

fair market value on the date of the decedent’s death or, if elected, the alternate valuation date, which is six months after death.

Question 22

The amendment of the articles of incorporation is a task ultimately left to

Answer 22

the shareholders, via a majority or perhaps even greater (e.g., two-thirds) vote.

Question 23

Respondeat superior

Answer 23

is a doctrine that the master is liable in certain cases for the wrongful acts of the servant when committed within the scope of the agency (employee case)

Question 24

Ultra vires

Answer 24

acts are acts by the corporation or its management that are beyond the scope of corporate authority as granted by its charter, bylaws, and state law.

Question 25

Estoppel

Answer 25

refers to a party’s own acts preventing him or her from a contrary claim to the detriment of another who reasonably relied on those acts

Question 26

Shareholders have the right to inspect

Answer 26

the corporate books and records. Five days written notice generally is sufficient for a corporation to prepare records for inspection and to confirm a shareholder’s bona fides. Ace need not purchase additional shares to exercise this right

Question 27

The Section 179 deduction cannot exceed

Answer 27

taxable income derived from the active conduct of the trade or business during the year.

Since Green Valley’s taxable income was $100,000, then $25,000 of their $125,000 equipment purchase may be carried forward indefinitely.

Question 28

MACRS 5-year class includes

Answer 28

includes automobiles, light trucks, and computers

Question 29

MACRS 7-year class includes

Answer 29

office furniture and office equipment.

Question 30

Purchased goodwill and covenants not to compete

Answer 30

both qualify for amortization over a uniform 15‑year straight-line amortization period.

Question 31

What is max deduction for 179 deduction

Answer 31

1 mill

Question 32

Parents lend $2,000,000 to their child to start a business. The loan is interest-free and is payable on demand. The imputed interest is subject to

Answer 32

The gift tax each year the loan is outstanding.

Question 33

The generation-skipping transfer tax

Answer 33

is a separate tax imposed in addition to the gift tax and the estate tax. The generation-skipping transfer tax applies to transfers to beneficiaries who are more than one gen­eration below the transferor’s generation.

Question 34

At the close of the prior year, an individual taxpayer transferred assets into an irrevocable trust, retaining the right to the income from the trust for life. During the year, the assets earned ordinary dividends and interest income. The tax liability on the income earned will be paid

Answer 34

Entirely by the individual taxpayer.

The tax liability on the income earned will be paid entirely by the individual taxpayer. Income earned by a trust that is distributed to the income beneficiary, such as dividends and interest, is taxed to the income beneficiary (i.e., individual taxpayer). If the income is retained by the trust, it is taxed to the trust.

Question 35

If an extension is not requested, Form 706, US Estate (and Generation-Skipping Transfer) Tax Return, is due

Answer 35

nine months after the date of death

Question 36

Form 1041, US Income Tax Return for Estates and Trusts, is due

Answer 36

on the 15th day of the fourth month following the close of the tax year—April 15th for calendar year entities.

Question 37

An executor must file

Answer 37

a final account of the administration of an estate. Generally, the terms of a valid will control its administration. Thus, John need not post bond. Whether the named executor is a beneficiary does not affect her/his potential right to reasonable compensation, nor does it require her/him to relinquish the duties of the appointment.

Question 38

In 2019, the effect of the unified credit is to exempt up

Answer 38

to $11,400,000 of a decedent’s estate from transfer taxation.

Question 39

Proceeds of insurance on the life of the decedent, payable to the executor as the estate’s representative are

Answer 39

always includible in the gross estate under §2042(1).

Question 40

Which of the following is (are) deductible from a decedent’s gross estate?

Answer 40

Expenses of administering and settling the estate

State inheritance or estate tax

Question 41

Income in respect of a cash basis decedent is

Answer 41

income that has been earned by the decedent up to the point of death, but is not reported on the final income tax return because it has not been received. It will be included in the estate tax return at its fair market value.

Question 42

For federal estate taxation, the alternate valuation date

Answer 42

can be used to value a decedent’s estate only if the elec­tion will decrease the value of the estate and if it will reduce any estate tax liability. The election can be used only if the election will decrease the value of the estate. The election, once made, is irrevocable and cannot be changed by filing an amended return. The election applies only to the gross estate and not to the net value of the estate (e.g., after liabilities and allowable deductions).

Question 43

Generally, the deduction for passive activity losses is only allowed to the extent of passive activity income.

An exception is available for taxpayers….

Answer 43

active participants) whose AGI is < $100,000, who can deduct up to $25,000 of passive rental activity losses against ordinary and portfolio income.

For AGI, in excess of $100,000 but less than $150,000, the deduction is computed as $25,000 - 50% (AGI - $100,000).

Question 44

The rule limiting the allowability of passive activity losses and credits applies to

Answer 44

Personal Service Corporations

Question 45

net operating losses of individuals may not be

Answer 45

Net operating losses may not be carried back beginning tax years December 31, 2017, but can be carried forward indefinitely. Also net operating losses utilized in one year is limited to 80% of taxable income. Option (a), (b) and (c) are incorrect as per above explanation.

Question 46

r cousins included in the list of depent relatives for head of household?

Answer 46

no

Question 47

list of depent relatives for head of household

Answer 47

sibling, grandparent, uncle / aunt, nephew / niece, few step-relatives, few in-laws

Question 48

Generally, a claim for refund can be filed up to the

Answer 48

later of (i) 3 years after the original due date of filing tax return including extensions or (ii) 2 years after actual payment. In this case if an individual paid tax but no tax return was filed, a claim for refund of taxes must be filed within 2 years from the date the tax was paid.

Question 49

A husband and wife can file a joint return even if

Answer 49

The spouses have different accounting methods.

Question 50

Generally, an adoption credit of up to

Answer 50

$14,080 is available to the extent of qualified adoption expenses

Question 51

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

Answer 51

Foreign taxes paid by an individual can either be taken as an itemized deduction or may be taken as a credit against federal taxes due

Question 52

A corporation recognizes gain or loss on the distribution of property in complete liquidation as

Answer 52

if such property had been sold to the distributee at FMV. The type of gain which is recognized depends on the type of property sold.

Question 53

Which of the following items reported on a C corporation’s tax return would not require an adjustment to taxable income in computing current earnings and profits?

Answer 53

Straight-line depreciation.

Question 54

An S corporation may deduct

Answer 54

Compensation of officers

Question 55

An S corporation Charitable contributions are limited to

Answer 55

50% of the adjusted gross income (AGI) of a shareholder, and since each individual’s AGI is different, charitable contributions have to be reported separately.

Question 56

An S corporation’s Accumulated Adjustment Account (AAA) represents

Answer 56

the cumulative total of undistributed non-separately stated and separately stated income (+) and expense (-) items. Further it is reduced for any distributions made to the shareholder. From the given choices, interest and dividend are separately stated income items that increase the balance in the AAA account.

Question 57

capital contributions by shareholder- scorp

Answer 57

only the shareholder’s basis and not the AAA account.

Question 58

mark-to-market income is

Answer 58

ordinary income for dealers in securities and therefore not separately stated.

Question 59

unearned revenue is

Answer 59

not income for tax purposes and therefore not considered in determining the income of the S corp.

Question 60

Sec 1245 gain relates to

Answer 60

recapture of depreciation as ordinary income.

Question 61

Gain or loss from the sale of collectibles for s corp

Answer 61

must be separately stated on Form 1120S, US Income Tax Return for an S Corporation, Schedule K-1?

Question 62

An S corporation investor (shareholder) calculates basis as such:

Answer 62

Initial contribution + % share of taxable income + % share of separately stated items + % share of non-taxable income - Distributions to shareholder - % share of non-deductible expenses = Tax Basis

Question 63

Which of the following can be an advantage of a limited liability company over an S corporation?

Answer 63

Appreciated property can be distributed tax-free to an owner.

Question 64

If a single-member limited liability company (LLC) admits a new member

Answer 64

t is taxed as a partner­ship. A single-member LLC is disregarded as a separate entity by the IRS. Accordingly, if the single member is an individual, the LLC is taxed as a proprietorship. If the single member is a corporation, the LLC is taxed as a division of a corporation. An LLC with multiple members is taxed as a partnership. Thus, if one member of a two-member LLC dies and the remaining member is an individual, the LLC is taxed as a proprietorship.

Question 65

An express trust is

Answer 65

simply a trust created on purpose, and not imposed by a court. An express trust will always have the following parties:

Grantor
Trustee
Beneficiary

An express trust may be created without a remainderman or a successor trustee as there will be a grantor and other trustees.

Question 66

A testamentary trust

Answer 66

generally is created in an instrument such as a will and comes into existence only upon the settlor’s death. The fact that a trust will not become effective until the settlor’s death does not render the trust invalid.

Question 67

An inter vivos trust

Answer 67

comes into existence during the settlor’s lifetime.

Question 68

To which of the following trusts would the rule against perpetuities not apply?

Answer 68

Charitable trusts are not subject to the rule against perpetuities. The rule against perpetuities limits the duration of a private trust to a life in being plus 21 years. This rule does apply to spendthrift trusts, totten trusts, and constructive trusts.

Question 69

To properly create an inter vivos trust funded with cash, the grantor must

Answer 69

Transfer the cash to the trustee

Question 70

Which of the following situations would cause a resulting trust to be created?

Answer 70

A resulting trust may arise where an express trust has been created gratuitously and it fails (I) because it is impossible to carry out. Also, the fulfillment of a trust purpose (III) could result in the creation of a resulting trust if trust property still remained. The application of the cy pres doctrine would not cause a resulting trust to be created. It is applied in those situations in which a gift to a charitable trust cannot be carried out in the manner specified by the donor. In that case, the doctrine would allow that the trust be carried out as closely as possible to the intent of the donor.

Question 71

C Corporations can deduct charitable contributions up to a maximum of

Answer 71

0% of Adjusted Taxable Income (ATI)

Question 72

what can be c corp accounting period?

Answer 72

(1) Calendar year with a December 31 year end
(2) Fiscal year ending on the last day of any month other than December
(3) 52-53-week year/period ending on the same day of a week (e.g., last Friday of a month)

Question 73

requirements of a personal holding company

Answer 73

Personal Holding Companies (PHCs) are corporations that satisfy both conditions: (i) 5 or fewer individuals own more than 50% stock (either directly or indirectly) at any time during the last half of the year and (ii) 60% or more revenue from passive sources (taxable interest, dividends, rents and royalty income) Therefore, Edge Corp. must consider only dividends received from unrelated domestic corporation to determine if income requirements for a personal holding company have been met. Interest earned on tax exempt obligations is ignored.

Question 74

dividends received deduction %’s

Answer 74

80% Interest = 100% DRD
20-79% = 65% DRD
<20% = 50% DRD

Question 75

Personal Holding Companies or PHCs

Answer 75

are corporations set up by high net worth individuals to hold their personal investments and benefit from lower corporate tax rates. A PHC tax @ 20% is imposed on companies that have undistributed passive income of 60% or more. In calculating the PHC tax, a corporation is allowed to a take a deduction for dividends paid on its adjusted taxable income. This deduction is allowed for: Actual dividends paid during the tax year or within 3 1/2 months after the tax year and Consent dividends -These are hypothetical dividends that are not actually distributed to shareholders, but are taxed like actual dividends paid. They are treated as if they were paid on the last day of the tax year. Shareholders can increase their basis by the amount of consent dividends included in their gross income. Therefore, Hull Inc., can deduct both, actual dividends of $20,000 and consent dividends of $10,000 resulting in a total dividends paid deduction of $30,000.

Question 76

Acme Corp. has two common stockholders. Acme derives all of its income from investments in stocks and securities, and regularly distributes 51% of its taxable income as dividends to its stockholders. Acme is a

Answer 76

If, at any time during the last half of the tax year, more than 50% of the value of the outstanding stock of a corporation is owned directly or indirectly by five or fewer individuals and at least 60% of the corpor­ation’s adjusted ordinary gross income is personal holding company income, then the corporation is a personal holding company.

Question 77

Micro Corp., a calendar year, accrual basis corporation, purchased a 5-year, 8%, $100,000 taxable cor­porate bond for $108,530, on July 1, Year 1, the date the bond was issued. The bond paid interest semi­annually. For Micro’s tax return, the bond premium amortization for Year 1 should be

Answer 77

Computed under the constant yield to maturity method

Treated as an offset to the interest income on the bond

Question 78

For businesses other than financial institutions, bad debts must be

Answer 78

deducted under the direct charge-off method, rather than the reserve method.

Question 79

The tax for a short period is determined using

Answer 79

current year amounts and tax rates and the number of months in the short period. The current year amounts are annualized and used to determine an annualized tax amount. Then the annualized tax amount is adjusted for the short period. This results in tax comparable to the tax on entities with an annual period. As tax rates are progressive, computing tax on the short-year income and then adjusting for the time difference generally would result in less tax, encouraging entities to have short years. Prior-year amounts and tax rates are not used to determine the tax for a subsequent period, whether it is short or regular.

Question 80

When appreciated property is distributed as a dividend to shareholders

Answer 80

the property is considered to be distributed at FMV and the corporation would treat it as a sale and recognize a gain to the extent of the difference between the FMV and adjusted basis.

Like a regular cash distribution, shareholders would treat as taxable dividend income amount up to the extent of higher of:

Current earnings and profit OR

Sum of current earnings and profit (CEP) and accumulated earnings and profit (AEP) before the distribution

The remaining distribution is treated as a non-taxable return of capital to the extent of the shareholder’s basis and excess distributions are treated as taxable capital gain distributions.

Question 81

Corporations must make quarterly estimated tax payments if the liability is

Answer 81

$500 or more in any year. The estimates are calculated on the least of (1) 100% of current year tax liability or (2) 100% of previous year tax liability.

In computing the estimates, both Base Erosion Anti-abuse Tax (BEAT) and Corporate Tax Credits, if any, must be considered.

Question 82

The Base Erosion Anti-Abuse Tax (BEAT)

Answer 82

Imposes a minimum tax on certain deductible payments made to a foreign affiliate, including payments like royalties and management fees, but excluding payments for inventory.

Note: BEAT applies if the corporation had gross receipts of at least $500 million in any one of the 3 tax years preceding the current tax year.

Question 83

Gain which is incurred by a noncorporate shareholder on the redemption of stock that qualifies as a partial liquidation of the distributing company is treated as

Answer 83

a capital gain under §302.

Question 84

Consolidated returns may be filed

Answer 84

Only by parent-subsidiary affiliated groups

Question 85

an affiliated group is

Answer 85

a parent-subsidiary group wherein one or more chains of includable corporations is connected through stock ownership with a common parent.

Question 86

Which of the following are necessary for a state to impose a net income tax on a foreign corporation related to sales of tangible personal property within the state?

Answer 86

Public Law 86-272 prohibits a state from imposing a net income tax on a company if the company’s only activities within a state are a solicitation of orders for sales of tangible personal property which are sent outside the state for approval or rejection and are filled from outside the state. For a state to impose income tax on sales of tangible property, either the order must be approved or rejected within the state or filled from within the state.

Question 87

Deductions to Arrive at AGI:

Answer 87

MSA/HSA Contributions
Educator Expenses: Up to $250 of qualified expenses.
Deductible part of Self-Employment TaxSelf-Employed SEP, SIMPLE, and Qualified Plans
Self-Employed Health Insurance Premiums
Investment penalties for early withdrawal
Alimony Paid (Divorce Prior to December 31, 2018)
Traditional IRA Deduction
Student Loan Interest up to $2,500 (Can’t be another taxpayer’s dependent)
Qualified Tuition and Fees