RRQ 15,16,17,18

Question 1

The partnership of Rodgers & Higgs, CPAs, performed audits of Alt Corp., a publicly-traded company, for the past several years. After issuing the current year’s audit report, the CFO of Alt confessed to having committed fraud against Alt. Under which of the following statutes would the investors most likely bring suit against Rodgers & Higgs?

Answer 1

Securities Exchange Act of 1934, if they can prove scienter

the partner is for not a new company(publicly traded). it must be 1934.

Question 2

In which of the following circumstances would a tax return preparer be prohibited from disclosing a client’s tax return information?

Answer 2

The information will be provided to a section 501(c)(3) charity. cannot be provided to other party

Peer review is OK.

Question 3

Under the Statements on Standards for Tax Services, what is a CPA’s responsibility for verifying information furnished by the taxpayer or third parties?

Answer 3

A CPA may, in good faith, rely on information furnished by the taxpayer or by third parties without verification.

in Tax prepare, CPA need not verify information given.

Question 4

Which of the following contractual assignments is prohibited?

Answer 4

The right to be insured under a liability insurance policy

insurance contract is very strict

Question 5

Which of the following is a disadvantage of a revocable trust?

Answer 5

The trust is included in the gross estate of the grantor.

X:The trust assets are subject to being probated upon the death of the grantor. > it doesn’t have to be probated(検認）

Question 6

Under Treasury Circular 230, which of the following correctly represents the requirements related to the communication of fee information from a tax practitioner to a taxpayer?

Answer 6

It may be communicated in a number of ways, including in professional lists, telephone directories, mailings, and electronic mail.

Question 7

Which of the following types of debtor are not eligible for relief under Chapter 11 of the Bankruptcy Code?

a. Individuals
b. Railroads
c. Airlines
d. Stockbrokers

Answer 7

Stockbrokers

a. Individuals 7,11
b. Railroads 11 only
c. Airlines 7,11

7. bankruptcy　破産
8. reorganization 会社更生

Question 8

Which of the following statements is correct regarding the taxes payable under the Federal Unemployment Tax Act (FUTA)?

Answer 8

Credits for this tax are allowed to employers for certain state unemployment taxes paid by the employer.

*This is paid by Corp, no withholding from employee’s salary.

Question 9

An individual client asks a CPA to determine whether the client is solvent for federal tax purposes. The client has assets consisting of cash and marketable securities with a basis of $250,000 and a fair market value of $155,000. The client has liabilities of $175,000, which include $130,000 of nondischargeable liabilities under the Bankruptcy Code. Which of the following statements is correct?

Answer 9

The client is insolvent since the client’s liabilities exceed the fair market value of the client’s assets by $20,000 in FMV.

Solvency is based on the FMV of all assets less the value of all liabilities.

nondischargeable liabilities < doesn’t matter

Question 10

In which of the following situations will a controlled foreign corporation located in Ireland be deemed to have Subpart F income?

Answer 10

Services are provided by an Irish company in England under a contract entered into by its U.S. parent.

(it’s performed in england but because of the contract made under US corp that can be US income to the Irish company which provided the service)

Subpart F income is taxable income includable by a U.S. taxpayer from a controlled foreign corporation.

Question 11

Installment payment gain

Answer 11

amount received in the year *GP rate

Question 12

If a security becomes worthless in the current taxable year, it is treated as sold or exchanged on

Answer 12

The last day of the current taxable year

Question 13

S corp’s separately stated item

Answer 13

interest income
contribution
sec 179 expense

• Dep exp is ordinary expense, not separately stated item!

Question 14

Borasco Corp. owns land with a fair market value of $200,000. Borasco purchased the land 10 years ago for $65,000 and owes a liability of $50,000 as of August 2 of the current year. Alvo Corp. owns 100% of Borasco. Borasco is completely liquidated on August 2 of the current year, according to a plan adopted on June 18 of the current year. As a result, the land is transferred to Alvo in complete cancellation of Borasco’s stock. What basis does Alvo have in the land it receives?

Answer 14

65,000

This is the liquidation of a subsidiary by a parent. No gain or loss is recognized in this type of liquidation, and the parent assumes the carryover bass of all assets and liabilities of the subsidiary. Therefore, the basis of the land is the carryover basis of $65,000.

Question 15

To understand the intent of Congress, least useful reference is

a. A Committee Report of the House Ways and Means Committee.
b. A Notice of Proposed Rulemaking.
c. A Senate Finance Committee Report
d. The Congressional Record.

Answer 15

A Notice of Proposed Rulemaking. < no such thing！

Congressional Record.議会報告書

Question 16

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?

a. Straight-line depreciation.
b. Installment sale income.
c. Amortization of organizational expenses.
d. Meals and entertainment expenses.

Answer 16

a.Straight-line depreciation.

need to choose the one doesn;t have to change from Fin for Tax. SL is conservative way.

b. Installment sale income. > need to + (tax is GP rate, but Fin is not)
c. Amortization of organizational expenses.> need to + (tax up to 5,000USD can be expensed in Y1, but Fin not)
d. Meals and entertainment expenses. (only 1/2 for meal)

Question 17

The personal holding company income test requires the company’s income for a given taxable year to be at least

Answer 17

60% of adjusted ordinary gross income.(= passive income)

Question 18

Dawson, Inc.’s warehouse (with an adjusted tax basis of $75,000) was destroyed by fire. The following year, Dawson received insurance proceeds of $195,000 and acquired a new warehouse for $167,000. Dawson elected to recognize the minimum gain possible. What is Dawson’s basis in the new warehouse?

Answer 18

$75,000 same as old basis!

gain realized: amount received - old basis

gain recognized: amount received in excess of replacement cost(this case, 195,000-167,000=28,000)

Question 19

Which of the following is a list of courts that are referred to as courts of original jurisdiction, or trial courts, for tax matters?

Answer 19

The Tax Court, The U.S. District Court,（地裁） and the U.S. Court of Federal Claims.

Question 20

which of the following identifies the requirements for a tax advisor who believes that a taxpayer penalty might be assessed related to a position on a tax return?

Answer 20

The tax advisor should advise the taxpayer to disclose the position on the tax return, but the taxpayer is responsible for deciding whether and how to disclose.

Question 21

a C corporation made a nonliquidating distribution of the following assets to its sole shareholder:
Land FMV:100,00 basis:50,000
Patent FMV:25,000 basis:0
Building FMV:50,000 basis:100,000

gain/loss?

Answer 21

$75,000 gain.

in C corp nonliquidating distribution,
NO LOSS
Only gain is recognized

Question 22

A corporation transferred fully depreciated machinery to an individual shareholder in a liquidating distribution. The original cost of the machinery was $6,000, and the fair market value at the date of the transfer was $5,000. If the shareholder’s basis in the corporation’s stock was $2,000, then the shareholder reports

Answer 22

$3,000 capital gain.

machinery comes to shareholder in FMV
and gain recognized will be capital gain.

“fully depreciated” < don’t worry about this

Question 23

Capital loss

C:
S:

Answer 23

C: can’t take it in the year , 3 back 5
S: separately stated and shareholder may take it

Question 24

Which of the following statements correctly represents the tax effect of the liquidation of an 80% or more owned subsidiary?

Answer 24

Assets transferred to the parent of the liquidating corporation generally have a carryover basis. just transfer same basis and no gain/loss recognized

Question 25

Which expense listed below would be subject to the Uniform Capitalization Rules of Code Sec. 263A?

Answer 25

Quality control.

*Selling.< never can be inventory

Question 26

With respect to any given tax return, which of the following statements is correct?

Answer 26

More than one person may be deemed to be a preparer of a tax return.

Question 27

Two individuals are planning to start a business and need advice on selecting the appropriate form of entity. Their long-term business plan contemplates receiving future in-kind property distributions. Which of the following is a pair of business entities each of which can make a distribution of appreciated property to its owners that would not be taxable to the business entity or to its owners?

Answer 27

General partnership and a limited liability partnership.

partner’s basis never be minus,even when distributed property’s basis is larger than partner’s basis.
but appreciated property distribution from C/S causes gain.
(C: at a liquidated distribution, capital gain.
S:Distributions in excess of basis are capital gains)

Question 28

An individual taxpayer reported the following net long-term capital gains and losses:

Year	Gain (loss)
1	($5,000)
2	1,000
3	4,000
The amount of capital gain that the individual taxpayer should report in year 3 is

Answer 28

$4,000

spend max 3,000 in Y1, and rest of 2,000 in Y2. Y2 result is (1,000). no carry forward loss this indivisual can use in Y3.

Question 29

A calendar-year taxpayer purchases a new business on July 1. The contract provides the following price allocation: customer list, $100,000; trade name, $50,000; goodwill, $90,000. What is the amortization deduction for the current year?

Answer 29

$8,000

240,000/15*50%(purchased date is July 1st)=

Question 30

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 30

The gift tax each year the loan is outstanding.

you cannot loan without interest.
Imputed interest : interest the IRS considers paid for tax purposes, even though the debtor has made no interest payments.

Question 31

Jensen reported the following items during the current year:

Fair rent value of a condominium owned by Jensen’s employer $ 1,400
Cash found in a desk purchased for $30 at a flea market 400
Inheritance 11,000
The employer allowed Jensen to use the condominium for free in recognition of outstanding achievement. Based on this information, what is Jensen’s gross income for the year?

Answer 31

1,800

reward : taxable
cash found in desk : usually people don’t file for it, but legally this should be included in gross income

Question 32

Dr. Merry, a self-employed dentist, incurred the following expenses:

Investment expenses $700
Custodial fees related to Dr. Merry’s Keogh plan 40
Work uniforms for Dr. Merry and Dr. Merry’s employees 320
Subscriptions for periodicals used in the waiting room 110
Dental education seminar 1,300
What is the amount of expenses the doctor can deduct as business expenses on Schedule C, Profit or Loss from Business?

Answer 32

$1,730

investment exp: not on Sch C

custodial fee for keogh plan : Non deductible

Question 33

A C corporation had a federal income tax liability of $40,000 for each of the last five years, each covering a 12-month period. The tax for the current year is $48,000. What is the lowest amount that must have been paid as estimated taxes for the current year so that no penalty for underpayment is applicable?

Answer 33

$40,000

either lesser of 100% of prior year tax liability
or 100% of current year’s tax liability

Question 34

A taxpayer owns 50% of the stock of an S corporation and materially participated in the corporation’s activities. At the beginning of the year, the taxpayer had an adjusted basis in the stock of $25,000 and made a loan to the corporation of $13,000. During the year, $3,000 of the loan was repaid, and the taxpayer’s share of the corporation’s loss for the year was $40,000. What is the amount of the loss that may be deducted on the taxpayer’s tax return?

Answer 34

$35,000

S corp’s shareholder can take their share of corp’s loss only up to their tax basis+ ‘loan basis’ this case the loan basis is 10,000USD

Question 35

A partner received a partnership interest with a fair market value (FMV) of $55,000 in exchange for the following items:

Basis	FMV
Cash	$20,000	$20,000
Property	10,000	30,000
Services rendered	0	5,000
What is the partner's basis in the partnership interest?

Answer 35

$35,000

service rendered : FMV

Question 36

repayment of loan

Answer 36

is not taxable

Question 37

Gift tax is applied to FMV of the gift of the date of transfer.

appreciated %:

difference/appreciated FMV in total

Answer 37

Basis of gift: doner’s basis is rolling over.

donee’s basis increase by appreciated % of the gift tax paid by donor

if it’s

appreciated: basis
depreciated: use basis for gain calculation, FMV for loss calculation

Question 38

when you’re looking W-2(for more than $600) for indivi’s TI calculation,

just see amount of box.1
that’s the wages

Answer 38

box1 number doesn’t include 401k

“elected to defer $XXX of my salary”
means you don’t include the amount to your TI

Question 39

box 1a of form 1099 includes all ordinary dividends

Answer 39

Box 1b shows the number of the dividends in box 1a that are qualified dividends

basically they are same. in tax purpose use number in 1a

Question 40

1099-B

A broker or barter exchange = stock transaction for capital gain/loss

Answer 40

W-2G

Gambling!

Form 1098

mortgage interest

Question 41

daily per share basis

S corp & Partnership

Answer 41

エス　パー　ない

basis will increase/decrease by S corp/partnership gain or losses.

Question 42

When agency is terminated because of illegality or insanity, terminate notices are not required.

Answer 42

if it’s unilateral or agreed upon termination,
you must notify 3rd parties.

unilateral 一方的な

Question 43

BDE is not

Answer 43

permanent differences!

Question 44

An IRS agent has sent a 30-day letter reflecting a proposed adjustment to increase a client’s taxable income in three prior years. The CPA and the client have reviewed the proposed changes and agree with the proposed adjustment. What would be the CPA’s most appropriate recommendation to the client?

Answer 44

Accept the proposed IRS changes and pay any deficiency.

• If you don’t agree > appeal
• amended return : use to correct errors or claim a more advantageous filing.

Question 45

offer in compromise 妥協案

Answer 45

An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate 正当な option if you can’t pay your full tax liability, or doing so creates a financial hardship.

Question 46

A taxpayer received a notice of deficiency from the IRS. If the tax underpayment is not the result of the taxpayer’s mathematical or clerical error, how long does the taxpayer have to file a petition with the Tax Court for a redetermination of the deficiency?

Answer 46

US > 90 days Outside US > 150 days

If you want to challenge the deficiency determination, file a petition with the Tax Court.

Question 47

Craven was the CEO of Engines Plus, Inc., a publicly-traded company. Hanson, CPA, was the long-time controller for the company. Engines Plus was about to be sued in a class action suit for defective engines. Only Craven knew about the impending suit. On March 1, Craven told Hanson about the impending suit. On March 2, Craven told Spore, an old friend, about the suit. Spore knew that Craven was the CEO of Engines Plus. On March 3, Craven, Hanson, and Spore all sold the stock they owned in Engines Plus. On March 4, the class action suit was filed and the value of Engine Plus stock plummeted. Under the insider trading provisions of the Securities Exchange Act of 1934, which of the following statements is correct regarding Craven, Hanson, and Spore?

Answer 47

Craven and Hanson would be considered insiders and Spore would be considered a tippee, all with knowledge of material, nonpublic information.

tippee: someone who receives info of financial deal,especially those involves buying or selling stocks

Question 48

A beneficiary acquired property from a decedent. The fair market value at the date of the decedent’s death was $100,000. The decedent had paid $130,000 for the property. Estate taxes attributed to the property were $2,000. The beneficiary sold the property two years after receipt from the estate. What is the basis of the property for the beneficiary?

Answer 48

$100,000

estate tax is not included the property’s basis, not like gift tax.

Question 49

A taxpayer died in year 1 with a gross estate valued at $100,000,000. In the taxpayer’s will, he gave
$40,000,000 of his gross estate to his surviving spouse, with no restrictions. His surviving spouse also
receives $20,000,000 in assets not included in the taxpayer’s gross estate. What is the amount of the
marital deduction for the taxpayer’s estate?

Answer 49

The marital deduction is comprised of anything transferred to the decedent’s surviving
spouse from the gross estate of the decedent. Here, the decedent transferred $40M to the surviving
spouse from the estate. Since the other $20M in assets were not included in the gross estate, they would
also not be included in the marital deduction.

Question 50

Private activity bond interest (i.e., municipal bonds

used for nongovernmental projects) is

Answer 50

fully taxable for AMT purposes.