Question 1

Which of the following statements is incorrect?

Accepted Answer

A)  S corporations must allocate income and expenses to their shareholders based on their proportionate ownership interest. 
B)  The number of S corporation shareholders is unlimited. 
C)  S corporation income is taxed to shareholders when earned. 
D)  S corporation losses can offset shareholder income from other sources. 
A)  S corporations must allocate income and expenses to their shareholders based on their proportionate ownership interest. 
B)  The number of S corporation shareholders is unlimited. 
C)  S corporation income is taxed to shareholders when earned. 
D)  S corporation losses can offset shareholder income from other sources.

Question 2

A corporation must recognize a loss when transferring noncash boot property that has declined in value and its stock to a transferor as part of a Sec.351 exchange.

Accepted Answer

A) True 
 B)False

Question 3

Severs Corporation employs Susan as an Advertising Director.Her annual compensation from Severs Corporation is $100,000.Severs Corporation is experiencing financial problems,and Susan lends the corporation $50,000 in 2008 in an attempt to help it through its financial difficulties.Severs Corporation subsequently declares bankruptcy,and in 2010 Susan and the other creditors receive 10 cents on each dollar they are owed.What is the amount and character of Susan's loss?

Accepted Answer

Since Susan is not a sharehold

Question 4

Henry transfers property with an adjusted basis of $90,000 and an FMV of $100,000 to a newly-formed corporation in a Sec.351 exchange.Henry receives stock with an FMV of $80,000 and a short-term note with a $20,000 FMV.Henry's recognized gain is

Accepted Answer

A)  $0. 
B)  $5,000. 
C)  $10,000. 
D)  $20,000. 
A)  $0. 
B)  $5,000. 
C)  $10,000. 
D)  $20,000.

Question 5

The check-the-box regulations permit an LLC to be taxed as a C corporation.

Accepted Answer

A) True 
 B)False

Question 6

Ralph transfers property with an adjusted basis of $65,000 and an FMV of $70,000 to Lake Corporation in a Sec.351 transaction.Ralph receives stock worth $60,000 and a short-term note having a $10,000 FMV.Ralph's basis in the stock is

Accepted Answer

A)  $75,000. 
B)  $70,000. 
C)  $65,000. 
D)  $60,000. 
A)  $75,000. 
B)  $70,000. 
C)  $65,000. 
D)  $60,000.

Question 7

Identify which of the following statements is true.

Accepted Answer

A)  Under the check-the-box regulations, an LLC that has one member (owner) may be disregarded as an entity separate from its owner. 
B)  An unincorporated business may not be taxed as a corporation. 
C)  A new LLC that is owned by four members elects to be taxed under its default classification (as a partnership) in its first year of operations. The entity is prohibited from changing its tax classification at any time in the future. 
D)  All of the above are false. 
A)  Under the check-the-box regulations, an LLC that has one member (owner) may be disregarded as an entity separate from its owner. 
B)  An unincorporated business may not be taxed as a corporation. 
C)  A new LLC that is owned by four members elects to be taxed under its default classification (as a partnership) in its first year of operations. The entity is prohibited from changing its tax classification at any time in the future. 
D)  All of the above are false.

Question 8

The City of Portland gives Data Corporation $60,000 cash and land worth $100,000 to induce it to move.The cash was not spent during the 12 months following contribution.The contribution results in

Accepted Answer

A)  income recognition in the amount of $160,000 to the corporation at the time of contribution. 
B)  income recognition in the amount of $60,000 to the corporation 12 months after the time of contribution. 
C)  a zero basis in the land and $60,000 ordinary income to the corporation 24 months after the time of contribution if the cash is not used to purchase an asset. 
D)  a zero basis in the land and a $60,000 basis reduction in other assets. 
A)  income recognition in the amount of $160,000 to the corporation at the time of contribution. 
B)  income recognition in the amount of $60,000 to the corporation 12 months after the time of contribution. 
C)  a zero basis in the land and $60,000 ordinary income to the corporation 24 months after the time of contribution if the cash is not used to purchase an asset. 
D)  a zero basis in the land and a $60,000 basis reduction in other assets.

Question 9

Which of the following statements about a partnership is true?

Accepted Answer

A)  A partnership is a taxpaying entity. 
B)  Partners are taxed on distributions from a partnership. 
C)  Partners are taxed on their allocable share of income whether it is distributed or not. 
D)  Partners are considered employees of the partnership. 
A)  A partnership is a taxpaying entity. 
B)  Partners are taxed on distributions from a partnership. 
C)  Partners are taxed on their allocable share of income whether it is distributed or not. 
D)  Partners are considered employees of the partnership.

Question 10

Identify which of the following statements is true.

Accepted Answer

A)  Property contributions to a corporation by nonshareholders will result in income recognition by the corporation if the contributed property is subsequently sold. 
B)  Section 1244 ordinary loss treatment is available to any shareholder. 
C)  A taxpayer must make a special election to take advantage of Sec. 1244. 
D)  All of the above are false. 
A)  Property contributions to a corporation by nonshareholders will result in income recognition by the corporation if the contributed property is subsequently sold. 
B)  Section 1244 ordinary loss treatment is available to any shareholder. 
C)  A taxpayer must make a special election to take advantage of Sec. 1244. 
D)  All of the above are false.

Question 11

Which of the following is an advantage of a sole proprietorship over other business forms?

Accepted Answer

A)  tax-exempt treatment of fringe benefits 
B)  the deduction for compensation paid to the owner 
C)  low tax rates on dividends 
D)  ease of formation 
A)  tax-exempt treatment of fringe benefits 
B)  the deduction for compensation paid to the owner 
C)  low tax rates on dividends 
D)  ease of formation

Question 12

Jerry transfers two assets to a corporation as part of a Sec.351 exchange.The first asset has an adjusted basis of $70,000 and an FMV of $50,000.The second asset has an adjusted basis of $70,000 and an FMV of $150,000.The FMV of the stock received is $180,000,and he also receives $20,000 cash.The realized and recognized gain on the second asset is

Accepted Answer

A)  $80,000 realized; $20,000 recognized. 
B)  $80,000 realized; $15,000 recognized. 
C)  $20,000 realized; $10,000 recognized. 
D)  $10,000 realized; $10,000 recognized. 
A)  $80,000 realized; $20,000 recognized. 
B)  $80,000 realized; $15,000 recognized. 
C)  $20,000 realized; $10,000 recognized. 
D)  $10,000 realized; $10,000 recognized.

Question 13

Chris transfers land with a basis of $40,000 to Webb Corporation in exchange for 100% of Webb's stock.At the date of the transfer,the land had a $30,000 fair market value.Chris makes an election to reduce his basis in Webb's stock to $30,000,so Webb's basis in the land is

Accepted Answer

A)  $30,000. 
B)  $35,000. 
C)  $40,000. 
D)  none of the above 
A)  $30,000. 
B)  $35,000. 
C)  $40,000. 
D)  none of the above

Question 14

On April 2 of the current year,Jana transfers land with a basis of $140,000 and a fair market value of $120,000 to Amish Corporation in exchange for all of its stock.She had originally acquired the land on December 1,2002.What tax issues arise from the exchange?

Accepted Answer

• Does the property transfer meet the Se

Question 15

Section 351 applies to an exchange if the contributing shareholders own more than 50% of a corporation's stock after the transfer.

Accepted Answer

A) True 
 B)False

Question 16

In accordance with the rules that apply to corporate formation,which one of the following features does not make an issue of preferred stock "nonqualified"?

Accepted Answer

A)  The shareholder can require the corporation to redeem the stock. 
B)  The dividend rate on the stock may not vary with interest rates, commodity prices, or other similar indices. 
C)  The corporation is either required to redeem the stock or is likely to exercise a right to redeem the stock. 
D)  The stock is limited and preferred as to dividends. 
A)  The shareholder can require the corporation to redeem the stock. 
B)  The dividend rate on the stock may not vary with interest rates, commodity prices, or other similar indices. 
C)  The corporation is either required to redeem the stock or is likely to exercise a right to redeem the stock. 
D)  The stock is limited and preferred as to dividends.

Question 17

Norman transfers machinery that has a $45,000 basis and a $105,000 FMV and $30,000 in money to Elnor Corporation in exchange for 50 shares of Elnor stock.The machinery,used in Norman's business,originally cost him $150,000 and is subject to an $84,000 liability which Elnor Corporation assumes.Kate exchanges $51,000 cash for the remaining 50 shares of Elnor stock.
a)What is the amount and character of Norman's recognized gain or loss?
b)What is his basis in the Elnor stock?
c)What is Elnor's basis in the machinery?
d)What is the amount and character of Kate's recognized gain or loss?
e)What is Kate's basis in the Elnor stock?
f)When do Norman and Kate's holding periods for their stock begin?

Accepted Answer

a)Norman's realized gain is $60,000 [($5

Question 18

South Corporation acquires 100 shares of treasury stock for $10,000.The next year,South reissues the 100 shares for land having a $15,000 FMV.What is the amount of gain or loss realized by South Corporation,and how much is recognized?

Accepted Answer

South realizes a $5,

Question 19

The City of Providence donates land worth $125,000 to Triple A Corporation to induce it to locate in Providence and provide jobs for its citizens.How much gross income must Triple A Corporation recognize because of the land contribution,and what is the land's basis to Triple A Corporation?

Accepted Answer

The corporation reco

Question 20

Identify which of the following statements is true.

Accepted Answer

A)  The transferee corporation's acquisition or assumption of liabilities in excess of the total adjusted bases of the properties transferred by a transferor results in a gain recognition by the transferor. 
B)  When a transferor exchanges a mortgaged property under Sec. 351 and the amount of the mortgage is greater than the transferor's basis in the property, the transferor's basis in the stock received will be equal to the basis the transferor had in the mortgaged property. 
C)  When forming a corporation, the accounts payable of a transferor's business are not liabilities for gain computation purposes if the transferor's business uses the accrual method of accounting. 
D)  All of the above are false. 
A)  The transferee corporation's acquisition or assumption of liabilities in excess of the total adjusted bases of the properties transferred by a transferor results in a gain recognition by the transferor. 
B)  When a transferor exchanges a mortgaged property under Sec. 351 and the amount of the mortgage is greater than the transferor's basis in the property, the transferor's basis in the stock received will be equal to the basis the transferor had in the mortgaged property. 
C)  When forming a corporation, the accounts payable of a transferor's business are not liabilities for gain computation purposes if the transferor's business uses the accrual method of accounting. 
D)  All of the above are false.

Which of the following statements is incorrect?

A corporation must recognize a loss when transferring noncash boot property that has declined in value and its stock to a transferor as part of a Sec.351 exchange.

Henry transfers property with an adjusted basis of $90,000 and an FMV of $100,000 to a newly-formed corporation in a Sec.351 exchange.Henry receives stock with an FMV of $80,000 and a short-term note with a $20,000 FMV.Henry's recognized gain is

The check-the-box regulations permit an LLC to be taxed as a C corporation.

Ralph transfers property with an adjusted basis of $65,000 and an FMV of $70,000 to Lake Corporation in a Sec.351 transaction.Ralph receives stock worth $60,000 and a short-term note having a $10,000 FMV.Ralph's basis in the stock is

Identify which of the following statements is true.

The City of Portland gives Data Corporation $60,000 cash and land worth $100,000 to induce it to move.The cash was not spent during the 12 months following contribution.The contribution results in

Which of the following statements about a partnership is true?

Identify which of the following statements is true.

Which of the following is an advantage of a sole proprietorship over other business forms?

Chris transfers land with a basis of $40,000 to Webb Corporation in exchange for 100% of Webb's stock.At the date of the transfer,the land had a $30,000 fair market value.Chris makes an election to reduce his basis in Webb's stock to $30,000,so Webb's basis in the land is

On April 2 of the current year,Jana transfers land with a basis of $140,000 and a fair market value of $120,000 to Amish Corporation in exchange for all of its stock.She had originally acquired the land on December 1,2002.What tax issues arise from the exchange?

Section 351 applies to an exchange if the contributing shareholders own more than 50% of a corporation's stock after the transfer.

In accordance with the rules that apply to corporate formation,which one of the following features does not make an issue of preferred stock "nonqualified"?

South Corporation acquires 100 shares of treasury stock for $10,000.The next year,South reissues the 100 shares for land having a $15,000 FMV.What is the amount of gain or loss realized by South Corporation,and how much is recognized?

The City of Providence donates land worth $125,000 to Triple A Corporation to induce it to locate in Providence and provide jobs for its citizens.How much gross income must Triple A Corporation recognize because of the land contribution,and what is the land's basis to Triple A Corporation?

Identify which of the following statements is true.

Tax Research

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

US Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

US Taxation of Foreign-Related Transactions

Filters

Exam 2: Corporate Formations and Capital Structure

Which of the following statements is incorrect?

A corporation must recognize a loss when transferring noncash boot property that has declined in value and its stock to a transferor as part of a Sec.351 exchange.

Henry transfers property with an adjusted basis of $90,000 and an FMV of $100,000 to a newly-formed corporation in a Sec.351 exchange.Henry receives stock with an FMV of $80,000 and a short-term note with a $20,000 FMV.Henry's recognized gain is

The check-the-box regulations permit an LLC to be taxed as a C corporation.

Ralph transfers property with an adjusted basis of $65,000 and an FMV of $70,000 to Lake Corporation in a Sec.351 transaction.Ralph receives stock worth $60,000 and a short-term note having a $10,000 FMV.Ralph's basis in the stock is

Identify which of the following statements is true.

The City of Portland gives Data Corporation $60,000 cash and land worth $100,000 to induce it to move.The cash was not spent during the 12 months following contribution.The contribution results in

Which of the following statements about a partnership is true?

Identify which of the following statements is true.

Which of the following is an advantage of a sole proprietorship over other business forms?

Chris transfers land with a basis of $40,000 to Webb Corporation in exchange for 100% of Webb's stock.At the date of the transfer,the land had a $30,000 fair market value.Chris makes an election to reduce his basis in Webb's stock to $30,000,so Webb's basis in the land is

On April 2 of the current year,Jana transfers land with a basis of $140,000 and a fair market value of $120,000 to Amish Corporation in exchange for all of its stock.She had originally acquired the land on December 1,2002.What tax issues arise from the exchange?

Section 351 applies to an exchange if the contributing shareholders own more than 50% of a corporation's stock after the transfer.

In accordance with the rules that apply to corporate formation,which one of the following features does not make an issue of preferred stock "nonqualified"?

South Corporation acquires 100 shares of treasury stock for $10,000.The next year,South reissues the 100 shares for land having a $15,000 FMV.What is the amount of gain or loss realized by South Corporation,and how much is recognized?

The City of Providence donates land worth $125,000 to Triple A Corporation to induce it to locate in Providence and provide jobs for its citizens.How much gross income must Triple A Corporation recognize because of the land contribution,and what is the land's basis to Triple A Corporation?

Identify which of the following statements is true.

Tax Research

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

US Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

US Taxation of Foreign-Related Transactions

Filters