Practice Exam Correct 7-19-22

Fern received $30,000 in cash and an automobile with an adjusted basis and market value of $20,000 in a proportionate liquidating distribution from EF Partnership. Fern's basis in the partnership interest was $60,000 before the distribution. What is Fern's basis in the automobile received in the liquidation?
$0
$10,000
$20,000
$30,000

50%
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Fern received $30,000 in cash and an automobile with an adjusted basis and market value of $20,000 in a proportionate liquidating distribution from EF Partnership. Fern's basis in the partnership interest was $60,000 before the distribution. What is Fern's basis in the automobile received in the liquidation?
$0
$10,000
$20,000
$30,000

50%
$30,000

Automobile doesn't count in Partnership

60K (starting basis) - 30K (cash received) = 30K
Acme and Buck are equal members in Dear, an LLC. Dear has not elected to be taxed as a corporation. Acme contributed $7,000 cash and Buck contributed a machine with an adjusted basis of $5,000 and a fair market value of $10,000, subject to a liability of $3,000. What is Acme's basis in Dear?
$4,000
$7,000
$8,500
$10,000

58%
$8,500

7K (cash contributed) + 1,500 (50% of 3K liability) = 8,500
In the current year, Tatum exchanged farmland for an office building. The farmland had a basis of $250,000, a fair market value (FMV) of $400,000, and was encumbered by a $120,000 mortgage. The office building had an FMV of $350,000 and was encumbered by a $70,000 mortgage. Each party assumed the other's mortgage. What is the amount of Tatum's recognized gain?
$0
$50,000
$100,000
$150,000

29%
$50,000

calculate gain, calculate boot, then choose the lessor of two

gain = 350K (FMV of office building) + 120K (mortgage relieved) - 70K (mortgage assumed) - 250K (adjusted basis of farmland) = 150K

boot = 120K (farmland mortgage) - 70K (office building mortgage) = 50K


Net boot is less than realized gain
Carson owned 40% of the outstanding stock of a C corporation. During a tax year, the corporation reported $400,000 in taxable income and distributed a total of $70,000 in cash dividends to its shareholders. Carson accurately reported $28,000 in gross income on Carson's individual tax return. If the corporation had been an S corporation and the distributions to the owners had been proportionate, how much income would Carson have reported on Carson's individual return?

$28,000
$132,000
$160,000
$188,000

53%
$160,000

40% interest x 400K Income
What is the civil penalty if a taxpayer claims withholding allowances that are based on false information?

$100
$250
$500
$1,000

39%
$500

A civil penalty of $500 applies if a taxpayer claims withholding allowances that are based on false information.
What is the general carryback and carryforward period for corporations for an NOL generated in 2021?

Carry back 2 years and forward 15 years
Carry back 2 years and forward 20 years subject to an annual limitation of 80% of taxable income
Carry back 0 years and forward indefinitely
Carry back 0 years and forward indefinitely subject to an annual limitation of 80% of taxable income

39%
Carry back 0 years and forward indefinitely subject to an annual limitation of 80% of taxable income

Pay attention to "generated in 2021"

For taxable years beginning in 2021, the taxpayer will be eligible for a 100% deduction of NOLs arising in tax years prior to January 1, 2018, and will be eligible for a deduction limited to 80% of modified taxable income for NOLs arising in tax years on or after January 1, 2018.
A distinguishing feature between the making of an inter vivos gift and the creation of a trust is that:

a gift may be made orally whereas a trust must be in a signed writing.
generally, a gift is irrevocable whereas a trust may be revoked in certain cases.
in order to create a valid trust, the creator must receive some form of consideration.
the beneficiary of a trust must be notified of the trust's creation.

52%
generally, a gift is irrevocable whereas a trust may be revoked in certain cases.
What is the treatment of guaranteed payments to partners?

Treated as ordinary income by partners, deductible by the partnership
Treated like any other item of income
Treated like any other item of deduction
Special treatment as a deduction

75%
Treated as ordinary income by partners, deductible by the partnership
As a general partner in Greenland Associates, an individual's share of partnership income for the current tax year is $25,000 ordinary business income and a $10,000 guaranteed payment. The individual also received $5,000 in cash distributions from the partnership. What income should the individual report from the interest in Greenland?

$5,000
$25,000
$35,000
$40,000
$35,000

a partner would report their share of the income and guaranteed payment, but not the cash received since it would just go against their basis.

25K (business income) + 10K (guaranteed payment) = 35K
All of the following would be recognized as a partnership for tax purposes except:

joint ventures.
three lawyers sharing office expenses.
four individuals leasing out office space and providing services to tenants.
a syndicate.

40%
three lawyers sharing office expenses.
A company that misappropriately classifies an employee as an independent contractor may be subject to which of the following enforcement actions? I)Pay back wages to the misclassified employee II)Undergo a full-scale employee audit by a governmental agency III)Be subject to penalties and fees I only II only I and II I, II, and III 91%I, II, and IIIWhich of the following increases the accumulated adjustments account of an S corporation? Capital contributions by the shareholders Distribution to shareholders Interest and dividends Charitable contributions 38%Interest and dividends S Corporations accumulated adjustment account is increased by interests and dividendsHow is the depreciation deduction of nonresidential real property, placed in service in this year, determined for regular tax purposes using MACRS? Straight-line method over 40 years 150% declining-balance method with a switch to the straight-line method over 27.5 years 150% declining-balance method with a switch to the straight-line method over 39 years Straight-line method over 39 years 49%Straight-line method over 39 years Pay attention to the year it's put into service real property placed in service on or after May 13, 1993, is depreciated over 39 years using the straight-line method of depreciation and applying the half-month convention.Which of the following credits can result in a refund even if the individual had no income tax liability? Credit for prior-year minimum tax Elderly and permanently and totally disabled credit Earned income credit Foreign tax credit 64%Earned income creditRules limiting passive activity losses apply to: S corporations. partnerships. widely held C corporations. personal service corporations.personal service corporations Passive loss rules apply to individuals, estates, trusts, personal service corporations, and certain closely held corporations. Limitations on passive activity losses apply to individuals as a result of a flow through from S corporations and partnerships, but do not apply at the S corporation or partnership level.Good, a C corporation, sells an automobile to its sole shareholder for $4,500. Good's adjusted basis in the automobile is $12,000, and the fair market value is $5,000. What is the amount of loss that is recognized by Good? $0 $500 $7,000 $7,500 45%$0 Good cannot recognize a loss on a related party transaction.Graphite Corp. has been a calendar-year S corporation since its inception on January 2, Year 1. On January 1, Year 9, Smith and Tyler each owned 50% of the Graphite stock, in which their respective bases were $12,000 and $9,000. For the year ended December 31, Year 9, Graphite has $80,000 in ordinary business income and $6,000 in tax-exempt income. Graphite made a $53,000 cash distribution to each shareholder on December 31, Year 9. What total amount of income from Graphite is includible in Smith's Year 9 adjusted gross income? $96,000 $93,000 $43,000 $40,000 46%$40,000 50% of 80K ordinary incomeIn Year 9, Smith paid $6,000 to the tax collector of Wek City for realty taxes on a two-family house owned by Smith's mother. Of this amount, $2,800 covered back taxes for Year 8, and $3,200 covered Year 9 taxes. Smith resides on the second floor of the house, and his mother resides on the first floor. In Smith's itemized deductions on his Year 9 return, what amount was Smith entitled to claim for realty taxes? $6,000 $3,200 $3,000 $0 40%$0 the legal owner of the property is his mother so he doesn't get to claim any deduction despite paying the bills.Tom, a roofer, repairs a leaky roof on George's home. They had agreed that the cost of the materials and labor involved in the repair would be $200. If George fails to pay the $200 owed for the roof repair: Tom could create a mortgage lien on the home by filing written notice of the lien. Tom could create an artisan's lien on the home by filing written notice of the lien. Tom could create a mechanic's lien on the home by filing written notice of the lien. Tom could not obtain any special type of lien against the home. 43%Tom could create a mechanic's lien on the home by filing written notice of the lien. providers of labor, services, or materials can employ a mechanics lien.Which of the following organizations would not qualify for exemption from federal income tax? College alumni association Social clubs that allow only limited usage by general public Fraternal society not operating under a lodge system Political organization 17%Fraternal society not operating under a lodge system it's the lodge system that makes them taxableA 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? $100,000 $102,000 $130,000 $132,000 44%$100,000 100K (FMV at gifters death)On January 2, Year 3, Bates Corp. purchased and placed into service 7-year MACRS tangible property costing $100,000. On December 31, Year 5, Bates sold the property for $102,000, after having taken $47,525 in MACRS depreciation deductions. What amount of the gain should Bates recapture as ordinary income? $0 $2,000 $47,525 $49,525 50%$49,525 Accumulated Depreciation is the amount gain recaptured as ordinaryWhich of the following is the best description of attachment of a security interest? A general statement that there is a security interest A statement given by the secured party A statement given by the debtor A statement that attaches to certain property 48%A statement that attaches to certain propertyHow is gain calculated using the installment method? Divide gain by number of years in installment and pay pro rata (Total gain ÷ Contract price) × Payments received during the tax year = Gain recognized Divide gain by number of years, with payment of at least 50% of tax in 3 years Divide gain by number of years, with payment of at least 25% of tax in 3 years 67%(Total gain ÷ Contract price) × Payments received during the tax year = Gain recognizedWith regard to a partnership computing its income, which of the following is determined by the individual partners and not the partnership? Accounting methods Amortization of certain organization fees and start-up costs Income from cancellation of debt elections Depreciation methods 47%Income from cancellation of debt electionsWhich of the following is a requirement for a small business corporation to elect S corporation status? It has only one class of stock. It has at least one partnership as a shareholder. It has international ownership. It has more than 75 shareholders. 86%It has only one class of stock.Under agency law, which of the following statements best describes ratification? A principal's affirmation of an agent's authorized act A principal's affirmation of an agent's unauthorized act A principal's approval in advance of an agent's acts A principal's disavowal of an agent's unauthorized act 50%A principal's affirmation of an agent's unauthorized act question is asking what would make the agent's unauthorized act acceptableWhich of the following would change if an asset is treated as personal property rather than as real property? I)Requirements for transfer II)Creditor's rights Only A Only B Both A and B Neither A or B 54%Both A and BWhat are IRC Section 736(b) payments? Payments made for the partner's interest in the partnership Payments for interests in capital gain or loss properties Payments considered to be distributions from the partnership All of the answer choices are correct. 77%All of the answer choices are correct.Case Corp. is incorporated in state A. Under the Revised Model Business Corporation Act, which of the following activities engaged in by Case requires that Case obtain a certificate of authority to do business in state B? Maintaining bank accounts in state B Collecting corporate debts in state B Hiring employees who are residents of state B Maintaining an office in state B to conduct intrastate business 80%Maintaining an office in state B to conduct intrastate businessHow is payment for pre-incorporation shares made? By money, property, or services already performed Generally, not by promissory note (promise to pay in the future) or to perform in the future The value of property or services is determined by the board of directors; that value must be prudent, reasonable, and in the best interests of the corporation. All of the answer choices are correct. 85%All of the answer choices are correct.Which of the following statements is correct if a taxpayer agrees to changes made during an examination and he signs an agreement, but does not pay the taxes due? If the taxpayer does not pay the additional tax when he or she signs the agreement, the taxpayer will receive a bill that includes interest and an additional penalty. If the taxpayer pays the amount due within 21 calendar days of the billing date and the amount is less than $100,000, the taxpayer will not have to pay more interest or penalties. If the taxpayer pays when he or she signs the agreement, the interest is generally waived from the due date of the return to the date of the payment. None of the answer choices are correct. 21%If the taxpayer pays the amount due within 21 calendar days of the billing date and the amount is less than $100,000, the taxpayer will not have to pay more interest or penalties.Which of the following is not considered personal property for purposes of local taxes? Land Jewelry Boats Shed 55%Land Since land can't be moved, it's the only one not considered personal.Peters has a 1/3rd interest in the Spano Partnership. During Year 7, Peters received a $16,000 guaranteed payment, which was deductible by the partnership, for services rendered to Spano. Spano reported a Year 7 operating loss of $70,000 before the guaranteed payment. What are the net effects of the guaranteed payment? I)The guaranteed payment increases Peters' tax basis in Spano by $16,000. II)The guaranteed payment increases Peters' ordinary income by $16,000. I only II only Both I and II Neither I nor II 65%II only since he received guaranteed payments for services rendered, they would be treated as ordinary incomeIRC Section 199A provides a deduction that can be claimed by certain business owners for qualified business income. What is the amount of this deduction? 20% 30% 25% 15% 74%20%A C corporation has gross receipts of $150,000, $35,000 of other income, and deductible expenses of $95,000. In addition, the corporation incurred a net long-term capital loss of $25,000 in the current year. What is the corporation's taxable income? $65,000 $87,000 $90,000 $115,000 58%$90,000 150K (gross receipts) + 35K (other income) - 95K (expenses) - 90K LT Capital loss of 25K can only offset other capital gainPartner A has a 40% interest in ABC partnership, with a basis of $40,000. ABC increased its liabilities by $125,000. What is Partner A's basis in ABC as a result of the increase in liabilities? $(10,000) $0 $40,000 $90,000 76%$90,000 40K (basis) + 50K (40% of liability) = 90KA worker who has state and local taxes withheld by an employer and remitted on their behalf is most likely classified as which of the following types of worker? Nonexempt employee Exempt employee Independent contractor I only I and II only I, II, and III I and III only 63%I and II only independent contractors are responsible of having withholding taken from their pay; not the employerUnder the Secured Transactions Article of the UCC, if a secured creditor rightfully repossesses and sells a debtor's collateral, which of the following obligations is the first to be paid from the proceeds of the sale? The debt owed any creditor with a subordinate security interest in the collateral The balance of the debt owed the primary secured creditor The reasonable expenses incurred by the sale The refund of the debtor's payments made prior to the date of the sale 47%The reasonable expenses incurred by the sale