Reference no: EM131115394

1 Which statement best descrives the concept if the "double taxation" of corporation income?

A. Corporate income is subject to two levels of taxation: the regular tax and the alternative minimum tax

B. Corporate income is taxed twice at the corporate level: first when earned and than a second time if appreciated propert is distributed to a shareholder

C. Corporate income is taxed when earned by a C corporation and then a second time at the shareholder level when distributed as a dividend

D. Corporate income is a subject to two levels of taxation; at the federal level and a second time at a state level

2 Which of the following forms of earnings distributions would not be subject to double taxation at the corporate and shareholder level

A. Dividend

B. Stock redemption

C. Partial liquidation

D. Compensation paid to a shareholder/employee of the corporation

3 Which of the following statements best describes the priority of the tax treatment of a distribution from a corporation to a shareholder?

A. the distribution is a dividend to the extent of the corporations earnings and profits, than a return of capital, and finally gain from sale of stock

B. The distribution is a return of capital, than a dividend to the extent of the corporations earnings and profits and finally gain from sale of stock

C. The distribution is a return of capital thn gain from sale of stock and finally a dividend to the extent of the corporations earnings and profits

D. the shareholder can elect to treat the distribution as either a dividend to the extent of the corporations earnings and profits or a return of capital following by gain from sale of stock

4 A calendar year corporation has negative current e&p of $500 and accumulated positive e&p of $1,000. the corporation makes a $600 distribution to its sole shareholder. Which of the following statements is true

A. 500 will be a dividend because total earnings and profits is 500

B. 0 will be a dividend because current earnins and profits are negative

C. 600 will be a diidend because accuulated earnings and profits is 1,000

D. up to 600 could be dividend depending on the balance in accumulated earnings and profits on the date of the distribution

5 Which of the following payments could be treated as a constructive dividend by the IRS?

A. end of year bonus payment to a shareholder/employee

B. rent paid to a shareholder/lessor

C. Interest paid to a shareholder/creditor

D. All of the above

6 Which of the following factors would not be considered in determining if compensation paid to a shareholder/employee is reasonable

A. the individuals duties and responsibilities

B. what infividuals performing in comparable capacities at other companies are paid

C. Whether the corporation has a formal compensation policy

D. the individuals marginal income tax rate

7 Which of the following statements is not considered a potential answer to the dividend puzzle (why do corporations pay dividends)?

A. Paying dividends avoids the double taxation of corporate income

B. Demanding that managers pay out dividends restricts their investment activities and forces then to adopt more efficient investment policies

C. Paying dividends is a source of investor goodwill

D. Dividends are a signal to the capital markets about the health of a corporations activities

8 Which of the following stock dividendswould be tax free to the shareholder?

A. a 2 for 1 stock split to all holders of common stock

B. a stock dividend where the shareholder could choose between cash and stock

C. a stock dividendto all holders of preferred stock

D. Both a 2 for 1 stock split to all holders of common stock and a stock dividend to all holders of preferred stock are tax free to the shareholder

9 Which of the folllowing individuals is not considered family for purposes of applying the stock attribution rules to a stock redemption

A. parents

B. grandchildren

C. grandparents

D. spouse

10 Tammy owns 100 shares in Star Struck Corporation. The other 100 shares are owned by her husband Tommy. Which of the following statements is true?

A. A stock redemption that completely terminate Tammys direct interest in a corporation will be treated as an exchange for tax purposes

B. A stock redemption that completely terminate Tammys direct interest in a corporation will be treated as a dividend for tax purposes

C. A stock redemption that completely terminates Tammy's direct interest in a corporation will be treated as an exchange if Tammy waives the familyattribution rules and files a triple I agreement with the IRS

D. a stock redemption that completely terminates Tammy's direct interst in a corporatin will be treated as a dividend to the extent that the redemption exceeds Tammy's tax basis in the redeemed shares

11 Which statement best describes the concpt of realization as it applies to gain or loss

A. its the recording of gain or loss on a tax return

B. is the result of an exchange of property rights in a transaction

C. realization is the excess of amount realized over adjusted basis

D. is the excess of adjusted basis over amount realized

12 which of the following amounts is not included in the computation of amount realized in an exchange

A. cash received

B. Fair market value of property received

C. selling expenses

D. Adjusted basis of property transferred

13 Which of the following amoutns is not included in the computation of a property's adjusted basis in an exchange

A. selling expenses incurred by the buyer

B. acquisition cost of the buyer

C. Capital improvements made to the property by the buyer

D. Depreciation of the property by the buyer

14 Which of the following statements best describes the tax law approach to recognizing gain or loss realized in an exchange?

A. Gain and loss realized is not recognized unless specifically stated otherwise in the Internal revenue Code?

B. Gain and loss realized is recognized unless specifically stated otherwise in the Internal Revenue Code

C. Gain realized is recognized unless specifically stated otherwise in the Internal Revenue Code but loss realized is not recognized
is not recognized unless specifically stated otherwise in the Internal Revenue Code

D. Loss realized is recognized unless specifically stated otherwise in the Internal Revenue Code, but gain realized is not recognized
unless specifically stated otherwise in the Internal Revenue Code

15 Which of the following requirements do not have to be met in a section 351 transaction?

A. each transferor of property must receive stock equal to at least 80% of the fair market value of the property transferred

B. In the aggregate the transferors of property to the corporation must collectively control the corporation immediately after the transfers

C. only property transferred to a corporation is eligible for deferral

D. All transfers of property to a corporation must be made simultaneously to qualify for deferral

16 Which of the following statements best describes the concept of control as it applies to a section 351 transactions?

A. Control is defined as the ownershipof80% or more of a corporations voting stock

B. Control is defined as the ownership of 80% or more of the fair market value of a corporations stock

C. Cotrol is defined as the ownership of 80% or more ofa corporations voting stock and 80% or more of the fairvalue of a corporations stock

D. Control is defined as the ownership of 80% ore more of a corporations voting stock and 80%or more of the total number
of shares of each class of nonvoting stock

17 Which of the following statements best describes the impact of receiving boot in a section 351 transaction?

A. Boot received has no impact on the recognition of gain or loss realized in a section 351 transaction

B. Boot received causes gain realized to be recognized byt not loss realized

C. Boot received causes loss realized to be recognized but not gain realized

D. Boot received causes gain and loss realized to be recognized

18 Which of the following statements best describes the tax results to a shreaholder in a section 351 transaction when liabilitieson property transferred
to the corporation are assumed by the corporation

A. Liabilities assumed by a corporation on section 351 transfer are always treated as boot

B. liabilities assumed by a corporation on secion 351 transfer are never treated as boot

C. Liabilities assumed by a corporation on section 351 transfer are treated as boot if the total liabilities assumed exceed the total
basis of the assets transferred

D. Liabilities assumed by a corporation on section 351 transfer are treated as boot if there is no business purpose for the assumption
of the liabilities by the corporation

19 Which of the following statements best descibes the built in loss rules that apply to property transferred to a corporation under section 351?

A. If the basis of a property transferred to a corporation under section 351 exceeds its fair market value, the corporation will always take a tax basis in the property equal to the propertys fair market value

B. if the basis of a property transferred to a corporation under section 351 exceeds its fair market value, the corporation will always take a tax basis in the property
equal to the property's tax basis in the hands of the shareholder

C. if the aggregate basis of all property transferred to a corporation under section 351 exceeds its aggregate fair market value, the aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate fair market value of the property

D. If the aggregate basis of all property transferred to a corporation under section 351 exceeds its aggregate fair maket alue, the aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate tax basis of the property

20 Which of the following statements best describes the recognition of loss on property transferred to shareholders in complete liquidation?

A. the liquidated corporation always recognizes loss on the distribution of property in coplete liquidation of the corporation

B. The liquidated corporation never recognizes loss on the distribution of property in complete liquidation of the corporation

C. The liquidated corporations recognizes loss on the distribution of property in complete liquidation of the corporation if the property
is distributed to individuals who are not related parties to the corporation

D. The liquidated corporation recognizes loss on the distribution of property in complete liquidation of the corporation only if the
property is distributed to individuals who are related parties to the corporation

21 Grand river corporation reported taxable income of $500,000 in 2013 and paid federal income taxes of $170,000. Not included in the computation was a disallowed meals and entertainment expense of $2000 tax exempt income of $1,000 and deferred gain on an installment sale of $25,000. the corporations current earnings and profits for 2013 would be

A. $524,000

B. $500,000

C. $354,000

D. $331,000

22 Tar Heel Corporation had current and accumulated e&p of $500,000 at December 31, 2014. On december 31, the company made a
distributionof land to its sole shareholder, William Roy. The lands fair market value was $100,000 and its tax and e&p basis to Tar Heel was $25,000. William Assumed a mortgageattached to the land of $10,000. The tax consequences of the distribution to William in 2013 would be

A. $100,000 dividendand tax basis of the land

B. $100,000 dividend and a tax basis in the land $90,000

C. $90,000 dividend and tax basis of the land of $100,000

D. $90,0000 dividend and tax basis in the land

23 Viking crporation is owned equally by Sven and his wife Olga, each of whomhold100 shares in the company. Viking redeemed 75
shares of Sven'sstock in the company on Dec. 31, 2014. Viking paid Sven $2,000 per share His income tax basis in each share is $1,000. Viking has toal e&p of $500,000. What are the taxconsequences to Sven because of the stock redemption

A. $75,000 capital gain and tax basis of remaining shares of $1,000

B. $75,000 capital gain and tax basis of remaining shares $2,000

C. $150,000 capital gain and tax basis of remaining shares $1,000

B. $150,000 capital gain and tax basis of remaining shares $4,000

24 Sybill transfers property with a tax basis of $5,000 and a fair market value of $6,000 to a corporation in xchange for stock with a fair market value of $3,000 and $2,000 in a transaction that qualifies fordeferral under section 351. The corporation assumed a liability of $1,000 on the property transferred. What is Sybil's tax basis in the stock received in the exchange?

A. $6,000

B. $5,000

C. $4,000

D. $3,000

25 Rahelle transfers property with a tax basis of $800 and a fair market value of $900 to a corporation in exchange for stock with a fair
market valueof $750 and $50 in a transaction that qualifies for deferral under section 351. The corporations tax basis in the property
received in the exchange

A. $900

B. $850

C. $800

D. $750

26 Amy transfers property with a tax basis of $900 and a fair market value of $600 to a corporation in exchange for stock with a fair market value of $450 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of$150 on the
property transferred. What is Amy'stax basis in the stock received in the exchange?

A. $900

B. $750

C. $650

D. $450