IHI 97.doc

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22) Boxer Corporation buys equipment in January of the current year with a 7-year class life for $15,000. The corporation expensed the $15,000 under Sec. 179. The deduction in the year of purchase for E&P purposes due to the acquisition and expensing of the equipment is
A. $3,000
B. $14,000
C. $15,000
D. $1,500
23) Identify which of the following statements is false.
A. The function of E&P is to provide a measure of a corporation’s economic ability to pay dividends.
B. At formation, a corporation’s E&P depends on the amount of capital contributed by the shareholders.
C. Adjustments to taxable income when computing E&P do not include tax exempt interest.
D. For E&P dividend distribution purposes, property as defined in Sec. 317(a) includes money.
24) Identify which of the following statements is false.
A. If the termination of an S election is considered to be inadvertent, then the election is permitted to continue in place as if the termination had never occurred.
B. A C corporation short year income tax liability must be determined on an annualized basis.
C. If an S election is terminated and the termination is not considered to be inadvertent, a 10-tax-year waiting period is required before making a new election.
D. A corporation can obtain relief for a late S election if the IRS consents.
25) Current E&P does not include
A. tax-exempt interest income
B. life insurance proceeds where the corporation is the beneficiary
C. federal income tax refunds from prior years
D. All of the these are included
26) Identify which of the following statements is true.
A. Section 179 property must be expensed ratably over a 5-year period when computing E&P.
B. Losses on property sales to related parties are not deductible when computing E&P.
C. Distributions made out of accumulated E&P are allocated ratably between multiple distributions made during the tax year.
D. All are false.
27) Identify which of the following statements is true.
A. If both the current and accumulated E&P have deficit balances, a corporate distribution cannot be characterized as a dividend.
B. The shareholder’s basis in property received in a nonliquidating distribution is the property’s FMV reduced by liabilities assumed by the shareholder.
C. A corporation recognizes gain when distributing money as a dividend to its shareholders.
D. All are false.
28) Wills Corporation, which has accumulated and current E&P totaling $70,000, distributes land to its sole shareholder, an individual. The land has a FMV of $75,000 and an adjusted basis of $60,000. The shareholder assumes a $15,000 liability associated with the land. The transaction will have the following tax consequences.
A. The corporation will recognize no gain; the shareholder will recognize dividend income of $75,000.
B. The corporation will recognize no gain; the shareholder will recognize dividend income of $60,000.
C. The corporation will recognize a $15,000 gain; the shareholder will recognize dividend income of $60,000.
D. The corporation will recognize a $15,000 gain; the shareholder will recognize dividend income of $75,000.
29) Wills Corporation, which has accumulated and current E&P totaling $65,000, distributes land to its sole shareholder, an individual. The land has a FMV of $75,000 and an adjusted basis of $55,000. The shareholder assumes a $15,000 liability associated with the land. The shareholder will recognize
A. $65,000 of dividend income and have a $75,000 basis in the land
B. $65,000 of dividend income and have a $65,000 basis in the land
C. $60,000 of dividend income and have a $75,000 basis in the land
D. $60,000 of dividend income and have a $60,000 basis in the land
30) Crossroads Corporation distributes $60,000 to its sole shareholder Harley. Crossroads has earnings and profits of $55,000 and Harley’s basis in her stock is $20,000. After the distribution, Harley’s basis is
A. $15,000
B. $60,000
C. $20,000
D. $5,000
31) Joshua owns 100% of Steeler Corporation’s stock. Joshua’s basis in the stock is $8,000. Steeler Corporation has E&P of $40,000. If Steeler Corporation redeems 60% of Joshua’s stock for $50,000, Joshua must report dividend income of
A. $8,000
B. $50,000
C. $40,000
D. $0
32) Elijah owns 20% of Park Corporation’s single class of stock. Elijah’s basis in the stock is $8,000. Park’s E&P is $28,000. If Park redeems all of Elijah’s stock for $48,000, Elijah must report dividend income of
A. $28,000
B. $48,000
C. $40,000
D. $0
33) Which of the following is not a reason for a stock redemption?
A. desire by shareholders to reduce the corporate tax liability
B. No outside market exists for the stock.
C. Redemption of shares is a good corporate investment.
D. desire by remaining shareholders to retain control
34) Identify which of the following statements is true.
A. The S corporation rules were enacted to allow small corporations to enjoy the nontax advantages of the corporate form of business without being subject to the tax disadvantage of double taxation.
B. A partnership can elect to be taxed as a corporation under the check-the-box regulations. As a corporation, an S election can be made.
C. For C corporations that desire to be taxed like a partnership, the S corporation rules provide a practical alternative for an existing C corporation to obtain many of the tax benefits of being taxed as a partnership.
D. All are true.
35) Identify which of the following statements is true.
A. Shareholders who acquire stock in an S corporation after the election date and prior to the election’s effective date must consent to the election.
B. S corporation consent by shareholders is binding on the current tax year and all future tax years.
C. Only shareholders who own stock on the date an S election takes effect must consent to the election.
D. All are false.
36) Which one of the following individuals or entities is ineligible to be an S corporation shareholder?
A. Resident alien of the United States
B. A partnership where all of the partners are U.S. citizens
C. A voting trust where all of the beneficiaries are U.S. citizens
D. An estate
37) Cactus Corporation, an S Corporation, had accumulated earnings and profits of $100,000 at the beginning of 2008. Tex and Shirley each own 50% of the stock. Cactus does not make any distributions during 2008, but had $200,000 of ordinary income. In 2009, ordinary income was $100,000 and distributions were $100,000. What is Tex’s ordinary income for 2009?
A. $50,000
B. $200,000
C. $100,000
D. $0
38) Matt and Joel are equal partners in the MJ Partnership. For the current year ended December 31, the partnership has book income of $80,000, which includes the following deductions: (1) guaranteed payments (salaries) to partners: Matt, $35,000; and Joel, $25,000; and (2) charitable contributions, $6,000. The book income amount does not include any sales of capital assets or Sec. 1231 assets or any tax-exempt income. Based on the above information, what amount should be reported as ordinary income on the partnership return?
A. $80,000
B. $140,000
C. $86,000
D. $60,000
39) Identify which of the following statements is true.
A. An election for an S corporation to use the Sec. 179 expensing election is made by the corporation and not by its shareholders.
B. The S corporation’s separately stated items are in general the same ones that apply in partnership taxation.
C. An S corporation cannot claim a dividends-received deduction.
D. All are true.
40) On the first day of the partnership’s tax year, Karen purchases a 50% interest in a general partnership for $30,000 cash and she materially participates in the operation of the partnership for the entire year. The partnership has $40,000 in recourse liabilities when Karen enters the partnership. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. There is no minimum gain related to the nonrecourse liability. During the year the partnership incurs a $120,000 loss and a $20,000 increase in liabilities. How much of the loss can Karen report on her tax return for the current year?
A. $40,000
B. $60,000
C. $50,000
D. $30,000
41) On January 2 of the current year, Calloway and Taylor contribute cash equally to form the CT Partnership. Calloway and Taylor share profits and losses in a ratio of 75% and 25%, respectively. The partnership’s ordinary income for the year was $40,000. Calloway received a distribution of $5,000 during the year. What is Calloway’s share of taxable income for the year?
A. $10,000
B. $5,000
C. $20,000
D. $30,000
42) An electing S corporation has a $30,000 ordinary loss for the nonleap year. On January 1, Beverly and Sonya own equally all of the S corporation stock. On the 146th day of the year, Beverly gives her one-half of the S corporation stock to her daughter Becky. How much of the $30,000 ordinary loss is allocated to Beverly?
A. $15,000
B. $25,000
C. $6,000
D. $5,959
43) The total bases of all distributed property in the partner’s hands following a nonliquidating distribution is limited to
A. the FMV of the property distributed
B. the partner’s predistribution basis in his partnership interest
C. the partnership’s bases in the distributed property
D. the predistribution FMV of the partner’s partnership interest
44) Identify which of the following statements is true.
A. The basis for property distributed by a partnership cannot be increased above the carryover basis amount when it is received by a partner in a nonliquidating distribution.
B. A partner’s partnership capital account balance cannot be less than zero.
C. The length of time a partner owns a partnership interest is relevant when determining the holding period for distributed property.
D. All are false.
45) Identify which of the following statements is true.
A. The partner’s basis in the partnership interest is normally reduced by the FMV of property distributed in a nonliquidating distribution.
B. If a partnership asset with a deferred precontribution gain is distributed in a nonliquidating distribution to the partner who contributed the asset, the precontribution gain must be recognized by the partner.
C. When a current distribution from a partnership reduces the basis of the partnership interest to zero, the partner’s interest in the partnership is terminated.
D. All are false.
46) Which one of the following is not one of the corporation-related requirements for S corporation status?
A. The corporation must not have any foreign-sourced income.
B. The corporation must be a domestic corporation.
C. The corporation must not be an ineligible corporation.
D. The corporation must have only one class of stock.
47) Identify which of the following statements is true.
A. All of the shareholders of an S corporation must consent to a revocation of the S election.
B. A revocation of an S corporation election can be retrospective to any date.
C. An S election will not be terminated due to excess passive income if the corporation does not have Subchapter C E&P.
D. All are true.