Taxation questions

TRUE OR FALSE? Dividing a business into two partnership operations is one way to use the entity variable in tax planning.

TRUE OR FALSE? Most business income is characterized as capital income and taxed at the applicable tax rates for the taxpayer earning the income.

TRUE OR FALSE? Larry, an accrual basis taxpayer, bought supplies for his business from his sister this year. She is a cash basis taxpayer. Larry will be able to deduct the cost of the supplies as he uses them this year, even though he will not actually pay his sister until next year.

TRUE OR FALSE? S corporations and LLCs are entities that are NOT subject to federal income tax.

TRUE OR FALSE? A corporation can NOT deduct the dividend payments made to shareholders.

TRUE OR FALSE? A corporation does NOT recognize gain on the receipt of money or other property in exchange for its own stock.

TRUE OR FALSE? A partner's tax capital account must be credited with the amount of cash and the tax basis of any property contributed by that partner.

TRUE OR FALSE? Economic performance occurs in the year or years in which the person actually provides the services, property, or use of property to the business.

TRUE OR FALSE? Corporations with neither current nor accumulated E&P cannot make a dividend distribution.

TRUE OR FALSE? Members of a brother-sister controlled group may file consolidated tax returns.

TRUE OR FALSE? For at risk purposes, any gain recognized from the taxable disposition of an interest in the entity is treated as income from the entity.

TRUE OR FALSE? A non-business bad debt is treated as a short-term capital loss.

TRUE OR FALSE? An estate must be valued using the fair market value of the underlying assets on the date of the decedent's death.

TRUE OR FALSE? The tax base for calculating the estate tax is the sum of the taxable estate and all taxable gifts made during the decedent's lifetime.




In Higgins v. Smith, 40 1 USTC §9160, the court held, "Where a transaction is so lacking in economic substance as to be a sham, and not a bona fide transaction, it will be disregarded for tax purposes." It is likely that this statement was based on the

A. substance over form doctrine
B. step transaction doctrine
C. business purpose doctrine
D. assignment of income doctrine

Which of the following is NOT a true statement concerning the nexus necessary for a state to tax income?

A. Maine will have nexus if corporate headquarters are located in the state.
B. Virginia will have nexus if a salesman visits the state to sell tangible property.
C. Arizona will have nexus if inventory is stored in the state.
D. Colorado will have nexus if mail order customers are located in Colorado.

Internal Revenue Code Section 482 gives the IRS the authority to apportion gross income. Which of the following is NOT true?

A. Section 482 will apply if the member-corporations are charging each other arms-length transfer prices.
B. Section 482 is designed to prevent shifting income from a high tax rate member of the related group to a low tax rate member.
C. The prevailing attitude of the courts is that the IRS's determination of transfer price should be upheld unless the taxpayer can show that the IRS was arbitrary or capricious.
D. Section 482 can be used to over ride artificial transfer prices established between related parties.

Which of the following taxpayers has made a taxable gift?

A. Bubba sold stock to his cousin for $25,000 when its FMV was $45,000.
B. Grandma just sent State University a check for $7,000 to cover Junior's first year's tuition.
C. Both of the taxpayers have made gifts that will reduce their unified credits.
D. Neither of the taxpayers has made gifts that will reduce their unified credits.

Which of the following items is NOT included in the gross estate?

A. Property owned at date of death
B. Life insurance proceeds from policies owned by the decedent or benefiting the estate
C. A portion of jointly-owned property
D. Pension and retirement benefits
E. 100% of jointly-owned property