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1) A family with $45,000 in assets and $22,000 of liabilities would have a net worth of 2) A budget deficit would result when a person’s or family’s 3) The payment items that should be budgeted first are 4) Which of the following statements regarding tax credits is true? 5) The tax base for an individual tax return is 6) Which of the following statements regarding exemptions is correct? 7) Which of the following has the lowest authoritative weight? 8) Which of the following has the highest authoritative weight? 9) Jaime recently found a “favorable” trial level court opinion directly on point for her tax question. Which trial level court would he prefer to have issued the opinion? 10) Sam saved diligently for his college education by putting part of his pay into U.S. Series EE saving bonds. Sam purchased the bonds for $6,500, and this year he redeemed the bonds for $7,200. He has no other income this year. What amount must Sam include in his gross income? 11) Jill currently lives in the suburbs and commutes 25 miles to her office in downtown Freeport. She is considering quitting her current job to look for new employment in the downtown. Which of the following statements best describes how Jill can satisfy the distance test for deducting moving expenses if she accepts a new job in downtown Freeport? 12) Congress allows self-employed taxpayers to deduct the cost of health insurance above the line (for AGI) because 13) Jim was in an auto accident this year. Jim paid $2,450 to repair his car after the accident, and his insurance only reimbursed him $400. Jim bought his car several years ago for $15,000. What casualty loss deduction from this accident can Jim combine with his other casualty losses in computing his itemized deductions? 14) Rhianna and Jay are married filing jointly in 2009. They have six children for whom they may claim the child tax credit. Their AGI was $123,440. What amount of child tax credit may they claim on their 2009 tax return? 15) Which of the following is a miscellaneous itemized deduction that is not subject to the 2 percent of AGI floor? 16) Beth’s business purchased only one asset during the current year. It placed in service machinery (7-year property) on December 1 with a basis of $50,000. Calculate the maximum depreciation expense (ignoring Section 179 or bonus expensing): 17) Bateman Corporation sold an office building that it used in its business for $800,000. Bateman bought the building ten years ago for $600,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Bateman’s gain or loss? 18) Foreaker LLC sold a piece of land that it uses in its business for $52,000. Foreaker bought the land two years ago for $42,500. What is the character of Foreaker’s gain? 19) Which of the following would be considered passive income? 20) Generally, which of the following does not correctly categorize the type of income? 21) A taxpayer would not be considered a material participant if he met which one of these tests? 22) What is the correct order of the loss limitation rules? 23) Dan recently purchased a partnership interest in XYZ, Limited Partnership for $6,000. His share of debt in the partnership is $2,500, but he is not personally responsible for paying back the debt if the partnership cannot pay. Dan’s share of XYZ, LP’s loss for the year is $3,000. In addition, Dan reported $5,000 in long-term capital gains from the sale of a stock and $3,000 of income from another real estate partnership. What is Dan’s tax basis in XYZ, LP? 24) What happens when a taxpayer experiences a net loss from a rental home? 25) What document must LLCs file with the state to organize their business? 26) What tax year-end must unincorporated entities with only one owner adopt? 27) Which legal entity provides the least flexible legal arrangement for owners? 28) Which of the following requirements do not have to be met in a Section 351 transaction? 29) Inez transfers property with a tax basis of $200 and a fair market value of $300 to a corporation in exchange for stock with a fair market value of $250 in a transaction that qualifies for deferral under Section 351. The corporation assumed a liability of $50 on the property transferred. What is the corporation’s tax basis in the property received in the exchange? 30) Camille transfers property with a tax basis of $800 and a fair market value of $1,200 to a corporation in exchange for stock with a fair market value of $850 and $350 in a transaction that qualifies for deferral under Section 351. Camille also incurred selling expenses of $100. What is the amount realized by Camille in the exchange? 31) BTW Corporation has taxable income in the current year that can be offset with an NOL from a previous year. What is the nature of the book-tax difference created by the net operating loss deduction in the current year? 32) 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? 33) Studios reported a net capital loss of $30,000 in year 5. It reported net capital gains of $14,000 in year 4 and $27,000 in year 6. What is the amount and nature of the book-tax difference in year 6 related to the net capital carryover? 34) 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? 35) El Toro Corporation declared a common stock dividend to all shareholders of record on June 30, 2010. Shareholders will receive 1 share of El Toro stock for each 2 shares of stock they already own. Raoul owns 300 shares of El Toro stock with a tax basis of $60 per share. The fair market value of the El Toro stock was $100 per share on June 30, 2010. What are the tax consequences of the stock dividend to Raoul? 36) Comet Company is owned equally by Pat and his sister Pam, each of whom hold 100 shares in the company. Pam wants to reduce her ownership in the company, and it was decided that the company will redeem 50 of her shares for $1,000 per share on December 31, 2010. Pam’s income tax basis in each share is $500. Comet has total E&P of $250,000. What are the tax consequences to Pam as a result of the stock redemption? 37) Under which of the following circumstances will a partner recognize a loss from an operating distribution? 38) Which of the following statements regarding disproportionate distributions is false? 39) Tone Loc and 89 of his biggest fans formed an S corporation, 2hit, Inc., as the original ninety shareholders. Tone then transferred some of his stock to his grandfather, four of Tone’s cousins, five of Tone’s children, three of Tone’s grandchildren, and 2 close friends. For the S corporation shareholder limit rules, how many shareholders does 2hit, Inc. have? 40) Clampett, Inc. (an S corporation) previously operated as a C corporation. Distributions from Clampett, Inc. are deemed to be paid in the following order: 41) Clampett, Inc. has been an S corporation since its inception. On July 15, 2011, Clampett, Inc. distributed $50,000 to J.D. His basis in his Clampett, Inc. stock on January 1, 2011, was $45,000. For 2011, J.D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. What is the amount of income J.D. recognizes related to Clampett, Inc. in 2011? 42) Clampett, Inc. has been an S corporation since its inception. On July 15, 2011, Clampett, Inc. distributed $50,000 to J.D. His basis in his Clampett, Inc. stock on January 1, 2011, was $45,000. For 2011, J.D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. What is J.D.’s basis in his Clampett, Inc. stock after all transactions in 2011? 43) Erica and Brett decide to form their new motorcycle business as an LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members’ contributions, their LLC will obtain a $50,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $5,000 and a building he bought as a storefront for the motorcycles. The building has an FMV of $45,000, an adjusted basis of $30,000, and is secured by a $35,000 nonrecourse mortgage that the business LLC will assume. What is Brett’s outside tax basis in his LLC interest? 44) Gerald received a 33% capital and profit (loss) interest in XYZ Limited Partnership (LP). In exchange for this interest, Gerald contributed a building with an FMV of $30,000. His adjusted basis in the building was $15,000. In addition, the building was encumbered with a $9,000 nonrecourse mortgage that XYZ, LP assumed at the time the property was contributed. What is Gerald’s outside basis immediately after his contribution? 45) Sue and Andrew form SA general partnership. Each person receives an equal interest in the newly created partnership. Sue contributes $10,000 of cash and land with a FMV of $55,000. Her basis in the land is $20,000. Andrew contributes equipment with a FMV of $12,000 and a building with a FMV of $33,000. His basis in the equipment is $8,000, and his basis in the building is $20,000. How much gain must the SA general partnership recognize on the transfer of these assets from Sue and Andrew? 46) Vanessa contributed $20,000 of cash and land with a fair market value of $100,000 and an adjusted basis of $40,000 to Cook, Inc. (an S corporation) when it was formed. The land was encumbered by a $30,000 mortgage executed two years before. What is Vanessa’s tax basis in Cook, Inc. after formation? 47) Frank and Bob are equal members in Soxy Socks, LLC. When forming the LLC, Frank contributed $50,000 in cash and $50,000 worth of equipment. Frank’s adjusted basis in the equipment was $35,000. Bob contributed $50,000 in cash and $50,000 worth of land. Bob’s adjusted basis in the land was $30,000. On 3/15/04, Soxy Socks sells the land Bob contributed for $60,000. How much gain (loss) related to this transaction will Bob report on his X4 return? 48) What form does a partnership use when filing an annual informational return? 49) At his death, Trevor had a probate estate consisting of $4 million of property. Which of the following is a true statement about Trevor’s estate or estate tax? 50) The estate and gift taxes share several common features. Which of the following characteristics are common to both the estate and gift taxes? 51) The estate and gift taxes share several common features. Which of the following characteristics are common to both the estate and gift taxes? 52) Which of the following is a completed taxable gift? 53) Jonathan transferred $90,000 of cash to a trust this year for the benefit of Hannah, age 10. The trustee has the discretion to distribute income or corpus (principal) for Hannah’s benefit and is required to distribute all assets to Hannah (or her estate) not later than Hannah’s 21st birthday. What is the amount of the taxable gift? 54) This year Don and his son purchased real estate for an investment. The price of the property was $500,000, and the title named Don and his son as joint tenants with the right of survivorship. Don provided $320,000 of the purchase price, and his son provided the remaining $180,000. Has Don made a taxable gift and, if so, in what amount?
