SETON HALL UNIVERSITY

W. Paul Stillman School of Business Aminist!ation

BA"" #$%& NV'
ESSENTIALS O( (E)ERAL TA*ATION
)!. Ree W. Easton
(ALL +,$%
(INAL E*A-INATION
-ULTIPLE "HOI"E
EACH QUESTION IS WORTH THREE AND ONE THIRD (3.34) POINTS
1. Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in 2013.
Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the
year. he corporation distri!uted $"#,000 to Juanita, and the partnership distri!uted
$"#,000 to Carlos. $hich of the following state%ents relating to 2013 is incorrect&
a. Juanita %ust report $120,000 of inco%e fro% the corporation.
!. he corporation %ust pay corporate ta' on $200,000 of inco%e.
c. Carlos %ust report $120,000 of inco%e fro% the partnership.
d. he partnership is not su!(ect to a )ederal entity*le+el inco%e ta'.
e. ,one of the a!o+e.
2. -(orn owns a 60% interest in an . corporation that earned $1#0,000 in 2013. /e also
owns 60% of the stock in a C corporation that earned $1#0,000 during the year. he .
corporation distri!uted $30,000 to -(orn and the C corporation paid di+idends of
$30,000 to -(orn. /ow %uch inco%e %ust -(orn report fro% these !usinesses&
a. $0 inco%e fro% the . corporation and $30,000 inco%e fro% the C
corporation.
!. $30,000 inco%e fro% the . corporation and $30,000 of di+idend inco%e
fro% the C corporation.
c. $00,000 inco%e fro% the . corporation and $0 inco%e fro% the C
corporation.
d. $00,000 inco%e fro% the . corporation and $30,000 inco%e fro% the C
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corporation.
e. ,one of the a!o+e.
3. 1achel is the sole %e%!er of an 22C, and Jordan is the sole shareholder of a C
corporation. -oth !usinesses were started in the current year, and each !usiness has a
long*ter% capital gain of $10,000 for the year. ,either !usiness %ade any distri!utions
during the year. $ith respect to this infor%ation, which of the following state%ents is
correct&
a. he C corporation recei+es a preferential ta' rate on the 2C3 of $10,000.
!. he 22C %ust pay corporate ta' on ta'a!le inco%e of $10,000.
c. Jordan %ust report $10,000 of 2C3 on his ta' return.
d. 1achel %ust report $10,000 of 2C3 on her ta' return.
e. ,one of the a!o+e.
". ,or%a for%ed /yacinth 4nterprises, a proprietorship, in 2013. 5n its first year, /yacinth
had operating inco%e of $"00,000 and operating e'penses of $2"0,000. 5n addition,
/yacinth had a long*ter% capital loss of $10,000. ,or%a, the proprietor of /yacinth
4nterprises, withdrew $6#,000 fro% /yacinth during the year. 7ssu%ing ,or%a has no
other capital gains or losses, how does this infor%ation affect her ta'a!le inco%e for
2013&
a. 5ncreases ,or%a8s ta'a!le inco%e !y $1#6,000 9$160,000 ordinary
!usiness inco%e : $3,000 long*ter% capital loss;.
!. 5ncreases ,or%a8s ta'a!le inco%e !y $1#0,000 9$160,000 ordinary
!usiness inco%e : $10,000 long*ter% capital loss;.
c. 5ncreases ,or%a8s ta'a!le inco%e !y $6#,000.
d. 5ncreases ,or%a8s ta'a!le inco%e !y $160,000.
e. ,one of the a!o+e.
#. <a!lo, a sole proprietor, sold stock held as an in+est%ent for a $"0,000 long*ter%
capital gain. <a!lo8s %arginal ta' rate is 33%. 2oon Corporation, a C corporation, sold
stock held as an in+est%ent for a $"0,000 long*ter% capital gain. 2oon8s %arginal ta'
rate is 3#%. $hat ta' rates are applica!le to these capital gains&
a. 1#% rate applies to <a!lo and 3#% rate applies to 2oon.
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!. 1#% rate applies to 2oon and 33% rate applies to <a!lo.
c. 3#% rate applies to 2oon and 33% rate applies to <a!lo.
d. 1#% rate applies to !oth <a!lo and 2oon.
e. ,one of the a!o+e.
6. 2ucinda is a 60% shareholder in 1hea Corporation, a calendar year .
corporation. =uring the year, 1hea Corporation had gross inco%e of $##0,000 and
operating e'penses of $3>0,000. 5n addition, the corporation sold land that had !een
held for in+est%ent purposes for a short*ter% capital gain of $30,000. =uring the year,
1hea Corporation distri!uted $#0,000 to 2ucinda. $ith respect to this infor%ation, which
of the following state%ents is correct&
a. 1hea Corporation will pay ta' on ta'a!le inco%e of $200,000.
!. 2ucinda reports ordinary inco%e of $#0,000.
c. 2ucinda reports ordinary inco%e of $120,000.
d. 2ucinda reports ordinary inco%e of $102,000 and a short*ter% capital gain
of $1>,000.
e. ,one of the a!o+e.
6. ?itchell and <owell for% 3reen Corporation. ?itchell transfers property 9!asis of
$10#,000 and fair %arket +alue of $00,000; while <owell transfers land 9!asis of $>,000
and fair %arket +alue of $6#,000; and $1#,000 of cash. 4ach recei+es #0% of 3reen
Corporation8s stock 9total +alue of $1>0,000;. 7s a result of these transfers@
a. ?itchell has a recogniAed loss of $1#,000, and <owell has a recogniAed
gain of $66,000.
!. ,either ?itchell nor <owell has any recogniAed gain or loss.
c. ?itchell has no recogniAed loss, !ut <owell has a recogniAed gain of
$1#,000.
d. 3reen Corporation will ha+e a !asis in the land of $23,000.
e. ,one of the a!o+e.
>. Jane transfers property 9!asis of $1>0,000 and fair %arket +alue of $#00,000; to 3reen
Corporation for >0% of its stock 9worth $"2#,000; and a long*ter% note 9worth $6#,000;,
e'ecuted !y 3reen Corporation and %ade paya!le to Jane. 7s a result of the transfer@
a. Jane recogniAes no gain.
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!. Jane recogniAes a gain of $6#,000.
c. Jane recogniAes a gain of $260,000.
d. Jane recogniAes a gain of $320,000.
e. ,one of the a!o+e.
0. 4ileen transfers property worth $200,000 9!asis of $100,000; to 3oldfinch Corporation.
5n return, she recei+es >0% of the stock in 3oldfinch Corporation 9fair %arket +alue of
$1>0,000; and a long*ter% note 9fair %arket +alue of $20,000; e'ecuted !y 3oldfinch
and %ade paya!le to 4ileen. 4ileen recogniAes gain on the transfer of@
a. $0.
!. $10,000.
c. $20,000.
d. $100,000.
e. ,one of the a!o+e.
10. 3a!riella and Juanita for% 2uster Corporation. 3a!riella transfers cash of $#0,000 for
#0 shares of stock, while Juanita transfers a secret process 9!asis of Aero and fair
%arket +alue of $#0,000; for #0 shares of stock.
a. he transfers to 2uster are fully ta'a!le to !oth 3a!riella and Juanita.
!. Juanita %ust recogniAe gain of $#0,000.
c. -ecause Juanita is reBuired to recogniAe gain on the transfer, 3a!riella
also %ust recogniAe gain.
d. ,either 3a!riella nor Juanita will recogniAe gain on the transfer.
e. ,one of the a!o+e.
11. hree indi+iduals for% .kylark Corporation with the following contri!utions@ Cliff, cash
of $#0,000 for #0 sharesC -rad, land worth $20,000 9!asis of $11,000; for 20 sharesC
and 1on, cattle worth $0,000 9!asis of $6,000; for 0 shares and ser+ices worth $21,000
for 21 shares.
a. hese transfers are fully ta'a!le and not su!(ect to D 3#1.
!. 1on8s !asis in his stock is $26,000.
c. 1on8s !asis in his stock is $6,000.
d. -rad8s !asis in his stock is $20,000.
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e. ,one of the a!o+e.
12. Ee+in and ,icole for% 5ndigo Corporation with the following transfers@ in+entory fro%
Ee+in 9!asis of $360,000 and fair %arket +alue of $"00,000; and i%pro+ed real estate
fro% ,icole 9!asis of $320,000 and fair %arket +alue of $36#,000;. ,icole, an
accountant, agrees to contri!ute her ser+ices 9worth $2#,000; in organiAing 5ndigo. he
corporation8s stock is distri!uted eBually to Ee+in and ,icole. 7s a result of these
transfers@
a. 5ndigo can deduct $2#,000 as a !usiness e'pense.
!. ,icole has a recogniAed gain of $##,000 on the transfer of the real estate.
c. 5ndigo has a !asis of $360,000 in the in+entory.
d. 5ndigo has a !asis of $36#,000 in the real estate.
e. ,one of the a!o+e.
13. he ta' treat%ent of corporate distri!utions at the shareholder le+el does not depend
on@
a. he character of the property !eing distri!uted.
!. he earnings and profits of the corporation.
c. he !asis of stock in the hands of the shareholder.
d. $hether the distri!uted property is recei+ed !y an indi+idual or a
corporation.
e. ,one of the a!o+e.
1". 1ose Corporation 9a calendar year ta'payer; has ta'a!le inco%e of $300,000, and its
financial records reflect the following for the year.
)ederal inco%e ta'es paid $110,000
,et operating loss carryforward deducted currently 60,000
3ain recogniAed this year on an install%ent sale fro% a prior year "",000
=epreciation deducted on ta' return 97=. depreciation would ha+e
!een $10,000;
"0,000
5nterest inco%e on 5owa state !onds >,000
1ose Corporation8s current 4 F < is@
#
a. $2#",000.
!. $21",000.
c. $10",000.
d. $10",000.
e. ,one of the a!o+e.
1#. ern Corporation, a cash !asis ta'payer, has ta'a!le inco%e of $#00,000 for the
current year. ern elected $100,000 of D 160 e'pense. 5t also had a related party loss of
$20,000 and a realiAed 9not recogniAed; gain fro% an in+oluntary con+ersion of
$6#,000. 5t paid )ederal inco%e ta' of $1#0,000 and paid a nondeducti!le fine of
$10,000. ern8s current 4 F < is@
a. $"00,000.
!. $"10,000.
c. $320,000.
d. $"6#,000.
e. ,one of the a!o+e.
16. .il+er Corporation, a calendar year ta'payer, has ta'a!le inco%e of $##0,000. 7%ong
its transactions for the year are the following@
Collection of proceeds fro% insurance policy on life of corporate
officer 9in e'cess of cash surrender +alue; $>2,#00
1ealiAed gain 9not recogniAed; on an in+oluntary con+ersion 11,000
,ondeducti!le fines and penalties "",000
=isregarding any pro+ision for )ederal inco%e ta'es, .il+er Corporation8s current 4 F <
is@
a. $#00,#00.
!. $#>>,#00.
c. $#00,#00.
d. $6>6,#00.
e. ,one of the a!o+e.
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16. $hich of the following state%ents is incorrect with respect to deter%ining current
4 F <&
a. 7ll ta'*e'e%pt inco%e should !e added !ack to ta'a!le inco%e.
!. =i+idends recei+ed deductions should !e added !ack to ta'a!le inco%e.
c. Charita!le contri!utions in e'cess of the 10% of ta'a!le inco%e li%it
should !e su!tracted fro% ta'a!le inco%e.
d. )ederal inco%e ta' refunds should !e added !ack to ta'a!le inco%e.
e. ,one of the a!o+e state%ents are incorrect.
1>. 7aron and ?ichele, eBual shareholders in Ca+alier Corporation, recei+e $2#,000 each
in distri!utions on =ece%!er 31 of the current year. =uring the current year, Ca+alier
sold an appreciated asset for $60,000 9!asis of $1#,000;. <ay%ent for the sale of the
asset will !e %ade as follows@ #0% ne't year and #0% in the following year, with
interest paya!le at a rate of 6 percent. -efore considering the effect of the asset sale,
Ca+alier8s current year 4 F < is $"0,000 and it has no accu%ulated 4 F <. /ow %uch
of 7aron8s distri!ution will !e ta'ed as a di+idend&
a. $0.
!. $20,000.
c. $2#,000.
d. $"2,#00.
e. ,one of the a!o+e.
10. <ursuant to a co%plete liBuidation, 2ilac Corporation distri!utes the following assets to
its unrelated shareholders@ land held for three years as an in+est%ent 9!asis of
$300,000, fair %arket +alue of $600,000;, in+entory 9!asis of $100,000, fair %arket
+alue of $>0,000;, and %arketa!le securities held for four years as an in+est%ent 9!asis
of $200,000, fair %arket +alue of $2"0,000;. $hat are the ta' conseBuences to 2ilac
Corporation as a result of the liBuidation&
a. 2ilac Corporation would recogniAe no gain or loss on the liBuidation.
!. 2ilac Corporation would recogniAe a net capital gain of $320,000.
c. 2ilac Corporation would recogniAe a net capital gain of $3"0,000 and an
ordinary loss of $20,000.
d. 2ilac Corporation would recogniAe a net capital gain of $3"0,000.
e. ,one of the a!o+e.
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20. <ursuant to a co%plete liBuidation, Griole Corporation distri!utes to its shareholders
land with a !asis of $3#0,000 and a fair %arket +alue of $>00,000. he land is su!(ect to
a lia!ility of $020,000. $hat is Griole8s recogniAed gain or loss on the distri!ution&
a. $0.
!. $120,000 loss.
c. $"#0,000 gain.
d. $#60,000 gain.
e. ,one of the a!o+e.
21. he stock in 1hea Corporation is owned !y Jennifer 9>0%; and 2ucy 920%;, %other and
daughter. 5n a liBuidation of the corporation in the current year, 1hea distri!utes land
that it purchased in 2010 for $66#,000 to 2ucy. he property has a fair %arket +alue on
the date of distri!ution of $"#0,000. Gne year later, 2ucy sells the land for $"00,000.
$hat loss, if any, will 1hea Corporation recogniAe with respect to the distri!ution of
land&
a. $0.
!. $"#,000.
c. $22#,000.
d. $26#,000.
e. ,one of the a!o+e.
22. he stock in oucan Corporation is held eBually !y two !rothers. )our years ago, the
shareholders transfer property 9!asis of $200,000, fair %arket +alue of $220,000; to
oucan Corporation as a contri!ution to capital. 5n the current year and pursuant to a
co%plete liBuidation of oucan, the property is distri!uted proportionately to the
!rothers. 7t the ti%e of the distri!ution, the property had a fair %arket +alue of $"0,000.
$hat a%ount of loss will oucan Corporation recogniAe on the distri!ution of the
property&
a. $0.
!. $20,000.
c. $160,000.
d. $1>0,000.
>
e. ,one of the a!o+e.
23. ?agenta Corporation acBuired land in a D 3#1 e'change one year ago. he land had a
!asis of $320,000 and a fair %arket +alue of $3#0,000 on the date of the transfer.
?agenta Corporation has two shareholders, ?ark 960%; and ?egan 930%;, who are
!rother and sister. ?agenta Corporation adopts a plan of liBuidation in the current year.
Gn this date, the land has decreased in +alue to $2#0,000. ?agenta Corporation sells
the land for $2#0,000 and distri!utes the proceeds pro rata to ?ark and ?egan. $hat
a%ount of loss %ay ?agenta Corporation recogniAe on the sale of the land&
a. $0.
!. $21,000.
c. $30,000.
d. $60,000.
e. ,one of the a!o+e.
2". <urple Corporation has two eBual shareholders, Joshua and 4llie, who are father and
daughter. Gne year ago, the two shareholders transferred properties to <urple in a
D 3#1 e'change. Joshua transferred land 9!asis of $600,000, fair %arket +alue of
$"#0,000; and securities 9!asis of $60,000, fair %arket +alue of $2#0,000;, while 4llie
transferred eBuip%ent 9!asis of $"20,000, fair %arket +alue of $600,000;. 5n the current
year, <urple Corporation adopts a plan of liBuidation, sells all of its assets, and
distri!utes the proceeds pro rata to Joshua and 4llie. he only loss realiAed upon
disposition of the properties was with respect to the unde+eloped land that had
decreased in +alue to $310,000 and was sold for this a%ount. <urple ne+er used the
land for any !usiness purpose during the ti%e it was owned !y the corporation. $hat
a%ount of loss can <urple Corporation recogniAe on the sale of the land&
a. $0.
!. $1"0,000.
c. $1#0,000.
d. $200,000.
e. ,one of the a!o+e.
2#. $hich of the following entity owners cannot participate in %anage%ent of the entity&
a. 7 general partner in a general partnership.
!. 7 %e%!er of a li%ited lia!ility co%pany.
0
c. 7 partner in a li%ited lia!ility partnership.
d. 7 li%ited partner in a li%ited lia!ility li%ited partnership.
e. ,one of the a!o+e.
26. $hich one of the following state%ents regarding partnership ta'ation is incorrect&
a. 7 partnership is a ta'a!le entity for )ederal inco%e ta' purposes.
!. <artnership inco%e is co%prised of ordinary partnership inco%e or loss
and separately stated ite%s.
c. 7 partnership is reBuired to file a return with the 51..
d. 7 partner8s profit*sharing percent %ay differ fro% the partner8s loss*sharing
percent.
e. 7ll of these state%ents are correct.
26. $hich of the following is a correct definition of a concept related to partnership ta'ation&
a. he aggregate concept treats partners and partnerships as separate units
and gi+es the partnership its own ta' Hpersonality.I
!. 7 partner8s capital sharing ratio is defined as the percent of partnership
assets 9capital; that would !e allocated to the partner upon liBuidation of
the partnership.
c. he partnership8s outside !asis is defined as the su% of each partner8s
capital account !alance.
d. 7 special allocation is defined as an a%ount that could differently affect the
ta' lia!ilities of two or %ore partners.
e. ,one of these state%ents is correct.
2>. 7 partnership will take a carryo+er !asis in an asset it acBuires when@
a. he partnership acBuires the asset through a D 1031 like*kind e'change.
!. 7 partner owning 2#% of partnership capital and profits sells the asset to
the partnership.
c. he partnership leases the asset fro% a partner on a one*year lease.
d. he partnership acBuires the asset fro% a partner as a contri!ution to
partnership capital under D 6219a;.
e. ,one of the a!o+e.
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20. Gn January 1 of the current year, 7nna and Jason for% an eBual partnership. 7nna
contri!utes $#0,000 cash and a parcel of land 9ad(usted !asis of $100,000C fair %arket
+alue of $1#0,000; in e'change for her interest in the partnership. Jason contri!utes
property 9ad(usted !asis of $1>0,000C fair %arket +alue of $200,000; in e'change for his
partnership interest. $hich of the following state%ents is true concerning the inco%e ta'
results of this partnership for%ation&
a. Jason recogniAes a $20,000 gain on his property transfer.
!. Jason has a $200,000 ta' !asis for his partnership interest.
c. 7nna has a $1#0,000 ta' !asis for her partnership interest.
d. he partnership has a $1#0,000 ad(usted !asis in the land contri!uted !y
7nna.
e. ,one of the state%ents is true.
30. i%, 7l, and <at contri!uted assets to for% the eBual 7< <artnership. i% contri!uted
cash of $"0,000 and land with a !asis of $>0,000 9fair %arket +alue of $60,000;. 7l
contri!uted cash of $60,000 and land with a !asis of $#0,000 9fair %arket +alue of
$"0,000;. <at contri!uted cash of $60,000 and a fully depreciated property 9$0 !asis;
+alued at $"0,000. $hich of the following ta' treat%ents is not correct&
a. i%8s !asis in his partnership interest is $120,000.
!. 7l realiAes and recogniAes a loss of $10,000.
c. <at realiAes a gain of $"0,000 !ut recogniAes $0 gain.
d. 7< has a !asis of $>0,000, $#0,000, and $0 in the land and property
9e'cluding cash; contri!uted !y i%, 7l, and <at, respecti+ely.
e. 7ll of these state%ent are correct.
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