FEDERAL INCOME TAX I â€“ AC 214
TAKE-HOME QUIZ #1
Circle the single best answer for each true/false and
multiple-choice question on the separate answer sheet provided. Answers to the long problem should be submitted on separate paper.
True (T) / False (F) (16%)
1. T F Final regulations have almost the same legislative weight as the Internal Revenue Code.
2. T F Appeals from the U.S. Tax Court are to the Court of Appeals for the Federal Circuit.
3. T F A revenue ruling is issued by the Internal Revenue Service only in response to a verbal inquiry by a taxpayer.
4. T F A sole proprietor is required to use the same reporting period for both business and individual tax information.
5. T F The check-the-box regulations permit an LLC to be taxed as a C corporation.
6. T F The transferor’s basis for any noncash boot property received in a Section 351 transaction is the boot’s FMV reduced by any unrecognized gain.
7. T F A corporation must recognize a loss when transferring noncash boot property that has declined in value and its stock to a transferor as part of a Section 351 exchange.
8. T F If a corporation’s total adjusted bases for all properties transferred exceed the total FMV of the properties, the corporation’s bases in the property is limited to FMV if no election is made.
9. Investigation of a tax problem that involves a closed-fact situation means that:
A. The client’s transactions have already occurred and the tax questions must now be resolved.
B. The client’s tax return has yet to be filed.
C. Future events may be planned and controlled.
D. Research is primarily concerned with applying the law to the facts as they exist.
10. A tax bill introduced in the House of Representatives is then:
A. Referred to the House Ways and Means Committee for hearings and approval.
B. Referred to the entire House for hearings.
C. Voted upon by the entire House.
D. Forwarded to the Senate Finance Committee for consideration.
11. When the House and Senate versions of a tax bill are not in agreement, the disagreements are resolved by the:
A. Ways and Means Committee.
B. Mediation Committee.
C. Revenue Committee.
D. Conference Committee.
12. When Congress passes a statute with language such as, “The Secretary shall prescribe such regulations as he may deem necessary,” the regulations ultimately issued for that statute are:
A. Congressional regulations.
B. Statutory regulations.
C. Interpretative regulations.
D. Legislative regulations.
13. Which regulation deals with the gift tax?
A. Reg. Sec. 1.165-5
B. Reg. Sec. 20.2014-5
C. Reg. Sec. 25.2518-5
D. Reg. Sec. 301.7002-5
14. Which of the following best describes the weight of a revenue ruling?
A. Revenue rulings carry more weight than regulations.
B. Revenue rulings carry more weight than federal court decisions.
C. Regulations carry more weight than revenue rulings.
D. Revenue rulings should never be used as authority since
they only apply to the taxpayer requesting the ruling.
15. Which of the following statements is true?
A. Shareholders in a C corporation can use C corporation losses to offset shareholder income from other sources.
B. C corporation losses remain in the C corporation and can offset capital gain income from other years.
C. C corporation shareholders are taxed based on their proportionate share of income.
D. Distributions of C corporation income are not taxable.
16. Which of the following statements is true?
A. A transferor’s gain or loss that goes unrecognized when Section 351 applies is permanently exempt from taxation.
B. If a taxpayer transfers property and services as part of a transaction meeting the Section 351 requirements, all of the stock received is counted in determining whether the property transferors have acquired control.
C. If a taxpayer transfers property and services as part of a transaction meeting the Section 351 requirements, the nonrecognition of gain or loss will apply to the services.
D. All of the above are false.
17. Which of the following statements is true?
A. The exchange of stock for services rendered is not a taxable transaction.
B. The repeal of Section 351 would result in more existing businesses being incorporated.
C. Section 351 was enacted to allow taxpayers to incorporate without incurring adverse tax consequences.
D. All of the above are false.
18. Alan, Baker, and Carr formed Dexter Corporation during 2012.
Pursuant to the incorporation agreement, Alan transferred
property with an adjusted basis of $30,000 and a fair market
value of $45,000 for 450 shares of stock, Baker transferred
cash of $35,000 in exchange for 350 shares of stock, and Carr
performed services valued at $25,000 in exchange for 250 shares
of stock. Assuming the fair market value of Dexter Corporation
stock is $100 per share, what is Dexter Corporationâ€™s tax basis
for the property received from Alan?
19. Clark and Hunt organized Jet Corporation with authorized voting
common stock of $400,000. Clark contributed $60,000 cash.
Both Clark and Hunt transferred other property in exchange for
Jet stock as follows:
Adjusted Market of Jet stock
Basis Value acquired
Clark $ 50,000 $100,000 40%
Hunt 120,000 240,000 60
What was Clarkâ€™s basis in Jet stock?
20. Roberta Warner and Sally Rogers formed the Acme Corporation on
October 1, 2012. On the same date, Warner paid $75,000 cash to
Acme for 750 shares of its common stock. Simultaneously,
Rogers received 100 shares of Acmeâ€™s common stock for services
rendered. How much should Rogers include as taxable income for
2012 and what will be the basis of her stock?
Taxable Income Basis of Stock
A. $ 0 $ 0
B. 0 10,000
C. 10,000 0
D. 10,000 10,000
– 5 â€“
21. Mario and Lupita form a corporation in a transaction coming
under Section 351. Lupita transfers property with an adjusted
basis of $150,000 and an FMV of $200,000 in exchange for one-
half of the stock. The property has an $80,000 mortgage, which
the corporation assumes. The corporation’s basis in the
22. Under Section 351, corporate stock may include all of the
A. Voting stock.
B. Nonvoting stock.
C. Stock warrants.
D. Qualified preferred stock.
23. Jackson, a single individual, inherited Bean Corp. common stock
from Jacksonâ€™s parents. Bean is a qualified small business
corporation under Section 1244. The stock cost Jacksonâ€™s
parents $20,000 and had a fair market value of $25,000 at the
parentsâ€™ date of death. During the year, Bean declared
bankruptcy and Jackson was informed that the stock was
worthless. What amount may Jackson deduct as an ordinary loss
in the current year?
24. Nancy, who is single, formed a corporation during 2009 using
a tax-free asset transfer that qualified under Section 351.
She transferred property having an adjusted basis of $80,000
and a fair market value of $60,000, and in exchange received
Section 1244 small business corporation stock. During
February 2012, Nancy sold all of her stock for $35,000.
What is the amount and character of Nancyâ€™s recognized loss
resulting from the sale of the stock in 2012?
A. $0 ordinary loss; $45,000 capital loss.
B. $25,000 ordinary loss; $10,000 capital loss.
C. $25,000 ordinary loss; $20,000 capital loss.
D. $45,000 ordinary loss; $0 capital loss.
– 6 â€“
25. Colleen operates a business as a sole proprietorship. She
purchased a computer for $10,000 last year. The computer is
five-year recovery property for MACRS purposes and is
depreciated under the regular MACRS rules. This year, Colleen
incorporates the business and transfers the computer to the new
corporation on July 20. The depreciation on the computer for
this year allocable to the sole proprietorship is:
26. The City of Springfield donates land worth $250,000 to Deuce
Corporation to induce it to locate in Springfield and provide
1,000 jobs for its citizens. How much gross income must Deuce
Corporation recognize because of the land contribution, and
what is the land’s basis to Deuce Corporation?
A. $250,000 income; $250,000 basis
B. $250,000 income; $0 basis
C. $0 income; $250,000 basis
D. $0 income; $0 basis