is June a 20% general partner in Montoya Partners, a general partnership. Her tax basis in her partnership
interest is $50,000, consisting of her $35,000 share of partnership capital and her $15,000 share of
partnership liabilities. In complete liquidation of her partnership interest, she received a distribution of
real estate (Sec. 1231 property in the partnership's hands) with a tax basis of $95,000 and a fair market
value of $150,000. The property was not encumbered by debt of any kind. How much gain will June
recognize on receipt of the distribution?
Choose one answer.
a. zero
b. $45,000
c. $60,000
d. $100,000
e. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 2
Marks: 1.00
Steve is a 20 percent partner in Buckman Partners. His tax basis in his partnership interest is $65,000,
consisting of his $35,000 net capital investment in the partnership plus his $30,000 share of partnership
debt. The partnership has no hot assets. Steve receives a distribution of real property in complete
liquidation of his partnership interest. The property, which is not encumbered by debt of any kind, has a
tax basis to the partnership of $58,000 and a fair market value of $95,000. What will be Steve's tax basis
in the property?
Choose one answer.
a. $65,000
b. $58,000
c. $35,000
d. $95,000
e. none of the above
Incorrect
Marks for this submission: 0.00/1.00.
Question 3
Marks: 1.00
Wycliffe Production, LLP, a general partnership, had the following balance sheets at December 31:
Basis
FMV
Cash
$50,000
$50,000
Property 1 (Sec. 1231 asset)
50,000
50,000
Property 2 (Sec. 1231 asset)
10,000
50,000
$120,000
$240,000
Capital, J
30,000
60,000
Captial, R
30,000
60,000
Capital, N
60,000
120,000
$120,000
$240,000
J, a 25 percent partner, sold her interest in the partnership the next day for $60,000. If the partnership has
a Code Sec. 754 election in effect, by how much will it be required to increase its tax basis in Property 2
under Code Sec. 743(b)?
Choose one answer.
a. $90,000
b. $20,000
c. $10,000
d. $15,000
e. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 4
Marks: 1.00
A pro rata distribution of unrealized receivables or substantially appreciated inventory items will merely
take the basis to the distributee as that property had to the partnership (limited to the partner's basis), and
any ordinary income recognition is deferred until the collection or other taxable disposition of the
receivables or inventory items.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 5
Marks: 1.00
Kathy is a partner in Wildwood Energy, a general partnership. In complete liquidation of her interest in
the partnership, she received a distribution consisting of the following assets:
Basis
FMV
Cash
$5,000
$5,000
Property 1
15,000
15,000
Property 2
20,000
12,000
Kathy's tax basis in her interest is $33,000. The partnership has no debt and no hot assets. What will be
Kathy's tax basis in Property 1?
Choose one answer.
a. $15,000
b. $32,000
c. $12,000
d. $28,000
e. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 6
Marks: 1.00
Following the sale by one of its partners of her interest in the partnership, Glendale Partnership is required
to increase the basis of its assets under Code Sec. 743(b). The total Code Sec. 743(b) adjustment is
$8,000. The purchasing partner's share of the partnership's assets is as follows:
Basis
FMV
Inventory
$2,000
$5,000
Property 1 (Sec. 1231 asset)
10,000
25,000
Property 2 (Sec. 1231 asset)
20,000
10,000
$32,000
$40,000
How much of the basis adjustment should be allocated to the inventory?
Choose one answer.
a. $1,000
b. $3,000
c. zero
d. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 7
Marks: 1.00
Gary is a one-third partner in Meadows Partners. His tax basis in his partnership interest is $25,000. He
received a distribution of real estate in a non-liquidating distribution from the partnership. The real estate
had a tax basis to the partnership of $20,000 and a fair market value of $50,000. The partnership had no
liabilities or hot assets. What will be Gary's tax basis in the real property received from the partnership?
Choose one answer.
a. zero
b. $20,000
c. $25,000
d. $50,000
e. none of the above
Correct
Marks for this submission: 1.00/1.00.
Question 8
Marks: 1.00
When a partner acquires an interest in a partnership by purchase, the basis of the underlying assets of the
partnership must be adjusted to reflect the price the incoming partner paid for his interest.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 9
Marks: 1.00
Arlen Propane, a general partnership, had the following balance sheets at December 31:
Basis
FMV
Cash
$30,000
$30,000
Inventory
20,000
30,000
Land
110,000
150,000
$160,000
$210,000
Liabilities
$60,000
$60,000
Capital, Hank
$60,000
$90,000
Capital, Peggy
$20,000
$30,000
Capital, Bobby $20,000
$30,000
$160,000
$210,000
On January 1, the partnership distributed the land to Hank in complete liquidation of his sixty percent
interest in the partnership. The land was encumbered by a $60,000 mortgage, for which Hank assumed
responsibility in connection with the distribution. How much ordinary income will Hank recognize on
receipt of the distribution under Code Sec. 751(b)?
Choose one answer.
a. zero
b. $90,000
c. $6,000
d. $10,000
e. none of the above
Incorrect
Marks for this submission: 0.00/1.00.
Question 10
Marks: 1.00
On July 1, Clark Cootes acquired a 20 percent interest in the partnership of Davis & Denny, by
contributing a parcel of land for which his basis was $8,000. At the date of the contribution, the land had a
fair market value of $20,000 and was subject to a mortgage of $4,000. Responsibility for the mortgage
was assumed by the partnership. Assuming there are no other partnership liabilities, the basis of Clark's
interest in the partnership is:
Choose one answer.
a. $4,000
b. $4,800
c. $16,000
d. $16,800
Correct
Marks for this submission: 1.00/1.00.
Question 11
Marks: 1.00
If, in anticipation of current profits, a partner withdraws all of his or her share of partnership profits, and
then dies before the end of the taxable year of the partnership, the estate (or other successor in interest)
will have to report the deceased partner's profits as its income in its year with or within which the
partnership year ends, notwithstanding the fact that the money representing those profits was received and
squandered by the decedent prior to death.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 12
Marks: 1.00
With respect to the allocation of a basis adjustment to partnership assets, the total fair market value of all
of the assets is compared with the total adjusted basis of those same assets and the difference between the
two amounts is allocated to each asset based upon its relative adjusted basis.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 13
Marks: 1.00
Shady Acres, LLC, a general partnership, had the following balance sheets at December 31:
Basis
FMV
Cash
$50,000
$50,000
Accounts receivable
0
30,000
Land
100,000
160,000
150,000
240,000
Capital, Bill
$75,000
$120,000
Capital, Ted
$50,000
$80,000
Capital, Rick
$25,000
$40,000
$150,000
$240,000
On January 1, the partnership distributed $40,000 cash to Rick in complete liquidation of his one-sixth
interest in the partnership. How much ordinary income will Rick recognize on receipt of the distribution
under Code Sec. 751(b)?
Choose one answer.
a. $5,000
b. $10,000
c. $15,000
d. $30,000
e. None of the above
Incorrect
Marks for this submission: 0.00/1.00.
Question 14
Marks: 1.00
Only a cash basis partnership is concerned with the problem of "unrealized receivables."
Answer:
True
Correct
False
Marks for this submission: 1.00/1.00.
Question 15
Marks: 1.00
Edgar's tax basis in his one-third partnership interest is $30,000, consisting of his $20,000 net capital
investment in the partnership, plus his $10,000 share of partnership liabilities. In complete liquidation of
this interest, Edgar receives a distribution of real property with a tax basis of $28,000 and a fair market
value of $50,000. The property is encumbered by a $15,000 mortgage for which Edgar assumes
responsibility. The partnership has no hot assets. What will be Edgar's tax basis in the real property?
Choose one answer.
a. $28,000
b. $30,000
c. $50,000
d. $35,000
e. none of the above
Correct
Marks for this submission: 1.00/1.00.
Question 16
Marks: 1.00
When Donald Donohoe retired from his partnership on December 31, he received in full payment for his
interest in the partnership, which had an adjusted basis to him of $45,000, the following (his proportionate
share):
Basis to Partnership
Fair Market Value
Cash
$35,000
$35,000
Unrealized receivables
3,000
15,000
Investment land
12,000
50,000
His bases for the receivables and land are:
Choose one answer.
a. Receivables: $3,000; land: $7,000
b. Receivables: $3,000; land: $15,000
c. Receivables: $15,000; land: $12,000
d. Receivables: $15,000; land: $45,000
e. Receivables: $15,000; land: $50,000
Correct
Marks for this submission: 1.00/1.00.
Question 17
Marks: 1.00
A partnership may elect to adjust the basis of its property merely because one partner sells an interest to
another partner and there is no transfer of any partnership assets involved.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 18
Marks: 1.00
As a general rule, property distributed to a partner, not in liquidation of an interest in the partnership,
takes the same basis in the hands of the partner as it had in the hands of the partnership.
Answer:
True
Correct
False
Marks for this submission: 1.00/1.00.
Question 19
Marks: 1.00
For 20 years, Henry Humboldt has been a 25 percent partner in HIG, a calendar year, cash basis
partnership. This year, HIG averaged ordinary partnership income of $20,000 each month. As of
September 30, when Henry's adjusted basis for his partnership interest, prior to consideration of the
current year operations, was $40,000, he sold his interest to George for $90,000. Henry should include in
his current year return as income from the partnership:
Choose one answer.
a. $70,000 long-term capital gain
b. $50,000 long-term capital gain
c. $20,000 long-term capital gain and $50,000 ordinary income
d. $5,000 long-term capital gain and $45,000 ordinary income
e. $70,000 ordinary income
Correct
Marks for this submission: 1.00/1.00.
Question 20
Marks: 1.00
A partner may sometimes recognize taxable gain or loss upon receipt of a liquidating distribution from a
partnership.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
A pro rata distribution of unrealized receivables or substantially appreciated inventory items will merely
take the basis to the distributee as that property had to the partnership (limited to the partner's basis), and
any ordinary income recognition is deferred until the collection or other taxable disposition of the
receivables or inventory items.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 2
Marks: 1.00
Ellen is a 20% general partner in Hein Products, a general partnership. Ellen's tax basis in her partnership
interest is $45,000, consisting of her $30,000 contribution to partnership capital and her $15,000 share of
the partnership's liabilities. If she receives a cash distribution of $75,000 in complete liquidation of her
interest in the partnership, how much income will she recognize?
Choose one answer.
a. $30,000
b. $75,000
c. $45,000
d. $60,000
e. None of the above
Incorrect
Marks for this submission: 0.00/1.00.
Question 3
Marks: 1.00
With respect to the allocation of a basis adjustment to partnership assets, the total fair market value of all
of the assets is compared with the total adjusted basis of those same assets and the difference between the
two amounts is allocated to each asset based upon its relative adjusted basis.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 4
Marks: 1.00
Judith is a twenty-five percent partner in the Rogan Partnership. Her tax basis in her partnership interest is
$30,000. She received a non-liquidating distribution consisting of property with a tax basis to the
partnership of $28,000 and a fair market value of $52,000. The partnership has no hot assets. What will be
Judith's remaining tax basis in her partnership interest following receipt of the distribution?
Choose one answer.
a. zero
b. $30,000
c. $2,000
d. $28,000
e. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 5
Marks: 1.00
A partnership has no Section 751 assets. Assuming that the partnership has a Code Sec. 754 election in
effect, the partnership would make all of the following adjustments except:
Choose one answer.
a. Increase the basis of partnership property because of capital gain which a distributee partner
recognizes in a current distribution.
b. Decrease the basis of partnership property because of capital loss which a distributee partner
recognizes in a liquidating distribution.
c. Increase the basis of partnership property because the distributee partner's basis for the
partnership interest limits the basis assigned to partnership property received in a current
distribution.
d. Decrease the basis of partnership property because the amount of the distributee partner's basis
assigned to partnership property distributed in a liquidating distribution exceeds the partnership's
pre-distribution basis in the property.
e. Decrease the basis of partnership property for the excess of the amount a purchasing partner
pays for a partnership interest over the partner's proportionate share of the partnership's basis in its
properties.
Correct
Marks for this submission: 1.00/1.00.
Question 6
Marks: 1.00
Lakeway Partners, a general partnership, had the following balance sheets at December 31:
Basis
FMV
Cash
$50,000
$50,000
Property 1 (Code Sec. 1231 asset)
50,000
130,000
Land
50,000
60,000
$150,000
$240,000
Capital, April
75,000
120,000
Captial, May
50,000
80,000
Capital, June
25,000
40,000
$150,000
$240,000
On January 1, May sold her one-third interest in the partnership to an unrelated buyer for $80,000. If the
partnership has a Code Sec. 754 election in effect, what will be its total allowable basis adjustment under
Code Sec. 743(b)?
Choose one answer.
a. $30,000
b. $80,000
c. $10,000
d. $90,000
e. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 7
Marks: 1.00
Edgar's tax basis in his one-third partnership interest is $30,000, consisting of his $20,000 net capital
investment in the partnership, plus his $10,000 share of partnership liabilities. In complete liquidation of
this interest, Edgar receives a distribution of real property with a tax basis of $28,000 and a fair market
value of $50,000. The property is encumbered by a $15,000 mortgage for which Edgar assumes
responsibility. The partnership has no hot assets. What will be Edgar's tax basis in the real property?
Choose one answer.
a. $28,000
b. $30,000
c. $50,000
d. $35,000
e. none of the above
Correct
Marks for this submission: 1.00/1.00.
Question 8
Marks: 1.00
Plainway Partners, a general partnership, had the following balance sheets at December 31:
Basis
FMV
Cash
$50,000
$50,000
Inventory
10,000
30,000
Land
90,000
60,000
$150,000
$140,000
Capital, Tom
75,000
70,000
Captial, Dick
60,000
56,000
Capital, Harry 15,000
14,000
$150,000
$140,000
On January 1, Harry sold his ten percent interest in the partnership to an unrelated buyer for $14,000.
How much ordinary income will Harry recognize on the sale under Code Sec. 751(a)?
Choose one answer.
a. Zero, he will recognize a loss on the sale.
b. $2,000
c. $20,000
d. $14,000
e. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 9
Marks: 1.00
June is a 20% general partner in Montoya Partners, a general partnership. Her tax basis in her partnership
interest is $50,000, consisting of her $35,000 share of partnership capital and her $15,000 share of
partnership liabilities. In complete liquidation of her partnership interest, she received a distribution of
real estate (Sec. 1231 property in the partnership's hands) with a tax basis of $95,000 and a fair market
value of $150,000. The property was not encumbered by debt of any kind. How much gain will June
recognize on receipt of the distribution?
Choose one answer.
a. zero
b. $45,000
c. $60,000
d. $100,000
e. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 10
Marks: 1.00
Slate Quarry, a general partnership, had the following balance sheets at December 31:
Basis
Cash
FMV
$30,000
$30,000
Inventory
20,000
30,000
Land
50,000
90,000
$100,000
$150,000
Capital, Fred
$60,000
$90,000
Capital, Wilma
$20,000
$30,000
Capital, Barney $20,000
$30,000
$100,000
$150,000
On January 1, the partnership distributed the inventory to Barney in complete liquidation of his twenty
percent interest in the partnership. How much ordinary income will the partnership recognize on receipt
of the distribution under Code Sec. 751(b)?
Choose one answer.
a. zero
b. $10,000
c. $2,000
d. $8,000
e. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 11
Marks: 1.00
Sue's tax basis in her 20 percent interest in Weninger Partners is $50,000. The partnership has no debt and
no hot assets. She receives a liquidating distribution of real estate with a tax basis to the partnership of
$35,000 and a fair market value of $90,000. How much gain or loss will she recognize on receipt of the
distribution and what will be her tax basis in the real estate?
Choose one answer.
a. zero gain or loss; $50,000 basis in real estate
b. ($15,000) loss; $35,000 tax basis in real estate
c. zero gain or loss; $35,000 tax basis in real estate
d. $40,000 gain; $90,000 tax basis in real estate
e. $15,000 gain; $50,000 tax basis in real estate
Correct
Marks for this submission: 1.00/1.00.
Question 12
Marks: 1.00
Slate Quarry, a general partnership, had the following balance sheets at December 31:
Basis
FMV
Cash
$30,000
$30,000
Inventory
20,000
30,000
Land
50,000
90,000
$100,000
$150,000
Capital, Fred
$60,000
$90,000
Capital, Wilma
$20,000
$30,000
Capital, Barney $20,000
$30,000
$100,000
$150,000
On January 1, the partnership distributed the inventory to Barney in complete liquidation of his twenty
percent interest in the partnership. How much ordinary income will Barney recognize on receipt of the
distribution under Code Sec. 751(b)?
Choose one answer.
a. zero
b. $10,000
c. $2,000
d. $20,000
e. Noe of the above
Correct
Marks for this submission: 1.00/1.00.
Question 13
Marks: 1.00
Choate, Hamm, and Sloan Partnership is a cash method partnership. The partnership's balance sheets at
September 30 of the current year were as follows:
Assets
Basis
Fair Market Value
Cash
$12,000
$12,000
Accounts Receivable --0--
48,000
Land
63,000
90,000
Total
$75,000
$150,000
Equities
Basis
Fair Market Value
Notes Payable
$30,000
$30,000
Choate, Capital
15,000
40,000
Hamm, Capital
15,000
40,000
Sloan, Capital
15,000
40,000
Total
$75,000
$150,000
If Choate withdraws under an agreement whereby he takes one-third of each of the three assets and
assumes $10,000 of the notes payable, what gain or loss should he report for tax purposes?
Choose one answer.
a. $9,000 capital gain
b. $9,000 ordinary income
c. $16,000 ordinary gain and $9,000 capital gain
d. No gain or loss
e. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 14
Marks: 1.00
For 20 years, Henry Humboldt has been a 25 percent partner in HIG, a calendar year, cash basis
partnership. This year, HIG averaged ordinary partnership income of $20,000 each month. As of
September 30, when Henry's adjusted basis for his partnership interest, prior to consideration of the
current year operations, was $40,000, he sold his interest to George for $90,000. Henry should include in
his current year return as income from the partnership:
Choose one answer.
a. $70,000 long-term capital gain
b. $50,000 long-term capital gain
c. $20,000 long-term capital gain and $50,000 ordinary income
d. $5,000 long-term capital gain and $45,000 ordinary income
e. $70,000 ordinary income
Correct
Marks for this submission: 1.00/1.00.
Question 15
Marks: 1.00
Mark, Pete and Mickey are equal partners in the 2MP Partnership. At the beginning of the year, Mark's
basis in his partnership interest was $15,000, Pete's basis was $10,000, and Mickey's basis was $20,000.
The partnership reported taxable income of $30,000 (allocated equally among the partners). At year-end,
the partnership made a nonliquidating distribution of $25,000 cash to Pete. How much income or gain
will Pete recognize on receipt of the distribution (assume the partnership has no hot assets)? Assume the
partnership has no liabilities.
Choose one answer.
a. zero
b. $25,000
c. $5,000
d. $15,000
e. none of the above
Correct
Marks for this submission: 1.00/1.00.
Question 16
Marks: 1.00
Ellen is a 25 percent partner in Heartland Partners. Her tax basis in her partnership interest is $18,000.
She received a non-liquidating distribution of land with a tax basis of $23,000 and a fair market value of
$45,000. The partnership has no liabilities. What will be Ellen's tax basis in the land received in the nonliquidating distribution?
Choose one answer.
a. $18,000
b. $23,000
c. $45,000
d. zero
e. none of the above
Incorrect
Marks for this submission: 0.00/1.00.
Question 17
Marks: 1.00
Ralph Elin contributed a plot of land to the partnership of Anduz and Elin. Elin's adjusted basis for this
land was $50,000, and its fair market value was $75,000. Under the partnership agreement, Elin's capital
account was credited with the full fair market value of the land. Anduz matched Elin's contribution with a
$75,000 cash contribution to the partnership. Thus, each partner's capital account was credited with
$75,000. Elin and Anduz share profits and losses equally. What is the adjusted basis of Elin's interest in
the partnership?
Choose one answer.
a. $25,000
b. $37,500
c. $50,000
d. $75,000
Incorrect
Marks for this submission: 0.00/1.00.
Question 18
Marks: 1.00
A partner may sometimes recognize taxable gain or loss upon receipt of a current distribution from a
partnership.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 19
Marks: 1.00
A partner who sells an interest in a partnership with substantially appreciated inventory will have to
recognize ordinary income on the sale.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 20
Marks: 1.00
Efosa is a partner in Far Away Partners, a general partnership. His tax basis in his partnership interest is
$28,000. The partnership has no liabilities and no hot assets. Efosa received a liquidating distribution
consisting of $10,000 cash, and two properties. Property 1 has a tax basis to the partnership of $16,000
and a fair market value of $20,000. Property 2 has a tax basis to the partnership of $8,000 and a fair
market value of $15,000. What tax basis will Efosa take in Property 2?
Choose one answer.
a. $8,000
b. $15,000
c. $6,000
d. $18,000
e. None of the above
Incorrect
Marks for this submission: 0.00/1.00.
Wilbur Wallace had an adjusted basis in his partnership interest of $35,000 when the partnership made a
distribution to him, not in complete termination of his interest, of $30,000 cash and a parcel of real estate
which the partnership held as an investment. The real estate had a basis to the partnership of $10,000 and
a fair market value of $15,000. As a result of this distribution:
Choose one answer.
a. Wilbur has ordinary income of $30,000, a capital gain of $15,000, and the real estate has a basis
to him of $15,000.
b. Wilbur has ordinary income of $5,000, no capital gain and the real estate has a basis to him of
$10,000.
c. Wilbur has no ordinary income, no capital gain, and the real estate has a basis to him of $5,000.
d. Wilbur has no ordinary income, a capital gain of $5,000, and the real estate has a basis of
$10,000.
e. Wilbur has no ordinary income, a capital gain of $10,000, and the real estate has a basis of
$15,000.
Correct
Marks for this submission: 1.00/1.00.
Question 2
Marks: 1.00
A partner's interest in a partnership is a capital asset.
Answer:
True
Correct
False
Marks for this submission: 1.00/1.00.
Question 3
Marks: 1.00
A partner may sometimes recognize taxable gain or loss upon receipt of a liquidating distribution from a
partnership.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 4
Marks: 1.00
A partner never recognizes a loss when he receives a current distribution from the partnership.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 5
Marks: 1.00
Until February, Marion was a partner in Winston and Company, a law firm organized as a partnership.
Her tax basis in her partnership interest was $50,000. She retired from the partnership, receiving a
$125,000 cash distribution in complete liquidation of her interest in the partnership. Of the amount
distributed, $25,000 represented Marion's share of the partnership's uncollected receivables, $65,000
represented her share of partnership property, and $35,000 her share of partnership goodwill. The
partnership agreement required that retiring partners be compensated for their shares of partnership
goodwill. How much ordinary income will Marion recognize under Code Sec. 736 on receipt of the
distribution?
Choose one answer.
a. $75,000
b. $25,000
c. $35,000
d. $60,000
e. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 6
Marks: 1.00
When a partner in a cash basis partnership dies, the partnership interest acquires a stepped-up basis and
any partnership assets, including unrealized receivables, if collected or sold at not more than estate tax
valuation, will result in no recognition of income to the partner's successor in interest.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 7
Marks: 1.00
Ellen is a 25 percent partner in Heartland Partners. Her tax basis in her partnership interest is $18,000.
She received a non-liquidating distribution of land with a tax basis of $23,000 and a fair market value of
$45,000. The partnership has no liabilities. What will be Ellen's tax basis in the land received in the nonliquidating distribution?
Choose one answer.
a. $18,000
b. $23,000
c. $45,000
d. zero
e. none of the above
Correct
Marks for this submission: 1.00/1.00.
Question 8
Marks: 1.00
Cash payments which a partnership makes to a retiring partner for the partner's interest in the
partnership's unrealized receivables are not treated as payments for the retiring partner's interest in
partnership property.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 9
Marks: 1.00
If, in anticipation of current profits, a partner withdraws all of his or her share of partnership profits, and
then dies before the end of the taxable year of the partnership, the estate (or other successor in interest)
will have to report the deceased partner's profits as its income in its year with or within which the
partnership year ends, notwithstanding the fact that the money representing those profits was received and
squandered by the decedent prior to death.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 10
Marks: 1.00
A partnership may elect to adjust the basis of its property merely because one partner sells an interest to
another partner and there is no transfer of any partnership assets involved.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 11
Marks: 1.00
A partner may sometimes recognize taxable gain or loss upon receipt of a current distribution from a
partnership.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 12
Marks: 1.00
When Donald Donohoe retired from his partnership on December 31, he received in full payment for his
interest in the partnership, which had an adjusted basis to him of $45,000, the following (his proportionate
share):
Basis to Partnership
Fair Market Value
Cash
$35,000
$35,000
Unrealized receivables
3,000
15,000
Investment land
12,000
50,000
His bases for the receivables and land are:
Choose one answer.
a. Receivables: $3,000; land: $7,000
b. Receivables: $3,000; land: $15,000
c. Receivables: $15,000; land: $12,000
d. Receivables: $15,000; land: $45,000
e. Receivables: $15,000; land: $50,000
Correct
Marks for this submission: 1.00/1.00.
Question 13
Marks: 1.00
June is a 20% general partner in Montoya Partners, a general partnership. Her tax basis in her partnership
interest is $50,000, consisting of her $35,000 share of partnership capital and her $15,000 share of
partnership liabilities. In complete liquidation of her partnership interest, she received a distribution of
real estate (Sec. 1231 property in the partnership's hands) with a tax basis of $95,000 and a fair market
value of $150,000. The property was not encumbered by debt of any kind. How much gain will June
recognize on receipt of the distribution?
Choose one answer.
a. zero
b. $45,000
c. $60,000
d. $100,000
e. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 14
Marks: 1.00
Efosa is a partner in Far Away Partners, a general partnership. His tax basis in his partnership interest is
$28,000. The partnership has no liabilities and no hot assets. Efosa received a liquidating distribution
consisting of $10,000 cash, and two properties. Property 1 has a tax basis to the partnership of $16,000
and a fair market value of $20,000. Property 2 has a tax basis to the partnership of $8,000 and a fair
market value of $15,000. What tax basis will Efosa take in Property 2?
Choose one answer.
a. $8,000
b. $15,000
c. $6,000
d. $18,000
e. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 15
Marks: 1.00
On April 1, George Hart, Jr. acquired a 25 percent interest in the Wilson, Hart, and Company partnership
by gift from his father. The 25 percent partnership interest had been acquired by a $50,000 cash
investment by Hart, Sr. 10 years ago. The fair market value of Hart, Sr.'s partnership interest was $60,000
at the time of the gift. Hart, Jr. sold the 25 percent interest for $85,000 on December 17. What type and
amount of capital gain should Hart, Jr. report on his tax return?
Choose one answer.
a. Long-term capital gain of $25,000
b. Short-term capital gain of $25,000
c. Long-term capital gain of $35,000
d. Short-term capital gain of $35,000
Correct
Marks for this submission: 1.00/1.00.
Question 16
Marks: 1.00
Martin has a tax basis in his one-fifth interest in Gateway Partners of $45,000. The partnership has no
liabilities and no hot assets. Martin receives a distribution of $33,000 cash in complete liquidation of his
interest in the partnership. How much gain or loss will Martin recognize on receipt of the liquidating cash
distribution?
Choose one answer.
a. zero
b. $33,000 gain
c. ($12,000) loss
d. $12,000 gain
e. none of the above
Correct
Marks for this submission: 1.00/1.00.
Question 17
Marks: 1.00
When a partner acquires an interest in a partnership by purchase, the basis of the underlying assets of the
partnership must be adjusted to reflect the price the incoming partner paid for his interest.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 18
Marks: 1.00
Steve is a 20 percent partner in Buckman Partners. His tax basis in his partnership interest is $65,000,
consisting of his $35,000 net capital investment in the partnership plus his $30,000 share of partnership
debt. The partnership has no hot assets. Steve receives a distribution of real property in complete
liquidation of his partnership interest. The property, which is not encumbered by debt of any kind, has a
tax basis to the partnership of $58,000 and a fair market value of $95,000. What will be Steve's tax basis
in the property?
Choose one answer.
a. $65,000
b. $58,000
c. $35,000
d. $95,000
e. none of the above
Correct
Marks for this submission: 1.00/1.00.
Question 19
Marks: 1.00
If the partnership agreement is silent but the partners recognize that a retiring partner had created
substantial goodwill for the partnership while a partner, the retiring partner may report as capital gain so
much of the payments for the partnership interest as are designated as payment "for goodwill."
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 20
Marks: 1.00
As a general rule, property distributed to a partner, not in liquidation of an interest in the partnership,
takes the same basis in the hands of the partner as it had in the hands of the partnership.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
The character of any item of income, gain, loss, deduction, or credit included in a shareholder's pro rata
share is determined at the shareholder-level and retain that character in the shareholder's hands.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 2
Marks: 1.00
A corporation's S status can only be terminated by having all shareholders revoke the S election.
Answer:
True
False
Incorrect
Marks for this submission: 0.00/1.00.
Question 3
Marks: 1.00
Which of the following taxes is not imposed on an S corporation?
Choose one answer.
a. Built-in gains tax
b. Excessive passive investment income tax
c. Corporate tax
d. Tax on early disposition of property on which the investment credit was claimed by the
corporation as a previous C corporation
Incorrect
Marks for this submission: 0.00/1.00.
Question 4
Marks: 1.00
A shareholder's adjusted basis in stock is used to determine:
Choose one answer.
a. the extent to which a distribution made by the corporation to the shareholder is taxable.
b. the amount of losses that shareholders may deduct in a given year.
c. the shareholder's realized gain or loss upon the sale or exchange of the stock.
d. All of the above.
Correct
Marks for this submission: 1.00/1.00.
Question 5
Marks: 1.00
An election to treat a distribution as coming first from accumulated E&P is effective until the entire
balance of E&P is distributed.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 6
Marks: 1.00
Since S corporations are corporations, they are subject to the accumulated earnings tax, personal holding
company tax, and alternative minimum tax.
Answer:
True
False
Incorrect
Marks for this submission: 0.00/1.00.
Question 7
Marks: 1.00
A corporation with two classes of stock cannot qualify under Subchapter S for the election not to be
taxed.
Answer:
True
False
Incorrect
Marks for this submission: 0.00/1.00.
Question 8
Marks: 1.00
The accumulated adjustment account:
Choose one answer.
a. represents the amount of the corporation's earnings as a C corporation that has only been taxed
at the corporate level.
b. measures the accumulated undistributed net income of a corporation while it has been an S
corporation.
c. Both a. and b.
d. None of the above.
Correct
Marks for this submission: 1.00/1.00.
Question 9
Marks: 1.00
Two-percent shareholders are treated as self-employed individuals and must include the value of fringe
benefits in their gross income unless an exclusion is available to self-employed individuals.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 10
Marks: 1.00
If a shareholder of an S corporation has a tax year different from that of the corporation, he or she must
report any distributions of current year's taxable income in the year he or she actually receives the
distribution.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 11
Marks: 1.00
All S corporations are required to maintain an AAA to determine how distributions are taxed to its
shareholders.
Answer:
True
False
Incorrect
Marks for this submission: 0.00/1.00.
Question 12
Marks: 1.00
On January 1, 20X6, an S corporation has accumulated E&P of $55,000 from its years as a C corporation
and has a positive AAA balance of $15,000. The corporation's sole shareholder, Betty, has a basis in her S
corporation stock of $30,000. During 20X6, the corporation reports ordinary income of $10,000 and a
$20,000 long-term capital gain. During 20X6, the corporation distributes $65,000 to Betty. The balance in
the corporation's accumulated E&P at the end of 20X6 is:
Choose one answer.
a. $0.
b. $5,000.
c. $35,000.
d. $55,000.
Incorrect
Marks for this submission: 0.00/1.00.
Question 13
Marks: 1.00
An S corporation may accidentally revoke its S status by either no longer qualifying as a small business
corporation or by having accumulated E&P and excess passive investment income for three consecutive
years.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 14
Marks: 1.00
Which of the following is not an eligible shareholder for an S corporation?
Choose one answer.
a. Nonresident alien
b. Qualified Subchapter S Trust
c. An estate
d. None of the above
Incorrect
Marks for this submission: 0.00/1.00.
Question 15
Marks: 1.00
Which tax year is not allowed an S corporation?
Choose one answer.
a. Calendar year
b. Fiscal year established by business purpose
c. year Fiscal that is the same as all the principal owners
d. None of the above
Incorrect
Marks for this submission: 0.00/1.00.
Question 16
Marks: 1.00
An S corporation cannot be subject to an income tax.
Answer:
True
False
Incorrect
Marks for this submission: 0.00/1.00.
Question 17
Marks: 1.00
All of the following are permitted shareholders of an S corporation except:
Choose one answer.
a. estates.
b. eligible trusts.
c. nonresident aliens.
d. certain tax-exempt organizations.
Incorrect
Marks for this submission: 0.00/1.00.
Question 18
Marks: 1.00
With the consent of the majority of shareholders, an S corporation may elect to treat a distribution as
coming from its AAA first and then from its accumulated E&P without consent of any of the
shareholders.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 19
Marks: 1.00
Which of the following is not a separately stated item in the income computation of an S corporation?
Choose one answer.
a. Long-term capital gain
b. Charitable contributions
c. Interest income
d. Section 179 expense
e. General business credit
Incorrect
Marks for this submission: 0.00/1.00.
Question 20
Marks: 1.00
The decision of whether to deduct or take a credit for foreign income taxes paid or accrued by the S
corporation is made by the S corporation.
Answer:
True
False
Incorrect
Marks for this submission: 0.00/1.00.
Since S corporations are corporations, they are subject to the accumulated earnings tax, personal holding
company tax, and alternative minimum tax.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 2
Marks: 1.00
Who pays tax on the income of an S corporation?
Choose one answer.
a. The S corporation
b. The shareholders
c. The customers
d. There is no tax imposed on S corporation income
Correct
Marks for this submission: 1.00/1.00.
Question 3
Marks: 1.00
The character of any item of income, gain, loss, deduction, or credit included in a shareholder's pro rata
share is determined at the shareholder-level and retain that character in the shareholder's hands.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 4
Marks: 1.00
A corporation that wants to elect and retain S corporation status can at no time have 100 shareholders.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 5
Marks: 1.00
On January 1, 20X6, an S corporation has accumulated E&P of $55,000 from its years as a C corporation
and has a positive AAA balance of $15,000. The corporation's sole shareholder, Betty, has a basis in her S
corporation stock of $30,000. During 20X6, the corporation reports ordinary income of $10,000 and a
$20,000 long-term capital gain. During 20X6, the corporation distributes $65,000 to Betty. The balance in
the corporation's accumulated E&P at the end of 20X6 is:
Choose one answer.
a. $0.
b. $5,000.
c. $35,000.
d. $55,000.
Correct
Marks for this submission: 1.00/1.00.
Question 6
Marks: 1.00
If a shareholder of an S corporation has a tax year different from that of the corporation, he or she must
report any distributions of current year's taxable income in the year he or she actually receives the
distribution.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 7
Marks: 1.00
Which of the following information is not necessary on Form 2553--Election by Small Business
Corporation?
Choose one answer.
a. Shareholder name
b. Shareholder social security number
c. Number of shares owned by shareholder
d. Shareholder marital status
e. Date the shares were acquired
Correct
Marks for this submission: 1.00/1.00.
Question 8
Marks: 1.00
Which of the following is not an eligible shareholder for an S corporation?
Choose one answer.
a. Nonresident alien
b. Qualified Subchapter S Trust
c. An estate
d. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 9
Marks: 1.00
Shareholders must reduce their adjusted basis in S corporation stock by their pro rata share of noncapital,
nondeductible expenses.
Answer:
True
Correct
False
Marks for this submission: 1.00/1.00.
Question 10
Marks: 1.00
Ace Trucking Co., Inc. is chartered in Michigan. It has 100 shares of common stock and 200 shares of
preferred stock outstanding which are held by three individuals who also live in Michigan. The
corporation owns no subsidiaries. This corporation qualifies for the S election.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 11
Marks: 1.00
Which type of stock will disqualify a corporation from becoming an S corporation?
Choose one answer.
a. One class of stock but with different voting rights
b. A straight debt instrument
c. Stock which has preference in dividends
d. None of the above
Incorrect
Marks for this submission: 0.00/1.00.
Question 12
Marks: 1.00
Michael Moore owns stock in an S corporation. The corporation sustained a net operating loss during the
year. Michael's share of the loss is $5,000. His adjusted basis in the stock is $1,000. In addition, he has a
loan outstanding to the corporation in the amount of $2,000. What amount, if any, is Michael entitled to
deduct with respect to the loss?
Choose one answer.
a. $5,000
b. $3,000
c. $2,000
d. $1,000
e. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 13
Marks: 1.00
A corporation that elected S status in 20X2 has C corporation earnings and profits of $50,000 from its C
corporation years. During 20X5 the corporation's gross receipts are $120,000, which includes $75,000 of
interest income. Expenses related to the interest income are $10,000. The corporation's excess passive
investment income would be:
Choose one answer.
a. $45,000.
b. $35,000.
c. $39,000.
d. $20,000.
Incorrect
Marks for this submission: 0.00/1.00.
Question 14
Marks: 1.00
For 20X1, the books and records of Clover, Inc., a cash basis S corporation, reflected the following:
Salary to Dad Clover, President and 50% shareholder
$22,000
Salary to Son Clover, janitor and 50% shareholder
60,000
Loans to Dad Clover during 20X1, no repayments
30,000
Dad Clover worked 40-hour weeks for the entire year but said that the business could not afford to pay
him a salary more than the $22,000. The IRS could reclassify the $30,000 and/or part of the son's salary to
Dad Clover, and assess income tax withholding as well as employment taxes on those amounts.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 15
Marks: 1.00
A corporation cannot qualify as an S corporation if it has more than one class of stock.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 16
Marks: 1.00
An S corporation may accidentally revoke its S status by either no longer qualifying as a small business
corporation or by having accumulated E&P and excess passive investment income for three consecutive
years.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 17
Marks: 1.00
A shareholder's adjusted basis in stock is used to determine:
Choose one answer.
a. the extent to which a distribution made by the corporation to the shareholder is taxable.
b. the amount of losses that shareholders may deduct in a given year.
c. the shareholder's realized gain or loss upon the sale or exchange of the stock.
d. All of the above.
Correct
Marks for this submission: 1.00/1.00.
Question 18
Marks: 1.00
Jack Freeman, a calendar year taxpayer, owns 30 percent of an S corporation which closes its books on
June 30 each year. On November 30, 2011 and April 30, 2012, the S corporation pays a $40,000 cash
dividend and has a taxable income for the year ending June 30, 2012 of $90,000. Jack, on his personal
return would report income of:
Choose one answer.
a. $12,000 for 2011 and $12,000 for 2012
b. $12,000 for 2011 and $15,000 for 2012
c. $0 for 2011 and $27,000 for 2012
d. $12,000 for 2011 and $27,000 for 2012
e. $40,000 for 2010 and $50,000 for 2011
Correct
Marks for this submission: 1.00/1.00.
Question 19
Marks: 1.00
S corporation shareholders cannot increase the adjusted basis of their stock by their share of the general
liabilities of the corporation, but do increase their basis by amounts they personally loan the corporation.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 20
Marks: 1.00
A corporation's S status can only be terminated by having all shareholders revoke the S election.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
1
Marks: 1.00
During 20X1, an S corporation has $30,000 of ordinary income and a $50,000 long-term capital gain. The
corporation distributes $48,000 to its sole shareholder during the year. What amount(s) will the sole
shareholder report from the S corporation on his 20X1 income tax return?
Choose one answer.
a. Ordinary income $30,000; long-term capital gain $18,000.
b. Ordinary income $18,000; long-term capital gain $30,000.
c. Ordinary income $30,000; long-term capital gain $50,000.
d. Ordinary income $0; long-term capital gain $48,000.
Correct
Marks for this submission: 1.00/1.00.
Question 2
Marks: 1.00
Fenton Venetian Blinds, Inc. elected S status in the current year. While Fenton was a C corporation, it
valued its inventory using the LIFO method. On the day before the effective date of its S election, the
LIFO value of its inventory was $75,000. If it had used FIFO to value its inventory, its inventory would
have been valued at $125,000. Prior to making this valuation of its inventory, the corporation had
determined that its taxable income was $350,000. How much additional tax will the corporation have to
pay for its last year as a C corporation?
Choose one answer.
a. $17,000
b. $17,500
c. $42,500
d. $50,000
Correct
Marks for this submission: 1.00/1.00.
Question 3
Marks: 1.00
For 20X1, the books and records of Clover, Inc., a cash basis S corporation, reflected the following:
Salary to Dad Clover, President and 50% shareholder
$22,000
Salary to Son Clover, janitor and 50% shareholder
60,000
Loans to Dad Clover during 20X1, no repayments
30,000
Dad Clover worked 40-hour weeks for the entire year but said that the business could not afford to pay
him a salary more than the $22,000. The IRS could reclassify the $30,000 and/or part of the son's salary to
Dad Clover, and assess income tax withholding as well as employment taxes on those amounts.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 4
Marks: 1.00
Which of the following would not increase the basis of a shareholder's stock in an S corporation:
Choose one answer.
a. All separately stated income items of the S corporation, including tax- exempt income.
b. Any nonseparately stated income of the S corporation.
c. Capital gains tax paid by the shareholder.
d. The amount of deductions for depletion that is more than the basis of the property being
depleted.
Correct
Marks for this submission: 1.00/1.00.
Question 5
Marks: 1.00
A corporation has been an S corporation for five years and has accumulated earnings and profits. Its S
election is terminated in the year following the third consecutive year in which more than 25 percent of
the corporation's gross receipts for a tax year are excessive passive income.
Answer:
True
False
Incorrect
Marks for this submission: 0.00/1.00.
Question 6
Marks: 1.00
On 1-1-X1, Mr. Vear purchased 50 percent of S Corporation Z's only class of stock outstanding for
$100,000. On 12-1-X1, he purchased the other 50 percent of its stock. For 20X1, Z Corporation had a net
operating loss of $255,500. How much of the loss can Mr. Vear deduct on his individual income tax return
for 20X1?
Choose one answer.
a. $138,600
b. $200,000
c. $234,208
d. $255,500
Correct
Marks for this submission: 1.00/1.00.
Question 7
Marks: 1.00
An Electing Small Business Trust is an eligible shareholder for an S corporation.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 8
Marks: 1.00
Ace Trucking Co., Inc. is chartered in Michigan. It has 100 shares of common stock and 200 shares of
preferred stock outstanding which are held by three individuals who also live in Michigan. The
corporation owns no subsidiaries. This corporation qualifies for the S election.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 9
Marks: 1.00
Jack Freeman, a calendar year taxpayer, owns 30 percent of an S corporation which closes its books on
June 30 each year. On November 30, 2011 and April 30, 2012, the S corporation pays a $40,000 cash
dividend and has a taxable income for the year ending June 30, 2012 of $90,000. Jack, on his personal
return would report income of:
Choose one answer.
a. $12,000 for 2011 and $12,000 for 2012
b. $12,000 for 2011 and $15,000 for 2012
c. $0 for 2011 and $27,000 for 2012
d. $12,000 for 2011 and $27,000 for 2012
e. $40,000 for 2010 and $50,000 for 2011
Correct
Marks for this submission: 1.00/1.00.
Question 10
Marks: 1.00
Which tax year is not allowed an S corporation?
Choose one answer.
a. Calendar year
b. Fiscal year established by business purpose
c. Fiscal year that is the same as all the principal owners
d. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 11
Marks: 1.00
The S corporation does not recognize loss on the distribution of property where the FMV is less than the
corporation's adjusted basis in the property.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 12
Marks: 1.00
Nonseparately stated items are items of income and deduction subject to limitations applied at the
shareholder-level.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 13
Marks: 1.00
A corporation cannot qualify as an S corporation if it has more than one class of stock.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 14
Marks: 1.00
The decision of whether to deduct or take a credit for foreign income taxes paid or accrued by the S
corporation is made by the S corporation.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 15
Marks: 1.00
A corporation that wants to elect and retain S corporation status can at no time have 100 shareholders.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 16
Marks: 1.00
An S corporation cannot be subject to an income tax.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 17
Marks: 1.00
Michael Moore owns stock in an S corporation. The corporation sustained a net operating loss during the
year. Michael's share of the loss is $5,000. His adjusted basis in the stock is $1,000. In addition, he has a
loan outstanding to the corporation in the amount of $2,000. What amount, if any, is Michael entitled to
deduct with respect to the loss?
Choose one answer.
a. $5,000
b. $3,000
c. $2,000
d. $1,000
e. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 18
Marks: 1.00
Passive investment income:
Choose one answer.
a. includes gross receipts derived from royalties, rents, dividends, interest, and annuities.
b. does not include interest on any obligation acquired in the ordinary course of the corporation's
trade or business or from its sale of inventory.
c. does not include any recognized built-in gain or loss of the S corporation for any tax year
during the recognition period.
d. All of the above.
Correct
Marks for this submission: 1.00/1.00.
Question 19
Marks: 1.00
All S corporations are required to maintain an AAA to determine how distributions are taxed to its
shareholders.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 20
Marks: 1.00
If an S corporation's passive investment income is more that 25 percent of gross receipts for two
consecutive tax years and the corporation has pre-S corporation earnings and profits at the end of each of
those years, the corporation's S corporation status will be terminated.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
The insured made a transfer of a life insurance policy on his life two years prior to his death. Even though
he retained no incidents of ownership in the policy, the proceeds will be includible in his gross estate.
Answer:
True
Correct
False
Marks for this submission: 1.00/1.00.
Question 2
Marks: 1.00
Which of the following retained powers is not an "incident of ownership" in a life insurance policy?
Choose one answer.
a. A power to use the policy as collateral for loans not to exceed one-half its cash value.
b. A power to select a settlement option spelled out in the policy.
c. The power to cancel a group policy indirectly by resigning a position.
d. A power to veto a change of beneficiary after the transfer of the policy to the current
beneficiary.
Incorrect
Marks for this submission: 0.00/1.00.
Question 3
Marks: 1.00
Norma and John Baker's jointly owned home (with right of survivorship) was fully paid for by John.
Nevertheless, when Norma predeceased John, one-half the value of the home is includible in her estate.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 4
Marks: 1.00
The gift tax return, Form 709, is due pursuant to gift-splitting at the same time as the Form 706 return.
Answer:
True
False
Incorrect
Marks for this submission: 0.00/1.00.
Question 5
Marks: 1.00
When Cyrus Caldfield died he left his wife, Brenda, a number of items. Which of the following items
includible in Cyrus's gross estate and actually received by Brenda qualifies for the marital deduction?
Choose one answer.
a. A remainder interest in a vacation home, with Cyrus's mother, Tara, as a life tenant.
b. The family home, on condition that Brenda survived the probate proceeding, which she did.
The proceedings took four months.
c. The life income interest in a trust, plus a power to appoint the trust corpus to any or all of her
children or grandchildren.
d. A life estate in a trust, plus a testamentary power to appoint corpus to anyone, but only on
condition that she never remarried.
Incorrect
Marks for this submission: 0.00/1.00.
Question 6
Marks: 1.00
Gifts of future interests may be eligible for the marital deduction, but not for the $11,000 exclusion.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 7
Marks: 1.00
Gift taxes paid on post-1976 gifts are generally allowed as a credit against the tentative estate tax.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 8
Marks: 1.00
John Marigold's estate incurred the following payments during administration:
(1.) Charitable contributions of $15,000
(2.) Funeral expenses of $4,000
(3.) Mortgage payments of $5,000
(4.) Attorney's fees of $10,000
Which of the above amounts offer the executor an option to deduct the payments?
Choose one answer.
a. (1), (2), (3), and (4)
b. (1) and (2)
c. (1) and (3)
d. (4)
Incorrect
Marks for this submission: 0.00/1.00.
Question 9
Marks: 1.00
The following assets, which are not part of the probate estate, nevertheless are includible in the gross
estate, except:
Choose one answer.
a. Property transferred to a revocable trust by the decedent 17 years prior to death
b. Property sold by the decedent two years prior to death for a private annuity of equal value
c. Property transferred to decedent's wife for life, then to their son if the son survives his mother,
to the extent of the reversion
d. A life insurance policy transferred two and a half years ago on the decedent's life
Incorrect
Marks for this submission: 0.00/1.00.
Question 10
Marks: 1.00
The following statements about "Qualified Terminable Interest Property" (QTIP) trusts are true, except:
Choose one answer.
a. The QTIP trust is a "simple" trust and anyone, including a charity, may be the remainderman.
b. A QTIP trust may not be implemented prior to the grantor's death.
c. Only the grantor's spouse may be the income beneficiary, but may refuse to accept the bequest
and elect against the will.
d. If a trust otherwise qualifies, QTIP treatment may be elected for an undivided portion of the
trust, such as 78 percent.
Correct
Marks for this submission: 1.00/1.00.
Question 11
Marks: 1.00
No marital deduction is generally available for gifts of terminable interests in property.
Answer:
True
Correct
False
Marks for this submission: 1.00/1.00.
Question 12
Marks: 1.00
Private annuities are more attractive in estate planning under the present tables than under the six percent
tables.
Answer:
True
False
Incorrect
Marks for this submission: 0.00/1.00.
Question 13
Marks: 1.00
Testamentary charitable gifts are deductible up to 50 percent of the adjusted gross estate.
Answer:
True
False
Incorrect
Marks for this submission: 0.00/1.00.
Question 14
Marks: 1.00
Special Use Valuation is only applicable to truck farms.
Answer:
True
False
Incorrect
Marks for this submission: 0.00/1.00.
Question 15
Marks: 1.00
Which of the following is not deductible in arriving at the taxable estate?
Choose one answer.
a. Administration expenses.
b. Casualty losses.
c. Adjusted taxable gifts after 1976.
d. All of the above.
Correct
Marks for this submission: 1.00/1.00.
Question 16
Marks: 1.00
By which of these forms of ownership does the share of a deceased owner pass automatically to the
surviving owners without being subject to the decedent's creditors:
Choose one answer.
a. Community property
b. Tenancy-in-common
c. Joint tenancy
d. All of the above
Incorrect
Marks for this submission: 0.00/1.00.
Question 17
Marks: 1.00
Assume that John Henry died on July 1, 2011 and that sales of Video Corporation stock that he owned
occurred four trading days before his death and two trading days after his death. Also, assume that the
mean sales prices were $15 and $20, respectively, and that Mr. Henry owned 1,000 shares at date of
death. What would be the fair market value?
Choose one answer.
a. $15.00
b. $20.00
c. $16.67
d. $18.33
Incorrect
Marks for this submission: 0.00/1.00.
Question 18
Marks: 1.00
The following statements about the gift tax are correct, except:
Choose one answer.
a. No donative intent is necessary to find a taxable gift.
b. It is difficult to find gifts in an employment situation.
c. A gift tax return is due if all gifts made during the year are to qualified charities.
d. A gift may result from the lapse of a general power of appointment.
Incorrect
Marks for this submission: 0.00/1.00.
Question 19
Marks: 1.00
Which of the following items is not includible in the decedent's gross estate?
Choose one answer.
a. A lump-sum distribution from a qualified profit-sharing plan to decedent's daughter who elects
five-year forward averaging
b. A gift of life insurance two years prior to death to decedent's son
c. Unpaid dividends when death occurred prior to the record date
d. The widow's statutory share of the estate under the State Probate Act (in lieu of dower)
Incorrect
Marks for this submission: 0.00/1.00.
Question 20
Marks: 1.00
Crummey trusts represent an exception to the gift taxs present interest rule.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Marks: 1.00
Nine months before he died Donald Drucker gave $501,000 to his son. The gift is includible in his gross
estate.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 2
Marks: 1.00
Which of the following are general powers of appointment?
Choose one answer.
a. Power to appoint to self.
b. Power to appoint to powerholder's creditors.
c. Power to appoint to creditors of powerholder's estate.
d. All of the above.
Correct
Marks for this submission: 1.00/1.00.
Question 3
Marks: 1.00
Dale Davidson's estate includes the following assets:
Assets
Adjusted Basis FMV
to Deceased
at Death
FMV on
Alternate
Valuation Date
Land
$50,000
$175,000
$170,000
Bonds
60,000
58,000
56,000
2,000
1,500
Clothing 15,000
The executor elects the alternative valuation date. What is the amount included in Mr. Davidson's estate?
Choose one answer.
a. $125,000
b. $235,000
c. $227,500
d. None of the above
Incorrect
Marks for this submission: 0.00/1.00.
Question 4
Marks: 1.00
Generally, the same valuation principles are used for income, gift and estate tax purposes.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 5
Marks: 1.00
Gifts of future interests may be eligible for the marital deduction, but not for the $11,000 exclusion.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 6
Marks: 1.00
The gift tax return, Form 709, is due pursuant to gift-splitting at the same time as the Form 706 return.
Answer:
True
False
The gift tax return is due by April 15 following the calendar year in which taxable gifts are made.
Correct
Marks for this submission: 1.00/1.00.
Question 7
Marks: 1.00
Common methods of determining fair market value of closely held corporations include:
Choose one answer.
a. Anticipated future income
b. Price of publicly traded stock of similar businesses
c. Book value
d. All of the above
Correct
Marks for this submission: 1.00/1.00.
Question 8
Marks: 1.00
When Cyrus Caldfield died he left his wife, Brenda, a number of items. Which of the following items
includible in Cyrus's gross estate and actually received by Brenda qualifies for the marital deduction?
Choose one answer.
a. A remainder interest in a vacation home, with Cyrus's mother, Tara, as a life tenant.
b. The family home, on condition that Brenda survived the probate proceeding, which she did.
The proceedings took four months.
c. The life income interest in a trust, plus a power to appoint the trust corpus to any or all of her
children or grandchildren.
d. A life estate in a trust, plus a testamentary power to appoint corpus to anyone, but only on
condition that she never remarried.
Correct
Marks for this submission: 1.00/1.00.
Question 9
Marks: 1.00
Gift taxes paid on post-1976 gifts are generally allowed as a credit against the tentative estate tax.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 10
Marks: 1.00
Norma and John Baker's jointly owned home (with right of survivorship) was fully paid for by John.
Nevertheless, when Norma predeceased John, one-half the value of the home is includible in her estate.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 11
Marks: 1.00
Dale Davidson's estate includes the following assets:
Assets
Adjusted Basis FMV
to Deceased
at Death
FMV on
Alternate
Valuation Date
Land
$50,000
$175,000
$170,000
Bonds
60,000
58,000
56,000
2,000
1,500
Clothing 15,000
Assume the executor elects to value the estate at the date of death. What is the amount included in Mr.
Davidson's estate?
Choose one answer.
a. $125,000
b. $235,000
c. $227,500
d. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 12
Marks: 1.00
Generation-skipping was brought into the Internal Revenue Code by The 1986 Tax Reform Act.
Answer:
True
False
GST was brought into the Code in 1976.
Correct
Marks for this submission: 1.00/1.00.
Question 13
Marks: 1.00
After selecting special use valuation, the farm value method is normally the preferred valuation technique.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 14
Marks: 1.00
If the spouse of the transferor under the Uniform Transfers to Minors Act is the custodian, the property is
includible in the spouse's estate.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 15
Marks: 1.00
Which statement is incorrect?
Choose one answer.
a. The current annual exclusion from gift tax is $13,000 per donee per year, indexed for inflation
after 1998.
b. If the Estate tax exemption is not used at the death of H, H's wife can use the credit.
c. In 2011, the estate tax exemption is $3.5 million.
d. All of the above.
Incorrect
Marks for this submission: 0.00/1.00.
Question 16
Marks: 1.00
Which of these forms of ownership allow one of the owners to own a different proportion of the property
than the other owners:
Choose one answer.
a. Community property
b. Tenancy-in-common
c. Joint tenancy
d. All of the above
Incorrect
Marks for this submission: 0.00/1.00.
Question 17
Marks: 1.00
The following is a partial list of relevant items available when filing Wilma Pott's estate tax return:
(1.) Two years before she died, Wilma sold stocks, now worth $90,000, then $65,000, for $30,000, to her
son.
(2.) Wilma owned a summer house, worth $50,000, in joint tenancy with her sister, Betsy, who paid for it.
(3.) Wilma's home was held in a tenancy by the entirety with her husband, Wilbur, who paid for it, and is
worth $150,000.
(4.) Wilma's clothes and shoes are worth $800.
From the above, Wilma's gross estate includes:
Choose one answer.
a. $75,800
b. $100,800
c. $160,800
d. $800
Correct
Marks for this submission: 1.00/1.00.
Question 18
Marks: 1.00
The following statements regarding the estate tax return, Form 706, are true, except:
Choose one answer.
a. It must be filed if the gross estate of a decedent who died in 2011 exceeded $5,000,000 even if
no tax is due.
b. The return is due nine months after death even if the alternate valuation date is used.
c. The IRS generally has three years to audit the return.
d. For simple estates the short form, Form 706A, may be used.
Correct
Marks for this submission: 1.00/1.00.
Question 19
Marks: 1.00
General powers of appointment that are limited by ascertainable standards do not bring property into the
Estate Tax Return.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 20
Marks: 1.00
Special Use Valuation is only applicable to truck farms.
Answer:
True
False
Special use is applicable to other types of farmers, timber growers and any closely-held business realty
that qualifies.
Correct
Marks for this submission: 1.00/1.00.
The gift tax return, Form 709, is due pursuant to gift-splitting at the same time as the Form 706 return.
Answer:
True
False
The gift tax return is due by April 15 following the calendar year in which taxable gifts are made.
Correct
Marks for this submission: 1.00/1.00.
Question 2
Marks: 1.00
Gift taxes paid on post-1976 gifts are generally allowed as a credit against the tentative estate tax.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 3
Marks: 1.00
Generation-skipping was brought into the Internal Revenue Code by The 1986 Tax Reform Act.
Answer:
True
False
GST was brought into the Code in 1976.
Correct
Marks for this submission: 1.00/1.00.
Question 4
Marks: 1.00
When a lump-sum distribution from a qualified pension plan is made to a named beneficiary, the
following amount is not includible in the plan participant's gross estate.
Choose one answer.
a. Up to $100,000 if the beneficiary waives favorable income tax treatment on the whole
distribution
b. The amount allocable to the participant's own contributions
c. The full amount, if the surviving spouse is the beneficiary
d. None of the above
Correct
Marks for this submission: 1.00/1.00.
Question 5
Marks: 1.00
Testamentary charitable gifts are deductible up to 50 percent of the adjusted gross estate.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 6
Marks: 1.00
The following statements about reporting dividends on the estate tax return are all true, except:
Choose one answer.
a. A dividend "check in the mail" on the date of death is still a "check in the mail" six months later
if alternate valuation is elected.
b. A dividend receivable is disclosed as a separate asset if the decedent died on or after the record
date.
c. If the decedent died on or after the ex-dividend date, but prior to the record date, there is no
dividend receivable on the return, but the dividend is added back to the ex-dividend price.
d. If the decedent died on or after the declaration date, the dividend is "income in respect of a
decedent."
Correct
Marks for this submission: 1.00/1.00.
Question 7
Marks: 1.00
Which of these forms of ownership allow one of the owners to own a different proportion of the property
than the other owners:
Choose one answer.
a. Community property
b. Tenancy-in-common
c. Joint tenancy
d. All of the above
Correct
Marks for this submission: 1.00/1.00.
Question 8
Marks: 1.00
The following statements regarding the estate tax return, Form 706, are true, except:
Choose one answer.
a. It must be filed if the gross estate of a decedent who died in 2011 exceeded $5,000,000 even if
no tax is due.
b. The return is due nine months after death even if the alternate valuation date is used.
c. The IRS generally has three years to audit the return.
d. For simple estates the short form, Form 706A, may be used.
Correct
Marks for this submission: 1.00/1.00.
Question 9
Marks: 1.00
The following assets, which are not part of the probate estate, nevertheless are includible in the gross
estate, except:
Choose one answer.
a. Property transferred to a revocable trust by the decedent 17 years prior to death
b. Property sold by the decedent two years prior to death for a private annuity of equal value
c. Property transferred to decedent's wife for life, then to their son if the son survives his mother,
to the extent of the reversion
d. A life insurance policy transferred two and a half years ago on the decedent's life
Correct
Marks for this submission: 1.00/1.00.
Question 10
Marks: 1.00
During the current year, Joseph Horton made the following gifts:
$15,000 to the local church
$13,000 to his son, Sam
$2,000 to Scrags Community College for Sam's tuition
The gift tax return would show the following:
Choose one answer.
a. Gross gifts of $30,000 less one $13,000 exclusion and a charitable deduction of $15,000.
b. Nothing, since none is due.
c. Gross gifts of $25,000, less two $13,000 exclusions, and a $5,000 charitable deduction.
d. A gross gift of $15,000, less a $13,000 exclusion and a $5,000 charitable deduction, for a net
gift of zero.
Correct
Marks for this submission: 1.00/1.00.
Question 11
Marks: 1.00
The annual gift tax exclusion does not apply to generation-skipping.
Answer:
True
False
The exemption applies to generation-skipping transfers.
Correct
Marks for this submission: 1.00/1.00.
Question 12
Marks: 1.00
The gross estate may differ greatly from the probate estate. The following items are includible in the gross
estate, but not the probate estate, except:
Choose one answer.
a. Life insurance proceeds payable to the decedent's daughter
b. Joint savings account in the names of the decedent and the surviving spouse
c. Real estate held as community property by the decedent and the spouse
d. Property transferred to a revocable trust by the decedent three months before death
Incorrect
Marks for this submission: 0.00/1.00.
Question 13
Marks: 1.00
A number of deductions are allowable from the gross estate. Which of the following expenditures is
deductible?
Choose one answer.
a. Postmortem interest on decedent's mortgage
b. A casualty loss sustained by a beneficiary with respect to property distributed from the estate
c. Estimated commissions on the planned sale of land owned by the decedent
d. Funeral expenses
Incorrect
Marks for this submission: 0.00/1.00.
Question 14
Marks: 1.00
The unified credit is the same for gift tax purposes as for estate tax purposes.
Answer:
True
False
Incorrect
Marks for this submission: 0.00/1.00.
Question 15
Marks: 1.00
The following are all true statements about gift-splitting, except:
Choose one answer.
a. Both spouses must be U.S. citizens or residents at the time of the gift, not necessarily the whole
year.
b. The election, once made, may only be revoked up to the due date of the gift tax return.
c. If the gifted property is owned by the spouses as tenants by the entirety, a gift-splitting election
is redundant.
d. The spouses, if not married at the time of the gift, must be married by the end of the calendar
year.
Correct
Marks for this submission: 1.00/1.00.
Question 16
Marks: 1.00
By which of these forms of ownership does the share of a deceased owner pass automatically to the
surviving owners without being subject to the decedent's creditors:
Choose one answer.
a. Community property
b. Tenancy-in-common
c. Joint tenancy
d. All of the above
Correct
Marks for this submission: 1.00/1.00.
Question 17
Marks: 1.00
There are currently 20 community property states in the United States.
Answer:
True
False
There are 10 community property states in the U.S.
Correct
Marks for this submission: 1.00/1.00.
Question 18
Marks: 1.00
No marital deduction is generally available for gifts of terminable interests in property.
Answer:
True
False
Correct
Marks for this submission: 1.00/1.00.
Question 19
Marks: 1.00
The following is a partial list of relevant items available when filing Wilma Pott's estate tax return:
(1.) Two years before she died, Wilma sold stocks, now worth $90,000, then $65,000, for $30,000, to her
son.
(2.) Wilma owned a summer house, worth $50,000, in joint tenancy with her sister, Betsy, who paid for it.
(3.) Wilma's home was held in a tenancy by the entirety with her husband, Wilbur, who paid for it, and is
worth $150,000.
(4.) Wilma's clothes and shoes are worth $800.
From the above, Wilma's gross estate includes:
Choose one answer.
a. $75,800
b. $100,800
c. $160,800
d. $800
Correct
Marks for this submission: 1.00/1.00.
Question 20
Marks: 1.00
If the spouse of the transferor under the Uniform Transfers to Minors Act is the custodian, the property is
includible in the spouse's estate.
Answer:
True
Correct
False
Marks for this submission: 1.00/1.00.