1. In the current year, Cesar, who is single, gives $26,000 to each of his 20 nieces and nephews for a total property transfer of $520,000. Cesar's taxable gifts total
a. $520,000.
b. $240,000.
c. $300,000.
d. $280,000.
2. Barbara sells a house with a FMV of $170,000 to her daughter for $120,000. From this transaction, Barbara is deemed to have made a gift (before the annual exclusion) of
a. $50,000.
b. $170,000.
c. $120,000.
d. $0.
3. In the current year, Bonnie, who is single, sells stock valued at $60,000 to Linda for $15,000. Later that year, Bonnie gives Linda $25,000 in cash. Bonnie's taxable gifts from these transfers total
a. $70,000.
b. $59,000.
c. $58,000.
d. $25,000.
4. Identify which of the following statements is true.
a. A taxable gift may occur when property is sold for less than its FMV in the normal course of business.
b. An individual can inadvertently make a gift by underestimating a property's fair market value and selling it to a relative for a price below its fair market value.
c. The statutory exemption from the gift tax for payments for medical care requires that the payment be made for a relative.
d. All are false.
5. Greg transfers property on August 8 of the current year with an adjusted basis of $40,000 and a FMV of $90,000 to his ex-wife as a property settlement that is part of their divorce agreement. The property settlement agreement and the divorce were both finalized on June 3 of the current year. Greg has made a gift of
a. $0.
b. $40,000.
c. $80,000.
d. $90,000.
6. Which of the following transactions constitutes a completed gift made by Ellen, a widow, in the current year?
a. Ellen deposits $100,000 cash and Matt deposits $5,000 cash into a joint savings account. Matt does not withdraw anything during the current year.
b. Ellen names Larry the beneficiary of a $100,000 life insurance policy on Ellen's life. The beneficiary designation is revocable.
c. Ellen transfers property to a revocable trust, naming the bank as trustee. The trustee must pay out all the income to Ed over Ed's lifetime, beginning next year.
d. Ellen reimburses her granddaughter $15,000 for her tuition at medical school.
7. Gordon died on January 1 and by his will left land with an adjusted basis of $60,000 and a
FMV of $100,000 to Becky. Becky disclaims the property on December 31 of the year of death, when the land was still worth $100,000. Becky has made a gift (before the annual gift tax exclusion) of
a. $100,000.
b. $60,000.
c. $50,000.
d. $0.
8. Jack transfers property worth $250,000 to a revocable trust on January 1. Two and one-half years later, when the property is worth $300,000, the trust becomes irrevocable. Which of the following statements is correct?
a. A $300,000 gift occurs when the trust became irrevocable.
b. A $250,000 gift occurs when the original transfer was made.
c. A $250,000 gift occurs when the trust became irrevocable.
d. Jack may elect which amount to report as a gift.
9. The executor or administrator is responsible for all the following estate duties except
a. preserving the estate's existence as a separate taxpayer.
b. collecting the assets.
c. paying the debts and taxes.
d. distributing the property.
10. Beneficiaries of a trust may receive a(an)
a. income interest only.
b. remainder interest only.
c. both an income and a remainder interest.
d. Any of the above is correct.
11. Texas Trust receives $10,000 interest on U.S. Treasury bonds and $15,000 interest on State of New York bonds. All $25,000 is distributed to the trust beneficiary, Gary. Which of the following statements is correct?
a. Gary has $25,000 of ordinary gross income.
b. Gary has $10,000 of taxable interest income and $15,000 of tax-free interest income.
c. Gary has no taxable income because the trust must pay the tax.
d. Gary has $10,000 of capital gain and $15,000 of tax-free interest income.
12. The term "trust income" when not preceded by an explanatory word relates most closely to
a. gross income.
b. taxable income.
c. distributable net income.
d. net accounting income.
13. Yellow Trust must distribute 33% of its income annually to Patrick. In addition the trustee in its discretion may distribute additional income to Minna or Patrick. In the current year, the trust has net accounting income and distributable net income of $150,000, none from tax-exempt sources. The trust makes a $150,000 mandatory distribution to Patrick and a discretionary distribution of $20,000 each to Patrick and Minna. What amounts of income do Patrick and Minna report?
Patrick Minna
a. $150,000 $0
b. $170,000 $20,000
c. $170,000 $0
d. $150,000 $20,000
14. The exemption amount for an estate is
a. $0
b. $100
c. $300
d. $600
15. Identify which of the following statements is false.
a. Appeals officers usually have the operating authority to settle disputes with taxpayers based on the "hazards of litigation".
b. When an appeals officer is dealing with an "appeals coordinated issue", he has the authority to settle with the taxpayer based on the "hazards of litigation".
c. A Technical Advise Memorandum may be requested by an IRS auditor if the transaction in question involves an especially complex tax issue.
d. If the taxpayer and the appeals officer fail to reach agreement, the IRS issues a 90-day letter.
16. The IRS provides advice concerning an issue that arises during an audit by issuing
a. a revenue ruling.
b. an audit memorandum.
c. a technical advice memorandum.
d. a private letter ruling.
17. Identify which of the following statements is true.
a. The 90-day letter offers the taxpayer the choice of paying the tax assessed or filing a petition refuting the tax assessment with the Tax Court.
b. A taxpayer can choose to initiate tax litigation in a U.S. district court, the Tax Court or a Court of Appeals.
c. The IRS cannot raise a new tax issue after issuance of the Statutory Notice of Deficiency (90-day letter).
d. All are false.
18. Identify which of the following statements is false.
a. In general, the taxpayer has the burden of proof in Tax Court cases. However, the IRS has the burden of proof for issues raised after the issuance of the 90-day letter.
b. A taxpayer may want to avoid using the Tax Court to litigate an issue because decisions from this court cannot be appealed.
c. The Tax Court can be used to litigate a tax issue without first paying the tax assessment.
d. Statements a. and c. are true.
19. Identify which of the following statements is true.
a. A partnership is not required to file a return if the partnership has no income for the year.
b. The "automatic" extension period for filing an individual return is five months.
c. Individuals and corporations may obtain 6-month extensions for paying taxes and filing their returns for the taxable year by filing the appropriate extension requests.
d. All are false.
20. A taxpayer's return is audited and additional taxes are assessed. The IRS also asserts that a negligence penalty should be assessed. The taxpayer concurs with the additional $15,000 tax liability; $7,000 of this amount is attributable to negligence. What is the amount of the penalty for negligence?
a. $700
b. $1,400
c. $5,600
d. $1,750
21. Robot Corporation is liquidated with Marty receiving property having an adjusted basis of $60,000 and a FMV of $90,000. The property is subject to a $80,000 mortgage which Marty assumes. Marty's basis in the Robot stock surrendered is $50,000. Marty must recognize
a. a $40,000 loss.
b. no gain or loss.
c. a $60,000 gain.
d. none of the above
22. Identify which of the following statements is true.
a. A liquidating distribution of property other than a disqualified property that is made ratably to all shareholders (based on their stockholdings) will permit the recognition of loss on the portion of the distribution that is made to a related person.
b. A subsidiary corporation can recognize losses on distributions to either the parent corporation or minority shareholders in a Sec. 332 liquidation.
c. Section 336 prevents recognition of a loss when making a pro rata distribution of property to a related person.
d. All are false.
23. On the first day of the partnership's tax year, Karen purchases a 50% interest in a general partnership for $30,000 cash and she materially participates in the operation of the partnership for the entire year. The partnership has $40,000 in recourse liabilities when Karen enters the partnership and the partnership incurs $20,000 of nonrecourse liabilities during the year. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. There is no minimum gain related to the nonrecourse liability. During the year the partnership incurs a $120,000 loss. How much of the loss can Karen report on her tax return for the current year?
a. $30,000
b. $40,000
c. $50,000
d. $60,000
24. Identify which of the following statements is true.
a. A partner's relief of debt is treated as if the partner receives a cash distribution.
b. When a partnership assumes any liabilities of the transferor, the transferor has an increase in the basis of his or her partnership interest.
c. Gain recognized by a contributing partner because of the assumption of liabilities by the partnership increases the partnership's basis in the contributed property.
d. All are false.
25. Helmut and Sergei own all the stock of Zappo Corporation, a calendar year domestic corporation. On January 30 of the current year, Sergei sells his entire interest in the Zappo stock to Nils. All three individuals are U.S. citizens. Can an S election be made for the current year?
a. Not for the current year but for the next year.
b. If Helmut and Nils agree to report all of the corporation's income for the entiryear.
c. If Sergei will also join in the election with Helmut and Nils.
d. If Helmut and Nils agree to file a short-period return and Sergei also agrees to the return.