Income Tax 21.Interpret the following citation: 64-1 USTC ¶ 9618, aff’d in 344 F. 2d 966.A) A U.S. Tax Court Small Cases Division decision that was affirmed on appeal. B) A U.S. Tax Court decision that was affirmed on appeal. C) A U.S. District Court decision that was affirmed on appeal. D) A U.S. Circuit Court of Appeals decision that was affirmed on appeal. E) None of the above. 2.Which court decision is generally more authoritative?A) A U.S. Tax Court decision. B) Court of Federal Claims decision. C) District Court decision. D) U.S. Court of Appeals decision. E) U.S. Tax Court Memorandum decision. 3.Which of the following statements about an acquiescence is correct?A) An acquiescence is issued in the Federal Register. B) Acquiescences are published only for certain regular decisions of the U.S. Tax Court. C) An acquiescence is published in the Internal Revenue Bulletin. D) The IRS does not issue acquiescences to adverse decisions that are not appealed. E) All of the above are correct. 4.Ivory Corporation, a calendar year, accrual method C corporation, has two cash method, calendar year shareholders who are unrelated to each other. Craig owns 55% of the stock, and Oscar owns the remaining 45%. During 2011, Ivory paid a salary of $200,000 to each shareholder. On December 31, 2011, Ivory accrued a bonus of $50,000 to each shareholder. Assuming that the bonuses are paid to the shareholders on February 1, 2012, compute Ivory Corporation’s 2011 deduction for the above amounts.A) $0. B) $250,000. C) $400,000. D) $450,000. E) $500,000. 5.Grocer Services Corporation (a calendar year taxpayer), a wholesale distributor of food, made the following donations to qualified charitable organizations during the year:Adjusted BasisFair Market ValueFood (held as inventory) donated to the OhioChildren’s Shelter$3,500$8,000Passenger van to Ohio Children’s Shelter, to be used totransport children to school7,5007,100Stock in Acme Corporation acquired 7 months ago and held as an investment, donated to Southwest University4,0006,200How much qualifies for the charitable contribution deduction?A) $15,000. B) $16,850. C) $17,250. D) $19,450. E) None of the above. 6.Which AMT adjustment would only be negative?A) Passive activity losses. B) AMT NOL deduction. C) DPAD. D) Completed contract method. E) None of the above. 7.Ravi Corporation, a calendar year taxpayer, has AMTI (before adjustment for adjusted current earnings) of $6 million for 2011. If Ravi Corporation’s ACE is $15 million, its tentative minimum tax for 2011 is:A) $2.02 million. B) $2.55 million. C) $3.45 million. D) $4.2 million. E) None of the above. 8.Blue, Inc., a calendar year closely held corporation, is not a PHC. If the company reports the following items, the accumulated taxable income is:Taxable income$200,000Long-term capital gain (net of tax)18,300Federal income tax on LTCG11,700Dividends received deduction18,000Accumulated earnings credit80,000Federal income taxes65,150A) $54,550. B) $62,850. C) $80,850. D) $109,700. E) None of the above. 9.Federal tax legislation generally originates in what body?A) Internal Revenue Service. B) Senate Finance Committee. C) House Ways and Means Committee. D) House Taxation Committee. E) None of the above. 10.A taxpayer who loses in a U.S. District Court may appeal directly to the:A) Supreme Court. B) U.S. Tax Court. C) U.S. Court of Federal Claims. D) U.S. Circuit Court of Appeals. E) All of the above. 11.If these citations appeared after a trial court decision, which one means that the decision was viewed favorably?A) Aff’d 633 F. 2d 512 (CA-7, 1980). B) Rem’d 399 F. 2d 800 (CA-5, 1968). C) Rev’d 914 F. 2d 396 (CA-3, 1990). D) Rev’d 935 F. 2d 203 (CA-5, 1991). E) None of the above. 12.Tara incorporates her sole proprietorship, transferring it to newly formed Black Corporation. The assets transferred have an adjusted basis of $240,000 and a fair market value of $300,000. Also transferred was $10,000 in liabilities, $1,000 of which was personal and the balance of $9,000 being business related. In return for these transfers, Tara receives all of the stock in Black Corporation.A) Black Corporation has a basis of $241,000 in the property. B) Black Corporation has a basis of $240,000 in the property. C) Tara’s basis in the Black Corporation stock is $241,000. D) Tara’s basis in the Black Corporation stock is $249,000. E) None of the above. 13.When Pheasant Corporation was formed under § 351, Kristen transferred property (basis of $26,000 and fair market value of $22,500) for § 1244 stock. Kristen’s basis in the Pheasant stock is $26,000. Three years later, Pheasant Corporation goes bankrupt and its stock becomes worthless. Kristen, who is single, owned the stock as an investment. Kristen’s loss is:A) $26,000 capital. B) $22,500 ordinary and $3,500 capital. C) $3,500 ordinary and $22,500 capital. D) $26,000 ordinary. E) None of the above. 14.Kingbird Corporation (E & P of $800,000) has 1,000 shares of stock outstanding. That stock is held by Amata (550 shares) and Esteban (450 shares), who are unrelated individuals. Kingbird redeems 200 of Amata’s shares for $1,000 per share. Amata paid $300 per share for her Kingbird stock nine years ago. Which of the following statements is correct with respect to the stock redemption?A) Amata has dividend income of $200,000. B) Amata has a long-term capital gain of $140,000. C) Amata’s basis in her remaining 350 shares is $60,000. D) Kingbird reduces its E & P by $200,000. E) None of the above. 15.Pursuant to a complete liquidation, Woodpecker Corporation distributes the following assets to its unrelated shareholders: land held for six years as an investment (basis of $100,000, fair market value of $300,000), inventory (basis of $100,000, fair market value of $140,000), and marketable securities held for two years as an investment (basis of $200,000, fair market value of $120,000). What are the tax results to Woodpecker Corporation as a result of the liquidation?A) Woodpecker Corporation would recognize ordinary income of $40,000 and a net capital gain of $200,000. B) Woodpecker Corporation would recognize ordinary income of $40,000 and a net capital gain of $120,000. C) Woodpecker Corporation would recognize ordinary income of $40,000 and a net capital loss of $80,000. D) Woodpecker Corporation would recognize no gain or loss on the liquidation. E) None of the above. 16.After a plan of complete liquidation has been adopted, Condor Corporation sells its only asset, land (basis of $220,000), to Eduardo (an unrelated party) for $300,000. Under the terms of the sale, Condor Corporation receives cash of $50,000 and Eduardo’s notes for the balance of $250,000. The notes are payable over the next five years ($50,000 per year) and carry an appropriate interest rate. Immediately after the sale, Condor Corporation distributes the cash and notes to Maria, the sole shareholder of Condor Corporation. Maria has a basis of $30,000 in the Condor stock. The installment notes have a value equal to their face amount. If Maria wishes to defer as much gain as possible on the transaction, which of the following is correct?A) Maria recognizes a gain of $20,000 in the year of liquidation. B) Maria recognizes a gain of $45,000 in the year of liquidation. C) Maria recognizes a gain of $270,000 in the year of liquidation. D) Condor Corporation recognizes no gain or loss on the distribution of the installment notes. E) None of the above. 17.Which of the following statements regarding “Type B” reorganizations is true?A) Since a parent-subsidiary relationship is created, the tax attribute carryover limitations are problematic. B) The acquisition of liabilities can cause problems when the liabilities of the target are greater than 20% of the total consideration and the acquiring owned target stock prior to the “Type B” reorganization. C) The acquisition of common and preferred target stock by the acquiring can be directly from the shareholders or from the target corporation. D) The acquiring corporation must distribute the target stock it obtains to its shareholders. The acquiring shareholders do not always have to turn in acquiring stock in exchange for the target stock. E) All of the above statements are true. 18.In which type of reorganization could bonds and other liabilities be exchanged for stock and not be treated as boot?A) A “Type G” reorganization. B) A “Type E” reorganization. C) An acquisitive “Type D” reorganization. D) A “Type A” consolidation. E) None of the above. 19.YesCo acquired NoCo on January 1 of this year for $1 million when the Federal long-term tax-exempt rate was 3%. Two of the tax attributes that YesCo found appealing are NoCo’s NOL of $500,000 and its negative E & P of $300,000. Before applying any of NoCo’s tax benefits, YesCo has taxable income of $35,000 and E & P of $350,000. YesCo pays a dividend of $100,000 to its shareholders. How much of this dividend is taxable?A) $5,000 is taxable. B) $50,000 is taxable. C) $55,000 is taxable. D) $100,000 is taxable. E) None of the above. 20.ParentCo owned 100% of SubCo for the entire year, and both companies use the accrual method of tax accounting. During the year, SubCo purchased $20,000 of supplies from ParentCo. In addition, SubCo provided internal audit services to ParentCo, which were worth $40,000. Including these transactions, ParentCo’s separate taxable income was $75,000, and SubCo’s separate taxable income was $100,000. What is the group’s consolidated taxable income for the year?A) $215,000. B) $195,000. C) $175,000. D) $155,000. 21.ParentCo purchased all of the stock of ChildCo on January 2, 2011, and the two companies filed consolidated returns for 2011 and thereafter. Both entities were incorporated in 2010. Taxable income computations for the members include the following. Neither group member incurred any capital gain or loss transactions during these years, nor did they make any charitable contributions. No § 382 limit applies.ParentCo’sChildCo’s TaxableConsolidatedYearTaxable IncomeIncomeTaxable Income2010$100,000($ 75,000)N/A2011$100,000($ 40,000)$60,0002012$100,000$ 10,000?2013$100,000$125,000?To what extent can SubCo’s 2010 losses be used by the group in 2013?A) $125,000. B) $75,000. C) $10,000. D) $0. 22.ParentCo and SubCo had the following items of income and deduction for the current year.ParentCo’sSubCo’s TaxableItemTaxable IncomeIncomeIncome (loss) from Operations$100,000($10,000)§ 1231 Loss(5,000)Capital Gain 15,000Charitable Contribution12,000Compute ParentCo and SubCo’s taxable income or loss computed on a separate basis.SubCo$5,000 $3,000 $5,000 $3,000 E) None of the above. 23.Regarding technical advice memoranda, which statement is incorrect?A) Issued by the National Office of IRS. B) Most often deal with a completed transaction. C) May be cited and used as precedent. D) Issued with multi-digit file numbers. E) None are incorrect. 24.Which is a primary source of tax law?A) J.W. Yarbo v. Comm., 737 F. 2d 479 (CA-5, 1984). B) Article by a Federal judge in Yale Law Review. C) Determination letter. D) Letter ruling. E) All of the above are primary sources. 25.How must the IRS collect the liability for Federal taxes from among a consolidated group?A) Against the parent of the group. B) According to the members’ relative net asset holdings. C) According to the members’ current internal tax-sharing agreement. D) Against the member of the group that generated the tax. E) No particular order of collection is prescribed by IRS rules.