120 Questions Business Taxation - Final Exam

1. Becky is a quilter in her spare time, and markets her own quilts over the Internet and in local shops and galleries. For several years running, she has claimed a loss on her tax return. In Becky's case, how would the IRS likely respond?

A. They would accept Becky's losses as business lossesB. They would treat Becky as a sole proprietor for tax purposesC. They would still tax Becky on other items, such as inventoryD. They would deny Becky's losses on the basis that she is a hobbyist

2. Gary and Matt have established an environmental engineering business, and are deciding how to organize the business. By Gary and Matt forming a partnership, the business entity would avoid:

A. Needing to file annual information returnsB. Having little choice about how to compute income for the businessC. Pass through of any profits or losses to their partnersD. Paying income tax

3. Kathy is a limited partner in her brother's business. As a result, which of the following would most likely apply in Kathy's case?

A. She would pay estimated taxesB. She would participate in the management of the partnershipC. She would be subject to passive loss rules, if she experienced any lossesD. She would be considered an employee of the partnership

4. Luke is the owner of a small tool manufacturing business, and has decided to use the C corporation business format. He consults with his tax advisor, who explains to Luke that if his company is organized as a regular 'C' corporation, then:

A. It would be unable to apply for a quick refund if it overpaid its estimated taxes by 5% of its expected tax liability

B. It would need to file Form 7007 if its gross receipts, total income, and total assets are each under $500,000

C. It would pay a 25% penalty if it a month late in filing its tax return, it

D. Luke would not be taxed on any dividends he may receive if he is a shareholder in his company

5. In their meeting about Luke organizing his business as a C corporation, Luke's tax advisor points out that an advantage of his company organizing as a C corporation, relative to other entities, is that:

A. Its administration is simple

B. His company can deduct amounts paid for fringe benefits for

employee/ownersC. His company can always use the cash method of tax accountingD. Organizational costs are low

6. Ariel is the sole owner of Greet the Sun Yoga Studio, a limited liability company (LLC). In Ariel's case, the federal tax treatment of her business would automatically be the same as if it were a(n):

A. C corporationB. PartnershipC. Sole proprietorshipD. S corporation

7. Sally is the bookkeeper for a small printing business. In substantiating the business' expenses, Sally would need to provide the amount of the transaction, the payee's name, and the transaction date, if the business made its payment by:

A. CashB. CheckC. Credit cardD. Electronic transfer

8. Julie is a bookkeeper for a yard and garden products firm. She has been informed by her supervisor that her record keeping system needs to comply with R.P. 81-46 to be IRS acceptable. The likely reason for this would be that Julie is using:

A. Double book entryB. Microfiche reproductions of general books of accountsC. An electronic storage systemD. All the computerized portions of the record keeping system

9. Sam owns Luck of the Irish Roofing Company and employs 50 people. Since he has people working for him, he needs to keep all his employment tax records for at least:

A. 3 yearsB. 4 yearsC. 6 yearsD. 7 years

10. Eric and Linda own a small landscape architecture firm. Since their business is a personal service corporation, they would not need to use a required tax year as their accounting period for tax purposes if they:

A. Made a §444 electionB. Reorganized as a partnershipC. Used a fiscal tax year

Consistently used an accounting method that clearly shows income and

D. expenses for the tax year

11. Ken owns a large furniture manufacturing business in Whitefish, Montana, specializing in high-end home furnishings. As a result, Ken's business would be subject to the?

A. Inventory valuation methodB. Cost method of valuationC. Uniform capitalization provisionsD. Lower of cost or market method of valuation

12. Gene owns several commercial rental properties in Ithaca, New York. One of his tenants is an attorney, who offers him legal services in exchange for two months of rent. For tax purposes, what would Gene need to include in his rental income?

A. Fair market value of the legal servicesB. Fair market value of the rentC. Zero income for two monthsD. The value of the barter income

13. Sandy was several payments behind to a supplier for her herbal products manufacturing business and, since the recession, has not been able to satisfy the debt, which was eventually forgiven by the supplier. She contacts her accountant on her Blackberry to find out whether to include the canceled debt in gross income. Her accountant explains to her that, under §61, canceled debt is included in gross income when:

A. The cancellation is a qualified farm debt discharged by an unrelated lender, which would not apply in her case

B. The cancellation discharges a debt for which the taxpayer is liable, which applies in her case

C. The cancellation takes place in a bankruptcy case under title 11 of the U.S. Code, which does not apply in her case

D. The cancellation takes place when the taxpayer is insolvent, which does not apply in her case

14. Because of the cancellation of debts by her supplier, Sandy needs to begin reducing her tax attributes listed below. Under the ordering rules, the first of these to be reduced is:

A. Alternative minimum tax creditsB. Capital lossesC. Foreign tax credit carryoversD. Net operating losses

15. Sarah is the sole proprietor of a therapeutic massage business, and has recovered a bad debt amount deducted in a previous year. She should report this recovery item on:

A. Form 1040, Schedule A

B. Form 1040 Schedule SEC. Form 1040, Schedule C or C-EZD. Form 4952

16. During a staff presentation on business issues, a participant asks the corporate alternative minimum tax (AMT) rate on any alternative minimum taxable income (AMTI) that surpasses the phased-out exemption amount. The presenter should explain that, in this case, the rate would be:

A. 20%B. 26%C. 28%D. 35%

17. Christopher is the owner of a small laser technology firm. When filing his federal taxes, Christopher should (assuming Congress has not let it expire) be able to claim a tax credit of 20% of qualified expenses exceeding the average expenses in a base period, since he would be claiming a:

A. Credit for producing nonconventional fuelsB. Research creditC. Credit testing for rare diseasesD. Credit for a federal tax on fuels

18. You are discussing §1031 like-kind exchanges with one of your clients, Jeff. He lists several types of property he owns, and would like to know which of them is qualified for this type of exchange. You would reply, of the ones he listed, the property that should qualify would be:

A. Investment propertyB. A personal residenceC. A partnership interestD. Stocks and bonds

19. Sunny is the owner of an herbal medicine manufacturing operation she began during the past year. Which of the following business expenses might she need to capitalize?

A. RepackagingB. OverheadC. StorageD. Start-up costs

20. Gerald is assembling the financial reports for his small retail electronics firm. Which of the following expenses would he use in figuring the cost of goods sold?

A. Business assets

B. Direct laborC. Organizational expensesD. Improvements

21. In a presentation on business expenses, a participant if any other type of entity deducts a §172 net operating loss (NOL) the same way as an estate or trust. You affirm that one does, and that would be a(n):

A. REITB. Private foundationC. PartnershipD. Corporation

22. Tyrone was using the cash method of accounting in his business, and the Tax Court ruled against him after he had contested some of his prior year taxes, saying he had to pay the taxes, which he then paid this year. Would he be able deduct this liability?

A. Yes, but on his current tax return onlyB. No, since he is using the cash methodC. Yes, on either his prior (as amended) or his current year tax returnD. No, he cannot deduct contested liabilities

23. Alex teaches high school in Santa Fe, New Mexico, and is an avid whitewater rafter. He decides to begin his own business guiding raft trips during June and July, but did not turn a profit during his first two years in business. Which of the following statements holds true in Alex's case?

A. He could file Form 5213 in order to prevent a limit on his deductions

B. The IRS would rule his business a hobby since significant economic activity takes place only two months out of the year

C. The IRS would not accept any business deductions until he showed a profitD. The limit on deductions would not apply to him, since he is an individual

24. When Leonard goes to file his federal taxes, his accountant informs him that he is unable to deduct office rent. The likely reason for that would be that:

A. Leonard rents commercial space from his brother at market ratesB. Leonard receives equity in the building he is rentingC. Leonard has a home office in a rental apartmentD. Leonard made improvements to the property he was renting

25. The IRS has determined that Clark's commercial lease was designed to achieve tax avoidance. As a result, Clark needs to take rent and stated or imputed interest into account, under the:

A. Cash method of accountingB. Accrual method of accountingC. Nonaccrual-experience method of accounting

D. Constant rental accrual method

26. Karen paid $10,000 to acquire a lease with 20 years remaining on it, and one option to renew for 5 years. Of this cost, Karen paid $8,500 for the original lease and $1,500 for the renewal option. In amortizing these costs, Karen would be able to deduct:

A. $400 each yearB. $500 each yearC. $1,000 each yearD. $1,500 each year

27. Carla leased a commercial building to house her real estate business. Assuming Carla met certain other conditions, which of the changes to a leased commercial building would qualify as qualified leasehold improvement property?

A. Internal structural improvements to the buildingB. Enlarging the buildingC. Adding an elevator to the buildingD. Remodeling an office area in the building

28. Conrad paid mortgage interest of $840 during the tax year to a government lending agency in the course of doing business. This interest payment would be reported on the:

A. Form 1098B. Form 1099-INTC. Form 1040D. Form 4562

29. Ella is an investor and a cash-basis taxpayer. As a result, she should be able to deduct:

A. Capitalized interestB. Interest on income tax owedC. Interest on margin accounts in the year she paid itD. Interest related to tax-exempt income

30. Jerry has learned that he must capitalize certain interest, and meets with his tax advisor to discuss how to handle this calculation. His advisor explains that, under §263A(f)(2 ), the first item he would capitalize, when determining capitalized interest, should be:

A. Avoided costs debtB. Bad debtsC. Commitment fees and service chargesD. Traced debt

31. Henry purchased a home with a loan secured by property he uses in his

equipment rental business. Under the interest allocation provisions, how would he treat the interest?

A. He would deduct the interest as qualified home interestB. He would allocate the interest to business useC. He would allocate the interest to personal useD. He would allocate the interest to passive business activities

32. Wanda owns a hair salon which is housed in a commercial building she owns. When she files her federal taxes, her business would be able to deduct:

A. Real estate taxes for improvements that increase the value of the propertyB. Local taxes attributable as business expensesC. Income taxesD. Tax penalties

33. Danielle uses the accrual method, and has not chosen to ratably accrue real estate taxes. She would like to sell some property, and consults with her tax advisor on sale's impact to her accrual of real estate taxes. Her advisor should explain to her that:

A. Her buyer would be liable for paying the taxes on the property

B. She would be considered to have paid her part of the tax at the time of the sale

C. She would be liable for paying the taxes on the property

D. She would be considered to have accrued her part of the tax on the date of sale

34. When filing his taxes, Grant found that his personal casualty gains for the most recent tax year were greater than his personal casualty losses for that year. As a result, under §165, he would:

A. Treat the gains and losses as capital gains and lossesB. Subject the losses to the 10% floorC. Treat the losses a deductible only if covered by insuranceD. Treat the losses as ordinary losses

35. Shane is thinking of going into business and setting up a home office. He meets with his tax advisor to discuss the requirements of the home office deduction. His advisor explains to him that, under §280A requirements, the home office deduction would:

A. Not apply if he is a wholesaler who uses a part of his home as the sole location for the storage of inventory

B. Apply as long as he does not use a separate unattached structure for his business

C. Apply when a part of his home is used as the sole location to conduct administrative activities related to his business

D. Not apply if he or his spouse uses part of his home as a day care facility

36. Richard would like to claim §174 research and experimentation costs on his tax return, and consults his tax advisor. His advisor informs him that one of the items for which he can claim such costs would be:

A. The acquisition of another's processB. Research in connection with literary projectsC. Management studiesD. Obtaining a patent

37. Andy is a small business owner, and made some modifications to the commercial building he owns to remove barriers to the disabled and make his building more accessible. The maximum he can deduct for these costs would be:

A. $5,000B. $10,000C. $15,000D. $20,000

38. Trevor is the owner of a start-up medical software firm. He meets with his tax advisor to discuss what constitutes start-up costs controlled by §195. His advisor explains that, under §195, Trevor could include:

A. Salaries for executives and fees for consultantsB. Deductible interestC. Research and experimental costsD. State and local taxes

39. You are presenting a business expense seminar at a local hotel. During a break, one member of the audience e-mails you to inquire when can you amortize a business organizational cost under §248. You reply to her that, provided all other requirements are met, you can amortize these costs when:

A. It can be allocated as a business expenseB. It is for the creation of your corporationC. You elect to amortize it over 10 yearsD. It is incurred before the beginning of the first tax year

40. While still on break at the business expense seminar, another member of the audience comes up to you and asks the amortization period for goodwill costs. You reply to him that, under §197, you would need to amortize the capitalized cost of goodwill over:

A. 5 yearsB. 10 yearsC. 15 yearsD. 30 years

41. Amanda acquired an existing closely-held electronics firm. Among the §197 intangibles, it is probable that Amanda would find:

A. Debt that was in existence when the business was acquiredB. Interest under an existing futures contractC. Rights with a fixed durationD. A covenant not to compete

42. Kris calls her tax advisor to figure out the deductibility and/or amortization of computer software she has acquired for her business. Her advisor points out that the depreciation period for computer software, not considered a §197 intangible, would be:

A. 36 monthsB. 60 monthsC. 120 monthsD. 180 months

43. The electric power plant owned by Big River Consolidated, Inc., installed a new pollution-control facility. In this case, the company would be able to amortize the costs of its installation over:

A. 60 monthsB. 84 monthsC. 180 monthsD. 20 years

44. Allied MedTech, Inc., a medical equipment firm, would like to elect to use the optional write-off method for research and experimentation costs. If they choose this method, then this would mean that the company would:

A. Deduct these costs as current business expensesB. Amortize these costs over 60 monthsC. Write off these costs ratably over a 10-year periodD. Amortize these costs over a 20-year period

45. Your company has acquired property containing mineral deposits, and you need to figure cost depletion. You have already taken the first step of determining the property's basis for depletion, and the total recoverable units of mineral in the property's natural deposit. However, to complete your first step in the calculation, you would still need to know the:

A. Amounts recoverable through depreciation deductionsB. Number of units of mineral sold during the tax yearC. Cost of land acquired for purposes other than mineral productionD. Residual value of land and improvements at the end of operations

46. Baxter Creek Wood Products, Inc., wants to use cost depletion for its timber reserves, and consults you regarding its application. To which of the following items would cost depletion apply?

A. The cost of the landB. Amounts recoverable through depreciation

C. Standing timberD. The cutting of timber

47. During a 'Taxes for Tough Times' presentation, one member of the audience asks the main cause of business bad debts. If you shared the author's opinion, then you would point out that the main cause would is:

A. Credit sales to customersB. Business loan guaranteesC. Poor cash managementD. Economic recession

48. During your presentation, another participant asks what accounting method most businesses use when dealing with uncollectible amounts. You would explain that, under §166, most business must use the:

A. Accrual nonexperience methodB. General charge-off method for bad debtsC. Cash methodD. Specific charge-off method for bad debts

49. You are explaining to a new business client, Fred, how businesses are allowed only a half-year of MACRS depreciation for personal property in the acquisition and disposition year. This is not what Fred expected, and he would like to know if there is any exception to this rule. You should reply that there is an exception when:

A. The property is placed in service and disposed of during the same year

B.Added first-year depreciation deductions are allowed for alternative minimum tax purposes for the year in which the property is placed in service

C. More than 40% of the total basis of the property placed in service during the year is placed in service during the last three months

D. Gains from the sale of depreciable tangible personal property are treated as capital gains

50. Frank is selling a commercial building that he purchased 10 years ago. Since he only needs to recapture the excess of accelerated depreciation actually deducted over straight-line depreciation, if any, which of the following provisions is applying in Frank's case?

A. §179B. §291C. §1245D. §1250

51. Randy makes passing reference to the alternative depreciation during a meeting with June, one of his tax clients. She has never heard of alternative depreciation, and asks under what circumstances she might use it. Randy explains she would use it when:

A. There is any tax-exempt use of more than 25% of the property

B. There is election to apply the alternative depreciation system to all property in a class placed in service during the taxable year

C. No tangible property is used outside the United States

D. The alternative minimum tax to determine the portion of depreciation is not treated as a tax preference item

52. Chad is a roofer who works as an independent contractor. However, his status as an independent contractor may be in jeopardy, since he:

A. Negotiated regular monthly pay with one of his clients in exchange for a set number of hours per week

B. Did not comply with instructions about when, where, and how to workC. Also did work for another business at the same time

D. Used his own methods for performing a job and hired his own assistants to help him complete each job

53. Frances is the owner of a closely-held corporation, and hired the spouse of one of her officers as an office manager and paid her $160,000 a year. When she meets with her attorney, he warns her that the level at which she is paying her office manager may prompt an IRS investigation since:

A. The office manager's pay would be unrelated to services performedB. The office manager is the spouse of a corporate officerC. The office manager's pay might not be contractually validD. The office manger's pay might not be reasonable

54. Sean found out, during the most recent deposit period, that the undeposited accumulated taxes on wages paid by his company for the year totaled $104,300. Under the lookback provisions, what would be the consequences of this for his company?

A. His company would need to make deposits every two weeksB. His company would need to make monthly depositsC. The one-day rule would take effectD. The de minimis rule would take effect

55. Jessica's bath soaps manufacturing business has grown rapidly, and she has had hire several employees. As a result, she must pay Federal Insurance Contributions Act (FICA) taxes. How much of these taxes would Jessica be able to deduct as a business expense?

A. 15.3% of her portionB. 7.5% of the employee's portionC. Her half of the taxD. The entire tax, including the employee's and her portion

56. Maria offers her employees a variety of working condition benefits. However. which of the following would she be unable to cover under the §132 exclusion for these benefits?

A. Kerry, a 24 year-old dependent child whose parents have diedB. Mary, a widow of a former employee

C. Greg, an independent contractor who performs services for Maria's company

D. Jeanie, a former employee who has been laid off

57. Casey wants to beef up his employee benefit offerings, and is considering a §129 dependent care program for his employees. One of the requirements he would need to meet would be that he:

A. May provide no more than 25% of what he paid for dependent care assistance for shareholders owning more than 5% of the company

B. Cannot offer the program to highly compensated employees or their dependents

C. May not offer the plan to employee spousesD. May only offer the plan directly through him

58. Emma is planning a §125 cafeteria plan for all her employees. However, she has learned that, relative to what she can offer her other employees, she is limited in what she can offer her top employees in the way of qualified benefits to:

A. No more than 15% of the total cafeteria plan benefits provided for all employees under the plan

B. No more than 25% of the total cafeteria plan benefits provided for all employees under the plan

C. No more than 30% of the total cafeteria plan benefits provided for all employees under the plan

D. No more than 40% of the total cafeteria plan benefits provided for all employees under the plan

59. Jerry works for a heavy equipment manufacturer, and would like to take out an employer-generated loan so he can invest in some securities. His employer offers him a term loan, which would mean that:

A. The loan is not very favorable to JerryB. The loan is treated as having indefinite maturities

C. Jerry's employer is treated as having received the imputed amount of interest

D. Jerry is treated as having paid imputed interest to the employer for any day the loan is outstanding

60. Ken and his spouse, Marie, are able to receive certain advice and planning services from Ken's employer. Of the employer-provided services listed below, which could be excludable from income under §132?

A. Accounting servicesB. Legal or brokerage servicesC. Retirement income planningD. Tax preparation services

61. Jeff is the CEO of a major software firm. His company is considering a stock plan, where, although no stock actually is transferred, he would share in the benefits of stock ownership as if he were a shareholder and cash dividends would be credited to his account. If the company wanted this kind of plan, then they would choose a(n):

A. Phantom stock planB. Profit sharing planC. Stock bonus planD. ESOT

62. Pat is the owner of a small farm implements manufacturing firm specializing in products for high-end hobby farmers. Pat is considering offering nonqualified deferred compensation to one of his highly compensated employees, most likely to:

A. More quickly attain government approval of your retirement programB. Offer your employee an immediate cash outlayC. Avoid replacing the benefits lost by the new employee

D. Avoid the red tape and rules and regulations associated with qualified retirement plans

63. Howard is a business owner, and would like to offer a deferred compensation arrangement to his most highly-compensated employees. You point out to Howard that such programs come under intense IRS scrutiny. However, according to Reg. §1.451-2(a ), if his employees do not have the option to take cash currently in place of future income, then this should result in the:

A. Absence of actual receiptB. Absence of controlC. Absence of economic benefitD. Presence of proper timing

64. Anderson Engineering, Inc., would like to offer its executive a deferred compensation plan, but the company wants to make sure the plan has no current deemed fair market value, and is not immediately taxable to the executive. In order for this to happen, Anderson would need to:

A. Fund the plan and separately set aside the considerationB. Give their executive the right to presently receive the amountC. Solely promise to pay their executive in the futureD. Provide a cash equivalency for the obligation

65. Erin uses her personal car for her environmental remediation consulting business, and put 23,500 miles on it last year, 7,750 of which were for personal use. How much of the cost of operating the car would Erin be able to deduct as business expenses?

A. $1.50 per business mileB. 51 cents per business mileC. 100%

D. 67%

66. Ben meets with his tax advisor to discuss the use of a car for business purposes. He lists four examples of vehicles he could conceivably use in his line of work, and inquires which of them would meet the definition of a car. His advisor replies that, of the four he listed, the only one meeting the definition of a car would be a(n):

A. SUV weighing 5,500 poundsB. Pick-up truck weighing 6,100 poundsC. 20-seat van used for transporting persons for hireD. Older car placed into service in 1985

67. Jordan traded in a car used entirely in his construction business, for another car to use entirely in the business. The unadjusted basis of the new car would be the:

A. Adjusted basis of the old car

B. Adjusted basis of the old car plus any additional amount paid for the new car

C.Adjusted basis of the old car plus any additional amount paid for the new car, minus total of amounts actually allowable as depreciation during tax years before trade

D.Adjusted basis of the old car plus any additional amount paid for the new car, minus total of amounts that would have been allowable as depreciation during tax years before trade

68. Kelly has decided to depreciate her car that she uses in her landscaping business over its class life rather than the recovery period. Therefore, Kelly would need to choose the:

A. 150% declining balance methodB. 200% declining balance methodC. Modified cost recovery system (MACRS)D. Straight-line method election

69. Ken is a supplier whose business owns several vehicles. Of the following uses to which he put his company's vehicles, which of the following would represent a qualified business use under the predominant business use rule?

A. Taking a business client to a Green Bay Packers gameB. Leasing one of his business' cars to a 5% owner of his businessC. Using listed property as compensation for services by a related person

D. Use of his business auto for personal purposes by another 5% owner of the business

70. Megan used her car 48% of the time in a qualified business use, in the year she placed her car in service. Given the circumstances, which of the following would apply to the use of her car?

A. MACRS would be available in any subsequent year that the qualified usage rises to more than 50%

B. Megan would be allowed to use the §179 expensing deduction

C. Megan would need to figure the depreciation deduction using the straight-line percentages over a 5-year recovery period

D. Megan would be permitted the investment credit

71. Brian has leased a car for use in his property management business. The main economic factor that would determine his monthly payments would be:

A. DepreciationB. EquityC. FinanceD. Interest

72. Zack would like to lease a vehicle for use in his landscaping business, and meets with his advisor to discuss the pros and cons of leasing. The advisor points out to Zack that leasing can present disadvantages when a person:

A. Dislikes selling used vehiclesB. Drives on average 10,000 miles a yearC. Likes having a new car every two or three yearsD. Leases vehicles that quickly lose their resale value

73. Ethan is planning on leasing a vehicle for use in his construction plumbing firm, and one of his concerns is that he does not want to bear the market valuation risk upon termination of the lease. Given his concerns, Ethan should therefore avoid a(n):

A. Open-end leaseB. Lease factorC. Closed-end leaseD. Lease-end buyout

74. Isabella would like her employees to use the standard mileage method, which allows a 'flat' or standard amount of deduction for every business mile they travel regardless of actual cost. Therefore, what would Isabella not include in the fixed rate, but separately deduct?

A. A reasonable allowance for depreciationB. InsuranceC. Oil maintenance and repairsD. Parking fees and tolls

75. Jacob has been driving a Toyota Prius for four years in his business travels as an environmental engineering consultant. He is now trying to decide between selling the car and trading it in. Which of the following considerations would apply in making his decision?

A. Selling the car avoids the tax that would result from trading it in

B. If his basis exceeds the car's value, then Jacob should sell the car rather than trading it in

C. Since the basis in the new car will be lower in a trade-in, there could be a depreciation penalty

D. If Jacob trades in his car, then his depreciation deductions for the first four years would be less than if he had bought the car for cash

76. Sam is the owner of a roofing company, and has provided an automobile to a sales representative for travel around the state. However, Sam is unable to determine the actual value of this fringe benefit using the threespecial valuation methods. As a result, Sam would instead use the:

A. Cents per mile valuation methodB. Commuting valuation methodC. General hypothetical valuation methodD. Lease valuation method

77. In explaining §132 working-condition fringes to Brad, he asks if there are any instances where an employer can automatically exclude 100% of the value of an employer-provided vehicle's use from the employee's income. You state that an employer could exclude 100% of the use of a:

A. Demonstration automobile by a part-time salespersonB. Pick-up truckC. TractorD. Passenger van with a capacity of 10 persons

78. Brandon owns a glass company, and needs to report his employees' taxable fringe benefits, including his sales manager who drives a company car. In reporting his sales manager's taxable benefits, Brandon may:

A. Only report them on the Form W-2 as regular pay

B. Choose not to withhold income tax on the value of the vehicle he provides for his sales manager's personal use

C. Only report the value of the vehicle as if the sales manager used it completely for personal purposes

D.Report the sales manager's taxable use of the vehicle he provides, by treating the value of use provided during the last two months of the calendar year as if paid during that year

79. Upon graduating from Reed College, Matthew sold all but a few of his possessions, and began traveling around the western United States, living out of his car and working in various towns for periods of up to two months. Under §274 and §162, which of the following IRS classifications would apply to Matthew?

A. Indefinite assignmentB. Transportation industry workerC. Employment area worker

D. Itinerant worker

80. Emma uses the company car to travel around the Pacific Northwest as a sales representative for a pharmaceutical firm. She resides in Moses Lake, Washington, and needs to travel to Billings, Montana, where she will stay the night before returning to Moses Lake. Which of the following rules adopted by the IRS would apply to determine whether she is 'away from home', and eligible to deduct meals and lodging?

A. 'all or nothing' ruleB. 'away from family' ruleC. 'business travel' ruleD. 'sleep and rest' rule

81. Alan, who works for a solar panel manufacturing firm, took a business trip to Japan and the trip lasted 7 days. Alan would like to take a personal side trip to visit Kyoto. However, for the trip to be fully deductible under §274, Alan should limit the number of nonbusiness days to no more than:

A. 3 daysB. 4 daysC. 5 daysD. 6 days

82. Marvin has scheduled a series of lunches with potential clients for his equipment sales business. According to §274(n)(1 ), what is the percentage amount reduction that he can expect to an otherwise allowable deduction for 'quiet business' meals?

A. 25%B. 50%C. 75%D. 100%

83. Craig is helping to arrange for some of his company's key employees to attend a business convention that is being held on a cruise ship. Under §274(h)(2 ), in order for his employees to be able to deduct up to $2,000 per individual per year for attending this convention, Craig would need to make sure the ship:

A. Is U.S. registered and calls on only Canadian and U.S. ports

B. Only calls on U.S. ports whether it is a foreign vessel or U.S.-registered vessel

C. Is at least owned by U.S. investors and calls on U.S. and foreign portsD. Is registered in the U.S. and all ports of call are located in the U.S

84. Dan is having trouble distinguishing entertainment from other business expenses. Using the following examples to help Dan, which one would, by §274 definition, be considered entertainment?

A. You use a car to drive to a client's home to complete a business deal

B. You furnish a hotel room for one of your employees you have sent on a business trip

C. You take a client fly fishing in order to discuss adding his business to your company's account

D. You provide money for a personal assistant who has accompanied you on a business trip so he can buy supper

85. Laura took a client to a Boston Red Sox game, but did not conduct business with that person. However, the game could still be considered business entertainment and therefore deductible, according to the:

A. Associated testB. Directly related testC. Business intent testD. Business follow-up test

86. Several clients are at an in-house business seminar on travel and entertainment, and later meet with privately. To which of the following client situations would the §274 percentage reduction rule apply?

A. The Irving R. Smith Investment firm recently sold entertainment to some of its clients

B. A&R Manufacturing, Inc., treats its employees' travel and entertainment expenses as compensation

C. Bloomington Glass Company reimburses its employees for business related travel, lodging, and meals

D. Greg paid taxes and tips relating meals or entertainment activity while on a business trip

87. Warren works for RFC Corporation, and pays professional dues related to his work. Under §67, Warren can deduct these and other expenses considered miscellaneous itemized deductions, only insofar as, in the aggregate, they exceed:

A. His modified adjusted gross incomeB. 2% of his adjusted gross incomeC. The 3% deduction limitationD. 4% of his adjusted gross income

88. Lorie was not reimbursed by her employer for certain meals she paid for while on a recent business trip. As a result, how much of the standard meal allowance would she be able to deduct?

A. 25%B. 40%C. 50%D. 100%

89. Ashleigh is employed by a major pharmaceutical firm, and incurred business expenses while on a week-long business trip to Hawaii. When she went to file her taxes, her accountant informed her she would need

to file Form 2106 since:

A. She received reimbursements in excess of the federal amountB. Her expenses exceeded the reimbursed amountC. She had been reimbursed for substantiated expenses

D. She had been reimbursed for deductible expenses related to your employer's business

90. Cody is the owner of a small closely-held corporation, and would like to select a retirement plan for his employees. For the kind of company he owns, the retirement plan he would most likely want to select for building retirement income would be a:

A. Keogh planB. Qualified corporate pension planC. SIMPLE planD. Simplified Employee Pension (SEP) plan

91. Hillary employs 300 workers in her outdoor recreation equipment firm located in Sand Point, Idaho, and is considering a retirement plan, but wishes to primarily benefit key workers and owner employees. What would be a direct effect of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) that could influence her choice of plan?

A. The Act increased restrictions were established for 'top heavy' plansB. The Act increased maximum benefits for Keogh plans

C. The Act clarified rules for corporate and non-corporate plans, which favors the non-corporate plans

D. The Act lowered the early retirement age for corporate plans

92. Juan is contemplating providing health benefits for his small but growing distributing company. In making his decision, which of the following sections of ERISA would Juan need to review with his tax advisor to learnrequirements connected with such health plans?

A. Title IVB. Title IIIC. Title IID. Title I

93. Valerie is the owner of a small investment firm, and wants to establish a qualified retirement plan using a trust under §401 rather than insurance annuities. However, for the implementation of the trust to be valid, Valerie should be advised to make sure that:

A. The trust is guaranteed by the federal governmentB. The trust is not a combined instrumentC. The trust has a corpusD. The trust allows for assets to revert to her firm

94. Adam is the owner of a growing medical software firm, and covers three

of his highly-compensated employees with a qualified pension plan. According to the coverage requirements, how many of his other 30 non-highly compensated employees must he cover by the plan?

A. 7B. 14C. 21D. 28

95. Susan is the owner of an herbal skin care products manufacturing firm, and just received a notice from the IRS requiring an accelerated vesting schedule for her company's retirement plan. The likely reason for the notice would be the IRS found that:

A. A part of the employees' benefits are nonforfeitable

B. The company's employees were leaving employment before reaching retirement age

C. The company used minimum vesting in the plan

D. That the company was discriminating in favor of highly-compensated employees

96. Manuel is the owner of a chocolate distributing firm, and would like to offer a defined contribution plan for his employees. Concerned about costs, he asks the limits, if any, on deductible contributions for such a plan. You explain to him that deductible contributions would consist of:

A. 25% of the compensation otherwise paid or accrued during the taxable year to plan beneficiaries

B. 50% of the compensation otherwise paid or accrued during the taxable year to plan beneficiaries

C. 80% of the compensation otherwise paid or accrued during the taxable year to plan beneficiaries

D. 100% of the compensation otherwise paid or accrued during the taxable year to plan beneficiaries

97. Jack is deciding the type of retirement plan he wants to offer his employees in his trucking company. Since the company's revenue fluctuates, you would want him to keep in mind the IRS sometimes applies the substantial and recurrent rule for contributions. This requirement would specifically apply in the case of:

A. Money-purchase pension plansB. Profit-sharing plansC. Cafeteria compensation plansD. Thrift plans

98. Goodman Industries, Inc., would like to offer its employees a qualified pension plan that includes pre-retirement insured death benefits. As their advisor, you should point out to its owner that death benefits are permissible only when:

A. They are equal to the reserve minus the participant's share of the auxiliary

fundB. The amount of life insurance exceeds 100 times the anticipated benefitC. They are incidentalD. The total death benefit consists of the face amount of insurance

99. Ken is speaking on retirement plans before a group of local small business owners at the Holiday Inn. A participant asks if she can set up her retirement program as a Keogh plan. Ken should point out that she could do so if she were doing business as a(n):

A. Self-employed individualB. 5% owner in a partnershipC. C corporationD. S corporation

100. When he reached age 70½, Dayton failed to take a required minimum distribution from his individual retirement accounts (IRA). Nine months later, when he met with his accountant to file his tax returns, Dayton learned that, for his failure to take the distribution, he would be required to pay a:

A. $50 penaltyB. $100 penaltyC. 10% penalty taxD. 50% excise penalty tax

101. Doug wants to use his traditional IRA to secure a much needed loan, and meets with his accountant to discuss the transaction. His accountant explains that, if he went ahead with this plan, Doug should expect that there will be:

A. No penalty since this is a permitted transaction for participants in a traditional IRA

B. A tax equal to his receipt of a complete distribution of the fair market value of the assets in the account

C. A tax penalty equal to 15% of the amount involved in his transactionD. A tax penalty equal to 100% of the amount involved in his transaction

102. When Oscar gave a talk at the local Chamber of Commerce about IRAs and other types of retirement accounts, LeeAnn, who works for a downtown law firm, asked if a traditional IRA can be used as a holding account for assets received in an eligible rollover distribution from one employer's plan, and later rolled over into a new employer's plan. Oscar affirms you can do this, using what is often referred as a:

A. Conduit IRAB. Deemed IRAC. Keogh rolloverD. SIMPLE IRA

103. Samantha meets were her advisor to discuss opening an IRA. She is

particularly curious about Roth IRAs, and would like to know some of their features. Her advisor explains that one characteristic is:

A.She would not need to include in her gross income distributions from a traditional IRA that she would have to include in income had she not converted them into a Roth IRA

B.If she makes contributions both a Roth IRA and a traditional IRA, the contribution limit for the Roth IRA would be the same as if she had made the contributions only to the Roth IRA

C. Eligibility for Roth IRAs would be subject to age limitsD. She could face AGI limits for contributing to a Roth IRA

104. Tyler would like to recharacterize an IRA contribution, and asks how it should best be accomplished. His advisor points out that Tyler needs to transfer the contribution from the first IRA into which he made the original contribution to a second IRA, by using a:

A. 90 day rolloverB. Same-day transferC. Trustee-to-trustee transferD. Withdrawal and reinvestment

105. Echo Systems, Inc., a high-tech firm, would like to offer its employees a group term life insurance plan. For the purpose of applying the §79 group-term insurance rules, the plan should:

A. Cover at least 10 or more employeesB. Include disability insuranceC. Cover the spouses of employees up to $50,000D. Offer permanent insurance coverage

106. A&R Retail, Inc., has hired you as an advisor to help design their employee benefits package. A human resources consultant has suggested setting up a retired lives reserve fund, and they would like to know the nature of such a fund. You would explain that:

A. This fund is a variation on the §408 retirement planB. The fund is for employees other than key employees

C. The company would need to establish a separate group whole life insurance plan to complement such a plan

D. The fund is an extension of a §79 group term insurance plan

107. Jonah is employed by a large architectural firm that offers its employees a split-life insurance policy. Relative to his employer's contribution, Jonah, early in the policy term, should expect to:

A. Make a full contributionB. Contribute high amountsC. Contribute no more than halfD. Make no contribution

108. Barb is discussing life insurance contracts before a group of small business owners at a convention. A participant asks how the 'COLI' life insurance restriction provisions would affect his company. Barb would explain that, under these provisions:

A. No deduction would be allowed for premiums paid on joint-life policies which insure 20% owners and their spouses

B. No deduction would be allowed for insurance benefits that are paid on a retired lives reserve refund

C. No deduction would be allowed for interest paid on indebtedness regarding life insurance contracts owned by the taxpayer covering any individual

D. Deductions would be allowed for premiums paid on life insurance policies covering the life of any officer

109. Peter owns a small electronics firm employing 440 persons, including officers. Since there is an exception to the §264 interest disallowance rule concerning life insurance policies covering key persons, in the case of Peter's company, how many individuals would the company be able to treat as key persons?

A. 5 individualsB. 20 individualsC. 22 individualsD. 44 individuals

110. Neil and Teresa meet with their advisor to plan their estate. They are considering a §2056 qualified terminable interest trust and ask what happens once the second spouse dies. Their advisor should explain that:

A. Assets would be left in trust for second spouse, who has no power to dispose of the assets, which would be taxed once the second spouse dies

B.Assets would be left in a trust for the surviving spouse to dispose of as he or she sees fit, and which would not be taxed after the deaths of either spouse

C. Assets would be left in trust for second spouse, who would direct the disposition of the assets, which are taxed once the second spouse dies

D.Assets would be left in a trust, over which the surviving spouse would have no power of disposition and which would be taxed after the deaths of eitherspouse

111. You are meeting with two of your clients, Noel and Judy, to help them plan their estate. You explain that when one of them dies, it is possible for a property passing from their estate to have a basis equal to its fair market value on the date of death. You would explain that this means that:

A. The property is a qualified terminable interestB. The property represents qualifying income interest for lifeC. The property qualifies for the marital deductionD. The property takes a stepped-up basis

112. Ronald and Pam live in California, a community property state. Ronald has chosen to dispose of his assets through a simple will. As a result, his

will would control:

A. Joint tenancy assetsB. Assets in a living trustC. One-half of the marital propertyD. Totten trust assets

113. Troy's estate planning advisor tells him that, given the kind of trust he is considering, he should be sure at least one asset is transferred to it before death. The likely reason for this would be that Troy is considering a(n):

A. Irrevocable trustB. QTIP trustC. Testamentary trustD. Inter vivos trust

114. Carol and Ray are married, and have set up a typical living 'A-B-C' trust. As a result, when Ray dies, the trust should transform into:

A. A trust for Carol, a bypass trust, and a QTIP trustB. A trust for Carol and for their children onlyC. A trust for Carol, Ray, and their childrenD. A trust for Carol only

115. Arthur would like to designate his spouse, Marilyn, as a lifetime recipient of income from a trust, wherein a fix percentage of assets, valued annually, is paid out, and what is left in the trust would go to charity afterMarilyn dies. Given these specifications, Arthur would need to set up a:

A. Charitable income trustB. Pooled income fundC. Charitable remainder unitrustD. Charitable remainder annuity

116. Dean is getting old, and would like his friend, Chester, to handle his assets and look after his personal needs, authorize medical treatment and make other medical decisions for him. Which of the following would allow the county court to assign Chester this authority?

A. A conservatorshipB. A trusteeshipC. Durable power of attorneyD. Power of attorney for healthcare

117. Ted along with George and Tim are partners in an architectural firm. They meet with their advisor, and ask the kind of agreement they should use to ensure that, upon the death of one, the remaining owners would purchase the deceased's interest in the business. Their advisor explains that, if this is the arrangement they seek, then they should enter into a(n):

A. Buy-sell agreementB. Cross-purchase agreementC. Arm's-length agreementD. Entity agreement

118. Noah holds stock in a closely held corporation, and is concerned potential corporate distributions to his estate on death would be taxed as dividends. Noah has heard several thing about a §303 exception. Which of the following items Noah has heard is correct, regarding the use of stock redemptions under §303?

A. The business owner should make gifts of stock that reduce ownership below 35% of the decedent's adjusted gross estate

B. The capital gain on the redemption may be taxable to the extent the proceeds exceed the stock's estate tax value

C. The proceeds of the §303 redemption must be used to pay death taxes and funeral expenses

D.Stock in two or more corporations is considered the stock of a single corporation if 35% or more of the value of the outstanding stock of each corporation is included in the estate

119. During her meeting with you, Stacy asks what simple estate planning technique she would use to gradually transfer the business during her lifetime. You would recommend that she use:

A. A bypass trustB. A voting trustC. A disclaimerD. Lifetime gifts of stock

120. Most of Marcia's estate consists of an interest in a closely-held business, and she is concerned about paying estates. When she meets with her estate advisor, she wants to know the payment options on her death. Her estate planner explains to her that, following her death, her estate, under §6166, should be permitted:

A. Deferral of federal estate taxes for 20 yearsB. Deferral of federal estate taxes and interest for 5 yearsC. Installment payment of taxes associated with the businessD. Federal estate taxes payable in equal installments over 5 years