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Exam 1: Introduction to Taxation

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Question 51

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Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2013.He also owns 60% of the stock in a C corporation that earned $150,000 during the year.The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn.How much income must Bjorn report from these businesses?

A) $0 income from the S corporation and $30,000 income from the C corporation.
B) $30,000 income from the S corporation and $30,000 of dividend income from the C corporation.
C) $90,000 income from the S corporation and $0 income from the C corporation.
D) $90,000 income from the S corporation and $30,000 income from the C corporation.
E) None of the above.

F) A) and E)
G) C) and D)

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Question 52

Multiple Choice

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A characteristic of FUTA is that:

A) It is imposed on both employer and employee.
B) It is imposed solely on the employee.
C) Compliance requires following guidelines issued by both state and Federal regulatory authorities.
D) It is applicable to spouses of employees but not to any children under age 18.
E) None of the above.

F) B) and D)
G) A) and B)

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Question 53

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Carol and Candace are equal partners in Peach Partnership.In the current year,Peach had a net profit of $75,000 ($250,000 gross income - $175,000 operating expenses)and distributed $25,000 to each partner.Peach must pay tax on $75,000 of income.

Julius,a married taxpayer,makes gifts to each of his six children.A maximum of twelve annual exclusions could be allowed as to these gifts.

Quail Corporation is a C corporation with net income of $125,000 during the current year.If Quail paid dividends of $25,000 to its shareholders,the corporation must pay tax on $100,000 of net income.Shareholders must report the $25,000 of dividends as income.

Which,if any,of the following is a typical characteristic of an ad valorem tax on personalty?

Tomas owns a sole proprietorship,and Lucy is the sole shareholder of a C corporation.In the current year both businesses make a net profit of $60,000.Neither business distributes any funds to the owners in the year.For the current year,Tomas must report $60,000 of income on his individual tax return,but Lucy is not required to report any income from the corporation on her individual tax return.

Like the Federal counterpart,the amount of the state excise taxes on gasoline varies from state to state.

During the current year,Maroon Company had $125,000 net profit from operations.Belinda,the sole owner of Maroon,is in the 33% marginal tax bracket.Determine the combined tax burden for Maroon and Belinda under the following independent situations.(Ignore any employment taxes.) a. Maroon Company is a C corporation and all of its after-tax income is distributed to Belinda. b. Maroon Company is a proprietor ship and all of its after-tax income is withdrawn by Belinda c. Maroon Company is an S corporation and all of its after-tax income is distributed to Belinda

Social considerations can be used to justify:

Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.

To lessen,or eliminate,the effect of multiple taxation,a taxpayer who is subject to both foreign and U.S.income taxes on the same income is allowed either a deduction or a credit for the foreign tax paid.

Which,if any,of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate?

A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty.

Compare the basic tax and nontax factors of doing business as a partnership,an S corporation,and a C corporation.Circle the correct answers.

The tax law allows an income tax deduction (or a credit)for foreign income taxes.Explain why.

Several years ago,Logan purchased extra grazing land for his ranch at a cost of $240,000.In 2013,the land is condemned by the state for development as a highway maintenance depot.Under the condemnation award,Logan receives $600,000 for the land.Within the same year,he replaces the property with other grazing land.What is Logan's tax situation if the replacement land cost: $\begin{array}{ll}\text { a. } & \$ 210,000 ? \\\text { b. } & \$ 360,000 ? \\\text { c. } & \$ 630,000 ? \\\text { d. } & \text { Why? }\end{array}$

The tax law contains various tax credits,deductions,and exclusions that are designed to encourage taxpayers to obtain additional education.On what grounds can these provisions be justified?

When Congress enacts a tax cut that is phased in over a period of years,revenue neutrality is achieved.

Both economic and social considerations can be used to justify: