Question 1

Generally,tax legislation is introduced first in the Senate and referred to the Senate Finance Committee.

Accepted Answer

Tax legislation is typically introduced in the House of Representatives and referred to the House Ways and Means Committee.

Question 2

Signal Corporation is an S corporation owned equally by Serena and three other shareholders.The corporation reported $900,000 of business receipts,$500,000 of business deductions and $40,000 of dividend income.On Serena's return,she will be entitled to a deduction for qualified business income of

Accepted Answer

Serena's share of the business income is ($900,000 - $500,000) / 4 = $100,000. The qualified business income deduction is 20% of her share, which is 20% of $100,000 = $20,000. The dividend income is not included in the qualified business income calculation.

Question 3

Which of the following serves as the highest authority for tax research,planning,and compliance activities?

Accepted Answer

The Internal Revenue Code (IRC) is the primary source of federal tax law in the United States and serves as the highest authority for tax research, planning, and compliance activities.

Question 4

All of the following are executive (administrative)sources of tax law except

Accepted Answer

The Internal Revenue Code is a legislative source of tax law, not an executive source. The other options (B, C, and D) are all executive sources of tax law.

Question 5

Firefly Corporation is a C corporation.Freya owns all of the stock.During the current year Firefly earned taxable income of $500,000 and paid a $300,000 dividend to Freya.Which of the following statements is correct?

Accepted Answer

As a C corporation, Firefly will pay corporate income tax on its earnings. Additionally, as a shareholder who received a dividend, Freya will also pay individual income tax on the dividend received. Therefore, both Firefly and Freya will pay taxes.

Question 6

The tax law encompasses administrative and judicial interpretations,such as Treasury regulations,revenue rulings,revenue procedures,and court decisions,as well as statutes.

Accepted Answer

The tax law includes not only statutes but also administrative and judicial interpretations such as Treasury regulations, revenue rulings, revenue procedures, and court decisions.

Question 7

The term "tax law" includes

Accepted Answer

Tax law includes all three elements - the Internal Revenue Code (which is the primary source of tax law), Treasury Regulations (which are issued by the Treasury Department to provide guidance on how to interpret and apply the Code), and judicial decisions (which interpret the Code and regulations and establish legal precedent for future cases). Therefore, the best choice is D - all of the above.

Question 8

In an S corporation,shareholders

Accepted Answer

In an S corporation, shareholders are taxed on their proportionate share of earnings. This means that each shareholder’s portion of the corporation’s net income or loss is reported on their personal tax return, and they pay taxes on that amount. They are not only taxed on dividends or salaries, but on their share of the overall earnings of the corporation. Additionally, shareholders cannot directly allocate income among themselves to consider special contributions.

Question 9

Rocky and Charlie form RC Partnership as equal partners.Rocky contributes $100,000 into RC while Charlie contributes real estate with a cost and fair market value of $100,000.During the current year,RC earned net income of $600,000.The partnership distributes $200,000 to each partner.The amount that Rocky should report on his individual tax return is

Accepted Answer

As equal partners, Rocky and Charlie split the $600,000 net income equally, resulting in each partner's basis in the partnership increasing to $300,000. The $200,000 distribution received by Rocky reduces his basis to $100,000. However, since his basis is less than his share of partnership debt (which would be $100,000 because Charlie contributed property rather than cash), Rocky is deemed to have received a cash distribution equal to the excess of his share of partnership debt over his basis, which is $0 ($100,000 share of debt - $100,000 basis = $0). Therefore, Rocky has no taxable income from the partnership for the current year.

Question 10

AB Partnership earns $500,000 in the current year.Partners A and B are equal partners who do not receive any distributions during the year.How much income does partner A report from the partnership?

Accepted Answer

Partner A reports $250,000 as income because the partnership's income is split equally between the partners, and A and B are equal partners.

Question 11

Brad and Angie had the following income and deductions during 2098:
Salaries $110,000
Interest income 10,000
Itemized deductions 26,000
Taxes withheld during year 12,000
Calculate Brad and Angie's tax liability due or refund.They file a joint tax return.

Accepted Answer

The answer of Brad and Angie had the following income...

Question 12

Fireball Corporation is an S corporation.Leyla owns all of the stock.During the current year,Fireball earned taxable income of $500,000 and paid a $300,000 distribution to Leyla.Which of the following statements is correct?

Accepted Answer

As an S corporation, Fireball's income is passed through to its shareholders. Therefore, Leyla will report the $500,000 of corporate income on her personal tax return and pay taxes on it. The distribution itself is not taxed again.

Question 13

Limited liability companies may elect to be taxed as corporations.

Accepted Answer

Limited liability companies have the option to choose how they are taxed, and one of the options is to be taxed as a corporation.

Question 14

Which of the following is not a taxpaying entity?

Accepted Answer

Partnerships are not taxpaying entities; they pass through income to partners who then pay taxes on it.

Question 15

Limited liability company members (owners)are responsible for the liabilities of their limited liability company.

Accepted Answer

Limited liability company members are not personally responsible for the liabilities of their limited liability company, hence the name "limited liability." Their liability is limited to the amount of their investment in the company.

Question 16

Which of the following is not an advantage of a limited liability company (LLC)?

Accepted Answer

LLCs are typically taxed as partnerships by default, not as corporations, unless they elect otherwise.

Question 17

All of the following are classified as flow-through entities for tax purposes except

Accepted Answer

C corporations are not classified as flow-through entities for tax purposes, as their profits are subject to both corporate income tax and individual shareholder taxes on any dividends received.

Question 18

Tercot Partnership reported $1,000,000 of business receipts,$700,000 of business deductions,and $100,000 of interest income.Terry is a 50% partner in Tercot Partnership.On Terry's return,she will be entitled to a deduction for qualified business income of

Accepted Answer

The answer of Tercot Partnership reported $1,000,000 of business receipts,$700,000...

Question 19

What is an important aspect of a limited liability partnership?

Accepted Answer

The important aspect of a limited liability partnership is that partners have limited liability regarding all partnership activities, except for their own acts of negligence or misconduct, or those of any person under their direct supervision. This means that partners will not be personally liable for the debts and obligations of the partnership, except in cases where their own actions or oversight resulted in harm. Therefore, option B is correct. The other options are incorrect as they either state that partners have unlimited liability (option D) or do not provide the full explanation of the extent of limited liability (option A and C).

Question 20

All of the following statements are true except

Accepted Answer

All of the other statements are true: net income of a sole proprietorship is reported on the owner's individual income tax return, net income of a C corporation is subject to double taxation, and LLCs are generally taxed as partnerships. However, the net income of an S corporation is not subject to double taxation because it is not taxed at the entity level, only at the individual shareholder level.

Quiz 17: an Introduction to Taxation