Question 1

Final regulations have almost the same legislative weight as the IRC.

Accepted Answer

Final regulations undergo a rigorous review process and have the force of law, similar to the Internal Revenue Code (IRC).

Question 2

Investigation of a tax problem that involves a closed- fact situation means that

Accepted Answer

In a closed-fact situation, the transactions have already occurred, and the focus is on resolving the tax questions based on those completed transactions.

Question 3

A revenue ruling is issued by the Internal Revenue Service only in response to a verbal inquiry by a taxpayer.

Accepted Answer

A revenue ruling is a public statement by the IRS that clarifies the interpretation of tax laws or regulations. Revenue rulings are published in the Internal Revenue Bulletin and are issued by the IRS on their own initiative, not in response to a specific taxpayer inquiry.

Question 4

Which corporations are required to file a Schedule M- 3?

Accepted Answer

C corporations with assets of $10,000,000 or more are required to file a Schedule M-3 to provide detailed information on financial statement income and tax return income differences.

Question 5

When a taxpayer contacts a tax advisor requesting advice as to the most advantageous way to dispose of a stock, the tax advisor is faced with

Accepted Answer

When a taxpayer requests advice on the most advantageous way to dispose of a stock, the tax advisor does not have all the necessary information and needs to obtain additional facts regarding the taxpayer's specific situation, making it an open-fact situation. There are many factors that may affect the tax consequences of the sale, such as the taxpayer's basis in the stock, the holding period, and potential offsetting gains or losses. Therefore, the tax advisor needs to gather and analyze all relevant facts before providing advice. A closed-fact situation would involve a clear set of facts with only one correct answer, while a restricted-fact situation would have some limitations or restrictions on the information available. A recognized-fact situation would involve a situation that is already clearly defined in tax law, and the answer is readily available.

Question 6

A corporation has a tax year ending December 31, 2015. When is the due date for the corporate income tax return (with no extensions)?

Accepted Answer

The answer of A corporation has a tax year ending...

Question 7

Taxpayers must pay the disputed tax prior to filing a case with the Tax Court.

Accepted Answer

Taxpayers can dispute their tax liability in the U.S. Tax Court before paying the disputed amount.

Question 8

Tara and Jeff wish to form TJ Corporation. They have determined that they need initial capitalization of
$1,000,000. What tax issues should they consider when determining whether to issue stock only or some combination of debt and equity?

Accepted Answer

The answer of Tara and Jeff wish to form TJ...

Question 9

The Internal Revenue Code of 1986 contains the current version of the tax law.

Accepted Answer

The Internal Revenue Code of 1986 is the primary source of federal tax law in the United States.

Question 10

Dividends paid from E&P are taxable to shareholders and are, therefore, deductible by the corporation.

Accepted Answer

Dividends paid from E&P (earnings and profits) are not deductible by the corporation, as they are considered a distribution of after-tax earnings. While they are taxable to shareholders, they are not deductible expenses for the corporation.

Question 11

Regulations issued prior to the latest tax legislation dealing with a specific Code section are still effective to the extent they do not conflict with the provisions in the new legislation.

Accepted Answer

Regulations issued prior to new tax legislation for a specific Code section can still be in effect as long as they do not conflict with the new provisions.

Question 12

A new start- up corporation is formed by three individuals. They expect the corporation will experience losses in its first few years. The shareholders will prefer to have the corporation taxed as a C corporation rather than making an S election.

Accepted Answer

The answer of A new start- up corporation is formed...

Question 13

Which of the following statements regarding corporate tax return schedules is correct?

Accepted Answer

Schedule M-3 is used to reconcile book-tax differences for corporations with total assets of $10 million or more.

Question 14

Explain the difference between a closed- fact and open- fact situation.

Accepted Answer

The answer of Explain the difference between a closed- fact...

Question 15

In all situations, tax considerations are of primary importance. Do you agree or disagree? Support your answer.

Accepted Answer

The answer of In all situations, tax considerations are of...

Question 16

Describe the format of a client memo.

Accepted Answer

The answer of Describe the format of a client memo....

Question 17

Tax planning is not an integral part of open- fact situations.

Accepted Answer

Tax planning is an integral part of open-fact situations because it involves analyzing the facts and making strategic decisions to minimize tax liabilities.

Question 18

Atomic Corporation is enjoying a very profitable year. The board of directors is considering paying either a bonus to the president of the corporation or an extra dividend to the shareholder. Shinil is both the president and the 100% shareholder. Which of the following statements is generally correct with respect to closely held corporations in Atomic's position?

Accepted Answer

Corporations can deduct bonuses as a business expense, reducing taxable income, whereas dividends are not deductible.

Question 19

Identify which of the following statements is true.

Accepted Answer

The answer of Identify which of the following statements is...

Question 20

A closely held corporation will generally prefer to pay higher salary and lower dividends to shareholders who are employed in the business.

Accepted Answer

This is because salaries are tax deductible for the corporation, while dividends are not. Additionally, higher salaries can be used to retain key employees and incentivize them to continue working for the company.

Quiz 16: Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals