28 Free Test Bank for South Western Federal Taxation 2013 Taxation of Business Entities 16th Edition by Smith

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Which, if any, of the following transactions will decreasea taxing jurisdiction’s ad valoremtax revenue imposed on real estate?

•  A tax holiday is granted to an out-of-state business that is searching for a new factory site.
•  An abandoned church is converted to a restaurant.
•  A public school is razed and turned into a city park.
•  A local university sells a dormitory for use as an apartment building.
•  None of the above.

Luis is the sole shareholder of a C corporation, and Eduardo owns a sole proprietorship. Both businesses were started in 2012,and each business has a long-term capital gain of $20,000 for the year. Neither business made any distributions during the year. With respect to this information, which of the following statements is incorrect?

•  Eduardo must report a $20,000 long-term capital gain on his 2012 tax return.
•  Louis’s corporation does not receive a preferential tax rate on the $20,000 long-term capital gain.
•  Luis must report a $20,000 long-term capital gain on his 2012 tax return.
•  Eduardo receives a preferential tax rate on a long-term capital gain of $20,000.

Which, if any, of the following provisions cannotbe justified as mitigating the effect of the annual accounting period concept?

•  Nonrecognition of gain allowed for involuntary conversions.
•  Net operating loss carryback and carryover provisions.
•  Carry over of excess charitable contributions.
•  Use of the installment method to recognize gain.
•  Carry over of excess capital losses.

Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2012. 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?

•  $0 income from the S corporation and $30,000 income from the C corporation.
•  $30,000 income from the S corporation and $30,000 of dividend income from the C corporation.
•  $90,000 income from the S corporation and $0 income from the C corporation.
•  $90,000 income from the S corporation and $30,000 income from the C corporation.
•  None of the above.

Both economic and social considerations can be used to justify:

•  Favorable tax treatment for accident and health plans provided for employees and financed by employers.
•  Disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g., fines, penalties, illegal kickbacks, bribes to government officials).
•  Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education.
•  Allowance of a deduction for state and local income taxes paid.
•  None of the above.

A characteristic of FICA is that:

•  It applies when one spouse works for the other spouse.
•  It is imposed only on the employer.
•  It provides a modest source of income in the event of loss of employment.
•  It is administered by both state and Federal governments.
•  None of the above.

Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in 2012. Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year. The corporation distributed $45,000 to Juanita, and the partnership distributed$45,000 to Carlos. Which of the following statements relating to 2012 is incorrect?

•  Juanita must report $120,000 of income from the corporation.
•  The corporation must pay corporate tax on $200,000 of income.
•  Carlos must report $120,000 of income from the partnership.
•  The partnership is not subject to a Federal entity-level income tax.
•  None of the above.

Social considerations can be used to justify:

•  Allowance of a credit for child care expenses.
•  Allowing excess capital losses to be carried over to other years.
•  Allowing accelerated amortization for the cost of installing pollution control facilities.
•  Allowing a Federal income tax deduction for state and local sales taxes.
•  None of the above.

Francisco is the sole owner of Rose Company. For 2012, the only income of Rose was a long-term capital gain of $25,000. The business made no distributions during the year to Francisco. Irrespective of Rose Company, Francisco’s marginal tax rate is 35% and he has no capital asset transactions. Which of the following statements is incorrect?

•  If Rose Company is a sole proprietorship or S corporation, Francisco must report the $25,000 long-term capital gain on his personal income tax return.
•  If Rose Company is a C corporation, Francisco will report none of the $25,000 long-term capital gain on his personal income tax return.
•  If Rose Company is a sole proprietorship or S corporation, a preferential tax rate applies to the $25,000 long-term capital gain.
•  If Rose Company is a C corporation, a preferential tax rate does not apply to the $25,000 long-term capital gain.
•  None of the above.

Indicate which, if any, statement is incorrect. State income taxes:

•  Can piggyback to the Federal version.
•  Cannot apply to visiting nonresidents.
•  Can decouple from the Federal version.
•  Can provide occasional amnesty programs.
•  None of the above.

Provisions in the tax law that promote energy conservation and more use of alternative (non-fossil) fuels can be justified by:

•  Political considerations.
•  Economic and social considerations.
•  Promoting administrative feasibility.
•  Encouragement of small business.
•  None of the above.

Taxes levied by both states and the Federal government include:

•  General sales tax.
•  Custom duties.
•  Car rental tax.
•  Franchise tax.
•  None of the above.

A characteristic of FUTA is that:

•  It is imposed on both employer and employee.
•  It is imposed solely on the employee.
•  Compliance requires following guidelines issued by both state and Federal regulatory authorities.
•  It is applicable to spouses of employees but notto any children under age 18.
•  None of the above.

Which, if any, of the following provisions of the tax law cannotbe justified as promoting administrative feasibility (simplifying the task of the IRS)?

•  Penalties are imposed for failure to file a return or pay a tax on time.
•  Prepaid income is taxed in the year received and not in the year earned.
•  Annual adjustments for indexation increases the amount of the standard deduction allowed.
•  Casualty losses must exceed 10% of AGI to be deductible.
•  A deduction is allowed for charitable contributions.

Copper Corporation owns stock in Bronze Corporation and has net operating income of $900,000 for the year. Bronze Corporation pays Copper a dividend of $150,000. What amount of dividends received deduction may Copper claim if it owns 85% of Bronze stock (assuming Copper’s dividends received deduction is not limited by its taxable income)?

•  $97,500.
•  $105,000.
•  $120,000.
•  $150,000.
•  None of the above.

Orange Corporation owns stock in White Corporation and has net operating income of $400,000 for the year. White Corporation pays Orange a dividend of $60,000. What amount of dividends received deduction may Orange claim if it owns 15% of White stock (assuming Orange’s dividends received deduction is not limited by its taxable income)?

•  $9,000.
•  $42,000.
•  $48,000.
•  $60,000.
•  None of the above.

Which, if any, of the following transactions will increasea taxing jurisdiction’s revenue from the ad valoremtax imposed on real estate?

•  A resident dies and leaves his farm to his church.
•  A large property owner issues a conservation easement as to some of her land.
•  A tax holiday issued 10 years ago has expired.
•  A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons.
•  None of the above.

State income taxes generally can be characterized by:

•  A different date for filing than the Federal income tax.
•  No provision for withholding procedures.
•  Allowance of a deduction for Federal income taxes paid.
•  Applying only to individuals and not applying to corporations.
•  None of the above.

Taxes levied by all states include:

•  Tobacco excise tax.
•  Individual income tax.
•  Inheritance tax.
•  General sales tax.
•  None of the above.