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Answers are on Page 12.
1. The IRS requested client records from a CPA who does not have
possession or control of the records. According to Treasury Circular 230,
the CPA must
Notify the IRS of the identity of any person who, according to the CPAs
belief, could have the records.
Require the client to submit the records to the IRS or withdraw from the
engagement.
Obtain the records from the client and submit them to the IRS.
Contact all third parties associated with the records, such as banks and
employers, to obtain the requested records for submission to the IRS.
Can sign or prepare the return with this position as long as the CPA
advises the taxpayer that the position is frivolous.
Cannot sign or prepare the return with this position.
Can sign or prepare the return with this position because there is a
realistic possibility that the position will not be challenged.
Can sign or prepare the return with this position if the taxpayer signs a
tax preparer waiver of liability.
4. Which of the following types of debtor are not eligible for relief under
Chapter 11 of the Bankruptcy Code?
Individuals.
Railroads.
Airlines.
Stockbrokers.
Liability arises only when wages are actually, not constructively, paid to
employees.
Credits for this tax are allowed to employers for certain state
unemployment taxes paid by the employer.
The amount is withheld from the wages of all employees.
The amount is determined as a percentage of all compensation paid to
an employee.
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The client is insolvent since the client's liabilities exceed the fair market
value of the client's assets by $20,000.
The CPA is unable to determine whether the client is solvent or
insolvent because the CPA is not an accredited appraiser.
The client is solvent because the fair market value of the client's assets
exceeds the client's nondischargeable debt by $25,000.
The client is solvent because the basis of the client's assets totals
$250,000 and exceeds the client's liabilities by $75,000.
9. Kuo sells residential rental property to his son, Karl for $100,000. Karl
gives Kuo $1,000 and an installment note for the balance of $99,000. Kuo's
basis is $50,000. Karl pays Kuo $4,000 in year 1. In year 2, after paying
Kuo $5,000, Karl sells the property for $70,000. Which of the following
statements about this situation is correct?
10. A husband and wife agree to split monetary gifts to their relatives. The
husband gives his daughter $20,500, and the wife gives her niece $17,000.
The annual exclusion is $12,000. What amount is the taxable gift for the
husband and wife?
$0.
$13,500
$17,000.
$37,500.
11. If a security becomes worthless in the current taxable year, it is treated
as sold or exchanged on
12. Mike and Carol, a married couple, have two assets at the time of Mike's
death: a $10,000,000 life insurance policy owned by Mike naming Carol as
the sole beneficiary, and $8,000,000 of real estate owned by the couple as
joint tenants with right of survivorship. What is the amount of the marital
deduction to Mike's estate for these two assets?
$9,000,000.
$10,000,000.
$14,000,000.
$18,000,000.
$60,000
$73,000
$88,000
$93,000
14. Flowers, a married taxpayer, purchased an annuity for $64,400 that will
pay $700 per month over the life of Flowers and Flowers' spouse. At the
time of purchase the couple's joint life expectancy was 23 years. Flowers
received payment beginning April 1, year 1 amounting to $6,300 in the first
year of the annuity contract. How much is includible in Flowers' gross
income in the first year?
$0
$2,100
$4,200
$6,300
15. Four years ago, an individual taxpayer purchased silver coins at face
value for $200. The coins were stolen in the current year, when their fair
market value was $1,000. The coins were not covered by insurance.
Without considering the limit based on AGI, what is the maximum amount
of loss that the taxpayer can deduct on the current-year's tax return?
$100
$200
$900
$1,000
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$240,000
25,000
Entertainment expense
5,000
Interest income
1,500
Contributions to qualifying
charities
600
3,000
Depreciation expense
1,800
17. Dove and Eagle formed a business entity in which they are equal
owners. Dove contributed cash of $100,000, and Eagle contributed land
with a basis of $40,000 and fair market value of $100,000. For its first year
of operations, the entity had taxable income of $60,000 and made no
distributions. At year end it had outstanding recourse liabilities to third
parties of $10,000. Eagle had a basis of $70,000 in the entity at the end of
the first year of operations. What type of entity was formed?
C corporation.
S corporation.
General partnership.
Limited liability company (LLC).
18. Jetson and Tomson are equal partners in JT Partnership, which has the
following income and expense items:
Sales
$100,000
1,000
Charitable contributions
3,000
Employee wages
4,000
50,000
19. Borasco Corp. owns land with a fair market value of $200,000. Borasco
purchased the land 10 years ago for $65,000 and owes a liability of
$50,000 as of August 2 of the current year. Alvo Corp. owns 100% of
Borasco. Borasco is completely liquidated on August 2 of the current year,
according to a plan adopted on June 18 of the current year. As a result, the
land is transferred to Alvo in complete cancellation of Borasco's stock.
What basis does Alvo have in the land it receives?
$15,000
$65,000
$150,000
$200,000
20. What is the tax rate for an S corporation that pays tax on built-in gains?
Answers:
1. The IRS requested client records from a CPA who does not have
possession or control of the records. According to Treasury Circular 230,
the CPA must
Notify the IRS of the identity of any person who, according to the
CPAs belief, could have the records.
Require the client to submit the records to the IRS or withdraw from the
engagement.
Obtain the records from the client and submit them to the IRS.
Contact all third parties associated with the records, such as banks and
employers, to obtain the requested records for submission to the IRS.
Can sign or prepare the return with this position as long as the CPA
advises the taxpayer that the position is frivolous.
Cannot sign or prepare the return with this position.
Can sign or prepare the return with this position because there is a
realistic possibility that the position will not be challenged.
Can sign or prepare the return with this position if the taxpayer signs a
tax preparer waiver of liability.
4. Which of the following types of debtor are not eligible for relief under
Chapter 11 of the Bankruptcy Code?
Individuals.
Railroads.
Airlines.
Stockbrokers.
Liability arises only when wages are actually, not constructively, paid to
employees.
Credits for this tax are allowed to employers for certain state
unemployment taxes paid by the employer.
The amount is withheld from the wages of all employees.
The amount is determined as a percentage of all compensation paid to
an employee.
The client is insolvent since the client's liabilities exceed the fair
market value of the client's assets by $20,000.
The CPA is unable to determine whether the client is solvent or
insolvent because the CPA is not an accredited appraiser.
The client is solvent because the fair market value of the client's assets
exceeds the client's nondischargeable debt by $25,000.
The client is solvent because the basis of the client's assets totals
$250,000 and exceeds the client's liabilities by $75,000.
9. Kuo sells residential rental property to his son, Karl for $100,000. Karl
gives Kuo $1,000 and an installment note for the balance of $99,000. Kuo's
basis is $50,000. Karl pays Kuo $4,000 in year 1. In year 2, after paying
Kuo $5,000, Karl sells the property for $70,000. Which of the following
statements about this situation is correct?
10. A husband and wife agree to split monetary gifts to their relatives. The
husband gives his daughter $20,500, and the wife gives her niece $17,000.
The annual exclusion is $12,000. What amount is the taxable gift for the
husband and wife?
$0.
$13,500
$17,000.
$37,500.
$9,000,000.
$10,000,000.
$14,000,000.
$18,000,000.
$60,000
$73,000
$88,000
$93,000
14. Flowers, a married taxpayer, purchased an annuity for $64,400 that will
pay $700 per month over the life of Flowers and Flowers' spouse. At the
time of purchase the couple's joint life expectancy was 23 years. Flowers
received payment beginning April 1, year 1 amounting to $6,300 in the first
year of the annuity contract. How much is includible in Flowers' gross
income in the first year?
$0
$2,100
$4,200
$6,300
15. Four years ago, an individual taxpayer purchased silver coins at face
value for $200. The coins were stolen in the current year, when their fair
market value was $1,000. The coins were not covered by insurance.
Without considering the limit based on AGI, what is the maximum amount
of loss that the taxpayer can deduct on the current-year's tax return?
$100
$200
$900
$1,000
16. An S corporation had the following income and expenses:
Sales
Rent expense
$240,000
25,000
Entertainment expense
5,000
Interest income
1,500
Contributions to qualifying
charities
600
3,000
Depreciation expense
1,800
17. Dove and Eagle formed a business entity in which they are equal
owners. Dove contributed cash of $100,000, and Eagle contributed land
with a basis of $40,000 and fair market value of $100,000. For its first year
of operations, the entity had taxable income of $60,000 and made no
distributions. At year end it had outstanding recourse liabilities to third
parties of $10,000. Eagle had a basis of $70,000 in the entity at the end of
the first year of operations. What type of entity was formed?
C corporation.
S corporation.
General partnership.
Limited liability company (LLC).
18. Jetson and Tomson are equal partners in JT Partnership, which has the
following income and expense items:
Sales
$100,000
1,000
Charitable contributions
3,000
Employee wages
4,000
50,000
19. Borasco Corp. owns land with a fair market value of $200,000. Borasco
purchased the land 10 years ago for $65,000 and owes a liability of
$50,000 as of August 2 of the current year. Alvo Corp. owns 100% of
Borasco. Borasco is completely liquidated on August 2 of the current year,
according to a plan adopted on June 18 of the current year. As a result, the
land is transferred to Alvo in complete cancellation of Borasco's stock.
What basis does Alvo have in the land it receives?
$15,000
$65,000
$150,000
$200,000
20. What is the tax rate for an S corporation that pays tax on built-in gains?
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2015:
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