Terminology KEY for SEE Sample Test Questions
|IRC or Code Section||Internal Revenue Code|
|Instructions||IRS Form Instructions|
|Form||IRS Tax Form|
|Pub or Publication||IRS Publication|
|IRB||Internal Revenue Bulletin|
|31 U.S.C.||Title 31 of United States Code|
|C.F.R.||Code of Federal Regulations|
|Treas. Reg. or Regulations||Treasury Regulations|
|DOL||Department of Labor|
|Cir. 230||Treasury Department Circular 230|
|IRM||Internal Revenue Manual|
|T.C. Memo||Tax Court Memo|
|§||Symbol for Code Section|
Numbers and/or letters following the code section symbol are used to guide the user to the appropriate area in the Code for that reference.
1. If a corporation allows earnings to accumulate beyond the reasonable needs of the business, it may be subject to an accumulated earnings tax of
References: IRC § 531; IRS Pub 542, Pg. 17
2. What is the maximum number of shareholders a corporation may have to be eligible to elect to be treated as an S corporation?
References: IRC 1361(b)(1)(A); IRS, Instructions for Form 2553, Pg. 1
3. Which of the following will disqualify a corporation from electing S corporation status?
(A) 75 shareholders
(B) voting and non-voting stock
(C) a non-resident alien stockholder
(D) an employee stock option plan shareholder
References: IRS, Instructions for Form 2553, Pg. 1; IRC 1361(b)(1)(C)
4. An S corporation stockholders' basis is generally increased by
(B) nontaxable discharge of indebtedness
(C) separately stated loss items
(D) taxable income
References: IRC 108 (d)(7), 26 U.S.C. §§ 1367 and 1366; Treasury Regulations § 1.1366-1(a)(2)(viii)
5. Cancellation of Debt (COD) income for a Sub-Chapter S Corporation
(A) flows to shareholder if income is excluded by the S corporation.
(B) is recognized as income to an S Corporation regardless of the extent of corporate insolvency.
(C) is not excluded from gross income to the S Corporation when granted in Chapter 11 reorganizations.
(D) flows to shareholders if income is not excluded by the S Corporation.
References: Income from Discharge of Indebtedness, IRC §§ 108(a)(1) and 108(d)(7)
6. All of the following are true regarding cancellation of debt income for S corporations EXCEPT:
(A) the canceled amount is considered gross income on Form-1120S
(B) the amount of canceled debt excluded from income will increase the basis of the shareholders' stock
(C) the pro rata share of the canceled debt income will pass through to the shareholders
(D) canceled debt income may be excluded to the amount of insolvency of the S corporation
References: IRC §§ 108(d)(7)(A), 61(a)(12), and 1366(a); Reg. 1.108-7(d); Form 1120 Instructions, pgs. 13-14
7. All of the following would be included in the gross receipts of a business for a tax year EXCEPT:
(A) sales made but income not collected during the tax year for a business using an accrual accounting method
(B) sales taxes collected by a business using the cash accounting method
(C) the fair market value of property the business received in exchange for a good or service bartered
(D) lease bonus and lease cancellation payments received from a lessee renting personal property or real estate from the taxpayer
References: Publication 334, Chap 5, pgs. 20-27 & Chap 6, pg. 38; Gross Income Defined, IRC § 61
8. Which of the following would generally be reported as other income for a business?
(A) proceeds from international sales
(B) bad debts recovered
(C) sales tax collected
(D) income not reported on a Form 1099-MISC
References: IRS, Instructions for Schedule C (Form 1040), Pg. C-5; Pub. 535, pgs. 40-41 (Rev. 2016)
9. If a company is an accrual taxpayer, what is the amount of gross receipts reported on the taxpayer’s Form 1040 Schedule C based on the information below?
Service income $25,000
Gain on the sale of an asset $1,500
Interest on accounts receivable $3,000
References: IRS, Tax Guide for Small Business Publication 334, Chap 5, pgs. 20-27; Instructions for Schedule C (Form 1040), Pg. C-5
10. Under the updated capitalization and repair rules, amounts paid for which of the following activities generally are not required to be capitalized unless an election is made to treat them as capital expenditures?
(A) Protecting property through routine maintenance
(B) Amelioration of a pre-existing material defect
(C) Putting property in a better condition
(D) Restoring property to a previous condition from a state of disrepair
References: IRC § 263; Treas. Reg. § 1.263(a)-3
11. The computation of recapture amounts is not necessary when the business use percentage of Section 179 or listed property exceeds
References: IRC § 280F(b)(2); Treas. Reg. § 1.179-1(e)(2); Instructions for Form 4797
12. If a corporation makes a below-market loan to a shareholder, the corporation generally is deemed to make a payment to the shareholder for federal tax purposes. This deemed payment is treated as a(n)
(C) a payment of compensation
References: Below Market Loans, Section 7872(c); IRC, § 7872; Publication 535, pg. 15
13. A corporation makes a $100,000 term loan to a shareholder. The stated principal amount of the loan is payable in ten years. The test rate used to determine if the loan is a below-market loan is the:
(A) short-term applicable Federal rate as of the day the loan is made
(B) mid-term applicable Federal rate as of the day the loan is made
(C) long-term applicable Federal rate as of the day the loan is made
(D) adjusted applicable Federal rate as of the day the loan is made
References: Treatment of loans with below market interest rates: IRC sections 1274(d) and 7872; Publication 535, pg. 15.
14. All of the following are true regarding Income in Respect of a Decedent (IRD) EXCEPT:
(A) IRD is income the decedent would have received had death not occurred.
(B) The character of the IRD remains the same as it would have been to the decedent had they not passed.
(C) If an individual receives IRD and includes it on their return, they are not allowed to claim a deduction for the estate tax paid on that income if Form 706 was filed.
(D) IRD must be included as income on either the decedent's estate return, if the estate receives it, or any person to whom the estate properly distributes the right to receive it.
References: IRC, § 691; IRS, Survivors, Executors and Administrators, Publication 559 Pgs. 9-10, 12
15. All of the following returns would include income in respect of a decedent EXCEPT:
(A) the final Form 1040 for the decedent
(B) the decedent's estate, Form 1041, if the decedent’s estate receives right to the income
(C) the Form 1040 of any person to whom the decedent’s estate properly distributes the income
(D) the beneficiary’s Form 1040, if the right to income arising out of the decedent’s death is passed directly to the beneficiary and is never acquired by the decedent’s estate
References: IRC 691(a)(1); Publication 559; Survivors, Executors and Administrators, pg. 9. Recipients of income in respect of decedents
16. A paycheck issued after the date of death to a taxpayer for work performed prior to death is considered
(A) non-taxable income
(B) income in respect of a decedent
(C) excess compensation
(D) deferred income
References: Pub 559, Survivors, Executors, and Administrators Pg. 10; IRC §691(a)(1)
17. What is the tax consequence of a taxpayer receiving the wages that were due to a decedent at the time of their death?
(A) There is no tax consequence. Inheritances are not taxable.
(B) The income is considered a long term capital gain because it was inherited.
(C) The income is considered ordinary income just as it would have been considered for the decedent.
(D) The income is considered a short term capital gain if it is paid out within one year of the decedent's death.
References: IRS, Publication 559 Survivors, Executors, and Administrators Pgs. 9, 10; IRC § 691; Reg. § 1.691(a)-3(a)
18. An organization may qualify under Section 501(c)(3) if it is organized exclusively for which of the following purposes?
(C) political action
References: IRS Publication Instructions for Form 1023; Code Section 501(c)(3)
19. All of the following are reporting requirements of a qualified retirement plan EXCEPT:
(A) submit Form 5500 - Annual Return of Employee Benefit Plan
(B) information on certain contributions, conversions, and distributions to retirement plans reported on Form 8606
(C) distributions from the plan are reported on Form 1099-R
(D) participants must receive period statements of their account benefits
References: The Dept. of Labor’s Reporting and Disclosure Guide for Employee Benefit Plans which is on the DOL website and referred to on IRS.gov; Publication 590-A, various pages
20. Generally, the deadline to file Form 5500, Annual Return/Report of Employee Benefit Plan is the
(A) fifteenth day of the fourth month after the end of the plan year
(B) fifteenth day of the fifth month after the end of the plan year
(C) fifteenth day of the seventh month after the end of the plan year
(D) last day of the seventh month after the end of the plan year
References: IRS, Annual Return/Report of Employee Benefit Plan, Pg. 4 2016 Instructions for Form 5500; Treas. Reg. §301.6058-1(a)(4)