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Multiple Choice
Circle the correct answer.
1) Jerry transfers property with an adjusted basis of $20,000 and FMV of $50,000
into a corporation in a qualied exchange under IRC section 351. As part of the
transaction, the corporation assumes a liability attached to the property in the
amount of $8,000. What is Jerrys recognized gain on the transaction?
a) $0
b) $8,000
c) $30,000
d) $38,000
2) Eleanor transferred $50,000 into Ellie, Inc., which was shown on the corpo-
rate books as a loan. The year after the transfer, the corporation repaid Elea-
nor $15,000. The corporations accumulated earnings and prots were $10,000.
Upon examination, the IRS determined a bona de loan did not exist, and the
$50,000 transfer to the corporation was a contribution to capital. Of the $15,000
distribution to Eleanor, how much is taxable?
a) $0
b) $5,000
c) $10,000
d) $15,000
3) How are constructive dividends reported by a shareholder?
a) Capital gains.
b) Taxable dividends.
c) Nontaxable return of capital.
d) Capital contribution.
4) Early Days Partnership wants to be taxed as an S corporation. What form(s)
must be led to make the S corporation election?
a) By ling Form 8832, Entity Classication Election, the partnership is deemed
to have led the election to be taxed as an S corporation.
b) A partnership cannot elect to be taxed as an S corporation.
c) The partnership must le Form 8832, Entity Classication Election, then Form
2553, Election by a Small Business Corporation.
d) If the partnership les Form 2553, Election by a Small Business Corporation,
the entity is deemed to have made the election to be taxed as a corporation
and no additional form is necessary.
Final Exam
Go to www.thetaxbook.com and click on
Take CPE/CE Final Exams to take the Final Exam. Do not mail.
90 Final Exam TheTaxReview Business Entities
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5) Bart is a partner in Bartsco Partnership. The following item from Bartsco is
reported as a separately stated item on Barts Schedule K-1.
a) Net sales.
b) Depreciation expense.
c) Administrative expenses.
d) Charitable contributions.
6) Concession Stand, a qualied charitable organization, is dissolving. What op-
tions are available for Concession Stand to distribute assets remaining in the
organization upon dissolution?
a) Remaining assets may be distributed back to individuals who made
contributions to capital.
b) Remaining assets may be distributed for an exempt purpose or to the
federal government or to a state or local government for a public purpose.
c) Remaining assets may be reclassied as non-exempt subject to unrelated
business income tax (UBIT).
d) All of the above.
7) An exempt organization is subject to unrelated business income tax (UBIT) if:
a) The organization derives income from a trade or business.
b) The organization regularly carries on a trade or business activity.
c) The organization carries on a trade or business activity not substantially
related to the organizations exempt purpose.
d) All of the above.
8) The following item is deductible by a C corporation.
a) Shareholder wages.
b) Dividends.
c) Repayments of principal on a loan from a shareholder.
d) Principal amount of loan to a shareholder.
9) Nontaxable income earned by a C corporation has the following effect.
a) Nontaxable income does not increase a corporations earnings and prots.
b) Nontaxable income does increase a corporations earnings and prots.
c) Nontaxable income is not reported as business income by the
Ccorporation, but is passed through to shareholders.
d) Otherwise nontaxable income is taxable if earned by a C corporation.
10) When a C corporation makes a distribution in full or partial redemption for
stock, how does the shareholder report the distribution?
a) The distribution is reported as a sale.
b) The value of the stock distributed reduces the shareholders basis in
remaining stock.
c) The shareholder reports the distribution as a taxable dividend.
d) The distribution is treated as a stock dividend.
TheTaxReview Business Entities Final Exam 91
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11) An S corporation cannot have more than the following number of shareholders.
a) 25 shareholders.
b) 50 shareholders.
c) 75 shareholders.
d) 100 shareholders.
12) Eligible S corporation shareholders include:
a) Charitable remainder trusts.
b) Partnerships.
c) Decedents estates.
d) IRAs.
13) When a corporation terminates S corporation status, the post termination tran-
sition period begins. What is the maximum duration of the post termination
transition period?
a) 60 days.
b) 90 days.
c) One year.
d) The post termination transition period is extended until all assets of the
corporation have been distributed.
14) In court case A.W. Chesterton Company, Inc., an S corporation shareholder at-
tempted to terminate an S corporations status by:
a) Transferring stock to an ineligible shareholder.
b) Selling stock to investors to exceed the maximum number of eligible
shareholders.
c) Exercising stock options that violated the one-class-of-stock rule.
d) Rescinding his original consent to the S corporation election.
15) If an S corporation election is terminated, how long must the S corporation wait
until re-electing S corporation status?
a) One year.
b) Five years.
c) Ten years.
d) An S corporation is not allowed to re-elect S corporation status if its
original election was terminated.
16) Dog Days, Inc, an S corporation, has 10 shareholders. Some of the shareholders
wish to revoke the S election. For the revocation to take effect, what is the mini-
mum number of shareholders needed to sign consent statements?
a) 4 shareholders.
b) 5 shareholders.
c) 6 shareholders.
d) 7 shareholders.
92 Final Exam TheTaxReview Business Entities
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17) Which of the following information returns for tax-exempt organizations may
only be led electronically since there is not a paper version?
a) Form 990-PF.
b) Form 990-N.
c) Form 990-EZ.
d) Form 990.
18) Organizations qualifying under IRC section 501(c)(3) are required to keep the
following:
a) Financial books and records.
b) Nonnancial books and records.
c) Financial and nonnancial books and records.
d) Written acknowledgment for a contribution of $200.
19) Bahston Corporation is looking at the requirements to elect S corporation
status. How many shareholders must consent for the election to be effective?
a) 50%.
b) More than 50%.
c) More than 80%.
d) 100%.
20) Gain from the sale of an interest in a partnership held more than one year is
generally taxable at:
a) Long-term capital gain rates.
b) Short-term capital gain rates.
c) Qualied dividend rates.
d) Ordinary income rates.
TheTaxReview Business Entities Final Exam 93
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Final Examination Instructions
Expiration Date Reminder: The Final Exam must be completed online within one year from your date
of purchase or shipment. CPE/CE credits are not available more than one year after your date of
purchase or shipment.
All Final Exams are administered online at www.thetaxbook.com. It is recommended that you review
the Final Exam at the end of the course before taking it online. Final Exams mailed in will not be graded.
Follow the instructions below:
1) Go to www.thetaxbook.com.
2) Click on Take CPE/CE Final Exams, where you will nd a location to log in to the Final Exam.
3) Enter your User Name in the self-study CPE/CE login location. The email address associated with
your account at Tax Materials, Inc. is your User Name. If you do not have an email address, or
have not provided one, please call our toll-free number at 1-866-919-5277 to be assigned a User
Name.
4) Enter your Password. The zip code associated with your account is your password. If you are
having difculty logging onto the Final Exam, please call our toll-free number at 1-866-919-5277.
5) Select the Business Entities Exam and click the Take Exam button.
6) You will be taken to the Final Exam.
First conrm your First Name and Last Name are correct. This is how your name will appear
on your Certicate of Completion should you achieve a score of 70% or higher.
Take the Final Exam. Read the questions carefully and answer them to the best of your ability. At
the bottom of the exam, click on Submit Answers when nished. You will instantly know if you
have passed the test. If you failed, you are able to retake the test. If you passed, the Certicate
of Completion will be available for you to print.
94 Final Exam TheTaxReview Business Entities
TheTaxReview Business Entities Index 95
CPE/CE Index
A
AAA, 25, 31
Accumulated adjustments account, 25, 31
Accumulated E&P, 15
Annual information returns exempt
organizations, 73
Applying for 501(c)(3) status, 71
Appraisal summary exempt organizations, 77
Appreciated inventory items partnerships
and LLCs, 58
B
Basis in a partnership, 51
Basis S corporation shareholders, 30
Basis section 351, 4
Bona de loan, 1
Business income exempt organizations, 79
C
C corporation loans to shareholders, 7
Capital contributions to corporations, 1
Chapter 1 C corporations, 1
Chapter 1 self-quiz, 20
Chapter 2 S corporations, 25
Chapter 2 self-quiz, 39
Chapter 3 partnerships and LLCs, 45
Chapter 3 self-quiz, 61
Chapter 4 exempt organizations, 67
Chapter 4 self-quiz, 84
Constructive dividends, 17
Contributions of capital to corporations, 1
Control section 351, 2
Conversion from C corporation
Scorporations, 30
Corporations, 1
Corporations loans to shareholders, 7
Course completion instructions, ii
Course overview, i
CPE/CE credit hours, i
Creditor/debtor relationship, 8
Current distributions partnerships and
LLCs, 45
D
Debtor/creditor relationship, 8
Deemed dividends S corporations, 33
Distributions from C corporations, 15
Distributions of stock, 18
Distributions partnerships and LLCs, 55
Distributions S corporations, 29
Dividends constructive, 17
Dividends from S corporations, 33
Donee information returns exempt
organizations, 77
E
E&P, 14
Earnings and prots, 1, 14
Educational organizations, 71
Election S corporation, 25
Electronic ling exempt organizations, 75
Eligible shareholders S corporations, 26
Employment tax returns exempt
organizations, 77
e-Postcard, 73
Examination instructions, ii
Exempt organizations, 67
Exempt purpose, 69
Expiration date, i
F
Final exam, 89
Final examination instructions, ii, 93
Five-year waiting period S corporations, 38
Form 990, 75
Form 990-EZ, 75
Form 990-N, 73
Form 990-PF, 75
Form 990-T, 79
Form 2553, 25
Form 8283, 78
G
Group control section 351, 3
H
Holding period section 351, 4
I
Inadvertent termination S corporations, 37
Information returns exempt organizations, 73
Inventory items partnerships and LLCs, 58
L
Late election S corporations, 27
Learning objectives, iii
Liabilities partnerships and S corporations,
53
Liabilities section 351, 4
Liquidating distributions corporations, 14
Liquidating distributions partnerships and
LLCs, 56
LLCs, 45
Loan bona de, 1
Loans to shareholders, 7
N
NASBA, i
National Association of State Boards of
Accountancy, i
Non-liquidating distributions corporations, 14
Nonprot organizations, 67
Nonqualied preferred stock, 3
Nonrecourse liabilities, 45, 54
Nontaxable transfers corporations, 2
O
One-class-of-stock rule, 25
Operational test exempt organizations, 67, 68
Ordering rules for S corporation distributions,
32
Organizational test exempt organizations,
67, 68
Other adjustments account, 25, 32
Outside basis, 51
Overview, i
P
Partners basis, 51
Partnerships, 45
Passing grade, i
Passive investment violation S
corporations, 36
Post termination transition period, 33
Preferred stock section 351, 3
Prerequisites, i
Previously taxed income S corporations, 33
Private foundations, 70
Program content, i
PTI, 33
PTTP, 33
Publication date, i
96 Index TheTaxReview Business Entities
INDEX
Q
QAS, i
Quality Assurance Service, i
Quid pro quo exempt organizations, 78
R
Recommended participants, i
Recordkeeping exempt organizations, 72
Record retention, i
Recourse liabilities, 54
Redemption of stock, 19
Relief for late S corporation election, 27
Religious organizations, 71
Revocation of S corporation status, 34
S
S corporation distributions, 29
S corporation distributions ordering rules, 32
S corporation election, 25
S corporation one-class-of-stock rule, 25
S corporation passive investment
violation,36
S corporation relief for late election, 27
S corporation termination, 34
S corporations, 25
S corporations basis in shareholder stock, 30
Sanctioning bodies, i
Schedule K-1 (Form 1065), 46
Section 179 deduction partnerships and
LLCs, 49
Section 351, 1
Section 351 exchanges, 2
Self-employment earnings partnerships and
LLCs, 50
Separately stated items, 45
Services in exchange for stock, 2
Shareholder revocation S corporations, 34
Shareholders S corporations, 26
Signicant transferor section 351, 5
Stock, 18
Stock distributions, 18
Stock in exchange for services, 2
Substantially appreciated inventory items
partnerships and LLCs, 58
T
Tax-exempt income partnerships and
LLCs,51
Termination of S corporation status, 34
U
Unrealized receivables partnerships and
LLCs, 59
Unrelated business income, 67, 79
TheTaxReview Business Entities Course Evaluation 97
Course Evaluation
Please comment on all the following evaluation points for this program and assign a number grade, using a 1 5 scale,
with 5 as the highest.
Grade
(1 5)
1) Were the stated learning objectives met?
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2) Were the prerequisite requirements appropriate?
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4) Were program materials relevant?
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5) Did the program materials contribute to the achievement of the learning objectives?
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2013 Business Entities Self-Study CPE/CE CPE/CE