21 May multiple choice
1. For the tax year, ABC partnership reported $68,000 ordinary loss and $30,000 increase in recourse liabilities for which the partners are liable. Anne, a 50% owner, had an adjusted basis of $20,000 at the beginning of the year. What is Anne’s allowable loss and her adjusted basis in ABC at the end of the year?
a. Allowable loss: $19,000. Adjusted basis: $1,000
b. Allowable loss: $20,000. Adjusted basis: $0
c. Allowable loss: $34,000. Adjusted basis: $0
d. Allowable loss: $34,000. Adjusted basis: $1,000
2. What is the purpose of a reserve for depreciation or depletion?
a. To preserve the corpus for the remainder beneficiaries
b. To shield the funds from taxation at the maximum estate tax rate
c. To pay these expenses for property after distribution to the beneficiaries
d. To provide for additional beneficiaries who may be born after the date of death, but before the close of the estate.
3. What is the trust’s basis of property, where the grantor’s adjusted basis (at the time of funding) in the property is $8,500?
a. $0
b. $4,250
c. $8,500
d. $17,000
4. Which of the following accurately describes a charitable trust?
a. A charitable organization funds the trust with property that produces tax-exempt income for the charity
b. A charitable organization funds the trust and is entitled to tax-exempt income at a later date, specified in the trust document
c. A charitable organization is entitled to either an income interest or a remainder interest, or both, for the trust
d. A charitable organization uses this kind of trust to compensate employees of the charity
5. The distributable net income (DNI} for the Sampson estate is $20,000, including $3,000 of adjusted tax exempt interest income. If the executor distributes $8,000 to the beneficiaries in a year other than the final year, what amount may be taken as a distribution deduction?
a. $6,800
b. $17,000
c. $ $8,000
d. $20,000
6. In 2015, a grandfather gave a life estate to his grandson and a remainder interest to his granddaughter. Each interest is valued at $13,000. The gift to the granddaughter is:
a. Fully shielded by the annual gift tax exclusion
b. Partially shielded by the annual gift tax exclusion
c. Taxable
d. Fully shielded by the annual gift tax exclusion, once it becomes a present interest.
7. Paul sold TLC stock valued at $22,000 to his son, Sam for $12,000. Paul’s basis in the stock is $17,000. Which of the following is correct?
a. Paul reports a gift of $22,000 on form 709 and a capital loss of $10,000 ($12,000 – $22,000) on form 1040. Sam’s basis in the stock is $12,000
b. No reporting is required because the transfer was between immediate family members.
c. Paul is not required to report the $10,000 gift ($22,000 – $12,000) and is not allowed to deduct the $5,000 loss ($12,000 – $17,000 basis). If Sam sells the stock, his basis for the gain is $17,000 and his basis for loss is $12,000
d. Paul reports a gift of $22,000. Sam’s basis in the stock is $12,000
8. In which of the following situations must a gift tax return be filed (assume all gifts are mead in 2015)?
a. A person gives his stepdaughter a wedding gift of a $25,000 check
b. A person gives his alma mater a gift by check for $25,000
c. A person gives his spouse (a U.S. citizen) a gift of $25,000
d. A person gives his church a gift of $25,000. This is the only gift given in 2015
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