1. Which, if either, of the following statements is or are true? I. The co-ownership of business property, where only minimal services are provided by the owners for their tenants, generally constitutes a partnership for federal income tax purposes. II. As a general rule, when a person obtains an interest in partnership capital through rendition of services, compensation (ordinary) income is recognized to the extent of the fair market value of the interest received. a. I only. b. II only. c. Both I and II. d. Neither I nor II. 2. Which, if either, of the following statements is or are true? I. On the formation of a partnership, the contribution by one partner of encumbered property to a partnership when other partners contribute only cash will not result in taxation unless the total amount of the debt relief exceeds the contributor’s basis in the contributed property. II. The contribution of accounts receivable to a partnership results in immediate taxation to the contributor to the extent of the fair market value of the receivables on date of contribution. a. I only. b. II only. c. Both I and II. d. Neither I nor II. 3. Under the check-the-box regulations a corporation incorporated under the law of any state can a. elect to be taxed as a partnership b. elect to be taxed as a limited liability company c. elect to be taxed as a sole proprietor if there is only one shareholder d. not be taxed as anything other than a corporation 4. On January 2, 2013, Henry, Cabot, and Lodge formed a three-person equal partnership with Henry and Cabot each contributing $100,000 and Lodge contributing securities with a basis to him of $60,000 and a fair market value of $100,000. On February 28, 2013, the partnership sold the securities for $130,000. The amount of the gain to be allocated to Lodge is: a. $70,000 b. $50,000 c. $30,000 d. $23,333 e. $10,000 5. Malcolm, a dealer in securities, is a 60 percent owner of the Real Partnership which on July 1, 2012, sold to him Acme Securities which it had held as an investment for three years. The basis of the securities to the Real Partnership was $40,000, and the sales price to Malcolm was $100,000. On his 2012 federal income tax return, Malcolm should report income in the amount and character of: a. $36,000 long-term capital gain b. $36,000 short-term capital gain c. $36,000 ordinary income d. $18,000 long-term capital gain e. $18,100 ordinary income 6. Bobbie and Fran are partners in the Quick Freeze partnership, owning respectively 60 percent and 40 percent of the partnership's capital and profits. At the beginning of the 2012, their bases in their partnership interests were $18,000 and $12,000, respectively. During the year, the partnership had the following items of income: partnership ordinary income, $30,000; long-term capital gains, $10,000; and tax-exempt income from municipal bond interest, $5,000. The partnership distri ...

1. 1. Which, if either, of the following statements is or are true?
I. The co-ownership of business property, where only
minimal services are provided by the owners for their tenants,
generally constitutes a partnership for federal income tax
purposes.
II. As a general rule, when a person obtains an interest
in partnership capital through rendition of services,
compensation (ordinary) income is recognized to the extent of
the fair market value of the interest received.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
2. Which, if either, of the following statements is or are true?
I. On the formation of a partnership, the contribution by
one partner of encumbered property to a partnership when other
partners contribute only cash will not result in taxation unless
the total amount of the debt relief exceeds the contributor’s
basis in the contributed property.
II. The contribution of accounts receivable to a

2. partnership results in immediate taxation to the contributor to
the extent of the fair market value of the receivables on date of
contribution.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
3. Under the check-the-box regulations a corporation
incorporated under the law of any state can
a. elect to be taxed as a partnership
b. elect to be taxed as a limited liability company
c. elect to be taxed as a sole proprietor if there is only one
shareholder
d. not be taxed as anything other than a corporation
4. On January 2, 2013, Henry, Cabot, and Lodge formed a
three-person equal partnership with Henry and Cabot each
contributing $100,000 and Lodge contributing securities with a
basis to him of $60,000 and a fair market value of $100,000. On
February 28, 2013, the partnership sold the securities for
$130,000. The amount of the gain to be allocated to Lodge is:
a. $70,000
b. $50,000
c. $30,000
d. $23,333
e. $10,000
5. Malcolm, a dealer in securities, is a 60 percent owner of
the Real Partnership which on July 1, 2012, sold to him Acme
Securities which it had held as an investment for three years.
The basis of the securities to the Real Partnership was $40,000,
and the sales price to Malcolm was $100,000. On his 2012
federal income tax return, Malcolm should report income in the

3. amount and character of:
a. $36,000 long-term capital gain
b. $36,000 short-term capital gain
c. $36,000 ordinary income
d. $18,000 long-term capital gain
e. $18,100 ordinary income
6. Bobbie and Fran are partners in the Quick Freeze
partnership, owning respectively 60 percent and 40 percent of
the partnership's capital and profits. At the beginning of the
2012, their bases in their partnership interests were $18,000 and
$12,000, respectively. During the year, the partnership had the
following items of income: partnership ordinary income,
$30,000; long-term capital gains, $10,000; and tax-exempt
income from municipal bond interest, $5,000. The partnership
distributed $8,000 to Bobbie and $12,000 to Fran. Their
respective bases in their partnership interests at the end of 2012
were:
a. Bobbie: $45,000; Fran: $30,000
b. Bobbie: $42,000; Fran: $28,000
c. Bobbie: $37,000; Fran: $18,000
d. Bobbie: $34,000; Fran: $16,000
e. Bobbie: $33,000; Fran: $22,000
7. Bob contributed a building with an adjusted basis to Bob
of $50,000 and a fair market value of $150,000 subject to a
mortgage of $120,000 in exchange for a 30 percent interest in
the Alpha Partnership. Alpha will assume the mortgage on the
building. What is Alpha's basis in the building?
a. $0
b. $30,000
c. $50,000

4. d. $84,000
8. Which, if either, of the following statements is or are true?
I. A partnership Schedule K-1 to Form 1065 must separately
state long-term capital gains and losses but not short-term
capital gains and losses.
II. As a general rule, a partner’s initial basis in his or her
partnership interest equals the total of the fair market value of
his/her property plus money, if any, contributed by the partner
to the partnership.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
9. Which, if either, of the following statements is or are false?
I. Tax exempt income received by a partnership, for example,
municipal bond interest, does not increase a partner’s basis in
his/her partnership interest because the income is not taxable.
II. A partner who receives a current property distribution (other
than cash), made pro rata to all the partners, will not have to
report a gain with respect to the distribution.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
10. Rex contributed land to the partnership of Rex, Tex, and
Lex Partnership in exchange for a one-third interest in the
Partnership. Rex’s adjusted basis in the land was $50,000 and

5. its fair market value was $75,000. Rex’s Partnership capital
account was credited with $75,000. Tex and Lex had each
contributed $75,000 cash. Thus, each partner’s capital account
was $75,000. What is Rex’s adjusted basis (outside basis) in his
partnership interest?
a. $75,000
b. $50,000
c. $37,500
d. cannot be determined from the facts stated
11. Ten years ago, Lisa acquired a one-third interest in Dee
Associates, a general partnership. In the current taxable year,
when Lisa’s entire interest in the partnership was liquidated,
Dee Associates’ assets consisted of cash of $20,000 and
tangible property with an adjusted basis to the partnership of
$46,000 and a fair market value of $40,000 on the date of
distribution. Dee Associates had no liabilities. Lisa’s adjusted
basis in her one-third interest in the partnership was $22,000.
Lisa received cash of $20,000 in complete liquidation of her
entire interest. How much loss will Lisa recognize upon receipt
of the liquidating distribution?
a. 0.
b. $2,000 short-term capital loss.
c. $2,000 long-term capital loss.
d. $2,000 ordinary loss.

6. 12. Mark, Pete and Mickey are equal partners in the 2MP
Partnership, a general partnership. On January 1, 2011, Mark’s
adjusted basis in his partnership interest was $15,000, Pete’s
adjusted basis in his partnership interest was $10,000, and
Mickey’s adjusted basis in his partnership interest was $20,000.
The partnership had taxable income of $30,000 in 2011 which
was allocated equally among the partners. On December 31,
2012, the partnership made a non-liquidating distribution of
$25,000 cash to Pete. How much income or gain did Pete
recognize as a result of the distribution?
a. 0.
b. $5,000.
c. $15,000.
d. $25,000.
13. Ellen is a 25 percent partner in EFGH Partners, a general
partnership. Ellen’s adjusted basis in her partnership interest is
$18,000. During the current taxable year, Ellen received a non-
liquidating distribution of land from EFGH Partners that had an
adjusted basis to the partnership of $23,000 and a fair market
value of $45,000 on the date of distribution. What is Ellen’s
basis in the land received in the non-liquidating distribution?
a. 0.
b. $18,000.
b. $23,000.
c. $45,000.
14. Gary is a one-third partner in GNG Partners. a general
partnership. Gary’s adjusted basis in his partnership interest is
$25,000. Gary received a distribution of real estate in a non-
liquidating distribution from the partnership. The real estate had
an adjusted basis to the partnership of $20,000 and a fair market
value of $50,000 on the date of distribution. What is Gary’s
basis in the real property received in the non-liquidating

7. distribution?
a. 0.
b. $20,000.
c. $25,000.
d. $50,000.
15. Sunnie purchased 50 percent of the shares of corporation
H, a calendar year S corporation, for $7,000. She also
guaranteed a corporate loan of $6,000. For 2012, H had an
operating loss of $22,000. What is the amount of H’s loss that
Sunnie can deduct on her individual income tax return for 2012?
a. $11,000.
b. $10,000.
c. $7,000.
d. 0.
16. Which of the following trusts is eligible to be an S
corporation shareholder?
a. Electing small business trust.
b. Eligible foreign trust.
c. Qualified subchapter S trust.
d. Only a and c.
e. All of the above trusts are eligible to be S corporation
shareholders.
17. Which of the following count as a single S corporation
shareholder?
a. A husband and wife.
b. A spouse and a spouse’s estate.
c. Members of a family with a common ancestor (who meet
the six generations test).

8. d. All of the above.
18. To become an S corporation, a corporation must:
a. have once been a C corporation.
b. elect to be treated as such.
c. have at least 100 shareholders.
d. only c and b.
e. all of the above.
19. An S corporation may lose its S status because:
a. it issues a second class of stock.
b. it has accumulated E&P and excess passive investment
income for three consecutive years.
c. the number of shareholders exceeds 100.
d. all of the above.
20. A S corporation’s shareholder’s adjusted basis in the
shareholder’s stock is used to determine:
a. the extent to which a distribution made by the corporation
to the shareholder is taxable.
b. the amount of losses that shareholders may deduct in a
given year.
c. the shareholder’s realized gain or loss upon the sale or
exchange of the stock.
d. all of the above.
21. Michael owns stock in an S corporation. The corporation
sustained a net operating loss this year. Michael’s pro rata share
of the loss is $5,000. Michael’s adjusted basis in his S
corporation stock is $1,000 without regard to the loss. In
addition, Michael has a loan outstanding to the corporation in
the amount of $2,000. Without regard to any passive loss
limitation or any at risk rule limitation, what amount, if any, is

9. Michael entitled to deduct with respect to the loss under the
subchapter S rules?
a. $1,000.
b. $2,000.
c. $3,000.
d. $5,000.
22. Helen purchased 50 percent of the shares of HIJ Corp., a
calendar year S corporation, for $7,000. She also loaned the S
Corporation $6,000. For 2011, HIJ Corp. had an operating loss
of $22,000. Without taking into consideration any loss
limitations under the passive activity loss rules or the at risk
rules, what is the amount of HIJ Corp.’s loss that Helen can
deduct on her individual income tax return for 2011 under the
subchapter S rules?
a. $0.
b. $7,000.
c. $11,000.
d. $13,000.
23. Which of the following tax consequences is not determined
by reference to a shareholder’s adjusted basis in the
shareholder’s stock in an S corporation?
a. the extent to which a distribution made by the corporation
to the shareholder is taxable.

10. b. the amount of losses that the shareholder may deduct in a
given year.
c. the shareholder’s realized gain or loss upon the sale or
exchange of the stock.
d. the amount of distributions to which the shareholder is
entitled in a given year.
24. Which of the following is notan eligible S corporation
shareholder?
a. The estate of a United States resident alien decedent.
b. A qualified subchapter S trust with only United States
resident alien beneficiaries.
c. A multi member limited liability company owned solely by
citizens of the United States.
d. An electing small business trust with only United States
citizen beneficiaries.
25. Which of the following isnot a separately stated item of
an S corporation?
a. gross income from business operations.
b. tax credits.
c. investment income expenses.
d. charitable contributions.
26. On January 1 of the current taxable year, Sam and Barbara
form an equal partnership. Sam makes a cash contribution of
$60,000 and a contribution of property with an adjusted basis to
him of $160,000 and a fair market value of $140,000 in
exchange for his interest in the partnership. Barbara contributes
property with an adjusted basis to her of $120,000 and a fair
market value of $200,000in exchange for her partnership
interest. Which of the following statements is accurate
regarding the income tax consequences of this transaction?

11. a. Sam’s adjusted basis in his partnership interest is
$200,000.
b. The partnership’s adjusted basis in the property
contributed by Sam is $140,000.
c. Barbara recognized a gain of $80,000 with respect to her
contribution of property.
d. Barbara’s adjusted basis in her partnership interest is
$120,000.
27. Tina and Betty formed a partnership. Tina received a 40
percent interest in the partnership in exchange for land with an
adjusted basis to her of $60,000 and a fair market value of
$80,000. Betty received a 60 percent interest in the partnership
in exchange for $120,000 of cash. Three years after the date of
contribution, the land contributed by Tina was sold by the
partnership to an unrelated third party for $90,000. How much
gain was required to be allocated to Tina as a result of the sale
by the partnership?
a. $4,000.
b. $12,000.
c. $24,000.
d. $30,000.
28. When inventory that was contributed to a partnership in
exchange for a partnership interest is eventually sold by the
partnership, how will the character of the income or loss be
determined?
a. The character of any income or loss will be ordinary
regardless of when the contributed property is sold by the
partnership and regardless of the character of the asset in the
hands of the partnership.
b. The character of any income or loss will be ordinary if the
contributed property is sold by the partnership within five years
after the date of contribution regardless of the character of the

12. asset in the hands of the partnership
c. The character of any income or loss will be based on the
character of the asset in the hands of the partnership regardless
of when the contributed property is sold by the partnership.
d. The character of any income or loss will be ordinary to the
extent of the contributing partner’s built-in gain or loss in the
property at the time of the contribution regardless of when the
contributed property is sold, and any balance will based on the
character of the asset in the hands of the partnership.
29. Barbara and Bill formed an equal partnership, B&B, a
general partnership, on January 1, 2011. Barbara contributed
$100,000 in exchange for her one-half interest. Bill contributed
land worth $100,000 that had an adjusted basis to him of
$30,000 in exchange for his one-half interest. Which of the
following statements is accurate with respect to this
transaction?
a. None of Barbara, Bill, or B&B recognized any gain or loss.
b. Bill recognized gain of $70,000 , but Barbara and B&B did
not recognize any gain or loss.
c. B&B recognized gain of $70,000 , but Barbara and Bill did
not recognize any gain or loss.
d. Bill and B&B each recognized $70,000 of gain, but Barbara
did not recognize any gain or loss.
30. Which of the following decreases a partner’s basis in the
partner’s partnership interest?
a. Additional contributions the partner makes during the year.
b. The partner’s allocable share of tax-exempt income.
c. The partner’s allocable share of partnership items of
income and gain.
d. Cash distributions to the partner during the year.
31. Jim, one of two equal partners of the JJ Partnership, a

13. general partnership, contributed business property with an
adjusted basis to him of $15,000 and a fair market value of
$10,000 to the JJ Partnership. Jim’s capital account was
credited with $10,000. The property later was sold for $12,000.
As a result of this sale, how much gain or loss must Jim report
on his personal income tax return?
a. $1,000 gain.
b. $1,500 loss.
c. $2,000 gain.
d. $3,000 loss
32. Ronald and Roy formed an equal partnership, R&R
Partnership, a general partnership, on January 1, 2011. Ronald
contributed $100,000 in exchange for his one-half interest in
R&R partnership. Roy contributed land worth $100,000 and
with an adjusted basis to Roy of $30,000 in exchange for his
one-half interest in the partnership. Roy is a real estate
developer, and at the time of the contribution, the land was
inventory in his hands. The land is a capital asset in the hands
of R&R Partnership. If R&R Partnership sells the land in 2017
to an unrelated taxpayer for $180,000,how much gain will be
recognized by R&R Partnership and what will be the character
of the gain?
a. $80,000, all of which gain will be ordinary income
b. $150,000,all of which gain will be capital gain.
c. $150,000,all of which gain will be ordinary income.
d. $150,000, consisting of $80,000 capital gain and $70,000
ordinary income.
33. Glenda received a proportionate nonliquidating
distribution from the EFG Partnership. The distribution
consisted of $10,000 cash and property with an adjusted basis to
the partnership of $34,000 and a fair market value of $42,000.

14. Immediately before the distribution, Glenda’s adjusted basis in
her partnership interest was $60,000. How much is Glenda’s
basis in the noncash property distributed to her?
a. $10,000.
b. $34,000.
c. $42,000.
d. $50,000.
34. The following will result in a corporation’s loss of S status
or failure to qualify except
a. issuing two types of stock, voting common stock and non-
voting common stock.
b. having a partnership as a shareholder.
c. being incorporated in Canada.
d. having 101 shareholders, all unrelated to each other.
35. An S corporation will not be subject to federal income tax
unless
a. 75% of its shareholders so elect.
b. it has foreign source income.
c. it is the successor to a C corporation.
d. it elects to become a limited liability company(LLC).
36. Passive investment income may cause an S corporation to
lose S status
a. if it exceeds 30% of the corporation’s adjusted gross
income for 3 consecutive tax years.
b. unless it is not a successor to a C corporation.
c. if it is a successor to a C corporation having assets in
excess of $10 million fair market value.
d. if the passive investment income was generated by real

15. estate investments.
37. S corporation owns real estate having a basis of $50,000.
When the real estate has appreciated in value to $100,000 S
corporation distributes it to a shareholder. The distribution
a. has no immediate tax effect and the shareholder takes a
basis of $50,000 in the real estate.
b. results in the corporation realizing and recognizing gain of
$50,000.
c. causes any gain recognized by the corporation to be taxed
to the corporation.
d. is a tax deferred transaction that may cause the
corporation to lose its S status if the shareholder/distributee is a
more than 50% shareholder.
38. Distributions to a shareholder from an S corporation’s
Accumulated Adjustments Account(AAA) are
a. tax free to the shareholder.
b. tax-free to the extent of pre-1982 gross income.
c. income taxable to the shareholder if the S corporation is
the successor to a C corporation.
d. forbidden until the S corporation’s Other Adjustments
Account (OAA) is exhausted.
39. Bill owns 50% of the outstanding shares of stock of S
corporation.
a. Bill may revoke the corporation’s S status.
b. Bill may not revoke the S status of the corporation.
c. Bill may sell all of his shares to a third party thus causing
the deemed dissolution of the S corporation and the deemed
creation of a successor C corporation.
d. Bill may sell all or any of his shares to Igor, a citizen of

16. Transylvania residing in Stateboro,GA, thus causing the
corporation to lose its S status.
40. S corporation borrows $5,000 from Bank @6% interest for
one year.
a. If Bill, one of several shareholders of S corporation, signs
an agreement with Bank guaranteeing repayment of the loan, he
may add $5,000 to the basis of his S stock.
b. If shareholder Bill signs a repayment guarantee he will be
entitled to have his Schedule K-1 from S corporation list 100%
of the loan interest paid as his deduction to the exclusion of the
other shareholders.
c. Even if shareholder Bill signs a repayment guarantee he
will not be permitted to increase his S corporation stock basis
by $5,000.
d. Partnership and S corporation tax rules allowing
partners/shareholders to increase the basis of
partners/shareholders by the amount of partnership/corporation
debt are identical.
41. Section 1014 of the Internal Revenue Code
a. requires adjustment to the basis of most items included in
a decedent’s gross estate.
b. permits the exclusion from a decedent’s gross estate of real
property located in a foreign country.
c. provides mortgage foreclosure relief for real property
comprising part of a decedent’s gross estate.
d. will be repealed effective January 1, 2015.
42. The maximum federal estate tax charitable deduction is
a. 50% of the adjusted gross estate.
b. 100% of the fair market value of gross estate property
contributed to charity.

17. c. 35% of the adjusted gross estate.
d. limited to the cash plus fair market value of securities
included in the gross estate and contributed to charity.
43. The 2013 and 2014 annual gift tax exclusion per donee is
a. $14,000.
b. $12,000.
c. one-half of the fair market value of the gift to a maximum
of $20,000.
d. not available to reduce the value of present interest gifts.
44. The decedent died on March 12, 2013. The longest first
income tax year the decedent’s executor can choose for the
estate will end on
a. December 31, 2013.
b. January 31,2014.
c. February 28,2014.
d. March 31,2014.
45. The trustee of a testamentary trust has distributable net
income of $30,000 on December 31, 2013, the last day of the
trust’s income tax year. On March 3, 2014 the trustee makes a
distribution of all distributable net income on hand as of
December 31,2013 to the trust beneficiaries . The trustee
a. may elect to have the distribution treated as though made
on December 31,2013.
b. cannot elect to have the distribution treated as though
made on December 31,2013.
c. is limited to the lesser of distributable net income or trust
accounting income to be deemed as distributed on December 31,
2013.
d. cannot elect to have the distribution treated as though
made on the prior December 31 for the first income tax year of
the trust.

18. 46. All of the following are separately stated items on a
partner’s Schedule K-1 except
a. short term capital gain.
b. ordinary business income of the partnership.
c. dividends.
d. interest.
47. A partnership may deduct start-up expenses in the first
year of operation to a maximum amount of
a. $5,000.
b. $50,000.
c. 25% of start-up expenses.
d. 5% of first year’s gross income.
48. When a partner dies
a. the tax year closes for all the partners on date of death.
b. the partnership tax year closes with respect to the deceased
partner on date of death.
c. the partnership tax year closes for all partners on the last
day of the tax year as it normally would.
d. the partnership may elect a fiscal tax year for all
surviving partners beginning on the day after date of death.
49. A Family Partnership
a. is subject to income taxation as an entity, like a C
corporation.
b. must register as such with the state’s business regulation
agency, much like a limited partnership.
c. must report its annual income on Form 1065 FP and
Schedule K-1/FP.
d. is subject to having its annual reported income re-

19. allocated among family member partners by the IRS.
50. A sale of a general partnership interest
a. automatically makes the purchaser a general partner.
b. is only the sale of the selling partner’s economic interest
in the partnership.
c. is automatically subject to the right-of-first-refusal
granted by the Uniform Partnership Code to the other partners.
d. must first be approved by the other partners and approval
may not be unreasonably withheld.
51. Assume for 2013 that Don made one transfer involving his
granddaughter as follows: Don opened a joint checking account
with his granddaughter, with right of survivorship, for her
college expenses. Don made an initial deposit of $100,000.
During 2013, granddaughter wrote checks on the account to the
school for tuition of $15,000 and living expenses of $20,000.
What is the amount of the taxable gift for federal gift tax
purposes?
a. 0.
b. $6,000.
c. $21,000.
d. $35,000.
52. Oliver gave his wife $5,250,000 worth of publicly traded
stock in August 2013, outright. Oliver's basis in the stock was
$50,000. What is the amount of the taxable gift for federal gift
tax purposes? (Oliver made no other gifts to anyone in 2013).
a. 0.

20. b. $87,000.
c. $100,000.
d. $5,087,000.
53. For 2013, what is the amount of the maximum gift tax
annual exclusion per donor from the value of a gift of a future
interest made to any one donee?
a. 0.
b. $14,000.
c. $28,000.
d. $5,250,000.
Facts for Questions 54 and 55. Mr. Grey died on January 1,
2013. Mr. Grey made no gifts during his life. Under his will,
Mr. Grey devised all of his probate assets to his wife. Mr. Grey
owned the following assets, probate and nonprobate, at the date
of his death:
Asset 1. Home in Mr. Grey's and Mrs. Grey's (his
surviving spouse) names as tenants by the entireties that was
purchased in 2006. The home was had a fair market value of
$2,000,000 both at the date of Mr. Grey's death and six months
after the Mr. Grey's death.
Asset 2. Publicly traded stocks and bonds solely in , Mr.
Grey’s name that had a fair market value of $3,000,000 on the
date of Mr. Grey’s death and a fair market value of $2,000,000
six months after Mr. Grey's death.
Asset 3. Undeveloped real estate in Mr. Grey's name
and the name of his daughter, Sue Smith, jointly with right of
survivorship that Mr. Grey purchased in 2006 for $100,000. The
property had a fair market value of $2,500,000 at the date of
Mr. Grey’s death and a fair market value of $1,000,000 six

21. months after the date of Mr. Grey's death.
Asset 4. A condominium in the decedent's name alone
purchased in 2002 and used as a vacation home that had a fair
market value of $500,000 on the date of Mr. Grey’s death. The
condominium was sold by the personal representative of the
decedent's estate for $250,000 four months after Mr. Grey’s
death.
Based on the facts for questions 4 and 5, which of the
following options are available to Mr. Grey’s estate for
valuation of the assets includible in the gross estate?
a. The estate may use date of death values or it may elect
alternate valuation.
b. The estate must use date of death values.
c. The estate must elect alternate valuation.
d. Valuation is not required as no Federal Estate Tax Return
is required to be filed.
55. Facts for Questions 4 and 5. Mr. Grey died on January 1,
2013. Mr. Grey made no gifts during his life. Under his will,
Mr. Grey devised all of his probate assets to his wife. Mr. Grey
owned the following assets, probate and nonprobate, at the date
of his death:
Asset 1. Home in Mr. Grey's and Mrs. Grey's (his surviving
spouse) names as tenants by the entireties that was purchased in
2006. The home was had a fair market value of $2,000,000 both
at the date of Mr. Grey's death and six months after the Mr.
Grey's death.
Asset 2. Publicly traded stocks and bonds solely in , Mr.
Grey’s name that had a fair market value of $3,000,000 on the
date of Mr. Grey’s death and a fair market value of $2,000,000
six months after Mr. Grey's death.

22. Asset 3. Undeveloped real estate in Mr. Grey's name and
the name of his daughter, Sue Smith, jointly with right of
survivorship that Mr. Grey purchased in 2006 for $100,000. The
property had a fair market value of $2,500,000 at the date of
Mr. Grey’s death and a fair market value of $1,000,000 six
months after the date of Mr. Grey's death.
Asset 4. A condominium in the decedent's name alone
purchased in 2002 and used as a vacation home that had a fair
market value of $500,000 on the date of Mr. Grey’s death. The
condominium was sold by the personal representative of the
decedent's estate for $250,000 four months after Mr. Grey’s
death.
Based upon the facts presented in the fact pattern for questions
4 and 5, what is the amount of Mr. Grey’s gross estate for
federal estate tax purposes?
a. 0.
b. $2,500,000.
c. $3,500,000.
d. $4,250,000.
e. $7,000,000.
56. Louise, who died in January 2013, was survived by her
husband, Larry. Louise’s gross estate was equal to $6,000,000
on the date of death. When Louise died, Louise and Larry
owned an undeveloped parcel of real estate in Ocala. The fair
market value of the land on the date of Louise's death was
$750,000. Larry provided all of the consideration for the
purchase of the land, paying $200,000 for it in 2010. Alternate
valuation is not available to Louise’s estate as all assets owned
by Louise will pass, either under Louise’s last will and
testament or by operation of law, to Larry and hence, no estate
tax will be due because of the marital deduction. What is the

23. amount, if any, includible in Louise's gross estate for federal
estate tax purposes with respect to the land?
a. 0.
b. $200,000.
c. $375,000.
d. $750,000.
57. Under Carl's will, Carl created a testamentary trust to be
funded with $700,000 worth of assets. All of the income of the
trust is payable to Carl’s child, Jane, for her life, and thereafter,
the remaining assets of the trust will pass to The Public Charity.
Jane is serving as the trustee. In addition, the trustee has the
discretion to distribute all or such portion of the principal as the
trustee shall determine for Jane’s heath, support, and
maintenance. Jane’s father, Carl, died during the current
taxable year with a gross estate of $5,350,000. Carl’s spouse
died in 1985 and no estate tax return was due at her death.
Which of the following statements is accurate with respect to
the federal estate tax?
a The estate tax charitable deduction is available to Carl’s
estate for the assets passing to The Public Charity.
b. Jane powers with respect to the assets of the trust
constitute a general power of appointment.
c. Carl’s estate is not required to file Form 706, the Federal
Estate and Generation-Skipping Tax Return.
d. When Jane dies, her right to trust income for life will not
cause inclusion of the assets in her gross estate.
58. At the time of his death, Nick owned the following
property:
Land held by Nick and his sister Ellen, as joint tenants with
right of survivorship. The fair market value of the land on the

24. date of Nick’s death was $600,000, and the land was purchased
by Nick for himself and his sister 20 years before his death for
$150,000.
Land held by Nick and Amy as tenants by the entirety. The fair
market value of the land on the date of Nick’s death was
$800,000, and the land was purchased by Amy for Nick and
Amy five years before Nick’s death for $450,000.
A one-half undivided interest in land held with Lance as tenant
in common. The fair market value of the land on the date of
Nick’s death was $400,000, and the land was purchased by
Lance for Nick and Lance four years before Nick’s death for
$300,000.
City of Dayton bonds worth $500,000 purchased by Nick five
years before his death, and titled in Nick’s sole name.
What amount is includible in Nick’s gross estate assuming
alternate valuation is not available to Nick’s estate?
a. $800,000.
b. $1,100,000.
c. $1,200,000.
d. $1,700,000.
59. If an election is available and is made to use alternate
valuation for federal estate tax purposes, then if property X is
sold within six months after the decedent’s death, property X is
valued for federal estate tax purposes as of which date?
a. The date of the decedent’s death.
b. The date that is six months after the decedent’s of death.
c. The date of sale of the property.

25. d. The date the property is distributed to the beneficiaries.
60. Leslie died on October 31, 2013. Prior to 2012, Leslie had
never made any gifts, but in 2012 she made some transfers.
Specifically, on January 10, 2012, Leslie gave her vacation
beach house to her five children outright, as tenants in common.
The fair market value of the vacation beach house on the date of
the transfer was $50,000. The fair market value of the vacation
beach house at the date of Leslie's death was $100,000. When
Leslie died on October 31, 2013, she owned a vacant lot jointly
with her sister, Melissa, as joint tenants with right of
survivorship. Leslie and her sister each contributed $10,000
toward the $20,000 purchase price. The basis of the property
did not change subsequent to the purchase, and at Leslie's death,
the fair market value of the property was $60,000. There is
$90,000 of life insurance on the life of Leslie, and her estate is
named as the beneficiary. (Assume all assets have the same
value on the alternate valuation date as on the date of death).
What is the amount of Leslie’s gross estate for federal estate tax
purposes?
a. $120,000.
b. $170,000.
c. $220,000.
d. $250,000.