Practice
Exam Fall 2008
Note
that real 2008 exam
will
be all multiple-choice
and
more liberal in materials
allowed,
among other differences.
EXAM
#________
VALPARAISO
UNIVERSITY SCHOOL OF LAW
©Copyright
John J. Potts 2008
Final
Examination Professor Potts
Fall 2004 Federal
Income Taxation
1 1/2 hours of
the Family
Read
these instructions very carefully at least twice.
This
is a 1 1/2 hour examination.
You
may have with you and use the following written material and no other:
-
the Internal
Revenue Code and Regulations, any edition, together with any writing or other
marks thereon, no matter who did the writing or made the marks.
-
your own notes,
no matter from what source made.
The term "your own notes" means notes you authored. It does
not include other notes you own.
You
may not discuss this examination with anyone other than John Potts.
Mark
your examination number, and not your name, on this examination and on every blue book you use. You need not start a new blue book for
your response to every problem. Hand
in the examination itself and
every blue book. Do not expect
leeway beyond 1 1/2 hours for handing in these materials.
Illegible
writing will receive the same credit as writing that is not written down at
all. You are free to type your answers if you prefer typing to
writing.
This
examination uses the word "discuss." It would be a
mistake to construe the meaning of this word narrowly. It should be interpreted to include the
various dimensions of analysis covered in class. Its meaning may in appropriate cases include: analysis of
what applicable law is, and why; analysis of what applicable law should be, and
why; analysis of other policy implications. Its meaning is not necessarily limited to these dimensions
of analysis. It may include
others.
Try
to be thorough in discussing all issues raised by an essay problem. Try to be thorough in your discussion
of issues, but focus more on more important issues.
Time
spent thinking and organizing your thoughts before writing will probably be
time well spent. Again, these
instructions should be read very carefully at least twice.
There
are 14 multiple-choice questions and two essay problems. The multiple-choice questions are
weighted 50% of the exam. You may
decide which of the two essay problems to answer. It will be weighted 50% of the exam. At your option, you may answer both essay problems. If you answer both essay problems, then
the multiple-`choice questions will be weighted 1/3 of the exam, and the two
essay problems will each be weighted 1/3 of the exam.
For
the multiple-choice questions, circle the letter of the correct answer right on
this exam. You do not need to use
a separate card for your answers, although it is OK if you do. For the essay problems, your response
should be given in a blue book or, if you are typing, whatever it is you type
on.
Enjoy
Christmas break!
Exam
#__________
1. Were four legal conclusions described as the great rules family taxation?
A. Yes.
B. No.
2. Generally, income from personal services is taxed to the person who performed the services.
A. Yes.
B. No.
3. Generally, income from property is taxed to the person who owns the property.
A.
Yes.
B.
No.
4. A person who
performs personal services can more easily or less easily arrange to have what
would have been his income taxed to someone else than a person whose income is
from property?
A.
More easily.
B.
Less easily.
5. A, an attorney,
conveys and assigns all his right, title, and interest in the personal services
he will perform on a particular case during the next month to his infant son to
whom all income from those services will be paid. The document of transfer is clear that the transfer is
irrevocable. The child has no
other taxable income. Will the
income be taxed to the child?
A.
Yes.
B.
No.
6. If the income
that is the subject of Question 5 were found by the legal system to be taxable
to the child as unearned income, would you expect the family to pay less money,
the same money, or more money in federal income taxes for the year in which the
month falls?
A.
Less money.
B.
The same money.
C.
More money.
7. B, an attorney,
conveys and assigns all his right, title, and interest in the building in which
he practices law for a period of one month to his infant son to whom all income
from the property for that time period will be paid. The document of transfer is clear that the transfer is
irrevocable. Will the income be
taxed to the child?
A.
Yes.
B.
No.
8. C, an attorney,
conveys and assigns all his right, title, and interest in the building in which
he practices law to his infant son to whom all income from the property will be
paid. The document of transfer is
clear that the transfer is irrevocable.
The child has no other taxable income. Will the income be taxed to the child?
A.
Yes.
B.
No.
9. If the income
that is the subject of Question 7 is found by the legal system to be taxable to
the child, would you expect the family to pay less money, the same money, or
more money in federal income taxes for the first year in which a full yearÕs
rent is paid to the child?
A.
Less money.
B.
The same money.
C.
More money.
10. D, a baker, enters into an
agreement with D, Jr., to form a partnership in which D will have a 90%
interest in capital and profits and D, Jr., will have a 10% interest in capital
and profits. D, Jr., is the infant
son of D. Profits for the most
recently completed year totaled $100,000.
$90,000 was distributed to D.
$10,000 was distributed to D, Jr.
The
$90,000, but not the $10,000, must be included in the taxable income of D.
A.
Yes.
B.
No.
C.
Actually, more
information is needed to answer the question.
11. D, Jr., from the immediately
preceding question, must include the $10,000, but not the $90,000 in his
taxable income.
A.
Yes.
B.
No.
C.
Actually, more
information is needed to answer the question.
12. Assuming that capital
(assets) is a very significant income producing factor in the bakery in the two
immediately preceding questions, and that $10,000 is a fair annual return for
the portion of capital given to D, Jr., by gift on formation of the
partnership, should the $90,000, but not the $10,000, be reported for tax
purposes by D?
A.
Yes.
B.
No.
13. On the same assumptions as in
the immediately preceding question, should the $10,000, but not the $90,000, be
reported for tax purposes by D, Jr.?
A.
Yes.
B. No.
14. Changing the assumptions in Questions 12 and 13, assume instead that capital is not a significant income producing factor in the bakery, should the $90,000, but not the $10,000, be reported for tax purposes by D?
A.
Yes.
B.
No.
Two
essay problems follow. You must
answer one of them, but you may choose which one. You may, at you option, answer both of them
Discuss
the role of trusts in the income tax planning of families.
Discuss
the Òmarriage tax penaltyÓ and how it might be addressed by statutory change.
End
of exam