Test Bank for South-Western Federal Taxation 2026-Corporations
Partnerships Estates and Trusts 49th Edition by Nellen, Young
ISBN: 9798214044033
9798214044033-TEST-BANK
Chapter 1: Ch01 Understanding and Working with the Federal Tax Law
Total Questions: 93
Multiple Choice (40)
Q1. [Multiple Choice] · Bloom's: Remember Which provision could best be justified as a means of controlling the economy?
a) Write-off of research and development expenditures.
b) The § 179 immediate expensing of depreciable capital expenditures. ✓ correct
c) Amortization of pollution control facilities.
d) The rehabilitation tax credit.
Q2. [Multiple Choice] · Bloom's: Remember Which provision could best be justified as encouraging small business?
a) Ordinary loss allowed on § 1244 stock. ✓ correct
b) Percentage depletion.
c) Charitable contributions deduction.
d) Interest deduction on home mortgage.
Q3. [Multiple Choice] · Bloom's: Understand Which provision isnotjustified by social considerations?
a) Refundable earned income credit.
b) Adoption tax credit.
c) Like-kind exchange treatment. ✓ correct
d) Disallowance of illegal kickbacks.
Q4. [Multiple Choice] · Bloom's: Understand Which state isnota community property state?
a) Arizona.
b) Texas.
c) New Mexico.
d) Virginia. ✓ correct
Q5. [Multiple Choice] · Bloom's: Remember Douglas and Sue, related parties, are landlord and tenant as to certain business property. If the IRS questions the amount of rent Sue is paying to Douglas, this is an illustration of the:
a) Arm’s length concept. ✓ correct
b) Continuity of interest concept.
c) Tax benefit rule.
d) Substance over form concept.
Q6. [Multiple Choice] · Bloom's: Understand Federal tax legislation generally originates in what committee?
a) House Budget Committee.
b) Senate Finance Committee.
c) House Ways and Means Committee. ✓ correct
d) House Taxation Committee.
Q7. [Multiple Choice] · Bloom's: Understand Regulations are first published in:
a) Federal Register. ✓ correct
b) Cumulative Bulletin.
c) Internal Revenue Bulletin.
d) I.R.S. Digest.
Q8. [Multiple Choice] · Bloom's: Understand Which citation is considered to be a statutory (legislative) citation?
a) Ltr. Rul.202434002.
b) Ann. 94-5, 1994-2 I.R.B. 39.
c) Reg. § 1.1014-1(c)(1).
d) § 351. ✓ correct
Q9. [Multiple Choice] · Bloom's: Remember ATechnicalAdviceMemorandum is issued by:
a) Treasury Department.
b) National Office of the IRS. ✓ correct
c) Office of Chief Council.
d) Area Director.
Q10. [Multiple Choice] · Bloom's: Remember Revenue Procedures are published in the:
a) Congressional Record.
b) Federal Revenue Bulletin.
c) Internal Revenue Bulletin. ✓ correct
d) I.R.S. Digest.
Q11. [Multiple Choice] · Bloom's: Understand Determine the incorrect citation:
a) TAM 20002704. ✓ correct
b) George W. Guill, 112 T.C.__, No. 22 (1999).
c) John H. Wong, T.C. Summary Opinion 2009-152.
d) Rev. Rul. 98-32, 1998-25 I.R.B. 4.
Q12. [Multiple Choice] · Bloom's: Understand Regarding Technical Advice Memoranda, which statement isincorrect?
a) Issued by the National Office of IRS.
b) Most often deal with a completed transaction.
c) May be cited and used as precedent. ✓ correct
d) Issued with multi-digit file numbers.
Q13. [Multiple Choice] · Bloom's: Understand Which of the following sources has thehighesttax authority?
a) Treasury Regulation.
b) Revenue Procedure.
c) Internal Revenue Code. ✓ correct
d) Temporary Regulation.
Q14. [Multiple Choice] · Bloom's: Remember
Which of the following is an administrative source of tax law?
a) Rev. Rul. 2010-19. ✓ correct
b) Joint Conference Committee Report.
c) Section 12(a) of theInternal Revenue Code
d) All of these.
Q15. [Multiple Choice] · Bloom's: Remember A decision in which of the following courts carries the lowest tax authority?
a) U.S. Court of Appeals for the Federal Circuit.
b) U.S. Court of Appeals for the Second Circuit.
c) U.S. District Court. ✓ correct
d) U.S. Supreme Court.
Q16. [Multiple Choice] · Bloom's: Understand
InForty-Four Cigar Co.,2 B.T.A. 1156, the 1156 stands for:
a) The volume number.
b) The year of the decision.
c) The paragraph number.
d) The page number. ✓ correct
Q17. [Multiple Choice] · Bloom's: Remember
Which statement isnottrue about this citation:Bonkowski v. Comm.,29 TCM 1645 (1970),aff’d458 F.2d 709 (CA-7, 1972),cert. den.?
a) The Supreme Court decided not to agree or disagree with the Seventh Court of Appeals.
b) The Seventh Court of Appeals disagreed with the Tax Court. ✓ correct
c) The Tax Court decision starts on page 1645.
d) The Seventh Court of Appeals decision appears in Vol. 458.
Q18. [Multiple Choice] · Bloom's: Remember
Which of these notations would appear after a U.S. Tax Court citation if the IRS disagrees with the decision?
a) Rev’d935 F.2d 203 (1991).
b) Nonacq. 1979-1 C.B. 1. ✓ correct
c) Cert. den. 361 U.S. 875 (1959).
d) Acq.1990-1 C.B. 2.
Q19. [Multiple Choice] · Bloom's: Remember Which of the following refers to a trial court rather than an appellate court decision?
a) Forgeus v. Comm.,6 B.T.A. 291 (1927). ✓ correct
b) Farris v. Comm.,222 F.2d 320 (CA-10, 1955).
c) Danville Plywood Corp.,899 F.2d 3 (Fed Cir. 1990).
d) Boehm v. Comm.,326 U.S. 287 (1945).
Q20. [Multiple Choice] · Bloom's: Remember
Which citation refers to a Third Circuit Court of Appeals decision?
a) 40 T.C. 1018.
b) 2 TCM 205 (1951).
c) 354 F.Supp. 1003 (D. Ct. Ga, 1972).
d) 914 F.2d 396 (CA-3, 1990). ✓ correct
Q21. [Multiple Choice] · Bloom's: Remember Which state is located in the jurisdiction of the Fifth Circuit Court of Appeals?
a) Louisiana. ✓ correct
b) California.
c) New York.
d) South Carolina.
Q22. [Multiple Choice] · Bloom's: Understand Interpret the following citation: 64-1 USTC 9618,aff’din 344 F. 2d 966.
a) A U.S. Tax Court Small Cases Division decision that was affirmed on appeal.
b) A U.S. Tax Court decision that was affirmed on appeal.
c) A U.S. District Court decision that was affirmed on appeal. ✓ correct
d) A U.S. Court of Appeals decision that was affirmed on appeal.
Q23. [Multiple Choice] · Bloom's: Understand Which citation refers to a Second Circuit Court of Appeals decision?
a) 40 T.C. 1018.
b) 159 F. 2d 848 (CA-2, 1947). ✓ correct
c) 354 F. Supp. 1003 (D. Ct. Ga, 1972).
d) 914 F. 2d 396 (CA-3, 1990).
Q24. [Multiple Choice] · Bloom's: Understand Which citation refers to a U.S. Court of Federal Claims decision?
a) Apollo Computer, Inc. v. U.S.,95-1 USTC ¶ 50,015 (Fed. Cl., 1994). ✓ correct
b) Westreco, Inc.,T.C. Memo. 1992-561 (1992).
c) Bausch & Lomb, Inc. v. Comm.,933 F. 2d 1084 (CA-2, 1991).
d) Portland Manufacturing Co. v. Comm.,35 AFTR 2d 1439 (CA-9, 1975).
Q25. [Multiple Choice] · Bloom's: Understand
If these citations appeared after a trial court decision, which one means that the decision was viewed favorably?
a) Aff’d633 F. 2d 512 (CA-7, 1980). ✓ correct
b) Rem’d399 F. 2d 800 (CA-5, 1968).
c) Rev’d914 F. 2d 396 (CA-3, 1990).
d) Rev’d935 F. 2d 203 (CA-5, 1991).
Q26. [Multiple Choice] · Bloom's: Remember
Which trial court normally has 16 judges?
a) U.S. Tax Court.
b) U.S. Court of Federal Claims. ✓ correct
c) U.S. Supreme Court.
d) U.S. Court of Appeals.
Q27. [Multiple Choice] · Bloom's: Remember
Which trial court’s jurisdiction depends on the geographical location of the taxpayer?
a) U.S. Tax Court.
b) U.S. District Court. ✓ correct
c) U.S. Court of Federal Claims.
d) Small Cases Division of the Tax Court.
Q28. [Multiple Choice] · Bloom's: Understand
Which trial court decision is generally less authoritative?
a) U.S. District Court.
b) U.S. Tax Court.
c) U.S. Court of Federal Claims.
d) Small Cases Division of the Tax Court. ✓ correct
Q29. [Multiple Choice] · Bloom's: Understand
A Memorandum decision of the U.S. Tax Court could be cited as:
a) T.C. Memo. 1990-650. ✓ correct
b) 68-1 USTC 9200.
c) 37 AFTR 2d 456.
d) All of these.
Q30. [Multiple Choice] · Bloom's: Understand Which court decision is generally more authoritative?
a) A U.S. Tax Court decision.
b) A U.S. Court of Federal Claims decision.
c) A U.S. District Court decision.
d) A U.S. Court of Appeals decision. ✓ correct
Q31. [Multiple Choice] · Bloom's: Understand
Which of the following statements about an acquiescence is correct?
a) An acquiescence is issued in theFederal Register
b) Acquiescences are published only for certain regular decisions of the U.S. Tax Court.
c) An acquiescence is published in theInternal Revenue Bulletin. ✓ correct
d) The IRS does not issue acquiescences to adverse decisions that are not appealed.
Q32. [Multiple Choice] · Bloom's: Remember Which is a primary source of tax law?
a) J.W. Yarbo v. Comm., 737 F. 2d 479 (CA-5, 1984). ✓ correct
b) Article by a Federal judge inHarvard Law Review
c) IRS Determination letter.
d) IRS Letter ruling.
Q33. [Multiple Choice] · Bloom's: Remember
A landlord leases property upon which the tenant makes improvements. The improvements are significant and are not made in lieu of rent. At the end of the lease, the value of the improvements is not income to the landlord. This rule is an example of:
a) The wherewithal to pay concept. ✓ correct
b) The tax benefit rule.
c) The arm’s length concept.
d) A clear reflection of income result.
Q34. [Multiple Choice] · Bloom's: Remember What statement is not true with respect to Temporary Regulations?
a) They may not be cited as precedent. ✓ correct
b) They are issued with Proposed Regulations.
c) They automatically expire within three years after the date of issuance.
d) They can be found in the Federal Register.
Q35. [Multiple Choice] · Bloom's: Remember
What administrative release deals with a proposed transaction rather than a completed transaction?
a) Letter Ruling. ✓ correct
b) Technical Advice Memorandum.
c) Determination Letter.
d) Field Service Advice.
Q36. [Multiple Choice] · Bloom's: Remember
If a taxpayer decides not to pay a tax deficiency, they must go to which court?
a) Appropriate U.S. Circuit Court of Appeals.
b) U.S. District Court.
c) U.S. Tax Court. ✓ correct
d) U.S. Court of Federal Claims.
Q37. [Multiple Choice] · Bloom's: Remember
Both economic and social considerations can be used to justify:
a) Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. ✓ correct
b) Disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g., fines, penalties, illegal kickbacks, bribes to government officials).
c) Favorable tax treatment for accident and health plans provided for employees and financed by employers.
d) Allowing a deduction for state and local income taxes paid.
Q38. [Multiple Choice] · Bloom's: Remember
Social considerations can be used to justify:
a) Allowing a federal income tax deduction for state and local sales tax.
b) Allowing excess capital losses to be carried over to other years.
c) Allowing accelerated amortization for the cost of installing pollution control facilities.
d) Allowance of a credit for child care expenses. ✓ correct
Q39. [Multiple Choice] · Bloom's: Remember
Allowing a net operating loss (NOL) carryforward can be justified:
a) As mitigating the effect of the annual accounting period concept. ✓ correct
b) By economic considerations.
c) As promoting administrative feasibility.
d) Based on the wherewithal to pay concept.
Q40. [Multiple Choice] · Bloom's: Remember
Which, if any, of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS)?
a) Penalties are imposed for failure to file a return or pay a tax on time.
b) Prepaid income is taxed in the year received, not in the year earned.
c) Annual adjustments for indexation increase the amount of the standard deduction allowed.
d) A deduction is allowed for charitable contributions. ✓ correct
True/False (48)
Q41. [True/False] · Bloom's: Remember
The U.S. Federal government has a provision in the Constitution that precludes deficit spending. a) true
b) false ✓ correct
Correct answer: False
Q42. [True/False] · Bloom's: Remember Many states have balanced budgets because laws or constitutional amendments preclude deficit spending. a) true ✓ correct b) false
Correct answer: True
Q43. [True/False] · Bloom's: Remember Revenue-neutral tax laws reduce deficits.
a) true
b) false ✓ correct
Correct answer: False
Q44. [True/False] · Bloom's: Remember Longer class lives for depreciable property and the required use of the straight-line method of depreciation would likely dampen the tax incentive for purchasing capital assets.
a) true ✓ correct
b) false
Correct answer: True
Q45. [True/False] · Bloom's: Remember
The Internal Revenue Code is a compilation of Federal tax legislation that appears in Title 26 of the United States Code.
a) true ✓ correct
b) false
Correct answer: True
Q46. [True/False] · Bloom's: Understand
The favorable treatment of research and development expenses(via amortization deductions and tax credits)is one means of controlling the economy.
a) true
b) false ✓ correct
Correct answer: False
Q47. [True/False] · Bloom's: Understand
The encouragement of private-sector pension plans can be justified under the encouragement of certain industries.
a) true
b) false ✓ correct
Correct answer: False
Q48. [True/False] · Bloom's: Remember
One Internal Revenue Code section enables shareholders in a small business corporation to obtain an ordinary deduction for any loss recognized on a stock investment.
a) true ✓ correct
b) false
Correct answer: True
Q49. [True/False] · Bloom's: Understand One of the justifications for the enactment of the tax law governing corporate reorganizations was the economic benefit it would provide businesses (including making them more efficient).
a) true ✓ correct
b) false
Correct answer: True
Q50. [True/False] · Bloom's: Understand Although a corporation is subject to a Federal income tax, a partnership is not.
a) true ✓ correct
b) false
Correct answer: True
Q51. [True/False] · Bloom's: Understand
The Federal income tax law allows a taxpayer to claim a deduction for state and local income taxes but limits all state taxes to a maximum of $10,000(which could possibly sunset at the end of 2025).
a) true ✓ correct
b) false
Correct answer: True
Q52. [True/False] · Bloom's: Understand Alabama and South Carolina are community property states.
a) true
b) false ✓ correct
Correct answer: False
Q53. [True/False] · Bloom's: Understand A tax bill cannot originate in the Senate Finance Committee.
a) true b) false ✓ correct
Correct answer: False
Q54. [True/False] · Bloom's: Remember Taxpayers may readCommitteeReports to determine the intent of Congress. a) true ✓ correct b) false
Correct answer: True
Q55. [True/False] · Bloom's: Remember These Internal Revenue Code citations are incorrect: § 212(1) and § 1221(1).
a) true
b) false ✓ correct
Correct answer: False
Q56. [True/False] · Bloom's: Remember Internal Revenue Code § 6 involves gross income and § 7 outlines itemized deductions. a) true b) false ✓ correct
Correct answer: False
Q57. [True/False] · Bloom's: Remember Subchapter P refers to the subchapter in the Internal Revenue Code that deals with partners and partnerships. a) true b) false ✓ correct
Correct answer: False
Q58. [True/False] · Bloom's: Remember Regulations are arranged in a different sequence than the Internal Revenue Code. a) true b) false ✓ correct
Correct answer: False
Q59. [True/False] · Bloom's: Remember Proposed Regulations have the force and effect of law. a) true b) false ✓ correct
Correct answer: False
Q60. [True/False] · Bloom's: Remember Temporary Regulations have the same authoritative value as Final Regulations for four years. a) true b) false ✓ correct
Correct answer: False
Q61. [True/False] · Bloom's: Remember Proposed Regulations are published in theFederal Register a) true ✓ correct b) false
Correct answer: True
Q62. [True/False] · Bloom's: Remember Regulations are issued by the Treasury Department.
a) true ✓ correct b) false
Correct answer: True
Q63. [True/False] · Bloom's: Remember Revenue Rulings carry the same legal force and effect as Regulations. a) true b) false ✓ correct Correct answer: False
Q64. [True/False] · Bloom's: Remember A Revenue Ruling is a legislative source of Federal tax law. a) true b) false ✓ correct
Correct answer: False
Q65. [True/False] · Bloom's: Remember Revenue Procedures deal with the internal management practices and procedures of the IRS. a) true ✓ correct b) false
Correct answer: True
Q66. [True/False] · Bloom's: Remember Treasury Decisions are issued by the Treasury Department to promulgate new Regulations. a) true ✓ correct b) false
Correct answer: True
Q67. [True/False] · Bloom's: Remember Determination letters usually involve proposed transactions.
a) true b) false ✓ correct
Correct answer: False
Q68. [True/False] · Bloom's: Remember Letter rulings are issued by the National Office of the IRS.
a) true ✓ correct b) false
Correct answer: True
Q69. [True/False] · Bloom's: Remember
A taxpayer must pay any tax deficiency assessed by the IRS and sue for a refund to bring suit in the U.S. District Court.
a) true ✓ correct b) false
Correct answer: True
Q70. [True/False] · Bloom's: Remember In a U.S. District Court, a jury can decide both questions of fact and questions of law. a) true b) false ✓ correct
Correct answer: False
Q71. [True/False] · Bloom's: Remember AU.S. DistrictCourt must abide by the precedents set by the U.S.Court ofAppeals ofitsjurisdiction.
a) true ✓ correct b) false
Correct answer: True
Q72. [True/False] · Bloom's: Remember Appeals from the U.S. Court of Federal Claims go to the U.S. Supreme Court. a) true
b) false ✓ correct
Correct answer: False
Q73. [True/False] · Bloom's: Remember A jury trial is available when a case is heard by a U.S.Court ofAppeals. a) true
b) false ✓ correct
Correct answer: False
Q74. [True/False] · Bloom's: Remember Only one judge hears a trial in a U.S. District Court.
a) true ✓ correct
b) false
Correct answer: True
Q75. [True/False] · Bloom's: Remember TheGolsenrule no longer applies to the U.S. Tax Court.
a) true
b) false ✓ correct
Correct answer: False
Q76. [True/False] · Bloom's: Understand When there is a direct conflict between an Internal Revenue Code section and a treaty provision, the most recent item takes precedence.
a) true ✓ correct b) false
Correct answer: True
Q77. [True/False] · Bloom's: Understand “Legislative" regulations carry more weight than “interpretative” regulations.
a) true ✓ correct
b) false
Correct answer: True
Q78. [True/False] · Bloom's: Remember The U.S. national debt is around $20 trillion.
a) true
b) false ✓ correct
Correct answer: False
Q79. [True/False] · Bloom's: Remember A change in the individual tax rate has an almost immediate impact on the economy. a) true ✓ correct
b) false
Correct answer: True
Q80. [True/False] · Bloom's: Remember The like-kind tax free exchange treatment is an example of the wherewithal to pay concept. a) true ✓ correct b) false
Correct answer: True
Q81. [True/False] · Bloom's: Remember Indexation of various income tax components was eliminated by the Tax Cuts and Jobs Act of 2017. a) true
b) false ✓ correct
Correct answer: False
Q82. [True/False] · Bloom's: Remember When there is a direct conflict between a tax treaty and the Internal Revenue Code, the Internal Revenue Code takes precedence.
a) true
b) false ✓ correct
Correct answer: False
Q83. [True/False] · Bloom's: Remember The Standard Federal Tax Reporter is published by Research Institute of America.
a) true
b) false ✓ correct
Correct answer: False
Q84. [True/False] · Bloom's: Remember The annual gift tax exclusion in 2025 is $18,000.
a) true
b) false ✓ correct
Correct answer: False
Q85. [True/False] · Bloom's: Remember Internal Revenue Code Section 318, which deals with the definition of related parties with respect to stock redemptions, includes brothers and sisters in the related-party definition.
a) true
b) false ✓ correct
Correct answer: False
Q86. [True/False] · Bloom's: Remember Complete avoidance of a capital gain tax occurs when the owner of appreciated property transfers it by death.
a) true ✓ correct b) false
Correct answer: True
Q87. [True/False] · Bloom's: Remember The taxation part of the CPA exam (REG)includes both multiple choice questions and task-based simulations.
a) true ✓ correct
b) false
Correct answer: True
Q88. [True/False] · Bloom's: Remember
The use of generative AI in the tax field will result in the need for fewer tax professionals.
a) true
b) false ✓ correct Correct answer: False
Essay (5)
Q89. [Essay] · Bloom's: Understand
What impact has the community property system had on our Federal tax laws?
Suggested answer: The position of the residents of community property states was so advantageous that many common law states actually adopted community property systems. The political pressure placed on Congress to correct the disparity in tax treatment was considerable. To a large extent, this correction was accomplished in the Revenue Act of 1948, which extended many of the community property tax advantages to residents of common law jurisdictions. Thus, common law states avoided the trauma of discarding their time-honored legal system familiar to everyone. The impact of community property law on the Federal estate and gift taxes is further explored in Chapters 18 and 19.
Q90. [Essay] · Bloom's: Understand
How does a treaty with a foreign country impact a section in the Internal Revenue Code?
Suggested answer: The United States enters into tax treaties (sometimes called tax conventions) with foreign countries to render mutual assistance in tax enforcement and to avoid double taxation. Neither a tax law nor a tax treaty takes precedence. When there is a conflict, the most recently enacted item will take precedence.
Q91. [Essay] · Bloom's: Understand
Explain theGolsendoctrine.
Suggested answer: Because the Tax Court is a national court, it decides cases from all parts of the country. For many years, the Tax Court followed a policy of deciding cases based on what it thought the result should be, even though its decision might be appealed to a U.S. Circuit Court of Appeals that had previously decided a similar case differently. A number of years ago, this policy was changed in theGolsendecision. After that change, the Tax Court will decide a case as it feels the law should be appliedonlyif the Circuit Court of Appeals of the appropriate jurisdiction has not yet passed on the issue or has previously decided a similar case in accord with the Tax Court’s decision. If the Circuit Court of Appeals of the appropriate jurisdiction has previously held otherwise, the Tax Court will conform under theGolsenrule even though it disagrees with the holding.
Q92. [Essay] · Bloom's: Understand What is the value of Actions on Decisions to a tax researcher?
Suggested answer: Actions on Decisions tell a taxpayer the IRS’s reaction to certain court decisions. The IRS follows a practice of either acquiescing (agreeing) or nonacquiescing (not agreeing) with court decisions where guidance may be helpful. This practice does not mean that a particular decision has no value if the IRS has nonacquiesced in the result. It does, however, indicate that the IRS will continue to litigate the issue involved.
Q93. [Essay] · Bloom's: Understand
What value is a tax citator to a tax researcher?
Suggested answer: The use of manual citators or a computer citator search is invaluable to tax research. A citator provides the history of a case including the authority relied on (e.g., other judicial decisions) in reaching the result. Reviewing the references listed in the citator discloses whether the decision was appealed and, if so, with what result (e.g., affirmed, reversed, and remanded). It also reveals other cases with the same or similar issues and how they were decided. Thus, a citator reflects on the validity of a case and may lead to other relevant judicial material.