Advanced Federal Taxation Exam Bank
Course Introduction
Advanced Federal Taxation delves into the complex principles and issues surrounding federal income taxation, focusing on topics such as corporate tax structures, partnership taxation, S corporations, tax research, and compliance requirements for businesses and individuals with intricate tax needs. The course emphasizes current tax laws, strategic planning, and ethical considerations, giving students opportunities to apply advanced tax concepts through case studies and problem-solving exercises. By the end of the course, students will have a comprehensive understanding of federal tax regulations and be prepared to address sophisticated tax matters in professional practices.
Recommended Textbook
South Western Federal Taxation 2019 Comprehensive 42nd Edition by David M. Maloney
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28 Chapters
4038 Verified Questions
4038 Flashcards
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Page 2
Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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211 Verified Questions
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Sample Questions
Q1) Which of the following is a characteristic of the audit process?
A) Most taxpayer audits involve "special" agents.
B) Self-employed taxpayers are less likely to be selected for audit than employed taxpayers.
C) Less important issues are handled by means of a correspondence audit.
D) If a taxpayer disagrees with the IRS auditor's finding, the only resort is to the courts.
E) None of these.
Answer: C
Q2) An excise tax is often used to try to influence behavior.
A)True
B)False Answer: True
Q3) "Bracket creep" will not exist if there is only a single (flat) tax rate for the income tax. A)True
B)False
Answer: True
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Chapter 2: Working with the Tax Law
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Sample Questions
Q1) What statement is not true with respect to Temporary Regulations?
A) May not be cited as precedent.
B) Issued with Proposed Regulations.
C) Automatically expire within three years after the date of issuance.
D) Found in the Federal Register.
E) All of these statements are true.
Answer: A
Q2) The research process should always begin with a tax service.
A)True
B)False
Answer: False
Q3) Revenue Rulings issued by the National Office of the IRS carry the same legal force and effect as Regulations.
A)True
B)False
Answer: False
Q4) A taxpayer can obtain a jury trial in the U.S. Tax Court.
A)True
B)False
Answer: False
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Chapter 3: Computing the Tax
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Sample Questions
Q1) A family friend who is supported by and lives with the taxpayer. Answer: b
Q2) Monique is a resident of the U.S. and a citizen of France. If she files a U.S. income tax return, Monique cannot claim the standard deduction.
A)True
B)False
Answer: False
Q3) Dan and Donna are husband and wife and file separate returns for the year. If Dan itemizes his deductions from AGI, Donna cannot claim the standard deduction.
A)True
B)False
Answer: True
Q4) Lucas, age 17 and single, earns $6,000 during 2018. Lucas's parents cannot claim him as a dependent if he does not live with them.
A)True
B)False Answer: True
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Chapter 4: Gross Income: Concepts and Inclusions
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Sample Questions
Q1) On January 1, Father (Dave) loaned Daughter (Debra) $100,000 to purchase a new car and to pay off college loans. There were no other loans outstanding between Dave and Debra. The relevant Federal rate on interest was 6 percent. The loan was outstanding for the entire year.
A) If Debra has $15,000 of investment income, Dave must recognize $6,090 of imputed interest income.
B) Dave must recognize $6,090 of imputed interest income regardless of the amount of Debra's investment income.
C) Debra must recognize $6,090 of imputed interest income.
D) Debra must recognize $6,090 of imputed interest income if Dave has at least $6,090 of investment income.
E) None of these.
Q2) Ted earned $150,000 during the current year. He paid Alice, his former wife, $75,000 in alimony. The couple divorced in 2016. Under these facts, the tax is paid by the person who benefits from the income rather than the person who earned the income.
A)True
B)False
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Page 6
Chapter 5: Gross Income: Exclusions
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Sample Questions
Q1) Evaluate the following statements:
I. De minimis fringe benefits are those that are so immaterial that accounting for them is impractical.
II. De minimis fringe benefits are subject to strict anti-discrimination requirements.
III. Generally, a fringe benefit of less than $50 is considered de minimis and can be excluded from gross income.
A) Only I is true.
B) Only III is true.
C) Only I and III are true.
D) I, II, and III are true.
E) None of these.
Q2) For a person who is in the 35% marginal tax bracket, $1,000 of tax-exempt income is equivalent to $1,350 of income that is subject to tax.
A)True
B)False
Q3) What Federal income tax benefits are provided for college students?
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Chapter 6: Deductions and Losses: In General
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Sample Questions
Q1) An expense need not be recurring in order to be "ordinary."
A)True
B)False
Q2) Which of the following is not relevant in determining whether an activity is profit-seeking or a hobby?
A) Whether the activity is enjoyed by the taxpayer.
B) The expertise of the taxpayers or their advisers.
C) The time and effort expended.
D) The relationship of profits earned and losses incurred.
E) All of the above are relevant factors.
Q3) Taylor, a cash basis architect, rents the building in which his office is located for $5,000 per month. He commenced his practice on February 1, 2018. In order to guarantee no rent increases during an 18-month period, he signed an 18- month lease and prepaid the $90,000 on February 1, 2018. How much can Taylor deduct as rent expense for 2018?
Q4) None of the prepaid rent paid on September 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.
A)True
B)False
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Page 8
Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) A taxpayer can carry an NOL forward indefinitely.
A)True
B)False
Q2) A business theft loss is taken in the year of the theft.
A)True
B)False
Q3) When a nonbusiness casualty loss is spread between two taxable years, the loss in the second year is reduced by 10% of adjusted gross income for the first year.
A)True
B)False
Q4) A theft loss of investment property is an itemized deduction not subject to the 2%-of-AGI floor.
A)True
B)False
Q5) A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.
A)True
B)False
Page 9
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Chapter 8: Depreciation, Cost Recovery, Amortization, and Depletion
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Sample Questions
Q1) The only asset Bill purchased during 2018 was a new seven-year class asset. The asset, which was listed property, was acquired on June 17 at a cost of $50,000. The asset was used 40% for business, 30% for the production of income, and the rest of the time for personal use. Bill always elects to expense the maximum amount under § 179 whenever it is applicable. The net income from the business before the § 179 deduction is $100,000. Determine Bill's maximum deduction with respect to the property for 2018.
A) $1,428
B) $2,499
C) $26,749
D) $33,375
E) None of the above
Q2) The key date for calculating cost recovery is the date the asset is placed in service.
A)True
B)False
Q3) Under MACRS, equipment falling in the 7-year MACRS class will be cost recovered over seven tax years.
A)True
B)False
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Sample Questions
Q1) Which of the following expenses, if any, qualify as deductible in 2018?
A) Contribution to a Roth IRA.
B) Costs involved in maintaining an office in the home by a self-employed insurance adjuster. Taxpayer's wife also uses the office as a meeting place for her bridge club.
C) Cost of moving to first job location. Taxpayer just graduated from college.
D) Job hunting expenses of a fishing guide to become an insurance salesman.
E) None of the above.
Q2) Felicia, a recent college graduate, is employed as an accountant by an oil company. She would like to continue her education and obtain a law degree. Discuss Felicia's tax status if she attends a local law school on a:
a. Part-time basis.
b. Full-time basis.
Q3) Isabella is a dental hygienist who works for five different dentists. She spends one day a week (i.e., Monday through Friday) with each. All of the dentists except Dr. Stanki (the Wednesday assignment) treat her as an employee. Dr. Stanki, however, classifies her as being self-employed. Comment on this discrepancy in treatment.
Q4) The services are performed at Sue's premises.
Q5) Sue has unreimbursed expenses.
Page 11
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) Pedro's child attends a school operated by the church the family attends. Pedro made a donation of $1,000 to the church in lieu of the normal registration fee of $200. In addition, Pedro paid the regular tuition of $6,000 to the school. Based on this information, what is Pedro's charitable contribution?
A) $0
B) $800
C) $1,000
D) $6,800
E) $7,000
Q2) For the past several years, Jeanne and her two sisters have taken turns claiming a dependency exemption deduction for their mother under a multiple support agreement. This year Jeanne will be entitled to the exemption, and her mother needs money for surgery and new eyeglasses. Should Jeanne pay for the medical expenses as her share of her mother's expenses? How would this benefit Jeanne?
Q3) Tom, whose MAGI is $40,000, paid $3,500 of interest on a qualified student loan in 2018. Tom is single. He may deduct the $3,500 interest as an itemized deduction.
A)True B)False
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Chapter 11: Investor Losses
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Sample Questions
Q1) Ramon incurred $83,100 of interest expense related to his investments this year. His investment income included $34,500 of interest and a $37,500 net capital gain on the sale of securities. Ramon has asked you to compute the amount of his deduction for investment interest, taking into consideration any options he might have. What is the maximum amount of Ramon's investment interest expense deduction in the current year?
A) $19,500.
B) $34,500.
C) $72,000.
D) $83,100.
E) None of the above.
Q2) Treatment of a disposition of a passive activity by gift.
Q3) Kathy, who qualifies as a real estate professional, owns an apartment building and devotes 550 hours to managing the activity. All losses from the rental activity will be considered nonpassive and deductible against active income.
A)True
B)False
Q4) Treatment of a disposition of a passive activity at death.
Q5) Treatment of an installment sale of a passive activity.
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Chapter 12: Tax Credits and Payments
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Sample Questions
Q1) An employer's tax deduction for wages is affected by the work opportunity tax credit.
A)True
B)False
Q2) The disabled access credit was enacted to encourage small businesses to make their businesses more accessible to disabled individuals.
A)True
B)False
Q3) During the year, Purple Corporation (a U.S. Corporation) has U.S.-source income of $1,800,000 and foreign income of $600,000. The foreign-source income generates foreign income taxes of $150,000. The U.S. income tax before the foreign tax credit is $816,000. Purple Corporation's foreign tax credit is:
A) $112,500.
B) $150,000.
C) $204,000.
D) $816,000.
Q4) Only self-employed individuals are required to make estimated tax payments.
A)True
B)False
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14
Chapter 13: Property Transactions: Determination of Gain or
Loss, Basis Considerations, and Nontaxable Exchanges
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Sample Questions
Q1) Leonore exchanges 5,000 shares of Pelican, Inc., stock for 2,000 shares of Blue Heron, Inc., stock. Leonore's adjusted basis for the Pelican stock is $300,000 and the fair market value of the Blue Heron stock is $350,000. Leonore's recognized gain is $0 and her adjusted basis for the Blue Heron stock is $300,000.
A)True
B)False
Q2) A taxpayer whose principal residence is destroyed in a fire can use both the § 121 (sale of residence gain exclusion) and the § 1033 (involuntary conversion postponement of gain) provisions.
A)True
B)False
Q3) The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.
A)True
B)False
Q4) If Wal-Mart stock increases in value during the tax year by $6,000, the amount realized is a positive $6,000.
A)True
B)False
Page 15
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Chapter 14: Property Transactions: Capital Gains and
Losses, Section 1231, and Recapture Provisions
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Sample Questions
Q1) The "tax status" of an asset refers to whether the asset is a capital asset, a § 1231 asset, or an ordinary asset.
A)True
B)False
Q2) Robin Corporation has ordinary income from operations of $30,000, net long-term capital gain of $10,000, and net short-term capital loss of $15,000. What is the taxable income for 2018?
A) $25,000
B) $27,000
C) $28,500
D) $30,000
E) None of the above
Q3) Annabelle is a "trader" in securities. She works for a national securities firm. She occasionally buys and sells securities for her personal account. On May 10, 2017, she purchased 100 shares of Acorn, Inc. common stock for a total of $40,000. She sold all of those shares for a total of $46,000 on July 11, 2018. What was the amount and nature of her gain or loss from this transaction? What could she have done to change this result?
Q4) May an individual that has purchased a patent be a holder of that patent?
Page 16
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Chapter 15: Taxing Business Income
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Sample Questions
Q1) Ashley (a single taxpayer) is the owner of ABC, LLC. The LLC (a sole proprietorship) reports QBI of $900,000 and is not a "specified services" business. ABC paid total W-2 wages of $300,000, and the total unadjusted basis of property held by ABC is $30,000. Ashley's taxable income before the QBI deduction is $740,000 (this is also her modified taxable income). What is Ashley's QBI deduction for 2018?
Q2) Jenna Parker owns and manages her single member LLC which provides a wide variety of financial services to her clients.She is married and will file a joint tax return with her spouse, Paul.Her LLC reports $300,000 of net income, W-2 wages of $120,000, and assets with an unadjusted basis of $75,000.Their taxable income before the QBI deduction is $285.000 (this is also their modified taxable income).What is their QBI deduction for 2018?
A) $-0-.
B) $57,000.
C) $60,000.
D) $70,000.
E) None of the above.
Q3) The qualified business income deduction is severely limited for "specified services" businesses. What is a "specified services" trade or business?
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Chapter 16: Accounting Periods and Methods
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Sample Questions
Q1) What incentives do the tax accounting rules provide for taxpayers to voluntarily change from an incorrect method of accounting that has reduced the company's tax liability in prior years?
Q2) In 2008, a medical doctor who incorporated her practice elected a fiscal year ending September 30th. During the fiscal year ended September 30, 2018, she received a salary of $190,000. During the period from October 1, 2018 to December 31, 2018, the corporation paid the doctor a total salary of $60,000, and paid her $240,000 of salary in the following 9 months. The corporation's salary deduction for the fiscal year ending September 30, 2019, is limited to $240,000.
A)True B)False
Q3) The Seagull Partnership has three equal partners. Partner A's tax year ends June 30th, and Partners B and C use a calendar year. If the partnership uses the calendar year to report its income, Partner A is permitted to defer partnership income earned from July through December 2018 until he files his tax return for his year ending June 30, 2019.
A)True B)False
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Page 18
Chapter 17: Corporations: Introduction and Operating Rules
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Sample Questions
Q1) On December 31, 2018, Peregrine Corporation, an accrual method, calendar year taxpayer, accrued a performance bonus of $100,000 to Charles, a cash basis, calendar year taxpayer. Charles is president and sole shareholder of the corporation. When can Peregrine deduct the bonus?
A) In 2018, if the bonus was authorized by the Board of Directors and payment was made on or before April 15, 2019.
B) In 2019, if payment was made at any time during that year.
C) In 2018, if payment was made on or before April 15, 2019.
D) In 2019, but only if payment was made on or before April 15, 2019.
E) None of the above.
Q2) As a general rule, C corporations must use the cash method of accounting. However, under several exceptions to this rule (e.g., average annual gross receipts of $25 million or less for the most recent 3-year period), a C corporation can use the accrual method.
A)True
B)False
Q3) How is the limitation on the deduction of business interest computed? Does it apply to all taxpayers? What happens to any business interest deduction disallowed by the limitation?
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Chapter 18: Corporations: Organization and Capital Structure
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Sample Questions
Q1) Tan Corporation desires to set up a manufacturing facility in the western part of the United States. After considerable negotiations with Butte, Montana, Tan accepts the following offer: land (fair market value of $4.5 million) and cash of $1.5 million.
a. How much income, if any, must Tan recognize?
b. What basis will Tan Corporation have in the land?
c. Within one year of the contribution, Tan purchases equipment for $1.6 million. What basis will Tan have in the equipment?
Q2) In determining whether § 357(c) applies, assess whether the liabilities involved exceed the bases of all assets a shareholder transfers to the corporation.
A)True
B)False
Q3) When incorporating her sole proprietorship, Samantha transfers all of its assets and liabilities. Included in the $30,000 of liabilities assumed by the corporation is $500 that relates to a personal expenditure. Under these circumstances, the entire $30,000 will be treated as boot.
A)True
B)False
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Chapter 19: Corporations: Distributions Not in Complete
Liquidation
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Sample Questions
Q1) At the beginning of the current year, Doug and Amelia each own 50% of Amaryllis Corporation (a calendar year taxpayer). In July, Doug sold his stock to Kevin for $140,000. At the beginning of the year, Amaryllis Corporation had accumulated E & P of $240,000 and its current E & P is $280,000 (prior to any distributions). Amaryllis distributed $300,000 on February 15 ($150,000 to Doug and $150,000 to Amelia) and distributed another $300,000 on November 1 ($150,000 to Kevin and $150,000 to Amelia). Kevin has dividend income of:
A) $150,000.
B) $140,000.
C) $110,000.
D) $70,000.
E) None of the above.
Q2) When current E & P has a deficit and accumulated E & P is positive, the two accounts are netted at the date of the distribution. If a positive balance results, the distribution is a dividend to the extent of the balance.
A)True
B)False
Q3) Briefly discuss the rules related to distributions of non-cash property.
Q4) Cash dividends distributed to shareholders in 2018.
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganizations
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Q1) What will cause the corporations involved in a § 368 reorganization to recognize gain or loss? What will cause shareholders of the companies involved in the corporate reorganization to recognize gain or loss? If gain is recognized by shareholders, what are the different tax character possibilities?
Q2) If a parent corporation makes a § 338 election, the subsidiary corporation must be liquidated.
A)True
B)False
Q3) If a liquidation qualifies under § 332, any minority shareholder will recognize gain or loss equal to the difference between the fair market value of assets received and the basis of the shareholder's stock.
A)True
B)False
Q4) The related-party loss limitation applies to distributions to related parties and either the distribution is pro rata or the property distributed is disqualified property.
A)True
B)False
Q5) Discuss the role of letter rulings in corporate reorganizations.
Page 22
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Chapter 21: Partnerships
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Q1) Catherine's basis was $50,000 in the CAR Partnership just before she received a proportionate current (nonliquidating) distribution consisting of land held for investment with a basis to CAR of $40,000 (value of $60,000), and inventory with a basis of $40,000 (value of $40,000). After the distribution, Catherine's bases in the land and inventory are:
A) $40,000 (land)? $40,000 (inventory).
B) $40,000 (land)? $10,000 (inventory).
C) $10,000 (land)? $40,000 (inventory).
D) $25,000 (land)? $25,000 (inventory).
E) $60,000 (land)? $40,000 (inventory).
Q2) Carried interest
Q3) Section 721 provides that, in general, no gain or loss is recognized by the partnership or the partner on contribution of appreciated or depreciated property to a partnership in exchange for an interest in the partnership.
A)True
B)False
Q4) Publicly-traded partnership
Q5) Carryover
Q6) Economic risk of loss
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Chapter 22: S Corporations
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Q1) An S corporation recognizes a ________________ on any distribution of appreciated property.
Q2) An S election is made on the shareholder's Form 2553.
A)True
B)False
Q3) Liabilities affect the owner's basis differently in an S corporation than they do in a partnership.
A)True
B)False
Q4) Which statement is incorrect?
A) S corporations are treated as corporations under state law.
B) S corporations are treated as partnerships for Federal income tax purposes.
C) Distributions of appreciated property are taxable to the S corporation.
D) None of the above statements is incorrect.
Q5) The choice of a flow-through entity for a closely-held corporation often is between a(n) _____________ (a Federal tax entity) and a(n)__________ (a state tax entity).
Q6) Only 51% of the shareholders must consent to an S election.
A)True
B)False
Page 24
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Chapter 23: Exempt Entities
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Q1) How can an exempt organization, otherwise classified as a private foundation, become a public charity?
Q2) Not an exempt organization
Q3) Debt-financed property consists of all real property of a tax-exempt organization on which there is a mortgage.
A)True
B)False
Q4) Watch, Inc., a § 501(c)(3) exempt organization, solicits contributions through a mail campaign. An executive, who recently completed an executive MBA degree program, recommends that personal address labels be included as an additional way to motivate the potential donor to contribute. The value of these labels is $9.95 per potential donor. What is the effect of the inclusion of the address labels on Watch's unrelated business income?
Q5) Even though a church is not required to obtain IRS approval of its exempt status, it still annually must file a Form 990.
A)True
B)False
Q6) Bingo games
Q7) § 501(c)(5) labor organization
Page 25
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Chapter 24: Multistate Corporate Taxation
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Q1) With respect to typical sales/use tax laws:
A) Exemptions are granted for purchases of clothing.
B) Exemptions are granted for fuel-efficient automobiles.
C) Fees paid for legal services are exempt.
D) Restaurant meals are exempt.
Q2) A local property tax:
A) Applies to the equipment of a business.
B) Applies to an individual's stock portfolio.
C) Both a. and b.
D) Neither a. nor b.
Q3) Operating a warehouse for inventory that is held in the state.
Q4) The typical local property tax falls on both an investor's principal residence and her stock portfolio.
A)True
B)False
Q5) Sylvia spends time working at the offices of her employer as a consultant to clients who are located in three different U.S. states. To which state(s)' payroll factor(s) is Sylvia's compensation assigned? Apply the general UDITPA rules.
Q6) Training administrative personnel to use an update to ordering software.
Page 26
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Chapter 25: Taxation of International Transactions
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Q1) Twenty unrelated U.S. persons equally own all of the stock of Quigley, a foreign corporation. Quigley is a CFC.
A)True
B)False
Q2) SilverCo, a U.S. corporation, incorporates its foreign branch in a § 351 exchange, creating GreenCo, a wholly owned foreign corporation. SilverCo transfers $200 in Yen (basis = $150) and $900 in land (basis = $925) to GreenCo. GreenCo uses these assets in carrying on a trade or business outside the United States. What gain or loss, if any, is recognized as a result of this transaction?
A) ($25)
B) $0
C) $25
D) $50
Q3) The U.S. system for taxing income earned inside its borders by non-U.S. persons is referred to as inbound taxation because such foreign persons are earning income by coming into the United States.
A)True
B)False
Q4) Method for sourcing income and deductions.
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Chapter 26: Tax Practice and Ethics
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184 Verified Questions
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Source URL: https://quizplus.com/quiz/7733
Sample Questions
Q1) The ________________ , a presidential appointee, is the "IRS's attorney."
Q2) In taking a dispute to the Appeals Division, a written protest is required of the taxpayer when the proposed deficiency exceeds $____________________.
Q3) Cheng filed an amended return this year, claiming a refund relative to her tax computation on a prior-year's return. When the IRS approves the amended return and issues the refund, it also pays Cheng interest with respect to the overpayment.
A)True
B)False
Q4) The taxpayer must pay a significant fee to have a letter ruling issued by the IRS.
A)True
B)False
Q5) Negligence in filing a return.
Q6) An IRS "office audit" takes place at the headquarters office of the corporate taxpayer. A)True
B)False
Q7) Substantial understatement of a tax.
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Chapter 27: The Federal Gift and Estate Taxes
Available Study Resources on Quizplus for this Chatper
141 Verified Questions
141 Flashcards
Source URL: https://quizplus.com/quiz/7734
Sample Questions
Q1) Under certain circumstances, the gift-splitting election can be made even though the electing spouses no longer are married to each other.
A)True
B)False
Q2) At the time of her death, Emma still owed $36,000 on her church pledge for the year. Because church pledges are not an enforceable obligation in the state where Emma resided, her estate cannot claim a deduction for the $36,000 that it owes and later pays.
A)True
B)False
Q3) The amount of the unified tax credit is the same for both transfers by gift and transfers by death.
A)True
B)False
Q4) Sally's will passes real estate to Otto (her surviving husband). The real estate is worth $800,000 but is subject to a mortgage of $200,000. The transfer provides Sally's estate with a marital deduction of $600,000.
A)True
B)False
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Chapter 28: Income Taxation of Trusts and Estates
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161 Verified Questions
161 Flashcards
Source URL: https://quizplus.com/quiz/7735
Sample Questions
Q1) The rental income of a trust usually is allocable to ________________ (income, remainder) beneficiaries.
Q2) The Jiang Trust manages investment assets that were contributed by Kong several years ago. The trust distributed one-half of its DNI this year to Kong. Kong can retain all of the trust's tax-exempt interest income if:
A) One-half of the exempt income belongs to the trust. No special allocations are allowed by Subchapter J.
B) Jiang is in a higher income tax bracket than is Kong.
C) Kong is in a higher income tax bracket than is the trust.
D) The tax-exempt bonds were contributed by Kong when the trust was created.
Q3) Your client Ming is a complex trust that operates exclusively in the U.S. Make a list of five or more tax planning opportunities that you might suggest to Ming.
Q4) The present value of a trust's Federal income tax liability is reduced when:
A) The entity is classified as a simple trust.
B) The trust invests in high-yield stocks.
C) The trust invests in growth stocks.
D) The trust collects income in respect of a decedent.
Q5) A trust whose income is taxed to the donor, not the beneficiaries.
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