Advanced Individual Taxation Exam Practice Tests
Course Introduction
Advanced Individual Taxation delves into the complex issues and regulations surrounding the taxation of individuals, building upon foundational tax principles. The course covers topics such as alternative minimum tax, tax planning strategies, income recognition, deductions, credits, taxation of investments, and special considerations for high-net-worth individuals. Students will also explore current tax law developments, judicial interpretations, and IRS guidance. Emphasis is placed on practical application, including tax research, compliance, and the ethical considerations that tax professionals face in advising clients and preparing returns.
Recommended Textbook
South Western Federal Taxation 2018 Individual Income Taxes 41st Edition by William H. Hoffman
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20 Chapters
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Page 2
Chapter 1: An Introduction to Taxation and Understanding
Federal Tax Law
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194 Verified Questions
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Sample Questions
Q1) Your client, Connie, won $12,000 in a football office pool. She sees no reason to include it in her income for several reasons. First, the amount won will not be reported to the IRS. Second, as an average income employee, she is unlikely to be audited by the IRS. Third, she feels that she has probably lost this much in other past office pools. How do you respond?
Answer: As a practitioner, you cannot play the audit lottery. You must presume she will be audited irrespective of the probabilities. Although the use of estimates is allowed, Connie's assumptions as to her losses are not realistic. Even if they were reliable, gambling losses cannot be offset against gambling winnings but must be separately deducted. Thus, the $12,000 must be reported as income or you cannot prepare Connie's return.
Q2) The objective of pay-as-you-go (paygo) is to improve administrative feasibility. A)True
B)False
Answer: True
Q3) Failure to pay penalty
Answer: e
Q4) Export taxes
Answer: l
Page 3
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Chapter 2: Working With the Tax Law
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Sample Questions
Q1) What administrative release deals with a proposed transaction rather than a completed transaction?
A)Letter Ruling
B)Technical Advice Memorandum
C)Determination Letter
D)Field Service Advice
E)None of these
Answer: A
Q2) Which item may not be cited as a precedent?
A)Regulations
B)Temporary Regulations
C)Technical Advice Memoranda
D)U.S. District Court decision
E)None of these
Answer: C
Q3) The following citation is correct: Larry G. Mitchell, 131 T.C. 215 (2008).
A)True
B)False
Answer: True
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Page 4
Chapter 3: Tax Formula and Tax Determination; an
Overview of Property Transactions
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187 Verified Questions
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Sample Questions
Q1) Scholarship funds for tuition
Answer: h
Q2) After her divorce, Hope continues to support her ex-husband's sister, Cindy, who does not live with her. Hope can claim Cindy as a dependent.
A)True
B)False
Answer: True
Q3) Married taxpayers who file separately cannot later (i.e., after the due date for filing) change to a joint return.
A)True
B)False
Answer: False
Q4) Territorial system of taxation
Answer: k
Q5) Kiddie tax may be imposed
Answer: g
Q6) Abandoned spouse
Answer: e
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Chapter 4: Gross Income: Concepts and Inclusions
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Q1) With respect to income from services, which of the following is true?
A)The income is always amortized over the period the services will be rendered by an accrual basis taxpayer.
B)A cash basis taxpayer can spread the income from a 24-month service contract over the contract period.
C)If an accrual basis taxpayer sells a 36-month service contract on July 1, 2017 for $3,600, the taxpayer's 2017 gross income from the contract is $600.
D)If an accrual basis taxpayer sells a 24-month service contract on July 1, 2017, one-half (12/24) the income is recognized in 2018.
E)None of these.
Q2) On December 1, 2016, Daniel, an accrual basis taxpayer, collects $12,000 rent for December 2016 and $12,000 for January 2017. Daniel must include the $24,000 in 2016 gross income.
A)True
B)False
Q3) How does the taxation of Social Security benefits differ from the taxation of an annuity purchased by the taxpayer?
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Page 6
Chapter 5: Gross Income: Exclusions
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Sample Questions
Q1) An employee can exclude from gross income the value of meals provided by his or her employer whenever:
A)The meal is not extravagant.
B)The meals are provided on the employer's premises for the employer's convenience.
C)There are no places to eat near the work location.
D)The meals are provided for the convenience of the employee.
E)None of these.
Q2) All employees of United Company are covered by a group hospitalization insurance plan, but the employees must pay the premiums ($8,000 for each employee). None of the employees has sufficient medical expenses to deduct the premiums. Instead of giving raises next year, United is considering paying the employee's hospitalization insurance premiums. If the change is made, the employee's after-tax and insurance pay will:
A)Decrease by the same amount for all employees.
B)Increase more for the lower paid employees (10% and 15% marginal tax bracket).
C)Increase more for the higher income (35% marginal tax bracket) employees.
D)Increase by the same amount for all employees.
E)None of these.
Q3) What Federal income tax benefits are provided for college students?
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Page 7
Chapter 6: Deductions and Losses: in General
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Sample Questions
Q1) Under what circumstance can a bribe be deducted?
Q2) All domestic bribes (i.e., to a U.S. official) are disallowed as deductions.
A)True
B)False
Q3) How can an individual's consultation with a lawyer be classified as a deduction for AGI in some cases and a deduction from AGI in other instances?
Q4) Which of the following is incorrect?
A)Alimony is a deduction for AGI.
B)The expenses associated with royalty property are a deduction from AGI.
C)Contributions to a traditional IRA are a deduction for AGI.
D)Property taxes on taxpayer's personal residence are a deduction from AGI
E)All of the above are correct.
Q5) Which of the following is not deductible?
A)Moving expenses in excess of reimbursement.
B)Tax return preparation fees of an individual.
C)Expenses incurred associated with investments in stocks and bonds.
D)Allowable hobby expenses in excess of hobby income.
E)None of the above.
Q6) What losses are deductible by an individual taxpayer?
Q7) Briefly discuss the disallowance of deductions for capital expenditures.
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) A taxpayer can carry any NOL incurred forward up to 20 years.
A)True
B)False
Q2) The limit for the domestic production activities deduction (DPAD) uses all W-2 wages paid to employees by the taxpayer during the tax year.
A)True
B)False
Q3) A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.
A)True
B)False
Q4) If a taxpayer has a net operating loss (NOL) in 2017 of $20,000, of which $8,000 is attributable to a theft of rental use property, the taxpayer may:
A)Carry all of the NOL of $20,000 back 5 years.
B)Carry all of the NOL of $20,000 back 3 years.
C)Carry $8,000 of the NOL back 3 years and the remainder of the NOL of $12,000 back 2 years.
D)All of the above.
E)None of the above.
Page 9
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Chapter 8: Depreciation, Cost Recovery, Amortization, and Depletion
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Sample Questions
Q1) The basis of an asset on which $20,000 has been expensed under § 179 will be reduced by $20,000, even if $20,000 cannot be expensed in the current year because of the taxable income limitation.
A)True
B)False
Q2) On May 2, 2017, Karen placed in service a new sports utility vehicle that cost $60,000 and has a gross vehicle weight of 6,300 lbs. The vehicle is used 60% for business and 40% for personal use. Determine Karen's total cost recovery for 2017. Karen wants to use both §179 and additional first-year depreciation.
A)$7,200
B)$25,000
C)$27,200
D)$31,600
E)None of the above
Q3) The inclusion amount for a leased automobile is adjusted by a business usage percentage.
A)True
B)False
Q4) Discuss the reason for the inclusion amount with respect to leased automobiles.
Page 10
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Sample Questions
Q1) Cutback adjustment does not apply
Q2) In terms of meeting the distance test for purposes of deducting moving expenses, which of the following statements is correct?
A)The taxpayer's new job location must be at least 50 miles away from the old job.
B)The taxpayer's new residence must be at least 50 miles away from the new job.
C)The taxpayer's new residence must be at least 50 miles away from the old residence.
D)The taxpayer's new job location must be at least 50 miles farther from the old residence than the old residence was to the old job.
E)None of these.
Q3) In contrasting the reporting procedures of employees and self-employed persons regarding job-related transactions, which of the following items involve self-employed?
A)Schedule C of Form 1040.
B)Form 2106.
C)Form W-2.
D)Schedule A of Form 1040.
E)None of these.
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) Paul and Patty Black (both are age 66) are married and together have AGI of $105,000 in 2017. They have two dependents and file a joint return. During the year, they paid $8,000 for medical insurance, $15,000 in doctor bills and hospital expenses, and $1,000 for prescribed medicine and drugs.
a.In December 2017, the Blacks received an insurance reimbursement of $3,500 for hospitalization expenses. Determine the deduction allowable for medical expenses paid during the year.
b.Assume instead that the Blacks received the $3,500 insurance reimbursement in February 2018. Determine the deduction allowable for medical expenses incurred in 2017. c.Assume that the Blacks received the $3,500 insurance reimbursement in February 2018. Discuss whether the reimbursement will be included in their gross income for 2018.
Q2) Bill paid $2,500 of medical expenses for his daughter, Marie. Marie is married to John and they file a joint return. Bill can include the $2,500 of expenses when calculating his medical expense deduction.
A)True
B)False
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Page 12
Chapter 11: Investor Losses
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Sample Questions
Q1) During the current year, Ryan performs personal services as follows: 700 hours in his management consulting practice, 650 hours in a real estate development business, and 550 hours in an apartment leasing operation. He expects that losses will be realized from the two real estate ventures while his consulting practice will show a profit. Ryan files a joint return with his wife whose salary is $125,000. Discuss the character and treatment of the income and losses generated by these activities.
Q2) Jackson Company incurs a $50,000 loss on a passive activity during the year. The company has active income of $34,000 and portfolio income of $24,000. If Jackson is a personal service corporation, it may deduct $34,000 of the passive activity loss.
A)True
B)False
Q3) Describe the types of activities and taxpayers that are subject to the at-risk rules.
Q4) At-risk amount.
Q5) Material participation.
Q6) When a taxpayer disposes of a passive activity by gift, what happens to any unused passive activity losses?
Q7) Treatment of suspended credits when passive activity is sold at a loss.
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Chapter 12: Alternative Minimum Tax
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Sample Questions
Q1) Interest income on private activity bonds issued before 2009 and after 2010, reduced by expenses incurred in carrying the bonds, is a preference item that is included in computing AMTI.
A)True
B)False
Q2) If the taxpayer elects to capitalize and to amortize intangible drilling costs over a 3-year period for regular income tax purposes, there is no adjustment or preference for AMT purposes.
A)True
B)False
Q3) Which of the following statements is correct?
A) If the tentative minimum tax exceeds the regular income tax liability, AMT is $0.
B) The AMT exemption amount decreases as AMTI increases.
C) The highest AMT tax rate for individuals is 26%.
D) Only a. and c. are correct.
E) a., b., and c. are correct.
Q4) What is the purpose of the AMT exemption amount? What is the maximum amount for each filing status for an individual taxpayer and for a corporate taxpayer?
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Page 14
Chapter 13: Tax Credits and Payment Procedures
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Sample Questions
Q1) Refundable tax credits include the:
A)Foreign tax credit.
B)Tax credit for rehabilitation expenses.
C)Credit for certain retirement plan contributions.
D)Earned income credit.
E)None of the above.
Q2) Which of the following issues does not need resolution in an employer's effort to comply with employment tax payment requirements?
A)Ascertaining which employees and wages are covered by employment taxes and are subject to withholding for income taxes.
B)Arriving at the amount to be paid and/or withheld.
C)Reporting and paying employment taxes and income taxes withheld to the IRS on a timely basis through the use of proper forms.
D)Each of the above issues needs to be resolved.
E)None of the above is relevant to the employer.
Q3) All taxpayers are eligible to take the basic research credit.
A)True
B)False
Q4) Describe the withholding requirements applicable to employers.
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Chapter 14: Property Transactions: Determination of Gain or
Loss and Basis Considerations
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Sample Questions
Q1) Robert sold his ranch which was his principal residence during the current taxable year. At the date of the sale, the ranch had an adjusted basis of $460,000 and was encumbered by a mortgage of $200,000. The buyer paid him $500,000 in cash, agreed to take the title subject to the $200,000 mortgage, and agreed to pay him $100,000 with interest at 6 percent one year from the date of sale. How much is Robert's realized gain on the sale?
Q2) Arthur owns a tract of undeveloped land (adjusted basis of $145,000) which he sells to his son, Ned, for its fair market value of $105,000. What is Arthur's recognized gain or loss and Ned's basis in the land?
A)$0 and $105,000.
B)$0 and $145,000.
C)($40,000) and $105,000.
D)($40,000) and $145,000.
E)None of the above.
Q3) Emma gives her personal use automobile (cost of $32,000; fair market value of $12,000) to her son, Louis, on July 3, 2017. She has owned the automobile since July 1, 2014.
a.What is Louis' basis for the car?
b.When does his holding period begin?
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Chapter 15: Property Transactions: Nontaxable Exchanges
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Sample Questions
Q1) Betty owns a horse farm with 500 acres of land (adjusted basis of $600,000). Fifty acres of the land are condemned by the state for $400,000 in order to build a municipal stadium. Since the fair market value of Betty's farm is significantly decreased by the proximity to the future stadium, the state awards Betty $300,000 in severance damages. Betty does not use the $300,000 to restore the usefulness of the farm and all of the $700,000 ($400,000 + $300,000) proceeds are invested in the stock market. What is her recognized gain or loss associated with the receipt of the severance damages?
A)$0
B)$100,000
C)$300,000
D)$340,000
E)None of the above
Q2) Kelly, who is single, sells her principal residence, which she has owned and occupied for 8 years, for $375,000. The adjusted basis is $64,000 and selling expenses are $22,000. She purchases another principal residence three months later for $200,000. Her recognized gain is $39,000 and her basis for the new principal residence is $200,000.
A)True
B)False
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Page 17
Chapter 16: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) Virgil was leasing an apartment from Marple, Inc. Marple paid Virgil $1,000 to cancel his lease and move out so that Marple could demolish the building. As a result:
A)Virgil has a $1,000 capital gain.
B)Virgil has a $1,000 capital loss.
C)Marple has a $1,000 capital loss.
D)Marple has a $1,000 capital gain.
E)None of the above.
Q2) On January 18, 2016, Martha purchased 200 shares of Blue Corporation stock for $2,000. On November 11, 2017, she sold short 200 shares of Blue Corporation stock which she borrowed from her broker for $2,300. On February 10, 2018, Martha closed the short sale by delivering the 200 shares of Blue Corporation stock which she had acquired in 2016. On that date, Blue Corporation stock had a market price of $4 per share. What is Martha's recognized gain or loss and its character in 2017? In 2018?
Q3) If a capital asset is sold at a gain, the holding period is important.
A)True
B)False
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18
Chapter 17: Property Transactions: 1231 and Recapture
Provisions
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Q1) Vertigo, Inc., has a 2017 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2016. For 2017, Vertigo's net § 1231 loss is treated as:
A)Ordinary loss.
B)Ordinary gain.
C)Capital loss.
D)Capital gain.
E)None of the above.
Q2) Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.
A)True
B)False
Q3) Section 1245 depreciation recapture potential does not carryover from a deceased taxpayer to the beneficiary taxpayer.
A)True
B)False
Q4) Property sold to a related party that is depreciable by the purchaser may cause the seller to have ordinary gain.
A)True
B)False
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Chapter 18: Accounting Periods and Methods
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Q1) Which of the following taxpayers is required to use the accrual method of accounting?
A)A retail business with average annual gross receipts of $800,000.
B)A medical doctor with average annual gross receipts of $2 million.
C)An insurance agency with average annual gross receipts of $2 million.
D)All of the above are required to use the accrual method.
E)None of the above is required to use the accrual method.
Q2) A C corporation's selection of a tax year, generally, is independent of the tax year of its principal shareholders.
A)True
B)False
Q3) Teal, Inc., used the lower of cost or market to value inventory in 2017. The ending inventory at cost was $400,000 and the ending inventory at market was $385,000. In 2018, Teal changed to the LIFO method. The company's beginning LIFO inventory is $400,000.
A)True
B)False
Q4) Using your knowledge of GAAP and financial reporting, list and explain one good reason why GAAP should not be used for tax purposes and one good reason why it should be used.
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Chapter 19: Deferred Compensation
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Q1) In 2017, Jindal Corporation paid compensation of $42,300 to the participants in a profit sharing plan and then contributed $12,800 to the plan. Jindal's deductible amount and any contribution carryover are as follows:
A)$0 deductible; $12,800 carryover.
B)$8,460 deductible; $4,340 carryover.
C)$10,575 deductible; $2,225 carryover.
D)$12,690 deductible; $110 carryover.
E)None of the above.
Q2) Dana contributes $2,000 too much to a § 401(k) plan which is not returned within 2 1/2 months after the close of the tax year. The employer will have to pay a tax of $200.
A)True
B)False
Q3) A 20% excise tax is imposed on nondeductible contributions by an employer to a qualified plan.
A)True
B)False
Q4) What is a profit sharing plan?
Q5) Compare a § 401(k) plan with an IRA.
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Chapter 20: Corporations and Partnerships
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Q1) A domestic production activities deduction is available.
Q2) Which of the following rules are the same as to the income taxation of individuals and C corporations?
A)Recapture of depreciation on real property (§ 1250).
B)Excess long-term capital losses are carried over as short-term capital losses.
C)Dividends received deduction.
D)The unextended due date for filing the Federal income tax return for a calendar year.
E)None of the above.
Q3) A dividends received deduction is not allowed.
Q4) Recapture of depreciation on real property can be more severe.
Q5) Qualified personal service corporations are subject to a flat income tax rate of 35% and are not allowed to use the graduated rates available to regular corporations.
A)True
B)False
Q6) A corporation's election to forego a net operating loss carryback is irrevocable and cannot later be changed.
A)True
B)False
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