Advanced Individual Taxation Test Bank
Course Introduction
Advanced Individual Taxation delves into the complexities of federal and state income tax laws as they apply to individuals with sophisticated tax profiles. The course covers specialized topics such as alternative minimum tax, tax planning for high-net-worth individuals, taxation of investments and retirement accounts, property transactions, passive activity losses, and tax implications of trusts and estates. Emphasizing analytical skills, students will examine current tax issues, explore advanced tax strategies, and interpret IRS rulings and case law. Extensive use of tax research databases and real-world scenarios prepares students to handle intricate individual tax matters with confidence and professionalism.
Recommended Textbook
South Western Federal Taxation 2018 Individual Income Taxes 41st Edition by William H. Hoffman
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20 Chapters
2583 Verified Questions
2583 Flashcards
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Chapter 1: An Introduction to Taxation and Understanding
Federal Tax Law
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194 Verified Questions
194 Flashcards
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Sample Questions
Q1) Characteristics of the "Fair Tax" (i.e., national sales tax) include which, if any, of the following:
A)Abolition of the Federal individual (but not the corporate) income tax.
B)Abolition of all Federal income taxes but retention of payroll taxes (including the self-employment tax).
C)Abolition of all Federal income taxes and payroll taxes but retention of the Federal estate and gift taxes.
D)Abolition of all Federal income and payroll taxes as well as the Federal estate and gift taxes.
E)None of these.
Answer: D
Q2) The annual exclusion, currently $14,000, is available for gift and estate tax purposes. A)True
B)False Answer: False
Q3) A small business corporation can elect to avoid the corporate income tax.
Answer: a
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Page 3
Chapter 2: Working With the Tax Law
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Sample Questions
Q1) The granting of a Writ of Certiorari indicates that at least four members of the Supreme Court believe that an issue is of sufficient importance to be heard by the full court.
A)True
B)False
Answer: True
Q2) A taxpayer should always minimize his or her tax liability.
A)True
B)False
Answer: False
Q3) When searching on an electronic (online) tax service, which approach is more frequently used?
A)Internal Revenue Code section approach
B)Keyword approach
C)Table of contents approach
D)Index
E)All are about the same
Answer: B
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Chapter 3: Tax Formula and Tax Determination; an
Overview of Property Transactions
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187 Verified Questions
187 Flashcards
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Sample Questions
Q1) $1,050
Answer: c
Q2) Katelyn is divorced and maintains a household in which she and her daughter, Crissa, live. Crissa, age 22, earns $11,000 during 2017 as a model. Katelyn does not qualify for head of household filing status.
A)True
B)False
Answer: True
Q3) Adjusted gross income (AGI) appears at the bottom of page 1 and at the top of page 2 of Form 1040.
A)True
B)False
Answer: True
Q4) Frank sold his personal use automobile for a loss of $9,000. He also sold a personal coin collection for a gain of $10,000. As a result of these sales, $10,000 is subject to income tax.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Gross Income: Concepts and Inclusions
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Sample Questions
Q1) Thelma and Mitch were divorced. The couple had a joint brokerage account that included stocks with a basis of $600,000 and a fair market value of $1,000,000. Under the terms of the divorce agreement, Mitch would receive the stocks and Mitch would pay Thelma $100,000 each year for 6 years, or until Thelma's death, whichever should occur first. Thelma and Mitch lived apart when the payments were made by Mitch. Mitch paid the $600,000 to Thelma over the six-year period. The divorce agreement did not contain the word "alimony." Then, Mitch sold the stocks for $1,300,000. Mitch's recognized gain from the sale is:
A)$0.
B)$1,000,000 ($1,300,000 - $300,000).
C)$700,000 ($1,300,000 - $600,000).
D)$300,000 ($1,300,000 - $1,000,000).
E)None of these.
Q2) Dick and Jane are divorced in 2016. At the time of the divorce, Dick had a lawsuit pending. He had filed suit against a former employer for overtime pay. As part of a divorce agreement, Dick agreed to pay Jane one-half of the proceeds from the lawsuit. In 2017, Dick collected $250,000 from the former employer and paid Jane $125,000. What are the tax consequences for Dick receiving the $250,000 and then paying Jane the $125,000?
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Chapter 5: Gross Income: Exclusions
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Sample Questions
Q1) The taxpayer incorrectly took a $5,000 deduction (e.g., incorrectly calculated depreciation) in 2017 and as a result his taxable income was reduced by $5,000. The taxpayer discovered his error in 2018. The taxpayer must add $5,000 to his 2018 gross income in accordance with the tax benefit rule to correct for the 2017 error.
A)True
B)False
Q2) Carmen had worked for Sparrow Corporation for thirty years when she died of a heart attack at age 60. She was practically penniless at the time of her death, owed a $12,000 hospital bill, and had a disabled spouse. The company was very concerned about its public image, and rather than run the risk of embarrassment from one of its long-term employees dying and leaving her spouse with insufficient means, the Board of Directors agreed to pay Carmen's hospital bill and to give her spouse $6,000 per year for the rest of his life. Discuss both sides of the question whether Carmen (or her estate) and her spouse realize any taxable income from the above.
Q3) What are the tax problems associated with payments received by a wife from her deceased husband's employer? (Assume the wife renders no services to the employer.)
Q4) What Federal income tax benefits are provided for college students?
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7
Chapter 6: Deductions and Losses: in General
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Sample Questions
Q1) Briefly discuss the two tests that an accrual basis taxpayer must apply before an expense can be deducted.
Q2) Martha rents part of her personal residence in the summer for 3 weeks for $3,000. Anne rents all of her personal residence for one week in December for $2,500. Anne is not required to include the $2,500 in her gross income whereas Martha is required to include the $3,000 in her gross income.
A)True B)False
Q3) What are the relevant factors to be considered in determining whether an activity is profit-seeking or a hobby?
Q4) Are there any exceptions to the rule that personal expenditures cannot be deducted?
Q5) During the year, Martin rented his vacation home for three months and spent one month there. Gross rental income from the property was $5,000. Martin incurred the following expenses: mortgage interest, $3,000; real estate taxes, $1,500; utilities, $800; maintenance, $500; and depreciation, $4,000. Compute Martin's allowable deductions for the vacation home under the court's approach and the IRS's approach.
Q6) Under what circumstance can a bribe be deducted?
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) If a taxpayer sells their § 1244 stock at a loss, all of the loss will be ordinary loss.
A)True
B)False
Q2) A father cannot claim a loss on his daughter's rental use property.
A)True
B)False
Q3) Identify the factors that should be considered in determining whether a transaction is a business bad debt or a nonbusiness bad debt.
Q4) 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
Q5) The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.
A)True
B)False
Q6) Discuss the effect of alimony in computing a net operating loss.
Page 9
Q7) Why was the domestic production activities deduction (DPAD) enacted by Congress?
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Chapter 8: Depreciation, Cost Recovery, Amortization, and Depletion
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Sample Questions
Q1) Rod paid $1,950,000 for a new warehouse on April 14, 2017. He sold the warehouse on September 29, 2022. Determine the cost recovery deduction for 2017 and 2022.
Q2) A taxpayer may elect to use the alternative depreciation system (ADS) to compute depreciation for earnings and profits.
A)True
B)False
Q3) Land improvements are generally not eligible for cost recovery.
A)True
B)False
Q4) Any § 179 expense amount that is carried forward is subject to the business income limitation in the carryforward year.
A)True
B)False
Q5) Jim acquires a new seven-year class asset on September 20, 2017, for $80,000. He placed the asset in service on October 5, 2017. He does not elect to expense any of the asset under § 179 or elect straight-line, cost recovery. He takes additional first-year depreciation. He sells the asset on August 25, 2018. This is the only asset he acquires in 2017. Determine Jim's cost recovery in 2017 and 2018.
Page 10
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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178 Verified Questions
178 Flashcards
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Sample Questions
Q1) Nick Lee is a linebacker for the Baltimore Ravens (a professional football club). During the football season he rents an apartment in a Baltimore suburb. The rest of the time he lives with his family in Ann Arbor (MI) and works at a local bank as a vice president in charge of public relations. Can Nick deduct his expenses while away from Ann Arbor? Explain.
Q2) A taxpayer who uses the automatic mileage method for the business use of an automobile can change to the actual cost method in a later year.
A)True
B)False
Q3) A worker may prefer to be treated as an independent contractor (rather than an employee) for which of the following reasons:
A)Avoids the cutback adjustment as to business meals.
B)All of the self-employment tax is deductible for income tax purposes.
C)Work-related expenses are not subject to the 2%-of-AGI floor.
D)A Schedule C does not have to be filed.
E)None of these.
Q4) Sue has unreimbursed expenses.
Q5) Actual cost method of determining auto expense
Q6) Deductible job-hunting expenses
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) Jack sold a personal residence to Steven and paid points of $3,500 on the loan to help Steven finance the purchase. Jack can deduct the points as interest.
A)True
B)False
Q2) Linda is planning to buy Vicki's home. They want to keep the transaction simple, so the sales agreement will not apportion the property taxes that Vicki has already paid on the home. Comment on the tax implications for Linda and Vicki.
Q3) On December 31, 2017, Lynette used her credit card to make a $500 contribution to the United Way, a qualified charitable organization. She will pay her credit card balance in January 2018. If Lynette itemizes, she can deduct the $500 in 2017.
A)True
B)False
Q4) In 2017, Brandon, age 72, paid $3,000 for long-term care insurance premiums. He may include the $3,000 in computing his medical expense deduction for the year.
A)True
B)False
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Page 12
Chapter 11: Investor Losses
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Sample Questions
Q1) Wolf Corporation has active income of $55,000 and a passive activity loss of $33,000 in the current year. Wolf cannot deduct the $33,000 loss if it is a closely held C corporation that is not a personal service corporation.
A)True
B)False
Q2) Linda owns investments that produce portfolio income and Activity A that produces losses. From a tax perspective, Linda will be better off if Activity A is not passive.
A)True
B)False
Q3) Treatment of a disposition of a passive activity by gift.
Q4) List the taxpayers that are subject to the passive activity loss rules and summarize the general impact of these rules on these taxpayers.
Q5) Roger owns and actively participates in the operations of an apartment building which produces a $40,000 loss during the year. He has AGI of $150,000 from an active business. He may deduct $25,000 of the loss.
A)True
B)False
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Page 13
Chapter 12: Alternative Minimum Tax
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Sample Questions
Q1) The recognized gain for regular income tax purposes and the recognized gain for AMT purposes on the sale of stock acquired with an incentive stock option (ISO) are always the same, because the adjusted basis is the same.
A)True
B)False
Q2) Vinny's AGI is $250,000. He contributed $200,000 in cash to the Boy Scouts, a public charity. What is Vinny's charitable contribution deduction for AMT purposes?
A)$0
B)$50,000
C)$75,000
D)$125,000
Q3) Abigail, who is single, reported taxable income of $115,000 for 2017. She incurred positive AMT adjustments of $30,000, negative AMT adjustments of $12,000, and tax preference items of $50,000. Abigail itemizes deductions.
a.Compute Abigail's AMTI.
a. Compute Abigail's tentative minimum tax (TMT).
b.Assume the same facts as in part
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Chapter 13: Tax Credits and Payment Procedures
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Sample Questions
Q1) In March 2017, Gray Corporation hired two individuals, both of whom were certified as long-term recipients of family assistance benefits. Each employee was paid $11,000 during 2017. Gray Corporation's work opportunity tax credit amounts for 2016 is:
A)$4,000.
B)$8,000.
C)$10,000.
D)$11,000.
Q2) Rex and Dena are married and have two children, Michelle (age 7) and Nancy (age 5). During 2017, Rex earned a salary of $24,500, received interest income of $300, and filed a joint income tax return with Dena. Dena had $0 gross income. Their earned income credit for the year is:
A)$0.
B)$5,316.
C)$5,433.
D)$5,616.
Q3) The child tax credit is based on the number of the taxpayer's qualifying children under age 17.
A)True
B)False
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Page 15
Chapter 14: Property Transactions: Determination of Gain or
Loss and Basis Considerations
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Sample Questions
Q1) If a seller assumes the buyer's liability on the property acquired, the buyer's adjusted basis for the property is increased by the amount of the liability assumed.
A)True
B)False
Q2) Boyd acquired tax-exempt bonds for $430,000 in December 2017. The bonds, which mature in December 2022, have a maturity value of $400,000. Boyd does not make any elections regarding the amortization of the bond premium. Determine the tax consequences to Boyd when he redeems the bonds in December 2022.
Q3) If the fair market value of the property on the date of death is greater than on the alternate valuation date, the use of the alternate valuation amount is mandatory.
A)True
B)False
Q4) If losses are disallowed in a related party transaction, the holding period for the buyer includes the holding period of the seller.
A)True
B)False
Q5) Define fair market value as it relates to property transactions.
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Chapter 15: Property Transactions: Nontaxable Exchanges
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Sample Questions
Q1) Katrina, age 58, rented (as a tenant) the house that was her principal residence from January 1, 2017 through December 31, 2018. She purchased the house on January 1, 2019, for $150,000 and continued to occupy it through June 30, 2020. She leased it to a tenant from July 1, 2020, through December 31, 2021. On January 1, 2021, she sells the house for $350,000. She incurs a realtor's commission of $20,000. Calculate her recognized gain if her objective is to minimize the recognition of gain and she does not intend to acquire another residence.
Q2) Jake exchanges an airplane used in his business for a smaller airplane to be used in his business. His adjusted basis for the airplane is $325,000 and the fair market value is $310,000. The fair market value of the smaller airplane is $300,000. In addition, Jake receives cash of $10,000. Calculate Jake's realized and recognized gain or loss and his adjusted basis for the assets received.
Q3) Shari exchanges an office building in New Orleans (adjusted basis of $700,000) for an apartment building in Baton Rouge (fair market value of $900,000). In addition, she receives $100,000 of cash. Shari's recognized gain is $100,000 and her basis for the apartment building is $800,000 ($700,000 adjusted basis + $100,000 recognized gain). A)True B)False
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Chapter 16: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) Judith (now 37 years old) owns a collection of porcelain dolls that she acquired when she was a grade schooler. She had forgotten about them until her mother sent them to her. Her mother had discovered them in a box in her attic while she was cleaning out her house before selling it. Judith had originally acquired all the dolls as gifts from her parents, so she has no way to establish a basis for the dolls. Using information from the Internet, she prepares a careful inventory of the dolls that includes their name, when they were first available for sale, their current value, and other pertinent information. She then lists them for sale on the Internet. To her surprise, she quickly gets an offer of $5,000 for all of them and sells them. Judith has no other gain or loss transactions for the year and is in the 28% marginal tax bracket. What issues do these facts create?
Q2) In 2013, Aaron purchased a classic car that he planned to restore for $12,000. However, Aaron is too busy to work on the car and he gives it to his daughter Ellie in 2017. At this time, the fair market value of the car has declined to $10,000. Aaron paid no gift tax on the transaction. Ellie completes some of the restoration herself with out-of-pocket costs of $5,000. She later sells the car for $30,000. What is Ellie's recognized gain or loss on the sale of the car?
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Chapter 17: Property Transactions: 1231 and Recapture
Provisions
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Sample Questions
Q1) Red Company had an involuntary conversion on December 23, 2017. The machinery had been acquired on April 1, 2015, for $49,000 and its adjusted basis was $14,200. The machinery was completely destroyed by fire and Red received $10,000 of insurance proceeds for the machine and did not replace it. This was Red's only casualty or theft event for the year. As a result of this event, Red initially has:
A)$10,000 § 1231 loss.
B)$10,000 § 1245 recapture gain.
C)$4,200 casualty loss.
D)$4,200 § 1231 loss.
E)None of the above.
Q2) Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.
A)True
B)False
Q3) Section 1231 applies to the sale or exchange of business properties, but not to personal use activity casualties.
A)True
B)False
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Chapter 18: Accounting Periods and Methods
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Sample Questions
Q1) A doctor's incorporated medical practice may end the last day of any month of the year.
A)True
B)False
Q2) Crow Corporation has used the LIFO inventory method for the past 10 years. During that time, the prices Crow pays for the inventory have increased by 50%. Its inventory value when it first adopted LIFO was $5,000,000. The company began using a just-in-time inventory system the same year it adopted LIFO, and although sales have increased, the quantities of goods on hand at year end has not changed in the past ten years. The corporation's marginal tax rate has been 35% in all of the years. As a result of the LIFO election:
A)The company has deferred $5,000,000 of income tax.
B)The company has deferred $1,750,000 ($5,000,000 × .35) of income tax.
C)The LIFO election did not defer any income tax because the quantity of goods on hand has not changed.
D)The company has deferred $875,000 [(.50)($5,000,000)(.35)] of income tax.
E)None of the above.
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Page 20
Chapter 19: Deferred Compensation
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Q1) The special § 83(b) election (i.e., where income is taxed in the year of the grant) with respect to a restricted stock plan may be advantageous in which of the following situations in 2017?
A)The employer is an unstable company.
B)The bargain element is relatively small.
C)A minimum amount of appreciation is expected in the future.
D)The restriction probably will not be satisfied.
E)None of the above.
Q2) 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.
Q3) In a stock bonus plan, contributions are dependent on the employer's profits.
A)True
B)False
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Page 21
Chapter 20: Corporations and Partnerships
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Q1) In computing the taxable income (or loss) of an S corporation, an NOL carryover from a prior year is not allowed.
A)True
B)False
Q2) Organizational expenditures include the costs of transferring assets to the new corporation.
A)True
B)False
Q3) The domestic production activities deduction (DPAD) is determined at the partnership level and then passed through to each individual partner based on his or her partnership interest.
A)True
B)False
Q4) If property contributed to a partnership is subject to a liability (assumed by the partnership), gain is recognized to the contributing partner to the extent of the liability.
A)True
B)False
Q5) Net short-term capital gains are taxed as ordinary income.
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