Advanced Taxation Exam Materials
Course Introduction
Advanced Taxation delves into the complex principles and practices of taxation at an advanced level, focusing on the intricacies of tax laws, regulations, and planning strategies for individuals, corporations, and other entities. The course covers topics such as international taxation, tax compliance, transfer pricing, tax avoidance and evasion frameworks, tax planning for mergers and acquisitions, and ethical considerations within the profession. Through case studies, real-world scenarios, and critical analysis, students gain an in-depth understanding of contemporary tax issues and are equipped to provide expert tax advice in professional settings.
Recommended Textbook Fundamentals of Taxation 2017 Edition 10th Edition by Ana Cruz
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Chapter 1: Introduction to Taxation, the Income Tax
Formula, and Form 1040ez
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Q1) The Affordable Care Act requires all individuals to have health care insurance coverage.
A)True
B)False
Answer: False
Q2) With respect to the income tax formula,which of the following statements is incorrect?
A)Taxpayers are allowed certain deductions from income.
B)For many taxpayers,the simple income tax formula is sufficient to determine tax liability.
C)When calculating the tax refund or tax due with the return,taxpayers need to subtract tax payments and tax credits from their tax liability.
D)The simplified income tax formula is only applicable to taxpayers with taxable income less than $100,000.
Answer: D
Q3) The amount of tax liability is affected by the filing status of the taxpayer.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Expanded Tax Formula, forms 1040a and 1040, and Basic Concepts
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Q1) In 2016,the additional standard deduction for a single taxpayer,who is 65 or older and not blind,is $1,200.
A)True
B)False
Answer: False
Q2) A couple who is legally married on the last day of the tax year cannot file married filing separately.
A)True
B)False
Answer: False
Q3) Jane,Joseph and John are supporting their father who lives in a separate apartment.Their contribution towards his support is 10%,35% and 55%,respectively.In a multiple support agreement,who would be entitled to claim the father as a dependent?
A)Joseph or John.
B)Jane,Joseph or John.
C)Jane.
D)None of these.
Answer: A
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Chapter 3: Gross Income: Inclusions and Exclusions
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Q1) A taxpayer received a 1099-G for 2016 showing $350 of state income tax refund that he received during the year from 2015 state taxes paid.Does the taxpayer have to report the state income tax refund of $350 in 2016?
Answer: If the taxpayer used the standard deduction in 2015,the refund of $350 does not have to be reported.However,if the taxpayer itemized in 2015,the refund must be reported.But the taxable amount is based on the lesser of a)the amount received,or b)the amount deducted on Schedule A,or c)the amount by which the itemized deductions exceed the standard deduction.
Q2) When filing their tax returns,almost all individuals use:
A)The cash receipts and disbursements method.
B)The accounting method.
C)The accrual method.
D)The recognition method.
Answer: A
Q3) For tax purposes,name the three conditions that a transaction must meet for income recognition.
Answer: A transaction is recognized as income on the taxpayer's tax return if it meets three conditions: economic benefit,existence from start to completion,and not exempt from income tax.
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Chapter 4: Adjustments for Adjusted Gross Income
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Q1) Henry graduated from the University of Maryland in 2014.In 2016,to take advantage of lower interest rates,he refinanced his qualified education loans with another qualified student loan.He is not a dependent on another person's tax return.Before AGI limits,what is the maximum deduction available to him for the $3,200 he paid for educational student loan interest in 2016?
A)$2,000.
B)$3,000.
C)$0.
D)$2,500.
Q2) The self-employed health insurance deduction is also available to a partner in a partnership and to a shareholder in a Subchapter S corporation who owns more than 2% of the stock in the corporation.
A)True
B)False
Q3) What is meant by a penalty on early withdrawal of savings and under what circumstances is it deductible?
Q4) For 2016,unreimbursed qualifying moving expenses are an itemized deduction.
A)True
B)False
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Chapter 5: Itemized Deductions
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Q1) Prescription drugs obtained outside the United States,such as from Canada,are never deductible on a U.S.tax return.
A)True
B)False
Q2) For 2016,describe the treatment that taxpayers can elect to take for the amount of either 1)state and local income taxes or 2)state and local general sales taxes paid during the tax year.
Q3) The interest paid on a loan used to acquire municipal bonds is deductible as investment interest expense.
A)True
B)False
Q4) Which of the following may not be deducted either totally or partially as medical expenses? Disregard any limitations which may apply.)
A)$600 for eyeglasses.
B)$3,000 to a family physician for medical care.
C)$300 for maternity clothes.
D)$1,000 long-term care insurance.
Q5) What are four major categories of deductible taxes for individual returns?
Q6) Describe the concept of a 10% floor for medical deductions.
Page 7
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Chapter 6: Self-Employed Business Income Line 12 of Form
1040 and Schedule C
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Q1) Ted purchased a vehicle for business and personal use.In 2016,Ted used the vehicle 70% for business 10,000 business miles)and used the standard mileage rate to calculate his vehicle expenses.Ted also paid $1,200 in interest and $380 in county property tax on the car.What is the total business deduction related to business use of the car in 2016?
Q2) Marion drives 20 miles a day from his first job to his second job.He worked 125 days during 2016 on both jobs.What is Marion's mileage deduction rounded to the nearest dollar assuming he uses the standard mileage rate and mileage is incurred ratably throughout the year?
A)$1,400.
B)$1,350.
C)$1,438.
D)$70.
Q3) If property is inherited,the property's basis for purposes of depreciation is the same as the decedent's basis.
A)True
B)False
Q4) Describe each of the depreciation conventions and when each is applicable.
Q5) List and define the criteria for an expenditure to be deductible on Schedule C.
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Chapter 7: Capital Gains and Other Sales of Property
Schedule D and Form 4797
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Q1) Majoo inherited property from his uncle on August 15,2016.His uncle purchased the property on December 10,2014 for $100,000.At the date of his death,the property's FMV was $102,000.Majoo sold the property on September 30,2016 for $105,000.
a.What is the gain on the sale of the property?
b.What is the nature of the gain?
Q2) Elandra purchased 500 shares in Prompt Messenger Services for $12,000 on November 21,2015.The company went bankrupt on June 12,2016,with no hope of recovery for the shareholders.On what date is the stock deemed to be worthless and what is the nature of the loss?
A)December 31,2016,long-term loss in 2016.
B)December 31,2016,short-term loss in 2016.
C)June 13,2016,short-term loss in 2016.
D)December 31,2015,short-term loss in 2015.
Q3) Real property held for investment is a capital asset.
A)True
B)False
Q4) Section 1221 assets are any asset used in a trade or business.
A)True
B)False
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Chapter 8: Rental Property, royalties, and Income From
Flow-Through Entities Line 17, form 1040, and Schedule E
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Q1) Explain what is considered personal use of a rental property.
Q2) Julian and Nina own a home in Napa Valley,California,and rented it for 14 days for $10,000 to a large corporation.The rest of the year,they lived in the home.What is the proper tax treatment of the $10,000 they received?
A)The amount should be reported on Schedule E.
B)The amount should be reported as other income.
C)The amount should be reported on Schedule C.
D)None of the rental income should be included in gross income.
Q3) When royalties are paid,the amount paid is reported to the recipient by the payer at the end of the year on a Schedule K-1.
A)True
B)False
Q4) When royalty income is received,the recipient tax payer)generally reports the income on which form?
A)1099-MISC.
B)Schedule D.
C)Schedule K-1.
D)Schedule E.
Q5) What are the different types of income that may be reported on Schedule E?
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Chapter 9: Tax Credits Form 1040, lines 46 Through 54 and Lines 66a Through 73
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Q1) Gina has $39,000 total taxable income,which includes $6,000 of taxable income from Argentina.She paid $1,200 in foreign income taxes and her U.S.tax liability is $3,610.Gina's foreign tax credit is: Do not round interim calculations)
A)$555.
B)$0.
C)$1,200.
D)$450.
Q2) All taxpayers must file Form 1116 to receive the foreign tax credit. A)True B)False
Q3) Thomas and Emma are married,file a joint return,and have three qualifying children.Their AGI was $21,000.What is their EIC?
A)$5,572.
B)$3,373.
C)$6,269.
D)$4,423.
Q4) The maximum American opportunity tax credit is $2,500 per student per year. A)True
B)False
Page 11
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Chapter 10: Payroll Taxes
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Q1) What form is given to an employee to correct incorrect payroll information?
A)W-9.
B)W-2C.
C)W-4.
D)None.The employee notifies the IRS directly when he or she files a Form 1040.
Q2) Employers must prepare and send to employees the multi-part W-3 no later than January 31 of the following year.
A)True
B)False
Q3) A taxpayer had AGI of $300,000 in 2016 and AGI of $250,000 in 2015.When filing her 2016 return,she expects her unpaid tax liability to be at least $1,000.She must make estimated payments equal to the smaller of 90% of the tax shown on her 2016 return or A)100% of the tax on her 2015 return regardless of 2016 AGI.
B)110% of the tax on her 2015 return because 2015 AGI was more than $150,000. C)100% of the tax on the 2015 return because 2016 AGI was more than $100,000.
D)110% of the tax on the 2015 return because 2015 AGI was greater than 2016 AGI.
Q4) FICA taxes are collected equally from the employee and the employer.
A)True
B)False
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Q1) What is the maximum deductible contribution that can be made to one or more deductible IRAs in each of the following instances?
a.A single person,age 41,who is not an active participant in an employer-sponsored retirement plan with AGI of $97,000.
b.A married couple,ages 33 and 34,neither of whom is an active participant in an employer-sponsored retirement plan.One spouse has W-2 income of $57,000 and the other spouse did not work.
c.A married couple,ages 44 and 48.One spouse is covered under an employer-sponsored retirement plan and the other is not.The covered spouse has W-2 income of $125,000 and the non-covered spouse has W-2 income of $32,000.
Q2) If a retirement plan is funded with dollars that have not been taxed,the distributions will not be taxed.
A)True
B)False
Q3) Defined-benefit plans provide for a stream of definitely determinable benefits.
A)True
B)False
Q4) What is an annuity contract? Who are the parties to an annuity contract?
Page 13
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Chapter 12: Special Property Transactions
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Q1) Raymond exchanges a rental lake house with an adjusted basis of $200,000 and fair market value of $320,000 for a rental beach house with a fair market value of $290,000 and $30,000 cash.What are the recognized gain or loss and the basis of the beach house?
A)$120,000 gain and $320,000 basis.
B)$0 gain and $230,000 basis.
C)$30,000 gain and $200,000 basis.
D)$30,000 gain and $230,000 basis.
Q2) When a taxpayer is released from a liability in a like-kind exchange,the amount of the release:
A)Never triggers gain recognition.
B)Is treated as boot and may trigger gain recognition.
C)Always triggers a gain to be recognized.
D)Does not affect the like-kind exchange in any way.
Q3) If a taxpayer trades a personal-use asset for another asset,the exchange does not qualify as a like-kind exchange.
A)True
B)False
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Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Q1) Itemized deductions are allowed in their entirety for AMT purposes.
A)True
B)False
Q2) A loss must first be allowed under the passive activity loss rules and then must pass through the at-risk rules in order to ultimately be deducted on the tax return.
A)True
B)False
Q3) Joshua purchased business furniture and fixtures 7-year property)for $40,000 in May 2013.On July 15,2016,Joshua sold the furniture and fixtures for $30,000.During his years of ownership,he had taken $27,504 of depreciation for regular tax purposes.AMT depreciation for that period was $17,276.What is the 2016 AMT adjustment required as a result of the sale of the assets?
A)$7,276.
B)$17,504.
C)$0.
D)$10,228.
Q4) Most real estate debt meets the requirements of qualified nonrecourse financing.
A)True
B)False
Page 15
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Chapter 14: Partnership Taxation
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Q1) Guaranteed payments are the only items that are reported both as a deduction for ordinary income and as a separately stated item.
A)True
B)False
Q2) All income/gain and expense/loss items affect a partner's basis in his or her partnership interest.
A)True
B)False
Q3) Anna has a $25,000 basis in her partnership interest when she receives liquidating distributions from the partnership.Anna receives cash of $18,000 and computer equipment with a basis to the partnership of $15,000.What are the tax consequences of the liquidating distributions to Anna?
Q4) Jose purchased a 30% partnership interest for $38,000 in June 2013.Jose's share of partnership income was $8,000 in 2013,$12,000 in 2014,$28,000 in 2015,and $6,000 in 2016.Jose made no additional contributions to,or withdrawals from,the partnership.On December 29,2016,Jose sold his partnership interest for $108,000.What is Jose's gain or loss on the sale of his partnership interest?
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Chapter 15: Corporate Taxation
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Q1) Schedule M-1 reconciles from net income per books to net income per the tax law.
A)True
B)False
Q2) Black Company is a Subchapter S corporation.It reported book income of $100,000.Included in that amount is dividend income of $5,000,a net capital loss of $4,000,and a charitable contribution of $20,000.Determine the ordinary income/loss of the corporation and the nature and amount of any separately stated items.
Q3) Heather and Howie form HH Company.In exchange for 50% of the stock,Heather contributes cash of $7,000.For the remaining 50%,Howie contributes a truck with a FMV of $7,000 basis of $10,000).Which of the following statements is correct?
A)The basis of the truck to HH Company is $7,000.
B)Howie will report a loss of $3,000.
C)Howie will have a basis in his stock of $10,000.
D)All of the statements are correct.
Q4) C Corporations are not permitted to report a net capital loss.
A)True
B)False
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