Advanced Taxation Exam Preparation Guide
Course Introduction
Advanced Taxation delves into complex tax theories, principles, and practices, building upon foundational taxation concepts. The course covers topics such as corporate tax structure, international taxation, partnership and trust taxation, tax planning strategies, and updates in tax law. Students analyze real-world case studies, navigate nuanced tax scenarios, and learn to apply advanced tax legislation and compliance requirements. Through research and problem-solving, the course aims to equip students with the expertise necessary for careers in tax consultancy, corporate finance, and public accounting, with a strong emphasis on ethical considerations and evolving tax reforms.
Recommended Textbook
MP Fundamentals of Taxation 2015 8th Edition by Ana Cruz
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1645 Verified Questions
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Chapter 1: Introduction to Taxation, the Income Tax
Formula, and Form 1040ez
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Sample Questions
Q1) What is the marginal tax rate and how is it determined?
Answer: The marginal tax rate is the tax rate that is applied to the next dollar of income (or the last dollar of income)that a taxpayer earns.It is determined with reference to the tax rate schedules published by the IRS.
Q2) What is a Private Letter Ruling (PLR)? What tax authority is provided by a PLR?
Answer: The IRS issues a PLR when a taxpayer requests a ruling on a certain tax situation.The PLR is tax authority only to the taxpayer to whom it is issued.
Q3) Which of the following statements is true with respect to marginal and average tax rates under a progressive tax structure?
A) Marginal rates are always larger than average rates.
B) Marginal rates are always smaller than average rates.
C) Average rates can only be calculated for taxpayers with income over $100,000.
D) Average rates are never more than marginal rates.
Answer: D
Q4) What is the definition of a regressive tax?
Answer: A regressive tax is one in which the tax rate decreases as the tax base increases.
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Page 3
Chapter 2: Expanded Tax Formula, Forms 1040a and 1040, and Basic Concepts
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Sample Questions
Q1) The taxpayer's spouse died at the beginning of 2014.He has no qualifying child.Which status should the taxpayer select when filing his tax return?
A) Single.
B) Qualifying Widow(er).
C) Married Filing Separately.
D) Married Filing Jointly.
Answer: D
Q2) A legally divorced taxpayer maintains a household for himself and maintains a separate household that is the principal place of abode of his dependent widowed mother.What filing status should he use when filing his tax return?
A) Married Filing Separately.
B) Single.
C) Qualifying widow(er).
D) Head of Household.
Answer: D
Q3) Personal exemptions are for the taxpayer and spouse.
A)True
B)False
Answer: True
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Chapter 3: Gross Income: Inclusions and Exclusions
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Sample Questions
Q1) What item should not be included in income?
A) Worker's compensation payments.
B) Jury duty pay.
C) Prizes and awards.
D) Sick pay.
Answer: A
Q2) If the process of a transaction begins and ends with an economic benefit for the taxpayer,he or she must report it in income even though the income is specifically exempt from tax.
A)True
B)False
Answer: False
Q3) When filing their tax returns,almost all individuals use:
A) The accrual method.
B) The cash receipts and disbursements method.
C) The recognition method.
D) The accounting method.
Answer: B
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5
Chapter 4: Adjustments for Adjusted Gross Income
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Sample Questions
Q1) The payment of alimony has tax ramifications.These tax ramifications only affect the payor of the alimony.
A)True
B)False
Q2) Which of the following expenses does not qualify as a moving expense?
A)Lodging.
B)Travel expenses.
C)House hunting expenses.
D)Transportation of household goods.
Q3) Qualifying moving expenses are treated as an itemized deduction for 2014.
A)True
B)False
Q4) An early withdrawal penalty is reported on Form:
A)W-2.
B)1098.
C)1099-DIV.
D)1099-INT.
Q5) What is meant by a penalty on early withdrawal of savings and under what circumstances is it deductible?
Q6) What are the contribution amounts for a Health Savings Account for 2014?
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Chapter 5: Itemized Deductions
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Q1) Personal property taxes paid on personal-use assets,such as the family car,are deductible on Schedule A.
A)True
B)False
Q2) To qualify for a medical expense deduction as taxpayer's dependent,a person must be a dependent either at the time the medical services were provided or at the time the expenses were paid.A person generally qualifies as a dependent for purposes of the medical expense deduction if the person:
A)Would qualify as a dependent except for the amount of gross income.
B)Was a foreign student staying briefly at taxpayer's home.
C)Is an unmarried adult child of taxpayer's sibling.
D)Is the unrelated caregiver for taxpayer's elderly parents.
Q3) Abel's car was completely destroyed in an accident that was his fault.His loss was $8,500 and his insurance company reimbursed him $6,500.What amount of casualty loss can Abel claim on his return (before deduction limitations)?
A)$ 0
B)$2,000
C)$6,500
D)$8,500
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Page 7
Chapter 6: Self-Employed Business Income
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Sample Questions
Q1) The significance of meeting the "travel away from home" standard is that it allows the deduction of meals,lodging,and other incidental expenses such as dry cleaning.
A)True
B)False
Q2) Kiri acquires equipment (7-year property)on August 14,2014,for $80,000.She does not elect to expense the asset under Section 179 or the 50% bonus.She sells the asset on January 15,2018.
a.What is Kiri's cost recovery deduction related to the equipment in 2014 and 2018?
b.What is Kiri's cost recovery deduction related to the equipment in 2014 and 2018 if the 50% bonus is elected?
Q3) The cost of all personal property is recovered using a 200% declining-balance rate under MACRS.
A)True
B)False
Q4) Lateefah purchased a new office building on April 1,2014,for $3,000,000.On August 20,2018,the building was sold.What is the cost recovery deduction for the year of purchase and the year of sale?
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Page 8
Chapter 7: Capital Gains and Other Sales of Property
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Sample Questions
Q1) In 2008,Naila purchased land for $77,000 for use in her landscape business.She sold it in 2014 for $83,000.If Naila has no other sales of business or trade property,how will this gain be taxed?
A) $6,000 short-term capital gain.
B) $6,000 long-term capital gain.
C) $6,000 ordinary income.
D) $6,000 Sections 1231 gain.
Q2) Aneta sold an apartment building for $713,470 in 2014.She purchased the building in 2008 for $600,000 and has taken $151,806 in depreciation on the building.Assuming Aneta is in the 33% tax bracket,how is her gain taxed?
A) $113,470 at 0% and $151,806 at 28%.
B) $113,470 at 25% and $151,806 at 15%.
C) $151,806 at 28% and $113,470 at 15%.
D) $151,806 at 25% and $113,470 at 15%.
Q3) The 25% bracket is a special rate that relates to capital gains from Section 1250 property used in a trade or business.
A)True
B)False
Q4) Jim,the owner of a sole proprietorship,sold the following assets in 2014:
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Chapter 8: Rental Property, Royalties, and Income From
Flow-Through Entities
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Sample Questions
Q1) Charles and Sarah own a home in Palm Springs,CA.During the year,they rented the house for 40 days for $5,000 and used it for personal use for 18 days.The house remained vacant for the remainder of the year.The expenses for the house included $16,000 in mortgage interest,$4,500 in property taxes,$1,000 in utilities,$1,200 in maintenance,and $9,800 in depreciation.What is the deductible loss for the rental of their home (without considering the passive loss limitation)? Use the Tax Court method for allocation of expenses.
A) $0
B) $5,000 net income
C) $17,414 net loss
D) $27,500 net loss
Q2) If a taxpayer materially participates in his/her rental activity as a real estate professional,the activity is considered a trade or business and not a passive activity.
A)True
B)False
Q3) Explain what is considered personal use of a rental property.
Q4) A royalty is a payment for the right to use intangible property.
A)True
B)False
Page 10
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Chapter 9: Tax Credits
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Sample Questions
Q1) Taxpayers can claim a child tax credit for each qualifying child.How is a qualifying child defined?
Q2) After years of working with the orphanage and the government,Walt and Kim adopted a little girl from China.The adoption process,which became final in January 2014,incurred the following qualified adoption expenses.What amount of adoption credit can Walt and Kim claim and in what year? Assume there is no credit limitation due to their AGI amount. 2013 $12,500
2014 $2,800
A) $15,300 in 2013.
B) $12,500 in 2013 and $2,800 in 2014.
C) $13,190 in 2014.
D) $15,300 in 2014.
Q3) The maximum child tax credit is $1,000 per child. A)True B)False
Q4) The foreign tax credit is available only to individuals born in a foreign country. A)True B)False
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Page 11
Chapter 10: Payroll Taxes
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Sample Questions
Q1) Employers are required to deposit FUTA taxes when their liability exceeds:
A) $100.
B) $500.
C) $1,000.
D) $2,500.
Q2) Sharon is single and is paid $3,782 biweekly and claims one withholding allowance.What amount of federal income tax will be withheld from Sharon's gross wages for each payroll period?
A) $504.40.
B) $507.58.
C) $726.08.
D) $729.64.
Q3) Employees claim withholding allowances on Form W-4.For each withholding allowance claimed,their withholding base is reduced by what amount for calendar year 2014?
A) $3,800.
B) $3,850.
C) $3,900.
D) $3,950.
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Page 12
Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Sample Questions
Q1) Benjamin and Ester file a joint return and have AGI of $165,000.Both are active participants in their employer's pension plan.They have one child,Emily,who is age 8.Emily's grandparents contributed $1,000 to a Coverdell Education Savings Account for Emily in 2014.What is the maximum permitted Coverdell Education Savings Account contribution that Benjamin and Ester can make in 2014?
A) $0.
B) $1,000.
C) $2,000.
D) $5,500.
Q2) What are the tax consequence(s)related to a qualified pension plan?
A) Employer contributions are deductible when made.
B) Earnings on the contributions are taxable as they are earned.
C) Employees are not taxed until distributions are received from the plan.
D) Only Employer contributions are deductible when made and Employees are not taxed until distributions are received from the plan.
Q3) Roth IRA withdrawals are deemed to first come from contributions followed by earnings.
A)True
B)False
Page 13
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Chapter 12: Special Property Transactions
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Sample Questions
Q1) If one spouse sells a home and excludes the gain on the sale,the gain on the sale of a residence by the other spouse is:
A) Never excluded.
B) Excluded up to $500,000.
C) Excluded up to $250,000.
D) Excluded up to $250,000 plus any gain exclusion not used by the first spouse.
Q2) Matt and Opal were married in April of 2014.Matt has lived in his personal residence for fifteen years and Opal moved into the house after the marriage.Matt died in October 2014.Opal sold the house at a $300,000 gain in December,2014.How much of the gain can Opal exclude?
A) $0.
B) $250,000.
C) $300,000.
D) None of these.
Q3) The holding period of property received in a like-kind exchange:
A) Includes the holding period of the old asset exchanged.
B) Begins on the date of the exchange.
C) Begins on the date the exchange property is identified.
D) Begins up to 180 days prior to the exchange.
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Page 14
Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Q1) AMT depreciation of personal property is calculated using which method?
A) Straight-line method.
B) 150% declining balance method.
C) 200% declining balance method.
D) Sum-of-the-years digits method.
Q2) There is no difference between regular tax depreciation and AMT depreciation on real property placed in service after 1998.
A)True
B)False
Q3) Elijah owns an apartment complex that he actively manages.Elijah paid $300,000 cash for the apartment complex three years ago.During 2014,the rental activity generated a loss of $30,000.How much of the loss can Elijah deduct in 2014 in both of the following independent cases?
a.Elijah has $80,000 of AGI (salary)before considering the loss generated by the apartment building.
b.Elijah has $120,000 of AGI (salary)before considering the loss generated by the apartment building.
Q4) Identify factors that increase or decrease the at-risk amount.
Page 15
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Chapter 14: Partnership Taxation
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Q1) If Casey's partnership basis is only $100,000 and Cherie's basis is $200,000,there is no way both Casey and Cherie can be equal partners at 50% each in the partnership.
A)True
B)False
Q2) If only cash is contributed on the formation of a partnership,outside basis will equal inside basis.
A)True
B)False
Q3) Which of the following items increases a partner's basis in his or her partnership interest?
A) The basis of property contributed.
B) Ordinary income that flows through from the partnership.
C) Tax-exempt income that flows through from the partnership.
D) All of these.
Q4) All income and expense items of a partnership that may be treated differently at the partner level must be "separately stated."
A)True
B)False
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Page 16
Chapter 15: Corporate Taxation
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Q1) QRS Corporation has a fiscal year-end that ends on September 30.It is required to make quarterly estimated payments.The first estimated payment will be due on the 15<sup>th</sup> of:
A) November.
B) December.
C) January.
D) February.
Q2) Schedule L is a reconciliation of net income per books to net income per the tax law.
A)True
B)False
Q3) A domestic corporation can receive a deduction for dividend income it receives from another domestic corporation.
A)True
B)False
Q4) A capital loss carryforward will create a reconciling item on Schedule M-1,but a capital loss carryback will not.
A)True
B)False
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