Advanced Taxation Exam Preparation Guide
Course Introduction
Advanced Taxation delves into the complex principles and practices surrounding tax law and administration at both national and international levels. This course covers in-depth topics such as corporate and personal tax planning, tax implications of mergers and acquisitions, transfer pricing, international tax treaties, and anti-avoidance legislation. Students will evaluate real-world tax scenarios, interpret complex statutes and case law, and analyze the strategic implications of tax decisions for individuals and businesses. Emphasis is placed on ethical considerations, compliance issues, and the role of taxation in business and financial decision-making.
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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Sample Questions
Q1) There are two types of primary tax authority: statutory and judicial.
A)True
B)False
Answer: False
Q2) Which of the following is not an example of a proportional tax?
A)Federal income tax.
B)State and local taxes levied on property.
C)Medicare taxes.
D)Sales tax.
Answer: A
Q3) Describe the various courts that hear tax cases.Include both trial courts and appellate courts in your discussion.
Answer: Three different trial courts hear tax cases: 1)the U.S.Tax Court; 2)U.S.District Courts; and 3)the U.S.Court of Federal Claims.Decisions by the Tax Court and the District Courts may be appealed to the U.S.Court of Appeals and then to the Supreme Court.U.S.Court of Federal Claims cases can be appealed to the U.S.Court of AppealsFederal Claims and then to the Supreme Court.
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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 tax liability for a head of household taxpayer with taxable income of $124,225 is:
A)$25,701.
B)$25,354.
C)$31,056.
D)$18,634.
Answer: B
Q2) What is the amount of the tax liability for a single person having taxable income of $59,200? All answers should be rounded to the nearest dollar. Use the appropriate Tax Tablesor Tax Rate Schedules.
A)$10,656.
B)$10,578.
C)$14,800.
D)$9,300.
Answer: B
Q3) A married couple in the process of obtaining a divorce cannot file a joint tax return.
A)True
B)False
Answer: False
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Chapter 3: Gross Income: Inclusions and Exclusions
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Q1) Income may be realized in the form of:
A)Services.
B)Cash.
C)Property.
D)All of these.
Answer: D
Q2) When a taxpayer reports income when received,this is called the ________ method.
A)Accrual basis of accounting
B)Income tax progressive
C)Cash receipts and disbursements
D)Deferred
Answer: C
Q3) The initial original issue discount OID)on a bond is equal to the difference between the acquisition price and the maturity value.
A)True
B)False
Answer: True
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Chapter 4: Adjustments for Adjusted Gross Income
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Q1) Qualified self-employed taxpayers can deduct,as a for AGI deduction,80% of health insurance payments for 2016.
A)True
B)False
Q2) The educator expense deduction is available to community college and university professors.
A)True
B)False
Q3) The educator's expense deduction is taken:
A)On the educator's expense form.
B)Above the line on the Form 1040.
C)On Form 2106.
D)On Schedule C.
Q4) The deduction for self-employment taxes in 2016 is deductible as an above-the-line deduction at a rate of 7.65% based on the employer's portion of the taxes.
A)True
B)False
Q5) What is a Health Savings Account HSA)?
Q6) Why is it important to distinguish between a property settlement and alimony?
Page 6
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Chapter 5: Itemized Deductions
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Q1) The interest paid on a loan used to acquire municipal bonds is deductible as investment interest expense.
A)True B)False
Q2) Personal property taxes paid on personal-use assets,such as the family car,are deductible on Schedule A.
A)True B)False
Q3) What is home equity indebtedness and how does it differ from acquisition indebtedness? Are there any limits to the deductibility of home equity loan interest?
Q4) Which of the following organizations do not qualify for deductible charitable contributions?
A)A political party.
B)Religious organizations.
C)The Salvation Army.
D)All of these.
Q5) How is the medical expense deduction calculated? How is it limited?
Q6) What are four major categories of deductible taxes for individual returns?
Q7) Define a personal casualty loss.
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) Fines paid that are ordinary and necessary in a trade or business generally are deductible.
A)True
B)False
Q2) 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?
Q3) Which of the following properties is not eligible for the §179 expense election when purchased?
A)Rental property.
B)A business automobile.
C)A business computer.
D)Manufacturing equipment.
Q4) For an expense to be necessary,it must be essential to the taxpayer's business.
A)True
B)False
Q5) Describe each of the depreciation conventions and when each is applicable.
Q6) 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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Sample Questions
Q1) Section 1231 property is:
A)Property used in a trade or business that is subject to depreciation and is held for more than one year.
B)Property used in a trade or business that may or may not be subject to depreciation and held for less than one year.
C)Property used in a trade or business that may or may not be subject to depreciation and is held for more than one year.
D)All property used in a trade or business regardless of how long the asset is held.
Q2) Caesar,a single taxpayer,has wage income of $75,000.He also has a short-term capital loss of $5,000,a short-term capital gain of $2,000,and a long-term capital gain of $3,000.What is Caesar's AGI for 2016?
A)$75,000.
B)$78,000.
C)$77,000.
D)$72,000.
Q3) A computer used exclusively in a sole proprietor's business is a capital asset.
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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Sample Questions
Q1) Royalties can be earned from allowing others the right to use:
A)Trademarks
B)Books
C)Plays
D)All of these
Q2) Explain the difference between the two methods available; the Tax Court's method and the IRS method,to allocate expenses between personal and rental use of property.
Q3) There are two methods available to taxpayers to allocate expenses between personal and rental use of properties.
A)True
B)False
Q4) What are the criteria that determine an amount as capital improvement rather than repair and maintenance expense? What is the proper tax treatment of a capital improvement for rental properties?
Q5) Rental activities by definition are passive activities.
A)True
B)False
Q6) Explain what is considered personal use of a rental property.
Q7) 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) There is no maximum amount for the adoption credit.
A)True
B)False
Q2) Tai and Song are ages 69 and 59,respectively,and file a joint return.They have AGI of $20,000 and received $2,000 in nontaxable social security benefits.How much can Tai and Song take as a credit for the elderly or the disabled?
A)$2,000.
B)$1,125.
C)$7,500.
D)$0.
Q3) Ian and Jolene are ages 70 and 72,respectively,and file a joint return.They have AGI of $15,000 and received $1,000 in nontaxable social security benefits.How much can Ian and Jolene take as a credit for the elderly or the disabled?
A)$2,250.
B)$600.
C)$1,000.
D)$225.
Q4) What is the definition of qualifying child for purposes of the earned income credit?
Page 11
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Chapter 10: Payroll Taxes
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Sample Questions
Q1) Employers are required to deposit FUTA taxes when their liability for a quarter exceeds:
A)$2,500.
B)$1,500.
C)$500.
D)$1,000.
Q2) An employer with 250 or more employees uses which form to file W-2s electronically?
A)Form 4070.
B)Form 8109-B.
C)Form 4419.
D)Form 1040-ES.
Q3) For wages paid in 2016,an employer must send Copy A of each Form W-2 along with the W-3 transmittal form to the SSA no later than:
A)March 1,2017.
B)January 31,2017.
C)February 28,2017.
D)February 1,2017.
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Q1) Felix is age 74 and his wife is age 73.He purchased a single life annuity contract that will pay him $80,000 per year for life.The expected return on the contract is
A)$1,128,000.
B)$1,112,000.
C)$1,904,000.
D)$1,056,000.
Q2) Employees age 50 or over can contribute an additional ________ per year to a 401k)plan.
A)$6,000
B)$18,000
C)$1,000
D)$6,500
Q3) If a taxpayer funded some contributions to a qualified pension plan with previously-taxed dollars,then some of the distributions from that plan during retirement will be nontaxable.
A)True
B)False
Q4) Under what circumstances might an individual want to establish an annuity contract in retirement?
Page 13
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Chapter 12: Special Property Transactions
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Q1) No deduction is allowed with respect to any loss from the sale or exchange of property,directly or indirectly,between related parties.
A)True
B)False
Q2) On July 1,2016,DJ sold equipment used in her business and reported the gain using the installment method.Her adjusted basis in the equipment was $150,000.The equipment was subject to $30,000 of depreciation recapture.DJ sold the property for $250,000,with $100,000 due on the date of the sale and $150,000 plus interest at the Federal rate)due on August 1,2017.What is the amount of gain recognized in 2016?
Q3) 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)Excluded up to $250,000.
B)Never excluded.
C)Excluded up to $500,000.
D)Excluded up to $250,000 plus any gain exclusion not used by the first spouse.
Q4) A dealer of equipment can recognize gains using the installment method.
A)True
B)False
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Page 14
Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Sample Questions
Q1) Clio's hot dog stand is only open during lunch on weekdays.In total,Clio,who is the sole owner and operator,worked 450 hours at the hot dog stand during the year.Clio is not considered a material participant with respect to the hot dog stand business.
A)True
B)False
Q2) The initial amount considered at-risk is the cash plus the adjusted basis of property contributed to the activity plus certain borrowed amounts.
A)True
B)False
Q3) After computing all tax preferences and AMT adjustments,Peter has AMTI of $210,000 in 2016.If Peter is single,what exemption amount can he claim for AMT in 2016?
A)$0.
B)$31,325.
C)$83,800.
D)$53,900.
Q4) Itemized deductions are allowed in their entirety for AMT purposes.
A)True B)False
Page 15
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Chapter 14: Partnership Taxation
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Q1) The term "step-into-the-shoes" means that the partnership starts a new depreciation period for any depreciable asset contributed to the partnership.
A)True
B)False
Q2) Calvin purchased a 30% partnership interest for $53,000 in March 2014.Calvin's share of partnership income was $5,000 in 2014,$25,000 in 2015,and $9,000)in 2016.Calvin made no additional contributions to,or withdrawals from,the partnership.On December 1,2016,Calvin sold his partnership interest for $83,000.What is Calvin's gain or loss on the disposal?
A)$30,000.
B)$83,000.
C)$0.
D)$9,000.
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?
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Page 16
Chapter 15: Corporate Taxation
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Q1) Large C corporations must use the accrual basis of accounting.
A)True
B)False
Q2) Parent-subsidiary corporations must file a consolidated tax return.
A)True
B)False
Q3) The corporate alternative minimum tax exemption amount is $150,000.
A)True
B)False
Q4) Which of the following statements is correct?
A)A corporation is entitled to a charitable deduction of 10% of its gross income before certain items.
B)If a corporation has a net operating loss,it can carry the loss back three years and then forward twenty years.
C)A net capital loss can be carried back three years and then forward five years.
D)The first estimated payment of a corporation is due on the 15<sup>th</sup><sup> </sup>day of the third month of the fiscal year.
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