Advanced Taxation Exam Review
Course Introduction
Advanced Taxation delves into the complex concepts and regulations surrounding individual, corporate, and international taxation. The course explores advanced topics such as tax planning, tax compliance, tax avoidance and evasion, transfer pricing, double taxation treaties, and the implications of recent legislative changes on tax strategy. Students develop analytical skills to interpret and apply taxation laws, understand the ethical considerations for tax professionals, and evaluate the tax implications of various business operations and structures. Through case studies and applied exercises, learners gain practical experience in dealing with sophisticated tax scenarios in both domestic and global contexts.
Recommended Textbook Principles of Taxation for Business and Investment Planning 2013 16th Edition by Sally Jones
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18 Chapters
1732 Verified Questions
1732 Flashcards
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Chapter 1: Taxes and Taxing Jurisdictions
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Sample Questions
Q1) Mr. Smith resides in a state with a 6% sales and use tax. He recently traveled to another state to buy furniture and paid that state's 7% sales tax. Which of the following statements is true?
A) Mr. Smith is entitled to a refund of 1% of the purchase price of the sailboat.
B) Mr. Smith does not owe a use tax to his home state.
C) Mr. Smith's use tax liability to his home state equals 6% of the purchase price of the sailboat.
D) None of the above is true.
Answer: B
Q2) Which of the following statements about the Internal Revenue Code is false?
A) The Internal Revenue Code has not been amended since 1986.
B) The Internal Revenue Code is part of federal statutory law.
C) The Internal Revenue Code consists of numerically organized sections.
D) Only Congress has the authority to amend the Internal Revenue Code.
Answer: A
Q3) A tax is a payment to support the cost of government.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Policy Standards for a Good Tax
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Sample Questions
Q1) A dynamic forecast of the revenue effect of a tax rate change assumes that the tax base does not change.
A)True
B)False
Answer: False
Q2) The city of Belleview operated at an $865,000 surplus this year. The surplus suggests that the municipal tax system is:
A) Fair
B) Efficient
C) Sufficient
D) Convenient
Answer: C
Q3) Which of the following statements about tax rate structures is true?
A) Regressive rate structures are illegal in the United States.
B) A tax with a graduated rate structure must be either regressive or progressive.
C) A proportionate rate structure is the only structure resulting in vertical equity.
D) None of the above is true.
Answer: B
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4
Chapter 3: Taxes As Transaction Costs
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Sample Questions
Q1) Wilson Company has $100,000 in an investment paying 6 percent per annum. Each year Wilson incurs $1,200 of expenses related to this investment. Compute Wilson's annual net cash flow from this investment assuming the following.
A. Wilson's marginal tax rate is 10 percent and the annual expense is not deductible.
B. Wilson's marginal tax rate is 35 percent and the annual expense is deductible.
C. Wilson's marginal tax rate is 25 percent and one-half of the annual expense is deductible.
Answer: A. After-tax cash flow is $4,200 = $6,000 - $1,200 - 10% * $6,000.
B. After-tax cash flow is $3,120 = $6,000 - $1,200 - 35% * ($6,000 - $1,200).
C. After-tax cash flow is $3,450 = $6,000 - $1,200 - 25% * ($6,000 - 50%*$1,200).
Q2) The tax savings from a transaction represents a cash inflow.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Maxims of Income Tax Planning
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Sample Questions
Q1) Mr. Dole needed to sell appreciated stock out of his investment portfolio to generate cash to pay for his Christmas spending. He decided to postpone the sale from December 20Y1 until January 20Y2. Mr. Dole is taking advantage of the:
A) Entity variable
B) Time period variable
C) Jurisdiction variable
D) Character variable
Q2) Elton Company plans to build a new facility to manufacture backpacks. Elton sells its backpacks across the country for $300 per pack. It could locate the plan in state A, which levies a 5 percent tax on business income. The estimated manufacturing cost per pack in state A would be $120. Alternatively, Elton could locate the plan in state B, which levies a 3 percent tax on business income. The estimated manufacturing cost in state B is $126 per pack. In which state should Elton locate its plant? Provide calculations to support your conclusion.
Q3) The time period variable is based on the time value of money.
A)True
B)False
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Page 6
Chapter 5: Tax Research
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75 Verified Questions
75 Flashcards
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Sample Questions
Q1) The topical index of a commercial tax service is considered primary authority.
A)True
B)False
Q2) Which of the following is not one of the three sources of authority that comprise the federal tax law?
A) Statutory authority
B) Secondary authority
C) Administrative authority
D) Judicial authority
Q3) Which of the following statements does not accurately describe the tax research process?
A) A researcher may begin with any of the six steps in the process.
B) The process is not linear because the researcher may have to repeat one or more of the steps before concluding the research.
C) If a set of facts suggests multiple research questions, the researcher must decide on the order in which the questions should be answered.
D) The last step in the process requires preparation of a written summary that communicates the researcher's conclusions.
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Chapter 6: Taxable Income From Business Operations
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116 Verified Questions
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Sample Questions
Q1) Bendom Inc, a calendar year, accrual basis corporation, hired Rukel Company to provide professional services. Rukel completed the services on November 30, 2012, and immediately sent Bendom a bill for $37,750. Bendom paid the bill on January 4, 2013. Which of the following statements is false?
A) If Bendom and Rukel are related parties, Rukel must report $37,750 income on its 2012 tax return regardless of its method of accounting.
B) If Rukel uses the accrual method, it must report $37,750 income on its 2012 tax return.
C) If Bendom and Rukel are unrelated parties, Bendom can deduct the $37,750 accrued expense on its 2012 tax return.
D) If Bendom and Rukel are related parties, Bendom can deduct the $37,750 accrued expense on its 2012 tax return only if Rukel uses the accrual method of accounting.
Q2) Elcox Company, a calendar year, cash basis taxpayer, paid $950 to purchase eight months' worth of office supplies on December 12. Elcox can deduct $950 in the year of payment.
A)True
B)False
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Chapter 7: Property Acquisitions and Cost Recovery
Deductions
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Song Company, a calendar year taxpayer, purchased a total of $614,400 tangible personalty in 2010. How much of this cost can Song elect to expense under Section 179?
A) -0-
B) $139,000
C) $54,400
D) None of the above
Q2) L&P Inc., which manufactures electrical components, purchased new equipment for use in its manufacturing process. The MACRS depreciation on the equipment must be capitalized to the cost of inventory under the unicap rules.
A)True
B)False
Q3) The MACRS calculation ignores any salvage or residual value of an asset.
A)True
B)False
Q4) Research and experimental expenditures are deductible unless they result in the development of a patented formula or process.
A)True
B)False
Page 9
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Chapter 8: Property Dispositions
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110 Flashcards
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Sample Questions
Q1) Every gain or loss realized on the disposition of property is ultimately characterized as either ordinary or capital for tax purposes.
A)True
B)False
Q2) Both corporate and individual taxpayers may be taxed at a preferential rate on net capital gain.
A)True
B)False
Q3) The characterization of income as ordinary or capital gain has no relevance for financial reporting purposes.
A)True
B)False
Q4) Abada Inc. has a $925,000 basis in 100% of the stock of AbWest Inc., which derives all its income from a manufacturing activity. If Abada determines that the AbWest stock is worthless, it can recognize a $925,000 ordinary loss.
A)True
B)False
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Chapter 9: Nontaxable Exchanges
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Sample Questions
Q1) IPM Inc. and Zeta Company formed IPeta Inc. by transferring business assets in exchange for 1,000 shares of IPeta common stock. IPM transferred assets with a $675,000 FMV and a $283,000 adjusted tax basis and received 600 shares. Zeta transferred assets with a $450,000 FMV and a $98,000 adjusted tax basis and received 400 shares. Compute IPM and Zeta's realized and recognized gain on the exchange.
A) IPM realized $392,000 gain and recognized no gain. Zeta realized $352,000 gain and recognized no gain.
B) IPM realized and recognized $392,000 gain. Zeta realized and recognized $352,000 gain.
C) IPM realized $392,000 gain and recognized no gain. Zeta realized and recognized $352,000 gain.
D) There is not enough information to compute realized and recognized gain.
Q2) A taxpayer who pays boot in a nontaxable exchange includes the value of the boot in the basis of the qualifying property received.
A)True
B)False
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11
Chapter 10: Sole Proprietorships, Partnerships, Llcs, and S Corporations
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Sample Questions
Q1) John's share of partnership loss was $60,000. He had only enough tax basis to deduct $34,000 of the loss. He may deduct the remaining loss against other income in the following year, regardless of what happens in the partnership.
A)True
B)False
Q2) At the beginning of 2012, Quentin purchased a 25 percent general partner interest in Maxim Partnership for $30,000. Quentin's 2012 Schedule K-1 reported that his share of Maxim's debt at year-end was $20,000 and his share of ordinary loss was $42,000. On January 1, 2013, Quentin sold his interest to another partner for $5,000 cash.
a. How much of his share of Maxim's loss can Quentin deduct on his 2011 return?
b. Compute Quentin's recognized gain on sale of his Maxim interest.
Q3) The FICA taxes authorized by the Federal Insurance Contribution Act is imposed upon all of the employee's wages for the year.
A)True
B)False
Q4) Corporations cannot be shareholders in an S corporation.
A)True
B)False
Page 12
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Chapter 11: The Corporate Taxpayer
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Sample Questions
Q1) The federal tax law considers the member corporations of an affiliated group to be a single entity for federal tax purposes. An example of this treatment is the requirement to share the 15% tax bracket.
A)True
B)False
Q2) Poppy's book income of $739,300 includes a net long-term capital loss of $42,000 and federal income tax expense of $170,000. Based only on these items, Poppy's taxable income is:
A) $739,300
B) $951,300
C) $909,300
D) $781,300
Q3) A corporation's minimum tax credit can reduce the corporation's future regular tax liability if regular tax liability exceeds tentative minimum tax in that year.
A)True
B)False
Q4) A corporate taxpayer would prefer a $50,000 deduction to a $50,000 credit.
A)True
B)False
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Chapter 12: The Choice of Business Entity
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Sample Questions
Q1) For the current tax year, Cuddle Corporation's $500,000 of taxable income is all considered to be personal holding company income. The corporation did not pay dividends. Which of the following statements is true?
A) The corporation will owe a personal holding company tax of $170,000.
B) The corporation will owe a regular tax of $75,000.
C) The corporation's total tax liability will be $340,000.
D) The corporation's total tax liability will be $245,000.
Q2) The use of a corporation as a tax shelter is most effective when the corporate tax rate is significantly higher than the individual tax rate.
A)True
B)False
Q3) One disadvantage of the creation of a family-owned entity is that there is dilution of control with respect to the original business owners. A)True
B)False
Q4) Typical family-owned businesses are operated as passthrough entities. A)True
B)False
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Page 14
Chapter 13: Jurisdictional Issues in Business Taxation
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Sample Questions
Q1) Which of the following statements concerning the taxation of a U.S. multinational corporation is true?
A) A U.S. corporation is taxed by the United States only on its U.S. source income.
B) The foreign tax credit ensures that a U.S. corporation will never pay taxes at a higher rate than the one imposed by the U.S. tax law.
C) Cross-crediting allows a U.S. corporation to maximize its foreign tax credit.
D) The foreign tax credit allows a U.S. corporation to defer taxation of its foreign source income until the earnings are repatriated.
Q2) The foreign subsidiaries of a U.S. corporation cannot be included in a U.S. consolidated tax return.
A)True B)False
Q3) The foreign tax credit can reduce a corporation's alternative minimum tax. A)True B)False
Q4) This year, Plateau, Inc.'s before-tax income was $4,765,000. Plateau paid $310,000 income tax to state A and $130,000 income tax to state B.
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Chapter 14: The Individual Tax Formula
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Sample Questions
Q1) Bill and Afton are married and file a joint tax return. Bill is 67 and Afton is 66, and neither is legally blind. Their standard deduction for 2012 is $14,200.
A)True
B)False
Q2) Leon died on August 23, 2010, and his wife Mary has not remarried. Since her husband's death, Mary has maintained a home for her two dependent children, who were ages 7 and 4 when their father died. Which of the following describes Mary's filing status for 2011, 2012, and 2013?
A) Surviving spouse for 2011, 2012, and 2013.
B) Surviving spouse for 2011 and 2012; head of household for 2013.
C) Head of household for 2011, 2012, and 2013.
D) Surviving spouse for 2011; head of household for 2012 and 2013.
Q3) The earned income credit offsets the burden of the federal payroll tax on low-income families and encourages individuals to seek employment rather than to depend on welfare.
A)True
B)False
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Page 16
Chapter 15: Compensation and Retirement Planning
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Sample Questions
Q1) Tony's marginal income tax rate is 28%, and he pays FICA tax on his entire salary (5.65% rate in 2012). Tony's employer offered him a choice between $5,000 additional salary or a nontaxable fringe benefit. Tony would have to pay $3,400 to purchase the benefit directly. Which of the following statements is true?
A) The fringe benefit and the additional salary have the same after-tax value.
B) The fringe benefit is worth $83 more than the additional salary.
C) The additional salary is worth $300 more than the fringe benefit.
D) None of the above is true.
Q2) Self-employed individuals have fewer opportunities than employees to underpay income and payroll taxes.
A)True
B)False
Q3) The IRS is less likely to raise the issue of reasonable compensation during the audit of a publicly held corporation than a closely held corporation.
A)True
B)False
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Chapter 16: Investment and Personal Financial Planning
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Sample Questions
Q1) Ms. Plant owns and actively manages an apartment complex. This year, the complex generated a $32,790 net loss. If Ms. Plant's AGI before considering this loss is $196,100 and she owns no other passive activities, how much of the loss is deductible this year?
A) $0
B) $25,000
C) $32,790
D) None of the above
Q2) Mr. Johnson borrowed money to buy Chicago municipal bonds. This year, he paid $2,000 of interest on his loan and earned $3,500 of interest income from the bonds. None of the interest expense is deductible.
A)True
B)False
Q3) Electing to reinvest dividends in additional shares of stock does not defer income recognition.
A)True
B)False
Q4) Unrecaptured Section 1250 gain is taxed at a maximum rate of 28%.
A)True
B)False
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Chapter 17: Tax Consequences of Personal Activities
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Sample Questions
Q1) Personal exemptions are allowed in computing alternative minimum taxable income (AMTI).
A)True B)False
Q2) Mr. Lightfoot owns three mortgaged residences that he occupies at different times of the year. He can treat the interest paid on only one mortgage as qualified residence interest.
A)True
B)False
Q3) Under the terms of a divorce decree, Harold transferred his one-half interest in the marital residence to his former wife Francine. Francine must include the value of the interest in gross income.
A)True B)False
Q4) This year, David paid his physician $6,200 for routine examinations and received a $3,000 reimbursement from his medical insurance company. David is allowed a $3,200 medical expense as an above-the-line deduction.
A)True B)False
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Chapter 18: The Tax Compliance Process
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Sample Questions
Q1) Mr. and Mrs. Nestor were assessed a $51,240 income tax deficiency. Which of the following statements is false?
A) If the Nestors do not have cash on hand to pay the deficiency, the IRS can't force them to sell assets to raise the cash.
B) If the Nestors do not have sufficient assets to pay the deficiency, the IRS may allow them to pay it off over time under an installment plan.
C) If the Nestors do not have sufficient assets to pay the deficiency, the IRS may negotiate an offer in compromise for a lesser payment.
D) Statements A. and C. are false.
E) are false.
Q2) A person can't be relieved of liability for a tax deficiency under the innocent spouse rule unless that person was forced to sign the tax return under duress.
A)True
B)False
Q3) Only attorneys and CPAs may prepare tax returns for compensation.
A)True B)False
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