Advanced Taxation Exam Review
Course Introduction
Advanced Taxation is an in-depth course designed to build upon foundational concepts in tax law and practice, focusing on complex taxation issues relevant to individuals, corporations, partnerships, and other entities. The course explores advanced topics such as business restructuring, international taxation, tax planning strategies, tax compliance, and ethical considerations. Students will analyze current tax legislation and case law, apply tax concepts to real-world scenarios, and develop critical thinking skills necessary for effective decision-making in complex tax environments. This course is ideal for those seeking careers in tax consulting, accounting, or corporate finance, and prepares students for professional tax examinations.
Recommended Textbook
South Western Federal Taxation 2012 Comprehensive by William H. Hoffman
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28 Chapters
3533 Verified Questions
3533 Flashcards
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Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Sample Questions
Q1) The formula for the Federal income tax on corporations is not the same as that applicable to individuals.
A)True
B)False
Answer: True
Q2) Social considerations can be used to justify:
A) Allowing a Federal income tax deduction for state and local sales taxes.
B) Allowing excess capital losses to be carried over to other years.
C) Allowing accelerated amortization for the cost of installing pollution control facilities.
D) Allowance of a credit for child care expenses.
E) None of the above.
Answer: D
Q3) In preparing an income tax return,the use of a client's estimates is permitted.
A)True
B)False
Answer: True
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Chapter 2: Working With the Tax Law
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Q1) Regulations are arranged in the same sequence as the Internal Revenue Code.
A)True
B)False
Answer: True
Q2) A professional must understand the relative weight of authority within the sources of tax law.
A)True
B)False
Answer: True
Q3) Before a tax bill can become law,it must be approved by the President.
A)True
B)False
Answer: False
Q4) A scholarship received by a student is excluded for purposes of computing whether a person is self-supporting under the qualified child provision.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Tax Determination: Personal and Dependency
Exemptions: an Overview of Property Transactions
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Q1) Dan and Donna are husband and wife and file separate returns for the year.If Dan itemizes his deductions from AGI,Donna cannot claim the standard deduction.
A)True
B)False
Answer: True
Q2) List several categories of persons that cannot be a qualified child but can be a qualified relative for dependency exemption purposes.
Answer: Lineal ascendants (e.g.,parents),collateral ascendants (e.g.,uncles,aunts),in-laws,and strangers who are members of the taxpayper's household.
Q3) Logan,an 80-year-old widower,dies on January 2,2011.Even though he lived for only two days,on his final income tax return for 2011,the full basic and additional standard deductions can be claimed.
A)True
B)False
Answer: True
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Chapter 4: Gross Income: Concepts and Inclusions
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Q1) An advantage to operating a business as an S corporation is that the shareholder has no gross income from the S corporation unless the shareholder makes a withdrawal during the tax year.
A)True
B)False
Q2) On January 1,2011,an accrual basis taxpayer entered into a contract to provide termite inspection service each month for 36 months.The amount received for the contract was $2,400.The taxpayer should report $1,600 of income in 2012.
A)True
B)False
Q3) Mabel is age 65 and lives on her Social Security benefits and gifts from her son,Fred.Fred is a full-time teacher.He has written a book and receives royalties from it.This year Fred directed the publisher to make the royalty check payable to Mabel because she needs the money for support.Mabel must include the amount of the royalty check in her gross income.
A)True
B)False
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Page 6
Chapter 5: Gross Income: Exclusions
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Q1) Members of a research team must include in gross income the value of their lodging furnished at the research base located at the South Pole.
A)True
B)False
Q2) Albert had a terminal illness which required almost constant nursing care for the remaining two years of his estimated life,according to his doctor.Albert had a life insurance policy with a face amount of $100,000.Albert had paid $10,000 of premiums on the policy.The insurance company has offered to pay him $75,000 to cancel the policy,although its cash surrender value was only $60,000.Albert accepted the $75,000.Albert used $5,000 to pay his medical expenses.Albert made a miraculous recovery and lived another 20 years.As a result of cashing in the policy:
A) Albert is not required to recognize any gross income because of his terminal illness.
B) Albert must recognize $65,000 ($75,000 - $10,000) of gross income.
C) Albert must recognize $10,000 ($75,000 - $60,000 - $5,000) of gross income.
D) Albert must recognize $75,000 of gross income, but he has $5,000 of deductible medical expenses.
E) None of the above.
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Page 7
Chapter 6: Deductions and Losses: in General
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Q1) Are there any exceptions to the rule that personal expenditures cannot be deducted?
Q2) The income of a sole proprietorship are reported on Schedule C (Profit or Loss from Business).
A)True
B)False
Q3) Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.
A)True
B)False
Q4) Salaries are considered an ordinary and necessary expense of a trade or business if they meet what other requirement? What are the tax consequences if this requirement is not met?
Q5) Marge sells land to her adult son,Jason,for its $20,000 appraised value.Her adjusted basis for the land is $25,000.Marge's recognized loss is $0 and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 disallowed loss of Marge).
A)True
B)False
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Page 8
Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Q1) Research and experimental expenditures do not include expenditures for ordinary testing of materials for quality control.
A)True
B)False
Q2) The amount of complete worthlessness on a nonbusiness bad debt is deducted at final settlement.
A)True
B)False
Q3) The cost of repairs to damaged property may be acceptable as a measure of the loss in value of the property.
A)True
B)False
Q4) The amount of a farming loss cannot exceed the amount of the taxpayer's NOL for the taxable year.
A)True
B)False
Q5) A farming NOL may be carried back 2 years. A)True B)False
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Chapter 8: Depreciation, cost Recovery, amortization, and Depletion
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Q1) The only asset Bill purchased during 2011 was a new seven-year class asset.The asset,which was listed property,was acquired on June 17 at a cost of $50,000.The asset was used 40% for business,30% for the production of income,and the rest of the time for personal use.Bill always elects to expense the maximum amount under § 179 whenever it is applicable.The net income from the business before the § 179 deduction is $100,000.Determine Bill's maximum deduction with respect to the property for 2011.
A) $1,428.
B) $2,499.
C) $26,749.
D) $33,375.
E) None of the above.
Q2) Discuss the difference between the half-year convention and the mid-quarter convention.
Q3) The costs of leasehold improvements owned by the lessee on residential rental real estate are recovered over a 27.5-year MACRS recovery period.
A)True
B)False
Q4) Discuss the reason for the inclusion amount with respect to leased automobiles.
Page 10
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Q1) Ashley and Matthew are husband and wife and both are practicing CPAs.On a joint return,Ashley gets to deduct her professional dues but Matthew does not.Explain.
Q2) A sole proprietor is allowed a deduction for a $25 gift he gives to his office manager on her birthday.
A)True
B)False
Q3) Sammy,age 31,is unmarried and is not an active participant in a qualified retirement plan.His modified AGI is $55,000 in 2011.The maximum amount that Sammy can deduct for a contribution to a traditional IRA is:
A) $2,800.
B) $3,500.
C) $4,000.
D) $5,000.
E) None of the above.
Q4) A participant who is at least age 59 1/2 can make a tax-free qualified withdrawal from a Roth IRA after a five-year holding period.
A)True
B)False
Page 11
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) Felix sells his personal residence to Julio on July 1,2011.He had paid $9,000 in real property taxes on March 1,2011,the due date for property taxes for 2011.Felix may deduct the portion of the taxes he paid for the period the property was owned by Julio.
A)True
B)False
Q2) Joe,who is in the 33% tax bracket in 2011,expects to retire in 2012 and be in the 25% tax bracket.He plans to donate $50,000 to his church.Because he will not have the cash available until 2012,Joe donates land (long-term capital gain property)with a basis of $10,000 and fair market value of $50,000 to the church in December 2011.He reacquires the land for $50,000 in February 2012.Discuss Joe's tax objectives and all tax issues related to his actions.
Q3) Harry and Sally were divorced three years ago.In July of the current year,their son,Joe,broke his arm falling out of a tree.Joe lives with Sally and Sally claims him as a dependent on her tax return.Harry paid for the medical expenses related to Joe's injury.Can Harry claim the medical expenses he paid for Joe on his tax return?
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Page 12
Chapter 11: Investor Losses
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Sample Questions
Q1) A taxpayer is considered to be a material participant in a significant participation activity if he or she spends at least 400 hours in the activity.
A)True
B)False
Q2) Stan owns a 20% interest in a partnership (not real estate)in which his at-risk amount was $38,000 at the beginning of the year.During the year,the partnership borrows $80,000 on a nonrecourse note and incurs a loss of $50,000 from operations.Stan's at-risk amount at the end of the year is $44,000.
A)True
B)False
Q3) Identify the types of income that are classified as investment income.Discuss the flexibility that a taxpayer has with respect to certain types of income that may potentially be considered investment income.
Q4) Joe participates 95 hours in an activity,while an employee participates 5 hours.Joe has materially participated in the activity.
A)True
B)False
Q5) What special passive loss treatment is available to real estate activities?
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Chapter 12: Tax Credits and Payments
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Q1) Explain the purpose of the disabled access credit and describe the general characteristics of its computation.
Q2) The incremental research activities credit is 20% of the qualified research expenses that exceed the base amount.
A)True
B)False
Q3) The components of the general business credit include all of the following except:
A) Credit for employer-provided child care.
B) Disabled access credit.
C) Research activities credit.
D) Tax credit for rehabilitation expenditures.
E) All of the above are components of the general business credit.
Q4) In May 2007,Alma incurred qualifying rehabilitation expenditures of $400,000 on a certified historic structure and properly claimed the tax credit for rehabilitation expenditures.In March 2011,she sold the building at a loss.Calculate the rehabilitation expenditures credit recapture that she must report in 2011.
Q5) Discuss the treatment of unused general business credits.
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Chapter 13: Property Transactions
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Q1) Tariq sold certain U.S.Government bonds and State of Oregon bonds at a loss to offset short-term capital gain from a previous transaction.He felt that the U.S.Government and State of Oregon bonds were "good" investments,so he repurchased identical securities within one week.Do these transactions constitute wash sales?
Q2) Discuss the treatment of realized gains from involuntary conversions.
Q3) Alice is terminally ill and does not expect to live much longer.Pondering the consequences of her estate,she decides how to allocate her property to her nieces.She makes a gift of depreciated property (i.e.,adjusted basis exceeds fair market value)to Marsha,a gift of appreciated property (i.e.,fair market value exceeds adjusted basis)to Jan,and leaves appreciated property to Cindy in her will.Each of the properties has the same fair market value.From an income tax perspective,which niece is her favorite?
Q4) Under what circumstances may a partial § 121 exclusion be available even though the taxpayer has used the § 121 exclusion within the two-year period preceding the sale of the current residence?
Q5) Discuss the treatment of losses from involuntary conversions.
Q6) Discuss the relationship between realized gain and boot received in a § 1031 like-kind exchange.
Q7) What kinds of property do not qualify under the like-kind provisions?
Page 15
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Chapter 14: Property Transactions: Capital Gains and Losses
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Q1) If § 1231 asset casualty gains and losses net to a gain,the gain is treated as a § 1231 loss.
A)True
B)False
Q2) On June10,2011,Ebon,Inc.acquired an office building as a result of a like-kind exchange.Ebon had given up a factory building that it had owned for 26 months as part of the like-kind exchange.Which of the statements below is correct?
A) The holding period of the office building does not include the holding period of the factory building.
B) The holding period of the factory building starts on June 11, 2011.
C) The holding period of the factory building starts on June 10, 2011.
D) The holding period of the office building includes the holding period of the factory building.
E) None of the above.
Q3) A lease cancellation payment received by a lessee is generally treated as an exchange because the lease extinguished is usually a capital asset.
A)True
B)False
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Chapter 15: Alternative Minimum Tax
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Q1) Evan is a contractor who constructs both commercial and residential buildings.Even though some of the contracts could qualify for the use of the completed contract method,Evan decides to use the percentage of the completion method for all of his contracts.Therefore,no AMT adjustment is required.
A)True
B)False
Q2) Factors that can cause the adjusted basis for AMT purposes to be different from the adjusted basis for regular income tax purposes include the following:
A) A different amount of depreciation (cost recovery) has been deducted for AMT purposes and regular income tax purposes.
B) The spread on an incentive stock option (ISO) is recognized for AMT purposes, but is not recognized for regular income tax purposes.
C) A different amount has been deducted for circulation expenditures for AMT purposes and for regular income tax purposes.
D) Only a. and b.
E) a., b., and c.
Q3) Will all AMT adjustments reverse? That is,do they relate to timing differences?
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Page 17
Chapter 16: Accounting Periods and Methods
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Q1) Which of the following statements regarding a 52-53 week tax year is not correct?
A) Some tax years will include more than 366 calendar days.
B) Whether the particular tax year includes 52 weeks or 53 weeks is not elective.
C) The year-end must be the same day of the week in all years.
D) All of the above are correct.
E) None of the above is correct.
Q2) Abby sold her unincorporated business which consisted of equipment and goodwill.The equipment had an original cost of $150,000 and Abby had claimed $90,000 in depreciation (adjusted basis = $60,000).Abby had no basis in the goodwill.The sales price for the business was $280,000,with $120,000 for the equipment and $160,000 for the goodwill.The buyer agreed to pay $70,000 on June 30,2011,and $210,000 (plus interest at the Federal rate)in two years.Abby's gain to be reported in 2011 (exclusive of interest)is:
A) $40,000.
B) $55,000.
C) $60,000.
D) $100,000.
E) None, because she had not recovered her cost as of the end of 2011.
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Chapter 17: Corporations: Introduction and Operating Rules
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Q1) In the current year,Oriole Corporation donated a painting worth $75,000 to the Texas Art Museum,a qualified public charity.The museum included the painting in its permanent collection.Oriole Corporation purchased the painting 5 years ago for $25,000.Oriole's charitable contribution deduction is $25,000 (ignoring the taxable income limitation).
A)True
B)False
Q2) What is the annual required estimated tax payment for a C corporation? What are the rules regarding payment of the estimated tax?
Q3) Red Corporation,a C corporation that has two equal shareholders,earned $450,000 during 2011.Orange Company,a partnership that has two equal partners,earned $450,000 during the year.Red did not make any distributions to its shareholders,and Orange's partners did not make any withdrawals.Contrast the tax treatment of the shareholders of Red Corporation and the partners of Orange Company.
Q4) Almond Corporation,a calendar year C corporation,had taxable income of $900,000,$1.1 million,and $790,000 for 2008,2009,and 2010,respectively.Almond's taxable income is $1.5 million for 2011.Compute the minimum estimated tax payments for 2011 for Almond Corporation.
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Page 19
Chapter 18: Corporations: Organization and Capital Structure
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Q1) In determining whether § 357(c)applies,assess whether the liabilities involved exceed the bases of all assets a shareholder transfers to the corporation.
A)True
B)False
Q2) When forming a corporation,a transferor-shareholder may choose to receive some corporate debt along with stock.Identify some of the issues the transferor must consider when deciding whether debt should be a part of the transaction. Significant tax differences exist between debt and equity in the capital structure.
Q3) Similar to like-kind exchanges,the receipt of "boot" under § 351 can cause loss to be recognized.
A)True
B)False
Q4) If a shareholder owns stock received as a gift from her mother,it cannot be § 1244 stock.
A)True
B)False
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Page 20
Chapter 19: Corporations: Distributions Not in Complete
Liquidation
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Q1) Any loss in current E & P must be treated as occurring ratably during the year.
A)True
B)False
Q2) Vireo Corporation redeemed shares from its sole shareholder pursuant to a written agreement between the parties that clearly identified the transaction as a stock redemption (and not a dividend distribution).Since the agreement is binding under state law,the shareholder will receive sale or exchange treatment with respect to the redemption.
A)True
B)False
Q3) Use of MACRS cost recovery when computing taxable income does not require an E & P adjustment.
A)True
B)False
Q4) A corporation borrows money to purchase State of Texas bonds.The interest on the loan has no impact on either taxable income or current E & P.
A)True
B)False
Q5) When is a redemption to pay death taxes under § 303 most advantageous?
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganizations
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Q1) If a liquidation qualifies under § 332,any minority shareholder will recognize gain (but not loss)equal to the difference between the fair market value of assets received and the basis of the shareholder's stock.
A)True
B)False
Q2) The stock of Brown Corporation (E & P of $680,000)is owned as follows: 80% by Orange Corporation (basis of $620,000),and 20% by Susanna (basis of $155,000).Both shareholders purchased their shares in Brown five years ago.In the current year,Brown Corporation liquidates and distributes land (fair market value of $800,000,basis of $970,000)to Orange Corporation,and securities (fair market value of $200,000,basis of $160,000)to Susanna.Which of the following statements is incorrect with respect to the tax consequences resulting from these distributions?
A) Susanna recognizes a $45,000 gain and has a $200,000 basis in the securities.
B) Brown recognizes no loss on the distribution of the land.
C) Orange recognizes no gain and has a $970,000 basis in the land.
D) Brown recognizes no gain on the distribution of the securities.
E) None of the above.
Q3) Describe the requirements for and tax consequences of a § 338 election.
Q4) Discuss the role of letter rulings in corporate reorganizations.
Page 22
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Chapter 21: Partnerships
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Q1) Kevin,Cody,and Greg contributed assets to form the equal KCG Partnership.Kevin contributed cash of $50,000 and land with a basis of $80,000 (fair market value of $50,000).Cody contributed cash of $30,000 and land with a basis of $40,000 (fair market value of $70,000).Greg contributed cash of $60,000 and a fully depreciated property ($0 basis)valued at $40,000.Which of the following tax treatments is not correct?
A) Kevin's basis in his partnership interest is $130,000.
B) Cody's basis in his partnership interest is $100,000.
C) Greg's basis in his partnership interest is $60,000.
D) KCG has a basis of $80,000, $40,000, and $0 in the land and property (excluding cash) contributed by Kevin, Cody, and Greg, respectively.
E) All of these statement are correct.
Q2) If a partnership allocates losses to the partners,the partners must first apply the passive loss limitations,then the basis limitation,and finally the at-risk limitations.If all three hurdles are met,the partner may deduct the loss.
A)True
B)False
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Chapter 22: S Corporations
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Q1) Depreciation recapture income is a ____________________ computed amount.
Q2) What are the characteristics of an S corporation's straight debt?
Q3) In the case of a complete termination of an S corporation interest,a ____________________ tax year may occur.
Q4) Which tax provision does not apply to an S corporation?
A) Hobby loss rule.
B) Section 1244 stock.
C) Penalty for failure to file.
D) 10% charitable contribution limitation.
E) Estimated tax payments.
Q5) An S corporation's separately stated items generally are identical to those separately stated by _________________________.
Q6) Differences in distribution or liquidation rights among shareholders do not create a second class of stock.
A)True
B)False
Q7) Most Roth IRAs can own S corporation stock.
A)True
B)False
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Chapter 23: Exempt Entities
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Q1) The key factors in determining whether an exempt entity's income from a bingo game is unrelated trade or business income are whether substantially all the work is performed by volunteers and all of the prizes to be awarded are received as donations.
A)True
B)False
Q2) Is the taxation of a feeder organization influenced by the percentage of its earnings that it remits to an exempt organization?
Q3) Federal agencies exempt from Federal income tax under § 501(c)(1)are not subject to the unrelated business income tax (UBIT).
A)True
B)False
Q4) Theater,Inc.,an exempt organization,owns a printing company,Printers,Inc.,which remits 85% of its profits to Theater,Inc.Since Printers remits at least 85% of its profits to Theater,neither Theater,Inc.,nor Printers,Inc.,must pay income tax on this $85,000 ($100,000 ´ 85%).
A)True
B)False
Q5) Define a qualified corporate sponsorship payment.
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Chapter 24: Multistate Corporate Taxation
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Q1) Typically exempt from the sales/use tax base is the purchase of prescription medicines by an individual.
A)True
B)False
Q2) Leased property,when included in the property factor,usually is valued at ____________________ times its annual rental,even though the taxpayer does not own the asset. or
Q3) In some states,an S corporation must withhold Federal income tax for its shareholders who ____________________ (are/are not)state residents.
Q4) Which of the following is not immune from state income taxation,even if P.L.86-272 is in effect?
A) Sale of the rights associated with a patent used in the taxpayer's business.
B) Sale of office equipment that constitutes inventory to the purchaser.
C) Sale of office equipment to be used in the taxpayer's business.
D) All of the above are protected by P.L. 86-272 immunity provisions.
Q5) In determining taxable income for state income tax purposes,the state NOL deduction typically constitutes a(n)____________________ modification.
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Chapter 25: Taxation of International Transactions
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Q1) USCo,a domestic corporation,has worldwide taxable income of $1,500,000,including a $300,000 dividend from ForCo,a wholly-owned foreign corporation.ForCo's post-1986 undistributed earnings and profits are $16 million and it has paid $10 million of foreign income taxes attributable to these earnings.What is USCo's deemed paid foreign tax credit related to the dividend received (before consideration of any limitation)?
A) $10 million.
B) $16 million.
C) $187,500.
D) $487,500.
Q2) USCo,a domestic corporation,purchases inventory for resale from distributors within the U.S.and resells this inventory to customers outside the U.S.,with title passing outside the U.S.What is the source of the USCo's inventory sales income?
A) 50% U.S. source and 50% foreign source.
B) 50% foreign source and 50% sourced based on location of manufacturing assets.
C) 100% U.S. source.
D) 100% foreign source.
Q3) Discuss the primary purposes of income tax treaties.
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Page 27
Chapter 26: Tax Practice and Ethics
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Q1) A(n)____________________ should be requested when the taxpayer wants to know the IRS interpretation of how the tax law will be applied to a proposed transaction.
Q2) The IRS can waive the penalty for understating a tax liability if the taxpayer shows ____________________ for the position taken on the tax return.
Q3) Circular 230 applies to all tax practitioners.This includes attorneys,CPAs,and enrolled agents,even though each of the groups has its own code of conduct.
A)True
B)False
Q4) Which of the following statements does not reflect the rules governing the accuracy-related penalty for negligence?
A) The penalty rate is 20%.
B) The penalty is imposed only on the part of the deficiency attributable to negligence.
C) The penalty applies only to intentional tax understatements by the taxpayer.
D) The penalty is waived if the taxpayer uses Form 8275 to disclose a return position that is reasonable though contrary to the IRS position.
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Chapter 27: The Federal Gift and Estate Taxes
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169 Verified Questions
169 Flashcards
Source URL: https://quizplus.com/quiz/71485
Sample Questions
Q1) In most cases,the gross estate of a decedent is larger than the probate estate.
A)True
B)False
Q2) A father wants to give a parcel of land to his two children.If he wants the survivor to have sole ownership,he should list ownership of the property as joint tenants.
A)True
B)False
Q3) Which,if any,of the following statements correctly reflects the rules applicable to the alternate valuation date ?
A) The election is made by the executor.
B) Can be elected even though no estate tax return has to be filed.
C) Can be elected only if it reduces the amount of the gross estate or reduces the estate tax liability.
D) Its election does not affect the income tax basis of property included in the gross estate.
E) None of the above.
Q4) The death of a tenant in common will defeat his or her interest in the property.
A)True
B)False
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Chapter 28: Income Taxation of Trusts and Estates
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140 Verified Questions
140 Flashcards
Source URL: https://quizplus.com/quiz/71484
Sample Questions
Q1) The distributable net income (DNI)of a fiduciary taxpayer:
A) Constitutes the maximum amount for the fiduciary's distribution deduction.
B) Specifies the character of the distributions in the hands of the year's income beneficiaries.
C) Marks the maximum amount of gross income that income beneficiaries must report when receiving distributions.
D) All of the above.
Q2) The Jain Trust is required to pay its entire annual accounting income to the Daytona Museum,a qualifying charity.The trust's personal exemption is:
A) $0.
B) $100.
C) $300.
D) $600.
Q3) The unextended due date for a calendar-year trust to file its Form 1041 is March 15. A)True B)False
Q4) Identify the parties that are present when an estate is created,and their key duties.Then do the same for a trust.
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