Advanced Taxation Question Bank
Course Introduction
Advanced Taxation delves into the complex principles and practices governing corporate, partnership, and international tax systems. The course covers advanced topics such as corporate reorganizations, tax planning strategies, cross-border taxation issues, and the application of tax treaties. Emphasis is placed on interpreting tax legislation, dealing with tax compliance, and engaging in ethical tax practice. Through case studies and practical scenarios, students develop analytical skills to assess tax implications in various business structures and transactions, preparing them for professional roles in accounting, law, and taxation consultancy.
Recommended Textbook Principles of Taxation for Business and Investment Planning 2019 22nd Edition by Sally Jones
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18 Chapters
1798 Verified Questions
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Page 2
Chapter 1: Taxes and Taxing Jurisdictions
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Sample Questions
Q1) Which of the following is not characteristic of an excise tax?
A) An excise tax is levied on the retail sale of specific goods.
B) Excise tax rates typically are higher than general sales tax rates.
C) Purchasers of luxury items are responsible for paying any excise tax directly to the government.
D) All of the above are characteristics of an excise tax.
Answer: C
Q2) A user fee entitles the payer to a specific good or service from the government.
A)True
B)False
Answer: True
Q3) Which tax raises the most revenue for the federal government?
A) Corporate income tax
B) Individual income tax
C) Excise taxes
D) Transfer taxes
Answer: B
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Chapter 2: Policy Standards for a Good Tax
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Sample Questions
Q1) The declining marginal utility of income across individuals can be measured empirically.
A)True
B)False
Answer: False
Q2) Which of the following statements concerning tax preferences is false?
A) Tax preferences increase the complexity of the law.
B) Tax preferences raise additional revenue for the government.
C) Tax preferences are government subsidies for targeted taxpayer activities.
D) Tax preferences do not improve the accurate measurement of the tax base.
Answer: B
Q3) The statement that "an old tax is a good tax" means that:
A) Changes in the tax law create uncertainty in the business environment.
B) Changes in the tax law disrupt traditional planning strategies.
C) Changes in the tax law increase the compliance burden on businesses.
D) All of the above.
Answer: D
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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% 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% and the annual expense is not deductible.
B. Wilson's marginal tax rate is 35% and the annual expense is deductible.
C. Wilson's marginal tax rate is 25% 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 transacting parties can engage in bilateral tax planning when a transaction occurs in a:
A) Public market
B) Private market
C) Secondary market
D) None of the above
Answer: B
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Chapter 4: Maxims of Income Tax Planning
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Sample Questions
Q1) Bailey Inc. is planning a transaction that requires a $60,000 deductible cash expenditure. The transaction is structured so that Bailey will pay the cash and report the deduction this year (year 0). Use Appendix A of your textbook provided to compute the increase in the NPV of the transaction if it can be restructured so that Bailey will report the deduction this year, but pay the cash three years later (year 3). Bailey's marginal tax rate is 25%, and it uses a 9% discount rate to compute NPV.
A) $8,677
B) $9,014
C) $9,480
D) None of the above
Q2) Which of the following statements about the character variable is true?
A) The tax character of income is determined strictly by tax law.
B) The tax character of income cannot change from year to year.
C) Tax planning strategies based on the character variable must involve at least two different taxpayers.
D) The tax character of income cannot change from year to year and tax planning strategies based on the character variable must involve at least two different taxpayers.
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Chapter 5: Tax Research
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Sample
Questions
Q1) Professional tax research conclusions should always be based on relevant secondary authority.
A)True
B)False
Q2) Which of the following is primary authority on which to base research conclusions?
A) This textbook
B) An editorial explanation in a commercial tax service
C) A Treasury regulation
D) A treatise written by a tax attorney and published in a legal journal
Q3) Revenue rulings are an example of administrative authority.
A)True
B)False
Q4) When analyzing relevant legal authority:
A) The researcher is finished only when an unambiguous answer to the research question has been located.
B) Different sources of authority may provide conflicting answers.
C) Interpretation and judgment on the part of the researcher is rarely required.
D) The researcher should never give an unqualified answer to any research question.
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7
Chapter 6: Taxable Income from Business Operations
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Sample Questions
Q1) According to the GAAP principle of conservatism, firms should delay the realization of uncertain revenues and gains and accelerate the realization of uncertain expenses and losses.
A)True
B)False
Q2) If an accrual basis taxpayer receives a prepayment of rent income, the receipt results in an unfavorable temporary book/tax difference.
A)True
B)False
Q3) A temporary difference between book income and taxable income results when an item of income reflected on the books is never included in taxable income.
A)True
B)False
Q4) An unfavorable temporary book/tax difference generates a deferred tax asset.
A)True
B)False
Q5) Political lobbying expenses are nondeductible.
A)True
B)False
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Chapter 7: Property Acquisitions and Cost Recovery
Deductions
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Sample Questions
Q1) JebSim Inc. was organized on June 1 and began business on August 10. JebSim elected a calendar year for tax purposes. The corporation incurred $25,160 of legal and other professional fees attributable to its formation. How much of these costs can JebSim deduct on its first tax return?
A) -0-
B) $699
C) $5,000
D) $5,560
Q2) If a business expenditure creates or enhances an identifiable asset with a useful life substantially beyond the current year, the expenditure must be capitalized.
A)True
B)False
Q3) In an inflationary economy, the use of FIFO maximizes the cost of goods sold and minimizes the cost of ending inventory.
A)True
B)False
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9
Chapter 8: Property Dispositions
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Sample Questions
Q1) The sale of business inventory always generates ordinary income or loss.
A)True
B)False
Q2) In its current tax year, PRS Corporation generated $300,000 ordinary income from the performance of consulting services for its clients. PRS sold two assets, recognizing a $20,000 gain on the first sale and a $31,000 loss on the second sale. Which of the following statements is false?
A) If the gain and loss were capital gain and loss, PRS's taxable income was $300,000.
B) If the gain was capital gain and the loss was ordinary, PRS's taxable income was $269,000.
C) If the gain and loss were ordinary, PRS's taxable income was $289,000.
D) If the gain was ordinary and the loss was a capital loss, PRS's taxable income was $320,000.
Q3) Which of the following is a capital asset?
A) Supplies used in a business
B) Business inventory
C) Land used in a business
D) None of the above
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Chapter 9: Nontaxable Exchanges
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Sample Questions
Q1) When unrelated parties agree to an exchange of noncash properties, the economic presumption is that the properties have the same adjusted book basis.
A)True
B)False
Q2) Doppia Company transferred an old asset with a $68,750 adjusted tax basis in exchange for a new asset worth $90,000 and $10,000 cash. Which of the following statements is false?
A) The old asset's FMV is $100,000.
B) If the exchange is nontaxable, Doppia's recognized gain is $10,000.
C) If the exchange is nontaxable, Doppia's tax basis in the new asset is $78,750.
D) None of the statements is false.
Q3) Determine Mrs Brinkley's realized and recognized gain on the exchange and the tax basis in her partnership interest.
A) $228,500 gain realized and recognized; $340,200 basis in M&W interest
B) $228,500 gain realized and recognized; $111,700 basis in M&W interest
C) $228,500 gain realized and no gain recognized; $111,700 basis in M&W interest
D) None of the above
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Chapter 10: Sole Proprietorships
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Sample Questions
Q1) In applying the basis limitation on the deduction of S corporation losses, which of the following statements is true?
A) The basis of a shareholder's interest in an S corporation, for purposes of limiting deductibility of losses, is computed in the same manner as a partner's basis in a partnership interest.
B) A shareholder is permitted to deduct losses against basis in any debt obligation from the S corporation to the shareholder.
C) If a shareholder's tax basis in a debt obligation is reduced, any gain resulting from the repayment of that obligation is considered ordinary income.
D) All of the above statements are false.
Q2) Tax savings achieved by operating a business through a pass-through entity, rather than as a C corporation, is an example of entity variable tax planning.
A)True
B)False
Q3) The earnings of a C corporation are taxed only at the shareholder level.
A)True
B)False
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12
Chapter 11: The Corporate Taxpayer
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Sample
Questions
Q1) Eagle, Inc. made a contribution to the Boy Scouts of $25,000 during its current tax year. The corporation's taxable income before any charitable contribution deduction was $200,000. The corporation has a current charitable contribution deduction of $25,000.
A)True
B)False
Q2) Corporate taxable income after December 31, 2017 is taxed using a progressive rate schedule with a top marginal rate of 21%.
A)True
B)False
Q3) Westside, Inc. owns 15% of Innsbrook's common stock. This year, Westside generated $50,000 operating income and received $20,000 dividends from Innsbrook. Westside's taxable income is:
A) $60,000
B) $70,000
C) $50,000
D) $40,000
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Page 13
Chapter 12: The Choice of Business Entity
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Sample Questions
Q1) Which of the following benefits does not occur when owner-shareholders accumulate earnings of their closely-held corporations at the entity level and later sell their stock at an increased value?
A) Deferral of shareholder tax until the year of sale.
B) Conversion of ordinary income into capital gain.
C) Increase in corporate capitalization and reduction in debt-equity ratio.
D) All of the above occur.
Q2) The revenue agent who audited the Form 1120 filed by LCW Inc. recharacterized $125,000 of the salary paid to Ms. Lewis' (LCW's president and controlling shareholder) as a constructive dividend. LCW's marginal tax rate is 21%, and Ms. Lewis' marginal tax rate is 32%. Which of the following is not a consequence of the recharacterization?
A) LCW's taxable income will increase.
B) Ms. Lewis' taxable income will increase.
C) Ms. Lewis' payroll tax liability will decrease.
D) Ms. Lewis' income tax liability will decrease.
Q3) The accumulated earnings tax is assessed at the highest individual marginal tax rate on ordinary income.
A)True
B)False
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Page 14
Chapter 13: Jurisdictional Issues in Business Taxation
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Sample Questions
Q1) All states assessing an income tax use the same formula for apportionment purposes.
A)True
B)False
Q2) Galaxy Corporation conducts business in the U.S. and in Country X. In which of the following situations will Galaxy not be allowed a foreign tax credit for income taxes paid to Country X?
A) Country X operations are conducted through a domestic subsidiary included in Galaxy's consolidate tax return.
B) Country X operations are conducted through a foreign subsidiary that paid no dividends.
C) Country X operations are conducted through a foreign partnership.
D) Country X operations are conducted through a foreign branch.
Q3) Under the U.S. tax system, a domestic corporation pays U.S. tax only on the portion of its business income earned in the United States.
A)True B)False
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Chapter 14: The Individual Tax Formula
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Sample Questions
Q1) Married individuals who elect to file separate tax returns may use the single rates to compute their tax.
A)True
B)False
Q2) Which of the following statements describing individual tax deductions is false?
A) In a year in which an individual takes the standard deduction, any itemized deductions yield no tax benefit.
B) The majority of individual taxpayers itemize rather than taking the standard deduction.
C) Individuals elect to itemize deductions in a tax year in which total itemized deductions exceed the standard deduction.
D) Individuals who pay self-employment tax can deduct one half of the tax as an above-the-line deduction.
Q3) Harry and Sally were married on December 23, 2017. Their income for the entire year is reported on a joint return.
A)True B)False
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Page 16
Chapter 15: Compensation and Retirement Planning
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Sample Questions
Q1) A stock option is the right to purchase the stock of a corporate employer at a stated price for an indefinite period of time.
A)True
B)False
Q2) A sole proprietor in the 37% tax bracket pays her 16-year-old son a reasonable salary of $14,000 for services performed for the proprietorship. Compute the family's tax savings if the son has no other income and takes a $12,000 standard deduction.
A) $4,980
B) $5,180
C) $4,440
D) None of the above
Q3) Retired participants in employer-sponsored qualified retirement plans must begin receiving distributions no later than April 1st of the year following the year in which they reach age 70½.
A)True
B)False
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Chapter 16: Investment and Personal Financial Planning
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Sample Questions
Q1) Life insurance proceeds are includible in the taxable estate of the decedent if the decedent was the owner of the policy.
A)True
B)False
Q2) Regga, a physician, earned $375,000 from her medical practice and $20,500 interest and qualified dividends from her investment portfolio. She was allocated a $67,000 loss from a passive activity. Compute Ms. Regga's AGI.
A) $328,500
B) $375,000
C) $395,500
D) None of the above
Q3) Which of the following statements about the federal gift tax is false?
A) The tax is imposed on the donor.
B) The tax is based on the fair market value of the gifted property.
C) An individual can give away $10 million (adjusted for inflation) every year without being subject to tax.
D) The donor's basis in the gifted property carries over to become the donee's basis.
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Page 18
Chapter 17: Tax Consequences of Personal Activities
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Sample Questions
Q1) James Dean received the following this year.
Scholarship for college tuition and fees \(\quad\)\(\quad\)\(\quad\)\(\quad\) $ 20,000
Scholarship for college room and board \(\quad\)\(\quad\)\(\quad\)\(\quad\) $
12,500
Chamber of Commerce citizenship award \(\quad\)\(\quad\)\(\quad\) $ 1,500
Inheritance from great uncle \(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) $ 38,000
Compute James' gross income.
A) $12,500
B) $14,000
C) $34,000
D) None of the choices are correct.
Q2) Taxpayers include a maximum of 85% of Social Security benefits in gross income.
A)True
B)False
Q3) Gifts are not included in the recipient's gross income.
A)True
B)False
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Chapter 18: The Tax Compliance Process
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Sample Questions
Q1) A professional tax return preparer must attach his or her signature and identifying number to each return prepared.
A)True
B)False
Q2) The statute of limitations for a tax return does not begin to run until the return is filed.
A)True
B)False
Q3) Which type of audit takes place at an IRS district office?
A) Correspondence examination
B) Office examination
C) Field examination
D) All of the above
Q4) Which of the following statements about taxpayer responsibility is false?
A) Taxpayers are responsible for paying the correct amount of federal tax.
B) Taxpayers are responsible for filing the proper federal income tax return.
C) Taxpayers are responsible for maintaining adequate tax records.
D) None of the above is false.
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