Advanced Taxation Solved Exam Questions
Course Introduction
Advanced Taxation delves into the complex principles and practices underlying taxation in both domestic and international contexts. The course covers advanced topics such as corporate tax planning, tax compliance for multinational entities, VAT/GST, transfer pricing, and emerging tax issues affecting businesses and individuals. Students will analyze tax legislation, interpret relevant case law, and develop strategies for minimizing tax liability while maintaining compliance. Through case studies and practical scenarios, the course emphasizes ethical considerations and the dynamic nature of tax policy, preparing students for professional roles in accounting, finance, and tax consultancy.
Recommended Textbook Principles of Taxation for Business and Investment Planning 2014 17th Edition by Sally Jones
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Chapter 1: Taxes and Taxing Jurisdictions
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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 sources of tax law carries the least authority?
A)Revenue ruling.
B)Treasury regulation.
C)Section 736 of the Internal Revenue Code.
D)The three sources of tax law have equal authority.
Answer: A
Q3) A tax on net income is an example of a transaction-based tax.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Policy Standards for a Good Tax
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Q1) The city of Hartwell spends about $3 million annually on snow removal. The city is considering amending its real property tax law to allow homeowners to offset the cost of private snow removal against their annual property tax liability. This amendment would affect the:
A)Fairness of the tax
B)Efficiency of the tax
C)Sufficiency of the tax
D)Convenience of the tax
Answer: B
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) A tax meets the standard of sufficiency if it is easy for people to pay the tax.
A)True
B)False
Answer: False
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Chapter 3: Taxes As Transaction Costs
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Q1) Net cash flow from a transaction equals the difference between cash received and cash disbursed in the transaction.
A)True
B)False
Answer: True
Q2) The arm's length transaction presumption
A)Assumes that each party is dealing in its own economic self-interest.
B)Cannot be satisfied in a private market transaction.
C)Requires direct negotiation between parties to ensure an arm's length price.
D)Applies to both related party and unrelated party transactions.
Answer: A
Q3) Use the present value tables included in Appendix A of your textbook to compute the NPV of $8,400 received in year 0, $4,950 received in year 1, and $3,000 received in year 2 at a 7% discount rate.
A)$14,018
B)$14,623.35
C)$15,647.25
D)None of the above
Answer: C
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Chapter 4: Maxims of Income Tax Planning
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Q1) Deduction-shifting transactions usually occur between unrelated taxpayers.
A)True
B)False
Q2) Which of the following statements about tax legal doctrines is false?
A)The scope of the economic substance, business purpose, substance over form, and step transaction doctrines often overlap.
B)Taxpayers can invoke the substance over form doctrine to undo the tax consequences of a failed planning strategy.
C)The IRS's application of the doctrines is subjective.
D)The economic substance, business purpose, substance over form, and step transaction doctrines increase the uncertainty of the tax law.
Q3) Hilex Inc. structures a transaction to shift income from its 20Y0 tax year to its 20Y2 tax year. This tax planning strategy may be taking advantage of the:
A)Character variable
B)Entity variable
C)Time period variable
D)Jurisdiction variable
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6
Chapter 5: Tax Research
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Q1) Which of the following is a proper citation to a revenue ruling?
A)Revenue Ruling 2004 - 33
B)RR 2004-33
C)Rev.Rul.2006-33, 2004-1 C.B.628
D)All of the above are proper forms for citing a Revenue Ruling
Q2) Which of the following is not a primary authority?
A)Section 465 of the Internal Revenue Code
B)Munro v.Comm., 267 F.3d 1918 (CA-8, 2004)
C)CCH Master Tax Guide
D)All of the above are primary authorities.
Q3) A taxpayer who loses a case in the U.S. Tax Court may appeal the case directly to the U.S. Supreme Court.
A)True
B)False
Q4) Which of the following is not a proper citation to a Treasury regulation?
A)Reg.Sec.1.61-1(a)
B)Reg.1.61-1(a)
C)Reg.§1.61-1(a)
D)Treasury Regulation 61-1(a)
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Chapter 6: Taxable Income From Business Operations
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Sample Questions
Q1) Which of the following businesses can't use the cash receipts and disbursement method of accounting for tax purposes?
A)A sole proprietorship with $8 million average annual gross receipts
B)A corporation with $15 million average annual gross receipts
C)A partnership of individuals with $20 million average annual gross receipts
D)A personal service corporation with $50 million average annual gross receipts
Q2) Which of the following statements about short-period returns is true?
A)If a taxpayer must file a short-period return because the IRS granted permission for a change in the taxpayer's year, the tax for the year must be based on annualized income.
B)The tax on a short-period return must be based on annualized income only if the taxpayer failed to obtain permission from the IRS to change its taxable year.
C)The tax on every short-period return must be based on annualized income.
D)None of the above is true.
Q3) Which of the following does not result in a permanent book/tax difference?
A)Business meal and entertainment expense
B)Domestic production activities deduction
C)Premiums paid on key-person life insurance policies
D)All of the above result in a permanent book/tax difference.
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Chapter 7: Property Acquisitions and Cost Recovery
Deductions
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Sample Questions
Q1) A corporation that incurs $28,500 organization costs must capitalize the costs and amortize them over 180 months.
A)True
B)False
Q2) Terrance Inc., a calendar year taxpayer, purchased equipment for $2,765,000 and placed it in service on March 4, 2012. The equipment was seven-year recovery property and was the only depreciable asset that Terrance purchased during 2012.
a. Compute Terrance's tax depreciation with respect to the equipment for 2012 and 2013.
b. Compute Terrance's adjusted basis in the equipment in December 31, 2012.
c. How would your answer to a. change if Terrance placed the equipment in service on November 18 instead of March 4?
Q3) Research and experimental expenditures are not deductible if they result in the development of a patented formula or process.
A)True
B)False
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Chapter 8: Property Dispositions
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Q1) Mrs. Beld sold marketable securities with a $79,600 tax basis to her daughter for $60,000 cash. Two years later, the daughter sold the securities through her broker for $93,000. Compute the daughter's gain recognized on sale.
A)$13,400
B)$19,600
C)$33,000
D)None of the above
Q2) Warsham Inc. sold land with a $300,000 basis to Sara Phillips for $117,000 cash. Sara owns 68 percent of Warsham's outstanding stock. Which of the following statements is true?
A)Warsham cannot recognize its $183,000 realized loss on sale on its current year tax return.
B)Warsham does not report the $183,000 realized loss on its current year financial statements.
C)The $183,000 loss is an unfavorable temporary difference between Warsham's book and tax income.
D)Both a.and c.are true.
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Page 10
Chapter 9: Nontaxable Exchanges
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Q1) Mrs. Brinkley transferred business property (FMV $340,200; adjusted tax basis $111,700) to M&W Inc. in exchange for 4,200 shares of M&W stock. Immediately after the exchange, M&W had 7,800 shares of outstanding stock. Compute M&W's recognized gain on its exchange of stock for property and determine M&W's tax basis in the property received from Mrs. Brinkley.
A)No gain recognized; $111,700 tax basis in property
B)No gain recognized; $340,200 tax basis in property
C)$340,200 gain recognized; $111,700 tax basis in property
D)$111,700 gain recognized; $111,700 tax basis in property
Q2) Thieves stole computer equipment used by Ms. James in her small business. Ms. James' tax basis in the equipment was zero. One month after the theft, she received a $17,600 reimbursement from her casualty insurance company and used $14,850 to replace the computer equipment. She used the $2,750 remaining reimbursement to purchase a new desk for her office. Which of the following statements is false?
A)Ms.James must recognize a $2,750 gain on the involuntary conversion.
B)Ms.James's basis in her new computer equipment is -0-.
C)Ms.James's basis in her new desk is $2,750.
D)None of the above is false.
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Chapter 10: Sole Proprietorships, Partnerships, Llcs, and S
Corporations
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Q1) A partner's distributive share of partnership nondeductible expenses does not decrease his or her tax basis in the partnership interest.
A)True
B)False
Q2) A limited liability company is always taxed as a partnership, regardless of the number of its members.
A)True
B)False
Q3) Randolph Scott operates a business as a sole proprietorship. This year his net profit was $10,570. For tax purposes this amount should be reported on:
A)Schedule C, Statement of Profit or Loss from Business
B)The first page of Form 1040 as other income
C)A separate tax return prepared for the business operation
D)Schedule E, Statement of Rent and Royalty Income
Q4) A shareholder in an S corporation includes in tax basis his or her share of the corporation's liabilities.
A)True
B)False
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Chapter 11: The Corporate Taxpayer
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Q1) Most tax credits for which a corporate taxpayer would be eligible are nonrefundable.
A)True
B)False
Q2) The corporate characteristic of free transferability exists if the corporate stock is subject to a buy-sell agreement.
A)True
B)False
Q3) Frazier, Inc. paid a $150,000 cash dividend to its shareholders. The corporation cannot deduct this payment on its corporate income tax return.
A)True
B)False
Q4) 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
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Chapter 12: The Choice of Business Entity
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Q1) When a corporation is thinly capitalized, the IRS is more likely to reclassify a portion of the corporation's debt as equity.
A)True
B)False
Q2) Glover, Inc. had $350,000 of taxable income, all of which was personal holding company income. The corporation paid a dividend of $350,000 in November. The corporation will owe a personal holding company tax for the year.
A)True
B)False
Q3) 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
Q4) A family partnership can shift taxable income to younger family members without any corresponding shift of cash flow to those family members.
A)True
B)False
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Chapter 13: Jurisdictional Issues in Business Taxation
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Q1) BiState Inc. conducts business in North Carolina and South Carolina. If BiState's apportionment percentage in North Carolina is 63%, its apportionment percentage in South Carolina can be no more than 37%.
A)True
B)False
Q2) Which of the following statements about the deemed paid foreign tax credit is false?
A)If a U.S.corporation owns 10% or more of the voting stock of a foreign corporation, the U.S.corporation is entitled to a deemed paid foreign tax credit.
B)When claiming a deemed paid foreign tax credit, a U.S.corporation reports dividend income equal to the dividend received grossed up by the foreign tax paid with respect to the dividend.
C)A deemed paid foreign tax credit is allowed for foreign taxes paid by a domestic subsidiary of a U.S.multinational corporation.
D)A deemed paid foreign tax credit is subject to the foreign tax credit limitation.
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Chapter 14: The Individual Tax Formula
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Q1) Ms. Dorley's regular tax liability on her Form 1040 is $45,890. Which of the following statements is true?
A)If Ms.Dorley's tentative minimum tax is $50,700, her total tax liability is $97,590.
B)If Ms.Dorley's AMT is $6,380, her total tax liability is $52,270.
C)If Ms.Dorley's AMT is $10,112, her total tax liability is $45,890.
D)If Ms.Dorley's tentative minimum tax is $38,682, her total tax liability is $38,682.
Q2) Mr. and Mrs. Arlette spent $5,900 for child care for their 12-year-old daughter. Mr. Arlette's earned income was $178,000, Mrs. Arlette's earned income was $33,100, and the AGI on their joint return was $225,200. Calculate their dependent care credit.
A)$5,900
B)$1,180
C)$600
D)$0
Q3) The majority of individual taxpayers take the standard deduction rather than itemizing.
A)True
B)False
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Chapter 15: Compensation and Retirement Planning
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Q1) A Keogh plan for the benefit of a self-employed individual is considered a nonqualified retirement plan.
A)True
B)False
Q2) Louise, age 51, quit her job and received a $70,000 distribution from her employer-sponsored qualified retirement plan. She immediately contributed $50,000 to a rollover IRA and used the remaining $20,000 to purchase a car. Compute the tax cost of the distribution if Louise has a 33% marginal tax rate on ordinary income.
A)$6,600
B)$8,600
C)$23,100
D)$30,100
Q3) Stock options are a form of compensation that requires a substantial cash outlay by the corporate employer.
A)True
B)False
Q4) Qualified withdrawals from both traditional and Roth IRAs are tax-exempt.
A)True
B)False
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Chapter 16: Investment and Personal Financial Planning
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Q1) Individual taxpayers may carry nondeductible capital losses forward indefinitely.
A)True
B)False
Q2) Kate recognized a $25,700 net long-term capital gain and a $33,000 net short-term capital loss this year. What is her current net income tax cost or savings from her capital transactions if her marginal rate on ordinary income is 28%?
A)$0
B)$840 net tax savings
C)$2,044 net tax savings
D)$3,015 net tax cost
Q3) Mr. and Mrs. Gupta want to make cash gifts to each of their four children, the children's four spouses, and three grandchildren. Compute the total amount that the Guptas can transfer to their younger-generation family members without making a taxable gift for the year.
A)$98,000
B)$196,000
C)$154,000
D)$308,000
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Chapter 17: Tax Consequences of Personal Activities
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Q1) Mr. and Mrs. McGraw received $50,160 Social Security benefits this year. They also received $108,000 taxable pension payments and earned $47,300 interest and dividends from their investment portfolio. How much of the McGraw's Social Security is included in gross income?
A)$0
B)$25,080
C)$42,636
D)$50,160
Q2) Chad won a car valued at $25,000 from a game show. Because he immediately donated the car to the Red Cross, Chad can exclude $25,000 from gross income.
A)True
B)False
Q3) Congress provides an indirect subsidy to charities by allowing a deduction for charitable contributions.
A)True
B)False
Q4) Unemployment benefits are excluded from gross income.
A)True
B)False
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Chapter 18: The Tax Compliance Process a Present Value of
$1 B Present Value of Annuity of $1 C 2013 Income Tax Rates
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Q1) Which type of audit has the broadest scope and may involve a complete analysis of the taxpayer's accounting records?
A)Correspondence examination
B)Office examination
C)Field examination
D)All of the above
Q2) Which of the following statements about tax fraud is true?
A)A revenue agent can assess a civil fraud penalty in the course of an audit.
B)A revenue agent can charge a taxpayer with criminal fraud in the course of an audit.
C)A taxpayer can be imprisoned for committing either civil fraud or criminal fraud.
D)The IRS's burden of proof in establishing fraud is identical for civil and criminal fraud.
Q3) If the IRS requests information during the course of an audit, the taxpayer has the right to know how the information will be used.
A)True
B)False
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