Federal Income Tax Exam Practice Tests
Course Introduction
Federal Income Tax explores the foundational principles and policies underpinning the United States federal income tax system, with a primary focus on individual taxation. The course covers topics such as gross income, exclusions, deductions, credits, capital gains and losses, tax rates, and the computation of taxable income. It also examines tax planning strategies, enforcement mechanisms, and the ethical and social implications of tax law. Students will analyze statutory provisions, Treasury regulations, and judicial decisions to develop practical skills relevant to tax compliance and advising.
Recommended Textbook
South Western Federal Taxation 2017 Individual Income Taxes 40th Edition by William H. Hoffman
Available Study Resources on Quizplus
20 Chapters
2513 Verified Questions
2513 Flashcards
Source URL: https://quizplus.com/study-set/3342
Page 2
Chapter 1: An Introduction to Taxation and Understanding
the Federal Law
Available Study Resources on Quizplus for this Chatper
194 Verified Questions
194 Flashcards
Source URL: https://quizplus.com/quiz/66405
Sample Questions
Q1) Tax fraud suspected
Answer: e
Q2) A small business corporation can elect to avoid the corporate income tax.
Answer: a
Q3) Failure to file penalty
Answer: d
Q4) What is the difference between an inheritance tax and an estate tax? Who imposes these taxes?
Answer: An inheritance tax is a tax on the right to receive property from a decedent.An estate tax is imposed on the right to pass property at death.The Federal government imposes estate taxes,while states impose inheritance taxes.Some states impose both,while others impose neither.
Q5) If more IRS audits are producing a greater number of no change results,this indicates increased compliance on the part of taxpayers.
A)True
B)False
Answer: False
Q6) Revenue Agent's Report (RAR)
Answer: c
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Working With the Tax Law
Available Study Resources on Quizplus for this Chatper
86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/66406
Sample Questions
Q1) Which publisher offers the United States Tax Reporter?
A)Research Institute of America
B)Commerce Clearing House
C)LexisNexis
D)Tax Analysts
E)None of these
Answer: A
Q2) Tax bills are handled by which committee in the U.S.House of Representatives?
A)Taxation Committee
B)Ways and Means Committee
C)Finance Committee
D)Budget Committee
E)None of these
Answer: B
Q3) The research process should always begin with a tax service.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Tax Formula and Tax Determination an
Overview of Property Transactions
Available Study Resources on Quizplus for this Chatper
187 Verified Questions
187 Flashcards
Source URL: https://quizplus.com/quiz/66407
Sample Questions
Q1) Deductions for AGI are often referred to as "above-the-line" or "page 1" deductions.Explain.
Answer: "Above the line" means before the bottom line of page 1 of Form 1040,which is AGI.These deductions appear on page 1 of Form 1040.
Q2) Adjusted gross income (AGI)sets the ceiling or the floor for certain deductions.Explain and illustrate what this statement means.
Answer: By a ceiling what is meant is that the deduction cannot exceed a percentage of AGI.Thus,the charitable contribution deduction cannot exceed 50% of a taxpayer's AGI.By a floor what is meant is that a deduction is allowed only if it exceeds a percentage of AGI.Thus,the deduction for medical expenses is limited to the excess of these expenses over 10% (or 7.5%)of AGI.
Q3) Because they appear on page 1 of Form 1040,itemized deductions are also referred to as "page 1 deductions."
A)True
B)False
Answer: False
Q4) $1,050
Answer: c
Page 5
To view all questions and flashcards with answers, click on the resource link above.
Chapter 4: Gross Income Concepts and Inclusions
Available Study Resources on Quizplus for this Chatper
122 Verified Questions
122 Flashcards
Source URL: https://quizplus.com/quiz/66408
Sample Questions
Q1) A cash basis taxpayer purchased a certificate of deposit for $1,000 on July 1,2014 that will pay $1,100 upon its maturity on June 30,2016.The taxpayer must recognize a portion of the income in 2015.
A)True
B)False
Q2) In January 2016,Tammy purchased a bond due in 24 months.The cost of the bond is $857 and its maturity value is $1,000.No interest is paid each year,but the compound interest rate on the bond is 8%.Tammy also purchased a Series EE United States Government bond for $558,with a maturity value in 10 years of $1,000.This is the only Series EE bond she has ever owned.The Series EE bond is sold to yield 6% interest.Tammy is 13 years old and has no other source of income.She is claimed as a dependent by her parents.Compute Tammy's gross income from the bond and Series EE bond for 2016 .
Q3) The purpose of the tax rules that apply to below-market loans between family members is to:
A)Discourage loans between related parties.
B)Prevent shifting of income among family members.
C)Prevent gifts from being disguised as bad debt expenses.
D)Prevent gift tax avoidance.
E)None of these is true.
To view all questions and flashcards with answers, click on the resource link above.
Page 6
Chapter 5: Gross Income Exclusions
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/66409
Sample Questions
Q1) The earnings from a qualified state tuition program account are deferred from taxation until they are used for qualified higher education expenses.At that time,the amount taken from the fund must be included in the gross income of the person who contributed to the account.
A)True
B)False
Q2) Mia participated in a qualified state tuition program for the benefit of her son Michael.She contributed $15,000.When Michael entered college,the balance in the fund satisfied the tuition charge of $20,000.When the funds were withdrawn to pay the college tuition for Michael,neither Mia nor Michael must include $5,000 ($20,000 - $15,000)in gross income.
A)True
B)False
Q3) Benny loaned $100,000 to his controlled corporation.When it became apparent the corporation would not be able to repay the loan in the near future,Benny canceled the debt.The corporation should treat the cancellation as a nontaxable contribution to capital.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: Deductions and Losses in General
Available Study Resources on Quizplus for this Chatper
145 Verified Questions
145 Flashcards
Source URL: https://quizplus.com/quiz/66410
Sample Questions
Q1) The period in which an accrual basis taxpayer can deduct an expense is determined by applying the economic performance and all events tests.
A)True
B)False
Q2) Mitch is in the 28% tax bracket.He may receive a different tax benefit for a $2,000 expenditure that is classified as a deduction from AGI than he will receive for a $1,000 expenditure that is classified as a deduction for AGI.
A)True
B)False
Q3) What losses are deductible by an individual taxpayer?
Q4) Under the "one-year rule" for the current period deduction of prepaid expenses of cash basis taxpayers,the asset must expire or be consumed by the end of the tax year following the year of payment.
A)True
B)False
Q5) Briefly discuss the disallowance of deductions for capital expenditures.
Q6) Can a trade or business expense be deductible if it is necessary but not ordinary?
To view all questions and flashcards with answers, click on the resource link above.
Page 8
Chapter 7: Deductions and Losses Certain Business
Expenses and Losses
Available Study Resources on Quizplus for this Chatper
123 Verified Questions
123 Flashcards
Source URL: https://quizplus.com/quiz/66411
Sample Questions
Q1) The cost of depreciable property is not a research and experimental expenditure.
A)True
B)False
Q2) Khalid,who is single,had the following items for 2016:
Salary
$40,000
Interest income on U.S.Treasury bonds
8,000
Loss on theft of securities
(60,000)
Interest income on New York state bonds
12,000
What is Khalid's NOL for 2016?
A)($10,000)
B)($12,000)
C)($16,100)
D)($24,050)
E)None of the above
Q3) Why was the domestic production activities deduction (DPAD)enacted by Congress?
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Depreciation Cost Recovery Amortization and Depletion
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/66412
Sample Questions
Q1) Goodwill associated with the acquisition of a business cannot be amortized.
A)True
B)False
Q2) Cost depletion is determined by multiplying the depletion cost per unit by the number of units sold.
A)True
B)False
Q3) Taxable income for purposes of § 179 limited expensing is computed by including the MACRS deduction.
A)True
B)False
Q4) Residential rental real estate includes property where 80% or more of the net rental revenues are from nontransient dwelling units.
A)True
B)False
Q5) The "luxury auto" cost recovery limits change if mid-quarter cost recovery is used. A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Deductions Employee and Self Employed
Related Expenses
Available Study Resources on Quizplus for this Chatper
177 Verified Questions
177 Flashcards
Source URL: https://quizplus.com/quiz/66413
Sample Questions
Q1) Distance test (for moving expenses)not satisfied
Q2) A taxpayer who claims the standard deduction will not avoid the 2%-of-AGI floor on unreimbursed employee expenses.
A)True
B)False
Q3) Discuss the 2%-of-AGI floor and the 50% cutback limitation in connection with various employee expenses under the following arrangements:
a.The employee is not reimbursed by the employer.
b.The employee is fully reimbursed under a nonaccountable plan.
c.The employee is partially reimbursed under an accountable plan.
d.The employee is fully reimbursed under an accountable plan.
Q4) Cutback adjustment does not apply
Q5) Taylor performs services for Jonathan on a regular basis.There exists considerable doubt as to whether Taylor is an employee or an independent contractor.
a.What can Jonathan do to clarify the matter?
b.Suppose Jonathan treats Taylor as an independent contractor but Taylor thinks she is an employee.What is Taylor's recourse,if any?
Page 11
Q6) Lynn determines when the services are to be performed.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 10: Deduction and Losses Certain Itemized
Deductions
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/66414
Sample Questions
Q1) Karen,a calendar year taxpayer,made the following donations to qualified charitable organizations during the year:
Basis
Fair Market Value
Cash donation to State University
$30,000
$ 30,000
Unimproved land to the City of Terre Haute,Indiana
70,000
210,000
The land had been held as an investment and was acquired 4 years ago.Shortly after receipt,the City of Terre Haute sold the land for $210,000.Karen's AGI is $450,000.The allowable charitable contribution deduction this year is:
A)$100,000.
B)$165,000.
C)$225,000.
D)$240,000.
E)None of the above.
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Investor Losses
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/66415
Sample Questions
Q1) In 2016,Joanne invested $90,000 for a 20% interest in a limited liability company (LLC)in which she is a material participant.The LLC reported losses of $340,000 in 2016 and $180,000 in 2017.Joanne's share of the LLC's losses was $68,000 in 2016 and $36,000 in 2017.How much of these losses can Joanne deduct?
A)$68,000 in 2016;$36,000 in 2017.
B)$68,000 in 2016;$22,000 in 2017.
C)$0 in 2016;$0 in 2017.
D)$68,000 in 2016;$0 in 2017.
E)None of the above.
Q2) Linda owns investments that produce portfolio income and Activity A that produces losses.From a tax perspective,Linda will be better off if Activity A is not passive.
A)True
B)False
Q3) A qualified real estate professional is allowed to treat income or loss from any real estate venture as active except for income or loss from a rental activity.
A)True
B)False
Q4) At-risk amount.
To view all questions and flashcards with answers, click on the resource link above.
Page 13
Chapter 12: Alternative Minimum Tax
Available Study Resources on Quizplus for this Chatper
120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/66416
Sample Questions
Q1) Benita expensed mining exploration and development costs of $500,000 incurred in the current tax year.She will be required to make negative AMT adjustments for each of the next ten years and a positive AMT adjustment in the current tax year.
A)True
B)False
Q2) All of a C corporation's AMT is available for carryover as a minimum tax credit,regardless of whether the adjustments and preferences originate from timing differences or AMT preferences.
A)True
B)False
Q3) What effect do deductible gambling losses for regular income tax purposes have in calculating AMTI?
Q4) If the AMT base is greater than $186,300,the AMT rate for an individual taxpayer is the same as the AMT rate for a C corporation.
A)True
B)False
Q5) Why is there no AMT adjustment for charitable contributions?
Q6) Discuss the tax year in which an AMT adjustment is first required for an ISO.
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Tax Credits and Payment Procedures
Available Study Resources on Quizplus for this Chatper
121 Verified Questions
121 Flashcards
Source URL: https://quizplus.com/quiz/66417
Sample Questions
Q1) Unless a taxpayer is disabled,the tax credit for the elderly or disabled is available only if the taxpayer is at least 59 1/2 years old.
A)True
B)False
Q2) The maximum child tax credit under current law is $1,500 per qualifying child.
A)True
B)False
Q3) The tax credit for rehabilitation expenditures for certified historic structures differs from that for qualifying structures that are not certified historic structures.
A)True
B)False
Q4) Expenses that are reimbursed by a taxpayer's employer under a dependent care assistance program can also qualify for the credit for child and dependent care expenses.
A)True
B)False
Q5) Describe the withholding requirements applicable to employers.
Q6) Discuss the treatment of unused general business credits.
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Property Transactions Determination of Gain and
Loss and Basic Considerations
Available Study Resources on Quizplus for this Chatper
143 Verified Questions
143 Flashcards
Source URL: https://quizplus.com/quiz/66418
Sample Questions
Q1) For the loss disallowance provision under § 267,related parties include certain family members,a shareholder and his or her controlled corporation (i.e. ,greater than 50% in value of the corporation's outstanding stock),and a partner and his or her controlled partnership (i.e. ,greater than 50% of the capital interests or profits interest in the partnership).
A)True
B)False
Q2) If insurance proceeds are received for property used in a trade or business,a casualty transaction can result in recognized gain,but cannot result in a recognized loss. A)True
B)False
Q3) Purchased goodwill is assigned a basis equal to cost,which is calculated using the residual method associated with the purchase of a business.
A)True
B)False
Q4) Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a niece.
Q5) Define fair market value as it relates to property transactions.
Page 16
To view all questions and flashcards with answers, click on the resource link above.
Chapter 15: Property Transactions Nontaxable Exchanges
Available Study Resources on Quizplus for this Chatper
120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/66419
Sample Questions
Q1) Discuss the relationship between realized gain and boot received in a § 1031 like-kind exchange.
Q2) How does the replacement time period differ for the condemnation of real property used in a trade or business or held for investment when compared with that for other involuntary conversions?
Q3) Edward,age 52,leased a house for one year in Memphis with an option to buy as his personal residence.At the end of the lease,he purchased the house.He lived there for an additional 26 months before his employer transferred him to Tucson.Expecting to be in Tucson for 18 to 24 months,he rented the Memphis house for 18 months with an option to extend on a month to month basis for an additional 6 months.At the end of the 18-month period,Edward's employer offered him a permanent position in Tucson as branch manager.The tenant who had been occupying Edward's house in Memphis purchased it at the end of the 24-month extended lease period.Is Edward eligible to elect exclusion treatment under § 121?
Q4) Byron,who lived in New Hampshire,acquired a personal residence ten years ago when he was 52 years old.During this period he has occupied the residence for only eight months (out of 12)each year due to winter vacations in Florida.Is Byron eligible for exclusion of gain under § 121?
Q5) What kinds of property do not qualify under the like-kind provisions?
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Property Transactions Capital Gains and Losses
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/66420
Sample Questions
Q1) Mike is a self-employed TV technician.He is usually paid as soon as he completes repairs,but occasionally bills a customer with payment expected within 30 days.At the end of the year he has $2,500 of receivables outstanding.He expects to collect $1,200 of this and write off the remainder.Mike is a cash basis taxpayer and had net earnings from his business (not including the effect of the items above)of $55,000.He also had $3,500 interest income,$200 gambling winnings,and sold corporate stock for $7,000.The stock had been purchased in 2012 for $8,200.Mike is single,has no dependents,and claims the standard deduction.What is his 2016 taxable income? (Ignore the self-employment tax deduction. )
Q2) The only things that the grantee of an option may do with the option are exercise it or let it expire.
A)True
B)False
Q3) A security that was purchased by an individual and qualifies as § 1244 stock becomes worthless.The taxpayer is single and the loss is $30,000.The loss is treated as an ordinary loss.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 18
Chapter 17: Property Transactions Section 1231 and Recapture Provisions
Available Study Resources on Quizplus for this Chatper
70 Verified Questions
70 Flashcards
Source URL: https://quizplus.com/quiz/66421
Sample Questions
Q1) Orange Company had machinery destroyed by a fire on December 23,2016.The machinery had been acquired on April 1,2014,for $49,000 and its adjusted basis was $14,200.The machinery was completely destroyed and Orange received $30,000 of insurance proceeds for the machine and did not replace it.This was Orange's only casualty or theft event for the year.As a result of this event,Orange has:
A)$4,200 ordinary loss.
B)$15,800 § 1245 recapture gain.
C)$14,200 § 1245 recapture gain.
D)$30,000 § 1231 gain.
E)None of the above.
Q2) Property sold to a related party purchaser that is depreciable by the purchaser may cause the seller to have ordinary gain.
A)True
B)False
Q3) Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.
Q4) Why is it generally better to have a net § 1231 gain year followed by a net § 1231 loss year rather than a net § 1231 loss year followed by a net § 1231 gain year?
Page 19
To view all questions and flashcards with answers, click on the resource link above.
Chapter 18: Accounting Periods and Methods
Available Study Resources on Quizplus for this Chatper
108 Verified Questions
108 Flashcards
Source URL: https://quizplus.com/quiz/66422
Sample Questions
Q1) Mogo Manufacturing Company accounts for its inventories by the FIFO method.The company has consistently allocated building depreciation to production and general administration on the basis of the number of square feet occupied.According to the measurements used,manufacturing requires 90% of the square footage and general administration utilizes 10% of the total square feet.This year,2016,the accountant realized that 5 years ago an addition was made to the portion of the building used for general administration,and the depreciation allocation had not been adjusted.What are the tax accounting implications of this discovery?
Q2) The installment method applies where a payment will be received after the tax year of the sale:
A)By an investor who sold real estate at a gain.
B)By an investor who sold real estate at a loss.
C)By an appliance dealer who sold inventory at a gain.
D)By an investor who sold IBM Corporation common stock at a gain.
E)None of the above.
Q3) In applying the lower of cost or market for tax purposes,the market price is the replacement cost of the goods,rather than their expected selling price.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 20
Chapter 19: Deferred Compensation
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/66423
Sample Questions
Q1) Nick negotiates a $4.5 million contract per year with a major college football program to become its head coach.What amount is deductible by the program in 2016 his first full year of employment.
A)None
B)$1,000,000
C)$3,000,000
D)$4,500,000
E)None of the above
Q2) Dana,age 31 and unmarried,is an active participant in a qualified retirement plan.Her AGI is $120,000.What amount,if any,may Dana contribute to a Roth IRA in 2016?
A)$0
B)$3,225
C)$4,400
D)$5,500
E)None of the above
Q3) Income is taxed if a taxpayer's control over the amount earned is subject to substantial restrictions.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 20: Corporations and Partnerships
Available Study Resources on Quizplus for this Chatper
198 Verified Questions
198 Flashcards
Source URL: https://quizplus.com/quiz/66424
Sample Questions
Q1) Organizational expenditures include the costs of transferring assets to the new corporation.
A)True
B)False
Q2) A partner's basis in the partnership interest is decreased by his or her share of the capital losses incurred by the partnership.
A)True
B)False
Q3) If property contributed to a partnership is subject to a liability (assumed by the partnership),gain is recognized to the contributing partner to the extent of the liability.
A)True
B)False
Q4) Changes in the liabilities (trade accounts payable,bank loans,etc. )of a partnership will not affect the basis of a partnership interest.
A)True
B)False
Q5) Net long-term capital gains are subject to a preferential alternative tax rate.
Q6) Like-kind exchange provisions apply.
To view all questions and flashcards with answers, click on the resource link above. Page 22