Federal Income Taxation Exam Practice Tests
Course Introduction
Federal Income Taxation provides a comprehensive exploration of the principles and regulations governing the United States federal income tax system. This course examines the statutory framework of the Internal Revenue Code, key judicial decisions, and administrative interpretations to develop an understanding of taxable income, deductions, credits, and the filing process. Students will analyze the tax implications for individuals, businesses, and other entities, as well as concepts such as gross income, exclusions, capital gains, losses, and the alternative minimum tax. Emphasis will be placed on tax policy, tax planning strategies, and compliance requirements, preparing students for practical application in professional tax-related fields.
Recommended Textbook
South Western Federal Taxation 2011 Corporations Partnerships Estates and T
Available Study Resources on Quizplus
20 Chapters
2222 Verified Questions
2222 Flashcards
Source URL: https://quizplus.com/study-set/3854 Page 2
Chapter 1: Understanding and Working With the Federal Tax Law
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/76863
Sample Questions
Q1) Which citation is considered to be a legislative citation?
A)Ltr.Rul.199952058.
B)Ann.94-5,1994-2 I.R.B.39.
C)Reg.§ 1.1014-1(c)(1).
D)§ 336.
E)None of the above.
Answer: D
Q2) The annual gift tax exclusion in 2010 is $12,000.
A)True
B)False
Answer: False
Q3) Determine the incorrect citation:
A)Ltr.Rul.20012305.
B)George W.Guill,112 T.C.__,No.22 (1999).
C)Ltr.Rul.200108052.
D)Rev.Rul,98-32,I.R.B.No.25,4.
E)None of the above.
Answer: A
Q4) What are the key components of tax planning?
Answer: 11ea8edf_2da8_0a98_9698_4be087005b07_TB4125_00
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Corporations: Introduction and Operating Rules
Available Study Resources on Quizplus for this Chatper
112 Verified Questions
112 Flashcards
Source URL: https://quizplus.com/quiz/76852
Sample Questions
Q1) On December 20,2010,the directors of Quail Corporation (an accrual basis,calendar year taxpayer)authorized a cash donation of $5,000 to the American Cancer Society,a qualified charity.The payment,which is made on April 15,2011,may be claimed as a deduction for tax year 2010.
A)True
B)False
Answer: False
Q2) In the current year,Amber,Inc. ,a calendar C corporation,has income from operations of $400,000 and operating deductions of $535,000.Amber also had $50,000 of dividends from a 10% stock ownership in a domestic corporation.Which of the following statements is incorrect with respect to Amber's net operating loss deduction?
A)Amber's NOL is $120,000.
B)The NOL is carried back 2 years and forward 20 years by Amber.
C)No dividends received deduction is allowed in computing Amber's NOL.
D)Amber can elect to forgo the carryback period and only carry forward the NOL.
E)None of the above.
Answer: C
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Corporations: Special Situations
Available Study Resources on Quizplus for this Chatper
96 Verified Questions
96 Flashcards
Source URL: https://quizplus.com/quiz/76850
Sample Questions
Q1) Which AMT adjustment would only be negative?
A)Loss limitation.
B)AMT NOL deduction.
C)DPAD.
D)Completed contract method.
E)None of the above.
Answer: B
Q2) Passive activity losses of certain closely held corporations and personal service corporations may be an AMT adjustment.
A)True
B)False
Answer: True
Q3) A small corporation with unused minimum tax credits may use what percentage of regular tax as a minimum credit in 2010?
A)0.
B)25%.
C)50%.
D)75%.
E)None of the above.
Answer: E
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Corporations: Organization and Capital Structure
Available Study Resources on Quizplus for this Chatper
93 Verified Questions
93 Flashcards
Source URL: https://quizplus.com/quiz/76849
Sample Questions
Q1) The bona fide business requirement of § 357(b)is easily satisfied as long as the liability arose in the normal course of conducting the business that is incorporated.
A)True
B)False
Q2) Kim,a real estate dealer,and others form Eagle Corporation under § 351.Kim contributes inventory (land held for resale)in return for Eagle stock.The holding period for the stock includes the holding period of the inventory.
A)True
B)False
Q3) Gabriella and Juanita form Luster Corporation,each receiving 50 shares of its stock.Gabriella transfers cash of $50,000,while Juanita transfers a secret process (basis of zero and a fair market value of $50,000).Neither Gabriella nor Juanita recognizes gain as a result of these transfers.
A)True
B)False
Q4) Issues relating to basis arise when a taxpayer is involved in a § 351 transaction.Describe the underlying rules,and the purpose they serve.
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Corporations: Earnings Profits and Dividend
Distributions
Available Study Resources on Quizplus for this Chatper
89 Verified Questions
89 Flashcards
Source URL: https://quizplus.com/quiz/76848
Sample Questions
Q1) When current E & P is positive and accumulated E & P has a deficit balance,the two accounts are netted for dividend determination purposes.
A)True
B)False
Q2) A corporate shareholder that receives a constructive dividend cannot apply a dividends received deduction to the distribution.
A)True
B)False
Q3) Of the § 179 expense deducted in the current year,80% must be added to this year's taxable income to determine current E & P.
A)True
B)False
Q4) Constructive dividends have no effect on a distributing corporation's E & P. A)True
B)False
Q5) The dividends received deduction is added back to taxable income to determine E & P.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Corporations: Redemptions and Liquidations
Available Study Resources on Quizplus for this Chatper
108 Verified Questions
108 Flashcards
Source URL: https://quizplus.com/quiz/76847
Sample Questions
Q1) Canary Corporation has 1,000 shares of stock outstanding.It redeems in a qualifying stock redemption 200 shares for $200,000 at a time when it has paid-in capital of $100,000 and E & P of $800,000.What would be the charge to Canary's E & P as a result of the redemption?
A)$0.
B)$20,000.
C)$160,000.
D)$200,000.
E)None of the above.
Q2) Which of the following is an incorrect statement regarding the tax consequences of a § 306 stock sale?
A)No loss is recognized on the sale.
B)The shareholder generally recognizes ordinary income equal to the fair market value of the preferred stock on the date of the stock dividend.
C)Any ordinary income recognized by the shareholder qualifies for the 15% (or 0%)maximum tax rate that applies to dividend income.
D)The issuing corporation reduces its E & P by the amount of sales proceeds.
E)None of the above.
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Corporations: Reorganizations
Available Study Resources on Quizplus for this Chatper
98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/76846
Sample Questions
Q1) Shareholders receiving other property as a part of a corporate reorganization may be treated as having their stock redeemed under § 302(b)and be in the adverse position of being treated as having sold a capital asset.
A)True
B)False
Q2) The "Type F" corporate reorganization includes changes in name,location,and changing from a taxable entity to any flow-through entity.
A)True
B)False
Q3) After a tax-free reorganization,the remaining corporation may not combine the earnings and profits (E & P)of the acquiring and target corporations.The E & P of the acquiring corporation may be used for dividend payments only after the target corporation's E & P are fully utilized.
A)True
B)False
Q4) United States tax policy tries to encourage business development.
A)True
B)False
Q5) Define the different divisive "Type D" reorganizations.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Consolidated Tax Returns
Available Study Resources on Quizplus for this Chatper
121 Verified Questions
121 Flashcards
Source URL: https://quizplus.com/quiz/76845
Sample Questions
Q1) A penalty can be assessed by the IRS if the parent corporation does not keep good records to support the computation of a subsidiary's stock basis.
A)True
B)False
Q2) Over time,the consolidated return rules have shifted from penalizing joint filing to an encouragement for conglomerates to elect to file on a consolidated basis.
A)True
B)False
Q3) In computing consolidated E & P,a negative adjustment is allowed for the group's Federal income tax payments.
A)True
B)False
Q4) A Federal consolidated group reports a net operating loss for the year.How is this amount allocated to the various group members? Why is this allocation important?
Q5) A public university cannot join in a consolidated return.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Taxation of International Transactions
Available Study Resources on Quizplus for this Chatper
153 Verified Questions
153 Flashcards
Source URL: https://quizplus.com/quiz/76844
Sample Questions
Q1) A foreign corporation,not resident in a treaty country,has a U.S.branch that earns effectively connected E & P of $4 million for the tax year and increases its investments in U.S.property (its U.S.net equity)by $1,600,000.It pays a U.S.corporate income tax of $2,153,846.Its branch profits tax is:
A)$2,153,846.
B)$720,000.
C)$1,200,000.
D)$2,873,846.
E)Some other amount.
Q2) Which of the following persons are not typically concerned with the U.S.-sourcing rules for gross income?
A)Foreign persons with U.S.activities.
B)U.S.persons with foreign activities.
C)U.S.employees working abroad.
D)Foreign persons with only foreign activities.
Q3) Tax deferred reorganizations involving U.S.-owned foreign corporations may be currently taxable under certain circumstances.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 11
Chapter 10: Partnerships: Formation, operation, and Basis
Available Study Resources on Quizplus for this Chatper
98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/76862
Sample Questions
Q1) Michelle and Jacob formed the MJ Partnership.Michelle contributed $20,000 of cash in exchange for her 50% interest in the partnership capital and profits.During the first year of partnership operations,the following events occurred: the partnership had a net taxable income of $10,000;Michelle received a distribution of $8,000 cash from the partnership;and Michelle had a 50% share in the partnership's $16,000 of recourse liabilities on the last day of the partnership year.Michelle's adjusted basis for her partnership interest at year end is:
A)$17,000.
B)$20,000.
C)$25,000.
D)$33,000.
E)$38,000.
Q2) JLK Partnership incurred $15,000 of organizational costs and $60,000 of startup costs.JKL may deduct $5,000 each of organizational and startup costs,and the remaining costs ($10,000 of organizational costs and $55,000 of startup costs)may be amortized over 180 months.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: Partnerships: Distributions, transfer of Interests, and Terminations
Available Study Resources on Quizplus for this Chatper
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/76861
Sample Questions
Q1) Jeremy receives a proportionate nonliquidating distribution from the JKL Partnership when the basis of his interest is $100,000.The distribution consists of cash of $25,000,land with a basis of $30,000 and a fair market value of $65,000,and inventory with a partnership basis of $50,000 and fair market value of $60,000.As a result of this distribution,Jeremy recognizes a $50,000 gain and takes a $65,000 basis in the land and a $60,000 basis in the inventory.
A)True
B)False
Q2) Which of the following distributions would never result in gain recognition to the recipient partner?
A)A distribution of cash that follows a contribution of appreciated property to the partnership.
B)A distribution of a slightly appreciated marketable security.
C)A distribution of property to a partner who,three years ago,contributed other property with a built-in gain.
D)A distribution to a second partner of property contributed by the first partner two years ago.
E)A proportionate distribution of inventory property.
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: S Corporations
Available Study Resources on Quizplus for this Chatper
125 Verified Questions
125 Flashcards
Source URL: https://quizplus.com/quiz/76860
Sample Questions
Q1) An S shareholder's basis is increased by stock purchases and capital contributions.
A)True
B)False
Q2) Pepper,Inc. ,an S corporation in Norfolk,Virginia,has revenues of $400,000,taxable interest of $380,000,operating expenses of $250,000,and deductions attributable to the interest income of $140,000.What is Pepper's § 1375 penalty tax payable?
A)$0.
B)$40,895.
C)$185,000.
D)$380,000.
E)Some other amount.
Q3) Tax-exempt income at the corporate level does flow through to the shareholders. A)True B)False
Q4) Any distribution made by an S corporation during a tax year is taken into account before accounting for the year's losses.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Comparative Forms of Doing Business
Available Study Resources on Quizplus for this Chatper
131 Verified Questions
131 Flashcards
Source URL: https://quizplus.com/quiz/76859
Sample Questions
Q1) Agnes owns a sole proprietorship for which the assets have appreciated in value.If she is going to sell the business to Abner,should she structure the sale as (1)a sale of the individual assets or (2)a sale of the sole proprietorship?
Q2) Which of the following statements regarding the accumulated earnings tax is correct in 2010?
A)If Blue,Inc.'s accumulated taxable income for 2010 is $180,000,the calculated accumulated earnings tax liability would be $53,450 [($50,000 ´ 15%)+ ($25,000 ´ 25%)+ ($25,000 ´ 34%)+ ($80,000 ´ 39%)].
B)Blue,Inc. ,calculates accumulated taxable income for 2010 of $100,000.Therefore,it should increase the amount paid to the IRS for 2010 by $15,000 ($100,000 ´ 15%).
C)The accumulated earnings tax applies to C corporations,but applies to S corporations at only the shareholder level.
D)The tax rate for the accumulated earnings tax of 35% is the same as the highest tax bracket for the corporate taxpayer.
E)None of the above.
Q3) What tax rates apply for the AMT for an individual taxpayer and for a C corporation?
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Taxes on the Financial Statements
Available Study Resources on Quizplus for this Chatper
81 Verified Questions
81 Flashcards
Source URL: https://quizplus.com/quiz/76858
Sample Questions
Q1) Green,Inc. ,is a domestic corporation with no subsidiaries.It operates in almost every state.Assuming no permanent or temporary differences exist in the current year,Green's tax expense on its financial statements and tax liability reported on its Federal income tax return are identical.
A)True
B)False
Q2) Which of the following items are not included in the financial statement income tax note effective tax rate reconciliation?
A)Hypothetical tax on book income at U.S.Federal corporate tax rate.
B)Tax effect of permanent differences.
C)Tax effect of temporary differences.
D)Total tax expense per financial statements.
E)None of the above.
Q3) Ocean,Inc. ,a domestic corporation,owns 100% of Atlantic,a German corporation,and 100% of Pacific,a Singapore corporation.If Ocean wants to claim the "permanent reinvestment" benefits provided by APB 23,it can use ASC 740-30 (APB 23)for either,or both,Atlantic and Pacific.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: Exempt Entities
Available Study Resources on Quizplus for this Chatper
131 Verified Questions
131 Flashcards
Source URL: https://quizplus.com/quiz/76857
Sample Questions
Q1) Exempt organizations which are appropriately classified as private foundations include churches,educational institutions,and charitable organizations receiving a major portion of their support from the general public or the U.S. ,a state,or a political subdivision thereof.
A)True
B)False
Q2) Which of the following types of § 501(c)(3)organizations are not private foundations?
A)Hospitals.
B)Churches.
C)Colleges and universities.
D)Only a.and b.
E)a. ,b. ,and c.
Q3) Which exempt organizations are not required to file an annual Federal tax return?
Q4) The excise tax imposed on a private foundation's excess business holdings is in effect an audit fee to defray IRS expenses.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Multistate Corporate Taxation
Available Study Resources on Quizplus for this Chatper
102 Verified Questions
102 Flashcards
Source URL: https://quizplus.com/quiz/76856
Sample Questions
Q1) Typically exempt from the sales/use tax base is the purchase of inventory from a competitor who is closing down a long-lived business.
A)True
B)False
Q2) The property factor includes real property and construction in progress.
A)True
B)False
Q3) Your client wants to reduce its overall state/local income tax rate.It holds income-producing assets of various types,including tangible personal property,rental land and buildings,and high-yield stocks and bonds.How might this taxpayer restructure its operations to achieve the desired tax result?
Q4) The property factor includes assets that the taxpayer owns,but not those merely used under a lease agreement.
A)True
B)False
Q5) The typical state sales/use tax falls on sales of both products and services.
A)True
B)False
Q6) Summarize the principles of multistate tax planning.
Page 18
To view all questions and flashcards with answers, click on the resource link above.
Chapter 17: Tax Practice and Ethics
Available Study Resources on Quizplus for this Chatper
112 Verified Questions
112 Flashcards
Source URL: https://quizplus.com/quiz/76855
Sample Questions
Q1) The penalty for substantial understatement of tax liability does not apply if:
A)The taxpayer has substantial authority for the treatment taken on the tax return.
B)The relevant facts affecting the treatment are adequately disclosed in the return or on Form 8275.
C)The IRS failed to meet its burden of proof in showing the taxpayer's error.
D)All of the above statements are correct.
E)None of the above statements are correct.
Q2) Circular 230 requires that a tax preparer be aware of changes in the tax law.Furthermore,office practices of the preparer must be up to industry standards.
A)True
B)False
Q3) Identify a profile for a taxpayer who is more likely than the national average to be audited by the IRS.
Q4) In the context of civil fraud,the burden of proof is on the IRS to show by a "preponderance of the evidence" that the taxpayer had a specific intent to evade a tax.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: The Federal Gift and Estate Taxes
Available Study Resources on Quizplus for this Chatper
155 Verified Questions
155 Flashcards
Source URL: https://quizplus.com/quiz/76854
Sample Questions
Q1) For Federal estate tax purposes,the gross estate includes property that the decedent owns at the time of death.It may also include property that the decedent no longer owns.Explain.
Q2) Madeline pays for her mother's nursing home expenses.Under what conditions might such payments not be a gift?
Q3) For estate tax purposes,what is the difference between a surviving spouse's share of the community property and a dower (or courtesy)interest?
Q4) The use of the election to split gifts under § 2513 is not necessary for spouses who live in community property states.
A)True
B)False
Q5) In community property states,all property acquired after marriage by either spouse is community property.
A)True
B)False
Q6) Death does not defeat a deceased spouse's interest in community property.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Family Tax Planning
Available Study Resources on Quizplus for this Chatper
135 Verified Questions
135 Flashcards
Source URL: https://quizplus.com/quiz/76853
Sample Questions
Q1) With respect to a stock interest in a closely held corporation,which,if any,of the following factors work to increase the gross estate value of the interest?
A)The stock is not marketable.
B)A majority interest is involved.
C)The profits of the business are less than the industry average.
D)The blockage rule applies.
E)None of the above.
Q2) Because of the estate tax deduction,a testamentary bequest to charity is preferable to a lifetime transfer.
A)True
B)False
Q3) Paula owns an insurance policy on her life payable to her estate.On Paula's death,the insurance proceeds are included in her gross estate but not her probate estate.
A)True
B)False
Q4) Commercial annuity contracts must be valued using the tables issued by the IRS.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 21
Chapter 20: Income Taxation of Trusts and Estates
Available Study Resources on Quizplus for this Chatper
122 Verified Questions
122 Flashcards
Source URL: https://quizplus.com/quiz/76851
Sample Questions
Q1) This year,the Nano Trust reported $50,000 entity accounting income and $40,000 distributable net income (DNI).Nano distributed $30,000 cash to Horatio,its sole income beneficiary.Nano is a complex trust.Nano's distribution deduction is:
A)$30,000.
B)$40,000.
C)$50,000.
D)$0.Because the distributions of a complex trust are discretionary,no deduction is allowed.
Q2) The Roz Trust has distributable net income for the year of $100,000 and no income from tax-exempt sources.Under the terms of the trust instrument,the trustee must distribute $80,000 to Roger and $80,000 to Sally.After paying these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the trustee distributes an additional $20,000 to Roger and $20,000 to Sally.How much gross income from the trust must Sally recognize?
A)$20,000.
B)$50,000.
C)$80,000.
D)$100,000.
To view all questions and flashcards with answers, click on the resource link above. Page 22