Federal Income Taxation
Final Test Solutions
Course Introduction
Federal Income Taxation examines the principles and practices governing the taxation of individual and business income under the Internal Revenue Code. The course explores topics such as gross income, exclusions, deductions, credits, capital gains, and the tax treatment of various entities, including partnerships, corporations, and trusts.
Emphasizing statutory interpretation, case law, and IRS regulations, students develop a foundational understanding of tax policy, compliance, and planning strategies. The course also addresses ethical considerations and current developments in federal tax law, preparing students for practical application and further study in taxation.
Recommended Textbook
Principles of Taxation for Business and Investment Planning 2014 17th Edition by Sally Jones
Available Study Resources on Quizplus
18 Chapters
1724 Verified Questions
1724 Flashcards
Source URL: https://quizplus.com/study-set/3141 Page 2
Chapter 1: Taxes and Taxing Jurisdictions
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/62212
Sample Questions
Q1) Which of the following does not characterize federal transfer taxes?
A)The tax is imposed on individuals but not on corporations.
B)The tax is based on the value of property transferred by gift or at death.
C)The tax is a transaction tax.
D)All of the above characterize federal transfer taxes.
Answer: D
Q2) Which type of tax is not levied by the federal government?
A)Corporate income tax
B)Individual income tax
C)Employment taxes
D)General sales tax
Answer: D
Q3) Acme Inc.'s federal income tax increased by $100,000 this year. As a result, Acme reduced the annual dividend paid on its common stock by $100,000. Who bears the incidence of the corporate tax increase?
A)Acme Inc.
B)Acme's customers
C)Acme's employees
D)Acme's shareholders
Answer: D
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Policy Standards for a Good Tax
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/62202
Sample Questions
Q1) Which of the following statements about the substitution effect of an income tax rate increase is false?
A)The substitution effect is theoretically stronger for high-income taxpayers than for low-income taxpayers.
B)The substitution effect is theoretically stronger for a family's secondary wage earner than for the family's primary wage earner.
C)The substitution effect is theoretically stronger for self-employed individuals who control their own time than for employees whose work schedules are controlled by their employers.
D)None of the above is false.
Answer: D
Q2) Which of the following statements does not describe the Keynesian standard of tax efficiency?
A)An efficient tax encourages economic growth.
B)An efficient tax encourages full employment.
C)An efficient tax encourages price-level stability.
D)All of the above describe the Keynesian standard of tax efficiency.
Answer: D
To view all questions and flashcards with answers, click on the resource link above.
4
Chapter 3: Taxes As Transaction Costs
Available Study Resources on Quizplus for this Chatper
82 Verified Questions
82 Flashcards
Source URL: https://quizplus.com/quiz/62201
Sample Questions
Q1) The arm's length transaction presumption is unreliable for transactions between related parties.
A)True
B)False
Answer: True
Q2) Ms. Kent has $200,000 in an investment paying 8% annual interest. Her marginal tax rate is 40%. Which of the following statements is false?
A)Ms.Kent's annual before-tax cash flow from this investment is $16,000.
B)If the interest is tax-exempt, Ms.Kent's annual after-tax cash flow is $16,000.
C)If the interest is taxable, Ms.Kent's annual after-tax cash flow is $6,400.
D)None of the above is false.
Answer: C
Q3) Marginal rate uncertainty includes the risk that Congress will change tax rates, increasing the tax costs of future income.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Maxims of Income Tax Planning
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/62200
Sample Questions
Q1) The after-tax value of a dollar of income to a high-tax entity is more than the after-tax value to a low-tax entity.
A)True
B)False
Q2) Tax evasion is a federal crime punishable by imprisonment.
A)True
B)False
Q3) Tax planning strategies to enhance NPV must reflect all four tax planning maxims.
A)True
B)False
Q4) Which of the following statements is true?
A)Mary Gilly owns 100% of the stock of Gilly Inc.Both Mary and Gilly Inc.are taxpayers under federal law.
B)The same rate schedule applies to both individual and corporate taxpayers.
C)The tax provisions governing the computation of individual business income are separate and distinct from the tax provisions governing the computation of corporate business income.
D)Statements A.and C.are true.
To view all questions and flashcards with answers, click on the resource link above.
6
Chapter 5: Tax Research
Available Study Resources on Quizplus for this Chatper
75 Verified Questions
75 Flashcards
Source URL: https://quizplus.com/quiz/62199
Sample Questions
Q1) 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
Q2) Using an electronic research database such as Checkpoint, CCH Tax Research
NetWork, or Lexis-Nexis, perform a keyword search that includes the phrase business expense and the keyword charity. Include both primary sources and editorial materials in your search.
a. How many documents did your search retrieve?
b. How many documents are primary authorities and how many are secondary authorities?
c. Provide citations to two primary authorities and two secondary authorities.
Q3) When performing step two of the tax research process:
A)The identification of tax issues precedes the formulation of research questions.
B)Research questions should be as broadly stated as possible.
C)Each tax issue is always associated with a single research question.
D)The order in which research questions are addressed is irrelevant.
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Taxable Income From Business Operations
Available Study Resources on Quizplus for this Chatper
116 Verified Questions
116 Flashcards
Source URL: https://quizplus.com/quiz/62198
Sample Questions
Q1) A permanent difference between book income and taxable income affects only one taxable year.
A)True
B)False
Q2) GH&F is a calendar year, accrual basis taxpayer. In October 2013, GH&F received a $18,000 cash payment from a tenant who leases space in a commercial office building that GH&F owns. The payment was rent for the 18-month period beginning on November 1, 2013. As a result of the payment, GH&F should report:
A)$2,000 book income and taxable income
B)$2,000 book income and $18,000 taxable income
C)$18,000 book income and taxable income
D)None of the above
Q3) Which of the following business expenses always results in a difference between taxable income and book income?
A)Rent expense
B)Interest expense
C)Client entertainment
D)Salary expense
To view all questions and flashcards with answers, click on the resource link above.
Chapter 7: Property Acquisitions and Cost Recovery
Deductions
Available Study Resources on Quizplus for this Chatper
106 Verified Questions
106 Flashcards
Source URL: https://quizplus.com/quiz/62197
Sample Questions
Q1) Gowda Inc., a calendar year taxpayer, purchased $1,496,000 of equipment on March 23. This was Gowda's only purchase of depreciable property for the year. If the equipment has a 7-year recovery period, refer to Table 7.2 and compute Gowda's first and second-year MACRS depreciation. (Disregard the Section 179 deduction and bonus depreciation in making your calculation.)
A)First year $106,889; second year $366,370
B)First year $106,889; second year $340,193
C)First year $213,778; second year $183,185
D)None of the above
Q2) Mallow Inc., which has a 35% tax rate, purchased a new business asset. First-year book depreciation was $37,225, and first-year MACRS depreciation was $55,025. As a result of this book/tax difference, Mallow recorded a $6,230 deferred tax asset.
A)True
B)False
Q3) The expense of adapting an existing asset to a new or different use must be capitalized to the cost of the asset for tax purposes.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Property Dispositions
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/62196
Sample Questions
Q1) JG Inc. recognized $690,000 ordinary income, $48,000 net Section 1231 gain, and $77,000 net capital loss this year. JG's taxable income is $690,000.
A)True
B)False
Q2) The characterization of income as ordinary or capital gain has no relevance for financial reporting purposes.
A)True
B)False
Q3) Mrs. Stile owns investment land subject to a $600,000 nonrecourse mortgage. Her basis in the land is $212,000, and the land's appraised FMV is $575,000. Mrs. Stile is considering defaulting on the mortgage and allowing the creditor to foreclose. If Mrs. Stile disposes of the land through a foreclosure, she will recognize:
A)$212,000 capital loss
B)$212,000 ordinary abandonment loss
C)$363,000 capital gain
D)$388,000 capital gain
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Nontaxable Exchanges
Available Study Resources on Quizplus for this Chatper
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/62195
Sample Questions
Q1) A corporation's tax basis in property received in exchange for corporate stock depends on whether the exchange was taxable or nontaxable to the transferors of the property.
A)True
B)False
Q2) G&G Inc. transferred an old asset with a $110,300 adjusted tax basis plus $20,000 cash in exchange for a new asset worth $150,000. Which of the following statements is false?
A)The old asset's FMV is $150,000.
B)If the exchange is nontaxable, G&G's recognized gain is -0-.
C)If the exchange is nontaxable, G&G's tax basis in the new asset is $130,300.
D)None of the statements is false.
Q3) Which of the following statements about nontaxable exchanges is true?
A)The parties to the exchange agree that the properties exchanged are of equal value.
B)The parties to the exchange both realize gain on the exchange.
C)No cash can change hands in a nontaxable exchange.
D)Any gain realized on the exchange is not included in financial statement income.
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Sole Proprietorships, Partnerships, Llcs, and S
Corporations
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/62211
Sample Questions
Q1) If a business is formed as an S corporation, its income may be subject to double taxation.
A)True
B)False
Q2) All general partners have unlimited personal liability for the debts of the entity.
A)True
B)False
Q3) Carter's share of a partnership's operating loss is $17,200. His tax basis in his partnership interest before any adjustment for this loss is $26,000. Carter may deduct the full loss on his individual tax return.
A)True
B)False
Q4) A major advantage of an S corporation is the ability to specially allocate losses to specific members of the company.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: The Corporate Taxpayer
Available Study Resources on Quizplus for this Chatper
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/62210
Sample Questions
Q1) The purpose of Schedule M-1 is to explain the differences between financial statement income and taxable income.
A)True
B)False
Q2) Slipper Corporation has book income of $500,000. Book income includes a $50,000 gain on the sale of equipment. The equipment originally cost $110,000 and was sold for $75,000. Accumulated book depreciation was $85,000; accumulated MACRS deprecation was $90,000. Based only on these items, compute Slipper's taxable income.
A)$505,000
B)$495,000
C)$555,000
D)$445,000
Q3) John's, Inc. manufactures and sells fine furniture. What is John's regular tax liability if it had taxable income of $40,000,000?
A)$14,000,000
B)$13,600,000
C)$15,600,000
D)$16,000,000
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: The Choice of Business Entity
Available Study Resources on Quizplus for this Chatper
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/62209
Sample Questions
Q1) Zenon Corporation generates taxable income of $100,000 per year. Yellow Corporation generates taxable income of $50,000 per year.
a. Calculate regular income tax liability for Zenon and Yellow.
b. How would your answers to part (a) change if Mary Jones is the sole shareholder of both Zenon and Yellow?
c. How would the ownership of the two corporations impact their tax liability if Zenon and Yellow each generated taxable income of $500,000? Provide calculations to support your conclusion.
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 35%, and Ms. Lewis' marginal tax rate is 33%. 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.
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Jurisdictional Issues in Business Taxation
Available Study Resources on Quizplus for this Chatper
102 Verified Questions
102 Flashcards
Source URL: https://quizplus.com/quiz/62208
Sample Questions
Q1) DFJ, a Missouri corporation, owns 55% of Duvall, a foreign corporation formed under Krunian law. Krunia is a central European country with a 22% corporate income tax and no income tax treaty with the United States. Last year, DFJ leased equipment to Duvall for a $415,000 annual rent payment. DFJ reported the rent as taxable income, while Duvall deducted it in the computation of taxable income. This year, the IRS determined that an arm's length rent for the equipment should be $600,000. The IRS can use its Section 482 authority to:
A)Increase DFJ's taxable income by $185,000 and decrease Duvall's taxable income by $185,000.
B)Increase DFJ's taxable income by $185,000.
C)Require Duvall to pay $185,000 additional rent to DFJ.
D)Require DFJ to recognize a $185,000 constructive dividend from Duvall.
Q2) 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
Q3) Excess foreign tax credits can only be carried to future tax years.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: The Individual Tax Formula
Available Study Resources on Quizplus for this Chatper
113 Verified Questions
113 Flashcards
Source URL: https://quizplus.com/quiz/62207
Sample Questions
Q1) Mr. and Mrs. Toliver's AGI on their jointly filed return is $339,000. Regardless of the number of their children, the Tolivers are not eligible for a child credit.
A)True
B)False
Q2) It is impossible for a progressive income tax system to be both marriage neutral and horizontally equitable.
A)True
B)False
Q3) Adjusted gross income equals total income less itemized deductions.
A)True
B)False
Q4) Leon died on August 23, 2011, and his wife Mary has not remarried. Since her husband's death, Mary has maintained a home for her two dependent children, who were ages 7 and 4 when their father died. Which of the following describes Mary's filing status for 2012, 2013, and 2014?
A)Surviving spouse for 2012, 2013, and 2014.
B)Surviving spouse for 2012 and 2013; head of household for 2014.
C)Head of household for 2012, 2013, and 2014.
D)Surviving spouse for 2012; head of household for 2013 and 2014.
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Compensation and Retirement Planning
Available Study Resources on Quizplus for this Chatper
107 Verified Questions
107 Flashcards
Source URL: https://quizplus.com/quiz/62206
Sample Questions
Q1) Employees typically recognize compensation income in the year in which they are granted stock options.
A)True
B)False
Q2) A shareholder-employee of an S corporation prefers to receive a greater salary rather than a greater pro-rata share of corporate taxable income.
A)True B)False
Q3) A Keogh plan maintained for the owner of an unincorporated business must cover all employees of the business on a nondiscriminatory basis.
A)True
B)False
Q4) Employers must withhold state and federal income tax from compensation paid to independent contractors.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Investment and Personal Financial Planning
Available Study Resources on Quizplus for this Chatper
109 Verified Questions
109 Flashcards
Source URL: https://quizplus.com/quiz/62205
Sample Questions
Q1) 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 $5 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.
Q2) 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
Q3) On April 19 of this year, Sandy learned that her stock investment had become worthless. The stock is deemed to be worthless on December 31 of this year.
A)True
B)False
Q4) The interest earned on investments in U.S. debt obligations is subject to state taxation.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
18
Chapter 17: Tax Consequences of Personal Activities
Available Study Resources on Quizplus for this Chatper
93 Verified Questions
93 Flashcards
Source URL: https://quizplus.com/quiz/62204
Sample Questions
Q1) Mr. and Mrs. Stimson incurred $3,937 of miscellaneous itemized deductions this year. Their AGI was $97,300, and their marginal rate on ordinary income was 25%. Which of the following statements is false?
A)If the Stimsons itemized deductions and do not owe any alternative minimum tax (AMT), the tax savings from their miscellaneous itemized deductions is $498.
B)If the Stimsons do not itemize deductions, the tax savings from their miscellaneous itemized deductions is zero.
C)If the Stimsons owe alternative minimum tax (AMT), the tax savings from their miscellaneous itemized deductions is zero.
D)None of the above statements is false.
Q2) 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
To view all questions and flashcards with answers, click on the resource link above.
Page 19
Chapter 18: The Tax Compliance Process a Present Value of
$1 B Present Value of Annuity of $1 C 2013 Income Tax Rates
Available Study Resources on Quizplus for this Chatper
86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/62203
Sample Questions
Q1) A person can't be relieved of liability for a tax deficiency under the innocent spouse rule if that person enjoyed significant financial benefit from taxable income omitted from the return.
A)True
B)False
Q2) Only one spouse must sign a jointly filed Form 1040.
A)True
B)False
Q3) The statute of limitations for a tax return does not begin to run until the return is filed.
A)True
B)False
Q4) Mr. and Mrs. Chung filed their unextended 2012 Form 1040 on May 30, 2013, and had no reasonable cause for the delinquency. The return showed a $10,479 balance of tax due. Compute the Chungs' late-filing and late-payment penalty.
A)$524
B)$1,048
C)$2,620
D)None of the above
Page 20
To view all questions and flashcards with answers, click on the resource link above.