Federal Income Taxation
Final Test Solutions
Course Introduction
Federal Income Taxation provides an in-depth exploration of the principles, policies, and structure of the federal income tax system in the United States. The course examines the determination of taxable income for individuals and entities, including concepts such as gross income, exclusions, deductions, credits, timing, and character of income. Students will analyze key statutory provisions, landmark cases, and administrative materials to understand the application and implications of tax laws. In addition, the course introduces broader issues such as tax policy, compliance, tax planning, and the ethical responsibilities of practitioners. This foundational knowledge prepares students for advanced tax studies and offers practical skills for careers in law, accounting, finance, and public policy.
Recommended Textbook
Prentice Halls Federal Taxation 2014 Individuals 27th Edition by Timothy J. Rupert
Available Study Resources on Quizplus 18 Chapters
2027 Verified Questions
2027 Flashcards
Source URL: https://quizplus.com/study-set/3422
Page 2
Chapter 1: An Introduction to Taxation
Available Study Resources on Quizplus for this Chatper
100 Verified Questions
100 Flashcards
Source URL: https://quizplus.com/quiz/67942
Sample Questions
Q1) Property transferred to the decedent's spouse is exempt from the estate tax because of the estate tax marital deduction provision.
A)True
B)False
Answer: True
Q2) The tax law encompasses administrative and judicial interpretations,such as Treasury regulations,revenue rulings,revenue procedures,and court decisions,as well as statutes.
A)True
B)False Answer: True
Q3) While federal and state income taxes as well as the federal gift and estate taxes are generally progressive in nature,property taxes are proportional.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Determination of Tax
Available Study Resources on Quizplus for this Chatper
132 Verified Questions
132 Flashcards
Source URL: https://quizplus.com/quiz/67943
Sample Questions
Q1) Amanda has two dependent children,ages 10 and 12.She earned $15,000 from her waitress job.How much of her child credit is refundable?
A)$1,200
B)$1,500
C)$1,800
D)$2,000
Answer: C
Q2) Generally,when a married couple files a joint return,each spouse is liable for one-half of the entire tax and any penalties incurred.
A)True
B)False
Answer: False
Q3) The oldest age at which the "Kiddie Tax" could apply to a dependent child is A)17
B)18
C)20
D)23
Answer: D
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Gross Income: Inclusions
Available Study Resources on Quizplus for this Chatper
130 Verified Questions
130 Flashcards
Source URL: https://quizplus.com/quiz/67944
Sample Questions
Q1) While certain income of a minor is taxed at the parent's tax rate,discuss how income shifting may still be accomplished and any constraints that may exist on income shifting.
Answer: 1.Children may own stock in the family business.Dividends may be distributed to the children,but these may be taxed at the parents' rates.
2.A child may work in the family business.Income earned by the child would be taxed at the child's tax rate.Income earned by the child would be subject to reasonable compensation limits.
3.Series EE U.S.savings bonds may be purchased in the child's name to mature after the child reaches age 24.A gift of the bonds to the child may be subject to gift tax.
Q2) Internal Revenue Code Section 61 provides an inclusive list of all possible items taxed under the Code.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above.
Chapter 4: Gross Income: Exclusions
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/67945
Sample Questions
Q1) Loan proceeds are taxable in the year received in cash.
A)True
B)False
Q2) All of the following items are excluded from gross income except
A)working condition benefits.
B)de minimis benefits.
C)no additional cost benefits for employees.
D)disability income from an employer-financed policy.
Q3) John,who is President and CEO of ZZZ Corporation which owns the ZZZ hotel chain,is working with his Human Resources department to design an employee fringe benefits package.He would like employees to receive discounts on goods and services provided by the corporation,would like to provide free hotel rooms to employees,would like to provide transit passes or pay for parking in metropolitan areas,and would like to provide recreational and athletic facilities.What issues should John consider in designing his package?
Q4) Dividends on life insurance policies are generally excludable income because they are considered a return of premium.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Property Transactions: Capital Gains and Losses
Available Study Resources on Quizplus for this Chatper
128 Verified Questions
128 Flashcards
Source URL: https://quizplus.com/quiz/67946
Sample Questions
Q1) Kathleen received land as a gift from her grandfather.At the time of the gift,the land had a FMV of $85,000 and an adjusted basis of $110,000 to Kathleen's grandfather.One year later,Kathleen sold the land for $80,000.What was her gain or (loss)on this transaction?
A)no gain or loss
B)( $5,000)
C)$5,000
D)$30,000
Q2) All recognized gains and losses must eventually be classified either as capital or ordinary.
A)True
B)False
Q3) Interest incurred during the development and manufacture of a machine must be capitalized.
A)True
B)False
Q4) A building used in a trade or business is a capital asset.
A)True
B)False
Q5) What are arguments for and against preferential treatment of capital gains?
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Deductions and Losses
Available Study Resources on Quizplus for this Chatper
125 Verified Questions
125 Flashcards
Source URL: https://quizplus.com/quiz/67947
Sample Questions
Q1) In 2013,Sean,who is single and age 44,received $55,000 of gross income and had $5,000 of deductions for AGI and $4,600 of itemized deductions.Sean's taxable income is
A)$40,000.
B)$43,900.
C)$46,100.
D)$41,500.
Q2) Ronna is a professional golfer.In order to correct her vision,Ronna has eye surgery.The costs of the surgery and subsequent medical care are not covered by insurance.What tax issues should Ronna consider?
Q3) Various criteria will disqualify the deduction of a business or investment related expenditure.Which of the following criteria will not disqualify a business or investment expenditure?
A) capital expenditure
B) expenses related to tax-exempt income
C)expenses are not incurred annually
D)expenses are illegal or in violation of public policy
Q4) Discuss tax planning considerations which a taxpayer may use to possibly avoid classification of an activity as a hobby.
To view all questions and flashcards with answers, click on the resource link above.
Page 8
Chapter 7: Itemized Deductions
Available Study Resources on Quizplus for this Chatper
107 Verified Questions
107 Flashcards
Source URL: https://quizplus.com/quiz/67948
Sample Questions
Q1) Riva borrows $10,000 that she intends to use for purchasing supplies for her business.She temporarily deposits the funds in her personal checking account.Prior to the deposit,the checking account held $40,000 of personal funds.Riva books a vacation for $6,000 and writes a check to the travel agency from her personal account.Later in the month,the business supplies bill arrives and Riva writes a check for $10,000 from the personal account.With respect to the interest expense on the $10,000 loan,
A)it will all be treated trade or business expense.
B)60 percent will be treated as personal interest expense and 40 percent as trade or business expense.
C)it will all be treated as personal expense.
D)20 percent will be treated trade or business expense.
Q2) Foreign real property taxes and foreign income taxes are not deductible as itemized deductions.
A)True
B)False
Q3) Explain why interest expense on investments is limited to net investment income.
Q4) What is the treatment of charitable contributions in excess of the applicable limits for the current year?
To view all questions and flashcards with answers, click on the resource link above.
Page 9
Chapter 8: Losses and Bad Debts
Available Study Resources on Quizplus for this Chatper
111 Verified Questions
111 Flashcards
Source URL: https://quizplus.com/quiz/67949
Sample Questions
Q1) Leonard owns a hotel which was damaged by a hurricane.The hotel had an adjusted basis of $1,000,000 before the hurricane.A recent appraisal determined that the hotel's FMV was $1,500,000 before the hurricane and $700,000 afterwards.Leonard received insurance proceeds of $500,000.His AGI is $60,000.What is the amount of his deductible casualty loss?
A)$293,900
B)$300,000
C)$793,900
D)$800,000
Q2) Two separate business operations conducted at the same location may be treated as separate activities under the passive activity rules.
A)True
B)False
Q3) Lisa loans her friend,Grace,$10,000 to finance a new business.If Grace defaults on the loan,Lisa may take a deduction for a business bad debt in the year of total worthlessness.
A)True
B)False
Q4) What are some factors which indicate that a debt may be worthless?
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Employee Expenses and Deferred Compensation
Available Study Resources on Quizplus for this Chatper
129 Verified Questions
129 Flashcards
Source URL: https://quizplus.com/quiz/67950
Sample Questions
Q1) In-home office expenses are deductible if the office is used exclusively on a regular basis as the principal place of business for any trade or business of the taxpayer.
A)True
B)False
Q2) According to the IRS,a person's tax home is the location of the family residence regardless of the location of the taxpayer's principal place of employment.
A)True
B)False
Q3) Travel expenses for a taxpayer's spouse are deductible if the spouse is an employee,the travel is for a bona fide purpose,and the expenses are otherwise deductible.
A)True
B)False
Q4) Self-employed individuals receive a for AGI deduction for 50% of entertainment expenses paid or incurred in the trade or business.
A)True
B)False
Q5) What two conditions are necessary for moving expenses to be deductible?
Page 11
To view all questions and flashcards with answers, click on the resource link above.
Chapter 10: Depreciation, cost Recovery, amortization, and Depletion
Available Study Resources on Quizplus for this Chatper
96 Verified Questions
96 Flashcards
Source URL: https://quizplus.com/quiz/67951
Sample Questions
Q1) Jack purchases land which he plans on developing as a golf course.The land costs $20,000,000 and the cost of clearing the land,earthmoving,constructing hazards,bunkers and greens,and installing irrigation systems will cost an additional $6,000,000.What tax issues should Jack consider?
Q2) In April of 2012,Brandon acquired five-year listed property (not an automobile)for $30,000 and used it 70% for business.No election was made regarding Sec.179 and bonus depreciation was not available.In 2013,his business use of the property dropped to 40%.Which of the following statements is true?
A)The change does not affect Brandon's previous depreciation.
B)Brandon must recapture $2,100 as ordinary income.
C)Brandon must recapture $4,200 as ordinary income.
D)Brandon must amend the previous tax return and recompute depreciation.
Q3) Expenditures that enlarge a building,any elevator or escalator,any structural component that benefits a common area or the internal structural framework are not considered qualified leasehold improvement property.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: Accounting Periods and Methods
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/67952
Sample Questions
Q1) When accounting for long-term contracts (other than those for services),all of the following accounting methods may be acceptable with the exception of
A)the cash method of accounting.
B)the completed contract method.
C)the percentage of completion method.
D)the modified percentage of completion method.
Q2) What is the significance of the Thor Power Tool Co.case?
Q3) Interest is not imputed on a gift loan between two individuals totaling $100,000 except when the borrowed funds are used to purchase income-producing property.
A)True
B)False
Q4) Except in a few specific circumstances,once adopted,an accounting period may be changed without IRS approval.
A)True
B)False
Q5) Generally,an income tax return covers an accounting period of 12 months.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Property Transactions: Nontaxable Exchanges
Available Study Resources on Quizplus for this Chatper
109 Verified Questions
109 Flashcards
Source URL: https://quizplus.com/quiz/67953
Sample Questions
Q1) Real property exchanged for personal property qualifies as a like-kind exchange.
A)True
B)False
Q2) The exchange of a personal-use automobile for stock in an automobile manufacturer held as an investment qualifies for like-kind treatment.
A)True
B)False
Q3) Rolf exchanges an office building worth $150,000 for investment land worth $175,000.He also provided stock worth $25,000.Rolf's adjusted basis in the building and stock is $130,000 and $11,000,respectively.How much gain will Rolf recognize on the exchange?
A)$-0-
B)$14,000
C)$20,000
D)$34,000
Q4) In an involuntary conversion,the basis of replacement property is its cost reduced by the gain deferred.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Property Transactions: Section 1231 and Recapture
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/67954
Sample Questions
Q1) Dinah owned land with a FMV of $130,000 (adjusted basis $120,000)which is investment property (a capital asset).Dinah owned a second tract of land,a 1231 asset,with a FMV of $46,000 (adjusted basis $50,000).Both tracts were acquired in 2001 and condemned by the state this year.The state paid an amount equal to FMV.If there are no other transactions involving capital assets or 1231 assets,Dinah must report on her current year return
A)$6,000 net ordinary income.
B)$6,000 net section 1231 gain treated as a net capital gain.
C)a LTCG of $10,000 and a 1231 loss of $4,000.
D)a LTCG of $10,000 and a nondeductible loss of $4,000.
Q2) Octet Corporation placed a small storage building in service in 1993.Octet's original cost for the building is $800,000 and the cost recovery deductions are $300,000.This year the building is sold for $1,100,000.The amount and character of the gain are
A)Ordinary gain of $60,000 and Sec.1231 gain of $540,000.
B)Ordinary gain of $300,000 and Sec.1231 gain of $300,000.
C)Ordinary gain of $600,000.
D)Sec.1231 gain of $600,000.
Q3) What is the purpose of Sec.1245 and what is its significance?
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Special Tax Computation Methods, tax Credits, and Payment of Tax
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/67955
Sample Questions
Q1) Jake and Christina are married and file a joint return for 2013 with taxable income of $100,000 and tax preferences and adjustments of $20,000 for AMT purposes.Their regular tax liability is $16,858.What is the amount of their total tax liability?
A)$6,666
B)$10,192
C)$16,858
D)$27,050
Q2) Refundable tax credits
A)only offset a taxpayer's tax liability.
B)may only be used if the taxpayer is receiving a refund.
C)have all expired but may be reinstated with new tax legislation.
D)allow the excess over the taxpayer's tax liability to be paid to the taxpayer.
Q3) Joe has $130,000 net earnings from a sole proprietorship.Joe's self-employment tax (rounded)for 2013 is
A)$17,581.
B)$18,368.
C)$19,890.
D)None of the above.
Q4) Discuss when Form 6251,Alternative Minimum Tax,must be filed.
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Tax Research
Available Study Resources on Quizplus for this Chatper
112 Verified Questions
112 Flashcards
Source URL: https://quizplus.com/quiz/67956
Sample Questions
Q1) Explain how committee reports can be used in tax research.What do they indicate?
Q2) Appeals from the Court of Appeals go to the Supreme Court under a writ of certiorari.The Supreme Court decides whether or not they will hear the case.
A)True
B)False
Q3) A jury trial is permitted in the
A)U)S.District Court.
B)U)S.Tax Court.
C)U)S.Court of Federal Claims.
D)U)S.Tax Court when the small case procedures are used.
Q4) The Internal Revenue Code of 1986 contains the current version of the tax law.
A)True B)False
Q5) In 1998,Congress passed legislation concerning shifting the burden of proof to the IRS.The taxpayer must introduce "credible evidence" to shift the burden of proof to the IRS.What constitutes "credible evidence?"
Q6) Describe the format of a client memo.
Q7) Distinguish between an annotated tax service and a topical tax service.
Q8) What is the purpose of Treasury Regulations?
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Corporations
Available Study Resources on Quizplus for this Chatper
128 Verified Questions
128 Flashcards
Source URL: https://quizplus.com/quiz/67957
Sample
Questions
Q1) Corkie Corporation distributes $80,000 cash along with land having a $60,000 adjusted basis and a $40,000 FMV to its shareholder Josh.What are the tax consequences to Corkie Corporation?
A)$20,000 loss realized and recognized
B)$20,000 loss realized but not recognized
C)$20,000 gain realized but not recognized
D)$20,000 gain realized and recognized
Q2) Dividends paid from E&P are taxable to shareholders and are,therefore,deductible by the corporation.
A)True B)False
Q3) The corporate AMT is similar to that applicable to individuals. A)True B)False
Q4) Unused charitable contributions of a corporation are carried forward ten years. A)True B)False
Q5) The accumulated earnings tax is imposed on all publicly-held corporations. A)True
B)False
18
To view all questions and flashcards with answers, click on the resource link above.
Chapter 17: Partnerships and S Corporations
Available Study Resources on Quizplus for this Chatper
124 Verified Questions
124 Flashcards
Source URL: https://quizplus.com/quiz/67958
Sample Questions
Q1) Stephanie owns a 25% interest in a qualifying S corporation.Stephanie's basis in the stock was $40,000 at the end of the year after adjustments are made for capital contributions and distributions (but not operating results).Stephanie also loaned the S corporation $10,000 this year.The S corporation incurred a $240,000 ordinary loss this year.Assume that next year the S corporation's ordinary income is $160,000.Stephanie's basis in her stock at the end of next year is
A)$10,000.
B)$20,000.
C)$30,000.
D)$40,000.
Q2) If partners having a majority interest in the partnership do not have the same tax year,the partnership uses the same tax year as all of its principal partners-those with 10% or greater interest in the partnership.
A)True
B)False
Q3) An S corporation may not have more than 75 shareholders.
A)True
B)False
Q4) Discuss the concept of partnership guaranteed payments.
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Taxes and Investment Planning
Available Study Resources on Quizplus for this Chatper
79 Verified Questions
79 Flashcards
Source URL: https://quizplus.com/quiz/67959
Sample Questions
Q1) Under the Pension Model,the entire accumulation,not just the earnings,is taxed at the end of the investment horizon.
A)True
B)False
Q2) The Deferred Model offers two levels of tax deferral-the original contribution escapes current taxation as do the earnings on the underlying investment.
A)True
B)False
Q3) When given a choice between making a contribution to a Roth IRA or to a nondeductible traditional IRA,the taxpayer should choose the Roth IRA.
A)True
B)False
Q4) Jorge contributes $5,000 to a traditional nondeductible IRA in the current year and makes no subsequent contributions.Assume that the investment in the IRA yields 6% per year and that Jorge allows his investment to accumulate for 20 years.At the end of twenty years,he withdraws all of the amounts from the IRA when his marginal tax rate is 30%.What is his after-tax accumulation?
Q5) Compare the characteristics of the Current and Deferred Models.
To view all questions and flashcards with answers, click on the resource link above.
Page 20