Federal Income Taxation
Pre-Test Questions
Course Introduction
Federal Income Taxation explores the fundamental principles and policies underlying the federal income tax system in the United States. The course examines the Internal Revenue Code, Treasury Regulations, and judicial decisions, focusing on the determination of gross income, deductions, exemptions, and tax credits. Emphasis is placed on the taxation of individuals, with attention to the concepts of income recognition, timing issues, assignment of income, and basic tax planning strategies. Students will develop skills in statutory interpretation and application of tax law to various factual scenarios through problem-solving and analysis of real-world examples.
Recommended Textbook
McGraw Hills Taxation of Individuals 2018 Edition 9th Edition by Spilker Brian C
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14 Chapters
1589 Verified Questions
1589 Flashcards
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Chapter 1: An Introduction to Tax
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Sample Questions
Q1) One key characteristic of a tax is that it is a required payment to a governmental agency.
A)True
B)False
Answer: True
Q2) Marc,a single taxpayer,earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds.Using the U.S.tax rate schedule for year 2017,what is his effective tax rate? (Use tax rate schedule in the text)
A) 17.90%
B) 16.52%
C) 14.23%
D) 25.00%
E) None of the choices are correct
Answer: B
Q3) The estate tax is assessed based on the fair market values of transfers made during a taxpayer's life.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Tax Compliance, The IRS and Tax Authorities
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Sample Questions
Q1) Which of the following courts is the only court that provides for a jury trial?
A) Tax Court.
B) U.S. Court of Federal Claims.
C) U.S. District Court.
D) U.S. Circuit Court of Appeals.
E) None of the choices are correct.
Answer: C
Q2) In general,a CPA will satisfy his professional responsibilities under the Statement on Standards for Tax Services when recommending a tax return position if he complies with the standards imposed by the applicable tax authority.
A)True
B)False
Answer: True
Q3) The tax return filing requirements for individual taxpayers only depend on the taxpayer's filing status.
A)True
B)False
Answer: False
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4
Chapter 3: Tax Planning Strategies and Related Limitations
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Virtually every transaction involves the taxpayer and two other parties that have an interest in the tax ramifications of the transaction.
A)True
B)False
Answer: True
Q2) If Joel earns a 10% after-tax rate of return,$10,000 received in two years is worth how much today? Use Exhibit 3.1 in the text.(Round present and future value amounts to 3 places)
A) $10,000.
B) $9,090.
C) $8,260.
D) $11,000.
E) None of the choices are correct.
Answer: C
Q3) When considering cash inflows,higher present values are preferred.
A)True
B)False
Answer: True
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5
Chapter 4: Individual Income Tax Overview, Exemptions, and Filing Status
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Sample Questions
Q1) Catherine de Bourgh has one child,Anne,who is 18 years old at the end of the year.Anne lived at home for seven months during the year before leaving home to attend State University for the rest of the year.During the year,Anne earned $6,000 while working part time.Catherine provided 80 percent of Anne's support and Anne provided the rest.Which of the following statements regarding whether Anne is Catherine's qualifying child for the current year is correct?
A) Anne is a qualifying child of Catherine.
B) Anne is not a qualifying child of Catherine because she fails the gross income test.
C) Anne is not a qualifying child of Catherine because she fails the residence test.
D) Anne is not a qualifying child of Catherine because she fails the support test.
Q2) The test for a qualifying child includes a gross income restriction while the test for qualifying relative does not.
A)True
B)False
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Chapter 5: Gross Income and Exclusions
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Sample Questions
Q1) The assignment of income doctrine requires that in order to shift income from the property producing the income to another person,the taxpayer must transfer only the income to the other person.
A)True
B)False
Q2) Desai and Lucy divorced this year.Lucy has custody of their child,Andrea,and under the divorce decree Desai pays Lucy $120,000 per year.The payments must be made in cash and will cease if Lucy dies or remarries.The payments drop to $100,000 per year once Andrea reaches the age of 18.How much of the payments should Lucy include in gross income this year?
Q3) Juan works as a landscaper for local businesses on weekends,and he often provides services in exchange for property.This year Juan provided lawn-mowing services in exchange for $1,275 of car repair services,$3,570 of groceries,and a certificate of deposit (C.D.)for $4,050.The C.D.matures next year with interest.Finally,Juan received a gift card that can only be applied for $850 of clothing at a local mall.Juan has only applied the gift card to purchase $100 of clothing.Compute Juan's gross income assuming that he uses the cash basis of accounting.
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Chapter 6: Individual Deductions
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Sample Questions
Q1) Which of the following is a true statement?
A) Traveling from a personal residence to a place of business is deducted for AGI as a moving expense.
B) Traveling from a personal residence to a place of business is a miscellaneous itemized deduction subject to the 2 percent of AGI limitation.
C) The standard mileage rate can be used to calculate the deduction for traveling from a personal residence to a place of business.
D) Traveling from a personal residence to a place of business is deductible if reimbursed by an employer.
E) Traveling from a personal residence to a place of business is nondeductible.
Q2) The deduction to individual taxpayers for charitable contributions paid in cash made to public charities is limited to ten percent of the taxpayer's AGI whereas casualty losses on personal assets are only deductible to the extent the losses exceed ten percent of the taxpayer's AGI.
A)True
B)False
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Chapter 7: Investments
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Sample Questions
Q1) The netting process for capital gains (losses)with 0/15/20 percent,25 percent,and 28 percent capital assets helps maximize the tax benefit of:
A) current year net loss in the 25 percent rate group.
B) net short-term capital losses.
C) long-term capital loss carryovers.
D) current year net loss in the 25 percent rate group and long-term capital loss carryovers.
E) net short-term capital losses and long-term capital loss carryovers.
Q2) John holds a taxable bond and a municipal bond.Which fees are considered part of John's investment expense?
A) attorney and accounting fees on municipal bond
B) safe deposit box rental fees on taxable bond
C) interest expense on taxable bond
D) attorney and accounting fees on municipal bond and safe deposit box rental fees on taxable bond
E) safe deposit box rental fees on taxable bond and interest expense on taxable bond
Q3) What are the rules limiting the amount of capital losses a taxpayer may deduct in a given year? Name at least three.
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9
Chapter 8: Individual Income Tax Computation and Tax Credits
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Sample Questions
Q1) The taxable income levels in the married filing jointly tax rate schedule are ________ those in the married filing separately schedule. A) the same as B) double C) half the amount of D) None of the choices are correct.
Q2) The child and dependent care credit entitles qualifying taxpayers to a credit equal to the full amount of qualified expenses.
A)True
B)False
Q3) In 2017,Shawn's AGI is $170,000.He earned the income evenly throughout the year.He owed $24,900 in federal income tax plus alternative minimum tax of $263,and self-employment taxes of $2,590.Last year,he had a gross tax liability of $50,000.What is the minimum quarterly estimated tax payment Shawn must pay each quarter to avoid underpayment penalties for 2017?
Q4) Atlas earned $17,300 from his sole proprietorship in 2017.This was his only source of income.How much in self-employment taxes will Atlas be able to deduct?
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Chapter 9: Business Income, Deductions, and Accounting Methods
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Sample Questions
Q1) Brad operates a storage business on the accrual method.On July 1 Brad paid $48,000 for rent on his storage warehouse and $18,000 for insurance on the contents of the warehouse.The rent and insurance covers the next 12 months.What is Brad's deduction for the rent and insurance?
A) $48,000 for the rent and $18,000 for the insurance.
B) $24,000 for the rent and $18,000 for the insurance.
C) $24,000 for the rent and $9,000 for the insurance.
D) $48,000 for the rent and $9,000 for the insurance.
E) None of the choices are true.
Q2) The IRS would most likely apply the arm's length transaction test to determine which of the following?
A) whether an expenditure is related to a business activity.
B) whether an expenditure will be likely to produce income.
C) timeliness of an expenditure.
D) reasonableness of an expenditure.
E) All of the choices are correct.
Q3) Sole proprietorships must use the same tax year as the proprietor of the business.
A)True
B)False
Page 11
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Chapter 10: Property Acquisition and Cost Recovery
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Sample Questions
Q1) Depletion is the method taxpayers use to recover their capital investment in natural resources.
A)True
B)False
Q2) Anne LLC purchased computer equipment (5-year property)on August 29 for $30,000 and used the half-year convention.Anne LLC did not take §179 or bonus depreciation in the year it acquired the computer equipment.During the current year,which is the fourth year Anne LLC owned the property,the property was disposed of on January 15.Calculate the maximum depreciation expense.(Use MACRS Table 1 in the text)
A) $432.
B) $1,728.
C) $1,874.
D) $3,456.
E) None of the choices are correct.
Q3) Real property is always depreciated using the straight-line method.
A)True
B)False
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Chapter 11: Property Dispositions
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Sample Questions
Q1) Which of the following is true regarding the §1231 look-back rule?
A) It only applies when a §1231 loss occurs.
B) It only applies when a §1231 gain occurs.
C) It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 loss in the prior five years.
D) It only applies when a §1231 gain occurs and there is a nonrecaptured §1231 gain in the prior five years.
E) None of the choices are correct.
Q2) Alpha sold machinery,which it used in its business,to Beta,a related entity,for $40,000.Beta used the machinery in its business.Alpha bought the machinery a few years ago for $50,000 and has claimed $30,000 of depreciation expense.What is the amount and character of Alpha's gain?
A) $20,000 ordinary income under §1239.
B) $10,000 ordinary gain and $10,000 §1231 gain.
C) $20,000 ordinary gain.
D) $20,000 capital gain.
E) None of the choices are correct.
Q3) Explain whether the sale of a machine used in a trade or business that is sold at a loss generates an ordinary or capital loss?
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Page 13
Chapter 12: Compensation
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Sample
Questions
Q1) Annika's employer provides each employee with up to $200 of monthly vouchers for public transportation.What is the amount that Annika must include into income with respect to her benefit in 2017?
Q2) Which of the following statements regarding compensation is false?
A) Wages are usually paid by the hour.
B) Salary is usually a form of fixed compensation.
C) Bonuses are a form of compensation obtained if certain criteria are met.
D) Bonuses paid within 2½ months of year-end are included in employee's compensation in the year they were earned.
Q3) Which of the following statements is true regarding the $1,000,000 limit on covered employees for publicly-traded companies?
A) The limitation applies to all employees.
B) The limitation applies to all officers.
C) The limitation applies only to the CEO and three other highest compensated officers.
D) The limitation applies only to the CEO and three other highest compensated officers, not including the CFO.
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Chapter 13: Retirement Savings and Deferred Compensation
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Sample Questions
Q1) Riley participates in his employer's 401(k)plan.He retired in 2017 at age 75.When must Riley receive his distribution pertaining to 2017 to avoid minimum distribution penalties?
A) April 1, 2017.
B) April 1, 2018.
C) December 31, 2017.
D) December 31, 2018.
Q2) Which of the following best describes distributions from a defined benefit plan?
A) Distributions from defined benefit plans are taxable as ordinary income.
B) Distributions from defined benefit plans are partially taxable as ordinary income and partially nontaxable as a return of capital.
C) Distributions from defined benefit plans are taxable as capital gains.
D) Distributions from defined benefit plans are partially taxable as capital gains and partially nontaxable as a return of capital.
Q3) What is the maximum saver's credit available to any taxpayer in 2017?
A) $2,000.
B) $1,000.
C) $500.
D) It depends on the filing status of the taxpayer.
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Chapter 14: Tax Consequences of Home Ownership
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Sample Questions
Q1) Larry owned and lived in a home for five years before marrying Darlene.Larry and Darlene lived in the home for one year before selling it at a $600,000 gain.Larry was the sole owner of the residence until it was sold.How much of the gain may Larry and Darlene exclude?
A) $0.
B) $250,000.
C) $500,000.
D) $600,000.
Q2) Amelia is looking to refinance her home loan of $200,000.She has the option of (1)paying no discount points on the loan and paying interest at 7 percent or (2)paying two discount points on the loan and paying interest of 6 percent on the loan.Both options require Amelia to make interest-only payments for the first five years of the loan and pay back the loan over the 25 years after that (it is a 30-year loan).Amelia itemizes deductions irrespective of any interest expense she may pay.Amelia's marginal ordinary income tax rate is 25 percent.What is Amelia's break-even point in years (for simplicity,ignore time value of money concerns)?
Q3) Expenses of a vacation home allocated to rental use are deductible for AGI.
A)True
B)False
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Page 16