Federal Tax Law Exam Bank
Course Introduction
This course provides an in-depth study of federal tax law in the United States, focusing on the Internal Revenue Code, Treasury regulations, and judicial interpretations. Students will explore the fundamental principles governing federal income taxation of individuals, corporations, and partnerships, including gross income determination, deductions, credits, tax computation, and compliance requirements. The course also examines procedural aspects such as tax return filing, IRS audits, and dispute resolution, as well as ethical considerations for tax practitioners. Through case studies and practical exercises, students gain the knowledge necessary to navigate and apply federal tax law in both personal and professional contexts.
Recommended Textbook
Prentice Halls Federal Taxation 2014 Individuals 27th Edition by Timothy J. Rupert
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18 Chapters
2027 Verified Questions
2027 Flashcards
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Chapter 1: An Introduction to Taxation
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Sample Questions
Q1) Charlotte pays $16,000 in tax deductible property taxes.Charlotte's marginal tax rate is 28%,effective tax rate is 22% and average rate is 25%.Charlotte's tax savings from paying the property tax is
A)$3,520.
B)$4,000.
C)$4,480.
D)$11,520.
Answer: C
Q2) Mia is self-employed as a consultant.During 2013,Mia earned $180,000 in self-employment income.What is Mia's self-employment tax?
Answer: 11ea8235_58ff_fbac_bbd8_e3e6a22bec1e_TB5379_00
Q3) Which of the following is not a taxpaying entity?
A)Corporation
B)Partnership
C)Individual
D)All of the above are taxpayers.
Answer: B
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3
Chapter 2: Determination of Tax
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Q1) Michelle,age 20,is a full-time college student with earned income from wages of $5,200 and interest income of $700.Michelle's parents provide more than half of Michelle's support.Michelle's taxable income is A)$0.
B)$1,000.
C)$350.
D)$5,350.
Answer: C
Q2) Rob is a taxpayer in the top tax bracket,with over a million in taxable income.He plans to sell stock held long-term for a $100,000 gain.This sale will result in an increase to his tax liability of A)$15,000.
B)$20,000.
C)$39,600.
D)$23,800.
Answer: D
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Chapter 3: Gross Income: Inclusions
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Sample Questions
Q1) Mike won $700 in a football pool.This amount is not taxable.
A)True
B)False
Answer: False
Q2) Improvements to leased property made by a lessee are includable in the lessor's gross income only if made in lieu of rent or if rent is reduced because of the improvements.
A)True
B)False
Answer: True
Q3) Which of the following bonds do not generate tax-exempt Federal income?
A)U)S.Treasury bonds
B)bonds issued by fire districts
C)school district bonds
D)bonds issued by cities
Answer: A
Q4) Gross income is limited to amounts received in the form of cash.
A)True
B)False
Answer: False
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Chapter 4: Gross Income: Exclusions
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Q1) The value of health,accident,and disability insurance premiums paid by an employer are generally not included in an employee's gross income.
A)True
B)False
Q2) Loan proceeds are taxable in the year received in cash.
A)True
B)False
Q3) Mae Li is beneficiary of a $70,000 insurance policy on her father's life.Upon his death,she elects to receive the proceeds in installments from the insurance company that carries the policy.She will receive $16,000 per year for five years.What are the tax consequences each year?
A)All $16,000 each year is taxable.
B)$10,000 interest is taxable in the first year.
C)There is no taxable income.
D)$2,000 of the $16,000 payment is taxable each year.
Q4) A taxpayer may avoid tax on income by having the payment made to another taxpayer.
A)True
B)False
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Chapter 5: Property Transactions: Capital Gains and Losses
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Q1) Which one of the following does not affect the adjusted basis of a house held as rental property?
A)depreciation deduction
B)adding a new room to the house
C)painting of more than 50% of the rooms in the home
D)installation of a completely new heating system
Q2) A taxpayer purchased an asset for $50,000 several years ago.He is now planning to sell it.Under the recovery of basis doctrine the taxpayer will not recognize any gain or pay any related taxes unless he sells the asset for more than $50,000.
A)True
B)False
Q3) Expenditures which do not add to the value or prolong the life of property may be expensed in the year in which they are incurred. A)True
B)False
Q4) What type of property should be transferred to heirs at a decedent's death and why? Should estate planning also mean that some property is transferred prior to death? Why?
Q5) What are arguments for and against preferential treatment of capital gains?
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Chapter 6: Deductions and Losses
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Sample Questions
Q1) During the current year,Martin purchases undeveloped land as an investment.Martin intends to rent the land as pastureland and hopefully sell it later for a profit.In the current year,Martin receives no rent but he does pay taxes of $2,800,mortgage interest of $900 and liability insurance of $500.How much of these expenses can Martin deduct (before any limitations)on his current tax return?
A)$0
B)$1,400
C)$3,700
D)$4,200
Q2) An accrual-basis taxpayer may elect to accrue real property taxes ratably over the period to which the taxes relate.
A)True
B)False
Q3) Self-employed individuals may claim,as a deduction for adjusted gross income,50 percent of their
A)traditional IRA contributions.
B)disability insurance premiums.
C)health insurance premiums.
D)self-employment tax.
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Page 8
Chapter 7: Itemized Deductions
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Q1) What is the result if a taxpayer makes a contribution to a college or university and in return receives the right to purchase tickets to athletic events?
Q2) Explain under what circumstances meals and lodging en route to a medical facility may be deductible.
Q3) Wayne and Maria purchase a home on April 1 of the current year.In order to obtain a thirty-year mortgage,they are required to pay $7,200 in points at closing.Charging points is a customary business practice in the area.In addition,they pay $4,400 of interest during the year.What is their current year deduction related to their home?
A)$4,400
B)$4,580
C)$7,200
D)$11,600
Q4) Investment interest includes interest expense incurred to purchase tax-exempt securities.
A)True
B)False
Q5) May an individual deduct a charitable contribution for services rendered to a charitable organization?
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Chapter 8: Losses and Bad Debts
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Sample Questions
Q1) Brandon,a single taxpayer,had a loss of $48,000 from a rental real estate activity in which he actively participated.He also had $27,000 of income from another rental real estate activity in which he actively participated.He acquired both investments in 2013.If Brandon has no other passive income or losses and has adjusted gross income of $84,000 before considering passive activities,how much loss from rental activities can he use to offset his nonpassive income?
A)$21,000
B)$24,000
C)$25,000
D)$45,000
Q2) Partnerships and S corporations must identify their business and rental activities by applying the passive activity rules at the partnership or S corporation level and then must report the results of their operations by activity to the partners or shareholders.
A)True
B)False
Q3) What must an individual taxpayer prove to receive a worthless security deduction?
Q4) What are some factors which indicate that a debt may be worthless?
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Chapter 9: Employee Expenses and Deferred Compensation
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Q1) Ross works for Houston Corporation,which has a contributory defined contribution pension plan.The employer's monthly contribution to the plan is 8 percent of each participating employee's monthly salary,while the employee contributes only 6 percent.Ross's monthly salary is $3,000.Which of the following statements best describes the benefits of the plan?
A)Houston receives a deduction for its contributions to the plan when Ross receives a distribution from the plan.
B)While Ross is taxed on the employer's contributions to the plan,his own contributions are not taxed until he receives a distribution from the plan.
C)Ross may deduct his own contributions to the pension plan,and Ross reports income from the plan each year until he receives distributions from the plan.
D)The earnings on amounts contributed to the plan are not taxed to Ross until he retires or receives a distribution from the plan.
Q2) If the standard mileage rate is used in the first year,the actual expense method may not be used in future years.
A)True
B)False
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Page 11
Chapter 10: Depreciation, cost Recovery, amortization, and Depletion
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Sample Questions
Q1) A taxpayer owns an economic interest in an oil and gas property.She is allowed to deduct the smaller of cost depletion or percentage depletion.
A)True
B)False
Q2) If a new luxury automobile is used 100% for business and placed in service in 2013,the maximum MACRS depreciation on the vehicle for 2013 is $11,160.
A)True
B)False
Q3) Personal property used in a rental activity held for investment qualifies for the Section 179 expensing election.
A)True
B)False
Q4) Bert,a self-employed attorney,is considering either purchasing or leasing a $50,000 automobile for use in his business.What are the issues he should consider in making his decision?
Q5) Intangible assets are subject to MACRS depreciation.
A)True
B)False
12
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Chapter 11: Accounting Periods and Methods
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Sample Questions
Q1) Partnerships,S corporations,and personal service corporations may elect a taxable year which results in a tax deferral of four months or less.
A)True
B)False
Q2) Under the cash method of accounting,payment by credit card entitles the taxpayer to deduct the expenditure at the time the charge is made.
A)True B)False
Q3) Which of the following conditions are required for the use of the installment method?
A)The taxpayer must realize a gain on the sale of the property.
B)The taxpayer cannot be on the cash method.
C)The value of the obligations received is determinable at the date of sale.
D)All of the above are required.
Q4) Jared wants his daughter,Jacqueline,to learn about the stock market.He loans Jacqueline $30,000,but does not require Jacqueline to pay interest.Jared tells Jacqueline that she can repay him from the proceeds of future stock sales.Discuss the tax issues that Jared should consider.
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Chapter 12: Property Transactions: Nontaxable Exchanges
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Q1) In a like-kind exchange,both the property transferred and the property received must be held either for productive use in a trade or business or for investment.
A)True
B)False
Q2) Jenna,who is single,sold her principal residence on December 1,2012,and excluded the $150,000 gain because she met the ownership and usage requirements under Sec.121.Jenna purchased another residence in Pensacola on January 1,2013 that she occupied until July 1,2013 when she receives a new job offer from an employer in Miami.She sells the Pensacola residence on October 1,2013 and realizes a gain of $40,000.Jenna may exclude what amount of the gain from the sale on October 1,2013?
A)$-0-
B)$10,000
C)$20,000
D)$40,000
Q3) In order for the gain on the sale of a personal residence to be excluded under Section 121,a replacement residence must be purchased within two years.
A)True
B)False
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Chapter 13: Property Transactions: Section 1231 and Recapture
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Sample Questions
Q1) Marta purchased residential rental property for $600,000 on January 1,1985.Total ACRS deductions for 1985 through the date of sale amounted to $600,000.If the straight-line method of depreciation had been used,depreciation would have been $600,000.The property is sold for $750,000 on January 1 of the current year.The amount and character of the gain is
A)$750,000 Sec.1231 gain.
B)$150,000 Sec.1231 gain and $600,000 ordinary income.
C)$750,000 ordinary gain due to Sec 1245.
D)$750,000 ordinary gain due to Sec.1250.
Q2) Sec.1231 property must satisfy a holding period of more than one year.
A)True
B)False
Q3) Installment sales of depreciable property which result in recaptured income under Secs.1245 or 1250 require that the recaptured income be recognized in the year of sale.
A)True
B)False
Q4) What is the purpose of Sec.1245 and what is its significance?
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Chapter 14: Special Tax Computation Methods, tax Credits, and Payment of Tax
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Q1) The child and dependent care credit provides relief for working taxpayers who pay for care for younger children or an incapacitated dependent or spouse.
A)True
B)False
Q2) In computing the alternative minimum taxable income,no deduction is allowed for A)alimony.
B)moving expenses.
C)personal exemptions.
D)individual retirement account contributions.
Q3) Marvin and Pamela are married,file a joint return,and have two children,ages 9 and 11.Their combined AGI is $65,000.Marvin's earned income is $40,000; Pamela's is $25,000.They incur $6,500 of child-care expenses to enable them to be employed during the current year.Their child and dependent care credit is
A)$1,200.
B)$1,300.
C)$1,800.
D)$6,000.
Q4) Describe the differences between the American Opportunity Tax credit and the Lifetime Learning credit.
Page 16
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Chapter 15: Tax Research
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Q1) The phrase "Entered under Rule 155" indicates that
A)the computation of the exact amount of the tax deficiency has been left to the litigating parties.
B)the court has not reached a decision concerning the appropriate tax treatment of an issue.
C)the parties have agreed not to appeal the decision.
D)only one Tax Court judge reviewed the case.
Q2) Why should tax researchers take note of the date on which a Treasury Regulation was adopted?
Q3) Which of the following citations denotes a regular decision of the Tax Court?
A)41 TCM 1272
B)35 T.C.1083 (2003)
C)39 AFTR 2d 77-640
D)all of the above
Q4) Discuss the conflict between advocacy for a client and responsibility to the IRS.
Q5) Tax planning is not an integral part of open-fact situations.
A)True
B)False
Q6) What is the purpose of Treasury Regulations?
Page 17
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Chapter 16: Corporations
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Q1) If a corporation has no E&P,a distribution is ordinary income to the extent of the shareholder's basis with any excess treated as capital gain.
A)True
B)False
Q2) Whaler Corporation makes a liquidating distribution of land with a $70,000 adjusted basis and a $100,000 FMV to shareholder Horton,who surrenders his Whaler stock (adjusted basis $60,000)to the corporation.Alice,another shareholder,receives $100,000 cash for her shares ($115,000 adjusted basis).What are the tax consequences to both Horton and Alice and what is Horton's basis in the land?
Q3) Ohio Corporation's taxable income for the current year is $300,000.Its tax liability is
A)$ 78,000.
B)$100,250.
C)$102,000.
D)$117,000.
Q4) A corporation's E&P is equal to its taxable income for the year.
A)True
B)False
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Chapter 17: Partnerships and S Corporations
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Q1) On July 1,Joseph,a 10% owner,sells his interest in ABC Partnership to Andy,an outsider,for $165,000 cash and the release from $20,000 of partnership liabilities.Joseph's partnership interest at the beginning of the year was $120,000.The partnership earned income through June 30 of $100,000.Joseph's share of partnership liabilities increased by $5,000 from January 1 to June 30.What are the tax consequences to Joseph on the sale of his partnership interest (assume the partnership does not hold any inventory or unrealized receivables)?
A)$45,000 capital gain
B)$50,000 capital gain
C)$55,000 capital gain
D)$65,000 capital gain
Q2) An S corporation may not have more than 75 shareholders.
A)True
B)False
Q3) Ordinary income may result if a partnership has unrealized receivables or inventory items when a partnership interest is sold.
A)True
B)False
Q4) What are special allocations of partnership items and when are they permitted?
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Chapter 18: Taxes and Investment Planning
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Q1) The Deferred Model investment outperforms the Current Model investment if interest rates and tax rates are constant over time because the interest on the Deferred Model investment grows tax free until withdrawal.
A)True
B)False
Q2) Sophia's employer is considering paying her either $20,000 of current salary or $40,000 of deferred compensation in 12 years.Her employer's current tax rate is 34%,but the employer expects its tax rate to be 25% 12 years from now.The employer's ATROR is 11%.If the employer waits and pays the deferred compensation,its after-tax deferred compensation expense projected to Year 12 is A)$20,000.
B)$26,400.
C)$30,000.
D)$40,000.
Q3) In the Pension Model,the initial investment is deductible or excludable from gross income,and investment earnings are taxed currently.
A)True
B)False
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