Federal Taxation
Chapter Exam Questions
Course Introduction
Federal Taxation provides an in-depth examination of the principles, regulations, and applications of the United States federal tax system as it pertains to individuals and businesses. The course covers topics such as income recognition, deductions, tax credits, filing statuses, gross income inclusions and exclusions, and the computation of tax liabilities. Students will analyze tax laws and regulations, explore tax planning strategies, and study current issues in federal taxation to develop a comprehensive understanding of tax compliance and the implications of tax policy decisions. This course prepares students to navigate the complexities of the IRS tax code and utilize tax concepts in both personal and professional contexts.
Recommended Textbook
Income Tax Fundamentals 2019 37th Edition by Gerald E. Whittenburg
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12 Chapters
1187 Verified Questions
1187 Flashcards
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Page 2
Chapter 1: The Individual Income Tax Return
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Sample Questions
Q1) Which of the following is a true statement with respect to the gross income test for the qualifying relative dependency exemption?
A)The relative must receive less than $4,150 of gross income in order to qualify.
B)The gross income test does not have to be met provided the relative is under age 19 at the end of the tax year.
C)The gross income test does not have to be met provided the relative is under age 24 at the end of the tax year.
D)The gross income test does not have to be met provided the relative is a student.
E)All of the above.
Answer: A
Q2) Karl's father, Vronsky, is a 60-year-old Russian citizen who lived in Russia for the full year.Karl supported Vronsky while he looked for work.Vronsky had no income.Can Karl claim Vronsky as a dependent?
Answer: No.Vronsky cannot be claimed as a dependent because he is not a US citizen, or resident of United States, Mexico, or Canada.
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Chapter 2: Gross Income and Exclusions
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Sample Questions
Q1) The receipt of an inheritance is excluded from the taxable income of the recipients.
A)True
B)False
Answer: True
Q2) Van is sick and tired of his job.His doctor certifies that his health may be compromised if he continues to work at his current job.He sells his life insurance policy to Life Settlements, Inc.for $50,000 so he can take a break from work.He has paid $10,000 so far for the policy.How much of the $50,000 must Van include in his taxable income?
Answer: He must pay tax on the $40,000 gain on the sale of the policy.Van has not met the requirement for an accelerated death benefit or a viatical settlement.
Q3) Inheritances
Answer: b
Q4) Elmore receives a rental property as an inheritance from his grandmother.The rental property is worth $500,000 and Elmore collected rental income of $24,000 during the year.For the year, how much is Elmore's gross income as a result of the inheritance? Answer: $24,000, the amount of the rental income.
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Page 4
Chapter 3: Additional Income Part 1
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Sample Questions
Q1) Which of the following taxpayers may not use the standard mileage method of calculating transportation costs?
A)A self-employed CPA who drives a computer-equipped minivan to visit clients.
B)A taxpayer who has a fleet of 10 business automobiles.
C)A real estate salesperson who drives a $70,000 Mercedes while showing houses.
D)An attorney who uses his Tesla for calling on clients.
E)All of the above taxpayers may use the standard mileage method.
Answer: B
Q2) If a home office is used for both business and personal purposes, the home office expenses, such as rent or depreciation, should be allocated between the business and personal use and then deducted.
A)True
B)False
Answer: False
Q3) The cost of transportation from New York to London for a trip that is for both business and pleasure may be deducted in full as a travel expense.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Additional Income Part 2
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Sample Questions
Q1) In the current year, 70-year-old Jeanette sells her personal residence of the last 40 years for $365,000.Jeanette's basis in her residence is $70,000.The expenses associated with the sale of her home total $20,000.Jeanette decides to move in with her daughter rather than purchase a new residence.Calculate Jeanette's realized gain and recognized gain on the sale of her residence.
a.Realized gain
b.Recognized gain
Q2) Jerry bought his home 15 years ago for $60,000.Three years ago, Jerry married Debbie and she moved into the same house and has lived there since.If they sell Jerry's house in the current year for $340,000, what is their taxable gain on a joint tax return?
A)$0
B)$280,000
C)$155,000
D)$30,000
Q3) Russell purchased a house 1 year ago for $150,000 and, due to an employment-related move, sold the house this year for $190,000.What is Russell's taxable gain?
Q4) What are capital assets?
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Page 6
Chapter 5: Deductions and Adjustments to Income
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Sample Questions
Q1) Brittany determined that she paid $450 in gasoline excise taxes during the year when she bought gas for her commute to and from work.Brittany's gas excise taxes are deductible as an itemized deduction.
A)True
B)False
Q2) Christine saw a television advertisement asking for donations of used vehicles to a charitable foundation and decided to donate her old car.Which of the following statements is correct?
A)She can take a tax deduction large enough on an after-tax basis to equal the amount she would have received if she sold the car directly.
B)She can take a deduction greater than the amount for which the charity actually sells the vehicle.
C)She can claim an estimated value for the auto if the charity uses it rather than selling it.
D)The charity is not required to provide her with any information about what they do with the auto.
Q3) Don donates his old car to a qualified charity.The charity then sells the car at an auction.Describe the tax treatment of the donation.
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Chapter 6: Accounting Methods and Taxes
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Sample Questions
Q1) The Affordable Care Act (ACA)added a Medicare tax of 3.8 percent on net investment income
A)True
B)False
Q2) Tom, age 13, is claimed as a dependent by his parents.Tom has unearned income of $3,400 and $300 of income from mowing lawns in the neighborhood.If the first $2,550 of Tom's net unearned income is taxed at 10%, what is Tom's 2018 income tax liability?
A)$0
B)$265
C)$459
D)$370
E)None of the above
Q3) A parent may elect to include a child's income in the parent's return if:
A)No estimated tax has been paid in the name of the child and the child is not subject to backup withholding.
B)The child's income is only from interest and dividend distributions.
C)The child's gross income is more than $1,050 and less than $10,500.
D)All of the above must be met for a parent to elect to include a child's income in the parent's return.
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Page 8
Chapter 7: Tax Credits
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Sample Questions
Q1) Martin and Rachel are married and have a 3-year-old child.Martin is going to medical school full-time for 12 months of the year and Rachel earns $45,000.Their child is in day care so Martin can go to school while Rachel is at work.The cost of their day care is $10,000.What is their child and dependent care credit? Please show your calculations and explain.
Q2) A tax credit is allowed for qualified adoption expenses paid by taxpayers:
A)And an additional credit is allowed for qualified adoption expenses paid for by taxpayers' employers.
B)And an income exclusion is allowed for qualified adoption expenses paid for by taxpayers' employers.
C)And is available each year qualifying expenses are incurred.
D)And is not subject to a phase-out based on adjusted gross income.
Q3) Fletch and Cammie Gates are married with three dependent children and household income of $51,804 in 2018.The Gates purchased health care insurance on their state's exchange for total premiums of $6,800.A designated silver plan for their family in their state costs $9,700.Calculate the Gates' premium tax credit.
Q4) All taxpayers are required to have minimum essential health coverage.
A)True
B)False
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Chapter 8: Depreciation and Sale of Business Property
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Sample Questions
Q1) On August 1, 2018, David purchased manufacturing equipment for use in his business.The equipment cost $14,000 and has an estimated useful life and MACRS class life of 7 years.
a.Calculate the amount of depreciation on the manufacturing equipment for 2018 using the accelerated MACRS method and no election to expense or use bonus depreciation is made.
b.Calculate the amount of depreciation on the manufacturing equipment for 2018 using the accelerated MACRS method and bonus depreciation used but no election to expense.
c.Calculate the amount of depreciation on the manufacturing equipment for 2018 using the straight-line MACRS optional method and no election to expense or use bonus depreciation is made.
d.Calculate the amount of depreciation on the manufacturing equipment for 2018 for financial accounting purposes using the straight-line method of depreciation.
Q2) If land declines in value, it may be depreciated for tax purposes.
A)True
B)False
Q3) To be depreciated, must an asset actually lose value each year?
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Chapter 9: Payroll, Estimated Payments, and Retirement Plans
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Sample Questions
Q1) Which of the following statements is true of a distribution rollover (not a trustee-to-trustee transfer)from a retirement plan?
A)The taxpayer must instruct the trustee of the retirement plan to transfer assets to the trustee of another plan.
B)No withholding is required.
C)In one year, there is no limit to the number of times a taxpayer can request a distribution rollover from one IRA to another IRA.
D)Assuming there are no unusual events, the taxpayer has a maximum of 60 days in which to transfer funds to a new plan to avoid current taxes and penalties.
E)All of the above are true.
Q2) For each of the following payments, indicate the form (Form W-2, W-4, W-2G, 1099-B, 1099-DIV, 1099-INT, 1099-MISC, or 1099-R)that should be used to report the payment.
a.Dividends from a mutual fund
b.Las Vegas gambling winnings
c.Interest paid by a bank
d.Payment of salary and commissions to an employee
e.Distribution from an IRA account
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Page 11
Chapter 10: Partnership Taxation
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Sample Questions
Q1) For the following separate, independent situations indicate with a "Yes" if a partnership return needs to be filed.Mark with a "No" if a partnership return is not required.
a.Tony and Gina form a joint venture to import goods from South Korea.
b.Nancy decided to start her own private investigative business.
c.Uncle Pennybag's estate assets are pooled together until they can be distributedto the beneficiaries.
d.Howie, Dewey, and Cheatem form an LLC.
e.Flora, Fauna, and Merryweather start a child care business.No official documentsare drawn up.
Q2) Please answer the following questions:
a.What form is used to report income and expenses from a partnership?
b.If a partner's basis at the beginning of the year is $1,000 and the partnership allocates $7,000 of loss to the partner: how much of the loss is deductible in the current year; what is his new basis in the partnership; and what happens to any excess loss not deducted?
c.What is the exemption amount for a partnership?
Q3) List three benefits of an LLC.
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Page 12
Chapter 11: The Corporate Income Tax
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Sample Questions
Q1) The corporate tax rates favor large corporations.
A)True
B)False
Q2) In 2018, corporations pay a flat 21 percent federal income tax.
A)True
B)False
Q3) Which of the following companies is taxed at a flat rate of 21 percent?
A)An auto parts manufacturing corporation with taxable income of $73,000.
B)A single-owner corporation involved in the retail sale of apparel.
C)A family-owned shoe store with earnings of $224,000 in 2018.
D)All of the above are taxed at a flat rate of 21 percent.
Q4) Corporations are not allowed to amortize the costs of organizing the corporation. A)True
B)False
Q5) The accumulated earnings tax will not be imposed on accumulations that can be shown to be necessary to meet the reasonable needs of the business.
A)True
B)False
Q6) What is the purpose of Schedule M-1?
Page 13
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Chapter 12: Tax Administration and Tax Planning
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Sample Questions
Q1) At which of the following IRS locations are tax returns processed?
A)Regional offices
B)IRS Campus Processing Sites
C)Local offices
D)National office
E)None of the above
Q2) The statute of limitations for the deduction of a worthless security is 5 years.
A)True
B)False
Q3) Which of the following statements best describes the purpose of the Taxpayer Bill of Rights?
A)To provide the IRS with additional enforcement powers
B)To grant to taxpayers the right to choose the time and method of payment of delinquent taxes
C)To inform taxpayers of their rights in dealing with the IRS
D)To inform taxpayers of the methods for properly completing their income tax returns
E)None of the above
Q4) What is the difference between tax avoidance and tax evasion?
Q5) List three different ways that a tax return may be selected for an audit.
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