Federal Taxation Exam Solutions
Course Introduction
Federal Taxation introduces students to the principles, laws, and procedures underpinning the federal tax system of the United States. This course covers the fundamentals of gross income, deductions, credits, and the computation of tax liability for individuals and businesses. It examines current tax legislation, compliance requirements, filing obligations, and the ethical considerations involved in tax practice. Through real-world examples and analysis of recent tax reforms, students develop practical skills in tax preparation, planning, and research to apply in professional accounting, finance, and business contexts.
Recommended Textbook
South Western Federal Taxation 2017 Individual Income Taxes 40th Edition by William
Available Study Resources on Quizplus
20 Chapters
2513 Verified Questions
2513 Flashcards
Source URL: https://quizplus.com/study-set/3342
Page 2
H. Hoffman
Chapter 1: An Introduction to Taxation and Understanding
the Federal Law
Available Study Resources on Quizplus for this Chatper
194 Verified Questions
194 Flashcards
Source URL: https://quizplus.com/quiz/66405
Sample Questions
Q1) Two months after the burglary of his personal residence,Eric is audited by the IRS.Among the items taken in the burglary was a shoe box containing approximately $50,000 in cash.Eric is the owner and operator of a cash-and-carry liquor store.Eric wonders why he was audited.Can you help explain?
Answer: Although Eric's audit by the IRS could be the result of sheer chance,this appears unlikely.Press coverage of the burglary,particularly if the items stolen were enumerated,could have put the IRS on notice.Why would anyone keep such a large amount of cash at his personal residence? Also,Eric is in a business where tax evasion is easily accomplished.
Q2) A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no such taxes.
A)True
B)False
Answer: False
Q3) A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.
A)True
B)False
Answer: True
Page 3
To view all questions and flashcards with answers, click on the resource link above.
Chapter 2: Working With the Tax Law
Available Study Resources on Quizplus for this Chatper
86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/66406
Sample Questions
Q1) If a taxpayer decides not to pay a tax deficiency,he or she must go to which court?
A)Appropriate U.S.Circuit Court of Appeals
B)U.S.District Court
C)U.S.Tax Court
D)U.S.Court of Federal Claims
E)None of these
Answer: C
Q2) What statement is not true with respect to Temporary Regulations?
A)May not be cited as precedent.
B)Issued as Proposed Regulations.
C)Automatically expire within three years after the date of issuance.
D)Found in the Federal Register.
E)All of these statements are true.
Answer: A
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Tax Formula and Tax Determination an
Overview of Property Transactions
Available Study Resources on Quizplus for this Chatper
187 Verified Questions
187 Flashcards
Source URL: https://quizplus.com/quiz/66407
Sample Questions
Q1) Once they reach age 65,many taxpayers will switch from itemizing their deductions from AGI and start claiming the standard deduction.
A)True
B)False
Answer: True
Q2) Meg,age 23,is a full-time law student and is claimed by her parents as a dependent.During 2016,she received $1,400 interest income from a bank savings account and $6,100 from a part-time job.What is Meg's taxable income for 2016?
Answer: $1,200.Meg's standard deduction is the greater of $6,100 (earned income)+ $350 or $1,050.But the $6,450 is limited to $6,300 (the standard deduction allowed a single person).Thus,$1,400 + $6,100 - $6,300 = $1,200 taxable income.
Q3) Long-term capital gains
Answer: i
Q4) A child who is married cannot be subject to the kiddie tax.
A)True
B)False
Answer: False
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Gross Income Concepts and Inclusions
Available Study Resources on Quizplus for this Chatper
122 Verified Questions
122 Flashcards
Source URL: https://quizplus.com/quiz/66408
Sample Questions
Q1) Jessica is a cash basis taxpayer.When Jessica failed to repay a loan,the bank garnished her salary.Each week $60 was withheld from Jessica's salary and paid to the bank.Jessica is required to include the $60 each week in her gross income even though it is the creditor that benefits from the income.
A)True
B)False
Q2) Detroit Corporation sued Chicago Corporation for intentional damage to Detroit's goodwill.Detroit had created its goodwill through providing high-quality services to its customers.Thus,no basis for the goodwill appeared on Detroit's balance sheet.The suit was settled and Detroit received $1,500,000 for the damages to its goodwill.
A)The $1,500,000 is not taxable because it represents a recovery of capital.
B)The $1,500,000 is taxable because Detroit has no basis in the goodwill.
C)The $1,500,000 is not taxable because Detroit did nothing to earn the money.
D)The $1,500,000 is not taxable because Detroit settled the case.
E)None of these.
Q3) How does the taxation of Social Security benefits differ from the taxation of an annuity purchased by the taxpayer?
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Gross Income Exclusions
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/66409
Sample Questions
Q1) The Perfection Tax Service gives employees $12.50 as "supper money" when they are required to work overtime,approximately 25 days each year.The supper money received:
A)Must be included in the employee's gross income.
B)Must be included in the employee's gross income if the employee does not spend it for supper.
C)May be excluded from the employee's gross income as a "no-additional cost" fringe benefit.
D)May be excluded from the employee's gross income as a de minimis fringe benefit.
E)None of these.
Q2) What are the tax problems associated with payments received by a wife from her deceased husband's employer? (Assume the wife renders no services to the employer. )
Q3) Employees of a CPA firm located in Maryland may exclude from gross income the meals and lodging provided by the employer while they were on an audit in Delaware. A)True B)False
Q4) What Federal income tax benefits are provided for college students?
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: Deductions and Losses in General
Available Study Resources on Quizplus for this Chatper
145 Verified Questions
145 Flashcards
Source URL: https://quizplus.com/quiz/66410
Sample Questions
Q1) Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.
A)True
B)False
Q2) Walter sells land with an adjusted basis of $175,000 and a fair market value of $160,000 to his mother,Shirley,for $160,000.Walter reinvests the proceeds in the stock market.Shirley holds the land for one year and a day and sells it in the marketplace for $169,000.
a.Determine the tax consequences to Walter.
b.Determine the tax consequences to Shirley.
Q3) The Code does not specifically define what constitutes a trade or business. A)True
B)False
Q4) A baseball team that pays a star player an annual salary of $25 million can deduct the entire $25 million as salary expense.If the same amount is paid to the CEO of IBM,only $1 million is deductible.
A)True
B)False
Q5) Under what circumstance can a bribe be deducted?
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Deductions and Losses Certain Business
Expenses and Losses
Available Study Resources on Quizplus for this Chatper
123 Verified Questions
123 Flashcards
Source URL: https://quizplus.com/quiz/66411
Sample Questions
Q1) Several years ago,John purchased 2,000 shares of Red Corporation § 1244 stock from Mark for $40,000.Last year,John sold one-half of his Red Corporation stock to Mike for $12,000.During the current year,John sold the remaining Red Corporation stock for $3,000.John has a $17,000 ($3,000 - $20,000)ordinary loss for the current year.
A)True
B)False
Q2) If an account receivable written off during a prior year is subsequently collected during the current year,the amount collected must be included in the gross income of the current year to the extent it created a tax benefit in the prior year.
A)True
B)False
Q3) The limit for the domestic production activities deduction (DPAD)uses all W-2 wages paid to employees by the taxpayer during the tax year.
A)True
B)False
Q4) A reimbursed employee business expense cannot create an NOL for an individual.
A)True
B)False
Page 9
To view all questions and flashcards with answers, click on the resource link above.
Chapter 8: Depreciation Cost Recovery Amortization and Depletion
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/66412
Sample Questions
Q1) Alice purchased office furniture on September 20,2015,for $100,000.On October 10,2015,she purchased business computers for $80,000.Alice placed all of the assets in service on January 15,2016.Alice did not elect to expense any of the assets under § 179,did not elect straight-line cost recovery,and did not take additional first-year depreciation (if available).Determine the cost recovery deduction for the business assets for 2016.
222222222222
A)$6,426
B)$14,710
C)$25,722
D)$30,290
E)None of the above
Q2) Motel buildings have a cost recovery period of 27.5 years.
A)True
B)False
Q3) The "luxury auto" cost recovery limits change if mid-quarter cost recovery is used.
A)True
B)False
Q4) Discuss the reason for the inclusion amount with respect to leased automobiles.
Page 10
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: Deductions Employee and Self Employed
Related Expenses
Available Study Resources on Quizplus for this Chatper
177 Verified Questions
177 Flashcards
Source URL: https://quizplus.com/quiz/66413
Sample Questions
Q1) One of the tax advantages of being self-employed (rather than being an employee)is:
A)The self-employment tax is lower than the Social Security tax.
B)The cutback adjustment does not apply.
C)The actual cost method for deducting the business use of an automobile can be selected.
D)Job-related expenses are deductions for AGI.
E)A deduction for an office in the home is available.
Q2) The IRS will issue advanced rulings as to whether a worker's status is that of an employee or an independent contractor.
A)True
B)False
Q3) Job hunting expenses
Q4) In the case of an office in the home deduction,the exclusive business use test does not apply when the home is used as a daycare center.
A)True
B)False
Q5) Mixed use (both business and pleasure)foreign travel
Q6) Deduction by an employee of unreimbursed office-in-the-home expenses
To view all questions and flashcards with answers, click on the resource link above. Page 11
Chapter 10: Deduction and Losses Certain Itemized
Deductions
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/66414
Sample Questions
Q1) Diane contributed a parcel of land to the United Way.In addition,she contributed bibles and song books from her proprietorship's book store inventory to First Church,a qualified charitable organization.Should Diane's charitable contribution deduction for these contributions be determined by the basis or fair market value of the contributed items?
Q2) Maria traveled to Rochester,Minnesota,with her son,who had surgery at the Mayo Clinic.Her son stayed at the clinic for the duration of his treatment.She paid airfare of $300 and $50 per night for lodging.The cost of Maria's airfare and lodging cannot be included in determining her medical expense deduction.
A)True
B)False
Q3) The election to itemize is appropriate when total itemized deductions are less than the standard deduction based on the taxpayer's filing status.
A)True
B)False
Q4) Linda is planning to buy Vicki's home.They want to keep the transaction simple,so the sales agreement will not apportion the property taxes that Vicki has already paid on the home.Comment on the tax implications for Linda and Vicki.
Page 12
To view all questions and flashcards with answers, click on the resource link above.
Chapter 11: Investor Losses
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/66415
Sample Questions
Q1) Individuals can deduct from active or portfolio income losses of up to $25,000 from real estate rental activities in which they actively participate.
A)True
B)False
Q2) In 2016,Arnold invests $80,000 for a 20% interest in a partnership in which he is a material participant.The partnership incurs a loss with $100,000 being Arnold's share.Which of the following statements is incorrect?
A)Since Arnold has only $80,000 of capital at risk,he cannot deduct any more than this amount against his other income.
B)Arnold's nondeductible loss of $20,000 can be carried over and used in future years (subject to the at-risk provisions).
C)If Arnold has taxable income of $40,000 from the partnership in 2017 and there are no other transactions that affect his at-risk amount,he can use all of the $20,000 loss carried over from 2016.
D)Arnold's $100,000 loss is nondeductible in 2016 and 2017 under the passive activity loss provisions.
E)All of the statements are correct.
To view all questions and flashcards with answers, click on the resource link above.
Page 13
Chapter 12: Alternative Minimum Tax
Available Study Resources on Quizplus for this Chatper
120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/66416
Sample Questions
Q1) What effect do deductible gambling losses for regular income tax purposes have in calculating AMTI?
Q2) The AMT exemption for a C corporation is $50,000 reduced by 25% of the amount by which AMTI exceeds $150,000.
A)True
B)False
Q3) If the AMT base is greater than $186,300,the AMT rate for an individual taxpayer is the same as the AMT rate for a C corporation.
A)True
B)False
Q4) Elmer exercises an incentive stock option (ISO)in 2016 for $6,000 (fair market value of the stock on the exercise date is $7,600).If Elmer sells the stock later in 2016 for $8,000,the AMT positive adjustment is $1,600 and the AMT negative adjustment is $2,000.
A)True
B)False
Q5) How can an AMT adjustment be avoided by a taxpayer who incurs circulation expenditures in the current tax year?
Q6) What is the relationship between the regular income tax liability and the TMT?
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Tax Credits and Payment Procedures
Available Study Resources on Quizplus for this Chatper
121 Verified Questions
121 Flashcards
Source URL: https://quizplus.com/quiz/66417
Sample Questions
Q1) The disabled access credit was enacted to encourage small businesses to make their businesses more accessible to disabled individuals.
A)True
B)False
Q2) A taxpayer who qualifies for the low-income housing credit claims the credit over a 20-year period.
A)True
B)False
Q3) In January 2016,Tammy acquired an office building in downtown Syracuse,New York for $400,000.The building was constructed in 1932.Of the $400,000 cost,$40,000 was allocated to the land.Tammy immediately placed the building into service,but she quickly realized that substantial renovation would be required to keep and attract new tenants.The renovations,costing $600,000,were of the type that qualifies for the rehabilitation credit.The improvements were completed in October 2016.
a.Compute Tammy's rehabilitation tax credit for the year of acquisition.
b.Determine the cost recovery deduction for 2016.
c.What is the basis in the property at the end of its first year of use by Tammy?
Q4) Describe the withholding requirements applicable to employers.
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Property Transactions Determination of Gain and
Loss and Basic Considerations
Available Study Resources on Quizplus for this Chatper
143 Verified Questions
143 Flashcards
Source URL: https://quizplus.com/quiz/66418
Sample Questions
Q1) Why is it generally undesirable to pass property by death when its fair market value is less than basis?
Q2) Mary sells her personal use automobile for $20,000.She purchased the car two years ago for $17,000.What is Mary's recognized gain or loss? It increased in value due to its excellent mileage,yet safe design.
A)$0
B)$3,000
C)$17,000
D)$20,000
E)None of the above
Q3) On January 15 of the current taxable year,Merle sold stock with a cost of $40,000 to his brother Ned for $25,000,its fair market value.On June 21,Ned sold the stock to a friend for $26,000.
a.What are the tax consequences to Merle and Ned?
b.Would Ned recognize any gain if he sold the stock for $41,000?
Q4) What is the difference between the depreciation (or cost recovery)allowed and the depreciation (or cost recovery)allowable and what effect does each have on the adjusted basis of property?
Q5) What is the general formula for calculating the adjusted basis of property?
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Property Transactions Nontaxable Exchanges
Available Study Resources on Quizplus for this Chatper
120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/66419
Sample Questions
Q1) Matt,who is single,sells his principal residence,which he has owned and occupied for 5 years,for $435,000.The adjusted basis is $140,000 and the selling expenses are $20,000.Three days after the sale he purchases another residence for $385,000.Matt's recognized gain is $25,000 and his basis for the new residence is $385,000.
A)True
B)False
Q2) Gil's office building (basis of $225,000 and fair market value $275,000)is destroyed by a hurricane.Due to a 30% co-insurance clause,Gil receives insurance proceeds of $192,500 two months after the date of the loss.One month later,Gil uses the insurance proceeds to purchase a new office building for $275,000.His adjusted basis for the new building is $307,500 ($275,000 cost + $32,500 postponed loss).
A)True
B)False
Q3) The surrender of depreciated boot (fair market value is less than adjusted basis)in a like-kind exchange can result in the recognition of loss.
A)True
B)False
Q4) What kinds of property do not qualify under the like-kind provisions?
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Property Transactions Capital Gains and Losses
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/66420
Sample Questions
Q1) Individuals who are not professional real estate developers may get capital gain treatment for sale of their real property if they engage only in limited development activities.
A)True
B)False
Q2) A security that was purchased by an individual and qualifies as § 1244 stock becomes worthless.The taxpayer is single and the loss is $30,000.The loss is treated as an ordinary loss.
A)True
B)False
Q3) The only things that the grantee of an option may do with the option are exercise it or let it expire.
A)True
B)False
Q4) All collectibles short-term gain is subject to a potential alternative tax rate of 28%.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
18
Chapter 17: Property Transactions Section 1231 and Recapture Provisions
Available Study Resources on Quizplus for this Chatper
70 Verified Questions
70 Flashcards
Source URL: https://quizplus.com/quiz/66421
Sample Questions
Q1) Spencer has an investment in two parcels of vacant land.Parcel 1 is a capital asset and parcel 2 is a § 1231 asset.Spencer already has short-term capital loss for the year he would like to offset with capital gain.Spencer has § 1231 lookback loss that exceeds the gain from the disposition of either land parcel.Spencer only wants to sell one land parcel and each of them would yield the same amount of gain.The gain that would be recognized exceeds the short-term capital loss Spencer already has.Which of the statements below is correct?
A)Spencer will have a net capital loss no matter which land parcel he sells.
B)Spencer will have a net capital loss if he sells parcel 2.
C)Spencer will have a net capital loss if he sells parcel 1.
D)Spencer will have a net capital gain if he sells either parcel 1 or parcel 2.
E)None of the above.
Q2) In 2016 Angela,a single taxpayer with no dependents,disposed of for $44,000 a business building which cost $100,000.$60,000 of depreciation had been taken on the building.Angela has a short-term capital loss of $3,000 this year.She has taxable income (not related to property transactions)of $125,000.She has no § 1231 lookback loss.What is the amount and nature of the gain or loss,what is Angela's taxable income,and what is her tax on the taxable income?
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Accounting Periods and Methods
Available Study Resources on Quizplus for this Chatper
108 Verified Questions
108 Flashcards
Source URL: https://quizplus.com/quiz/66422
Sample Questions
Q1) The accrual method generally is required for the following types of businesses:
A)A real estate management company,operating as an S corporation,with over $10 million of gross receipts.
B)An incorporated public accounting firm with gross receipts in excess of $5 million.
C)A partnership that has a partner that is an S corporation.
D)A grocery store with average annual gross receipts of $800,000.
E)None of the above.
Q2) In 2016,Cashmere Construction Company enters into a contract to build a beach cottage for Martha and Rob for a total price of $500,000.Cashmere estimates the total cost to complete the cottage to be $400,000.In 2016,Cashmere incurred $300,000 of costs on the contract,and in 2017 the contract was completed at a total cost of $425,000.Cashmere is not required to recognize any income from the contract until 2017.
A)True
B)False
Q3) The lower of cost or market can be used in conjunction with both the FIFO and LIFO method.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Deferred Compensation
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/66423
Sample Questions
Q1) Chee is a key employee of an H.R 10 (Keogh)defined contribution plan (a profit sharing plan)created by a partnership.Answer each of the following independent questions.
a.During 2016,$7,400 is contributed to the H.R.10 plan for Chee.What amount is deductible if Chee's earned income is $45,000 (after the deduction for one-half of self employment tax)?
b.In 2016,$8,020 is contributed to the H.R.10 (Keogh)plan on Chee's behalf.If Chee's earned income is $36,000 (after the deduction for one-half of self employment tax),what deduction,if any is allowed?
c.The partnership had a bad year in 2016,and only $820 was contributed to the H.R.10 plan on Chee's behalf.Chee earned only $700 during 2015.Calculate Chee's allowable deduction.
Q2) Which statement is true with respect to golden parachute payments?
A)Refers to excess severance pay.
B)Does not include payments from a qualified profit sharing plan.
C)A deduction is denied to the employer.
D)A 20% excise tax is imposed on the recipient.
E)All of the above are true.
Q3) What is a defined contribution plan?
To view all questions and flashcards with answers, click on the resource link above.
Page 21
Chapter 20: Corporations and Partnerships
Available Study Resources on Quizplus for this Chatper
198 Verified Questions
198 Flashcards
Source URL: https://quizplus.com/quiz/66424
Sample Questions
Q1) Schedule M-2 of Form 1120 reconciles unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at year-end.
A)True
B)False
Q2) In what manner do the tax rules dealing with capital gains differ for corporations and individuals?
Q3) In order to get the Cardinal Corporation to build a plant in the area,Union County gives it land worth $900,000.The land was purchased by the county many years ago for $50,000.
a.How much income,if any,must Cardinal Corporation recognize for receiving the land? b.What basis will Cardinal Corporation have in the land?
Q4) If property contributed to a partnership is subject to a liability (assumed by the partnership),gain is recognized to the contributing partner to the extent of the liability.
A)True
B)False
Q5) The foreign tax credit is not available.
Q6) What causes a partner's basis in a partnership interest to fluctuate?
To view all questions and flashcards with answers, click on the resource link above.
Page 22