Federal Taxation Test Bank
Course Introduction
Federal Taxation explores the principles and practices of federal tax law as it applies to individuals, corporations, partnerships, and other entities. The course covers topics such as gross income determination, deductions, credits, capital gains and losses, tax accounting, and the administrative procedures associated with the Internal Revenue Service (IRS). Emphasis is placed on developing a foundational understanding of federal tax code, regulations, and judicial decisions, as well as preparing and analyzing tax returns. Students will also examine ethical considerations and planning strategies to achieve tax compliance and optimize tax outcomes.
Recommended Textbook
Concepts in Federal Taxation 2017 24th Edition by Kevin
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16 Chapters
2073 Verified Questions
2073 Flashcards
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E. Murphy
Page 2
Chapter 1: Federal Income Taxation-An Overview
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151 Verified Questions
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Sample Questions
Q1) Which of the following payments meets the IRS definition of a tax?
A)A fee paid on the value of property transferred from one individual to another by gift.
B)A one-time additional property tax assessment to add a sidewalk to the neighborhood.
C)A fee paid on the purchase of aerosol producing products to fund ozone research.
D)A fee for a sticker purchased from a city that must be attached to garbage bags before the city garbage trucks will pick up the bags.
E)All of the above meet the definition of a tax.
Answer: A
Q2) Which of Adam Smith's requirements for a good tax system best supports the argument that the federal income tax rate structure should be progressive?
A)Certainty.
B)Convenience.
C)Equality.
D)Neutrality.
E)Sufficiency.
Answer: C
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Chapter 2: Income Tax Concepts
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Sample Questions
Q1) Capital assets include which of the following?
I.Depreciable equipment used in Robbie's business.
II.A new car held for resale by Andrews Auto Sales.
III.Accounts receivable held by Jessica because of sales on credit while operating her store.
IV.A set of golf clubs,belonging to a surgeon.
A)Only statement I is correct.
B)Only statement IV is correct.
C)Statements III and IV is correct.
D)Statements I, III, and IV are correct.
E)Statements I, II, III, and IV are correct.
Answer: B
Q2) Under the pay-as-you-go concept,the tax base used to compute the taxpayer's income tax liability is a net income number.
A)True
B)False
Answer: False
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Chapter 3: Income Sources
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Sample Questions
Q1) For any unrecovered portion of an annuity investment,the taxpayer is allowed a deduction in the year of death.
A)True
B)False
Answer: True
Q2) Alexis Corporation allows an employee,Cynthia,to use a company car for her vacation to San Diego.
I.Cynthia will not need to recognize the value of the use of the car since it was not cash.
II.A "cash equivalent approach" is used to measure the amount of income that must be recognized by Cynthia.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: B
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Page 5
Chapter 4: Income Exclusions
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Sample Questions
Q1) Donna is a student at Eastern State University.She receives a $4,000 academic scholarship from the Silverman Foundation.She also has a $2,000 assistantship to grade and tutor for the Department of Economics.Tuition,books,fees,and supplies are $5,000.How much gross income must Donna recognize from the scholarship and assistantship?
A)$- 0 -
B)$1,000
C)$2,000
D)$5,000
E)$6,000
Q2) Conzo is injured in an accident while working at his job.He received $1,500 in worker's compensation benefits for 5 weeks of lost work.How much should Conzo report as gross income from the receipt of these benefits?
A)$- 0 -
B)$300
C)$750
D)$900
E)$1,500
Q3) Julia receives $6.3 million in compensatory damages for a personal physical injury.
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Page 6
Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) Discuss whether the following persons are currently engaged in a trade or business:
a.Katerina owns 35 home sites in and around Orlando. She bought these vacant lots several years ago in hopes to developing them into a subdivision. She begins to develop the lots in the current year.
b.John spends 2 hours a day, 5 days a week, managing his investment portfolio. He watches the market and buys and sells securities when he thinks the market is right. His investment strategy is to realize dividends, interest, and long-term gains from holding the investments.
c.Bill lives in Miami and works full-time betting on dog races. Although he intends to win large sums, he has failed to win the big one. He considers his betting activities his job and relies on his meager winnings to support his family. He is devoted to the races and has rarely missed a day betting in over 3 years.
Q2) Pamela owns the building where her plumbing supply business is located.This year she put on vinyl siding to replace the weathered wood siding on her building.The cost of the new siding can be expensed in the current year.
A)True
B)False
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Chapter 6: Business Expenses
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Sample Questions
Q1) Which of the following is (are)correct concerning the time test for deducting moving expenses?
I.Self-employed individuals must work in the new location for 39 weeks during a 2-year period.
II.A transfer of the employee by the employer waives the time requirement.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Which of the following legal expenses paid by the Kerr Corporation can be deducted in the current year?
I.Legal fees to resolve a tax dispute with the Internal Revenue Service.
II.Legal fees to purchase land that will be used to expand its warehouse.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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8
Chapter 7: Losses-Deductions and Limitations
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Sample Questions
Q1) Ronald is exploring whether to open a franchise of Quick Tax.He plans on forming an S corporation and investing $15,000 of his own money while borrowing $45,000 from the bank to finance the purchase of the necessary computing equipment and software.The bank has proposed two financing options.Under the first option,the interest rate is only 10%,but the loan is recourse.The second option increases the interest rate to 15%,but the loan is nonrecourse.
a.Discuss the tax and non-tax aspects of the two options.
b.If Ronald incurs a $20,000 loss in the first year of operations, how much, if any, of the loss can he deduct if the loan is recourse? Nonrecourse?
Q2) Portfolio income consists of unearned income from dividends,interest,royalties,annuities,and other assets held as investments.
A)True
B)False
Q3) Material participation requires that an individual participates in an activity for more than 200 hours per year or spends more than 50 hours a year in the activity and the time spent is more than anyone else spends on the activity.
A)True
B)False
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9
Chapter 8: Taxation of Individuals
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Sample Questions
Q1) George and Kelly have their three children in daycare at an exclusive River Oaks pre-kindergarten center.They incur $20,000 in expenses to keep their children in daycare.George is a physician and Kelly is an assistant district attorney.Together their adjusted gross income is $450,000.What amount can they claim as a child-care credit?
A)$- 0 -
B)$600
C)$1,200
D)$1,800
E)$4,000
Q2) Married,filing separately
A)Unmarried without dependents.
B)Generally used when financial disagreement exists.
C)Unmarried and provides a household for a dependent.
D)Use the same tax rate schedule as married, filing jointly.
E)Determines which tax rate schedule and standard deduction amount is applicable.
Q3) Taxpayer's only passive activity is a rental activity that results in a loss of $8,000.Amount: $8,000,since AGI is less than $100,000
Q4) Taxpayer contribution of $250 to the Democratic Party.
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Page 10
Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Rosie inherits 1,000 shares of Northern Skies Airline Corporation stock from the estate of her Uncle Tony.Tony died on July 2,2016.The stock's value on July 2,2016,is $4,000.Tony's basis in the stock was $3,000.The stock has a fair market vale of $7,000 on October 1,2016,when it is transferred to her.Rosie sells the stock October 11,2017.What is Rosie's basis in the stock?
A)$- 0 -
B)$1,000
C)$3,000
D)$4,000
E)$7,000
Q2) Adjusted basis is equal to the initial basis,plus or minus the cumulative effects of adjustments.
A)True
B)False
Q3) The general rule for determining the basis of inherited property is that the basis in the hands of the heir is its fair market value at the date of death or at the alternative valuation date.
A)True
B)False
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Page 11
Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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Sample Questions
Q1) Wellington Company purchases a new warehouse on August 24,2005,for $1,000,000 (exclusive of the cost allocated to the land).What is the 2016 MACRS depreciation deduction?
A)$11,900
B)$25,640
C)$31,740
D)$48,694
Q2) Cost recoverable intangible properties include I.Uranium ore.
II.Patents.
III.Agreements not to compete.
IV.Copyrights.
A)Statements I and IV are correct.
B)Only statement IV is correct.
C)Statements II and III are correct.
D)Statements II, III, and IV are correct.
E)Statements I, II, III, and IV are correct.
Q3) Discuss why listed property gets special attention.
Page 12
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Chapter 11: Property Dispositions
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Sample Questions
Q1) Drew traded his office copier in for a new one.The old copier had an adjusted basis of $400.The new copier cost $1,350,and he was given a trade-in allowance of $500.
I.The amount realized is $400.
II.Drew has a realized gain of $100.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Capital Asset
A)Stocks, bonds, options.
B)Depreciable real property.
C)All or part of any gain on sale is excluded.
D)Taxed at a maximum rate of 25%.
E)Gain or loss on the sale of artwork.
F)Depreciable tangible personal property.
G)Subject to full recapture as ordinary income of all depreciation taken.
H)Gain on real property attributable to excess depreciation is ordinary income.
Q3) George's wife sells stock she purchased 10 months ago at a gain of $212.
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Page 13
Chapter 12: Non-Recognition Transactions
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Sample Questions
Q1) Norman exchanges a machine he uses in his pool construction business for a used machine worth $6,000 to use in the same business.He purchased the machine 3 years ago for $22,000 and has taken depreciation of $9,000 on the machine.In the exchange,Norman also receives $3,000 of cash.As a result of the exchange,
I.Norman's basis in the acquired machine is $10,000.
II.Norman recognizes a loss of $3,000 on the exchange.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Which of the following qualifies as a like-kind exchange of property?
I.Commercial retail building and its land for an office building and its land.
II.Louisiana Oil,Inc.common stock for Louisiana Oil,Inc.corporate bonds.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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Page 14
Chapter 13: Choice of Business Entity-General Tax and
Nontax Factorsformation
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Sample Questions
Q1) During 2016,Jimmy incorporates his data processing business.Jimmy is the sole shareholder.The following assets are transferred to the corporation:
Cash $2,000
Computer Equipment:
Fair market value 20,000
Adjusted basis 12,000
Original cost 24,000
Furniture:
Fair market value 20,000
Adjusted basis 32,000
Original cost 64,000
How much gain (loss)will Jimmy recognize from the transfer of the assets to the corporation?
A)$-0-
B)$(4,000)
C)$8,000
D)$20,000
E)$(12,000)
Q2) Discuss the characteristics of a personal service corporation (PSC).
Page 15
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Chapter 14: Choice of Business Entity-Operations and Distributions
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Sample Questions
Q1) Olivia owns 40% of Addison Company,a partnership.Olivia's adjusted basis in the partnership is $22,000 at the beginning of the year.During the current year,Olivia receives a $10,000 cash distribution from the partnership.Addison Company reports a $100,000 operating loss for the current year.If Olivia is a material participant in Addison Company,how much of the partnership loss can she deduct on her income tax return?
A)$-0-
B)$10,000
C)$12,000
D)$40,000
Q2) A corporation may reduce trade or business income by a charitable contributions made by the corporation,but the deduction is limited to 10% of taxable income,as adjusted.
A)True
B)False
Q3) A sole proprietor may deduct investment interest and investment expense without limitations if investments are made in the name of the business.
A)True
B)False
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Chapter 15: Choice of Business Entity-Other Considerations
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Sample Questions
Q1) IRS scrutiny of reasonable compensation usually deals with excess compensation paid to the shareholders of closely held corporations and unreasonably low salaries to shareholders of an S corporation.
A)True
B)False
Q2) Drew is a partner with Peyton LLP.Peyton maintains a money purchase Keogh plan for its partners and employees.Drew owns a 30% partnership interest in Peyton.Determine the maximum deductible contribution Drew can make to the plan in each of the following situations:
a.Drew 's net self-employment income is $85,000.
b.Drew's net self-employment income is $270,000.
Q3) A Keogh plan must be established as a defined contribution plan,and the rules are similar to those of a qualified pension plan.
A)True
B)False
Q4) One of the benefits of an incentive stock option is that the employee can sell the option at any time.
A)True
B)False
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Chapter 16: Tax Research
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Sample Questions
Q1) Which of the following are numbered to match the Code section to which they are related?
A)Private Letter Rulings.
B)Revenue Rulings.
C)Treasury Regulations.
D)All of the above.
Q2) All of the following are advantages of computer-assisted tax research (CATR),except
A)CATR sources use search engines that allow quick retrieval of sources.
B)CATR sources are available on the Internet.
C)CATR sources contain only secondary sources of tax law.
D)CATR sources require less space and maintenance than print services.
Q3) If the IRS loses a case in a court proceeding,they may issue an acquiescence that means they will not follow the decision in similar cases.
A)True
B)False
Q4) Dwayne is upset by an IRS agent's decision after an audit of Dwayne's tax return.Dwayne tells you,"I'm taking this case all the way to the Supreme Court." Comment on the appropriateness of Dwayne's statement.
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