Fundamentals of Federal Taxation
Mock Exam
Course Introduction
Fundamentals of Federal Taxation provides an introduction to the basic principles and concepts underlying the U.S. federal income tax system. The course covers key topics such as the structure of the Internal Revenue Code, the computation of gross income, allowable deductions, exclusions, and credits, as well as the taxation of individuals, corporations, partnerships, and other entities. Students gain practical insights into tax planning, compliance, and the ethical considerations in tax practice. Emphasis is placed on developing the analytical skills necessary to interpret tax laws and apply them to real-world scenarios.
Recommended Textbook
Pearsons Federal Taxation 2018 Individuals 31st Edition by Timothy J. Rupert
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18 Chapters
2328 Verified Questions
2328 Flashcards
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Chapter 1: An Introduction to Taxation
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Sample Questions
Q1) For gift tax purposes,a $14,000 annual exclusion per donee is permitted.
A)True
B)False
Answer: True
Q2) The Senate equivalent of the House Ways and Means Committee is the Senate
A) Joint Committee on Taxation.
B) Ways and Means Committee.
C) Finance Committee.
D) Joint Conference Committee.
Answer: C
Q3) Martha is self-employed in 2017.Her self employment income is $140,000.What is her self-employment tax?
A) $19,462
B) $19,833
C) $21,420
D) None of the above.
Answer: B
Q4) Mia is self-employed as a consultant.During 2017,Mia earned $180,000 in self-employment income.What is Mia's self-employment tax?
Answer: 11ea7e84_1f55_5419_9a0a_25245e5e5e7f_TB1260_00
Page 3
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Chapter 2: Determination of Tax
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Sample Questions
Q1) A building used in a business is sold after five years of use for a gain.The gain will be treated as a long-term capital gain.
A)True
B)False
Answer: False
Q2) If an individual with a marginal tax rate of 39.6% has a long-term capital gain,it is taxed at A) 0%.
B) 20%.
C) 10%.
D) 15%.
Answer: B
Q3) If an individual with a marginal tax rate of 15% has a long-term capital gain,it is taxed at A) 0%.
B) 20%.
C) 10%.
D) 15%.
Answer: A
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Page 4
Chapter 3: Gross Income: Inclusions
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Sample Questions
Q1) Gabe Corporation,an accrual-basis taxpayer that uses the calendar year as its tax year,sells CPE (continuing professional education) courses under contracts ranging from three months to two years.Assume that Gabe Corporation sold three contracts on July 1,2017; one for six months costing $300; one for one year costing $500; and one for two years costing $800.
Required: What is the minimum amount of income that must be recognized in 2017 and 2018?
Answer: 11ea7e84_1f1d_7bcb_9a0a_4d10aa77d0bf_TB1260_00
Q2) Examples of income which are constructively received include all of the following except
A) interest credited to a savings account.
B) a check received after banking hours.
C) a paycheck received from employer, when employer does not have funds in the bank to cover the check.
D) dividends automatically reinvested in additional shares of the mutual fund.
Answer: C
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Chapter 4: Gross Income: Exclusions
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Sample Questions
Q1) Elisa sued her former employer for discrimination.She was awarded $200,000 for lost wages,$30,000 for medical expenses related to emotional distress resulting from the discrimination,and $300,000 in punitive damages.The amount taxable is
A) $0.
B) $200,000.
C) $500,000.
D) $530,000.
Q2) Which of the following statements regarding qualified tuition programs is incorrect?
A) Distributions from income earned by a qualified tuition program are tax-free if used for qualified higher education expenses.
B) Distributions of income are taxed to the donor if the proceeds are not used for higher education expenses.
C) A qualified tuition program may be established by parents or grandparents.
D) Contributions to a qualified tuition program are distributed tax-free.
Q3) Discuss the requirements for meals provided by employers to be excluded from their employees' income.How is the de minimis rule distinguished from these requirements?
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Chapter 5: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) The gain or loss on an asset purchased on March 31,2016,and sold on March 31,2017,is classified as short-term.
A)True
B)False
Q2) Antonio owns land held for investment with a basis of $28,000.The city of Lafayette exercises the right of eminent domain and Antonio receives a payment of $48,000.What is Antonio's realized gain?
A) $0
B) $20,000
C) $28,000
D) $48,000
Q3) When an individual taxpayer has NSTCL and NLTCG,the loss is offset against NLTCG from the 28% group,then NLTCG from the 25% group,and finally against NLTCG from the 15% or 20% group.
A)True
B)False
Q4) All realized gains and losses are recognized for tax purposes.
A)True
B)False
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Chapter 6: Deductions and Losses
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Sample Questions
Q1) Deductions for AGI may be located
A) on the front page of Form 1040.
B) on Schedule C as a deduction.
C) on Schedule E as a deduction.
D) All of the above are true.
Q2) A change to adjusted gross income cannot affect a taxpayer's itemized deductions.
A)True
B)False
Q3) For the years 2013 through 2017 (inclusive) Mary,a best-selling author,has been involved in operating an antique store.In 2013,2014 and 2015 her revenue exceeded the expenses from the activity.In 2016 and 2017,the antique store generated a loss.Which statement is correct?
A) The activity is a business. The IRS cannot prove it is a hobby.
B) The activity is a hobby. Mary cannot prove it is a business.
C) The activity is presumed to be a business. However, the IRS may prove it is a hobby.
D) The activity is presumed to be a hobby. However, Mary may prove it is a business.
Q4) Discuss when expenses are deductible under the accrual method of accounting.
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Chapter 7: Itemized Deductions
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Sample Questions
Q1) Medical expenses incurred on behalf of children of divorced parents are deductible by the parent who pays the expenses but only if that parent also is entitled to the dependency exemption.
A)True
B)False
Q2) Due to stress on the job,taxpayer Fiona began to experience anxiety attacks.Her doctor advised her to engage in some relaxation activities.Fiona enrolled in yoga lessons.The cost of the yoga lessons to alleviate this medical condition is tax deductible.
A)True
B)False
Q3) Assessments made against real estate for the purpose of funding new street lights are not deductible in the year paid but rather should be added to the cost basis of the property.
A)True
B)False
Q4) A personal property tax based on the weight of the property is deductible. A)True
B)False
Q5) Explain how tax planning may allow a deduction of qualified medical expenses.
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Chapter 8: Losses and Bad Debts
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Sample Questions
Q1) Which of the following is most likely not considered a casualty?
A) fire loss
B) water damage caused by the bursting of a water heater
C) death of a pine tree due to a two-day infestation of pine beetles
D) water damage to the walls and ceiling of a taxpayer's personal residence as the result of gradual deterioration of the roof
Q2) In 2016,Grace loaned her friend Paula $12,000 to invest in various stocks.Paula signed a note to repay the principal with interest.Unfortunately the market for that industry sector plunged,and Paula incurred large losses.In 2017,Paula declared personal bankruptcy and Grace was unable to collect any of her loan.Grace had no other gains or losses last year or this year.The result is
A) Grace deducts a business bad debt of $12,000 in 2017.
B) Grace deducts a $12,000 nonbusiness bad debt as a short-term capital loss in 2017.
C) Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2017 and carries $9,000 over to subsequent years.
D) Grace deducts a business bad debt of $3,000 in 2017 and carries $9,000 over to subsequent years.
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Page 10
Chapter 9: Employee Expenses and Deferred Compensation
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Sample Questions
Q1) Tanya is considering whether to rollover her traditional IRA to a Roth IRA.Factors important to consider include all of the following except
A) current marginal tax rate.
B) expected tax rate after retirement.
C) whether the current year's AGI will exceed $100,000.
D) her age.
Q2) Corporations issuing incentive stock options receive a tax deduction for compensation expense.
A)True
B)False
Q3) A company maintains a qualified pension plan for all of its employees.The company can also establish a qualified profit-sharing plan for its management team.
A)True
B)False
Q4) According to the IRS,a person's tax home is the location of the family residence regardless of the location of the taxpayer's principal place of employment.
A)True
B)False
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Chapter 10: Depreciation, cost Recovery, amortization, and Depletion
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106 Flashcards
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Sample Questions
Q1) If at least 50% of the aggregate basis of all new personal property for the tax year is placed in service during the last three months of the year,the mid-quarter convention is required.
A)True
B)False
Q2) On August 11,2017,Nancy acquired and placed into service residential rental property,which cost $430,000; the cost of the land has been excluded.Nancy annually elects the maximum allowed Sec.179 deduction.The total depreciation for the year is (rounded)
A) $5,865.
B) $4,141.
C) $5,117.
D) $15,636.
Q3) Discuss the options available regarding treatment of an amount paid in excess of the FMV of an acquired company's net assets in a business combination.
Q4) Under the MACRS system,depreciation rates for real property must always use the mid-month convention in the year of acquisition.
A)True
B)False
Page 12
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Chapter 11: Accounting Periods and Methods
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Sample Questions
Q1) Alvin,a practicing attorney who also owns an office supplies store,may use the cash basis for his legal practice and the accrual basis for his office supplies store.
A)True
B)False
Q2) Which of the following businesses is most likely to benefit from an election to account for its inventory under LIFO?
A) A company producing the newest version of a tablet with ultra-long battery life. It believes it has a one-year lead over the competition.
B) A company producing products with copper as a key component - copper prices fluctuate widely.
C) A company producing parts for the auto industry - costs in this field tend to steadily climb.
D) None of the above.
Q3) If the majority of the partners do not have the same tax year,the partnership must use the tax year of its principal partners.
A)True
B)False
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Chapter 12: Property Transactions: Nontaxable Exchanges
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Sample Questions
Q1) The basis of non-like-kind property received is the basis in the hands of the transferor at the date of the exchange.
A)True
B)False
Q2) Landry exchanged land with an adjusted basis of $50,000 for another parcel of land worth $35,000 plus $10,000 of cash.Landry held the original land for investment purposes and will do the same with the new parcel.Due to the exchange,Landry will recognize
A) $10,000 gain.
B) $5,000 gain.
C) $5,000 loss.
D) $0.
Q3) If there is a like-kind exchange of property between related parties,how long do they have to wait to dispose of the property received in order to avoid having to recognize any gain on the exchange?
A) 6 months
B) 1 year
C) 2 years
D) no waiting period
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Chapter 13: Property Transactions: Sec1231 and Recapture
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Sample Questions
Q1) The sale of inventory results in ordinary gain or loss.
A)True
B)False
Q2) Jesse installed solar panels in front of his office building in 2016.The panels are not attached to the building.After using the solar panels for 13 months,Jesse decided to replace them with a newer model to obtain a greater savings on electricity costs.Jesse sold the old solar panels for an amount greater than his original purchase price.What tax issues should be considered with purchase,use and sale of the original solar panels?
Q3) During the current year,a corporation sells equipment for $300,000.The equipment cost $270,000 when purchased and placed in service two years ago and $60,000 of depreciation deductions were allowed.The results of the sale are
A) ordinary income of $90,000.
B) Sec. 1231 gain of $90,000.
C) ordinary income of $60,000 and LTCG of $30,000.
D) ordinary income of $60,000 and Sec. 1231 gain of $30,000.
Q4) Sec.1245 can increase the amount of gain recognized on an asset.
A)True
B)False
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Page 15
Chapter 14: Special Tax Computation Methods, tax Credits, and Payment of Tax
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Sample Questions
Q1) One-half of the self-employment tax imposed is allowed as a for AGI deduction.
A)True
B)False
Q2) Carlotta,Inc.,has $50,000 foreign-source income and $150,000 worldwide income.Its U.S.tax on its worldwide income is $42,000,and it paid foreign taxes of $12,000.What is the corporation's foreign tax credit?
A) $4,000
B) $12,000
C) $14,000
D) $42,000
Q3) Nick and Nicole are both 68 years old and file a joint return.They have AGI of $15,000 and receive nontaxable Social Security payments of $4,200 during the current year.What is the amount of the tax credit for the elderly?
Q4) Research expenses eligible for the research credit include costs that are incident to the development or improvement of a product or component.
A)True
B)False
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Chapter 15: Tax Research
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Sample Questions
Q1) What are some of the consequences of the small cases procedure of the Tax Court?
Q2) Identify which of the following statements is true.
A) Tax planning is an integral part of both closed-fact situations and open-fact situations.
B) The first step in conducting tax research is to clearly understand the issues involved.
C) The Statements on Standards for Tax Services recommend that only written tax advice be provided to the client in all situations.
D) All of the above are false.
Q3) Identify which of the following statements is false.
A) Letter rulings are not published by the U.S. Government Printing Office.
B) Technical advice memoranda are issued by the Internal Revenue Service's National Office to provide an answer to a technical question that arises in an audit.
C) The citation Ann. 2006-12, I.R.B. 2006-51, 22 refers to an annotation of an Internal Revenue Service release.
D) Announcements are more technical than information releases.
Q4) Explain the legislative reenactment doctrine.
Q5) Distinguish between an annotated tax service and a topical tax service.
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Page 17
Chapter 16: Corporations
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Sample Questions
Q1) A corporation has a tax year ending December 31,2017.When is the due date for the corporate income tax return (with no extensions)?
A) March 15, 2018
B) April 15, 2018
C) June 15, 2018
D) September 15, 2018
Q2) Montrose Corporation is classified as a personal holding company.It is almost year-end.The company's taxable income and regular federal income tax liability are expected to be $100,000 and $22,250,respectively.The company will claim a $20,000 dividends-received deduction and earlier in the year paid $25,000 of dividends to its shareholders.How much in additional dividends must be paid to shareholders in order to avoid the personal holding company tax?
A) $92,750
B) $52,750
C) $72,750
D) $97,750
Q3) How does the treatment of a liquidation of a subsidiary into its parent corporation differ from the general rule?
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Chapter 17: Partnerships and S Corporations
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Sample Questions
Q1) Tess buys Harry's partnership interest in Oval Partnership.Oval holds several highly appreciated assets,and this appreciation is reflected in the price Tess paid for the partnership interest.Tess can make a Sec.754 election to increase the basis of her share of partnership assets.
A)True
B)False
Q2) A CPA firm,operating as a partnership,can become an electing large partnership as long as it has at least 100 partners and files the appropriate election.
A)True
B)False
Q3) James and Sharon form an equal partnership in the current year.No special allocation is provided for in the partnership agreement.During the year James contributes land having a $80,000 basis and a $100,000 FMV in exchange for the initial partnership interest.In addition,the partnership earns $100,000 of ordinary income while partnership liabilities increase from zero to $60,000 by the end of the tax year.Also,the partnership earns $10,000 of tax-exempt interest during the year and makes charitable contributions of $6,000.James withdraws $30,000 from the partnership. What is James's basis at the end of the current year?
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Chapter 18: Taxes and Investment Planning
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Sample Questions
Q1) Sylvia makes a one-time $2,000 deductible contribution into a deductible traditional IRA account,which will earn 8% annually before taxes.Twenty-five years later,at age 65,she withdraws all of the accumulation from the IRA when she is in the 15% marginal tax bracket.What is the total of her after-tax accumulated proceeds from the IRA?
A) $6,000
B) $8,541
C) $11,642
D) $13,697
Q2) In the Exempt Model,the earnings are excluded from explicit taxation.
A)True
B)False
Q3) If a fully-taxable bond yields a BTROR of 8% (R<sub>b</sub> = 8%) and a tax-exempt bond of similar risk earns a BTROR of 5% (R<sub>f</sub> = 5%),then the implicit tax is A) 3%.
B) 5%.
C) 8%.
D) None of the above.
Q4) What are the characteristics of the Pension Model?
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