Graduate Taxation
Test Preparation
Course Introduction
Graduate Taxation is an advanced course focusing on the fundamental principles of taxation as they apply to individuals, corporations, and other entities. The course examines federal income tax laws, regulations, and judicial decisions, exploring topics such as gross income, deductions, tax credits, property transactions, and the ethical responsibilities of tax professionals. Students will analyze real-world scenarios, case studies, and complex tax planning strategies, preparing them for professional roles in tax practice, advisory, and compliance. Emphasis is also placed on current developments in tax policy and legislation affecting both domestic and international taxation.
Recommended Textbook
South western Federal Taxation 2017 Comprehensive Edition 40th Edition by William H. Hoffman
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3604 Verified Questions
3604 Flashcards
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Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) Burt and Lisa are married and live in a common law state.Burt wants to make gifts to their five children in 2012.What is the maximum amount of the annual exclusion they will be allowed for these gifts?
A)$130,000.
B)$65,000.
C)$26,000.
D)$13,000.
E)None of the above.
Answer: A
Q2) The IRS agent auditing the return will not issue an RAR if the taxpayer owes no additional taxes.
A)True
B)False
Answer: False
Q3) For state income tax purposes, a majority of states allow a deduction for Federal income taxes.
A)True
B)False
Answer: False
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Chapter 2: Working With the Tax Law
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Sample Questions
Q1) Which Regulations have the force and effect of law?
A)Procedural Regulations.
B)Finalized Regulations.
C)Legislative Regulations.
D)Interpretive Regulations.
E)All of the above.
Answer: C
Q2) A Revenue Ruling is a judicial source of Federal tax law.
A)True
B)False Answer: False
Q3) A U.S.District Court is the lowest trial court.
A)True
B)False
Answer: True
Q4) Arizona is in the jurisdiction of the Ninth Circuit Court of Appeals.
A)True
B)False Answer: True
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Chapter 3: Computing the Tax
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Sample Questions
Q1) A taxpayer who itemizes must use Form 1040, and cannot use Form 1040EZ or Form 1040A.
A)True
B)False
Answer: True
Q2) Katrina, age 16, is claimed as a dependent by her parents.During 2012, she earned $5,600 as a checker at a grocery store.Her standard deduction is $5,900 ($5,600 earned income + $300).
A)True
B)False Answer: True
Q3) A qualifying child cannot include:
A)A nonresident alien.
B)A married son who files a joint return.
C)A daughter who is away at college.
D)A brother who is 28 years of age and disabled.
E)A grandmother.
Answer: E
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Chapter 4: Gross Income: Concepts and Inclusions
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Q1) The fact that the accounting method the taxpayer uses to measure income is consistent with GAAP does not assure that the method will be acceptable for tax purposes.
A)True
B)False
Q2) The B & W partnership earned taxable income of $100,000 for the year. Bryan is entitled to 50% of the profits, but Bryan withdrew only $40,000 during the year. Bryan must include in gross income his $50,000 share of the profits from the partnership.
A)True
B)False
Q3) Nicholas owned stock that decreased in value by $20,000 during the year, but he did not sell the stock.He earned $45,000 salary, but received only $34,000 because $11,000 in taxes were withheld.Nicholas saved $10,000 of his salary and used the remainder for personal living expenses.Nicholas's economic income for the year exceeded his gross income for tax purposes.
A)True
B)False
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Chapter 5: Gross Income: Exclusions
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Q1) Kristen's employer owns its building and provides parking space for its employees. The value of the free parking is $150 per month. Karen's employer does not have parking facilities, but reimburses its employee for the cost of parking in a nearby garage, up to $150 per month.
A)Kristen and Karen must recognize gross income from the parking services.
B)Kristen can exclude the employer provided parking from gross income, but Karen must include her reimbursement in gross income.
C)Kristen must include the value of the employer provided parking from her gross income, but Karen can exclude her reimbursement from gross income.
D)Neither Kristen nor Karen is required to include the cost of parking in gross income.
E)None of the above.
Q2) Gary cashed in an insurance policy on his life. He needed the funds to pay for his terminally ill wife's medical expenses.He had paid $12,000 in premiums and he collected $30,000 from the insurance company.Gary is not required to include the gain of $18,000 ($30,000 - $12,000) in gross income.
A)True B)False
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Page 7
Chapter 6: Deductions and Losses: in General
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Sample Questions
Q1) For an expense to be deducted as ordinary, it must be recurring in nature.
A)True
B)False
Q2) Marge sells land to her adult son, Jason, for its $20,000 appraised value.Her adjusted basis for the land is $25,000.Marge's recognized loss is $0 and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 disallowed loss of Marge).
A)True
B)False
Q3) Are there any exceptions to the rule that personal expenditures cannot be deducted?
Q4) For a vacation home to be classified in the primarily rental use category, what attributes must be present?
Q5) Mitch is in the 28% tax bracket. He may receive a different tax benefit for a $2,000 expenditure that is classified as a deduction from AGI than he will receive for a $1,000 expenditure that is classified as a deduction for AGI.
A)True
B)False
Q6) What losses are deductible by an individual taxpayer?
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) If the amount of the insurance recovery for a theft of business property is greater than the asset's fair market value but less than it's adjusted basis, a gain is recognized.
A)True
B)False
Q2) A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.
A)True
B)False
Q3) Cream, Inc.'s taxable income for 2012 before any deduction for an NOL carryforward of $30,000 is $70,000.Cream's qualified production activities income (QPAI) is $60,000.What is the amount of Cream's domestic production activities deduction (DPAD) for 2012?
A)$1,200.
B)$1,800.
C)$2,400.
D)$3,600.
E)None of the above.
Q4) How is qualified production activities income (QPAI) calculated?
Q5) Discuss the effect of alimony in computing a net operating loss.
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Chapter 8: Depreciation, Cost Recovery, Amortization, and Depletion
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Sample Questions
Q1) On June 1, 2012, James places in service a new automobile that cost $40,000.The car is used 60% for business and 40% for personal use.(Assume this percentage is maintained for the life of the car.) James does take additional first-year depreciation.Determine the cost recovery deduction for 2012.
A)$1,776.
B)$1,836.
C)$6,636.
D)$8,000.
E)None of the above.
Q2) The cost recovery period for new farm equipment placed in service during 2012 is seven years.
A)True
B)False
Q3) Under MACRS, if the mid-quarter convention is applicable, all property sold is treated as being sold at the mid-point of the quarter in which it is placed in service.
A)True
B)False
Q4) Discuss the reason for the inclusion amount with respect to leased automobiles.
Page 10
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Q1) A taxpayer who claims the standard deduction will not avoid the 2% floor on unreimbursed employee expenses.
A)True
B)False
Q2) The tax law specifically provides that a taxpayer cannot be temporarily away from home for any period of employment that exceeds one year.
A)True
B)False
Q3) Beth, age 51, has a traditional deductible IRA with an account balance of $221,419 of which $160,400 represents contributions and $61,019 represents earnings.In 2012, she converts her traditional IRA into a Roth IRA.What amount, if any, must Beth include in her gross income in 2012?
A)$0.
B)$61,019.
C)$160,400.
D)$221,419.
E)None of the above.
Q4) In terms of income tax treatment, what is the difference between common law and statutory employees?
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Q1) On December 31, 2012, Lynette used her credit card to make a $500 contribution to the United Way, a qualified charitable organization. She will pay her credit card balance in January 2013. If Lynette itemizes, she can deduct the $500 in 2012.
A)True
B)False
Q2) Matt, a calendar year taxpayer, pays $11,000 in medical expenses in 2012.He expects $5,000 of these expenses to be reimbursed by an insurance company in 2013.In determining his medical expense deduction for 2012, Matt must reduce his 2012 medical expenses by the amount of the reimbursement he expects in 2013.
A)True
B)False
Q3) Herbert is the sole proprietor of a furniture store. He can deduct real property taxes on his store building but he cannot deduct state income taxes related to his net income from the furniture store as a business deduction.
A)True
B)False
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Page 12
Chapter 11: Investor Losses
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Sample Questions
Q1) Art's at-risk amount in a passive activity was $60,000 at the beginning of 2011.His loss from the activity in 2011 is $80,000, and he had no passive activity income during the year. Art had $20,000 of passive income from the activity in 2012.Under the passive loss rules, Art's suspended loss at the end of 2012 is:
A)$15,000.
B)$20,000.
C)$45,000.
D)$60,000.
E)None of the above.
Q2) Gray Company, a closely held C corporation, incurs a $50,000 loss on a passive activity during the year.The company has active income of $34,000 and portfolio income of $24,000.If Gray is not a personal service corporation, it may deduct $34,000 of the passive loss.
A)True
B)False
Q3) Joe participates 95 hours in an activity, while an employee participates 5 hours.Joe has materially participated in the activity.
A)True
B)False
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Page 13
Chapter 12: Tax Credits and Payments
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Q1) The low-income housing credit is available to low-income tenants who reside in qualifying low-income housing.
A)True
B)False
Q2) George and Martha are married and file a joint tax return claiming their two children, ages 10 and 8 as dependents.Assuming their AGI is $119,650, George and Martha's child tax credit is:
A)$0.
B)$1,000.
C)$1,500.
D)$2,000.
E)None of the above.
Q3) If the cost of a building constructed and placed into service by an eligible small business in the current year includes the cost of a wheelchair ramp, the cost of the ramp qualifies for the disabled access credit.
A)True
B)False
Q4) How does the FICA tax compare to the self-employment tax? How are these two taxes similar and how do they differ?
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Chapter 13: Property Transactions: Determination of Gain or
Loss, Basis Considerations, and Nontaxable
Exchanges-Part 1
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Q1) The holding period for property acquired by gift is automatically long term.
A)True
B)False
Q2) Gift property (disregarding any adjustment for gift tax paid by the donor):
A)Has no basis to the donee because he or she did not pay anything for the property.
B)Has the same basis to the donee as the donor's adjusted basis if the donee disposes of the property at a gain.
C)Has the same basis to the donee as the donor's adjusted basis if the donee disposes of the property at a loss, and the fair market value on the date of gift was less than the donor's adjusted basis.
D)Has no basis to the donee if the fair market value on the date of gift is less than the donor's adjusted basis.
E)None of the above.
Q3) The basis of inherited property usually is its fair market value on the date of the decedent's death.
A)True
B)False
Page 15
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Chapter 13: Property Transactions: Determination of Gain or
Loss, Basis Considerations, and Nontaxable
Exchanges-Part 2
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Sample Questions
Q1) Why is it generally undesirable to pass property by death when its fair market value is less than basis?
Q2) Bill is considering two options for selling land for which he has an adjusted basis of $80,000 and on which there is a mortgage of $75,000.Under the first option, Bill will sell the land for $170,000 with a stipulation in the sales contract that he liquidate the mortgage before the sale is complete.Under the second option, Bill will sell the land for $95,000 and the buyer will assume the mortgage.Calculate Bill's recognized gain under both options.
Q3) Under what circumstance is there recognition of some or all of the realized gain associated with the giving of boot by the taxpayer in a like-kind exchange?
Q4) How does the replacement time period differ for the condemnation of real property used in a trade or business or held for investment when compared with that for other involuntary conversions?
Q5) Libby's principal residence is destroyed by a tornado. She is single and her realized gain is $360,000. Is it possible for Libby's recognized gain to be $0?
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Q6) Discuss the effect of a liability assumption on the seller's amount realized and the buyer's adjusted basis.
Chapter 14: Property Transactions: Capital Gains and Losses,
1231, Recapture Provisions
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Sample Questions
Q1) Ryan has the following capital gains and losses for 2012: $6,000 STCL, $5,000 28% gain, $2,000 25% gain, and $6,000 0%/15% gain.Which of the following is correct:
A)The net capital gain is composed of $1,000 25% gain and $6,000 0%/15% gain.
B)The net capital gain is composed of $5,000 28% gain and $2,000 0%/15% gain.
C)The net capital gain is composed of $3,000 28% gain, $2,000 25% gain, and $2,000 0%/15% gain.
D)The net capital gain is composed of $1,000 28% gain and $6,000 0%/15% gain.
E)None of the above.
Q2) Which of the following real property could be subject to § 1250 depreciation recapture?
A)Leasehold improvements placed in service in 2012 on which § 168(k) additional first-year depreciation was taken.
B)A building acquired in 1997 on which straight-line depreciation was taken.
C)Equipment on which accelerated depreciation was taken.
D)Land which was not depreciated.
E)a.and b.
Q3) An individual taxpayer has the gains and losses shown below.There are $3,000 of § 1231 lookback losses.What is the net long-term capital gain?
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Chapter 15: Alternative Minimum Tax
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Q1) Ashlyn is subject to the AMT in 2012.She calculates her AMT base to be $200,000.What are the AMT rates that apply for Ashlyn?
Q2) What itemized deductions are allowed for both regular income tax purposes and for AMT purposes?
Q3) The phaseout of the AMT exemption amount for a taxpayer filing as a head of household both begins and ends at a higher income level than it does for a single taxpayer.
A)True
B)False
Q4) The AMT exemption for a C corporation is $40,000 reduced by 35% of the amount by which AMTI exceeds $150,000.
A)True
B)False
Q5) If Abby's alternative minimum taxable income exceeds her regular taxable income, she will have an alternative minimum tax.
A)True
B)False
Q6) What effect do deductible gambling losses for regular income tax purposes have in calculating AMTI?
Page 18
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Chapter 16: Accounting Periods and Methods
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Q1) The taxpayer has consistently, but incorrectly, used an allowance for bad debts.At the beginning of the year, the balance in the allowance account is $90,000.
A)If the IRS examines the taxpayer's return and requires the taxpayer to change accounting methods, the taxpayer will be required to recognize an additional $90,000 of income (one-half in the current year and one-half in the following year) as the adjustment due to the change in accounting methods.
B)If the taxpayer voluntarily changes methods, the $90,000 adjustment can be spread over the current and three following years.
C)If the taxpayer voluntarily changes methods, the $90,000 reserve can be used to absorb bad debts until the account balance is zero.
D)If the IRS examines the taxpayer's return, no adjustment to the reserve account will be required if the balance is consistent with prior bad debt experience. E)None of the above.
Q2) What incentives do the tax accounting rules provide for taxpayers to voluntarily change from an incorrect method of accounting that has reduced the company's tax liability in prior years?
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Page 19
Chapter 17: Corporations: Introduction and Operating Rules
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Q1) Which of the following statements is incorrect with respect to the treatment of net operating losses by corporations?
A)A corporation may elect to forgo the carryback period and just carryforward an NOL.
B)A corporation may claim a dividends received deduction in computing an NOL.
C)An NOL is generally carried back 2 years and forward 20 years.
D)Unlike individuals, corporations do not adjust their NOLs for net capital losses or nonbusiness deductions.
E)None of the above.
Q2) What is the purpose of Schedule M-3? Which corporations are required to file Schedule M-3?
Q3) Grebe Corporation, a closely held corporation that is not a PSC, had $75,000 of active income, $60,000 of portfolio income, and a $105,000 passive loss during the year.
How much of the passive loss can Grebe deduct in the current year?
A)$0.
B)$60,000.
C)$105,000.
D)$135,000.
E)None of the above.
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Chapter 18: Corporations: Organization and Capital Structure
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Q1) In a § 351 transaction, Gerald transfers equipment worth $85,000 (basis of $120,000) in exchange for all of the Rust Corporation stock. Gerald's stock basis is $120,000 and Rust's basis in the equipment is $120,000.
A)True
B)False
Q2) Kevin and Nicole form Indigo Corporation with the following transfers: inventory from Kevin (basis of $360,000 and fair market value of $400,000) and improved real estate from Nicole (basis of $320,000 and fair market value of $375,000). Nicole, an accountant, agrees to contribute her services (worth $25,000) in organizing Indigo. The corporation's stock is distributed equally to Kevin and Nicole. As a result of these transfers:
A)Indigo can deduct $25,000 as a business expense.
B)Nicole has a recognized gain of $55,000 on the transfer of the real estate.
C)Indigo has a basis of $360,000 in the inventory.
D)Indigo has a basis of $375,000 in the real estate.
E)None of the above.
Q3) What is the rationale underlying the tax deferral treatment available under § 351?
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Chapter 19: Corporations: Distributions Not in Complete
Liquidation
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Q1) Hannah, Greta, and Winston own the stock in Redpoll Corporation (E & P of $900,000) as follows: Hannah, 600 shares; Greta, 400 shares; and Winston, 1,000 shares. Greta is Hannah's daughter, and Winston is Hannah's brother. Redpoll Corporation redeems 400 of Hannah's shares (basis of $55,000) for $240,000. Hannah purchased the stock three years ago as an investment. With respect to the stock redemption, Hannah has:
A)Long-term capital gain of $185,000.
B)Long-term capital gain of $240,000.
C)Dividend income of $185,000.
D)Dividend income of $240,000.
E)None of the above.
Q2) Distributions by a corporation to its shareholders are presumed to be a dividend unless the parties can prove otherwise.
A)True
B)False
Q3) Finch Corporation (E & P of $400,000) distributed machinery ($10,000 adjusted basis, $150,000 fair market value) to its sole shareholder, Kathleen.The property is subject to a $50,000 mortgage, which Kathleen assumed.How much dividend income does Kathleen recognize as a result of the distribution and what is her basis in the machinery?
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganizations
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Q1) The stock of Penguin Corporation is held as follows: 85% by Duck Corporation and 15% by Gerald, an individual. Penguin Corporation is liquidated in December of the current year, pursuant to a plan adopted earlier in the year. Penguin Corporation distributes land with a basis of $350,000 and fair market value of $390,000 to Gerald in liquidation of his stock interest. Gerald had a basis of $200,000 in his Penguin stock. How much gain will Penguin Corporation recognize in this liquidating distribution?
A)$0.
B)$40,000.
C)$190,000.
D)$390,000.
E)None of the above.
Q2) One difference between the tax treatment accorded nonliquidating and liquidating distributions is with respect to the recognition of losses by the distributing corporation. As a general rule, a corporation recognizes losses on liquidating distributions of depreciated property (fair market value less than basis) but not on nonliquidating distributions of such property.
A)True
B)False
Q3) Discuss the role of letter rulings in corporate reorganizations.
Page 23
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Chapter 21: Partnerships
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Q1) Julie and Kate form an equal partnership during the current year.Julie contributes cash of $160,000, and Kate contributes property (adjusted basis of $90,000, fair market value of $260,000) subject to a nonrecourse liability of $100,000.As a result of these transactions, Kate has a basis in her partnership interest of $40,000.
A)True
B)False
Q2) The LMO Partnership distributed $30,000 cash to Emma in a proportionate, nonliquidating distribution.Emma's basis in her partnership interest was $25,000 immediately before the distribution.As a result of the distribution, Emma's basis is reduced to $0 and she recognizes a $5,000 gain.
A)True
B)False
Q3) Tyler's basis in his partnership interest is $110,000, including his share of partnership debt.Sarah buys Tyler's partnership interest for $60,000 cash and she assumes Tyler's $90,000 share of the partnership's debt.If the partnership owns no hot assets, Tyler will recognize a capital loss of $50,000.
A)True
B)False
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Chapter 22: S: Corporations
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Q1) If a resident alien shareholder moves outside the U.S., the S election is terminated.
A)True
B)False
Q2) ____________________ common stock and ____________________ preferred stock (with preference on dividends) are treated as two different classes of stock by the S corporation rules.
Q3) Where the S corporation rules are silent, partnership rules apply to the S corporation. A)True
B)False
Q4) The passive loss limitations apply at the S corporation shareholder level.
A)True
B)False
Q5) An S corporation's separately stated items generally are identical to those separately stated by _________________________.
Q6) Distribution of appreciated property is taxable to an S corporation. A)True
B)False
Q7) Depreciation recapture income is a ____________________ computed amount.
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Chapter 23: Exempt Entities
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Q1) Under what circumstances are bingo games not treated as an unrelated trade or business?
Q2) While certain § 501(c)(3) organizations can elect to be permitted to lobby on a limited basis, churches are not eligible to make a § 501(h) election.
A)True
B)False
Q3) Revenue generated by an exempt organization from the distribution of low-cost items is not income from an unrelated trade or business.
A)True
B)False
Q4) A church is one of the types of exempt organizations.
A)True
B)False
Q5) Midge is the chairman of the board for a § 501(c)(3) exempt organization.She would like the exempt organization to be able to avoid private foundation classification status.Describe how this can be achieved.
Q6) Define a private foundation.
Q7) What are the common characteristics of organizations that receive exempt status?
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Chapter 24: Multistate Corporate Taxation
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Q1) Parent and Junior form a unitary group of corporations.Parent is located in a state with an effective tax rate of 3%, while Junior's effective tax rate is 9%.Acting in concert to reduce overall tax liabilities, the group should:
A)Execute an intercompany loan, such that Junior pays deductible interest to Parent.
B)Have Parent charge Junior an annual management fee.
C)Shift Parent's high-cost assembly and distribution operations to Junior.
D)All of the above are effective income-shifting techniques for a unitary group.
E)None of the above is an effective income-shifting technique for a unitary group.
Q2) A service engineer spends 60% of her time maintaining the employer's productive business property and 40% maintaining the employer's nonbusiness rental properties.This year, her compensation totaled $90,000.The payroll factor assigns $54,000 to the state in which the employer is based.
A)True
B)False
Q3) All of the U.S.states have adopted a tax based on net taxable income.
A)True
B)False
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Chapter 25: Taxation of International Transactions
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Q1) Peanut, Inc., a domestic corporation, receives $500,000 of foreign-source interest income, on which foreign taxes of $5,000 are withheld.Peanut's worldwide taxable income is $900,000, and its U.S.Federal income tax liability before FTC is $270,000.What is Peanut's foreign tax credit?
A)$500,000.
B)$275,000.
C)$150,000.
D)$5,000.
Q2) A U.S.taxpayer may take a current FTC equal to the greater of the FTC limit or the actual foreign taxes (direct or indirect) paid or accrued.
A)True
B)False
Q3) The U.S.system for taxing income earned inside its borders by non-U.S.persons is referred to as inbound taxation because such foreign persons are earning income by coming into the United States.
A)True
B)False
Q4) Discuss the primary purposes of income tax treaties.
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Chapter 26: Tax Practice and Ethics
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147 Verified Questions
147 Flashcards
Source URL: https://quizplus.com/quiz/70927
Sample Questions
Q1) Clara underpaid her taxes by $50,000.Of this amount, $15,000 was due to negligence on her part, as her record-keeping system is highly inadequate.Determine the amount of any negligence penalty
Q2) Freddie has been assessed a preparer penalty for willful and reckless conduct.When he completed Peggy's Federal income tax return (who is in the 35% tax bracket), Freddie purposely omitted $100,000 of cash receipts that should have been reported as gross income.Freddie charged Peggy $4,000 to prepare the return.What is Freddie's preparer penalty?
A)$0, because Peggy incurred her own understatement penalty for the return.
B)$2,000.
C)$4,000.
D)$5,000.
Q3) The Statements on Standards for Tax Services are issued by the:
A)IRS.
B)AICPA.
C)ABA.
D)SEC.
Q4) In connection with the taxpayer penalty for substantial understatement of tax liability, what defenses (if any) are available?
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Chapter 28: Income Taxation of Trusts and Estates
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145 Verified Questions
145 Flashcards
Source URL: https://quizplus.com/quiz/70926
Sample Questions
Q1) An estate's income beneficiary generally must wait until the entity is terminated by the executor to receive any distribution of income.
A)True B)False
Q2) In computing the Federal taxable income of a trust, the first step is to determine its ____________________ income.
Q3) The Bard Estate incurs a $25,000 fee in disposing of the real property of the decedent. The executor can decide to claim a $5,000 deduction against the Federal estate tax, and a $20,000 deduction on the estate's income tax return.
A)True B)False
Q4) Consider the term distributable net income as it is used with respect to the Federal income taxation of trusts and estates. How is this amount computed? Where is it used in computing the parties' taxable incomes?
Q5) Is a trust subject to the alternative minimum tax? Or does the trust "pass through" AMT items to its grantor and beneficiaries?
Q6) The IRS encourages ____________________ filing for Forms 1041.
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