Individual Federal Income Taxation
Review Questions
Course Introduction
This course provides a comprehensive overview of the federal income tax system as it applies to individual taxpayers in the United States. Topics include the determination of gross income, exclusions, deductions, tax credits, and the calculation of taxable income and tax liability. Students will examine filing status, exemptions, and special tax issues such as capital gains and losses, alternative minimum tax, and tax implications of life events. The course also explores tax planning strategies, ethical considerations, and the use of common tax forms and software, preparing students for both personal and professional tax responsibilities.
Recommended Textbook Pearsons Federal Taxation 2018 Individuals 31st Edition by Timothy J. Rupert
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2328 Verified Questions
2328 Flashcards
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Chapter 1: An Introduction to Taxation
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Q1) In a limited liability partnership,a partner is not liable for his partner's acts of negligence or misconduct.
A)True
B)False
Answer: True
Q2) The unified transfer tax system,comprised of the gift and estate taxes,is based upon the total property transfers an individual makes during lifetime and at death.
A)True
B)False
Answer: True
Q3) 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
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Chapter 2: Determination of Tax
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Sample Questions
Q1) A married person who files a separate return can claim a personal exemption for his spouse if the spouse is not the dependent of another and has
A) gross income that is less than the personal exemption.
B) adjusted gross income that is less than the personal exemption.
C) no gross income.
D) no taxable income.
Answer: C
Q2) Charlie is claimed as a dependent on his parents' tax return in 2017.He received $8,000 during the year from a part-time acting job,which was his only income.What is his standard deduction?
A) $1,050
B) $6,350
C) $8,000
D) $8,350
Answer: B
Q3) The only business entity that pays federal income taxes is the C corporation. A)True
B)False
Answer: True
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Page 4
Chapter 3: Gross Income: Inclusions
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Q1) With respect to alimony and property settlements in a divorce or separation,all of the following are true with the exception of
A) a property settlement does not result in income to either spouse.
B) no tax deduction is allowed for payment of a property settlement.
C) the spouse receiving a property settlement has a basis equal to the basis of that property to the paying spouse prior to payment.
D) no deduction is allowed for alimony paid to the former spouse if a property settlement is also paid.
Answer: D
Q2) An accrual-basis taxpayer receives advance payment for services to be provided over three future years.The taxpayer can recognize the income over the three-year period as services are provided,consistent with its financial statements.
A)True
B)False
Answer: False
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Chapter 4: Gross Income: Exclusions
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Sample Questions
Q1) All of the following are requirements for excluding employee achievement awards except for
A) tangible personal property other than cash.
B) based on safety records or length of service.
C) part of a meaningful presentation.
D) if paid in cash, must be less than $400.
Q2) Rebecca is the beneficiary of a $500,000 insurance policy on her husband's life.She elects to receive $52,000 per year for 10 years rather than receive the entire amount in a lump sum.Of the amount received each year
A) $2,000 is taxable income.
B) $50,000 is taxable income.
C) $52,000 is taxable income.
D) $5,000 per year is tax free as a death benefit.
Q3) Meals may be excluded from an employee's gross income provided they are furnished on the employer's business premises and are for the convenience of the employee.
A)True
B)False
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Chapter 5: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) 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
Q2) Antonio is single and has taxable income of $150,000 without considering the sale of a capital asset (land held for investment) in September of 2017 for $25,000.That asset was purchased six years earlier and has a tax basis of $5,000.The tax liability applicable to only the capital gain (without consideration of the additional Medicare tax) is
A) $1,000.
B) $3,000.
C) $5,600.
D) $7,000.
Q3) Capital recoveries increase the adjusted basis of an asset.
A)True
B)False
Q4) What are arguments for and against preferential treatment of capital gains?
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Chapter 6: Deductions and Losses
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Sample Questions
Q1) During the current year,the United States files criminal and civil actions against Joe,the CEO of Box Corporation,and Jane,the president of Cable Corporation,for price fixing.Both enter pleas of no contest and appropriate judgments are entered.Subsequent to this action,Square Corporation sues both Box and Cable for treble damages of $6,000,000.In settlement,Box and Cable each pay Square $1,200,000.What is the maximum amount that Box and Cable may each deduct?
A) $400,000
B) $1,200,000
C) $2,000,000
D) $6,000,000
Q2) A wash sale occurs when a taxpayer realizes a loss on the sale of stock or securities and the taxpayer acquires substantially identical stock or securities within a 61-day period after the date of sale.
A)True
B)False
Q3) A single individual with no dependents can deduct the larger of his itemized deductions or his personal exemption.
A)True
B)False
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Page 8
Chapter 7: Itemized Deductions
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Sample Questions
Q1) Jill is considering making a donation to her church.She wants to give $50,000 for the new church building.She has some stock with a FMV of $50,000 and an adjusted basis of $10,000 that she has held for 3 years.She is planning to sell the stock and donate the $50,000 proceeds to the church.What should she consider before taking that action?
Q2) Medical expenses paid on behalf of an individual who could be the taxpayer's dependent except for the gross income or joint return tests are deductible as itemized deductions.
A)True B)False
Q3) A taxpayer is allowed to deduct interest expense incurred on home equity indebtedness limited to the lesser of $100,000 or the home equity (FMV of the residence less the acquisition indebtedness).
A)True B)False
Q4) May an individual deduct a charitable contribution for services rendered to a charitable organization?
Q5) What is the treatment of charitable contributions in excess of the applicable limits for the current year?
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Chapter 8: Losses and Bad Debts
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Sample Questions
Q1) Juanita,who is single,is in an automobile accident in 2017 and her car sustains $6,200 in damages.Juanita does not expect to recover any of the loss from her insurance company.Juanita's 2017 AGI is $31,000,and she deducts a $3,000 loss after applying limitations on her 2017 tax return.Her other itemized deductions in 2017 exceed $12,000.In 2018,Juanita's insurance company reimburses her $2,800.Juanita's 2018 AGI is $28,000.As a result,Juanita must
A) amend 2017 to show a $200 loss.
B) do nothing and simply keep the $2,800.
C) do nothing to the 2017 return but report $2,800 of income on her 2018 return.
D) amend the 2017 return to show $0 loss and file her 2018 return to show a $200 loss.
Q2) Businesses can recognize a loss on abandoned property.What types of factors would indicate that property had been abandoned?
Q3) For purposes of the application of the passive loss limitations,a closely held C corporation is a C corporation in which more than 50 percent of the stock is owned by five or fewer individuals at any time during the last half of the taxable year.
A)True
B)False
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Page 10
Chapter 9: Employee Expenses and Deferred Compensation
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Sample Questions
Q1) A qualified pension plan requires that employer-provided benefits must be 100 percent vested after five years of service.
A)True
B)False
Q2) Martin Corporation granted a nonqualified stock option to employee Caroline on January 1,2013.The option price was $150,and the FMV of the Martin stock was also $150 on the grant date.The option allowed Caroline to purchase 1,000 shares of Martin stock.The option itself does not have a readily ascertainable FMV.Caroline exercised the option on August 1,2017,when the stock's FMV was $250.Caroline sells the stock on September 5,2018,for $300 per share.Martin Corporation will be allowed a deduction of A) $150,000 in 2013.
B) $100,000 in 2017.
C) $50,000 in 2018.
D) $100,000 in 2017 and $50,000 in 2018.
Q3) The maximum tax deductible contribution to a traditional IRA in 2017 is $5,500 ($6,500 for a taxpayer age 50 or over).
A)True
B)False
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Chapter 10: Depreciation, cost Recovery, amortization, and Depletion
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Sample Questions
Q1) If a new luxury automobile is used 100% for business and placed in service in 2016,the maximum MACRS depreciation on the vehicle for 2017 is $11,160.
A)True
B)False
Q2) Capital improvements to real property must be depreciated over the remaining life of the property on which the improvements were made.
A)True
B)False
Q3) Under the MACRS system,the same convention that applies in the year of acquisition (e.g.,half-year,mid-quarter,or mid-month) also applies in the year of disposition.
A)True
B)False
Q4) Unless an election is made to expense research and experimental expenditures or to defer and amortize the expenditures,these costs must be capitalized.
A)True
B)False
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Chapter 11: Accounting Periods and Methods
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Sample Questions
Q1) 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.
Q2) The installment sale method can be used for all of the following transactions except A) the sale of an antique by a collector.
B) the sale of shares of publicly traded corporate stock.
C) the sale of farmland used in a farming business.
D) the sale of a boat held for personal use.
Q3) A taxpayer's tax year must coincide with the year used to keep the taxpayer's books and records.
A)True
B)False
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Chapter 12: Property Transactions: Nontaxable Exchanges
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Q1) Which of the following statements regarding involuntary conversions is incorrect?
A) With some exceptions, the replacement property must be similar or related in service or use to the property converted.
B) The functional-use test is more restrictive than the like-kind test.
C) The taxpayer-use test applies to the involuntary conversion of rental property owned by an investor.
D) Real property used in a trade or business that is condemned must be replaced with property which has the same functional use as the converted property.
Q2) Theresa owns a boat that is held for personal use and has a $100,000 basis.The boat is destroyed by a storm and Theresa collects $120,000 from the insurance company.She purchases a new $150,000 boat for personal use and elects to defer any gain on the transaction.What is the basis of the new boat?
Q3) A sale of property and subsequent purchase of like-kind property may be treated as a like-kind exchange if the two transactions are interdependent.
A)True
B)False
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Chapter 13: Property Transactions: Sec1231 and Recapture
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Sample Questions
Q1) Depreciable property placed in service nine months earlier is considered Sec.1231 property.
A)True
B)False
Q2) Eric purchased a building in 2006 that he uses in his business.Eric uses the straight-line method for the building.Eric's original cost for the building is $420,000 and cost-recovery deductions are $120,000.Eric is in the top tax bracket and has never sold any other business assets.If the building is sold for $560,000,the tax results are
A) $260,000 Sec. 1231 gain, all taxable at 20%.
B) $260,000 unrecaptured Sec. 1250 gain, all taxable at 25%.
C) $260,000 Sec. 1231 gain, of which $120,000 is unrecaptured Sec. 1250 gain taxable at 25% and the $140,000 balance is taxable at 20%.
D) $120,000 Sec. 1245 ordinary income, $140,000 Sec. 1231 gain taxable at 20%.
Q3) Sec.1231 property will generally have all the following characteristics except A) real or depreciable property.
B) used in trade or business.
C) held for sale to customers.
D) held for more than one year.
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Chapter 14: Special Tax Computation Methods, tax Credits, and Payment of Tax
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Sample Questions
Q1) Hong earns $127,300 in her job as a physician's assistant.She also has her own business selling cosmetics.This business generated $10,000 of earnings.What is Hong's self-employment tax for 2017?
A) $268
B) $290
C) $1,412
D) $1,530
Q2) Self-employed individuals are subject to the self-employment tax if their net earnings are more than the personal exemption amount.
A)True
B)False
Q3) If a taxpayer's AGI is greater than $150,000,no penalty will be imposed if the taxpayer pays estimated tax payments in 2017 equal to what percentage of 2016's income tax liability?
A) 100%
B) 90%
C) 110%
D) 120%
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Chapter 15: Tax Research
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Sample Questions
Q1) Describe the appeals process in tax litigation.
Q2) Discuss the purposes and scope of temporary regulations.
Q3) Which regulation deals with the gift tax?
A) Reg. Sec. 1.165-5
B) Reg. Sec. 20.2014-5
C) Reg. Sec. 25.2518-5
D) Reg. Sec. 301.7002-5
Q4) Ralph's business records were lost as a result of Hurricane Katrina.CPA Jane prepares Ralph's return using estimates.What do the Statements on Standards for Tax Services state about the use of estimates?
A) Estimates may not be used.
B) Estimates may be used without disclosing their use to the IRS.
C) Estimates may be used, but Jane should disclose their use to the IRS.
D) The Statements on Standards for Tax Services do not address the use of estimates.
Q5) Regulations issued prior to the latest tax legislation dealing with a specific Code section are still effective to the extent they do not conflict with the provisions in the new legislation.
A)True
B)False
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Chapter 16: Corporations
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Sample Questions
Q1) A family-owned corporation with substantial investment income could be subject to both the accumulated earnings tax and the personal holding company tax.
A)True
B)False
Q2) Charades Corporation is a publicly held company listed on the New York Stock Exchange.During the current year,its chief executive officer,Samantha Chen,receives the following compensation from the corporation: salary,$1,500,000; commissions based on sales generated by Samantha,$200,000; payments to a qualified pension plan,$30,000; and tax-free fringe benefits,$20,000.What is the total amount taxable to Samantha?
A) $1,000,000
B) $1,200,000
C) $1,500,000
D) $1,700,000
Q3) In order for the Sec.351 nonrecognition rules to apply,the transferor-shareholders in aggregate must control the transferee corporation by owning more than 50% of its stock immediately after the exchange.
A)True
B)False
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Chapter 17: Partnerships and S Corporations
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Q1) An LLC that elects to be taxed like a partnership is also classified as a partnership for legal purposes.
A)True
B)False
Q2) Which of the following assets may cause a partner to recognize ordinary income rather than capital gain on the sale of a partnership interest?
A) land
B) marketable securities
C) inventory
D) buildings which have been placed in service after 1986
Q3) An S corporation recognizes gain or loss if it distributes property other than money to its shareholders.
A)True
B)False
Q4) Discuss whether a C corporation,a partnership,or an S corporation form of organization would be preferred if net operating losses are anticipated in the initial years of operation.
Q5) What is the primary purpose of Form 1065,Partnership Tax Return?
Q6) Discuss the concept of partnership guaranteed payments.
Page 19
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Chapter 18: Taxes and Investment Planning
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Sample Questions
Q1) The Pension Model has all of the following characteristics except for A) before-tax dollars are invested.
B) the annual earnings on the investment grow at the before-tax rate of return.
C) only the accumulated earnings are taxed at the end of the investment horizon when the investor cashes out of the investment.
D) the entire accumulation is taxed at the end of the investment horizon when the investor cashes out of the investment.
Q2) The general form of the annualized after-tax rate of return (annualized ATROR) for the Deferred Model can be expressed as
A) r<sub>ann</sub> = [(1 + R)<sup>n</sup>(1 - t<sub>n</sub>) + t<sub>n</sub>]<sup>1/n</sup> - 1.
B) r<sub>ann</sub> = [(1 - R)<sup>n</sup>(1 - t) + t]<sup>1/n</sup> - 1.
C) r<sub>ann</sub> = [(1 + R)<sup>n</sup>(1 + t) + t]<sup>1/n</sup> - 1.
D) r<sub>ann</sub> = [(1 + R)<sup>n</sup>(1 + t) - t]<sup>1/n</sup> - 1.
Q3) Flow-through entities include all of the following types of entities except A) partnerships.
B) C corporations.
C) S corporations.
D) limited liability companies (LLCs).
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