Course Introduction
Individual Taxation Exam
Answer Key
This course provides a comprehensive introduction to the principles and practices of federal individual income taxation in the United States. Students will explore the fundamental concepts underlying the taxation of individuals, including gross income, exclusions, deductions, credits, and the computation of taxable income and tax liability. The course emphasizes the application of tax laws to real-world scenarios, analysis of primary tax sources, tax planning strategies, and the preparation of individual tax returns. Legal, ethical, and policy considerations in tax compliance and planning are also discussed to provide students with a well-rounded understanding of the subject.
Recommended Textbook
Concepts in Federal Taxation 2014 21st Edition by Kevin E. Murphy
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16 Chapters
2109 Verified Questions
2109 Flashcards
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Chapter 1: Federal Income Taxation - an Overview
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151 Verified Questions
151 Flashcards
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Sample Questions
Q1) A tax is an enforced contribution used to finance the functions of government.
A)True
B)False Answer: True
Q2) Pay-as-you-go withholding is consistent with Adam Smith's criteria of A)Certainty.
B)Convenience.
C)Economy.
D)Fairness.
E)Transparency. Answer: B
Q3) Maria is single and has a 2013 taxable income of $199,800 She also received $15,000 of tax-exempt income.Maria's effective tax rate is:
A)22.8%
B)23.3%
C)25.3%
D)28.0%
E)33.0%
Answer: B
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Page 3
Chapter 2: Income Tax Concepts
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) Any deduction taken in a prior year that is recovered in a subsequent year is reported as income in the year it is recovered,to the extent that a tax benefit was received from the deduction.
A)True
B)False
Answer: True
Q2) In the current year,Darlene purchases a 20% interest in the Grant Partnership (GP)for $10,000.During the current year,GP has a taxable income of $80,000 and Darlene withdraws $5,000 of cash from the partnership.Darlene's income to be reported from her investment in GP and her basis in GP at the end of the year is: \(\text {\quad Income \quad Basis}\)
a. \(\$ 16,000 \quad \$ 21,000\)
b. \(\$ 5,000 \quad \$ 26,000\)
c. \(\$ 16,000 \quad \$ 10,000\)
d. \(\$ 5,000 \quad \$ 10,000\)
Answer: A
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Page 4
Chapter 3: Income Sources
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153 Flashcards
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Sample Questions
Q1) The holding period for receiving long-term capital gain treatment is 12 months or more.
A)True
B)False
Answer: False
Q2) Ruth purchased an annuity contract for $10,000.When she turns 65,she will receive $150 a month for the rest of her life.The first $10,000 she receives is a return of her capital and is not taxable.
A)True
B)False
Answer: False
Q3) The income tax concept that is primarily responsible for the treatment of installment sales of property is the:
A)Administrative Convenience Concept.
B)Arm's-Length Transaction Concept.
C)Entity Concept.
D)Realization Concept.
E)Wherewithal-to-Pay Concept.
Answer: E
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Page 5
Chapter 4: Income Exclusions
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161 Flashcards
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Sample Questions
Q1) Dick lives rent-free in an apartment (value $675/month)in a complex where he is the apartment manager and must be on the premises to handle problems.
A)Fully excluded from gross income.
B)Fully included in gross income.
C)Partially excluded from gross income.
Q2) Ward and June are in the 28% tax bracket.Included in their assets is a Dell Corporation bond with a face value of $10,000.The bond pays $1,000 per year in interest.Ward and June gift the bond to their son,Wally (age 19),on January 1,2013.Wally is in the 10% tax bracket.Wally's taxable income from the receipt of the bond and the bond interest in 2013 is
A)$ -0-
B)$ 1,000
C)$ 1,500
D)$10,000
E)$11,000
Q3) Any income earned subsequent to the death of the decedent from inherited property is excludable from the heir's taxable income.
A)True
B)False
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Page 6
Chapter 5: Introduction to Business Expenses
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168 Verified Questions
168 Flashcards
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Sample Questions
Q1) Production-of-income expense
A)Automobile used 75% for business.
B)Investment expenses on municipal bonds.
C)Cost of investigating a new trade or business that the taxpayer enters.
D)Can be separated into two classifications.
E)Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.
Q2) In order for a taxpayer to reduce taxable income with a deduction,the tax law must allow it,and it must meet all statutory requirements.
A)True
B)False
Q3) Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.
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Page 7
Chapter 6: Business Expenses
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147 Verified Questions
147 Flashcards
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Sample
Questions
Q1) Fred and Flossie are married and their adjusted gross income is $189,000.Both Fred and Flossie are active participants in their company's qualified pension plan and have never established an Individual Retirement Account.What is the maximum combined amount they can contribute to Roth IRAs?
A)$ - 0 -
B)$ 2,000
C)$ 5,500
D)$ 8,000
E)$11,000
Q2) Garcia is a self-employed chiropractor and a cash basis taxpayer.During the most recent tax year,he provides patient services totaling $400,000.Of that total amount,he estimates $20,000 will never be collected.How much can Garcia deduct as a bad debt expense in the current tax year?
A)$ - 0 -
B)$ 6,000
C)$10,000
D)$14,000
E)$20,000
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8
Chapter 7: Losses: Deductions and Limitations
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131 Verified Questions
131 Flashcards
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Sample Questions
Q1) Pedro owns a 50% interest in a limited partnership that operates an apartment complex.During the current year,the partnership generates a taxable rental loss of $42,000.Pedro's other sources of income are salary of $55,000 and interest of $18,000.What is Pedro's allowable loss from the apartment?
A)$ - 0 -
B)$18,000
C)$21,000
D)$25,000
E)None of the above.
Q2) Which of the following events is a "casualty" loss?
I.Diamonds stolen by thief,reported to police
II.Florida orange trees killed by a freeze.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Discuss the difference(s)between the real estate professional exception and the active participation exception when dealing with rental properties.
Q4) Why did Congress enact the at-risk rules?
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Chapter 8: Taxation of Individuals
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162 Verified Questions
162 Flashcards
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Sample Questions
Q1) Which of the following individuals or couples qualify for the 2012 earned income credit?
I.Holly is single,23 years old,and has just finished drama school.She earns $2,000 doing commercials and another $6,000 as a taxicab driver.
II.Larry and Shari are both 30 years old.Larry works part-time and earns $6,000,and Shari,who is starting her own business,earns $9,000.They have one child.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) To be a qualifying relative,an individual must meet certain tests.These tests include, I.the citizen or residency test.
II.the non-support test.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Explain the support test and the gross income test to be a qualifying relative.
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Chapter 9: Acquisitions of Property
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Real property
A)Land and structures permanently attached to land.
B)Property that lacks a physical existence.
C)Property that is used by the taxpayer for purely personal purposes.
D)Any property that has form, shape, and substance.
E)Property with a physical existence that is not real estate.
F)A single property used in more than one category.
Q2) If the executor of a decedent's estate elects the alternate valuation date and none of the estate's property is sold or distributed,the estate's assets are valued as of how many months after the date of death?
A)0, date of death is the correct valuation date.
B)3 months.
C)6 months.
D)9 months.
E)12 months.
Q3) Brad,an engineering consultant,was given stock valued at $3,000 for services rendered.His basis in the stock he received for the services is zero since he received no cash.
A)True
B)False
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Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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117 Verified Questions
117 Flashcards
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Sample Questions
Q1) Aaron purchases a taxicab (5-year MACRS property)for $20,000 on December 3,2013.This is the only business asset Aaron acquires in 2013.He does not desire to use the Section 179 election,and he elects out of bonus depreciation.What is the maximum amount of depreciation that he can deduct in 2013?
A)$ 1,000
B)$ 3,000
C)$ 4,000
D)$ 10,500
E)$ 14,000
Q2) During 2013,Duncan Company purchases and places in service office equipment with a cost of $40,000.The equipment is 7-year MACRS property with an ADS recovery period of 10 years.Duncan desires to avoid the AMT.What is its minimum 2013 depreciation deduction?
A)$ 2,000
B)$ 2,857
C)$ 3,000
D)$ 4,000
E)$ 5,714
Q3) Discuss why listed property gets special attention.
Page 12
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Chapter 11: Property Dispositions
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140 Flashcards
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Sample Questions
Q1) Davidson Corporation has the following gains and losses from Section 1231 property during 2013:
\(\begin{array}{lr}
\text {Casualy losses } &\$(6,000) \\
\text {Casualty gains } &7,000 \\
\text { Section 1231 gains } &6,000 \\
\text { Section 1231 losses } &(9,000)
\end{array}\)
No net Section 1231 losses have been deducted as ordinary losses in prior years.How much of the 2013 Section 1231 gains and losses are recognized as long-term capital gains?
A)$ - 0 -
B)$ 1,000
C)$ 2,000
D)$ 3,000
E)$ 6,000
Q2) Discuss the general differences between Section 1245 and Section 1250 property.
Q3) The amount realized equals the gross selling price less any selling expenses.
A)True
B)False
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Chapter 12: Nonrecognition Transactions
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120 Flashcards
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Sample Questions
Q1) Lindsey exchanges investment real estate parcels with Donna.Her adjusted basis in the property is $400,000,and it is encumbered by a mortgage liability of $200,000.Donna assumes the mortgage.Donna's property is appraised at $1,000,000 and is subject to a $100,000 liability.Lindsey assumes the liability.If no cash is exchanged,what is the amount of gain recognized by Lindsey?
A)$ - 0 -
B)$100,000
C)$200,000
D)$500,000
E)$900,000
Q2) Inventory for inventory.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q3) Drake and Cynthia sell their home for $475,000,incurring selling expenses of $20,000.They had purchased the residence in 1998 for $105,000 and made capital improvements totaling $25,000.They buy a new residence for $210,000.What is their realized gain and recognized gain on the sale? What is their basis in the new house?
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Page 14
Chapter 13: Choice of Business Entity - General Tax and
Nontax Factorsformation
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) A new corporation's choice for its annual accounting period I.must be approved by the IRS.
II.must be the same as its majority shareholder.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Terry and Elsa form Egret Company by contributing assets of their respective businesses.Terry contributes $5,000 cash and land with a fair market value of $35,000 (adjusted basis of $20,000)for a 40% interest.Elsa will contribute services in organizing the startup of the company worth $20,000 and contributes $15,000 cash and inventory worth $75,000 (adjusted basis of $80,000)for a 60% interest.Determine the amount of gain or loss recognized on the transfer of the assets,each owner's basis in the ownership interest,and Egret Company's basis in the assets received for each of the following entities.
a.Egret Company is a partnership.
b.Egret Company is a corporation.
a.Egret Company is a partnership.
b.Egret Company is a corporation.
Page 15
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Chapter 14: Choice of Business Entity - Operations and Distributions
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Sample Questions
Q1) Corporations that sell depreciable real property are not subject to depreciation recapture rules
A)True
B)False
Q2) During the current year,Swallowtail Corporation receives dividend income of $40,000 from a 15%-owned domestic corporation.What is Swallowtail's maximum allowable dividend-received deduction for the current year?
A)$ - 0 -
B)$28,000
C)$32,000
D)$36,000
E)$40,000
Q3) Discuss two tax-planning techniques that can be used by a 100% owner-employee to reduce his/her tax liability.
Q4) Losses flow-through limited to basis plus the amount of any direct loans
A)Sole Proprietorship.
B)Partnership.
C)Corporation.
D)S Corporation.
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Chapter 15: Choice of Business Entity - Other
Considerations
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Sample Questions
Q1) Sergio is a 15% partner in the Hopkins Group and has net self-employment income of $100,000 in 2013.The maximum amount that Sergio can contribute to a Keogh money purchase plan is
A)$ 3,000
B)$13,045
C)$20,000
D)$25,000
E)$50,000
Q2) The tax advantage of a Roth IRA is that although the contributions are not deductible,the distributions of contribution and income are tax-free.
A)True
B)False
Q3) 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.
Page 17
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Chapter 16: Tax Research
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Sample Questions
Q1) What body has jurisdiction over all tax matters and is responsible for initiating tax legislation?
A)Joint Conference Committee.
B)Joint Committee on Taxation.
C)House Ways and Means Committee.
D)Judiciary Committee.
E)Senate Finance Committee.
Q2) The acquiescence policy of the IRS extends to
A)the U.S. Tax Court
B)the U.S. District Court
C)the U.S. Circuit Court of Appeals
D)All of the above
Q3) 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.
Q4) Describe the steps of the tax research process.
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Page 18