Individual Taxation Exam Questions
Course Introduction
Individual Taxation examines the principles and procedures of federal income taxation as they apply to individuals. The course covers topics such as gross income, deductions, exemptions, personal and dependency exemptions, tax credits, and the determination of taxable income. Students will explore tax planning strategies, filing requirements, and the implications of recent tax law changes. Emphasis is placed on interpreting Internal Revenue Code provisions, completing individual tax returns, and understanding ethical considerations in tax practice. By the end of the course, students will gain the foundational knowledge and practical skills necessary for personal tax compliance and advising individuals on tax matters.
Recommended Textbook
Concepts in Federal Taxation 2017 24th Edition by Kevin
E. Murphy
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16 Chapters
2073 Verified Questions
2073 Flashcards
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Chapter 1: Federal Income Taxation-An Overview
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Sample Questions
Q1) Direct reduction in the income tax liability often created by Congress to further a public purpose.
A)Advalorem tax
B)Deduction
C)Excisetax
D)Exclusi on
E)Expense
F)Gain
G)Loss
H)Ordinary income
I)Pay-as-you-go concept
J)Personal property
K)Real property
L)Self-assessment
M)Standard deduction
N)Statute of limitations
O)Taxbase
P)Tax credit
Answer: P
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Page 3
Chapter 2: Income Tax Concepts
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Q1) The administrative convenience concept explains why some items are not treated consistently when the cost of implementing a concept exceeds the benefit of using it.
A)True
B)False
Answer: True
Q2) Riley owns some land,which has an oil deposit underneath it.His annual royalties are usually around $100,000.Because Riley is in the highest marginal tax rate bracket,he would like to have some (or all)of the royalty income taxed to his son,Mark,thus lowering the overall tax on the royalty income.To do this
I.Riley can gift part of the land to Mark.
II.Riley can gift all of the land to Mark.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: C
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Page 4
Chapter 3: Income Sources
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Sample Questions
Q1) Hector and Nicole are retired.During the current year,they receive $11,000 from a qualified pension plan,$3,000 of dividends on common stock holdings,$6,000 of tax-exempt interest,and $10,000 of Social Security benefits.Hector and Nicole's adjusted gross income is:
A)$14,000
B)$19,000
C)$24,000
D)$30,000
Answer: A
Q2) 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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Sample Questions
Q1) Bart's spouse,Carla,dies during the current year.Carla's life insurance policy names Bart the sole beneficiary of the $2 million proceeds.Bart invests the $2 million in a bank certificate of deposit (CD).For the current year,Bart earns $98,000 interest from the CD.What are the tax effects of these events for Bart?
I.The $98,000 is included in gross income.
II.The $2 million is included in gross income.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) On April 1,Sally is given $20,000 worth of General Motors bonds for her 18<sup>th</sup> birthday.On June 30,Sally receives the $800 annual interest payment on the bonds.How much income should Sally recognize due to these two events?
A)$- 0 -
B)$200
C)$800
D)$20,000
E)$20,800
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Page 6
Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) Christy purchases $1,000-worth of supplies from a local vendor.The supplies are delivered on March 29,2016.The supplies are fully used up by year end.Because of unusual circumstances,a bill for the supplies arrives from the vendor on January 10,2017,and is promptly paid.When can Christy deduct the expenses?
I.In 2016,if she is an accrual basis taxpayer.
II.In 2017,if she is a cash basis taxpayer.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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
Q3) List the criteria necessary for an expenditure to be deductible as a trade or business expense or an expense for the production of income.
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Chapter 6: Business Expenses
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Q1) Nonbusiness bad debt
A)Not deductible.
B)Short-term capital loss.
C)Limited to $25 per person.
D)Deductible as an ordinary loss
E)Only 50% of the cost is deductible.
F)Must be away from tax home overnight to be deductible.
G)General area where a taxpayer conducts principal activity.
H)If the "directly-related" test fails; this test may allow the deduction.
Q2) Margie is single and is an employee of the Stitch Corporation.She is an active participant in the company's pension plan.Margie's adjusted gross income is $65,000 and she contributes the maximum amount allowable as a deduction to her IRA account during the current year.How much can Margie contribute to her Roth IRA?
A)$- 0 -
B)$1,000
C)$2,200
D)$4,000
E)$5,500
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Page 8
Chapter 7: Losses-Deductions and Limitations
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Sample Questions
Q1) Frasier sells some stock he purchased several years ago for $10,000 to his brother,Niles,for $6,000.
I.If this is Frasier's only stock transaction,he can deduct only $3,000 of the loss.
II.If Niles sells the stock for $10,000,his taxable gain is $4,000.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Nancy is the owner of an apartment complex.She actively participates in the management of the building.During the current year,it generates a taxable loss of $27,000.Nancy's other sources of income are salary of $52,000 and interest of $21,000.What is Nancy's allowable loss from the apartment?
A)$- 0 -
B)$18,000
C)$25,000
D)$27,000
E)None of the above.
Q3) Why did Congress enact the at-risk rules?
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Page 9
Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Smokey purchases undeveloped land in 1999 for $20,000.In the current year he contributes the property to the Camp Fire Girls of America to use as their summer camp.The fair market value of the land at the date of the contribution is $25,000.If Smokey's AGI is $100,000,what is his maximum deductible charitable contribution?
A)$5,000
B)$20,000
C)$25,000
D)$30,000
E)$50,000
Q2) Byron,54,is a single,self-employed,carpenter.During 2016,he earns gross revenues of $60,000 and incurs $6,000 of business expenses.His itemized deductions for the year are $8,000.Determine Byron's taxable income and his total tax liability.
Q3) Under the legislative grace concept,Congress allows certain personal expenses to be deducted when they exceed the standard deduction.
A)True
B)False
Q4) Explain the support test and the gross income test to be a qualifying relative.
Q5) Self-employed sports agent pays $6,000 of self-employment tax.Amount: $3,000
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Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Basis
A)Begins on the day after acquisition and ends on the day of disposition.
B)The initial investment in an asset.
C)An asset's basis transfers from one owner to another.
D)The capital investment remaining in an asset at the date of its disposition.
E)Sales price less expenses of disposition.
F)A purchase of all of the assets of a business.
G)Amount realized is less than adjusted basis.
H)A purchase of all of the assets of a business by buying the stock of a corporation.
I)A term used to identify a situation in which an asset has a different basis for determining gain than for determining loss.
J)The date of death used to value a decedent's estate in the absence of any special election.
K)Six months after the date of death, used to value a decedent's estate when the executor of the estate makes election.
L)Amount realized is greater than adjusted basis.
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Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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Sample Questions
Q1) Pedro purchased used delivery equipment costing $80,000 and used computers costing $90,000 (the only assets purchased)that are used in his business.He may allocate his section 179 deduction to either or both assets.
A)True
B)False
Q2) Depletion
A)Computers, and automobiles.
B)Used to recover the investment in intangible assets.
C)Used to recover the investment in long-lived tangible business-use assets.
D)An attempt to stimulate capital investment by small businesses.
E)Used to recover the investment in assets that waste away through extraction.
Q3) Aaron purchases a taxicab (5-year MACRS property)for $20,000 on December 3,2016.This is the only business asset Aaron acquires in 2016.He does not desire to use the Section 179 election.What is the maximum amount of depreciation that he can deduct in 2016?
A)$1,000
B)$3,000
C)$4,000
D)$10,500
E)$14,000
Page 12
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Chapter 11: Property Dispositions
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Sample Questions
Q1) If an individual sells depreciable real estate at a gain
I.the entire gain is taxed at a maximum rate of 15%.
II.the gain due to depreciation is taxed as a long-term capital gain.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) After using a house as his personal home for 20 years,George converts it in 2006 to an office building for use in his construction business.He sells the building at a $65,000 loss in 2015.
Q3) "Recapture of depreciation" refers to:
A)Downward adjustments of past depreciation charges by IRS review.
B)Increasing depreciation charges by changing accounting method.
C)Filing an amended return where less than maximum depreciation charges have been claimed as deductions.
D)Taxing the smaller of past depreciation or gain as ordinary income on the disposition of equipment.
Q4) George sells his personal use automobile at a loss of $4,300.
Q5) George's wife sells stock she purchased 10 months ago at a gain of $212.
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Chapter 12: Non-Recognition Transactions
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Sample Questions
Q1) Violet exchanges investment real estate with Russell.Violet's adjusted basis in her two-year old property is $280,000.The property is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged.Russell assumes that debt.Russell paid $80,000 cash for his property in 1999 and it is appraised at $150,000 on the day of the exchange.Russell pays Violet enough in cash to balance the exchange.What is Russell's recognized gain (loss)on the exchange?
A)$-0-
B)$70,000
C)$80,000
D)$150,000
Q2) Personal residence for an apartment building.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q3) A fire destroys David's business building that cost $200,000 in 2005 and had an adjusted basis of $160,000.David's insurance company reimburses him $250,000 for his loss.David promptly reconstructs the building for $230,000.
a.What is the amount and the character of David's minimum recognized gain (loss)?
b.What is the basis of David's new building?
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Chapter 13: Choice of Business Entity-General Tax and
Nontax
Factorsformation
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Sample Questions
Q1) Carson and Dan agree to become equal owners in ProClothing,a retailer of golf apparel.Dan will contribute $5,000 cash and a building worth $85,000 (adjusted basis of $60,000).The building is encumbered by a $40,000 mortgage that ProClothing will assume.Carson will contribute $10,000 cash and inventory worth $40,000 (adjusted basis of $30,000).What are Carson and Dan's bases in ProClothing if the business is organized as a
a.Partnership
b.Corporation
Q2) Discuss what limited liability means.What type of entity (or entities)offers this characteristic to its owners? What type(s)of entity (or entities)do not provide this characteristic?
Q3) Which of the following will render a corporation ineligible for S corporation status?
I.The corporation has 95 stockholders.
II.One of the stockholders is a citizen- resident of Canada.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Page 15
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Chapter 14: Choice of Business Entity-Operations and Distributions
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Sample Questions
Q1) Lane Inc.,an electing S corporation,realizes $150,000 from sales during the current year.Lane also receives $20,000 of dividends from a 3% owned corporation.Operating expenses total $155,000.Lane's operating income is
A)$(19,000)
B)$( 5,000)
C)$1,000
D)$4,500
E)$15,000
Q2) When a corporation pays a dividend,it is nontaxable if it is in excess of earnings and profits.
A)True B)False
Q3) If a sole proprietorship has a net operating loss for the current period,the loss can only be used to offset other business income in the current year.Any current loss can be carried back three years and forward five years and used to offset business income in those years.
A)True B)False
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Chapter 15: Choice of Business Entity-Other Considerations
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Q1) Which of the following statements are correct concerning the general business credit?
I.The general business tax credit only applies to an individual or corporation with a tax liability in excess of $100,000.
II.The general business credit only applies to an individual or corporation that has a tax credit carryover or can claim more than one general business credit during the year.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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.
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Chapter 16: Tax Research
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Q1) All judicial citations follow the same format: case name,volume number of the reporter in which the case is published,name of the reporter,and the page of the reporter on which the case begins.
A)True
B)False
Q2) Tara does not agree with a proposed deficiency of additional tax resulting from an examination of her individual income tax return.She has not been able to satisfactorily resolve her case within the administrative processes of the Internal Revenue Service.Which of the following courts may she petition without first making payment of the contested deficiency?
A)United States Tax Court.
B)United States District Court.
C)U.S. Court of Federal Claims.
D)Any of the above.
Q3) An interpretative regulation is issued when Congress specifically delegates the authority to the Treasury Department to write specific rules for a designated Code section.
A)True
B)False
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