Individual Taxation Practice Exam
Course Introduction
Individual Taxation provides students with a comprehensive understanding of federal income tax laws as they apply to individuals. The course covers fundamental concepts such as gross income, exclusions, deductions, credits, and the calculation of taxable income. Students will learn about filing requirements, tax rates, and the procedures for computing and reporting individual tax liabilities. Emphasis is placed on tax planning strategies, common tax issues, compliance, and the ethical responsibilities of tax preparers. Practical applications through case studies and examples help illustrate current tax rules and their real-world impact.
Recommended Textbook
Concepts in Federal Taxation 2018 25th Edition by Kevin
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16 Chapters
2096 Verified Questions
2096 Flashcards
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E. Murphy
Page 2
Chapter 1: Conceptual Foundations of Tax Law
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Sample Questions
Q1) The common,customary,recurring type of income earned by taxpayers.
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: H
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Page 3
Chapter 2: Income Tax Concepts
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Sample Questions
Q1) Tax Benefit Rule
A)Taxpayer reports income when received in cash or its equivalent and takes deductions as they are paid.
B)A deduction taken in one year that is recovered in a later year is reported as income in the year of recovery to the extent that the deduction reduced taxable income.
C)Taxpayer reports income as earned and deductions as incurred.
D)The result of an arms-length transaction.
E)Exclusions and deductions result from specific acts of Congress that must be strictly applied and interpreted.
F)The taxability of a transaction is determined by the reality of the transaction rather than some contrived appearance.
G)The reporting of an item of income or expense on a tax return
H)No income is realized until the taxpayer's invested capital is recovered.
I)All income received is taxable unless some specific provision of the tax law allows exclusion of the item.
J)These taxpayers are not deemed to transact at arms-length.
Answer: B
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Chapter 3: Income Sources
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Q1) Property settlement
A)The category of income that includes interest,dividends,and rents.
B)Income from wages,salaries,and trade or businesses.
C)Interest income resulting from making an interest-free gift loan of $200,000.
D)A taxable amount received from a state plan to provide a substitute for an employee's earned income.
E)A series of equal payments received over equal time periods.
F)A receipt of cash from a former spouse that is included in gross income.
G)A payment received from a former spouse that is not included in gross income.
H)A division of marital assets that does not result in any income recognition.
I)A sale of property in which at least one payment is received in a tax year after the year of sale
J)A method of accounting that must be used to recognize income from long-term construction contracts.
K)A debt instrument that has the interest paid at maturity rather than throughout the life of the debt.
Answer: H
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Page 5
Chapter 4: Income Exclusions
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Sample Questions
Q1) Matt,a U.S.citizen,can exclude all of his $120,000 salary he earned as a bullfighter in Spain where he lived all year,from his U.S.tax return.
A)True
B)False
Q2) Donna is a student at Eastern State University.She receives a $4,000 academic scholarship from the Silverman Foundation.She also has a $2,000 assistantship to grade and tutor for the Department of Economics.Tuition,books,fees,and supplies are $5,000.How much gross income must Donna recognize from the scholarship and assistantship?
A)$- 0 -
B)$1,000
C)$2,000
D)$5,000
E)$6,000
Q3) Gifts received are not subject to income taxation;however the donor is subject to the gift tax rules on the making of a gift.
A)True
B)False
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Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) Henry owns a hardware store in Indianapolis.He has decided to expand his business interests and is considering opening a golf store in a neighboring town.He has incurred $12,000 of expenses investigating whether to open the new golf store.In July of the current year he finds the perfect location and opens the golf store on October 1.What amount of the investigation expenses can he deduct in the current year?
A)$- 0 -
B)$600
C)$5,117
D)$5,540
E)$12,000
Q2) Premiums the insured taxpayer pays for life insurance
A)Capitalized and amortized over a number of accounting periods
B)Expensed in the period incurred
C)Not deductible
D)Can be capitalized and amortized or deductible depending on the amount of the expenditure
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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Sample Questions
Q1) Sandra,who owns a small accounting firm,pays $1,500 to the local country club for food and entertainment for her annual employee Christmas party.How much of the $1,500 in meals and entertainment cost can Sandra deduct?
A)$- 0 -
B)$500
C)$750
D)$1,000
E)$1,500
Q2) Byron loaned $5,000 to his friend Alan in 2011.They drew up a formal loan agreement that called for a reasonable rate of interest.Alan used the loan proceeds to pay expenses during his last year in college.Byron was recently informed that his friend Alan was struck by lightning and died.Byron will never be able to collect the proceeds of this loan because Alan died with no assets.What tax benefit,if any,will Byron will be able to claim in 2017,the year that the loan became worthless.
A)$5,000 tax credit.
B)$5,000 ordinary loss.
C)$5,000 short-term capital loss.
D)This is a personal non-deductible loss.
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Page 8
Chapter 7: Losses -- Deductions and Limitations
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Sample Questions
Q1) Sullivan,a pilot for Northern Airlines,has adjusted gross income of $92,000 before considering the following losses.The passive activity rules disallow the deduction for a loss in which of the following?
I.Sullivan has a $4,500 loss from his ownership interest in Cowco,a feeder-cattle limited partnership.Sullivan is a general partner and is responsible for day-to-day management decisions.
II.Sullivan has a $7,000 loss from his ownership interest in Swineco,a feeder-pig limited partnership.Sullivan is a limited partner.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) If a corporation incurs a net operating loss,what would cause it to elect to carry the loss forward and forsake the carryback? Explain.
Q3) Discuss the difference(s)between the real estate professional exception and the active participation exception when dealing with rental properties.
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Alli is 23 years old,a full time student,and a dependent of her parents.She earns $2,000 from her job as a waitress and receives $3,000 of interest on a savings account established by her grandparents.
a.What is Alli's taxable income?
b.What is Alli's tax liability on the taxable income (assume that her parent's taxable income is $200,000)?
Q2) Carlyle purchases a new personal residence for $230,000.He makes a down payment of $30,000 and finances the balance at a very favorable interest rate.To obtain the favorable rate,points equal to 3% of the loan balance are paid at the closing.What amount of the points can Carlyle deduct in the current year?
A)$- 0 -
B)$3,000
C)$4,000
D)$6,000
E)$6,600
Q3) Federal quarterly estimate of $3,000 paid by a self-employed taxpayer.
A)Not Deductible
B)Deductible - For AGI
C)Deductible - From AGI
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Page 10
Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Adjusted 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) Wellington Company purchases a new warehouse on August 24,2005,for $1,000,000 (exclusive of the cost allocated to the land).What is the 2017 MACRS depreciation deduction?
A)$11,900
B)$25,640
C)$31,740
D)$48,694
Q2) Straight line
A)The depreciation method for real estate.
B)A term used synonymously with the term depreciation.
C)The depreciation system for assets placed in service after 1986.
D)The initial basis of an asset minus the amount of capital recovered.
E)The term used to describe the amount multiplied by the MACRS percentages to calculate the annual depreciation deduction.
F)A provision intended to provide relief to small companies by allowing an immediate deduction for small purchases of business equipment and by simplifying record keeping.
Q3) Discuss why listed property gets special attention.
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Page 12
Chapter 11: Property Dispositions
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Sample Questions
Q1) Which of the following is not a capital asset?
A)Office building used as a rental property by a real estate professional..
B)Antique automobile.
C)Land held for investment.
D)Stock held for investment.
Q2) Corky receives a gift of property from her Aunt Cynthia.Cynthia purchased the property 17 years ago for $375,000.On the date of the gift,the property is appraised at $500,000.What is Corky's holding period for the property if she sells it one month after the gift was completed?
A)Short-term.
B)Long-term.
C)Holding period is not relevant since the gain is ordinary.
D)Holding period classification cannot be determined without knowing the selling price.
Q3) What incentive provisions or preferential treatments exist for capital gains?
Q4) A buyer's assumption of the seller's debt increases the gross sales price and any debt of the buyer assumed by the seller in the transaction also increases the gross sales price.
A)True
B)False
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Chapter 12: Nonrecognition Transactions
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Sample Questions
Q1) A flood destroys Franklin's manufacturing facility.The building had a basis of $600,000 when destroyed.Franklin's insurance company reimburses him $850,000,the appraised replacement cost of the building.Franklin purchases a qualified replacement facility for $1,100,000.Discuss the tax effects of these transactions applying the concepts of taxation that drive your answers.
Q2) Which of the following is/are correct regarding the sale of a principal residence?
I.A taxpayer who is single and fails to meet the ownership or use test due to change in employment is entitled to a pro rata share of the $250,000 exclusion.
II.A single taxpayer can exclude up to $250,000 of the gain on the sale of a vacation home.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) The deferral of a gain realized on an involuntary conversion is mandatory.
A)True
B)False
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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) Limited Liability Partnership
A)An entity with conduit tax characteristics that provides limited liability to its owners.
B)An organization of two or more persons operating a business that is not taxed.
C)A general partnership that offers limited liability to the partners.
D)An association created under the laws of a state giving owners limited liability.
E)Retains legal characteristics while obtaining tax characteristics of a conduit.
F)A partnership in which the liability of at least one partner is limited.
Q3) Discuss the characteristics of a personal service corporation (PSC).
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Chapter 14: Choice of Business Entity -- Operations and Distributions
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Sample Questions
Q1) Hawkins Corporation has $50,000 of taxable income before special deductions.Taxable income includes an operating loss carryforward of $10,000 and $60,000 of dividend income received from other corporations in which Hawkins owns less than a 20% interest.What is Hawkins' taxable income?
A)$8,000
B)$15,000
C)$18,000
D)$25,000
E)$50,000
Q2) Higlo Paints is a partnership that reports an operating income of $50,000 in the current year.Higlo also has a $20,000 Section 1231 gain from the sale of a building and $10,000 in nondeductible expenses.Bernice owns 20% of Higlo and withdraws $5,000 from the partnership during the current year.Bernice's basis will increase by:
A)$5,000
B)$7,000
C)$9,000
D)$10,000
E)$12,000
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Chapter 15: Choice of Business Entity -- Other Considerations
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Q1) Sergio is a 15% partner in the Hopkins Group and has net self-employment income of $100,000 in 2017.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)$54,000
Q2) Hillside Group,a partnership,purchased a building for $60,000 that was originally placed in service in 1929.The partnership incurs $180,000 rehabilitating the building.The building serves as the partnership's headquarters.The rehabilitation is completed in November 2017.What amount can the Hillside Group claim on their partnership return as a rehabilitation tax credit?
A)$2,000
B)$3,000
C)$6,000
D)$18,000
E)$24,000
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Chapter 16: Tax Research
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Sample Questions
Q1) The Tax Court will not necessarily follow a U.S.Court of Appeal decision unless the taxpayer lives in the geographic jurisdiction of the appellate court.
A)True
B)False
Q2) The most important source of current federal income tax law is the
A)Internal Revenue Code of 1986,as amended.
B)IRS.
C)U.S.Supreme Court.
D)U.S.Tax Court.
Q3) A nonacquiescence
A)is issued when the IRS wins a court case.
B)is issued by the Joint Committee on Taxation.
C)means that the IRS disagrees with a decision of the court.
D)means that the IRS will follow the decision in similar situations.
Q4) Title 26 of the United States Code is commonly referred to as the Internal Revenue Code.
A)True
B)False
Q5) Describe the steps of the tax research process.
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