Individual Taxation Solved Exam Questions
Course Introduction
This course provides an in-depth exploration of federal income tax principles as they apply to individual taxpayers in the United States. Students will learn about gross income, exclusions, deductions, tax credits, and the mechanics of determining taxable income and tax liability. Topics include filing status, computation of tax, tax planning strategies, the treatment of property transactions, and compliance requirements such as tax return preparation and ethical considerations. The course emphasizes practical application and current law, preparing students to understand both the technical rules and broader policy issues in individual taxation.
Recommended Textbook
Concepts in Federal Taxation 2017 24th Edition by
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16 Chapters
2073 Verified Questions
2073 Flashcards
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Kevin E. Murphy
Page 2
Chapter 1: Federal Income Taxation-An Overview
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151 Verified Questions
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Sample Questions
Q1) Samantha is a self-employed electrician.During 2016,her net self-employment income is $120,000.What is Samantha's self-employment tax?
A)$15,570.00
B)$15,606.80
C)$16,845.30
D)$18,174.00
E)$18,360.00
Answer: D
Q2) Julia is single and earns a salary of $65,000.Her allowable deductions for adjusted gross income total $1,200 and she has $4,200 of allowable itemized deductions.What is Julia's taxable income and income tax liability for 2016?
Answer: Julia's taxable income is $53,450 and her tax liability is $9,134 {$5,183.75 + [25% × ($53,450 - $37,650)]}.
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Q3) Horizontal equity exists when two similarly situated taxpayers are taxed the same.
A)True
B)False
Answer: True
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Chapter 2: Income Tax Concepts
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Sample Questions
Q1) Silvia is a single individual who has income of $80,000.Todd is a single individual who has income of $35,000.Neither of them itemizes their deductions.Both taxpayers will take a standard deduction of $6,300 in 2016.The concept that allows both Silvia and Todd to take this deduction is
A)Capital Recovery.
B)Administrative Convenience.
C)Entity.
D)Wherewithal to Pay.
E)Pay-as-You Go.
Answer: B
Q2) When Kerri filed her 2016 tax return on April 15,2017,she did not include a $2,000 bonus received from her employer on January 10,2017 relating to her work performance during 2016.What concept,construct,or doctrine supports Kerri's actions?
A)Arms-length Transaction Concept.
B)Substance Over Form Doctrine.
C)Constructive Receipt Doctrine.
D)Claim of Right.
E)Entity Concept.
Answer: C
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Page 4
Chapter 3: Income Sources
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Sample Questions
Q1) Binney is a retired auto mechanic.He and his wife,Jennie,receive taxable pensions totaling $35,000,$8,000 of tax-exempt interest income and $6,000 of Social Security benefits during the current year.Assuming that they had no other items of income or deductions for adjusted gross income,Binney and Jennie's adjusted gross income is:
A)$35,000
B)$36,700
C)$38,000
D)$39,700
E)$40,100
Answer: D
Q2) Brandon and Judy divorce during the year and agree that Brandon will pay Judy $24,000 a year in alimony.Brandon will be able to reduce his income by $24,000,but Judy does not have to report any income since it was not earned..
A)True
B)False
Answer: False
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5
Chapter 4: Income Exclusions
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Sample Questions
Q1) Discharges of debt are generally taxable.However,in certain circumstances,part or all of the income from a discharge of indebtedness may be excluded.Which of the following concepts form(s)the basis for the income tax treatment of a discharged debt?
I.Wherewithal-to-Pay Concept.
II.Legislative Grace Concept.
III.Realization Concept.
IV.Substance Over Form Doctrine.
A)Statements I and III are correct.
B)Statements II and III are correct.
C)Statements I and IV are correct.
D)Statements I, II, and III are correct.
E)Statements II, III, and IV are correct.
Q2) David's employer laid him off for three months during the slow winter season.He collects $4,375 in unemployment compensation.
Q3) Laura's employer pays the first $5,000 in childcare benefits under their childcare assistance plan.
Q4) Julia receives $6.3 million in compensatory damages for a personal physical injury.
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Page 6
Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.
Q2) For its financial accounting records Addison Company uses the allowance method to account for bad debts and estimates the balance in the "Allowance for Bad Debts" account using the aging method.For tax purposes,the allowance method cannot be used.The rationale for not allowing this method is
A)The arm's length transaction concept has not been met.
B)The all-events test has not been met.
C)The Business Purpose Concept has not been met.
D)Lack of constructive payment.
Q3) In order to take a business deduction,the taxpayer engaged in a business must be able to establish a business purpose for each expenditure.
A)True
B)False
Q4) 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
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Page 7
Chapter 6: Business Expenses
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Sample Questions
Q1) Deductions for adjusted gross income include
I.Contribution to a Roth IRA.
II.Contribution to conventional IRA
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) On May 1,2016,Linda sells her rental property for $125,000.Her basis in the property at the beginning of the year is $75,000.As part of the sales contract,the buyer agrees to pay the real property taxes of $1,500 for the current year when they come due on December 31,2016.
I.Linda has a gain on the sale of the rental property of $50,000.
II.Linda can deduct $500 in real estate taxes.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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Chapter 7: Losses-Deductions and Limitations
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Sample Questions
Q1) Norris owns a passive activity that has a suspended loss of $12,000.The activity has a fair market value of $42,000 and his adjusted basis in the activity is $27,000.
I.If Norris gifts the property,he is allowed to deduct $3,000 of the suspended loss.
II.If Norris dies,none of the suspended loss is deductible.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Which of the following must be classified as "portfolio income?"
I.Dividend income from an investment in Lincoln Corp.common stock.
II.Royalty income from the ownership of the mineral rights on land.The taxpayer does not share the expenses with the extraction company.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Philip has been working in Spain for the last three years.He and his wife Barbara adopted Juan who will not qualify as a dependent since he is not a U.S citizen.
A)True
B)False
Q2) Garcia is single,65 years old,and has no dependents.Garcia will not have to file a tax return in 2016 if:
I.his gross income does not exceed $11,900.
II.his only income is $11,000 of social security benefits.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Eric,who is 18 years old,sells magazine subscriptions door-to-door for commissions.He earned $2,900 this year and he will have to pay tax on this income at his parent's tax rate.
A)True
B)False
Q4) Taxpayer contribution of $250 to the Democratic Party.
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Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Diane receives a gift of stock from Sue on July 2,2016,when the stock was trading for $20,000.Sue paid $4,000 for the stock several years ago.Sue pays a gift tax of $500 on the transfer.Diane's basis in the stock is:
A)$4,000
B)$4,100
C)$4,400
D)$20,000
E)$20,400
Q2) Sandi sells 100 shares of Gray Corporation stock on December 4,2016.She inherited the stock from Christine,who died on January 30,2016.The executor of the estate used the primary valuation date.Sandi's holding period for the stock is
A)Long-term.
B)Short-term.
C)Long-term if sold at a gain; short-term if sold at a loss.
D)Short-term if sold at a gain; long-term if sold at a loss.
Q3) Perry inherits stock from his Aunt Margaret that had a basis of $40,000 to Margaret and a fair market value of $54,000 on May 20,2016,the date of her death.Paul sells the stock on June 21,2016 for $65,000.What is the amount and character of the gain or loss on the sale?
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Page 11
Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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Sample Questions
Q1) Why would a taxpayer ever elect to use the alternative depreciation system (ADS)rather than the MACRS?
Q2) To compute depreciation using MACRS on an asset purchased today,you need to know
I.the asset's depreciable basis.
II.the recovery period of the asset.
III.the first and last year convention that applies to the asset's class.
IV.whether you want to minimize or maximize the current year's depreciation.
A)Only statement II is correct.
B)Statements I and II are correct.
C)Statements I, III, and IV are correct.
D)Statements II and III are correct.
E)Statements I, II, III, and IV are correct.
Q3) Which of the following intangible assets is subject to the 15-year amortization period?
A)The ownership rights to the TV program "Wheel of Fortune".
B)A professional football franchise purchased and relocated to Los Angeles.
C)Covenant not to compete for five years as part of the purchase of a business.
D)A purchased interest in a high tech partnership.
E)An interest under an existing lease of a oil rig.
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Chapter 11: Property Dispositions
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Sample Questions
Q1) Section 1231 property
A)Stocks, bonds, options.
B)Depreciable real property.
C)All or part of any gain on sale is excluded.
D)Taxed at a maximum rate of 25%.
E)Gain or loss on the sale of artwork.
F)Depreciable tangible personal property.
G)Subject to full recapture as ordinary income of all depreciation taken.
H)Gain on real property attributable to excess depreciation is ordinary income.
Q2) George purchased a commercial building in 1999 for $900,000.During 2016,the building is sold for $700,000.The actual accelerated depreciation on the building as of the sale date was $400,000.Straight-line depreciation for the same period would have been $350,000.What is the amount and character of the gain recognized on the sale?
A)$200,000 Section 1250 ordinary income.
B)$50,000 Section 1250 ordinary income.
C)$50,000 Section 1250 ordinary income, and $150,000 unrecaptured Section 1250 gain.
D)$200,000 unrecaptured Section 1250 gain.
Q3) What incentive provisions or preferential treatments exist for capital gains?
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Chapter 12: Non-Recognition Transactions
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Sample Questions
Q1) Coke-Cola bonds for General Foods bonds.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q2) Charlotte's apartment building that has an adjusted basis of $200,000 is destroyed by fire.Early the following year,Charlotte receives a $425,000 insurance check and reinvests $400,000 of the proceeds in an apartment building.What is the basis in the new building?
A)$- 0 -
B)$425,000
C)$400,000
D)$200,000
E)$175,000
Q3) Inventory for office supplies.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q4) Discuss the type of property that is qualified replacement property for involuntary conversion provisions for gain deferrals.
Q5) Inventory for inventory.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Page 14
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Chapter 13: Choice of Business Entity-General Tax and
Nontax
Factorsformation
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Sample Questions
Q1) 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.
Q2) A limited partner
I.Can lose any or all of their investment in the partnership.
II.Can participate in the management of the partnership.
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 characteristics of a personal service corporation (PSC).
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15
Chapter 14: Choice of Business Entity-Operations and Distributions
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Sample Questions
Q1) Roger owns 25% of Silver Trucking,a partnership.During the current year,Roger sells a truck with an adjusted basis of $25,000 to Silver for $18,000.
I.Silver's basis in the truck is $25,000.
II.Roger can deduct the $7,000 loss on the sale of the truck.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) A partner's basis is increased by the amount of deductible loss that flows through from the partnership.
A)True
B)False
Q3) Owner basis adjusted for liabilities
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) The Data Company employs John and Jesse.John has worked for Data for 4 years,whereas Jesse has worked for the company for only 18 months.Both are 27 years old.
I.John is eligible to participate in Data's qualified pension plan.
II.Jesse is eligible to participate in Data's qualified pension plan.
A)Only I is correct.
B)Only II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) On September 15,2016,Spiral Corporation grants Jay an option to acquire 250 shares of the company's stock for $10 per share.The fair market price of the stock on the date of grant is $14.The option does not have a readily ascertainable fair market value.How much must Jay report as income at the date of grant?
A)$-0-
B)$1,000
C)$2,500
D)$3,500
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Chapter 16: Tax Research
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Sample Questions
Q1) Which of the following Administrative sources has the highest level of authority?
A)Revenue Ruling
B)Nonacquiescence
C)Treasury Regulation
D)General Counsel Memorandum
E)Private Letter Ruling
Q2) Which of the following is (are)secondary sources of tax law?
I.Joint Conference Committee Reports.
II.Journal of Taxation
III.Revenue Procedures.
IV.Tax Treaty with France.
V.U.S.Tax Court Memorandum Decisions.
A)Only statement IV is correct.
B)Only statement II is correct.
C)Statements II and III are correct.
D)Statements I, II, III, and V are correct.
E)Statements I, II, III, IV, and V are correct.
Q3) Describe the steps of the tax research process.
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Page 18