Introduction to Taxation Exam Bank
Course Introduction
Introduction to Taxation provides students with a foundational understanding of the principles, concepts, and applications of tax systems, primarily focusing on federal income taxation in the context of individuals and businesses. The course covers topics such as the structure and purpose of taxation, types of taxes, tax policy, tax administration, and basic tax computations. Students will learn how to interpret tax laws, recognize ethical issues in tax practice, and explore the implications of taxation on economic decision-making. This course equips learners with essential knowledge required for further studies in accounting, finance, and business law.
Recommended Textbook
Concepts in Federal Taxation 2019 26th Edition Kevin E. Murphy
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16 Chapters
2071 Verified Questions
2071 Flashcards
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Chapter 1: Federal Income Taxation-An Overview
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Q1) Sally is an electrician employed by Bogie Company. Sam is a self-employed electrician. During the current year, Sally's salary is $85,000 and Sam's net self-employment income is $85,000. Which of the following statements about the Social Security and self-employment taxes paid is/are correct?
I.Sam's self-employment tax is greater than the Social Security tax paid on Sally's income.
II.Sam and Sally pay the same amount of tax.
A)Only statement I is correct.
B)Only statement II is correct
C)Both statements are correct
D)Neither statement is correct
Answer: D
Q2) A state sales tax levied on all goods and services sold is an example of a A)progressive tax.
B)regressive tax.
C)proportional tax.
D)value added tax.
Answer: C
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Page 3
Chapter 2: Income Tax Concepts
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Sample Questions
Q1) Which of the following is a taxable entity?
A)Sole Proprietorship.
B)Partnership.
C)S Corporation.
D)C Corporation.
Answer: D
Q2) Thomas had $8,500 withheld from his paycheck, but since he has a large amount of interest and dividends, he is required to make quarterly estimated tax payments due to the
A)Ability to Pay Concept.
B)Administrative Convenience Concept.
C)Arm's-Length Transaction Concept.
D)Capital Recovery Concept.
E)Pay-as-You-Go Concept.
Answer: E
Q3) Under the pay-as-you-go concept, the tax base used to compute the taxpayer's income tax liability is a net income number.
A)True
B)False
Answer: False
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Chapter 3: Income Sources
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Q1) Benjamin has the following capital gains and losses for the current year: What is Benjamin's net capital gain or loss for the year? \(\begin{array}{lr}
\text { Long-term capital loss } & \$(13,000) \\
\text { Long-term capital gain } & 6,000 \\
\text { Short-term capital loss } & (10,000) \\
\text { Short-term capital gain } & 12,000 \end{array}\)
A)Net long-term capital loss of $7,000.
B)Net short-term capital gain of $2,000.
C)Net long-term capital loss of $5,000.
D)Net short-term capital gain of $1,000.
E)Net long-term capital loss of $3,000. Answer: C
Q2) The holding period for receiving long-term capital gain treatment is more than 12 months.
A)True
B)False Answer: True
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Page 5
Chapter 4: Income Exclusions
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Sample Questions
Q1) Jerry's wife dies in September. His wife had paid $20,000 of premiums on a $150,000 face value whole life insurance policy. Jerry elects to receive the life insurance policy proceeds in 20 annual installments of $10,000. Jerry receives his first $10,000 payment this year. How much of the payment should Jerry report as gross income?
A)$- 0 -
B)$2,500
C)$5,000
D)$7,500
E)$10,000
Q2) Hector's employer has a qualified pension plan to which it contributes 6% of his gross salary. Hector's current annual salary is $50,000. The pension plan also earns $2,500 during the current year on contributions made to the plan on behalf of Hector. What is Hector's gross income from these transactions for the current year?
A)$50,000
B)$52,500
C)$53,000
D)$55,500
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Chapter 5: Introduction to Business Expenses
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Questions
Q1) Girardo owns a condominium in Key West. During the year, Girardo uses the condo a total of 22 days. The condo is also rented to vacationers for a total of 78 days and generates rental income of $24,000. Girardo incurs the following expenses before allocation: ?
\[\begin{array} { l r }
\text { Mortgage interest } & \$ 8,000 \\
\text { Property taxes } & 3,600 \\
\text { Utilities } & 4,000 \\
\text { Insurance } & 2,400 \\
\text { Depreciation } & 22,000
\end{array}\]
The amount of depreciation that Girardo may deduct with respect to the rental property is
A)$7,300
B)$9,960
C)$14,040
D)$17,160
E)$22,000
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Chapter 6: Business Expenses
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Sample Questions
Q1) Larry is a self-employed insurance salesperson. He decides to take his best customer to a Pacers basketball game. Larry is able to buy two floor seat tickets for $500 each. The face amount of the tickets is $200 each. How much of the total cost can Larry deduct?
A)$- 0 -
B)$ 200
C)$ 400
D)$ 500
E)$1,000
Q2) Brenda travels to Cleveland on business for her employer. She spends 4 days in meetings with a client. Brenda's plane fare for the trip is $400. Meals cost $40 per day. Hotel and incidental costs amount to $150 per day. Brenda receives no reimbursement for any expenses. Brenda's adjusted gross income for the year is $40,000. What is Brenda's deduction for the trip?
A)$- 0 -
B)$280
C)$1,080
D)$1,160
E)$2,320
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Chapter 7: Losses-Deductions and Limitations
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Sample Questions
Q1) Which of the following losses are generally deductible?
I.Loss on the sale of a personal residence.
II.Loss due to the theft of business inventory.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Any corporate capital loss not used in the current year can be carried back 2 years and carried forward 20 years to offset capital gains in those years.
A)True
B)False
Q3) Why did Congress enact the at-risk rules?
Q4) Dwight owns an apartment complex that has a $30,000 loss. His adjusted gross income is $85,000 before the loss. Since he qualifies as an active participant he may deduct $25,000.
A)True
B)False
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Samantha incurs the following medical expenses for the current year: ?
\[\begin{array} { l r }
\text { Face-lift for cosmetic purposes } & \$ 800 \\
\text { Dentist fees } & 500 \\
\text { Doctors' fees for Samantha's daughter } & 400 \end{array}\]
How much may Samantha include as qualified medical expenses on her current tax return before any limitation?
A)$400
B)$500
C)$900
D)$1,300
E)$1,700
Q2) Federal quarterly estimate of $3,000 paid by a self-employed taxpayer.
A)Not Deductible
B)Deductible - For AGI
C)Deductible - From AGI
Q3) Explain the non-support test and the principle residence test to be a qualifying child.
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Page 10
Chapter 9: Acquisitions of Property
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Q1) Kim owns a truck that cost $35,000 several years ago. After using it personally for two years, she converts the truck to business use when the truck's fair market value is $20,000. She uses the truck in her business and appropriately deducts $5,000 in depreciation. Then, she sells the truck for $42,000. What is Kim's recognized gain or loss on the sale?
A)No gain or loss
B)$12,000 gain
C)$27,000 gain
D)$32,000 gain
E)$ 7,000 gain
Q2) Robert receives a car as a gift from his mother. The car's purchase price was $20,000, and it was used personally prior to the gift. Robert uses the car 80% of the time in his pizza business. The car's value at the date of the gift is $9,000. What is Robert's basis in the car for depreciation purposes?
A)$- 0 -
B)$7,200
C)$9,000
D)$16,000
E)$20,000
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Page 11
Chapter 10: Cost Recovery on Property: Depreciation, Depletion, and Amortization
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Sample Questions
Q1) Eduardo is a single taxpayer with a farming operation that suffered a net loss of $30,000 in 2018. In addition, he earned $50,000 from his accounting firm. Eduardo purchased $50,000 of equipment for his farm. He wants to maximize his cost recovery deduction and believes the Section 179 election will help achieve that goal. What is the amount of the maximum Section 179 deduction Eduardo can use? Explain the optimum approach to attain his goal. Assume Eduardo's total taxable business income in 2019 will be $60,000, and he plans to add about $20,000 of equipment to the farm operation.
Q2) Why would a taxpayer ever elect to use the alternative depreciation system (ADS) rather than the MACRS?
Q3) Under current law, taxpayers must use regular MACRS.
A)True
B)False
Q4) What is the MACRS recovery period for a video game used in an arcade?
A)3 years.
B)5 years.
C)6 years.
D)7 years.
E)10 years.
Q5) Discuss why listed property gets special attention.
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Chapter 11: Property Dispositions
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Sample Questions
Q1) Rachael purchased 500 shares of Qualified Small Business Stock (QSB) for $900,000 on March 2, 2009. On November 29, 2018, she sells the stock for $1,000,000. Rachael also sells 100 shares of stock she acquired two years ago realizing a loss of $10,000. Which of the following explain(s) tax consequences of the QSB stock sale?
I.The effective tax rate applied to the net gain on the sale of the QSB stock is 15%.
II.Rachael nets her $10,000 loss with her $100,000 gain after applying her exclusion rate.
III.Rachael is eligible for a 75% exclusion of the gain from the QSB stock sale.
IV.The QSB stock is QSB stock partly because Rachael held the stock for the required 3-year minimum.
A)Statements I and II are correct.
B)Statements II and III are correct.
C)Statements III and IV are correct.
D)Statements I, II, and III are correct.
E)Statements I, II, III, and IV are correct.
Q2) What incentive provisions or preferential treatments exist for capital gains?
Q3) Discuss the general differences between Section 1245 and Section 1250 property.
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Chapter 12: Non-Recognition Transactions
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Sample Questions
Q1) Third-party exchange
A)Losses are never deferred.
B)Must be real property used for business or as a investment.
C)Not considered like-kind property.
D)A taxpayer can have only one at a time.
E)The maximum amount that can be recognized on a like-kind exchange.
F)This type of exchange must be completed within 180 days of first property transfer.
G)The concept upon which the ability to defer gains on certain nontaxable transactions relies.
Q2) Which of the following qualifies as a like-kind exchange of property?
I.Inventory for inventory.
II.Office equipment for a delivery van.
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 concepts underlying the determination of the basis of property received in a nontaxable exchange.
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Page 14
Chapter 13: Choice of Business Entity-General Tax and Nontax Factorsformation
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Sample Questions
Q1) Carlos is the contoller for Rooney Corporation. Carlos owns a 20% interest in Rooney. He receives a salary of $60,000 and fringe benefits costing $6,000. Rooney's taxable income before considering the payments to and on behalf of Carlos is $250,000. Rooney distributes a $50,000 dividend to its shareholders. How much income does Carlos have from Rooney?
A)$60,000
B)$70,000
C)$76,000
D)$96,800
E)$102,800
Q2) Zeppo and Harpo are equal owners of the Marx Corporation. During the current year, they agree to admit Groucho as a shareholder. Groucho will contribute $35,000 in cash and property worth $75,000 (adjusted basis of $55,000) for 40% of Marx Corporation's stock. How much gain will Groucho recognize from the transfer of the assets to the corporation?
A)$-0-
B)$20,000
C)$35,000
D)$55,000
E)$75,000
Page 15
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Chapter 14: Choice of Business Entity-Operations and Distributions
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Sample Questions
Q1) Pablo owns 30% of Cancun Company, an electing S corporation. Pablo's adjusted basis in the stock is $44,000 at the beginning of the current year. During the current year, Cancun distributes a $60,000 dividend. Cancun Company reports a $200,000 operating loss for the current year. If Pablo is not a material participant in Cancun Company, how much of the loss can he deduct on his income tax return?
A)$-0-
B)$18,000
C)$26,000
D)$44,000
E)$60,000
Q2) A corporation's excess charitable contributions over the amount deductible
A)May be carried back two years and forward 20 years.
B)May be carried back or forward for two years at the corporation's election.
C)May be carried forward for a maximum of five succeeding years.
D)Is not deductible in any future or prior year.
Q3) Corporations that sell depreciable real property are not subject to depreciation recapture rules
A)True
B)False
Page 16
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Chapter 15: Choice of Business Entity-Other Considerations
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Q1) Arturo is a 15% partner in the Franklin Group and has net self-employment income of $250,000 in 2018. The maximum amount that Arturo can contribute to a Keogh money purchase plan is
A)$40,000
B)$46,000
C)$49,000
D)$50,000
E)$55,000
Q2) On June 1, 2018, Sutton Corporation grants Anne an option under its nonqualified stock option plan to acquire 300 shares of the company's stock for $12 per share. The fair market price of the stock on the date of grant is $18. The fair market value of the option is $4. How much must Anne report as income at the date of grant?
A)$-0-
B)$1,200
C)$1,800
D)$3,600
E)$5,400
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Chapter 16: Tax Research
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Sample Questions
Q1) Title 26 of the U.S. Code includes
A)Alcohol and tobacco tax legislation only.
B)Gift tax and estate tax legislation only.
C)Income Tax legislation only.
D)Self employment tax legislation only.
E)All of the tax legislation mentioned above.
Q2) Which of the following is a characteristic of U.S. District Courts?
A)A District Court is a national court that hears cases from taxpayers anywhere in the U.S.
B)The District Court judges are tax specialists who hear only tax cases.
C)A taxpayer need not pay any alleged deficiency in order to bring an action against the IRS.
D)The taxpayer may obtain a jury trial; the jury decides matters of fact but not matters of law.
Q3) 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
Q4) Describe the steps of the tax research process.
Page 18
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