Introduction to Taxation Exam Questions
Course Introduction
Introduction to Taxation provides students with a foundational understanding of tax principles, policies, and procedures that govern individual and business taxation. The course covers the structure and function of different types of taxes, such as income, sales, and property taxes, while exploring the role of taxation in economic and social policy. Key concepts include tax liability, filing requirements, deductions and credits, tax compliance, and the ethical considerations in tax practice. Students will also be introduced to the basics of tax planning and the implications of taxation on decision-making for individuals and organizations.
Recommended Textbook Fundamentals of Taxation 2017 Edition 10th Edition by Ana Cruz
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Page 2
Chapter 1: Introduction to Taxation, the Income Tax
Formula,
and Form 1040ez
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Q1) A tax rate structure where the tax rate remains at the same rate regardless of the tax base is:
A)A regressive rate structure.
B)A proportional rate structure.
C)A progressive rate structure.
D)None of these.
Answer: B
Q2) There are two types of primary tax authority: statutory and judicial.
A)True
B)False
Answer: False
Q3) The following court hears only tax cases:
A)U)S.District Court.
B)U)S.Court of Appeals.
C)U)S.Court of Federal Claims.
D)U)S.Tax Court.
Answer: D
Q4) What is the definition of a proportional tax?
Answer: A proportional tax is a tax where the tax rate remains the same regardless of the tax base.
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Chapter 2: Expanded Tax Formula, forms 1040a and 1040, and Basic Concepts
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Q1) Criminal penalties only apply to:
A)Willful failure to file a return and tax evasion.
B)Careless disregard for tax authority.
C)Willful failure to file a return.
D)Tax evasion.
Answer: A
Q2) What qualifications are necessary to file as qualifying widower)?
Answer: The qualifications necessary to file as qualifying widower)are: 1.Taxpayer was eligible to file a joint return in the year the spouse died. 2.Taxpayer did not remarry before the end of the tax year in question. 3.Taxpayer paid more than half the cost of keeping up a household. 4.The household was the principal place of abode for the entire year except for temporary absences)of both the taxpayer and a child,stepchild,or adopted child who can be claimed as a dependent by the taxpayer.
Q3) If the taxpayer still owes tax after April 15,the IRS assesses interest based on the remaining amount owed.
A)True
B)False
Answer: True
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Chapter 3: Gross Income: Inclusions and Exclusions
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Q1) Does forgiveness of a loan repayment by the lender represent income to the borrower?
Answer: Yes,the borrower must report income.The debt forgiveness must be reported in income in the year it is forgiven because the taxpayer is relieved of the obligation to repay the debt.As a result,the taxpayer receives an economic benefit that must be reported in income.
Q2) Corporate distributions to shareholders that represent a nontaxable return of capital are those that are:
A)made from the excess over earnings and profits of the corporation.
B)made from the bank account of the corporation.
C)made from accumulated retained earnings of the corporation.
D)made from current year's profit of the corporation.
Answer: A
Q3) The taxability of social security benefits depends on the "provisional income" and filing status of the taxpayer.
A)True
B)False
Answer: True
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Chapter 4: Adjustments for Adjusted Gross Income
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Q1) If an employer contributes to an employee's HSA,the payment will:
A)be deductible by the employee.
B)not be counted as income to the employee.
C)not be allowed as a contribution on behalf of the employee.
D)none of these.
Q2) In order to open a Health Savings Plan HSA)account,a taxpayer must qualify under which category:
A)An employee or spouse)who works for an employer with a high deductible health plan.
B)Any one of these.
C)A self-employed individual.
D)An uninsured employee of a company that does not offer health coverage,who purchases high-deductible health coverage on his or her own.
Q3) Deductible moving expenses may include moving household goods and personal effects from the old residence to the new residence.
A)True
B)False
Q4) What is an "eligible educational institution" as it relates to the deductibility of student loan interest?
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Chapter 5: Itemized Deductions
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Q1) In 2016,Rachelle's pleasure boat was destroyed by a flood.She had purchased the boat in 2013 for $45,000.On what forms)will Rachelle report this loss?
A)Form 4684,Casualties and Theft,and Schedule D,Capital Gains and Losses.
B)Form 4797,Sales of Business Property and Involuntary Conversions,and Schedule
D,Capital Gains and Losses.
C)Form 4684,Casualties and Thefts,and Schedule A,Itemized Deductions.
D)On the first page of Form 1040.
Q2) The interest paid on a loan used to acquire municipal bonds is deductible as investment interest expense.
A)True
B)False
Q3) The standard business mileage rate for automobiles for 2016 is 54.0 cents per mile.
A)True
B)False
Q4) Unreimbursed employee business expenses for travel qualify as itemized deductions subject to the 2% floor.
A)True
B)False
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Chapter 6: Self-Employed Business Income Line 12 of Form
1040 and Schedule C
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Q1) Which of the following properties is not eligible for the §179 expense election when purchased?
A)Rental property.
B)A business automobile.
C)A business computer.
D)Manufacturing equipment.
Q2) Marion drives 20 miles a day from his first job to his second job.He worked 125 days during 2016 on both jobs.What is Marion's mileage deduction rounded to the nearest dollar assuming he uses the standard mileage rate and mileage is incurred ratably throughout the year?
A)$1,400.
B)$1,350.
C)$1,438.
D)$70.
Q3) Which of the following is not a "trade or business" expense?
A)Mortgage interest on a warehouse.
B)Mortgage interest on a personal residence.
C)Cost of goods sold.
D)Depreciation on business equipment.
Q4) List and define the criteria for an expenditure to be deductible on Schedule C.
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Chapter 7: Capital Gains and Other Sales of Property
Schedule D and Form 4797
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Q1) Sylvio purchased an apartment building as an investment in January 2010 for $383,500 and sold it for $475,000 in 2016.He reported $68,436 of allowed accumulated straight-line depreciation.If Sylvio is in the highest tax bracket for ordinary income,how much of his gain qualifies for preferential tax treatment?
A)$68,436.
B)$91,500.
C)$159,936.
D)$0.
Q2) Shanstella bought a 4-unit apartment building in July 2007 for $360,000 and sold it for $480,000 in 2016.There was $96,541 of accumulated straight-line depreciation on the apartment building.Assuming that Shanstella is in the 33% tax bracket,how much of her gain is taxed at 25%?
A)$120,000.
B)$216,541.
C)$96,541.
D)$0.
Q3) Inventory on hand at the end of the year is Section 1231 property.
A)True
B)False
Page 9
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Chapter 8: Rental Property, royalties, and Income From
Flow-Through Entities Line 17, form 1040, and Schedule E
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Q1) Eddie and Camilla received $11,600 for the rental of their rental house in Irvine,California.Eddie and Camilla do not use this property for personal use.The rent covers six months from October 1 of the current year to March 31 of next year.The amount also includes a security deposit of $2,000.How much should Eddie and Camilla report as rental income in the current tax year?
A)$2,000.
B)$11,600.
C)$13,600.
D)$9,600.
Q2) Owen and Jessica own and operate an S corporation.Each is a 50% owner.The business reports the following results: Business revenue $ 225,000 Business expenses 88,000 Investment expenses 16,000
How do Owen and Jessica report these items for tax purposes?
A)$225,000 income on Schedule E; $16,000 investment expense on Schedule A
B)$68,500 income on Schedule E; $8,000 investment expense on Schedule A
C)$68,500 income on Schedule E; $16,000 investment expense on Schedule D
D)$137,000 income on Schedule E; $88,000 investment expense on Schedule A
Q3) Explain what is considered personal use of a rental property.
Page 10
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Chapter 9: Tax Credits Form 1040, lines 46 Through 54 and Lines 66a Through 73
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Q1) In order to be eligible for the credit for the elderly or the disabled,the taxpayer must be age 55 or older or have retired on permanent disability.
A)True B)False
Q2) The earned income credit is adjusted each year for inflation. A)True B)False
Q3) Adrienne has total taxable income of $93,000 which includes $10,000 taxable income from India.She paid $2,800 in foreign income taxes,and her U.S.tax liability is $25,210.Adrienne's foreign tax credit is:
A)$0.
B)$2,800.
C)$25,210.
D)$2,711.
Q4) A student can only receive the American opportunity tax credit if he/she is enrolled in the first four years of postsecondary education.
A)True B)False
Page 11
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Chapter 10: Payroll Taxes
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Q1) Form 4070 is used by employers to record employees' tips subject to tax withholding and FICA taxes.
A)True
B)False
Q2) For wages paid in 2016,an employer must send Copy A of each Form W-2 along with the W-3 transmittal form to the SSA no later than:
A)March 1,2017.
B)January 31,2017.
C)February 28,2017.
D)February 1,2017.
Q3) The payroll period for a semiweekly schedule depositor ends on and is paid on Friday,July 10<sup>th</sup>.The employer must deposit the federal taxes withheld for this pay period on or before:
A)The following Friday.
B)The following Monday.
C)The following Wednesday.
D)The last day of the month.
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Q1) Distributions from a Coverdell Education Savings Account are tax-free to the beneficiary if they are used for his or her qualified education expenses.
A)True
B)False
Q2) Which of the following statements is incorrect?
A)Tax-deferred plans have an accumulation period and a distribution period.
B)Normally,if a retirement plan is funded with dollars that have already been taxed,the distributions will be taxed.
C)Contributions to retirement plans are often limited in amount.
D)During the accumulation period of a qualified retirement plan no taxes are due on the earnings from the plan investments.
Q3) Augustus is single and age 51.He had AGI of $41,000 in tax year 2016 and is an active participant in his employer's pension plan.What is the maximum deductible IRA contribution he can make in 2016?
A)$3,800.
B)$6,500.
C)$2,700.
D)$5,500.
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Chapter 12: Special Property Transactions
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Q1) All of the following taxpayers can use the installment method to report gains from the sale of assets except:
A)A taxpayer who sells a large piece of manufacturing equipment on which he took a Section 179 deduction for the total cost two years ago when purchased.
B)A taxpayer who sells land he inherited from his father five years ago.
C)A taxpayer who sells a parcel of land used in his trade or business.
D)A taxpayer who sells a building used in his trade or business for five years that was depreciated using straight-line depreciation.
Q2) The "similar or related in service or use" requirement for property involuntarily converted is less restrictive than the like-kind exchange requirements.
A)True
B)False
Q3) With an involuntary conversion,what is the time limit to purchase replacement property?
A)It ends two years after the close of the taxable year the gain is realized.
B)Two years from the conversion event.
C)Five years from the conversion event.
D)There is no time limit.
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Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Q1) For AMT purposes,a taxpayer must use which method to report proceeds from long-term contracts?
A)The installment method.
B)The completed contract method.
C)The percentage-of-completion method.
D)None of these.
Q2) A taxpayer's share of nonrecourse debt is considered an amount at-risk.
A)True
B)False
Q3) When determining whether a limited partnership loss is deductible,a taxpayer must first:
A)Apply only the at-risk rules.
B)Apply the passive activity loss rules and then the at-risk rules.
C)Apply only the passive activity loss rules.
D)Apply the at-risk rules and then the passive activity loss rules.
Q4) Gifts to charity are not allowed for AMT purposes.
A)True
B)False
Q5) Identify factors that increase or decrease the at-risk amount.
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Chapter 14: Partnership Taxation
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Q1) Ordinary income from a partnership is not considered self-employment income.
A)True
B)False
Q2) A partner never recognizes a gain or loss on the formation of a partnership.
A)True
B)False
Q3) Cameron has a basis in his partnership interest of $5,000.Cameron's share of partnership income is $5,000.He also receives a cash distribution from the partnership of $13,000.What is his gain or loss as a result of the distribution?
A)$3,000.
B)$0.
C)$5,000.
D)$13,000.
Q4) Ordinary income includes interest income and dividend income received by the partnership.
A)True
B)False
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Chapter 15: Corporate Taxation
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Q1) A capital loss carryforward will create a reconciling item on Schedule M-1,but a capital loss carryback will not.
A)True
B)False
Q2) Once a corporation properly elects to be a Subchapter S corporation,it cannot terminate its election for five years.
A)True
B)False
Q3) A corporation can choose to voluntarily revoke a valid Subchapter S election.How do the shareholders accomplish a voluntary revocation and when will the revocation be effective?
Q4) A corporation with a net capital gain will be taxed on that gain at preferential tax rates,similar to an individual.
A)True
B)False
Q5) Corporations are not subject to alternative minimum tax.
A)True
B)False
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