Introduction to Taxation
Textbook Exam Questions
Course Introduction
Introduction to Taxation provides a comprehensive overview of the fundamentals of taxation, exploring the principles, concepts, and objectives that underpin tax systems in modern economies. The course examines various types of taxes, including individual income tax, corporate tax, and indirect taxes such as sales and value-added tax. Students will learn how tax laws are applied, how taxable income is computed, and the role of taxation in government policy and revenue generation. Emphasis is also placed on understanding compliance requirements, tax planning strategies, and the ethical considerations involved in tax practice. By the end of the course, students will have a solid foundation for more advanced study in taxation and related fields.
Recommended Textbook Income Tax Fundamentals 2017 35th Edition by Gerald
E. Whittenburg
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Chapter 1: The Individual Income Tax Return
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Sample Questions
Q1) If a taxpayer is due a refund, it will be mailed to the taxpayer regardless of whether he or she files a tax return.
A)True
B)False
Answer: False
Q2) A single taxpayer, who is not a dependent on another's return, not blind and under age 65, with income of $8,750 must file a tax return.
A)True
B)False
Answer: False
Q3) Robert is a single taxpayer who has AGI of $145,000 in 2016; his taxable income is $122,000. What is his federal tax liability for 2016?
A)$12,600.00
B)$27,196.75
C)$27,231.25
D)$33,671.25
E)$34,160.00
Answer: B
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3
Chapter 2: Gross Income and Exclusions
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Sample Questions
Q1) Taxpayers must report interest income on Series EE savings bonds as the interest accrues.
A)True
B)False
Answer: False
Q2) If a taxpayer holding EE bonds makes an election with respect to the taxation of the bonds, how is the interest which accrues on the bonds, but is not paid, taxed each year? Answer: If an election is made, the annual increase in the redemption value of the bond (or interest accrual as it is commonly called) is included in taxable income each year.
Q3) Awards, bonuses, and gifts are all included in gross income.
A)True
B)False
Answer: False
Q4) Lottery winnings
A)Included
B)Excluded
Answer: A
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Chapter 3: Business Income and Expenses Part I
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Sample Questions
Q1) The cost of transportation from New York to London for a trip that is for both business and pleasure may be deducted in full as a travel expense.
A)True
B)False
Answer: False
Q2) Ruth is a self-employed surgeon and is required to take a week of continuing medical education every year to keep her license. This year she paid $2,000 in course fees for her continuing medical education in Honolulu. She also paid $1,500 for airfare and a hotel room and $400 for meals. What is the total amount she can deduct on her
Schedule C related to these expenses?
Answer: Ruth may deduct 100 percent of the medical education fees and travel and 50 percent of the meals, a total of $3,700.
Q3) Net operating losses may be carried forward indefinitely.
A)True
B)False
Answer: False
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5
Chapter 4: Business Income and Expenses Part II
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Sample Questions
Q1) Clay changes jobs in 2016 and decides to roll his $50,000 retirement plan balance from his old employer's plan into an IRA. He instructs the trustee of the retirement plan to transfer the money directly to the IRA he has chosen.
What are the tax consequences of the transfer to Clay? Explain.
Q2) Which of the following taxpayers qualifies for the maximum individual retirement account deduction for 2016?
A)Married taxpayers, neither of whom is covered by a qualified retirement plan, with total adjusted gross income, all earned, of $85,000
B)A single taxpayer, who is covered by a qualified retirement plan, with adjusted gross income of $80,000
C)A single taxpayer, who is not covered by a qualified retirement plan, with no earned income but with unearned income of $12,000
D)Married taxpayers, only one of whom is covered by a qualified retirement plan, with total adjusted gross income of $195,000
E)None of the above qualify for the maximum deduction
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6
Chapter 5: Itemized Deductions and Other Incentives
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Sample Questions
Q1) Melvin owns his home and has a $200,000 mortgage related to his purchase of the residence. In the fall of the current year, he borrows $40,000 on credit cards for college costs for his two sons. The interest expense on the mortgage is $15,000 and the interest expense on the credit cards is $6,000. How much of the interest is deductible as an itemized deduction and why? If you were Melvin's accountant, what tax planning suggestion might you have made to him?
Q2) Damage resulting from which of the following would probably not give rise to a casualty loss deduction?
A)Automobile accident
B)Earthquake
C)Flood
D)Rust
E)Fire
Q3) Foreign income taxes paid are deductible.
A)True
B)False
Q4) State sales taxes can be deducted in lieu of state income taxes.
A)True
B)False
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Chapter 6: Credits and Special Taxes
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Sample Questions
Q1) Which of the following is not an exemption from minimum essential coverage for health insurance:
A)the taxpayer had coverage for all but 1 month during the year
B)the taxpayer's income of less than 200% of the federal poverty level
C)the taxpayer was in jail
D)the taxpayer spent 350 days out of the US during the year
Q2) In determining the amount of the child and dependent care credit, there is a limit of $2,000 on the amount of qualified expenses for one dependent.
A)True
B)False
Q3) The alternative minimum tax must be paid only if the tentative minimum tax exceeds a taxpayer's regular tax liability.
A)True
B)False
Q4) Which of the following is not a requirement to claim an earned income credit?
a.Social Security number
b.At least one child claimed as a dependent
c.At least $1 of earned income
d.US citizenship or resident alien status
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Chapter 7: Accounting Periods and Methods and Depreciation
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Q1) If listed property is used more than 50 percent in a qualified business use, depreciation must be calculated using the straight-line method.
A)True
B)False
Q2) On May 2, 2016, Scott purchased a commercial building. The cost basis assigned to the building is $600,000. Scott also owns a residential apartment building he purchased on June 15, 2015 with a cost basis of $400,000.
a.
Calculate Scott's total depreciation deduction for the buildings for 2016, using the Modified Accelerated Cost Recovery System.
b.
Calculate Scott's total depreciation deduction for the buildings for 2017, using the Modified Accelerated Cost Recovery System.
Q3) Residential real estate is currently assigned a 27.5-year cost recovery period under the Modified Accelerated Cost Recovery System.
A)True
B)False
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Page 9
Chapter 8: Capital Gains and Losses
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Sample Questions
Q1) After 4 years of life in the slow lane, Doug decided to give up his goat ranch and move back to the big city. He sold the goat milking machine for $1,000. The machine originally cost $1,200 and had $820 of accumulated depreciation at the time of sale.
a.What is the total gain or loss on the sale of the goat milking machine?
b.Is the gain or loss treated as capital or ordinary? Explain.
Q2) Gain recognized on the sale of a Section 1245 asset is classified as ordinary income up to the amount of depreciation claimed.
A)True
B)False
Q3) Sol purchased land as an investment on February 12, 2015 for $85,000. On January 31, 2016, Sol sold the land for $90,000 cash. What is the nature of the gain or loss?
A)Long-term capital loss
B)Long-term capital gain
C)Short-term capital gain
D)Short-term capital loss
E)None of the above
Q4) What is the treatment given to personal casualty gains and losses?
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Page 10
Chapter 9: Withholding Estimated Payments and Payroll Taxes
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Sample Questions
Q1) Karen is single with no dependents and earns $18,000 a year. She gives her employer a Form W-4 on which she claims 17 allowances. What is her employer required to do about the Form W-4? Explain.
Q2) An individual who expects to receive more than $500 of income from sources other than wages meets the requirements for having to file quarterly estimated tax payments. A)True B)False
Q3) In 2016, Willow Corporation had three employees. Two of the employees worked full-time and earned salaries of $25,000 each. The third employee worked only part-time and earned $4,000. The employer timely paid state unemployment tax equal to 5.4 percent of each employee's wages up to $7,000. How much unemployment tax was paid to the state from Willow Corporation for 2016?
A)$136
B)$168
C)$918
D)$972
E)$1,134
Q4) What is the purpose of backup withholding?
Page 11
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Chapter 10: Partnership Taxation
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Q1) A distribution of cash to a partner was greater than his basis in the partnership. How would this distribution be treated by the partner, assuming the distribution is not a liquidating distribution?
Q2) Oscar and Frank form an equal partnership, the O and F Partnership. Oscar contributes land with an adjusted basis of $45,000, subject to a mortgage of $100,000, in exchange for a partnership interest worth $250,000. Frank contributes cash of $100,000 and performs services for the partnership in exchange for a partnership interest worth $250,000.
a.What is the amount of Oscar's recognized gain or loss (if any) as a result of the contribution to the partnership in exchange for the partnership interest?
b.What is Oscar's basis in his partnership interest immediately after the contribution?
c.What is the amount of Frank's recognized income or loss (if any) as a result of the receipt of the partnership interest in exchange for the cash and services?
d.What is the partnership's basis in the land received from Oscar?
Q3) A partnership generally must adopt the same tax year as its majority partners.
A)True B)False
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Page 12
Chapter 11: The Corporate Income Tax
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Sample Questions
Q1) As a general rule, the transfer of property by a sole shareholder to a corporation in exchange solely for stock does not result in a taxable transaction.
A)True
B)False
Q2) During the current year, the Squamata Corporation, a regular C corporation, has $30,000 in ordinary income, a long-term capital loss of $20,000, and a short-term capital gain of $10,000.
a.Calculate the Squamata Corporation's tax liability for the current year.
b.
Explain the nature and amount of any carrybacks or carryforwards that the corporation is entitled to use.
Q3) Which of the following is not a requirement for qualification as an S corporation?
A)The corporation must be a domestic corporation.
B)The corporation must have 25 or fewer shareholders.
C)The corporation must have only one class of stock outstanding.
D)The shareholders of the corporation must not be nonresident aliens.
E)None of the above.
Q4) What is the purpose of Schedule M-1?
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Chapter 12: Tax Administration and Tax Planning
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Q1) Tax evasion involves the use of illegal methods to reduce or avoid income tax.
A)True
B)False
Q2) The Wage and Investment Office of the IRS handles small business taxpayers. A)True
B)False
Q3) A "correspondence audit" by the IRS is conducted through the mail.
A)True
B)False
Q4) The Taxpayer Bill of Rights is summarized in IRS Publication 1.
A)True
B)False
Q5) Which of the following taxpayers will benefit most in terms of dollars saved as a result of tax planning to reduce taxes?
A)An individual taxpayer who has a marginal tax rate of 28 percent.
B)An individual taxpayer who has an average tax rate of 28 percent.
C)An individual taxpayer who has a marginal tax rate of 15 percent.
D)The taxpayers in a.and b.will benefit equally.
E)None of the above.
Q6) What is the difference between tax avoidance and tax evasion?
Page 14
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