IRS Practice and Procedure
Exam Solutions
Course Introduction
IRS Practice and Procedure provides an in-depth examination of the processes and protocols involved in representing taxpayers before the Internal Revenue Service (IRS). The course covers foundational topics such as IRS organization, tax return examination, appeals, collections, audits, and dispute resolution. Students will learn about administrative procedures, statutory and regulatory guidelines, and the rights and obligations of both the taxpayer and the IRS. Emphasis is placed on effective strategies for compliance, negotiation, and resolution of tax controversies, as well as ethical considerations for practitioners representing clients in dealings with the IRS.
Recommended Textbook
Concepts in Federal Taxation 2018 25th Edition by Kevin E. Murphy
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16 Chapters
2096 Verified Questions
2096 Flashcards
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Chapter 1: Conceptual Foundations of Tax Law
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) Bob and Linda are married and have a 2017 taxable income of $280,000.They also received $20,000 of tax-exempt income.Their marginal tax rate is:
A)23.1%
B)24.8%
C)28.0%
D)33.0%
E)35.0%
Answer: D
Q2) The Federal income tax is a
A)revenue neutral tax.
B)regressive tax.
C)value-added tax.
D)progressive tax.
E)form of sales tax.
Answer: D
Q3) All tax practitioners are governed by the AICPA's Code of Professional Conduct.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Income Tax Concepts
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153 Flashcards
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Sample Questions
Q1) Annual Accounting Period Concept
A)Allocates income,losses,and deductions to its owners for inclusion in their personal returns.
B)Each tax unit must keep separate records and report the results of its operations separate and apart from other tax units.
C)Income from services must be taxed to the taxpayer rendering the service and income from property must be taxed to the owner of the property.
D)Any tax year that ends on the last day of a month other than December.
E)All taxpayers must report the results of their operations on an annual basis.
F)A tax year that ends on December 31.g.A tax entity that is liable for the payment of tax.
Answer: E
Q2) Bethany bought a new suit to wear to work.She will not be able to deduct the cost of the suit even though she wears it to work.
A)True
B)False
Answer: True
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Chapter 3: Income Sources
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154 Flashcards
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Sample Questions
Q1) Which of the following constitutes a realization?
I.Frank's lakeside cottage is damaged in a violent storm.The cost of repairs totaled $4,000.However,the insurance company gives Frank only $2,500 for the repairs.
II.McDonald's cow gives birth.The calf will become a member of McDonald's feeder cattle herd.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: A
Q2) An accrual basis taxpayer does not have income until there is an actual or constructive receipt of income earned.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Income Exclusions
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Sample Questions
Q1) Ally served as chairperson of the local school board.Upon completion of her term in office,the employees in the school district offices take up a collection and purchase her a silver sterling tray in recognition of her outstanding service to the organization.The value of the tray is $200.What are the tax effects of the award?
I.The value of the tray is included in gross income because of services rendered.
II.The tray is a gift because it is from a detached and disinterested generosity.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both are correct.
D)Neither is correct.
Q2) Clarance rented office space to an attorney who left town before the lease was completed.The attorney left several bookcases and other improvements to cover the remaining rent.Clarance must include in income the value of the leasehold improvements to the extent of the remaining rent that was due.
A)True
B)False
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Chapter 5: Introduction to Business Expenses
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167 Flashcards
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Sample Questions
Q1) Morgan,a banker,is an amateur photographer who takes pictures at weddings and parties.He earned $1,000 but incurred $1,200 in related expenses.Since he takes a standard deduction,he will have to include the $1,000 in income but will not get any benefit from the expenses.
A)True
B)False
Q2) Indicate which of the following statements is/are correct:
I.A cash basis taxpayer may deduct prepaid rent if it will be used-up within one year of prepayment and the payment is required to be made.
II.An accrual basis taxpayer must satisfy an all-events test and an economic performance test to claim a deduction.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.
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Chapter 6: Business Expenses
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148 Flashcards
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Sample Questions
Q1) Walter is a cash basis taxpayer with a drapery cleaning business.In the current year he determines he will never receive payment from Davis for cleaning services provided to Davis.Can Walter record a deduction for the bad debt? Explain.
Q2) Which of the following legal expenses paid by the Sutton Corporation can be deducted in the current year?
I.Legal fees to initiate a lawsuit against a competitor who is using its patent.
II.Legal fees to settle a lawsuit filed by a delivery person who slipped on the ice delivering a package to Sutton's office.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) To be deductible,meals and entertainment must be both an ordinary and necessary business expense and must be either directly related to or associated with the active conduct of an activity for which the taxpayer has a business purpose.
A)True
B)False
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Chapter 7: Losses -- Deductions and Limitations
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Sample Questions
Q1) Barry owns all of the stock of Jerrico Corporation;an internet based gaming firm.Barry is also the President of and works full-time for Jerrico.During the current year,Jerrico has a loss of $125,000 from its operations.
i.If Jerrico is an S Corporation,Barry may deduct the loss on his personal tax return as a deduction for AGI.II.If Jerrico is a regular corporation,the corporation can elect to carryforward the loss to reduce taxable income during the next 20 years.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) During the current year,Schmidt Corporation has operating income of $75,000 and a net capital loss of $25,000.What is Schmidt's taxable income?
A)$- 0 -
B)$50,000
C)$72,000
D)$75,000
E)$90,000
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Page 9
Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Carey and Corrine are married and have two children in college.Jason is a sophomore,and Justine is a senior.They pay $2,000 in tuition and fees for Jason,$600 for his books and $3,000 for his room and board.Justine's tuition and fees are $3,000,her book expense is $800,and her room and board expenses are $2,600.Their adjusted gross income is $165,000.What amount can they claim as a tax credit for the higher education expenses she pays?
A)$-0-
B)$1,875
C)$3,450
D)$4,600
E)None of the above
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.
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Page 10
Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Mary pays $25,000 and secures a mortgage note for $75,000 to purchase a vacation home.She pays $200 to her attorney for reviewing the purchase agreement and $1,500 in points to the mortgage company.Mary's initial basis in the vacation home is
A)$- 0 -
B)$25,000
C)$26,700
D)$100,200
E)$101,700
Q2) When a stock dividend is nontaxable,part of the basis of the original stock must be allocated to the new stock received as a dividend.
A)True
B)False
Q3) Personal use property
A)Land and structures permanently attached to land.
B)Property that lacks a physical existence.
C)Property that is used by the taxpayer for purely personal purposes.
D)Any property that has form,shape,and substance.
E)Property with a physical existence that is not real estate.
F)A single property used in more than one category.
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Page 11
Chapter 10: Cost Recovery on Property: Depreciation, depletion, and Amortization
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Sample Questions
Q1) Depletion
A)Computers,and automobiles.
B)Used to recover the investment in intangible assets.
C)Used to recover the investment in long-lived tangible business-use assets.
D)An attempt to stimulate capital investment by small businesses.
E)Used to recover the investment in assets that waste away through extraction.
Q2) A limitation exists on the annual amount of deductible depreciation for passenger automobiles.The limitation rules include which of the following?
I.If the automobile is used less than 100% for business,the annual limitation amount is reduced by multiplying it by the business-use percentage.
II.Section 179 expensing is available for passenger automobiles,but often is not advantageous.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Discuss why listed property gets special attention.
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Chapter 11: Property Dispositions
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Sample Questions
Q1) George sells a fully depreciated air compressor that cost $975 for $650.The compressor was used to operate air tools.
A)Long-term capital
B)Short-term capital
C)Collectible gain
D)Section 1231
E)Section 1245
F)Section 1250
G)Ordinary income/loss
H)Nontaxable/nondeductible
Q2) Karl paid $200,000 for business-use equipment.Using straight-line depreciation,his deduction would have been $22,000,but Karl uses MACRS depreciation and deducts $37,500 for the first two years of usage.At the beginning of the third year,Karl sells the equipment for $190,000.How much of the gain is recaptured under Section 1245 as ordinary income?
A)$- 0 -
B)$5,500
C)$22,000
D)$27,500
E)$37,500
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Page 13
Chapter 12: Nonrecognition Transactions
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Sample Questions
Q1) Norman exchanges a machine he uses in his pool construction business for a used machine worth $6,000 to use in the same business.He purchased the machine 3 years ago for $22,000 and had taken depreciation of $9,000 on the machine.In the exchange,Norman also receives $3,000 of cash.As a result of the exchange,
I.Norman realizes a loss of $4,000 on the exchange.
II.Norman's basis in the acquired machine is $13,000.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) An involuntary conversion occurs whenever a loss (but not a gain)is realized from a transaction that occurs against the taxpayer's will.
A)True
B)False
Q3) Land in London,England for land in San Francisco,California.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
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Page 14
Chapter 13: Choice of Business Entity -- General Tax and
Nontax Factorsformation
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101 Flashcards
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Sample Questions
Q1) Which of the following businesses can use the cash method?
I.The Hateris Group,a partnership with 3 equal partners,of which one is The Hillard Corporation.Average revenues for the Hateris Group,a financial planning firm,over the last three years are $4,000,000.
II.The Glidder Corporation,a clothing retailer that has average annual sales over the last three years are $2,100,000.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Maria owns 30% of the stock of Marshmallow Inc. ,an electing S corporation.Marshmallow reports taxable income of $100,000 and pays $80,000 in dividends to shareholders.What is Maria's income from Marshmallow?
A)$-0-
B)$24,000
C)$30,000
D)$54,000
E)$80,000
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Chapter 14: Choice of Business Entity -- Operations and Distributions
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Sample Questions
Q1) Which of the following items are included in the computation of the sole proprietorship's taxable income?
I.Charitable contributions.
II.Section 1231 gains and losses.
III.Investment income and expenses.
A)Only statement I is correct.
B)Only statement II is correct.
C)Statements I,II,and III are correct.
D)Only statement III is correct.
E)None are correct.
Q2) Losses flow-through limited to basis plus the amount of any direct loans
A)Sole Proprietorship.
B)Partnership.
C)Corporation.
D)S Corporation.
Q3) Withdrawals of cash by a partner are taxable.
A)True
B)False
Page 16
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Chapter 15: Choice of Business Entity -- Other
Considerations
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Sample Questions
Q1) A Keogh plan is a type of qualified pension for self-employed individuals.An individual or entity that establishes a Keogh plan can
I.Only establish a defined contribution profit sharing pension plan.
II.Have both employees and self-employed individuals as participants.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) The Holden Corporation maintains a SIMPLE-IRA retirement plan for its employees.The company has notified its employees that for 2017 it will fund the SIMPLE-IRA by matching an employee's contribution up to a maximum of 3% of the employee's salary.Harrison's salary in 2017 is $50,000 and he contributed $2,000 to the plan.What amount must Holden contribute on Harrison's behalf?
A)$-0-
B)$600
C)$1,500
D)$2,000
E)$4,600
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Chapter 16: Tax Research
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Sample Questions
Q1) The final step in the tax research process is to reach a conclusion,make a recommendation and communicate the results to the client.
A)True
B)False
Q2) Secondary sources of tax law include
I.Internal Revenue Code of 1986.
II.United States Tax Reporter (RIA)
III.Taxes: The Tax Magazine.
IV.Tax Court Memo Decision.
A)Only statement III is correct.
B)Statements II and III are correct.
C)Only statement I is correct.
D)Statements I,II,and III are correct.
E)Statements I,II,III,and IV are correct.
Q3) Title 26 of the United States Code is commonly referred to as the Internal Revenue Code.
A)True
B)False
Q4) Describe the steps of the tax research process.
Page 18
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