Personal Income Tax Exam Practice Tests
Course Introduction
Personal Income Tax provides an in-depth exploration of the principles, laws, and procedures governing the taxation of individual incomes. The course covers topics such as gross income, allowable deductions, tax credits, filing statuses, and tax planning strategies. Students will learn how to calculate taxable income, apply the appropriate tax rates, and understand compliance requirements under current tax regulations. By examining case studies and practical examples, participants gain the skills necessary to accurately prepare and analyze personal income tax returns, while developing an awareness of the ethical and legal responsibilities inherent in tax reporting and planning.
Recommended Textbook
Prentice Halls Federal Taxation 2014 Individuals 27th Edition by Timothy J. Rupert
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2027 Verified Questions
2027 Flashcards
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Chapter 1: An Introduction to Taxation
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Sample Questions
Q1) AB Partnership earns $500,000 in the current year.Partners A and B are equal partners who do not receive any distributions during the year.How much income does partner A report from the partnership?
A)$0
B)$250,000
C)$500,000
D)None of the above.
Answer: B
Q2) The Senate equivalent of the House Ways and Means Committee is the Senate
A)Joint Committee on Taxation.
B)Ways and Means Committee.
C)Finance Committee.
D)Joint Conference Committee.
Answer: C
Q3) Generally,the statute of limitations is three years from the later of the date the tax return is filed or the due date.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Determination of Tax
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Sample Questions
Q1) Frank,age 17,received $4,000 of dividends and $1,500 from a part-time job.Frank is a dependent of his parents who are in the 28% percent bracket.Frank's taxable income is A)$0.
B)$4,000.
C)$4,500.
D)$3,650.
Answer: D
Q2) Sally divorced her husband three years ago and has not remarried.Since the divorce she has maintained her home in which she and her now sixteen-year-old daughter reside.The daughter is a qualified child.Sally signed the dependency exemption over to her ex-spouse.What is Sally's filing status for the current year and how many exemptions may she claim?
A)single and one
B)surviving spouse and one
C)head of household and one
D)head of household and two
Answer: C
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4
Chapter 3: Gross Income: Inclusions
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Sample Questions
Q1) The cash receipts and disbursements method of accounting is used by most individual taxpayers and most noncorporate businesses that do not have inventories.
A)True
B)False
Answer: True
Q2) Which of the following is not included in gross income when received?
A)interest received on bank accounts
B)royalties paid to an author
C)amounts received to cancel or modify a lease
D)refundable security deposit
Answer: D
Q3) The recipient of a taxable stock dividend includes the value of the stock received in gross income and that amount becomes the basis for the stock received.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Gross Income: Exclusions
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Sample Questions
Q1) Elisa sued her former employer for discrimination.She was awarded $200,000 for lost wages,$30,000 for medical expenses related to emotional distress resulting from the discrimination,and $300,000 in punitive damages.The amount taxable is A)$0.
B)$200,000.
C)$500,000.
D)$530,000.
Q2) Miranda is not a key employee of AB Corporation.AB provides Miranda with group term life insurance coverage of $140,000.The premiums attributable to the excess coverage are $1,300.The uniform one-month group-term premium is one dollar per $1,000 of coverage.How much must Miranda include in income?
A)$0
B)$1,080
C)$1,300
D)$1,680
Q3) Payments received from a workers' compensation plan are taxable.
A)True
B)False
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Chapter 5: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) Distinguish between the Corn Products doctrine and the ruling in the Arkansas Best Corporation case.
Q2) Armanti received a football championship ring in college.During difficult economic times,Armanti sold the ring at a pawn shop.What are the tax issues of the sale to Armanti?
Q3) What type of property should be transferred to heirs at a decedent's death and why? Should estate planning also mean that some property is transferred prior to death? Why?
Q4) All realized gains and losses are recognized for tax purposes. A)True
B)False
Q5) During the current year,Don's aunt Natalie gave him a house.At the time of the gift,the house had a FMV of $144,000 and his aunt's adjusted basis was $133,000.After deducting the annual exclusion,the amount of the gift was $130,000.His aunt paid a gift tax of $20,000 on the house.What is Don's basis in the house for purposes of determining gain?
A)$130,000
B)$133,000
C)$134,692
D)$144,000
Page 7
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Chapter 6: Deductions and Losses
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Sample Questions
Q1) The term "principal place of business" includes a home office used by a taxpayer for administrative or management activities of the business if no fixed location exists where the taxpayer conducts these activities.
A)True
B)False
Q2) For the years 2009 through 2013 (inclusive)Max,a surgeon,has been involved in raising poodles.Only in 2012 and 2013 did his revenue exceed the expenses from the activity.Which statement is correct?
A)The activity is a business.The IRS cannot prove it is a hobby.
B)The activity is a hobby.Max cannot prove it is a business.
C)The activity is presumed to be a business.However,the IRS may prove it is a hobby.
D)The activity is presumed to be a hobby.However,Max may prove it is a business.
Q3) Taxpayers may deduct lobbying expenses incurred to influence legislation at any governmental level if the legislation is of direct interest to the taxpayer's trade or business.
A)True
B)False
Q4) Discuss when expenses are deductible under the accrual method of accounting.
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Page 8
Chapter 7: Itemized Deductions
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Sample Questions
Q1) Patrick's records for the current year contain the following information.He donated stock having a fair market value of $5,000 to a qualified charitable organization.Patrick acquired the stock two years ago at a cost of $3,000.He paid $1,000 for membership in an athletic scholarship program maintained by the university.The only benefit of the membership is that Patrick is entitled to purchase a season ticket to the university's home football games.He also donated $7,500 cash to a qualified charitable organization.Patrick's adjusted gross income for the year is $100,000.What is the amount of his charitable contribution deduction?
A)$11,300
B)$11,500
C)$13,300
D)$13,500
Q2) A charitable contribution in excess of the deduction limit for one taxable year can be carried forward five years.
A)True
B)False
Q3) Explain when the cost of living in an institution other than a hospital may be deductible.
Q4) Explain how tax planning may allow a deduction of qualified medical expenses.
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Chapter 8: Losses and Bad Debts
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Sample Questions
Q1) Which of the following expenses or losses could create a net operating loss for an individual taxpayer?
A)large losses on sales of investment assets
B)an operating loss from a sole proprietorship
C)large charitable contributions
D)all of the above
Q2) What is or are the standards that must be present to warrant a casualty loss deduction?
Q3) When the taxpayer anticipates a full recovery on a casualty loss of personal-use property but receives less than full recovery in a subsequent year,the unrecovered portion may be deducted.
A)True
B)False
Q4) When applying the limitations of the passive activity rules,a taxpayer's AGI is classified into active income,portfolio income and passive income.For this purpose,portfolio income includes dividends,interest,annuities,and royalties.
A)True
B)False
Q5) What are some factors which indicate that a debt may be worthless?
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Chapter 9: Employee Expenses and Deferred Compensation
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Q1) Gwen traveled to New York City on a business trip for her employer.Gwen spent 4 days in business meetings and conferences and then spent 2 days sightseeing in the area.Gwen's plane fare for the trip was $250.Meals cost $160 per day.Hotels and other incidental expenses amounted to $250 per day.Gwen was not reimbursed by her employer for any expenses.Her AGI for the year is $50,000 and she itemizes but has no other miscellaneous itemized deductions.Gwen may deduct (after limitations)
A)$570.
B)$890.
C)$1,890.
D)$1,570.
Q2) Daniel has accepted a new job and is reviewing the retirement plan information.He has a choice of participating in the company's conventional Sec.401(k)plan or a Roth 401(k)plan.Explain the difference between the two plans in terms of employee contributions and retirement distributions from the plan.
Q3) Why did Congress establish Health Savings Accounts (HSAs)? How do HSAs operate?
Q4) Gambling losses are miscellaneous itemized deductions subject to the 2% of AGI floor.
A)True
B)False
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Chapter 10: Depreciation, cost Recovery, amortization, and Depletion
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Sample Questions
Q1) The Section 179 expensing election is available on an annual basis for property purchased during the year.
A)True
B)False
Q2) When depreciating 5-year property,the final year of depreciation will be year
A)3)
B)4)
C)5)
D)6)
Q3) Eric is a self-employed consultant.In May of the current year,Eric acquired a computer system (5-year property)for $7,000 and used the computer 30% for business.Eric does not use Sec.179.The maximum depreciation deduction for is A)$210.
B)$420.
C)$700.
D)$2,100.
Q4) Land,buildings,equipment,and stock are examples of tangible property.
A)True
B)False
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Chapter 11: Accounting Periods and Methods
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Sample Questions
Q1) Under the cash method of accounting,all of the following are true with the exception of:
A)Fixed assets are always expensed as the taxpayer pays for the assets.
B)Gross income includes the value of property received.
C)To some extent,a taxpayer may control the year in which an expense is deductible by choosing when to make the payment.
D)Income is reported in the tax year in which payments are actually or constructively received.
Q2) Which of the following statements regarding UNICAP is incorrect?
A)The UNICAP rules result in more costs being included in inventory for tax purposes than for financial accounting.
B)Taxpayers with gross receipts averaging more than $10,000,000 or more for the prior three years must apply the UNICAP provisions.
C)Interest must be included in inventory if the property produced is real property or long-lived property.
D)UNICAP requires that advertising and selling costs be allocated between inventory and cost of sales.
Q3) What is the significance of the Thor Power Tool Co.case?
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Chapter 12: Property Transactions: Nontaxable Exchanges
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Q1) Which of the following statements with respect to a like-kind exchange is false?
A)Property of one class must be exchanged for property of the same class.
B)An exchange of inventory does not qualify as a like-kind exchange.
C)Personal property must be exchanged for personal property.
D)Sale of property and subsequent purchase of like-kind property will always qualify as a like-kind exchange.
Q2) The building used in Terry's business was condemned by the city of St.Louis.Terry received a condemnation award of $125,000.He paid $1,200 in lawyer's fees and $800 for an appraisal of the property.Terry's adjusted basis in the building was $60,000.Terry reinvests in similar property costing $110,000,and Terry makes the proper election regarding the property.What is the amount of Terry's recognized gain on the condemnation?
A)$15,000
B)$13,000
C)$50,000
D)$63,000
Q3) May a taxpayer elect under Sec.1033 to defer recognition of loss resulting from an involuntary conversion?
Q4) Discuss why a taxpayer would want to avoid like-kind exchange provisions.
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Chapter 13: Property Transactions: Section 1231 and Recapture
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Sample Questions
Q1) With regard to noncorporate taxpayers,all of the following statements are true regarding Sec.1250 recapture except
A)Sec.1250 affects the character of the gain,not the amount of the gain.
B)Sec.1250 applies to assets sold or exchanged at either a gain or a loss.
C)Sec.1250 ordinary income does not exist if the straight-line method of depreciation is used.
D)Sec.1250 ordinary income is never more than the additional depreciation allowed.
Q2) During the current year,George recognizes a $30,000 Section 1231 gain on sale of land and a $18,000 Section 1231 loss on the sale of land.Prior to this,George's only Section 1231 item was a $14,000 loss six years ago.George must report a
A)$12,000 net LTCG.
B)$12,000 ordinary income.
C)$14,000 ordinary income.
D)$10,000 ordinary income and $2,000 net LTCG.
Q3) When gain is recognized on an involuntary conversion,gain is subject to recapture under Sec.1245 or Sec.1250.
A)True
B)False
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Chapter 14: Special Tax Computation Methods, tax Credits, and Payment of Tax
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Sample Questions
Q1) George and Meredith who are married,have a regular tax liability of $23,108,taxable income of $125,000,tax preferences of $25,000,and positive adjustments attributable to limitations on itemized deductions of $18,700 this year.They claim $11,700 of personal and dependency exemptions for themselves and their 20-year old dependent daughter.What is George and Meredith's alternative minimum tax for 2013?
Q2) The nonrefundable disabled access credit is available to eligible small businesses for expenditures incurred to make existing business facilities accessible to disabled individuals.
A)True
B)False
Q3) For purposes of the limitation on qualifying expenses for the child and dependent care credit,a spouse who is either a full-time student or is incapacitated is deemed to have earned income of $250 per month,or $500 per month if there are two or more qualifying individuals in the household.
A)True
B)False
Q4) One-half of the self-employment tax imposed is allowed as a for AGI deduction.
A)True
B)False
Page 16
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Chapter 15: Tax Research
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Q1) During the course of an audit,a CPA discovers an error in a prior return.According to the Statements on Standards for Tax Services,the CPA should
A)ask the client for permission to disclose the error to the IRS.
B)withdraw from the engagement.
C)inform the IRS of the error,regardless of whether the client grants permission.
D)correct the error in the current year's tax return.
Q2) What are some of the consequences of the small cases procedure of the Tax Court?
Q3) Identify which of the following statements is false.
A)Regular and memorandum decisions of the Tax Court are published by the government in the Tax Court of the United States Reports.
B)The citation Cristofani,97 T.C.74 (1991)indicates that the decision is a regular decision of the Tax Court.
C)The citation Estate of Newhouse,94 T.C.193 (1990),nonacq.1991-1 C.B.1 indicates that the IRS did not formally disagree with this 1990 Tax Court decision until 1991.
D)The Board of Tax Appeals preceded the Tax Court.
Q4) Compare and contrast proposed,temporary,and final regulations.
Q5) Discuss the purposes and scope of temporary regulations.
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Page 17
Chapter 16: Corporations
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Q1) For purposes of the accumulated earnings tax,reasonable needs of the business include all of the following with the exception of
A)making loans to stockholders.
B)providing working capital for the business.
C)acquiring the assets or stock of another business.
D)reasonably anticipated expansion of the business and plant replacement.
Q2) If certain requirements are met,Sec.351 permits deferral of recognition of gain or loss on the transfer of property to a corporation solely in exchange for stock of the corporation.
A)True
B)False
Q3) The computation of adjusted gross income (AGI)does not apply to corporations. A)True B)False
Q4) Nguyen Corporation,a calendar-year corporation,has a $40,000 current E&P deficit and a $60,000 positive accumulated E&P balance.Also assume that shareholders of the corporation have a total basis in outstanding shares of $35,000.A $75,000 distribution is made to the shareholders on the last day of the year.What is the tax treatment of the $75,000 distribution to the shareholders?
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Chapter 17: Partnerships and S Corporations
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Q1) Which of the following assets may cause a partner to recognize ordinary income rather than capital gain on the sale of a partnership interest?
A)land
B)long-term debt
C)inventory
D)buildings which have been placed in service after 1986
Q2) In the syndication of a partnership,brokerage and registration fees,printing fees,and legal fees of the underwriter total $50,000.With respect to these fees,the partnership must
A)capitalize the fees,which are not amortizable.
B)deduct $5,000 of the expenses in the accounting period incurred and permanently capitalize the remainder.
C)capitalize and amortize the fees over a period of not less than 60 months.
D)deduct $5,000 of the expenses in the accounting period incurred and amortize the remaining amount over 180 months.
Q3) Discuss whether a C corporation,a partnership,or an S corporation form of organization would be preferred if net operating losses are anticipated in the initial years of operation.
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19
Chapter 18: Taxes and Investment Planning
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Q1) Charlene can invest $4,000 of after-tax dollars (AT$)directly in a taxable bond outside an IRA,or she can contribute the $4,000 to a nondeductible IRA and invest in the same bond through the IRA vehicle.In either case the bond yields an annual 7% before-tax rate of return (BTROR).Charlene's marginal tax rate is 20%,and she expects it to remain so for the entire investment horizon of 25 years.What is her annualized after-tax rate of return (annualized ATROR)for the "bond outside the IRA"?
A)5)6%
B)6%
C)6)5%
D)7%
Q2) What are the characteristics of the Pension Model?
Q3) One characteristic of the Exempt Model is the fact that,like the Current and Deferred Models,only after-tax dollars are invested.
A)True
B)False
Q4) In the Current Model,investment earnings are taxed currently.
A)True
B)False
Q5) Compare the characteristics of the Current and Deferred Models.
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