Chapter 1: An Introduction to Taxation
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Q1) Briana,who is single,has taxable income for 2017 of $78,000,resulting in a total tax of $15,239.Her total economic income is $98,000.Briana's average tax rate and effective tax rate are,respectively,
A) 19.54% and 15.55%.
B) 25% and 28%.
C) 19.54% and 25%.
D) 15.55% and 19.54%.
Answer: A
Q2) The federal income tax is the dominant form of taxation by the federal government.
A)True
B)False
Answer: True
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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Chapter 2: Determination of Tax
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Q1) 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 by filing the appropriate IRS form.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
Q2) Although exclusions are usually not reported on an individual's income tax return,interest income on state and local government bonds must be reported on the tax return.
A)True
B)False
Answer: True
Q3) The only business entity that pays federal income taxes is the C corporation.
A)True
B)False
Answer: True
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Chapter 3: Gross Income: Inclusions
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Q1) Qualified dividends received by individuals are taxed at the same rate as ordinary income.
A)True
B)False
Answer: False
Q2) AAA Corporation distributes an automobile to Alexandria,a shareholder,in lieu of a cash dividend.Alexandria must report the value of the automobile as dividend income.
A)True
B)False
Answer: True
Q3) Under the accrual method of accounting,income is considered earned when all the events have occurred which fix the right to receive the income and when the amount of income can be determined with reasonable accuracy.
A)True
B)False
Answer: True
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Chapter 4: Gross Income: Exclusions
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Q1) Richard is a key employee of Winn Corporation.The corporation provides Richard with $120,000 of group-term life insurance coverage.Only company executives receive life insurance coverage.The premium attributable to the coverage is $1,600.The uniform one-month group-term premium is one dollar per $1,000 of coverage.How much must Richard include in income due to the policy?
A) $0
B) $840
C) $1,440
D) $1,600
Q2) Punitive damages are taxable unless they are awarded for physical injuries.
A)True
B)False
Q3) Rick chose the following fringe benefits under his employer's cafeteria plan.Which of his chosen benefits will be taxable?
A) $150 cash per pay period
B) medical insurance on his family
C) dental insurance
D) group term life insurance coverage of $20,000
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Chapter 5: Property Transactions: Capital Gains and Losses
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Q1) On July 25,2016,Marilyn gives stock with a FMV of $7,500 and a basis of $5,000 to her nephew Darryl.Marilyn had purchased the stock on March 18,2016.Darryl sold the stock on April 18,2017 for $7,800.As a result of the sale,what will Darryl report on his 2017 tax return?
A) $300 STCG
B) $300 LTCG
C) $2,800 STCG
D) $2,800 LTCG
Q2) A nonbusiness bad debt is deductible only in the year in which the debt becomes totally worthless.
A)True
B)False
Q3) Unlike an individual taxpayer,the corporate taxpayer does not utilize the 25% and 28% specialty capital gain rates,but it does apply the 15% tax rate to adjusted net capital gain.
A)True
B)False
Q4) Capital recoveries increase the adjusted basis of an asset.
A)True
B)False
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Chapter 6: Deductions and Losses
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Q1) Abigail's hobby is sculpting.During the current year,Abigail sold three of her sculptures for a total of $3,200.Her related expenses include $1,500 in utilities,$1,200 in supplies and $900 in depreciation.Of the total expenses incurred,Abigail may deduct A) $0.
B) $1,500 in utilities and $1,200 in supplies.
C) $1,500 in utilities, $1,200 in supplies, and $500 in depreciation.
D) $1,500 in utilities, $1,200 in supplies and $900 in depreciation.
Q2) Discuss tax planning considerations which a taxpayer may use to possibly avoid classification of an activity as a hobby.
Q3) On August 1 of the current year,Terry refinances her home and borrows $240,000.Terry is required to pay two points on the loan.The loan is secured by the residence and the charging of points is an established business practice in the area.The term of the loan is 20 years,beginning on August 1 of the current year.How much,if any,of the points may Terry deduct in the current year?
A) $0
B) $100
C) $240
D) $4,800
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Chapter 7: Itemized Deductions
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Q1) Medical expenses are deductible as a from AGI deduction to the extent that they exceed 2 percent of the taxpayer's AGI.
A)True
B)False
Q2) Sacha purchased land in 2010 for $35,000 that she held as a capital asset.This year,she contributed the land to the Boy Scouts of America (a charitable organization) for use as a site for a summer camp.The market value of the land at the date of contribution is $40,000.Sacha's adjusted gross income is $90,000.Assuming no special elections,Sacha's maximum deductible contribution this year is
A) $13,000.
B) $27,000.
C) $35,000.
D) $40,000.
Q3) What is the treatment of charitable contributions in excess of the applicable limits for the current year?
Q4) Legal fees for drafting a will are generally deductible.
A)True
B)False
Q5) When are points paid on a loan deductible as interest expense?
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Chapter 8: Losses and Bad Debts
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Q1) The destruction of a capital asset due to a casualty will result in recognition of an ordinary loss.
A)True
B)False
Q2) In order to be recognized and deducted on a tax return,a loss must first be realized.
A)True
B)False
Q3) For purposes of applying the passive loss limitations for rental real estate,active participation requires a greater time commitment by the taxpayer than does material participation.
A)True
B)False
Q4) A net operating loss (NOL) occurs when taxable income for any year is negative because itemized deductions and total exemptions exceed business income.
A)True
B)False
Q5) How is a claim for refund of taxes filed by an individual who carries an NOL deduction back to a prior year?
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Chapter 9: Employee Expenses and Deferred Compensation
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Q1) Tia is a 52-year-old,unmarried taxpayer who is an active participant in an employer-sponsored qualified retirement plan.Before IRA contributions,her AGI is $66,000 in 2017.
a.What is the maximum amount she can contribute and the maximum deduction she can receive for a contribution to a traditional IRA?
b.What is the maximum amount she can contribute and the maximum deduction she can receive for a contribution to a Roth IRA?
Q2) Chuck,who is self-employed,is scheduled to fly from Minneapolis to London on a business trip.His flight schedule included a connection through New York City.When Chuck arrived in New York City,he learned that his flight to London had been cancelled due to a volcanic eruption in Iceland.All air travel to Europe was delayed for five days because of significant amounts of ash in the air,causing Chuck to incur costs for hotel and meals in New York City.Since Chuck had never been to New York City before,he spent the time sightseeing.What tax issues are present?
Q3) Transportation expenses incurred to travel from one job to another are deductible if a taxpayer has more than one job.
A)True B)False
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Chapter 10: Depreciation, cost Recovery, amortization, and Depletion
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Q1) Unless an election is made to expense research and experimental expenditures or to defer and amortize the expenditures,these costs must be capitalized.
A)True
B)False
Q2) Bert,a self-employed attorney,is considering either purchasing or leasing a $50,000 automobile for use in his business.What are the issues he should consider in making his decision?
Q3) Off-the-shelf computer software that is purchased for use in the taxpayer's trade or business is amortized over 36 months,or it can be immediately expensed under a Sec.179 election.
A)True
B)False
Q4) Residential rental property is defined as property from which more than 80% of the gross rental income is rental income from dwelling units.
A)True
B)False
Q5) Why would a taxpayer elect to capitalize and amortize intangible drilling costs (IDCs) rather than expense such costs?
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Chapter 11: Accounting Periods and Methods
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Q1) A taxpayer obtains permission to change an accounting method.The change will result in a positive adjustment to income.To help in managing its cash flow,the taxpayer would like to spread the change over multiple years.In order to take advantage of this opportunity,the net positive adjustment must exceed
A) $25,000.
B) $3,000.
C) $10,000.
D) $0.
Q2) This year,Hamilton,a local manufacturer of off-shore drilling platforms,entered into a contract to construct a drilling platform that will be placed in the North Atlantic Ocean.The total contract price is $5,000,000,and Hamilton estimates the total construction cost at $3,000,000.Actual costs incurred this year are $600,000.If Hamilton uses the percentage of completion method,the gross profit for this year is
A) $0.
B) $400,000.
C) $600,000.
D) $2,000,000.
Q3) What is the significance of the Thor Power Tool Co.case?
Q4) Discuss the purpose of the imputed interest rules.
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Chapter 12: Property Transactions: Nontaxable Exchanges
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Q1) Kuda owns a parcel of land she acquired on June 1,2012,as an investment.She exchanges the land on July 5,2017,for a storage building to be used in her business and marketable securities to be held as an investment.On what date does the storage building's holding period begin?
A) June 1, 2012
B) June 2, 2012
C) July 5, 2017
D) July 6, 2017
Q2) Mick owns a racehorse with a $500,000 basis used for breeding purposes.The racehorse is killed in an accident and Mick receives $750,000 from the insurance company.Mick purchases another racehorse for $400,000.
a.What is the amount of Mick's realized gain?
b.What is the minimum amount of Mick's recognized gain,assuming the appropriate election is made?
Q3) The exchange of antiques held for investment purposes for stock in an antiques auction house held as an investment qualifies for like-kind treatment.
A)True
B)False
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Chapter 13: Property Transactions: Sec1231 and Recapture
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Q1) A taxpayer purchased a factory building in 1985 for $800,000.After claiming ACRS-accelerated depreciation of $800,000,she sells the asset for $1,000,000 during the current year.No payment is received during the current year,and the $1,000,000 balance to be paid with interest at the interest rate in four annual payments beginning one year from date of sale.The installment sales method is adopted.How much ordinary income is recognized in the current year?
A) $ 0
B) $200,000
C) $800,000
D) $1,000,000
Q2) In 1980,Artima Corporation purchased an office building for $400,000 for use in its business.The building is sold during the current year for $550,000.Total depreciation allowed for the building was $390,000; straight-line would have been $360,000.As result of the sale,how much Sec.1231 gain will Artima Corporation report?
A) $150,000
B) $398,000
C) $510,000
D) $540,000
Q3) What is the purpose of Sec.1245 and what is its significance?
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Chapter 14: Special Tax Computation Methods, tax Credits, and Payment of Tax
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Q1) One-half of the self-employment tax imposed is allowed as a for AGI deduction.
A)True
B)False
Q2) Reva and Josh Lewis had alternative minimum taxable income of $350,000 in 2017 and file a joint return.For purposes of computing the alternative minimum tax,their exemption is
A) $37,225.
B) $47,275.
C) $0.
D) $84,500.
Q3) Kerry is single and has AGI of $25,000 in 2017.During the year he contributes $5,000 to his Roth IRA.What is the amount of qualified retirement savings contributions credit to which he is entitled?
A) $200
B) $400
C) $800
D) $1,000
Q4) Discuss the tax planning techniques available to a U.S.citizen who is on a foreign job assignment.
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Chapter 15: Tax Research
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Q1) You need to locate a recent tax case that was tried in a Federal district court.The decision is an "unreported" decision.This means the decision was
A) not published in the Federal Supplement.
B) not published in American Federal Tax Reports.
C) not published in United States Tax Cases.
D) settled out of court.
Q2) Describe the format of a client memo.
Q3) Tax planning is not an integral part of open-fact situations.
A)True
B)False
Q4) Identify which of the following statements is true.
A) The citation, 41 TCM 1272, refers to a Tax Court regular decision published by Commerce Clearing House.
B) The Federal Supplement contains only tax cases.
C) The American Federal Tax Reports contain only tax cases.
D) All of the above are false.
Q5) What is the minimum information that should be contained in a citation?
Q6) Compare and contrast "interpretative" and "statutory" regulations.
Q7) Where must a tax researcher look to access all Tax Court cases?
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Chapter 16: Corporations
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Q1) In general,net operating losses of a corporation are carried back 3 years and forward for 20 years.
A)True
B)False
Q2) A corporation earns $500,000 of current E&P and has an accumulated deficit of $300,000.The corporation pays a $350,000 distribution to its shareholders this year.$200,000 of the distribution will be taxed as a dividend.
A)True
B)False
Q3) Chi transfers assets with a $150,000 FMV (basis $80,000) and $100,000 of business-related liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $50,000.The corporation assumes the $100,000 mortgage.
a.What is the amount of gain recognized by Chi?
b.What is the adjusted basis of the stock received by Chi?
c.What is the basis of the assets to the corporation?
Q4) Additional capital may be obtained by a corporation by issuing debt securities or equity securities.What advantages result from issuing debt in the capital structure?
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Chapter 17: Partnerships and S Corporations
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Q1) Marisa has a 75% interest in the MM Partnership.She sells the partnership a building used in her business for $150,000.Her adjusted basis of the building was $120,000.Marisa had used straight-line depreciation.The partnership will use the building for its offices.What are the tax consequences to Marisa of this transaction?
Q2) When a partnership interest is sold,ordinary income may result if a partnership has unrealized receivables or inventory items.
A)True
B)False
Q3) How does an electing large partnership differ from a regular partnership?
A) In the determination of separately stated items of partnership income, gain, loss, or deduction.
B) An electing large partnership terminates when the partners cease to conduct any business, financial operation, or venture.
C) An electing large partnership must provide a Schedule K-1 to its partners.
D) There are no differences in the reporting of income, gain, loss, deduction or credit between a partnership and an electing large partnership.
Q4) What are special allocations of partnership items and when are they permitted?
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Chapter 18: Taxes and Investment Planning
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Q1) At the beginning of year 1,Sandeep invests $10,000 in a money market fund that pays a 3% annual return before taxes.Sandeep's marginal tax rate is 25%,and he allows the after-tax earnings to remain in the money market fund.That is,he withdraws only enough cash to pay the taxes on the earnings.What is his after-tax accumulation at the end of year 2?
A) $10,455
B) $10,609
C) $10,690
D) None of the above
Q2) Investments conforming to the Current Model provide no deferral advantages because earnings are taxed currently.
A)True
B)False
Q3) Nolan earns a salary of $80,000 and has a flat tax rate of 28%.The amount of after-tax dollars he has to invest is
A) $22,400.
B) $57,600.
C) $56,000.
D) $80,000.
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