Tax Law and Practice
Test Preparation
Course Introduction
This course provides an in-depth exploration of the principles and practice of tax law. It covers the structure and administration of taxation systems, focusing on key concepts such as taxable income, tax liabilities, deductions, exemptions, and credits across individual and corporate contexts. Students will engage with statutory provisions, case law, and regulatory guidance to understand compliance requirements and tax planning strategies. The course emphasizes practical problem-solving through the analysis of real-life scenarios, equipping students with the skills necessary to navigate and apply tax law in both advisory and regulatory settings.
Recommended Textbook Fundamentals of Taxation 9th Edition 2016 by Ana Cruz
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15 Chapters
1631 Verified Questions
1631 Flashcards
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Chapter 1: Introduction to Taxation, the Income Tax
Formula, and Form 1040ez
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) The simplified tax formula can only be used by individuals with simple income tax returns.
A)True
B)False
Answer: False
Q2) Which of the following is correct with respect to Private Letter Rulings?
A) Issued when a taxpayer wants to know the tax treatment of a specific tax situation.
B) Can be relied upon by all taxpayers in a similar tax situation.
C) Provides tax authority only to the taxpayer to whom it is issued.
D)Both issued when a taxpayer wants to know the tax treatment of a specific tax situation and provides tax authority only to the taxpayer to whom it is issued.
Answer: D
Q3) If a taxpayer is covered by Medicare, they are deemed to have qualifying health care insurance coverage.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Expanded Tax Formula, Forms 1040a and 1040, and Basic Concepts
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) The taxpayer's spouse died at the beginning of 2015. He has no qualifying child. Which status should the taxpayer select when filing his tax return?
A) Single.
B) Qualifying Widow(er).
C) Married Filing Separately.
D)Married Filing Jointly.
Answer: D
Q2) The early withdrawal penalty is a for AGI deduction. Which form can the taxpayer use to claim this benefit?
A) 1040EZ.
B) 1040A.
C)1040.
D) 1040A or 1040.
Answer: C
Q3) A taxpayer filing separately must show the name, address, and social security number of the spouse on the tax return.
A)True
B)False
Answer: False
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Chapter 3: Gross Income: Inclusions and Exclusions
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Jeff owns 200 shares of Coca Cola common stock that have increased in value by $14 each. He must report the increase in income because a transaction has occurred. A transaction has not occurred so income does not need to be recognized.
A)True
B)False
Answer: False
Q2) What are cafeteria plans?
Answer: Flexible benefit plans, often called cafeteria plans, are written plans that permit employees to choose their own "menu" of benefits. The menu of options from which employees can choose usually includes several fringe benefits, such as health care insurance, education expenses, transportation benefits, just to name a few. In these types of plans, the value of the benefits received is not taxed to the employee. However, if the employee elects to receive cash, the cash is taxable.
Q3) There are some instances where a cash-basis taxpayer can report income as though he or she is an accrual basis taxpayer.
A)True
B)False
Answer: True
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Chapter 4: Adjustments for Adjusted Gross Income
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) Distributions from Health Savings Accounts (HSAs) are subject to tax, if they are used to pay for qualified medical expenses.
A)True
B)False
Q2) In lieu of making cash payments of alimony directly to a former spouse, payments to a third party on behalf of the former spouse can qualify as alimony.
A)True B)False
Q3) For 2015, taxpayers are eligible to take a student loan interest deduction of up to:
A) $3,000.
B) $2,800.
C) $2,500.
D)$2,150.
Q4) Under a divorce agreement executed in 2015, periodic payments of either cash or property must be made at regular intervals to be deductible as alimony.
A)True B)False
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6
Chapter 5: Itemized Deductions
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) On December 31, 2015, Roger charged a $1,800 contribution to a qualified charitable organization to his credit card. He will not pay the credit card bill until January 2016. The $2,200 contribution is deductible on Roger's 2015 tax return.
A)True
B)False
Q2) When performing services for a charitable organization, is any charitable deduction allowed? If so, explain.
Q3) For 2015, the investment interest expense deduction is limited to the taxpayer's gross investment income.
A)True
B)False
Q4) Donations to what types of organizations are tax deductible?
Q5) On April 3<sup>rd</sup>, Megan discovers that her diamond broach has been stolen. The broach had a fair market value and adjusted basis of $15,000. The broach was not covered by Megan's insurance policy and her adjusted gross income for the year was $65,000. What would be her casualty loss deduction for the year?
Q6) What is qualified residence interest? Are there any limits to the deductibility of qualified residence interest?
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Chapter 6: Self-Employed Business Income
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73 Verified Questions
73 Flashcards
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Sample Questions
Q1) On November 30, 2015, Constance purchased an apartment building for $750,000. Determine her cost recovery deduction for 2015 rounded to the nearest dollar.
A) $0.
B) $2,400.
C) $3,413.
D)$26,138.
Q2) Which of the following is not a "trade or business" expense?
A) Mortgage interest on a warehouse.
B) Depreciation on business equipment.
C) Mortgage interest on a personal residence.
D)Cost of goods sold.
Q3) Marion drives 20 miles a day from his first job to his second job. He worked 125 days during 2015 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) $70.
B) $1,388.
C) $1,400.
D)$1,438.
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Page 8
Chapter 7: Capital Gains and Other Sales of Property
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Majoo inherited property from his uncle on August 15, 2015. His uncle purchased the property on December 10, 2013 for $100,000. At the date of his death, the property's FMV was $102,000. Majoo sold the property on September 30, 2015 for $105,000.
a. What is the gain on the sale of the property?
b. What is the nature of the gain?
Q2) A taxpayer purchased land in 2008 for $85,000 and sold it in 2015 for $75,000 cash. The buyer also assumed the mortgage of $5,000. What is the amount of gain/loss on the sale of the land?
A) $5,000 loss.
B) $5,000 gain.
C) $15,000 gain.
D)$20,000 loss.
Q3) Jake purchased a $300,000 earthmover for his business. He sold the earthmover for $245,000 after taking $210,000 of depreciation. What is the nature and amount of the gain or loss on the sale?
A) $55,000 Section 1245 ordinary income and $100,000 Section 1231 gain.
B) $90,000 Section 1245 ordinary income and $65,000 Section 1231 gain.
C) $155,000 Section 1231 gain.
D)$155,000 Section 1245 ordinary income.
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Page 9
Chapter 8: Rental Property, Royalties, Income From
Flow-Through Entities
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) What is meant by a passive activity? Why is a rental activity classified as a passive activity? Can a rental activity be classified as active? Explain.
Q2) Define royalty income. What criteria determine which form is used and where the royalties are reported?
Q3) Which of the following is not considered a capital improvement for a rental activity?
A) Addition of a bathroom
B) Replacement of the roof
C) Repair of a leaky water pipe
D)New landscaping
Q4) In the case of a primarily personal property, a taxpayer may report a net loss as long as the correct allocation method was used.
A)True
B)False
Q5) When royalties are paid, the amount paid is reported to the recipient by the payer at the end of the year on a Schedule K-1.
A)True
B)False
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Chapter 9: Tax Credits
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) Tuan and Marisa are married, file a joint return, and have two dependent children, Zack, age 6 and Aaron, age 5. Tuan has earned income of $72,000. Marisa was a fulltime student (for nine months) with no income. They paid a qualified day care center $5,000. How much is Tuan and Marisa's child and dependent care credit for the year?
A) $600.
B) $900.
C) $1,000.
D)$1,200.
Q2) All taxpayers must file Form 1116 to receive the foreign tax credit.
A)True B)False
Q3) The earned income credit (EIC) is only available for taxpayers with children. A)True B)False
Q4) The main goal of Congress in offering tax credits is to collect additional revenues. A)True
B)False
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11
Chapter 10: Payroll Taxes
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) A taxpayer with an AGI of $300,000 for 2015 pays estimated taxes. The taxpayer can avoid an underpayment penalty by paying:
A) At least 90% of his/her 2015 tax liability if his/her 2014 adjusted gross income was less than $200,000 regardless of filing status.
B) At least 90% of his/her 2015 tax liability ratably over four quarterly payments.
C) At least 100% of his/her 2015 tax liability ratably over four quarterly payments.
D)At least 110% of his/her 2015 tax liability ratably over four quarterly payments.
Q2) The penalty for filing W-2s containing mismatched names and social security numbers is:
A) $15 per return.
B) $30 per return.
C) $50 per form.
D)$100 per return.
Q3) Employers are not required to withhold any federal taxes on allocated tips.
A)True
B)False
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Page 12
Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities:
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) An annuity is a series of payments made pursuant to a contract.
A)True
B)False
Q2) What is the maximum deductible contribution that can be made to one or more deductible IRAs in each of the following instances?
a. A single person, age 51, who is an active participant in an employer-sponsored retirement plan with AGI of $37,000.
b. A single person, age 59, who is an active participant in an employer-sponsored retirement plan with AGI of $67,000.
c. A single person, age 26, who is an active participant in an employer-sponsored retirement plan with AGI of $63,000.
Q3) What are some of the significant tax benefits for both employees and employers associated with a qualified pension plan?
Q4) A pension or profit-sharing plan must not discriminate in favor of highly compensated employees. What employees meet the definition of "highly compensated" for purposes of these plans?
Q5) What is an annuity contract? Who are the parties to an annuity contract?
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Chapter 12: Special Property Transactions
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72 Verified Questions
72 Flashcards
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Sample Questions
Q1) The installment method cannot be used to report gain from the sale of stock or securities that are traded on an established securities market.
A)True
B)False
Q2) With an involuntary conversion, what is the time limit to purchase replacement property?
A) Two years from the conversion event.
B) It ends two years after the close of the taxable year the gain is realized.
C) There is no time limit.
D)Five years from the conversion event.
Q3) Related parties include the taxpayer's spouse, ancestors, lineal descendants, but not brothers and sisters.
A)True
B)False
Q4) Julia exchanges a machine used in her business with Elvira for another machine. The basis of Julia's old machine is $100,000, FMV is $132,000, and she gives Elvira cash of $28,000. Elvira's basis in her machine is $140,000 and the FMV is $160,000. What, if any, gain is recognized on the transaction and what is the adjusted basis of the property received by Julia and by Elvira?
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Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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70 Verified Questions
70 Flashcards
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Sample Questions
Q1) Jonathan is married, files a joint return, and has one child. During 2015, Jonathan has $85,000 of taxable income. He has $20,000 of positive AMT adjustments and $28,000 of tax preferences. Since Jonathan rents his home (pays no mortgage interest) and lives in Florida (has no state income tax), he does not itemize his deductions but takes the standard deduction. Calculate Jonathan's AMTI (before exclusion amount).
A) $137,600.
B) $145,000.
C) $145,600.
D)$157,600.
Q2) Jacob is single with no dependents. During 2015, Jacob has $110,000 of taxable income. He has $38,000 of positive AMT adjustments and $22,000 of tax preferences. Jacob does not itemize his deductions but takes the standard deduction. Calculate Jacob's AMTI.
A) $120,300.
B) $174,000.
C) $176,300.
D)$180,300.
Q3) Identify factors that increase or decrease the at-risk amount.
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Chapter 14: Partnership Taxation
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74 Verified Questions
74 Flashcards
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Sample Questions
Q1) If a personal-use asset is contributed to a partnership for business use, the partnership's basis in the asset is always:
A) $0.
B) The FMV of the asset at the date of contribution.
C) The basis of the asset at the date of contribution.
D)The lesser of the asset's FMV or basis at the date of contribution.
Q2) If Janelle's partnership basis was $5,000 and she received a distribution of land that had a basis of $10,000, the basis of the land in Janelle's hands would be $10,000.
A)True
B)False
Q3) Paris, a 60% partner in Omega Partnership, has a basis of $25,000 in her partnership interest. Paris receives a cash distribution of $24,000 at year-end. What is Paris's basis in her partnership interest at the end of the year?
A) $0.
B) $1,000.
C) $24,000.
D)$25,000.
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Page 16
Chapter 15: Corporate Taxation
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) C Corporations are not permitted to report a net capital loss.
A)True
B)False
Q2) A corporation has a fiscal-year end of February 28. If the corporation receives an automatic extension to file its return, the return will be due on the 15<sup>th</sup> day of:
A) September.
B) October.
C) November.
D)December.
Q3) A corporation has a fiscal year-end of September 30. If the corporation receives an automatic extension to file its return, the return will be due on the 15<sup>th</sup> day of:
A) March.
B) April.
C) May.
D)June.
Q4) Schedule M-1 reconciles from net income per books to net income per the tax law.
A)True
B)False
Page 17
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