Tax Law and Practice
Textbook Exam Questions
Course Introduction
Tax Law and Practice provides a comprehensive overview of the principles, statutes, and procedures governing taxation at the local, national, and international levels. The course examines key concepts such as income, corporate, and indirect taxes, and explores the legal framework for compliance, planning, and dispute resolution. Students will analyze contemporary tax issues, interpret tax statutes and case law, and develop practical skills in preparing tax returns, advising clients, and negotiating with tax authorities. Ethical considerations and recent reforms in tax policy are also addressed, equipping students with both theoretical knowledge and practical tools essential for a career in tax law and advisory services.
Recommended Textbook
Income Tax Fundamentals 2017 35th Edition by Gerald E. Whittenburg
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12 Chapters
1259 Verified Questions
1259 Flashcards
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Chapter 1: The Individual Income Tax Return
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128 Flashcards
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Sample Questions
Q1) Karl's father, Vronsky, is a 60-year-old Russian citizen who lived in Russia for the full year. Karl supported Vronsky while he looked for work. Vronsky had no income. Can Karl claim Vronsky as a dependent?
Answer: No. Vronsky cannot be claimed as a dependent because he is not a U.S. citizen, or resident of US, Mexico or Canada.
Q2) During 2016, Howard maintained his home in which he and his 16 year-old son resided. The son qualifies as his dependent. Howard's wife died in 2015. What is his filing status for 2016?
A)Single
B)Head of household
C)Married, filing separately
D)Qualifying widow(er)
E)None of the above.
Answer: D
Q3) Taxpayers with self-employment income of $400 or more must file a tax return.
A)True
B)False
Answer: True
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Chapter 2: Gross Income and Exclusions
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Sample Questions
Q1) Jack is a lawyer and Jeri is a child psychologist. Jack prepares Jeri's estate planning at no charge and Jeri agrees to counsel Jack's daughter six times at no charge in return for the estate planning. The value of the estate planning is $1,000 and the value of the therapy sessions is $1,000.
a.How much income does Jack have? Why?
b.How much income does Jeri have? Why?
Answer: a. $1,000. Taxable income includes "all income from whatever source derived." The value of the therapy for his child is income to him for the performances of services. There is no taxable income exception in the tax law for "barter income."
b. $1,000. Taxable income includes "all income from whatever source derived." The value of the estate planning is income to her for the performances of services. There is no taxable income exception in the tax law for "barter income."
Q2) Farm income
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) Hope Springs, a teacher, loaned Hugh Owens, a friend, $10,000 to invest in real estate. Hugh declared bankruptcy in 2016 and cannot repay the $10,000.
a.What is the nature of Hope's loss?
b.Assuming Hope has no other capital transactions, is there a limit on the amount she may deduct for 2016? Explain.
c.What amount of the loss may Hope deduct in 2016?
Answer: a. Nonbusiness bad debt, short-term capital loss.
b. Yes, an individual taxpayer may deduct only a limited amount of capital losses against ordinary income.
c. $3,000 (annual limitation).
Q2) A gift to a foreman by a worker is considered business related and therefore subject to the $25 limit.
A)True
B)False Answer: False
Q3) The cost of a blue wool suit for an accountant is a deductible expense.
A)True
B)False
Answer: False
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Chapter 4: Business Income and Expenses Part II
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Sample Questions
Q1) In a distribution rollover from an IRA, the recipient must contribute 80 percent of the distributed amount to the new trustee in order for the rollover to be tax free.
A)True
B)False
Q2) Choose the correct statement. Passive losses
A)May not be used to offset passive income.
B)May be used to offset portfolio income.
C)Often result from the rental of real estate.
D)If unused, are lost forever.
Q3) Carey, a single taxpayer, purchased a rental house in 2016, which he actively manages. During 2016, Carey had a loss of $14,000 from the rental house. If Carey's adjusted gross income for 2016 is $138,000 before the rental loss, what is the amount of Carey's allowable deduction for the rental activity for 2016?
A)$0
B)$3,000
C)$6,000
D)$12,000
E)None of the above
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Chapter 5: Itemized Deductions and Other Incentives
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143 Flashcards
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Sample Questions
Q1) The textbook gives an example in which a house purchased for $25,000 with an appreciated value of $160,000 was completely destroyed. The casualty loss was limited to the taxpayer's basis of $25,000. Why shouldn't the full $160,000 be allowed as a loss?
Q2) If real property is sold during the year, the property taxes must be allocated between the buyer and seller based on the number of days the property was held by each party.
A)True
B)False
Q3) Unreimbursed employee business expenses are miscellaneous itemized deductions, subject to the 2 percent of adjusted gross income limitation.
A)True B)False
Q4) Meade paid $5,000 of state income taxes in 2016. The total actual sales taxes paid during 2016 was $4,500, which did not include $3,000 for the sales taxes paid in 2016 on Meade's new boat. How should Meade treat the taxes paid in his 2016 tax return?
Q5) Don gives his old car to a qualified charity. The charity then sells the car at an auction. Describe the tax treatment of the donation.
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Chapter 6: Credits and Special Taxes
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Sample Questions
Q1) Margo and her spouse have health insurance for the entire year through the state health care exchange. Margo will need to pay her spouse's individual shared responsibility.
A)True
B)False
Q2) Unearned income of a 16-year-old child may be taxed at his or her parents' income tax rate.
A)True
B)False
Q3) For 2016, which of the following is a tax adjustment or tax preference item for the individual AMT computation?
A)Deduction of charitable contribution of tangible personal property
B)IRA contribution deduction
C)Miscellaneous itemized deductions
D)Moving expense deduction
E)None of the above
Q4) Most states are community property states.
A)True
B)False
Q5) What would reduce income taxes more: a $100 tax credit or a $100 tax deduction?
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Chapter 7: Accounting Periods and Methods and Depreciation
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Sample Questions
Q1) Steve Corp bought a $600,000 apartment building in June of 2015. Of the purchase price, $104,950 is allocated to the value of the land. What is the maximum amount of depreciation that the company can claim in 2016 (year 2) for the building?
A)$9,752
B)$18,000
C)$25,000 under the election to expense business property
D)$21,816
E)You cannot depreciate property costing over $500,000
Q2) A taxpayer places a $50,000 5-year recovery period asset in service in 2016. This is the only asset placed in service in 2016. Assuming half-year convention, no immediate expensing, what is the amount of bonus depreciation?
A)$0
B)$10,000
C)$25,000
D)$30,000
E)None of the above
Q3) If a corporation has a short tax year, other than their first or last year of operation, explain how the corporation calculates the tax for the short period.
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Chapter 8: Capital Gains and Losses
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Sample Questions
Q1) Cows used in a farming business are Section 1231 property.
A)True
B)False
Q2) The owner of M&N Milling exchanged a milling machine used in his business for a new one. M&N Milling's basis in the machine was $20,000 and the owner still owes $6,000 related to the purchase of the machine. The other party to the exchange, M. Grinding, assumed the liability along with the machine and transferred a newer and smaller machine worth $30,000 to M&N Milling.
a. Calculate M&N Milling's
1. Realized gain on the exchange. $__________
2. Recognized gain on the exchange. $__________
b. Calculate the adjusted basis of the newer machine. $__________
a.Calculate M&N Milling's
Q3) The condemnation of property is not an involuntary conversion, since it is done pursuant to a government decree.
A)True
B)False
Q4) What are capital assets?
Q5) What is the treatment given to personal casualty gains and losses?
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Chapter 9: Withholding Estimated Payments and Payroll Taxes
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Sample Questions
Q1) If an individual taxpayer's quarterly estimated tax payments equal or exceed 70 percent of the tax due for the current year, the taxpayer will not be subject to the penalty for underpayment of estimated tax.
A)True
B)False
Q2) The Pear Corporation pays its employees every 2 weeks. During the look-back period, in each pay period the total withholding and FICA tax (employees' and employer's share) amounted to $750. How often must the Pear Corporation deposit payroll taxes?
A)Annually
B)Monthly
C)Quarterly
D)Daily
E)None of the above
Q3) For 2016, the Social Security portion of the FICA tax is imposed at a rate of:
A)6.2 percent for the employee and 7.65 percent for the employer.
B)6.2 percent for only the employer.
C)6.2 percent for only the employee.
D)6.2 percent for the employee and 6.2 percent for the employer.
E)None of the above.
Page 11
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Chapter 10: Partnership Taxation
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Sample Questions
Q1) A partnership may deduct a single personal exemption in calculating ordinary taxable income or loss.
A)True
B)False
Q2) Which one of the following is not true about partnerships?
A)There must be two or more owners.
B)General partners assume more risk of legal liability than limited partners.
C)An LLC limits certain liability risks.
D)A partnership is taxed like a corporation.
E)All of the above are true.
Q3) Mario and Luigi are brothers and they are equal partners in Pipes of Your Dreams Plumbing. Mario sells his fancy sports car to the business for $40,000. Mario's basis in the car is $45,000.
a.What is the amount of Mario's recognized gain or loss on this transaction, and what is the nature of the gain or loss?
b.If the partnership later sells the sports car for $55,000, how much of the gain is recognized?
Q4) List three advantages of an LLC.
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Chapter 11: The Corporate Income Tax
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Sample Questions
Q1) 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.
Q2) Schedule M-1 on Form 1120 shows the reconciliation of a corporation's tax liability to the tax expense on the corporation's books.
A)True
B)False
Q3) The Peach Corporation is a regular corporation that contributes $25,000 cash to qualified charitable organizations during the current year. The corporation has net taxable income of $190,000 before deducting the contributions.
a.
What is the amount of Peach Corporation's allowable deduction for charitable contributions for the current year?
b.What may the corporation do with any excess amount of contributions?
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Chapter 12: Tax Administration and Tax Planning
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Sample Questions
Q1) List three things that a preparer needs to do in order to participate in the Annual Filing Season Program.
Q2) The tax law is administered by the Federal Trade Commission.
A)True
B)False
Q3) What type of audit (office, field or correspondence) is demonstrated in the following examples?
a.An IRS agent views Microsoft's books and records at the Microsoft headquarters.
b.Susie receives a letter from the IRS asking her to provide documentation to support her charitable contributions on her tax return filed in the prior year.
c.Mr.and Mrs.John Doe are asked to bring their supporting documents to the downtown IRS office so that an IRS agent may review their tax return which was filed 2 years ago.
Q4) Tax return preparers must enter the annual filing season program (AFSP).
A)True
B)False
Q5) What is the difference between tax avoidance and tax evasion?
Q6) List three different ways that a tax return may be selected for an audit.
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