Tax Law
Final Test Solutions
Course Introduction
Tax Law explores the principles and regulations governing the taxation systems at local, national, and international levels. The course covers the legal framework of direct and indirect taxes, including individual and corporate income tax, VAT, and other related obligations. Students will gain an understanding of tax policy objectives, tax compliance, administration procedures, and dispute resolution mechanisms. Emphasis is placed on statutory interpretation, case law, tax planning, and ethical considerations for legal and financial professionals. Through practical examples and case studies, students will develop the analytical skills needed to navigate complex tax issues in both domestic and cross-border contexts.
Recommended Textbook
Concepts in Federal Taxation 2014 21st Edition by Kevin
E. Murphy
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16 Chapters
2109 Verified Questions
2109 Flashcards
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Chapter 1: Federal Income Taxation - an Overview
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151 Verified Questions
151 Flashcards
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Sample Questions
Q1) An annual loss results from an excess of allowable deductions for a tax year over the reported income.
A)True
B)False
Answer: True
Q2) Self-employed people are required to make quarterly payments of their estimated tax liability.
A)True
B)False
Answer: True
Q3) All tax practitioners are governed by the AICPA's Code of Professional Conduct. A)True
B)False Answer: False
Q4) A tax is an enforced contribution used to finance the functions of government. A)True
B)False
Answer: True
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Page 3
Chapter 2: Income Tax Concepts
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) John purchased State of Oklahoma general-purpose bonds at a cost of $3,400 in 2011.He receives $210 interest on the bonds in 2011,2012,and 2013.In 2013,he sells the bonds for $3,800.How much income does John recognize in each of the following years? \[\begin{array} { c c c c } & 2011 & 2012 & 2013 \\
\text { a. } & - 0 - & - 0 - & - 0 - \\
\text { b. } & - 0 - & - 0 - & 400 \\
\text { c. } & 210 & 210 & 210 \\
\text { d. } & 210 & 210 & 570 \end{array}\]
Answer: B
Q2) An asset's adjusted basis is the amount of unrecovered investment after considering any increases and decreases in the original purchase price.
A)True
B)False
Answer: True
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Chapter 3: Income Sources
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) Original issue discount security
A)The category of income that includes interest, dividends, and rents.
B)Income from wages, salaries, and trade or businesses.
C)Interest income resulting from making an interest-free gift loan of $200,000.
D)A taxable amount received from a state plan to provide a substitute for an employee's earned income.
E)A series of equal payments received over equal time periods.
F)A receipt of cash from a former spouse that is included in gross income.
G)A payment received from a former spouse that is not included in gross income.
H)A division of marital assets that does not result in any income recognition.
I)A sale of property in which at least one payment is received in a tax year after the year of sale
J)A method of accounting that must be used to recognize income from long-term construction contracts.
K)A debt instrument that has the interest paid at maturity rather than throughout the life of the debt.
Answer: K
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Page 5
Chapter 4: Income Exclusions
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161 Verified Questions
161 Flashcards
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Sample Questions
Q1) Mavis is injured in an automobile accident and sues the driver of the truck that struck her car.The court finds the driver liable and awards Mavis $10,000 to pay her medical expenses,$20,000 for her pain and suffering,and $5,000 for loss of income while she was unable to work.The court also finds the truck driver negligent and awards Mavis $50,000 in punitive damages.Which of the following statements concerning the receipt of these payments is/are correct?
I.Mavis is not taxed on any of the payments because they relate to a personal physical injury.
II.Mavis must include the loss of income payment in her gross income.
III.The punitive damage payment is taxable.
A)Only statement I is correct.
B)Only statement III is correct.
C)Statements II and III are correct.
D)Only statement II is correct.
Q2) Any income earned subsequent to the death of the decedent from inherited property is excludable from the heir's taxable income.
A)True
B)False
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Page 6
Chapter 5: Introduction to Business Expenses
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168 Verified Questions
168 Flashcards
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Sample Questions
Q1) List the criteria necessary for an expenditure to be deductible as a trade or business expense or an expense for the production of income.
Q2) Larry is a history teacher.He subscribes to several periodicals about teaching history and judging history fairs.This year Larry spends $285 on subscriptions to various periodicals.Discuss the deductibility of the expenditures for tax purposes.
Q3) Elise is a self-employed business consultant who operates her business out of an office in her home.The home office passes the qualifying tests for deducting office in the home expenses.For the current tax year,Elise earns $90,000 from her business activities.She incurs $82,000 in supplies,travel expenses,wage expense,etc.Elise's mortgage interest and real estate taxes allocable to the home office space were determined to be $9,000.Also,other expenses including insurance,repairs and maintenance,utilities,and depreciation allocable to the home office space total $11,000.How much of the other expenses (insurance,repairs,etc.)can Elise deduct?
A)$ - 0 -
B)$ 2,000
C)$ 8,000
D)$ 9,000
E)$11,000
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Chapter 6: Business Expenses
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147 Verified Questions
147 Flashcards
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Sample Questions
Q1) If an employer reimbursement plan is an accountable plan,for an expense that is fully reimbursed the employee does not have to report either the expense or the reimbursement .
A)True
B)False
Q2) Business and nonbusiness bad debts are both deductible as a short-term capital loss.
A)True
B)False
Q3) Byron loaned $5,000 to his friend Alan in 2010.They drew up a formal loan agreement that called for a reasonable rate of interest.Alan used the loan proceeds to pay expenses during his last year in college.Byron was recently informed that his friend Alan was struck by lightning and died.Byron will never be able to collect the proceeds of this loan because Alan died with no assets.What tax benefit,if any,will Byron will be able to claim in 2013,the year that the loan became worthless.
A)$5,000 tax credit.
B)$5,000 ordinary loss.
C)$5,000 short-term capital loss.
D)This is a personal non-deductible loss.
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Page 8
Chapter 7: Losses: Deductions and Limitations
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131 Verified Questions
131 Flashcards
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Sample Questions
Q1) Leon is allowed to deduct all the current and suspended losses on his passive activity if he sells his entire interest in the passive activity during the year.
A)True
B)False
Q2) Virginia owns a business that rents power equipment to construction companies.Despite maintaining,delivering,and picking up the equipment,Virginia's business is passive since it is a rental activity.
A)True
B)False
Q3) A corporation has a net capital loss.The significance of a net capital loss in 2013 for a corporation is that it can be carried back 3 years and carried forward 5 years by a corporation to offset capital gains in other taxable years.
A)True
B)False
Q4) An operating loss occurs when an entity's deductions exceeds the income generated for the period.
A)True
B)False
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Chapter 8: Taxation of Individuals
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162 Verified Questions
162 Flashcards
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Sample Questions
Q1) Kevin wants to know if he can claim his brother,Richard,as a qualifying relative for income tax purposes.Richard is 18 and is a part-time student at City Community College.He lives with Kevin in his home for the entire tax year.Kevin provides the majority of Richard's support.During the year Richard has the following items of income:
\(\begin{array}{llcc}
\text { State of Oklahoma bond interest }& \$ 1,000\\
\text { Dividends on General Motors stock}& \$ 700\\
\text { Employee wages from part-time work }& \$ 2,900\\ \end{array}\)
Can Kevin claim his brother Richard as a dependent for income tax purposes?
A)Yes.
B)No, Richard fails the relationship test.
C)No, Richard fails the gross income test.
D)No, Richard fails the student test.
E)No, Richard fails the residency test.
Q2) Explain the non-support test and the principle residence test to be a qualifying child.
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Chapter 9: Acquisitions of Property
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Buffey operates a delivery service.She purchased a van in 2011 for $25,000,and she sold it in 2013 for $15,000.Buffey did not deduct any depreciation on the van from 2011 through 2013,although total allowable depreciation on the van would have been $17,000.What is the amount of Buffey 's recognized gain or loss on the sale of the van?
A)$10,000 loss
B)$ 7,000 gain
C)$ 8,000 gain
D)$15,000 gain
E)$17,000 gain
Q2) Tangible 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.
Q3) Randall is given five acres of land in 2001.At the time of the gift,the land had a fair market value of $182,000,and its adjusted basis to the donor was $160,000.What is Randall's gain if he sells the land for $184,000?
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Page 11
Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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117 Verified Questions
117 Flashcards
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Sample Questions
Q1) Which of the following statements related to the Section 179 election to expense is (are)true?
I.A Section 179 deduction can be claimed on tangible personal property
II.A Section 179 deduction can be claimed on property held for the production of income.
III.A Section 179 deduction can be claimed on real property.
IV.A Section 179 deduction is allowed only for assets used in trade or business.
A)Only statement I is true.
B)Only statements I and II are true.
C)Only statements I, II, and III are true.
D)Only statements I and IV are true.
E)All of the statements are true.
Q2) Amortization
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.
Q3) Contrast the facts and circumstances depreciation approach commonly used before 1981 with Modified Accelerated Cost Recovery (MACRS).
Page 12
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Chapter 11: Property Dispositions
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) Omicron Corporation had the following capital gains and losses for 2011 through 2013: \(\begin{array} { l l l l l } \underline{2011} & \underline{2012}&\underline{2013}\\ \$ 15,000 & \$(30,000) & \$ 60,000 \end{array}\)
Omicron's net capital gain for 2013 is:
A)$20,000
B)$30,000
C)$45,000
D)$60,000
Q2) For depreciable real property,all depreciation taken must be recaptured and treated as ordinary income.
A)True
B)False
Q3) Gains on the sale of certain types of business assets,referred to as Section 1231 property,are always treated as capital gains.
A)True
B)False
Q4) What incentive provisions or preferential treatments exist for capital gains?
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Chapter 12: Nonrecognition Transactions
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) The general mechanism used to defer gains and losses from a transaction includes certain adjustments to the fair market value of the replacement property.These adjustments include
I.adding boot received.
II.subtracting deferred gains.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) A personal residence for a vacation home.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q3) Which of the following qualifies as a like-kind exchange of property?
I.Inventory for inventory.
II.Office equipment for a delivery van.
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 14
Chapter 13: Choice of Business Entity - General Tax and
Nontax Factorsformation
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) General partners
I.Are liable for all debts of the partnership.
II.Are taxed on distributions received from the partnership.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) A guaranteed payment is a payment made to a partner for specific services performed by the partner and is made without regard to the partnership's income.
A)True
B)False
Q3) Dogg Corporation,Katt Corporation,and Rabitt Corporation are equal partners in Critter Partnership.The partner's fiscal year ends follow: \(\begin{array}{ll}
\text { Dogg Corporation } & \text { February } 28 \\
\text { Katt Corporation } & \text { May } 31 \\
\text { Rabitt Corporation } & \text { August } 31 \end{array}\)
Q4) Discuss the characteristics of a personal service corporation (PSC).
Page 15
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Chapter 14: Choice of Business Entity - Operations and Distributions
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98 Flashcards
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Sample Questions
Q1) Laurie and Lodi are dentists who have incorporated their practice.Laurie owns 60% of the stock of DENT-LL's Corporation and Lodi owns 40%.During the current year,the dentistry corporation has operating income of $125,000,interest income of $22,000 from investments,and losses from investments in limited partnerships of $24,000.The corporation pays $14,000 in dividends.What is DENT-LL's taxable income for the current year?
A)$ 73,800
B)$ 88,200
C)$123,000
D)$133,000
E)$147,000
Q2) Although nontaxable income and nondeductible expenditures are not included in the computation of taxable income,they do affect the shareholder's basis in their S corporation stock.
A)True
B)False
Q3) Since Wisher,Inc.owns 80% of Patriot,Inc.(a U.S.corporation)the dividend received deduction rate is 100%.
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) Savings incentive match plan for employees (SIMPLE)were created to encourage small businesses to establish retirement plans for their employees.
A)True
B)False
Q2) On February 19,2011,Woodbridge Corporation granted Harvey an option to acquire 200 shares of the company's stock for $10 per share.The fair market price of the stock on the date of grant was $16.The stock requires that Harvey remain with the company for one year after the date of exercise.The option did not have a readily ascertainable fair market value.Harvey exercises the option on September 23,2012,when the fair market value of the stock is $19.He makes a Section 83(b)election at the exercise date.On September 23,2013,the fair market value of the stock is $25 per share.How much must he report as income in 2013?
A)$ -0-
B)$1,200
C)$1,800
D)$2,000
E)$3,000
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Page 17
Chapter 16: Tax Research
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Sample Questions
Q1) Which of the following is (are)secondary sources of tax law?
I.Tax Notes.
II.LEXIS.
III.RIA Federal Tax Citator.
IV.Tax Court Memorandum.
A)Statements I, II, and III are correct.
B)Statements I and II are correct.
C)Statements II and IV are correct.
D)Only statement IV is correct.
E)Only statement III is correct.
Q2) The Tax Court will not necessarily follow a U.S.Court of Appeal decision unless the taxpayer lives in the geographic jurisdiction of the appellate court.
A)True
B)False
Q3) Search engines used in computer-assisted tax research tools provide advantages over manual searches.
A)True
B)False
Q4) Describe the steps of the tax research process.
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