Tax Planning and Compliance Test Questions
Course Introduction
Tax Planning and Compliance explores strategies for effective tax management within the framework of current laws and regulations for individuals and businesses. The course emphasizes the principles and tools of tax planning, focusing on minimizing tax liabilities and maximizing after-tax income through lawful means. Students will analyze the intricacies of tax regulations, compliance requirements, and reporting obligations at federal, state, and local levels. Real-world scenarios and case studies are used to develop skills in identifying tax-saving opportunities, managing audit risks, and ensuring compliance with ethical standards. This course equips students with practical knowledge needed for careers in accounting, finance, or tax consultancy.
Recommended Textbook
Concepts in Federal Taxation 2017 24th Edition by Kevin E. Murphy
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16 Chapters
2073 Verified Questions
2073 Flashcards
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Chapter 1: Federal Income Taxation-An Overview
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151 Verified Questions
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Sample Questions
Q1) Self-employed people are required to make quarterly payments of their estimated tax liability.
A)True
B)False
Answer: True
Q2) Marie earns $80,000 as a sales manager for Household Books.How much Social Security and medicare tax does Marie have to pay for 2016?
A)$4,960.00
B)$6,120.00
C)$6,400.00
D)$2,240.00
Answer: B
Q3) Tax avoidance occurs when a taxpayer uses fraudulent methods or deceptive behavior to hide actual tax liability.
A)True
B)False
Answer: False
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Chapter 2: Income Tax Concepts
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Sample Questions
Q1) Tim purchased State of Idaho general-purpose bonds at a cost of $3,400 in 2014.He receives $170 interest on the bonds in 2014,2015,and 2016.In 2016,he sells the bonds for $3,800.Tim excludes the bond interest,but must include a $400 capital gain in his 2016 gross income.Which of the following Concepts,Constructs,and/or Doctrines help in forming the basis for this treatment?
I.Constructive Receipt Doctrine.
II.All-inclusive Income Concept.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: B
Q2) Under the Wherewithal to Pay concept,income should be recognized and a tax paid on the income when the taxpayer has the resources to pay the tax.
A)True
B)False
Answer: True
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4
Chapter 3: Income Sources
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152 Flashcards
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Sample Questions
Q1) Ursula owns an annuity that pays her $850 per month until she dies.Which of the following income tax concepts provides for the tax treatment of the annuity payments Ursula receives (and the treatment in the year of death)?
I.Administrative Convenience Concept
II.Annual Accounting Period Concept
III.Capital Recovery Concept
IV.Constructive Receipt Doctrine
A)Only statements I and II are correct.
B)Only statements II and III are correct.
C)Only statements I and IV are correct.
D)Only statement IV is correct.
E)Only statement II is correct.
Answer: B
Q2) Net collectibles gains are taxed at a maximum rate of 25 percent.
A)True
B)False
Answer: False
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Chapter 4: Income Exclusions
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Sample Questions
Q1) Working condition fringe
A)Dues, uniforms, subscriptions.
B)Intended to punish and are taxable.
C)Taxable if from an employer-provided policy.
D)Any personal wrong, such as libel, slander, or assault.
E)Excludable amount limited to gross profit percentage.
F)Gratuitous and not a form of compensation for services.
G)Excludability requires that it must be a condition of employment.
H)Excluded if for compensatory payments for sickness or personal physical injury.
I)To replace lost earnings and is excluded if due to personal physical injury.
J)Excluded if provided on the employer's business premises and for the convenience of employer.
Q2) No-additional-cost services and employee discounts must be made available to employees on a nondiscriminatory basis and must also be in the same line of business in which the employee works to be excluded from the employee's income.
A)True
B)False
Q3) Jeane's employer pays his medical premiums each month ($130/month).
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Chapter 5: Introduction to Business Expenses
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166 Flashcards
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Sample Questions
Q1) To be deductible,the dominant motive for incurring an expense must be
A)the relationship to a business activity.
B)to reduce income taxes.
C)tax avoidance.
D)the intent to earn a profit.
E)personal.
Q2) Oscar drives a taxi on weekends.In maximizing the amount of fares he earns,he occasionally gets tickets for speeding.Oscar figures that as long as he keeps his traffic violations under $100 over a weekend,he can more than offset those costs with additional fares.What is/are the tax effect(s)of Oscar's speeding ticket costs?
A)The costs are deductible because they are ordinary and necessary expenses directly related to the business.
B)The costs are deductible because they have a business purpose and the business is not illegal.
C)The costs are not deductible because the business activity is illegal.
D)The costs are not deductible because they are due to violations of law.
Q3) List the criteria necessary for an expenditure to be deductible as a trade or business expense or an expense for the production of income.
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Chapter 6: Business Expenses
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Sample Questions
Q1) For each of the following IRA situations,determine the amount the taxpayer can deduct.Discuss any limitations,which might be placed,on the deduction.
a.Marissa is single and is an active participant in a qualified employee pension plan. Determine the maximum Roth IRA contribution that she can make if her adjusted gross income for the year is $73,000.
b.David and Donna are married and file a joint return. Each is covered by an employee-sponsored pension plan, and their adjusted gross income is $103,000. Determine their maximum IRA contribution and deduction for the current year.
c.Pedro and Roxanne are married and have two children, ages 8 and 4. Their adjusted gross income for the year is $196,000. What is maximum amount they can contribute to each child's Coverdell Education Savings Account (CESA) for the year?
Q2) Discovery,Inc.,a cash-basis consulting firm,can deduct a twelve-month insurance premium in the year the premium is paid even though the policy remains in effect into the following year.
A)True
B)False
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Page 8
Chapter 7: Losses-Deductions and Limitations
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Sample Questions
Q1) Maria,an engineer,has adjusted gross income of $167,000 before considering the following losses.The passive activity rules disallow the deduction for the loss in which of the following?
I.Maria has a $21,000 loss from her ownership of Family Apartment Village,a low-income housing project.
II.Maria owns and actively participates in managing a rental house across the street from East State College.This activity generates a $7,000 loss in the current year.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) A corporation has a net capital loss.The significance of a net capital loss in 2016 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
Q3) Why did Congress enact the at-risk rules?
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Personal interest
A)Prepaid interest.
B)An amount that each taxpayer who is neither a qualifying child nor a qualifying relative, and who files a return, is allowed to deduct.
C)One test for a qualifying relative.
D)The minimum amount a taxpayer can deduct for personal expenditures.
E)A deduction in this category is always allowed. That is, there is no minimum allowable amount and generally no income limitation placed on these deductions.
F)Generally, these deductions are for specifically allowed personal expenditures.
G)An exception to this test is a custodial parent.
H)Interest paid on debt used to buy securities.
I)Interest paid on credit cards, personal loans, car loans, etc.
J)Interest paid on a mortgage secured by the taxpayer's residence. The proceeds of the loan can be used for any purpose and the interest is still deductible.
K)A tax designed to prevent the shifting of unearned income to children of the taxpayer.
Q2) Taxpayer contribution of $250 to the Democratic Party.
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Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Determine the proper classification(s)of the asset discussed in the following scenario: Victoria purchased a new show case saw for her antique business.
I.Personal use property.
IV.Intangible property.
II.Business use property.
V.Real estate.
III.Tangible property.
VI.Personal property.
A)Statements I, III and VI are correct.
B)Statements II and III are correct.
C)Only statement VI is correct.
D)Statements II, III, and VI are correct.
E)Statements II, IV and VI are correct.
Q2) The general rule for determining the basis of inherited property is that the basis in the hands of the heir is its fair market value at the date of death or at the alternative valuation date.
A)True
B)False
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Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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110 Flashcards
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Sample Questions
Q1) Serena owns a van that she paid $22,000 for in 2010 and used exclusively for personal purposes until May 9,2015,when she began using the van in her plumbing business.On May 9,2015,a comparable van was selling for $13,000.Serena sells the van on October 28,2017.Assuming that the van is 5-year MACRS property,it is not listed property,and that Serena did not make the Section 179 election to expense on the van,what is her allowable depreciation deduction in 2017?
A)$749
B)$1,248
C)$1,267
D)$2,112
E)$2,496
Q2) Sally purchased new equipment for her consulting business.She allocates the Section 179 deduction among the new assets.One piece of equipment cost $500,000 and was allocated one-half of the allowable Section 179 deduction and therefore has a depreciable basis of $250,000.
A)True
B)False
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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Sample Questions
Q1) Drew traded his office copier in for a new one.The old copier had an adjusted basis of $400.The new copier cost $1,350,and he was given a trade-in allowance of $500.
I.The amount realized is $400.
II.Drew has a realized gain of $100.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) All of the gain from the sale of qualified small business stock,purchased after 9/27/2010 and held more than five years is excluded from tax.
A)True
B)False
Q3) Which of the following is not a capital asset?
A)Office building used by a CPA firm.
B)Antique automobile held by an antique automobile collector.
C)Land held for investment.
D)Stock held for investment.
Q4) George sells his personal use automobile at a loss of $4,300.
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Chapter 12: Non-Recognition Transactions
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Sample Questions
Q1) Benito owns an office building he purchased five years ago at a cost of $600,000.The property is currently worth $800,000,has an adjusted basis of $300,000 and is encumbered by a $400,000 mortgage.
Mitch owns an apartment complex he purchased three years ago at a cost of $600,000.The property is currently worth $750,000,has an adjusted basis of $500,000 and is encumbered by a $325,000 mortgage.
Benito and Mitch would like to exchange the properties and their respective mortgages.Answer the following questions regarding the exchange.
a.Any boot is to be paid in cash. Who must pay the boot and how much must be paid?
b.Does Benito have to recognize any gain on the exchange? If so, indicate the amount of gain to be recognized and why it must be recognized.
Q2) Microsoft common stock for Merrill Lynch common stock.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q3) Compare the deferral of recognition of losses resulting from an involuntary conversion with the deferrals for like-kind exchanges.
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Chapter 13: Choice of Business Entity-General Tax and
Nontax Factorsformation
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Sample Questions
Q1) Monica acquires a 25% interest in Terrapin Partnership during 2012 by contributing land with a fair market value of $35,000,an adjusted basis of $18,000,and subject to a mortgage of $12,000.The partnership assumes the mortgage.What is Monica's adjusted basis in her partnership interest? Discuss how you arrived at that adjusted basis amount,and the underlying reasoning behind the rules you applied.
Q2) Terry and Elsa form Egret Company by contributing assets of their respective businesses.Terry contributes $5,000 cash and land with a fair market value of $35,000 (adjusted basis of $20,000)for a 40% interest.Elsa will contribute services in organizing the startup of the company worth $20,000 and contributes $15,000 cash and inventory worth $75,000 (adjusted basis of $80,000)for a 60% interest.Determine the amount of gain or loss recognized on the transfer of the assets,each owner's basis in the ownership interest,and Egret Company's basis in the assets received for each of the following entities.
a.Egret Company is a partnership.
b.Egret Company is a corporation.
Q3) As a limited partner in Technonics,Ltd.,Dave is allowed to participate in the management of the business.
A)True
B)False
Page 15
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Chapter 14: Choice of Business Entity-Operations and Distributions
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Sample Questions
Q1) Boston Company,an electing S corporation,has an operating loss of $400,000 for the current year.Hank owns a 40% interest in the company and is a material participant.At the beginning of the year,Hank's adjusted basis in the stock is $30,000.During the year the company borrows $100,000 with a recourse note.How much of the loss can Hank deduct on his current-year income tax return?
A)$- 0 -
B)$ 30,000
C)$ 70,000
D)$160,000
E)$200,000
Q2) Roger owns 65% of Silver Trucking,a partnership.During the current year,Roger sells a truck with an adjusted basis of $30,000 to Silver for $20,000.
I.Silver's basis in the truck is $30,000.
II.Roger can deduct the $10,000 loss on the sale of the truck.
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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Chapter 15: Choice of Business Entity-Other Considerations
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Q1) Sonya is an employee of Gardner Technology and will retire at the end of the current year after 8 years of service.Under Gardner's pension plan she can retire at 60% of the average of her three highest consecutive years' salary.Her average for the highest consecutive years' salary was $30,000.What is the maximum amount Sonya can receive from Gardner's pension plan?
A)$6,000
B)$14,400
C)$18,000
D)$24,000
E)$30,000
Q2) The adjustment for three-fourths of the excess adjusted current earnings (ACE)over AMTI before the ACE adjustment applies only to corporations.
A)True B)False
Q3) Tim has a 25% interest in Hill and Associates,a partnership.Tim is eligible for coverage as an employee under the firm's qualified pension plan.
A)True
B)False
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17
Chapter 16: Tax Research
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Sample Questions
Q1) Tax articles in law review journals are primary sources of federal income tax law.
A)True
B)False
Q2) All judicial citations follow the same format: case name,volume number of the reporter in which the case is published,name of the reporter,and the page of the reporter on which the case begins.
A)True
B)False
Q3) The Tax Court strictly follows the precedent of prior decisions of the Court of Appeals for a particular circuit when
A)the taxpayer requests it to do so.
B)the IRS requests it to do so.
C)the taxpayer resides in the United States.
D)the taxpayer resides in that circuit.
Q4) Which of the following regulations deals with Income Tax?
A)Reg. Sec. 1.165-1
B)Reg. Sec. 20.2014-5
C)Reg. Sec. 25.2518-5
D)Reg. Sec. 301.7002-5
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