Tax Policy Review Questions
Course Introduction
This course explores the fundamental principles and objectives of tax policy, examining the economic, social, and administrative considerations that shape taxation systems. Students will analyze the impacts of different types of taxes, such as income, consumption, and wealth taxes, on individuals, businesses, and government revenues. The course addresses issues such as tax equity, efficiency, and simplicity, as well as contemporary policy debates about tax reform, international taxation, and the role of taxation in addressing inequality and economic growth. Through case studies and current events, students develop an understanding of how tax policy decisions affect society and the economy.
Recommended Textbook
Concepts in Federal Taxation 2014 21st Edition by Kevin
E. Murphy
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Chapter 1: Federal Income Taxation - an Overview
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151 Flashcards
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Sample Questions
Q1) The common,customary,recurring type of income earned by taxpayers.
A)Ad valorem tax
B)Deduction
C)Excise tax
D)Exclusion
E)Expense
F)Gain
G)Loss
H)Ordinary income
I)Pay-as-you-go concept
J)Personal property
K)Real property
L)Self-assessment
M)Standard deduction
N)Statute of limitations
O)Tax base
P)Tax credit
Answer: H
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Chapter 2: Income Tax Concepts
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Sample
Questions
Q1) Tyrone sells his personal-use car that had cost $15,000 for $10,000.Why is the loss realized on this transaction disallowed as a deduction?
I.Legislative Grace is lacking.
II.Personal losses are disallowed.
III.Business purpose is lacking.
A)Only statement I is correct.
B)Only statement II is correct.
C)Only statement III is correct.
D)Statements I and II are correct.
E)Statements I, II, and III are correct.
Answer: E
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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Sample Questions
Q1) Rae is a retired corporate executive.He and his wife,Pat,receive pensions totaling $82,000 and $8,000 of Social Security benefits during the current year.Rae and Pat's adjusted gross income is
A)$ 82,000
B)$ 86,000
C)$ 87,400
D)$ 88,800
E)$ 90,000
Answer: D
Q2) Frank and Lilly are negotiating a divorce settlement.Frank has offered to pay Lilly $12,000 each year for 10 years,but payments cease upon Lilly's death.What are the tax implications of this proposition?
I.Lilly must recognize Gross Income when the money is received.
II.Frank has a deduction for Adjusted Gross Income in the year of payment.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: C
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Page 5
Chapter 4: Income Exclusions
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Sample Questions
Q1) Ally served as chairperson of the local school board.Upon completion of her term in office,the employees in the school district offices take up a collection and purchase her a silver sterling tray in recognition of her outstanding service to the organization.The value of the tray is $200.What are the tax effects of the award?
I.The value of the tray is included in gross income because of services rendered.
II.The tray is a gift because it is from a detached and disinterested generosity.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both are correct.
D)Neither is correct.
Q2) Clarance rented office space to an attorney who left town before the lease was completed.The attorney left several bookcases and other improvements to cover the remaining rent.Clarance must include in income the value of the leasehold improvements to the extent of the remaining rent that was due.
A)True
B)False
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Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) Due to a shortage of cash,East Coast Entertainment Company,an accrual basis taxpayer,could not pay its November 2013 utility bill on time.In February of 2014,East Coast Entertainment pays the utility bill.
I.East Coast can deduct the expense on either its 2013 or 2014 tax return.
II.East Coast cannot deduct the utility expense in 2013 because it is paid in 2014.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Ordinary Expense
A)Specifically disallowed.
B)Appropriate and helpful.
C)Considered a trade or business.
D)Not considered a trade or business.
E)Problems with this generally arise with related parties.
F)This is met when services or property are provided to the taxpayer.
G)Normal, common, and accepted but not necessarily regularly recurring.
H)This is met when the existence and the amount of a liability have been established.
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Chapter 6: Business Expenses
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Sample Questions
Q1) Carlos is single and has a 7 year-old child.Carlos' adjusted gross income for the year is $101,000.The maximum amount he can contribute to his child's Coverdell Education Savings Account is
A)$ - 0 -
B)$ 800
C)$1,200
D)$2,000
E)$4,000
Q2) Caroline is a doctor in Little Rock.She travels to Atlanta to attend a two-day seminar for health professionals about investing in real estate.Transportation expenses are $400,the hotel cost $104/day,and meals cost $50/day.How much can Caroline deduct for travel to the seminar?
A)$- 0 -
B)$258
C)$308
D)$658
E)$708
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Chapter 7: Losses: Deductions and Limitations
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131 Flashcards
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Sample Questions
Q1) Casualty loss
A)Limited to $3,000 annually for individuals.
B)When an asset is disposed of for less than its basis.
C)An excess of business deductions over business income.
D)A trade or business in which the taxpayer is not a material participant.
E)A loss that results from some sudden, unexpected, or unusual event.
F)Any asset that is not a receivable, inventory, or depreciable or real property used in a trade or business.
Q2) Hamlet,a calendar year taxpayer,owns 1,000 shares of Vanity Corporation common stock,which he purchased two years ago for $4,000.Hamlet sells all of his shares on December 29,2013,for $2,500.On January 23,2014,he purchases 600 shares of Vanity Corporation common stock.What is the amount of Hamlet's recognized loss in 2013?
A)$ - 0 -
B)$ 600
C)$ 900
D)$1,500
E)$4,000
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) 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 support test and the gross income test to be a qualifying relative.
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Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Hilliard receives a gift of stock from Martha on June 1 of the current year.Martha paid $15,000 for the stock several years ago.Martha pays a gift tax of $400 on the transfer.
I.If the fair market value of the stock on June 1 of the current year is $20,000,Hilliard has a basis in the stock of $15,100.
II.If the fair market value of the stock on June 1 of the current year is $14,000,and Hilliard sells the stock for $13,000 on June 2 of the current year,Hilliard realizes a loss on the sale of $1,000.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Gordon is the sole shareholder of Whitman Corporation,an S corporation.At the beginning of the year,Gordon's basis in his Whitman stock is $100,000.During the year,Whitman Corporation has operating income of $50,000; dividends from domestic corporations of $15,000; tax-exempt interest of $5,000; nontaxable life insurance proceeds of $10,000 on the death of a key employee; and a capital loss of $15,000.Whitman pays no dividends.What is Gordon's year-end basis in Whitman stock (after the distribution)?
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Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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Sample Questions
Q1) What is the MACRS recovery period for a video game used in an arcade?
A)3 years.
B)5 years.
C)6 years.
D)7 years.
E)10 years.
Q2) Which of the following would not be allowed a depreciation deduction?
I.Inventory.
II.Business equipment.
III.Land acquired as an investment.
IV.Cattle used in a dairy herd.
A)Only statement I is correct.
B)Statements I and III are correct.
C)Statements I, III and IV are correct.
D)Only statement IV is correct.
E)All of the assets are depreciable.
Q3) Contrast the facts and circumstances depreciation approach commonly used before 1981 with Modified Accelerated Cost Recovery (MACRS).
Q4) Why would a taxpayer ever elect to use the alternative depreciation system (ADS)rather than the MACRS?
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Chapter 11: Property Dispositions
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Sample Questions
Q1) Section 1250 recapture
A)Stocks, bonds, options.
B)Depreciable real property.
C)Taxed at an effective rate of 14%.
D)Taxed at a maximum rate of 25%.
E)Gain or loss on the sale of artwork.
F)Depreciable tangible personal property.
G)Subject to full recapture as ordinary income of all depreciation taken.
H)Gain on real property attributable to excess depreciation is ordinary income.
Q2) Terry receives investment property from her mother as a gift in 2013.Her mother paid $15,000 for the property in 2010,and it is valued at $18,000 on the date of the gift.Terry sells the property eight months later for $16,000.Terry's gain or loss is
A)Short-term ordinary loss.
B)Short-term capital gain.
C)Short-term capital loss.
D)Long-term ordinary gain.
E)Long-term capital gain.
Q3) What incentive provisions or preferential treatments exist for capital gains?
Q4) Discuss the general differences between Section 1245 and Section 1250 property.
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Chapter 12: Nonrecognition Transactions
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Sample Questions
Q1) The earliest date that condemned property can be replaced and still qualify for involuntary conversion (nonrecognition)treatment is
A)The date of the actual condemnation.
B)The date of the threat of condemnation.
C)Two years before the actual condemnation.
D)Two years before the threat of condemnation.
E)Three years after the date of the condemnation.
Q2) Which of the following can be income deferral transactions?
I.Sale of municipal bonds.
II.Involuntary conversions of property.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Taxpayers are allowed to structure transactions through third parties that qualify as exchanges if they meet certain time requirements for identifying properties and closing the transaction.
A)True
B)False
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Chapter 13: Choice of Business Entity - General Tax and
Nontax Factorsformation
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Sample Questions
Q1) Which of the following will render a corporation ineligible for S corporation status?
I.The corporation has 125 stockholders.
II.One of the stockholders is another corporation.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) How much gain (loss)will Jimmy recognize from the transfer of the assets to the corporation?
A)$ -0-
B)$ (4,000)
C)$ 8,000
D)$ 20,000
E)$(12,000)
Q3) Sole proprietors are allowed to deduct owner-employee salaries and fringe benefits.
A)True
B)False
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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Sample Questions
Q1) Losses flow-through limited to basis plus the amount of any direct loans
A)Sole Proprietorship.
B)Partnership.
C)Corporation.
D)S Corporation.
Q2) Harrison Corporation sells a building for $330,000 in the current year.Harrison purchased the building in 2004 for $250,000 and had taken $20,000 in depreciation on the building up to the date of its sale.How should Harrison report the gain on the sale of the building?
A)Section 1231 gain of $100,000.
B)Ordinary income of $100,000.
C)Section 1231 gain of $80,000 and ordinary income of $20,000.
D)Section 1231 gain of $96,000 and ordinary income of $4,000.
E)Ordinary income of $96,000 and Section 1231 gain of $4,000.
Q3) Withdrawals of cash by a partner are taxable.
A)True
B)False
Q4) Discuss two tax-planning techniques that can be used by a 100% owner-employee to reduce his/her tax liability.
Page 16
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Chapter 15: Choice of Business Entity - Other
Considerations
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Sample Questions
Q1) A Keogh plan must be established as a defined contribution plan,and the rules are similar to those of a qualified pension plan.
A)True
B)False
Q2) On June 1,2013,Sutton Corporation grants Anne an option under its nonqualified stock option plan to acquire 300 shares of the company's stock for $12 per share.The fair market price of the stock on the date of grant is $18.The fair market value of the option is $4.How much must Anne report as income at the date of grant?
A)$ -0-
B)$1,200
C)$1,800
D)$3,600
E)$5,400
Q3) One of the benefits of an incentive stock option is that the employee can sell the option at any time.
A)True
B)False
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Chapter 16: Tax Research
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Sample Questions
Q1) Treasury Department
A)Where federal tax legislation generally originates.
B)Has jurisdiction over all tax matters in the U.S. Senate.
C)The committee responsible for initial hearings and deliberations on a tax bill.
D)Responsible for negotiating a resolution of the differences in the House and Senate versions of a tax bill.
E)The agency within the administrative branch of government with overall responsibility for administration of tax law.
F)Oversees the operation and administration of the tax system as a whole, and prepares a general explanation of any tax bill signed by the President.
Q2) Which of the following Letter Rulings might have been issued on January 3,1991?
A)PLR 9103001
B)PLR 9110303
C)PLR 9101027
D)All of the above
Q3) Taxpayers may choose one of several different courts in which to initiate litigation.Discuss the pros and cons of the different trial level courts.
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