Tax Research and Planning
Exam Materials
Course Introduction
Tax Research and Planning is a course designed to develop students ability to identify, analyze, and solve complex tax issues using authoritative tax research techniques. The course covers researching primary and secondary tax sources, interpreting tax laws and regulations, and applying findings to specific client scenarios for effective tax planning and compliance. Emphasis is placed on the development of professional research strategies, critical thinking skills, effective communication of tax advice, and ethical considerations inherent in tax practice. Students will gain practical experience through case studies and projects that mirror real-world tax planning situations faced by individuals and businesses.
Recommended Textbook
South Western Federal Taxation 2011 Comprehensive 34th Edition by William H. Hoffman
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29 Chapters
3520 Verified Questions
3520 Flashcards
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Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Q1) Property can be transferred within the family group by gift or at death.One motivation for preferring the gift approach is:
A)To take advantage of the per donee annual exclusion.
B)To avoid a future decline in value of the property transferred.
C)To take advantage of the higher unified transfer tax credit available under the gift tax.
D)To shift income to higher bracket donees.
E)None of the above.
Answer: A
Q2) Which,if any,of the following taxes are proportional (rather than progressive)?
A)Federal corporate income tax.
B)Federal gift tax.
C)Federal estate tax.
D)Federal employment taxes (i.e. ,FICA,FUTA).
E)All of the above.
Answer: D
Q3) One of the motivations for making a gift is to save on income taxes.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Working With the Tax Law
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Q1) Accessing tax documents through electronic means offers limited advantages over a strictly paper-based approach.
A)True
B)False
Answer: False
Q2) A large part of tax research involves determining the intent of Congress.
A)True
B)False
Answer: True
Q3) In a U.S.District Court,a jury can decide both questions of fact and questions of law.
A)True
B)False
Answer: False
Q4) Technical Advice Memoranda deal with completed transactions.
A)True
B)False
Answer: True
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Chapter 3: Computing the Tax
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Q1) When the kiddie tax applies and the parents are divorced,the applicable parent (for determining the parental tax)is the one with the greater taxable income.
A)True
B)False
Answer: False
Q2) In satisfying the support test and the gross income test for claiming a dependency exemption,a scholarship received by the person being claimed is handled the same way for each test.Do you agree or disagree with this statement? Why?
Answer: Disagree.For purposes of the support test,all of the scholarship is disregarded.For purposes of the gross income test,only the taxable part is considered (i.e. ,the nontaxable part is disregarded).
Q3) For 2010,Stuart has a short-term capital loss,a collectible long-term capital gain,and a long-term capital gain from land held as investment.The short-term loss is first applied to the collectible capital gain.
A)True
B)False
Answer: True
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Chapter 4: Gross Income: Concepts and Inclusions
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Q1) Alimony recapture may occur if there is a substantial decrease in the amount of the alimony payments in the second year.
A)True
B)False
Q2) The constructive receipt doctrine requires that income must be recognized when it is made available to the cash basis taxpayer,although it has not been actually received.The constructive receipt doctrine does not apply to accrual basis taxpayers.
A)True
B)False
Q3) Katherine is 60 years old and is bargaining with her employer over deferred compensation.In exchange for reducing her current year's salary by $50,000,she can receive a lump-sum amount in 5 years,when she will retire.If she receives the $50,000 in the current year,she will invest in certificates of deposit that yield 5%.Katherine in the 28% marginal tax bracket in all relevant years.What is the minimum amount Katherine should accept as a deferred pay option? [Hint: the compound interest factor is 1.1934.]
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Chapter 5: Gross Income: Exclusions
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Q1) Employers of the Family Bowling Alley allow their employees to bowl without charge after the employee's working hours and when there are adequate idle bowling lanes.Tom bowled 12 games during the month at no charge when the non-employee charge was $3.00 per game.
A)Tom must include $36 in gross income.
B)Tom must include in gross income the employer's marginal cost of providing the bowling lanes and equipment.
C)Tom is not required to include anything in gross income because this is a "no-additional-cost service" fringe benefit.
D)Tom is not required to include the $36 in gross income if the arrangement is for the convenience of the employer.
E)None of the above.
Q2) Worker's compensation benefits are excluded from gross income.
A)True
B)False
Q3) If a tax-exempt bond will yield approximately .65 (1 - .35)times the yield on a taxable bond of equal risk,who benefits from the tax exemption: the Federal government,the state and local governments who issue the bonds,or the investors?
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Page 7
Chapter 6: Deductions and Losses: in General
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Q1) Investment-related expenses such as those related to investments in stocks and bonds are deductions for AGI.
A)True
B)False
Q2) Are there any circumstances under which lobbying expenditures are deductible?
Q3) What are the relevant factors to be considered in determining whether an activity is profit-seeking or a hobby?
Q4) If an activity involves horses,a profit in at least two of seven consecutive years meets the presumptive rule of § 183.
A)True
B)False
Q5) Only certain employment related expenses are classified as deductions for AGI. A)True
B)False
Q6) If a vacation home is a personal/rental residence,no maintenance and utility expenses can be claimed as a deduction. A)True
B)False
Q7) What losses are deductible by an individual taxpayer?
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) Five years ago,Tom loaned his son John $20,000 to start a business.A note was executed with an interest rate of 8%,which is the Federal rate.The note required monthly payments of the interest with the $20,000 due at the end of ten years.John always made the interest payments until last year.During the current year,John notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800.Tom is a cash basis taxpayer whose only income is salary and interest income.The proper treatment for the nonpayment of the note is:
A)No deduction.
B)$3,000 deduction.
C)$20,000 deduction.
D)$21,800 deduction.
E)None of the above.
Q2) Sally is an employee of Blue Corporation.Last year,she purchased a very expensive computer with her own funds.She used the computer 100% for business purposes.During the current year,the computer was completely destroyed in a fire.Blue Corporation did not reimburse her for her loss.Discuss whether Sally's loss will create or increase Sally's net operating loss.
Q3) How is qualified production activities income (QPAI)calculated?
Q4) Why was the domestic production activities deduction (DPAD)enacted by Congress?
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Chapter 8: Depreciation,cost Recovery,amortization,and Depletion
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Q1) Discuss the reason for the inclusion amount with respect to leased automobiles.
Q2) For real property,the ADS convention is the mid-month convention.
A)True
B)False
Q3) Pat purchased a used five-year class asset on March 15,2010,for $60,000.He did not elect § 179 expensing.Determine the cost recovery deduction for 2010 for earnings and profits purposes.
A)$2,000.
B)$3,000.
C)$6,000.
D)$12,000.
E)None of the above.
Q4) Under the alternative depreciation system (ADS),only the half-year convention is applicable for personality.
A)True
B)False
Q5) Discuss the criteria used to determine whether a building is residential or nonresidential realty.Also explain the tax consequences resulting from this determination if the property is placed in service in 2010.
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Q1) If an individual is ineligible to make a deductible contribution to a traditional IRA,nondeductible contributions can be made to a traditional IRA.
A)True
B)False
Q2) Alexis (a CPA and JD)sold her public accounting practice in Des Moines and accepted a job with the Seattle office of a national law firm.Her moving expenses are not deductible because she has changed employment status (i.e. ,went from self-employed to employee)and changed occupations (i.e. ,practice of public accounting to practice of law).
A)True
B)False
Q3) A taxpayer who lives and works in Kansas City is sent to Chicago on an eight-day business trip.While in Chicago,taxpayer uses the hotel valet service to have some laundry done.The valet charge is not a deductible travel expense.
A)True
B)False
Q4) A taxpayer has multiple jobs at different locations.What factors are considered in determining the site of his tax home?
Page 11
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Q1) For purposes of computing the deduction for qualified residence interest,a qualified residence includes the taxpayer's principal residence and two other residences of the taxpayer or spouse.
A)True
B)False
Q2) During the year,Eve (a resident of Billings,Montana)spends three consecutive weeks in Louisville,Kentucky.One week is spent representing the Billings First Christian Church at the national convention,and two weeks are spent vacationing with relatives.One third of Eve's travel expenses will qualify as a charitable deduction.
A)True
B)False
Q3) José sells his personal residence to Manuel on July 1,2010.He had paid $4,000 in real property taxes on March 1,2010,the due date for property taxes for 2010.José may deduct the portion of the taxes he paid for the period the property was owned by Manuel.
A)True
B)False
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Chapter 11: Investor Losses
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Sample Questions
Q1) Josh has investments in two passive activities.Activity A,acquired three years ago,produces income in the current year of $60,000.Activity B,acquired last year,produces a loss of $100,000 in the current year.At the beginning of this year,Josh's at-risk amounts in Activities A and B are $10,000 and $100,000,respectively.What is the amount of Josh's suspended passive loss with respect to these activities at the end of the current year?
A)$0.
B)$36,000.
C)$40,000.
D)$100,000.
E)None of the above.
Q2) Which of the following decreases a taxpayer's at-risk amount?
A)Cash and the adjusted basis of property contributed to the activity.
B)Amounts borrowed for use in the activity for which the taxpayer is personally liable or has pledged as security property not used in the activity.
C)Taxpayer's share of amounts borrowed for use in the activity that is qualified nonrecourse financing.
D)Taxpayer's share of the activity's income.
E)None of the above.
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Page 13
Chapter 12: Tax Credits and Payments
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Sample Questions
Q1) During 2010,Eleanor earns $146,000 in wages as an employee of an accounting firm.She also earns $26,000 in gross income from an outside consulting service she operates.Deductible expenses paid in connection with the consulting service amount to $6,000.Eleanor also has a recognized long-term capital gain of $1,000 from the sale of a stock investment.She must pay a self-employment tax on:
A)$0.
B)$20,000.
C)$26,000.
D)$27,000.
E)None of the above.
Q2) A taxpayer's earned income credit is dependent on the number of his or her qualifying children.
A)True
B)False
Q3) The earned income credit,a form of a negative income tax,is a refundable credit.
A)True
B)False
Q4) Explain the purpose of the disabled access credit and describe the general characteristics of its computation.
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Chapter 13: Part 1--Property Transactions: Determination of
Gain or Loss,basis Considerations,and Nontaxable Exchanges
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Q1) Kimmy sells her personal use automobile for $19,000.She purchased the car three years ago for $35,000.What is Kimmy's recognized gain or loss?
A)$0.
B)$19,000.
C)($16,000).
D)($35,000).
E)None of the above.
Q2) The amount received for a utility easement on land is included in the gross income of the taxpayer.
A)True
B)False
Q3) If the recognized gain on an involuntary conversion equals the realized gain because of a reinvestment deficiency,the basis of the replacement property will be less than its cost.
A)True
B)False
Q4) The holding period for property acquired by gift is automatically long term.
A)True
B)False
15
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Chapter 13: Part 2--Property Transactions: Determination of
Gain or Loss,basis Considerations,and Nontaxable Exchanges
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Q1) Vicki sells a parcel of land to her son,Dan,for $40,000.Vicki's adjusted basis is $45,000.Two years later Dan gives the land to his fiancée,Karen.At that date,the land is worth $47,000.No gift tax is paid.Since Dan is going to be stationed in the U.S.Army in Germany for 3 years,they do not plan on being married until his tour is completed.Six months after receiving the land,Karen sells it for $48,000.Calculate Karen's realized and recognized gain or loss.
Q2) What types of exchanges of insurance contracts are eligible for nonrecognition treatment under § 1035?
Q3) Sam sells land with an adjusted basis of $35,000 and a fair market value of $50,000 to Cynthia,his wife,for $50,000.Discuss how the tax consequences would differ if Sam and Cynthia had never been married.
Q4) Lois received nontaxable stock rights with a fair market value of $4,000.The fair market value of the stock on which the rights were received is $24,000 (cost $14,000).Assume the rights are exercised by paying $31,000 plus the rights.Discuss how to calculate the basis of the old stock and the basis of the new stock.
Q5) Discuss the relationship between the postponement of realized gain under § 1031 (like-kind exchanges)and the adjusted basis and holding period for the replacement property.
Page 16
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Chapter 14: Property Transactions: Capital Gains and Losses,1231,and
Recapure Provisions
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Q1) A lessor is paid $45,000 by its commercial tenant as a lease cancellation fee.The tenant wanted to get out of its lease so it could move to a different building.The lessor had held the lease for three years before it was canceled.The lessor had a zero tax basis for the lease.The lessor has received:
A)Ordinary income of $45,000.
B)Long-term capital gain of $45,000.
C)Short-term capital gain of $45,000.
D)Neither gain nor loss.
E)None of the above.
Q2) Tan,Inc. ,has a 2010 $50,000 long-term capital gain included in its $185,000 taxable income.Which of the following is correct?
A)Tan will benefit from an alternative tax on net capital gains computation.
B)Tan's regular tax on taxable income will be the same as its tax using an alternative tax on net capital gains approach.
C)Tan's $50,000 net capital gain is not taxable.
D)Tan's regular tax on taxable income will be greater than its tax using an alternative tax on net capital gain approach.
E)None of the above.
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Chapter 15: Alternative Minimum Tax
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Q1) All of a corporation's AMT is available for carryover as a minimum tax credit regardless of whether the adjustments and preferences originate from timing differences or AMT exclusions.
A)True
B)False
Q2) The deduction for personal and dependency exemptions usually is allowed for regular income tax purposes,but is disallowed for AMT purposes.
A)True
B)False
Q3) Losses associated with a passive activity owned by an individual are not deductible against active income or portfolio income in computing either the regular income tax or the AMT.
A)True
B)False
Q4) AMT adjustments can be both positive and negative in calculating AMTI,whereas AMT tax preferences can be only positive.
A)True
B)False
Q5) Why is there a need for a second tax system called the alternative minimum tax?
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Chapter 16: Accounting Periods and Methods
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Q1) For a taxpayer who is required to use the percentage of completion method,the taxpayer can elect to defer the recognition of income and the related costs until the taxable year in which cumulative contract costs are at least 10 percent of the estimated contract costs.
A)True
B)False
Q2) Ivory Fast Delivery Company,an accrual basis taxpayer,frequently has claims for damages to property the company delivered.Often the claim is not filed until a month after the delivery.In the past,approximately 80% of the claims are paid by Ivory.At the end of 2010,$19,000 in claims had been filed.The company refused to pay $4,000 of the claims,and paid the other $15,000 of claims in January 2011.Also,in January 2011,claims for $13,000 were filed for deliveries made in 2010,and $10,000 was paid on these claims by March 2011.Ivory has elected to use the recurring item exception to economic performance.Under the all-events test,Ivory can accrue as an expense for 2010:
A)$32,000.
B)$28,000.
C)$25,000.
D)$15,000.
E)None of the above.
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Page 19
Chapter 17: Corporations: Introduction and Operating Rules
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Q1) On December 20,2010,the directors of Quail Corporation (an accrual basis,calendar year taxpayer)authorized a cash donation of $5,000 to the American Cancer Society,a qualified charity.The payment,which is made on April 15,2011,may be claimed as a deduction for tax year 2010.
A)True
B)False
Q2) Which of the following statements is incorrect about the check-the-box Regulations?
A)A limited liability company with one owner can elect to be taxed as a corporation.
B)A limited liability company with more than one owner can elect to be taxed as a corporation.
C)An entity with more than one owner and formed as a corporation can elect to be taxed as a partnership.
D)If a limited liability company with one owner does not make an election,the entity is taxed as a sole proprietorship.
E)If a limited liability company with more than one owner does not make an election,the entity is taxed as a partnership.
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Chapter 18: Corporations: Organization and Capital Structure
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Q1) Blue Corporation made loans to a customer,Cedar Corporation.In the current year,these loans become worthless.
A)Blue Corporation cannot claim a deduction for the worthless loans.
B)The loans provide a nonbusiness bad debt deduction to Blue Corporation.
C)The loans provide Blue Corporation with a business bad debt deduction.
D)Blue Corporation may claim a capital loss as to these loans.
E)None of the above.
Q2) Lark City donates land worth $300,000 and cash of $100,000 to Orange Corporation as an inducement to locate in the city.Four months later,Orange purchases additional land and a building at a cost of $500,000 and moves its operations to Lark City.Ann,the sole shareholder,contributes equipment (basis of $70,000 and fair market value of $200,000)to help Orange in its new operations.What are the tax consequences of these transfers to Orange Corporation?
Q3) The bona fide business requirement of § 357(b)is easily satisfied as long as the liability arose in the normal course of conducting the business that is incorporated.
A)True
B)False
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Page 21
Chapter 19: Corporations: Distributions Not in Complete Liquidation
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Q1) If stock rights are taxable,the recipient has income to the extent of the fair market value of the rights.
A)True
B)False
Q2) A corporate shareholder that receives a constructive dividend cannot apply a dividends received deduction to the distribution.
A)True
B)False
Q3) All dividends received by individual shareholders are subject to either a 15% or a 0% tax rate.
A)True
B)False
Q4) In a not essentially equivalent redemption [§ 302(b)(1)],the family attribution rules of § 318 apply.
A)True
B)False
Q5) A distribution in excess of E & P is treated as capital gain by shareholders. A)True B)False
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Chapter 20: Distributions in Complete Liquidation and an
Overview of Reorganizations
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Q1) In corporate reorganizations in which the target receives property other than stock,gains but not losses can be recognized.
A)True
B)False
Q2) United States tax policy tries to encourage business development.
A)True
B)False
Q3) As a general rule,a liquidating corporation recognizes gains and losses on the distribution of property in complete liquidation.
A)True
B)False
Q4) One similarity between the tax treatment accorded nonliquidating and liquidating distributions is with respect to the recognition of losses by the distributing corporation.As a general rule,a corporation recognizes losses on both nonliquidating and liquidating distributions of depreciated property (fair market value less than basis).
A)True
B)False
Q5) Describe the requirements for and tax consequences of a § 338 election.
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Chapter 21: Partnerships
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Q1) Which of the following statements is not a requirement of the substantial economic effect test?
A)Income,gains,losses,and deductions must be allocated to the partners in accordance with their capital contributions.
B)An allocation of income must increase the partner's capital account balance,and an allocation of deduction must decrease the partner's capital account balance.
C)A partner with a negative capital account balance must "restore" that capital account,generally by contributing cash to the partnership.
D)On liquidation of the partner's interest in the partnership,the partner must receive assets that have a fair market value equal to that partner's (positive)capital account balance.
E)All of the above statements are requirements of the substantial economic effect test.
Q2) In a proportionate nonliquidating distribution,cash is deemed to be distributed first,followed by capital assets and,last,unrealized receivables and inventory.
A)True
B)False
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Chapter 22: S Corporations
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Q1) Your client is a C corporation that wishes to convert to S status.Advise this corporation with respect to minimizing any § 1374 built-in gains tax.
Q2) Tax-exempt income at the corporate level does flow through to the shareholders.
A)True
B)False
Q3) An S corporation must recognize ____________________ but not ____________________ on distributions of appreciated property.
Q4) Most IRAs can own stock in an S corporation.
A)True
B)False
Q5) Which corporation is eligible to make the S election?
A)Foreign corporation.
B)100% owned corporation.
C)An insurance company.
D)A U.S.bank.
E)None of the above can elect S status.
Q6) An S corporation recognizes a gain on any distribution of ____________________ property.
Q7) Outline the requirements that an entity must meet to elect S corporation status.
25
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Chapter 23: Exempt Entities
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Q1) A trade or business that is operated by an exempt organization which otherwise would be subject to the tax on unrelated business income is exempt from tax,if the profits generated by the trade or business are used by the exempt organization for exempt purposes.
A)True
B)False
Q2) George is running for mayor of Culpepper.The members of Third Church adamantly oppose his candidacy.They would like to run a political advertisement in the local newspaper opposing his candidacy.The newspaper ad would have no effect on Third Church's exempt status because the ad opposes George;it does not support his opponent.
A)True
B)False
Q3) What tax forms are used to apply for exempt status?
Q4) Define a qualified corporate sponsorship payment.
Q5) In calculating unrelated business taxable income,the exempt organization is permitted to deduct only the charitable contributions associated with the unrelated trade or business.
A)True
B)False
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Chapter 24: Multistate Corporate Taxation
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Q1) Typically exempt from the sales/use tax base is the purchase of prescription medicines by an individual.
A)True
B)False
Q2) For most taxpayers,which of the traditional apportionment factors yields the greatest opportunities for tax reduction?
A)Payroll.
B)Property.
C)Unitary.
D)Sales (gross receipts).
Q3) Nonbusiness income includes rentals of investment property.
A)True
B)False
Q4) Use tax would be due if an individual purchased an auto in State A and used it at his home in State B.
A)True
B)False
Q5) Summarize the principles of multistate tax planning.
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Chapter 25: Taxation of International Transactions
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Q1) Gain or loss on the exchange of foreign currency must be considered separately from the underlying transaction (e.g. ,the purchase or sale of goods).
A)True
B)False
Q2) U.S.taxpayers may take a current FTC equal to the lesser of the FTC limit or the actual foreign taxes (direct or indirect).
A)True
B)False
Q3) Gains on the sale of U.S.real property held directly or indirectly through U.S.stock ownership by NRAs and foreign corporations are subject to taxation under FIRPTA.
A)True
B)False
Q4) Income tax treaties may provide for higher withholding tax rates on interest income than the rate provided under U.S.statutory law.
A)True B)False
Q5) Discuss the primary purposes of income tax treaties.
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Chapter 26: Tax Practice and Ethics
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135 Verified Questions
135 Flashcards
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Sample Questions
Q1) The tax preparer penalty for taking an unreasonable tax return position is the greater of $1,000 or ____________________ of the tax professional's income from preparing the return.
Q2) A penalty can be assessed from an appraiser who knew that his/her improper appraisal would be used as part of a tax computation,in the amount of the lesser of ____________________% of the tax understatement or ____________________ % of the appraisal fee collected.
Q3) Ron,a calendar year taxpayer subject to a 35% marginal tax rate,claimed a charitable contribution deduction of $500,000 for a sculpture that the IRS later valued at $150,000.The applicable overvaluation penalty is:
A)$10,000 (maximum penalty).
B)$24,500.
C)$49,000.
D)$122,500.
Q4) Arnold made a charitable contribution of property that he valued at $70,000.He deducted this amount as an itemized deduction on his tax return.The IRS can show that the actual value of the property is $50,000.Arnold is in the 35% income tax bracket.Determine Arnold's amount due for both tax and any penalty.
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Page 29
Chapter 27: The Federal Gift and Estate Taxes
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) To make the election to split gifts under § 2513,spouses must file a Form 709 (Federal gift tax return).
A)True
B)False
Q2) Manfredo makes a donation of $50,000 to the church where he was baptized in Mexico City.The gift does not qualify as a charitable contribution for Federal income tax purposes.
A)True
B)False
Q3) Which,if any,of the following is not a characteristic of the Federal estate tax?
A)A foreign tax credit is available.
B)Pre-1977 taxable gifts need to be considered.
C)The generation-skipping transfer tax may also apply.
D)A credit for tax on prior transfers may be available.
E)A charitable deduction is available.
Q4) For Federal estate tax purposes,the gross estate does not include property that will pass to a surviving spouse.
A)True
B)False
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Chapter 28: Income Taxation of Trusts and Estates
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132 Verified Questions
132 Flashcards
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Sample Questions
Q1) The grantor of a trust generally designates both ____________________ and ____________________ beneficiaries under the controlling agreement.
Q2) A complex trust can claim a Year 1 deduction for a gift to charity,where the contribution was made in October of Year 2 out of gross income recognized in Year 1. A)True B)False
Q3) Trusts are created exclusively to reduce tax liabilities. A)True B)False
Q4) Remainder beneficiary Shelley receives a $50,000 net operating loss carryover when the Malone Trust terminates.Shelley deducts this amount ____________________ (for/from)AGI on her Form 1040.
Q5) "First-tier distributions" allowed by the will or trust document are made at the discretion of the executor or trustee. A)True B)False
Q6) Every ____________________ trust is allowed a $____________________ personal exemption.
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