Tax Research and Planning Exam Review
Course Introduction
Tax Research and Planning is a course designed to provide students with a comprehensive understanding of essential tax research methodologies and effective tax planning strategies. The course covers the use of primary and secondary tax sources, interpretation of tax statutes, regulations, and case law, as well as the application of research tools such as online databases and tax service platforms. Students will learn to critically analyze complex tax problems, construct well-supported arguments, and develop tax planning solutions that minimize liabilities and comply with current tax laws. Emphasis is placed on ethical considerations, real-world scenarios, and the practical skills needed by tax professionals in advisory, compliance, and litigation support roles.
Recommended Textbook Concepts in Federal Taxation 2019 26th Edition Kevin E. Murphy
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16 Chapters
2071 Verified Questions
2071 Flashcards
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Chapter 1: Federal Income Taxation-An Overview
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Q1) Tax planning using legal methods to minimize the tax liability.
A)Average tax rate
B)Effective tax rate
C)Horizontal equity
D)Marginal tax rate
E)Progressive rate structure
F)Proportional rate structure
G)Regressive rate structure
H)Tax avoidance
I)Tax evasion
J)Vertical equity
Answer: H
Q2) Employment taxes are
A)revenue neutral.
B)regressive.
C)value-added.
D)progressive.
E)proportional.
Answer: E
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Page 3
Chapter 2: Income Tax Concepts
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Q1) It was stated in the text that realized gains from certain types of transactions (e.g., like-kind exchanges) are deferred for recognition in a future period. The basis of this treatment is the
I.Annual Accounting Period Concept.
II.Legislative Grace Concept.
III.Wherewithal-to-Pay Concept.
IV.Capital Recovery Concept.
A)Only statement II is correct.
B)Only statement III is correct.
C)Statements I and II are correct.
D)Statements II and III are correct.
E)Statements I, II, III and IV are correct.
Answer: D
Q2) Under the all-inclusive income concept, the tax law always starts with the proposition that all receipts of cash are taxable.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Income Sources
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Q1) Todd and Fiona are negotiating a divorce settlement. Todd has offered to pay Fiona $12,000 each year for 10 years, but payments cease upon Fiona's death. What are the tax implications of this proposition assuming is finalized in 2018?
I.Fiona must recognize Gross Income when the money is received.
II.Todd has a deduction for Adjusted Gross Income in the year of payment.
III.Since the payments are in cash and there is no obligation to pay more after Fiona's death, the payments are classified as alimony.
IV.If the payments qualify as child support, Fiona recognizes no gross income and Todd has no deduction from Adjusted Gross Income.
A)Only statement I is correct.
B)Only statement IV is correct.
C)Only statements I and II are correct.
D)Only statements I, II, and III are correct.
E)Statements I, II, III, and IV are correct.
Answer: E
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Chapter 4: Income Exclusions
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Q1) Barbara was the legal owner of a $100,000 life insurance policy on herself. Glenna is the stated beneficiary. Shortly before her death, Barbara transfers ownership of the policy to Glenna for $15,000. Glenna makes one premium payment in the amount of $1,000 before Barbara dies. Glenna subsequently receives the $100,000 life insurance proceeds. How much of the $100,000 is taxable to Glenna?
A)$- 0 -
B)$15,000
C)$84,000
D)$85,000
E)$100,000
Q2) Jeane's employer pays his medical premiums each month ($130/month).
A)Fully excluded from gross income.
B)Fully included in gross income.
C)Partially excluded from gross income.
Q3) Michelle's employer pays for her graduate school classes. Tuition during the year totals $2,500 (her employer does not have a qualified plan).
A)Fully excluded from gross income.
B)Fully included in gross income.
C)Partially excluded from gross income.
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Page 6
Chapter 5: Introduction to Business Expenses
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Q1) An individual should be indifferent whether an expense is deducted for or deducted from adjusted gross income.
A)True
B)False
Q2) Which of the following is/are trade or business expenses?
I.Mahlon incurs expenses related to investing in stocks and bonds. Mahlon is a Sociology professor at State University but spends 10-15 hours per week on his investments. Almost 2/3 of Mahlon's annual income comes from his investments as dividends and interest.
II.Shaheen has expenses related to managing her portfolio of securities. The short-term trading of her securities generates most of her annual income. She has no other job.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.
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Chapter 6: Business Expenses
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Q1) Drew incurs the following expenses in his grocery store business. Drew can deduct the following as business expenses in the current year
I.$3,750 for advertising on the web.
II.$2,000 of interest expense related to the purchase of a new delivery truck.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Nora is the CEO of the publicly traded Micro Tech Corporation. The company paid her a salary of $1,030,000 and made mortgage payments of $30,000 on her behalf. How much is deductible as compensation expense?
A)$- 0 -
B)$ 510,000
C)$1,000,000
D)$1,060,000
E)$1,030,000
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Page 8
Chapter 7: Losses-Deductions and Limitations
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Q1) "Active participation" and "real estate professional" are both exceptions to the general rule for passive activity losses with rental real estate.
I.A taxpayer qualifying under both exceptions is limited to a maximum annual deduction of $25,000.
II.Active participation results from owning at least a 10% interest in the activity and arranging for repairs and maintenance and collecting rents.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) A transaction loss occurs when an asset is disposed of at less than its basis.
A)True
B)False
Q3) Any corporate capital loss not used in the current year can be carried back 2 years and carried forward 20 years to offset capital gains in those years.
A)True
B)False
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9
Chapter 8: Taxation of Individuals
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Q1) In which of the following circumstances will income of the child be taxed at the rates applicable to estates and trusts?
I.Martin, age 6, earns $14,000 this year by acting in television commercials.
II.Allen, age 22 and a full time college student, has $4,000 of interest income on municipal bonds that he inherited from his grandfather last year.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Which of the following qualify for the medical expense deduction? I.Insulin.
II.Medicare insurance premiums.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Explain the support test and the gross income test to be a qualifying relative.
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Page 10
Chapter 9: Acquisitions of Property
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Q1) Personal property consists of any property that is held by an individual.
A)True
B)False
Q2) Indicate the classification of each of the following assets as personal property, real property, intangible property, personal use property or business use property.
a.A dentist purchases a sofa for the waiting room at his dental office.
b.A dentist purchases a sofa for his living room at home.
c.A dentist has a landscape architect plant shrubbery and trees around his office building.
d.A dentist pays a landscaper to grade his land and install fencing for a baseball practice field for his son.
e.A dentist obtains a patent for a procedure he developed.
Q3) Morrison received a gift of income-producing property with an adjusted basis of $50,000 to the donor and a fair market value of $40,000 on the date of the gift (December 31, 2018). The donor paid a gift tax of $1,000. Morrison sells the property on September 17, 2019 for $45,000. What is the gain or loss on the property?
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Chapter 10: Cost Recovery on Property: Depreciation, Depletion,
and Amortization
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Q1) MACRS requires the use of one of three conventions. For personal property, the general and most common convention is
A)mid-life
B)mid-quarter.
C)mid-month.
D)mid-year.
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) Discuss why listed property gets special attention.
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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Q1) George sells land purchased in 1989 that he used to park construction equipment at a gain of $16,500.
A)Long-term capital
B)Short-term capital
C)Collectible gain
D)Section 1231
E)Section 1245
F)Section 1250
G)Ordinary income/loss
H)Nontaxable/nondeductible
Q2) Elizabeth paid $400,000 for a warehouse. Using 39-year straight-line depreciation, Elizabeth deducts $24,868 for the first two years of usage. At the beginning of the third year, Elizabeth sells the warehouse for $380,000. How much of the gain is recaptured as Section 1250 ordinary income?
A)$- 0 -
B)$4,868
C)$24,868
D)$380,000
E)$400,000
Q3) What incentive provisions or preferential treatments exist for capital gains?
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Chapter 12: Non-Recognition Transactions
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Q1) The deferral of a gain realized on an involuntary conversion is mandatory.
A)True
B)False
Q2) Karen owns a commercial office building with a fair market value of $140,000. She purchased the building as an investment for $102,000 in 2003. She has claimed $18,000 in depreciation deductions. Karen trades the building for an apartment complex. The apartment complex has a value of $140,000, and the exchange qualifies for like-kind deferral treatment. What is Karen's basis in the apartment complex?
A)$- 0 -
B)$ 58,000
C)$ 84,000
D)$140,000
E)$198,000
Q3) Microsoft common stock for Merrill Lynch common stock.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q4) Discuss the concepts underlying the determination of the basis of property received in a nontaxable exchange.
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Page 14
Chapter 13: Choice of Business Entity-General Tax and
Nontax
Factorsformation
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Q1) Gomer is admitted to the Mouton Partnership on July 1, 2018. Gomer contributes ABC common stock purchased in 1991 for $20,000 with a fair market value of $100,000 on July 1, 2018, for a 25% interest in the partnership. After Gomer's admission to the partnership, Mouton's net asset fair market value is $400,000. What is Gomer's taxable gain or income due to the exchange of ABC stock for the Mouton Partnership interest?
A)$- 0 -
B)$80,000 long-term capital gain.
C)$80,000 ordinary income.
D)$80,000 short-term capital loss.
E)$100,000 ordinary income.
Q2) 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.
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Chapter 14: Choice of Business Entity-Operations and Distributions
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Q1) The Polaris S Corporation has operating income of $50,000. Andrew is the sole shareholder of the corporation that has had the S election in effect since its inception. At the beginning of the current year, Andrew's basis in his S corporation stock is $2,000. During the year Andrew receives cash distributions totaling $55,000. How much income must Andrew recognize for the current tax year?
A)$50,000 ordinary income; $55,000 dividend income.
B)$50,000 ordinary income.
C)$50,000 ordinary income; $3,000 capital gain.
D)$55,000 dividend income; $3,000 capital gain.
E)$55,000 dividend income.
Q2) During the current year, Mars Corporation receives dividend income of $20,000 from an 85%-owned domestic corporation. What is Mars' maximum allowable dividend-received deduction for the current year?
A)$- 0 -
B)$10,000
C)$13,000
D)$14,000
E)$20,000
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Chapter 15: Choice of Business Entity-Other Considerations
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Q1) To obtain the rehabilitation expenditures tax credit certain criteria must be satisfied. Which of the following are correct statements about the credit?
I.The amount spend on the rehabilitation must exceed $5,000.
II.The rehabilitation work cannot remove more than 25% of the internal walls and framework.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Lynne is a 15% partner with Webb Brothers and has net self-employment income of $100,000 in 2018. The maximum amount that Lynne can contribute to a Keogh profit sharing plan is
A)$5,000
B)$13,045
C)$15,000
D)$20,000
E)$25,000
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Page 17
Chapter 16: Tax Research
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Q1) Which of the following is/ are appellate level courts for tax cases?
I.U.S. Court of Federal Claims.
II.U.S. Supreme Court.
III.U.S. Court of Appeals for the Federal Circuit.
IV.U.S. Court of Appeals for the Tenth Circuit.
V.U.S. District Court.
A)Only statement V is correct.
B)Only statement II is correct.
C)Statements I and V are correct.
D)Statements II, III, and IV are correct.
E)Statements I, II, III, IV, and V are correct.
Q2) Which regulation citation concerns Code Section 469?
A)Reg. Sec. 469
B)Reg. Sec. 469-3
C)Reg. Sec. 1.3-469
D)Reg. Sec. 1.469-3
E)Reg. Sec. 469.72-3
Q3) Describe the steps of the tax research process.
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