Tax Research and Planning Practice Exam
Course Introduction
Tax Research and Planning focuses on the principles, techniques, and tools used to analyze complex tax issues and develop effective tax strategies. The course covers research methodologies for interpreting tax laws, regulations, and judicial decisions while emphasizing ethical considerations and professional responsibilities. Students learn how to use authoritative tax resources, construct well-supported tax positions, and apply tax planning strategies for individuals and business entities. Through practical case studies and projects, the course develops critical thinking and decision-making skills essential for navigating federal, state, and international tax environments.
Recommended Textbook
South Western Federal Taxation 2013 Individual Income Taxes 36th Edition by William H
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Page 2
Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Sample Questions
Q1) Indicate which,if any,statement is incorrect.State income taxes:
A) Can piggyback to the Federal version.
B) Cannot apply to visiting nonresidents.
C) Can decouple from the Federal version.
D) Can provide occasional amnesty programs.
E) None of the above.
Answer: B
Q2) Timothy recently converted a warehouse into apartment lofts,which he is renting to single professionals.In making the conversion,he emphasized improvements that were portable in nature.Thus,the sprinkler system,heating and cooling units,and room dividers are all removable from the building.In terms of ad valorem property taxes,what was Timothy trying to accomplish?
Answer: When personalty is permanently attached to real estate so that its removal will cause irreparable damage,it becomes a fixture.Consequently,it ceases to be personalty and is now regarded as realty.The classification of an asset is important because different ad valorem taxes apply to realty than to personalty.For one thing,the ad valorem tax on realty is less easily avoided.Also to be considered is the possibility that the ad valorem tax on personalty (even if it cannot be avoided)could be lower than that applicable to realty.
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Chapter 2: Working With the Tax Law
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Sample Questions
Q1) Which of the following is not an administrative source of tax law?
A) Reg. § 301.6114-1.
B) Section 2(a)(1)(A).
C) Rev. Rul. 2011-19.
D) Notice 90-20.
E) Ltr. Rul 201008049.
Answer: B
Q2) What are Treasury Department Regulations?
Answer: Regulations are issued by the U.S.Treasury Department under authority granted by Congress.Interpretive by nature,they provide taxpayers with considerable guidance on the meaning and application of the Code.Regulations may be issued in proposed,temporary,or final form.Regulations carry considerable authority as the official interpretation of tax statutes.They are an important factor to consider in complying with the tax law.Courts generally ignore Proposed Regulations.
Q3) The following citation is correct: Larry
G. Mitchell, 131 T.C. 215 (2008).
A)True
B)False
Answer: True
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Page 4
Chapter 3: Tax Formula and Tax Determination: an
Overview of Property Transactions
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Q1) A child who has unearned income of $1,900 or less cannot be subject to the kiddie tax.
A)True
B)False
Answer: True
Q2) Katrina,age 16,is claimed as a dependent by her parents.During 2012,she earned $5,600 as a checker at a grocery store.Her standard deduction is $5,900 ($5,600 earned income + $300).
A)True
B)False
Answer: True
Q3) Deductions for AGI are often referred to as "above-the-line" or "page 1" deductions.Explain.
Answer: "Above the line" means before the bottom line of page 1 of Form 1040,which is AGI.These deductions appear on page 1 of Form 1040.
Q4) Once a child reaches age 19,the kiddie tax no longer applies.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Gross Income: Concepts and Inclusions
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Q1) Under the formula for taxing Social Security benefits,low income taxpayers are not required to include any of the Social Security benefits in gross income.But as income increases,50% of the Social Security benefits may be included in gross income.Further increases in income will cause as much as 85% of the Social Security benefits being subject to tax.Does this mean that the taxation of Social Security benefits is more or less progressive than the taxation of other types of income?
Q2) In the case of a gift loan of less than $100,000,the imputed interest rules apply if the donee has net investment income of over $1,000.
A)True
B)False
Q3) Theresa,a cash basis taxpayer,purchased a bond on July 1,2009,for $10,000,plus $400 of accrued interest.The bond paid $800 of interest each December 31.On March 31,2012,she sold the bond for $10,300,which included $200 of accrued interest.
A) Theresa's 2012 interest income from the bond is $200.
B) Theresa has $200 of interest income and a $100 gain from the bond in 2012.
C) Theresa has a $100 loss from the sale of the bond and no interest income.
D) Theresa's gain on the sale of the bond is $200.
E) None of the above.
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Chapter 5: Gross Income: Exclusions
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Sample Questions
Q1) Sharon had some insider information about a corporate takeover.She unintentionally informed a friend,who immediately bought the stock in the target corporation.The takeover occurred and the friend made a substantial profit from buying and selling the stock.The friend told Sharon about his stock dealings,and gave her a pearl necklace because she "made it all possible." The necklace was worth $10,000,but she already owned more jewelry than she desired.
A) The necklace is a nontaxable gift received by Sharon because the friend was not legally required to make the gift.
B) The value of the necklace is not included in Sharon's gross income unless she sells it.
C) The value of the necklace is not included in Sharon's gross income because passing the information was an illegal act and the SEC can confiscate the necklace.
D) The value of the necklace must be included in Sharon's gross income for the tax year it was received by her.
E) None of the above.
Q2) What are the tax problems associated with payments received by a wife from her deceased husband's employer? (Assume the wife renders no services to the employer.)
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Chapter 6: Deductions and Losses: in General
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Sample Questions
Q1) The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.
A)True
B)False
Q2) Trade of business expenses are classified as deductions for AGI.Section 212 expenses,barring certain exceptions,are classified as deductions from AGI.What are these exceptions?
Q3) Ralph wants to give his daughter $1,000 for Christmas.As an alternative,she suggests that he pay the property taxes on her residence.If Ralph pays the property taxes,he cannot deduct them.
A)True B)False
Q4) A political contribution to the Democratic Party or the Republican Party is not deductible,but a contribution to the Presidential Election Campaign Fund is deductible. A)True B)False
Q5) Describe the circumstances under which a taxpayer can receive rent income from a personal residence,but does not have to report it as gross income.
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Q1) "Other casualty" means casualties similar to those associated with fires,storms,or shipwrecks.
A)True B)False
Q2) On September 3,2011,Able,a single individual,purchased § 1244 stock in Red Corporation from his friend Al for $60,000.On December 31,2011,the stock was worth $85,000.On August 15,2012,Able was notified that the stock was worthless.How should Able report this item on his 2012 tax return?
A) $85,000 capital loss.
B) $85,000 ordinary loss.
C) $50,000 ordinary loss and $35,000 capital loss.
D) $60,000 ordinary loss.
E) None of the above.
Q3) How is qualified production activities income (QPAI)calculated?
Q4) An individual taxpayer who does not itemize deductions uses the standard deduction to compute the excess of nonbusiness deductions over the sum of nonbusiness income and net nonbusiness capital gains for purposes of computing net operating loss.
A)True B)False
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Chapter 8: Depreciation, cost Recovery, amortization, and Depletion
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Sample Questions
Q1) On May 2,2012,Karen placed in service a new sports utility vehicle that cost $60,000 and has a gross vehicle weight of 6,300 lbs.The vehicle is used 60% for business and 40% for personal use.Determine the cost recovery for 2012.Karen wants to maximize her deductions.
A) $2,200.
B) $3,060.
C) $25,000.
D) $27,200.
E) None of the above.
Q2) Tan Company acquires a new machine (ten-year property)on January 15,2012,at a cost of $200,000.Tan also acquires another new machine (seven-year property)on November 5,2012,at a cost of $40,000.No election is made to use the straight-line method.The company does not make the § 179 election.Tan takes additional first-year depreciation.Determine the total deductions in calculating taxable income related to the machines for 2012.
A) $24,000.
B) $25,716.
C) $102,000.
D) $132,858.
E) None of the above.
Page 10
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Q1) The Federal per diem rates that can be used for "deemed substantiated" purposes are not the same for all locations in the country.
A)True
B)False
Q2) By itself,credit card receipts will constitute adequate substantiation for travel expenses.
A)True
B)False
Q3) Which,if any,of the following factors is not a characteristic of independent contractor status?
A) Services are performed for more than one party.
B) Receipt of a Form 1099 reporting payments received.
C) Workplace fringe benefits are not available.
D) Work-related expenses are reported on Form 2106.
E) None of the above.
Q4) For tax purposes, a statutory employee is treated the same as a common law employee.
A)True
B)False
11
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) David,a single taxpayer,took out a mortgage on his home for $300,000 nine years ago.In August of this year,when the home had a fair market value of $550,000 and he owed $225,000 on the mortgage,he took out a home equity loan for $350,000.David used the funds to purchase a yacht to be used for recreational purposes.What is the maximum amount of debt on which he can deduct home equity interest?
A) $50,000.
B) $100,000.
C) $325,000.
D) $350,000.
E) None of the above.
Q2) Mindy paid an appraiser to determine how much a capital improvement made for medical reasons increased the value of her personal residence.The appraisal fee qualifies as a deductible medical expense.
A)True
B)False
Q3) Employee business expenses for travel qualify as itemized deductions subject to the 2% floor if they are not reimbursed.
A)True
B)False
Page 12
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Chapter 11: Investor Losses
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Q1) Joe participates 95 hours in an activity,while an employee participates 5 hours.Joe has materially participated in the activity.
A)True
B)False
Q2) Samantha sells a passive activity (adjusted basis of $50,000)for $90,000.Suspended losses attributable to this property total $30,000.The realized gain and the taxable gain are:
A) $40,000 realized gain; $70,000 taxable gain.
B) $10,000 realized gain; $10,000 taxable gain.
C) $40,000 realized gain; $0 taxable gain.
D) $40,000 realized gain; $10,000 taxable gain.
E) None of the above.
Q3) Last year,Wanda gave her daughter a passive activity (adjusted basis of $80,000; fair market value of $160,000)with suspended losses of $20,000.In the current year,her daughter realizes income of $10,000 from the activity.What are the tax effects to Wanda and her daughter?
Q4) List the taxpayers that are subject to the passive loss rules and summarize the general impact of these rules on these taxpayers.
Q5) What special passive loss treatment is available to real estate activities?
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Chapter 12: Alternative Minimum Tax
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Q1) Which of the following can produce an AMT preference rather than an AMT adjustment?
A) Standard deduction.
B) Research and experimental expenditures.
C) Percentage depletion.
D) Incentive stock options (ISOs).
E) None of the above.
Q2) Sand Corporation,a calendar year taxpayer,has alternative minimum taxable income [before adjustment for adjusted current earnings (ACE)] of $750,000 for 2012.If Sand's (ACE)is $975,000,its tentative minimum tax for 2012 is:
A) $150,000.
B) $183,750.
C) $195,000.
D) $225,000.
E) None of the above.
Q3) C corporations are subject to a positive AMT adjustment equal to 75% of the excess of ACE over AMTI before the ACE adjustment.
A)True
B)False
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Chapter 13: Tax Credits and Payment Procedures
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Q1) The earned income credit is available only if the taxpayer has at least one qualifying child in the household.
A)True
B)False
Q2) Kevin and Sue have two children,ages 8 and 14.They spend $6,200 per year on eligible employment related expenses for the care of their children after school.Kevin earned a salary of $20,000 and Sue earned a salary of $18,000.What is the amount of the credit for child and dependent care expenses?
A) $690.
B) $713.
C) $1,380.
D) $1,426.
E) None of the above.
Q3) The maximum child tax credit under current law is $1,200 per qualifying child.
A)True
B)False
Q4) How does the FICA tax compare to the self-employment tax? How are these two taxes similar and how do they differ?
Q5) Describe the withholding requirements applicable to employers.
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Chapter 14: Property Transactions: Determination of Gain or
Loss and Basis Considerations
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Sample Questions
Q1) Iva owns Mauve,Inc.stock (adjusted basis of $40,000)which she sells to Joshua,her brother,for its fair market value of $32,000.Fifteen months later,he sells it to Faye,a friend,for its fair market value of $39,000.Determine Iva's recognized loss,Joshua's recognized gain or loss,and Faye's adjusted basis for the stock. Iva's recognized loss Joshua's recognized gain or loss Faye's basis
A) $ -0- $ -0- $39,000
B) $ -0- $7,000 $32,000
C) $ -0- $7,000 $39,000
D) $8,000 $7,000 $39,000
E) None of the above.
Q2) The bank forecloses on Lisa's apartment complex.The property had been pledged as security on a nonrecourse mortgage,whose principal amount at the date of foreclosure is $750,000.The adjusted basis of the property is $480,000,and the fair market value is $750,000.What is Lisa's recognized gain or loss?
A) $270,000.
B) ($750,000).
C) $0.
D) ($480,000).
E) None of the above.
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Chapter 15: Property Transactions: Nontaxable Exchanges
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Q1) Discuss the relationship between realized gain and boot received in a § 1031 like-kind exchange.
Q2) If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion),makes the appropriate election,and the amount reinvested in replacement property is less than the amount realized,realized gain is:
A) Recognized to the extent of the deficiency (amount realized not reinvested).
B) Recognized to the extent of realized gain.
C) Recognized to the extent of the amount reinvested in excess of the adjusted basis.
D) Permanently not subject to taxation.
E) None of the above.
Q3) Wyatt sells his principal residence in December 2012 and qualifies for the § 121 exclusion.He sells another principal residence in October 2013.Under certain circumstances Wyatt can qualify for the § 121 exclusion on the sale of the second residence.
A)True
B)False
Q4) Define an involuntary conversion.
Q5) Define qualified small business stock under § 1045.
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Chapter 16: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) An individual taxpayer received a valuable painting from his uncle,a famous painter.The painter did not create the painting,but had purchased it from another artist.After the taxpayer held the painting for two years,he sold it for a $400,000 gain.The gain is a long-term capital gain.
A)True
B)False
Q2) An individual taxpayer with 2012 net short-term capital loss of $5,000 generally can deduct up to $3,000 for AGI and carry the balance forward to 2013.
A)True
B)False
Q3) The three tax statuses are:
A) Ordinary asset, capital asset, § 1237 asset.
B) Capital asset, ordinary asset, § 1231 asset.
C) § 1237 asset, investment asset, ordinary asset.
D) Investment asset, § 1231 asset, ordinary asset.
E) None of the above.
Q4) What characteristics must the seller of a patent have in order to be classified as a holder?
Page 18
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Chapter 17: Property Transactions: Section 1231 and Recapture Provisions
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Q1) Which of the following creates potential § 1245 depreciation recapture and potential § 1231 gain?
A) Depreciable equipment held more than one year and sold for more than its original cost.
B) Amortizable goodwill held more than one year and disposed of for less than its adjusted basis.
C) Land held more than one year and sold for more than was paid for it.
D) Inventory held more than one year and sold for more than was paid for it.
E) None of the above.
Q2) For § 1245 recapture to apply,accelerated depreciation must have been taken on the property.
A)True
B)False
Q3) Section 1245 generally recaptures as ordinary income the portion of the gain that is equal to the sale price minus the original cost.
A)True
B)False
Q4) Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.
Page 19
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Chapter 18: Accounting Periods and Methods
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Q1) The taxpayer had consistently used the cash method of accounting even though inventories were a material income-producing factor to its business.The taxpayer decided to voluntarily change to the accrual method of accounting.The adjustment to income due to the change was that the correct beginning balances for the year of the change as follows: $60,000 for inventories,$30,000 for accounts receivable,and $12,000 for accounts payable.The adjustment due to the change in accounting method is:
A) A positive adjustment for $102,000.
B) A positive adjustment for $90,000.
C) A positive adjustment for $78,000.
D) A positive adjustment for $60,000.
E) None of the above.
Q2) Ted,a cash basis taxpayer,received a $150,000 bonus in 2012 when he was in the 35% marginal tax bracket.In 2013,when Ted was in the 28% marginal tax bracket,it was discovered that the bonus was incorrectly computed,and Ted was required to refund $40,000 to his employer.As a result of the refund,Ted can reduce his 2013 tax liability by $14,000 (.35 ´ $40,000).
A)True
B)False
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Chapter 19: Deferred Compensation
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Questions
Q1) Samuel,age 53,has a traditional deductible IRA with an account balance of $112,000.Of this amount,$82,000 represents contributions and $30,000 represents earnings.In 2012,he converts his traditional IRA into a Roth IRA.What amount must Samuel include in his gross income,if any,in 2012?
Q2) Contributions to a qualified pension plan are immediately deductible by the employer.
A)True
B)False
Q3) A direct transfer of funds from a qualified retirement plan to an IRA is not subject to the withholding rules.
A)True
B)False
Q4) Which is not an advantage of a § 401(k)plan over a traditional IRA?
A) Deduction limitation.
B) Early withdrawal option without penalty.
C) Loans from the plan.
D) Record keeping.
E) All of the above are advantages of § 401(k) plan.
Q5) What is a profit sharing plan?
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Chapter 20: Corporations and Partnerships
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Q1) The domestic production activities deduction (DPAD)for a corporation is 9% of the greater of QPAI or TI.
A)True
B)False
Q2) Pete contributes land (basis of $80,000; fair market value of $300,000)for a 25% interest in a partnership.The land is subject to a mortgage of $40,000 which the partnership assumes.As a result of the transfer,Pete:
A) Has a basis in the partnership of $50,000.
B) Has a basis in the partnership of $70,000.
C) Has a basis in the partnership of $270,000.
D) Must recognize a gain of $30,000.
E) None of the above.
Q3) Property distributions to shareholders can result in the distributing corporation recognizing gains but not losses.
A)True
B)False
Q4) A calendar year taxpayer that in 2011 elected (under the check-the-box Regulations)to be taxed as a corporation wants to be taxed as a partnership in 2012.Is this permissible?
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