Tax Research and Planning Review Questions
Course Introduction
Tax Research and Planning focuses on the principles, tools, and methodologies essential for researching complex tax issues and developing effective tax strategies. The course covers the use of primary and secondary tax authorities, the application of tax law to real-world scenarios, and the ethical considerations involved in tax practice. Students learn to identify tax-saving opportunities, assess the implications of tax decisions for individuals and businesses, and effectively communicate research findings through written and oral formats. Emphasis is placed on lifelong learning skills necessary to keep up with the ever-changing landscape of tax regulations and policies.
Recommended Textbook
Principles of Taxation for Business and Investment Planning 2019 22nd Edition by Sally Jones
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18 Chapters
1798 Verified Questions
1798 Flashcards
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Chapter 1: Taxes and Taxing Jurisdictions
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90 Verified Questions
90 Flashcards
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Sample Questions
Q1) Payment of a tax entitles the payer to a specific good or service from the government.
A)True
B)False
Answer: False
Q2) The incidence of a state sales tax levied on the purchase of retail goods is:
A) Borne by the ultimate purchaser of the goods.
B) Borne by the seller who must collect and remit the tax.
C) Borne by the manufacturer of the goods.
D) Borne by the government that levies the tax.
Answer: A
Q3) Which of the following is not characteristic of a tax?
A) A tax is compulsory.
B) A tax is intended to punish unacceptable behavior.
C) A tax is levied by a government.
D) All of the above are characteristics of a tax.
Answer: B
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Chapter 2: Policy Standards for a Good Tax
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Sample Questions
Q1) Individuals who believe that a tax system is fair are less likely to cheat on their taxes than individuals who believe that the system is unfair.
A)True
B)False
Answer: True
Q2) Which of the following statements concerning tax preferences is false?
A) Tax preferences increase the complexity of the law.
B) Tax preferences raise additional revenue for the government.
C) Tax preferences are government subsidies for targeted taxpayer activities.
D) Tax preferences do not improve the accurate measurement of the tax base.
Answer: B
Q3) Which of the following statements is false?
A) If Mr. Clem owns real property valued at $112,500, his average tax rate is 3%.
B) If Ms. Barker owns real property valued at $455,650, her average tax rate is 2.1%.
C) If Ms. Lumley owns real property valued at $750,000, her marginal tax rate is 1%.
D) None of the choices are false.
Answer: D
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Chapter 3: Taxes as Transaction Costs
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Sample Questions
Q1) Leik has $50,000 in an investment paying 10% annual interest. Each year, she incurs a $600 cash expense relating to the investment. If Ms. Leik's marginal tax rate is 20%, which of the following statements is true?
A) Ms. Leik's annual after-tax cash flow from this investment is $3,520.
B) If the interest is taxable but the expense is not deductible, Ms. Leik's annual after-tax cash flow from the investment is $3,400.
C) If the interest is tax-exempt and the expense is not deductible, Ms. Leik's annual after-tax cash flow is $5,000.
D) None of the choices are true.
Answer: B
Q2) Net cash flow from a transaction equals the difference between cash received and cash disbursed in the transaction.
A)True
B)False
Answer: True
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Chapter 4: Maxims of Income Tax Planning
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Sample Questions
Q1) Which of the following entities is not a taxable entity for federal income tax purposes?
A) Mr. Bob Clark, a U.S. citizen and resident of West Virginia
B) PTS Limited, an Arizona partnership
C) Confad Inc., an Oklahoma corporation listed on Nasdaq
D) All of the above are taxable entities.
Q2) Which of the following statements about tax strategies is false?
A) Tax planners should prefer a simple strategy over a complex strategy.
B) Tax planners should prefer a flexible strategy over an inflexible strategy.
C) Tax planners should consider the tax consequences of a strategy to all parties.
D) None of the above is false.
Q3) Mr Bearne paid $50,000 to a local spiritual healer and deducted the payment as a business expense of his sole proprietorship. The healer provided personal counseling to Mr and Mrs Bearne. Upon audit of the sole proprietorship's accounting records, the IRS agent disallowed the deduction by applying the:
A) Business purpose doctrine
B) Assignment of income doctrine
C) Economic substance doctrine
D) Constructive payment doctrine
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Page 6
Chapter 5: Tax Research
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Sample Questions
Q1) Alex inherited an antique diamond bracelet from her grandmother. She is thinking of selling the bracelet to raise cash for her college tuition and wonders about the tax consequences of such a sale. If you were to research this question using a keyword search in an electronic library, what keywords would you use? Propose three distinct keyword searches.
Q2) Which of the following is not a commercial tax service?
A) RIA Federal Tax Coordinator 2d
B) CCH Federal Tax Services
C) BNA Tax Management Portfolios
D) Cumulative Bulletin
Q3) A keyword search using an electronic database is part of which step in the research process?
A) Understand the client's transaction and ascertain the facts
B) Identify the tax issues, problems, or opportunities suggested by the facts and formulate specific research questions
C) Locate relevant tax law authority
D) Analyze relevant authority and answer the research questions
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Chapter 6: Taxable Income from Business Operations
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115 Verified Questions
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Sample Questions
Q1) Why does the federal tax law disallow a business deduction for a fine or penalty paid to any government?
A) A deduction for the payment of a fine or penalty would be a subsidy for bad behavior and also against public policy.
B) The payment of a fine or penalty is not an ordinary business expense.
C) The payment of a fine or penalty is not an expense for financial reporting purposes.
D) A deduction for the payment of a fine or penalty would distort the measurement of taxable income.
Q2) A corporation can't have an increase in deferred tax assets and an increase in deferred tax liabilities in the same year.
A)True
B)False
Q3) Taxpayers that sell merchandise to their customers must use the accrual method as their overall method of accounting.
A)True
B)False
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Chapter 7: Property Acquisitions and Cost Recovery
Deductions
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Sample Questions
Q1) Which of the following statements about tax basis is false?
A) The tax basis in an asset can never be negative.
B) Tax basis represents the taxpayer's unrecovered dollars invested in the asset.
C) Tax basis reflects the asset's fair market value.
D) Every asset owned by the taxpayer has a tax basis.
Q2) Conant Company purchased only one item of tangible personalty in 2018. The cost of the item was $2,539,700. Conant can elect to expense $1,000,000 of this cost.
A)True
B)False
Q3) KJD Inc., a calendar year corporation, purchased $923,000 of equipment on November 13. This was KJD's only purchase of tangible personalty this year. KJD must use a midquarter convention to compute MACRS depreciation on the equipment.
A)True
B)False
Q4) The MACRS calculation ignores any salvage or residual value of an asset.
A)True
B)False
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Chapter 8: Property Dispositions
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Sample Questions
Q1) Norbett Inc. generated $15,230,000 ordinary taxable income and realized a $238,000 net capital loss on the sale of marketable securities this year. Which of the following statements is false?
A) Norbett's net income per books includes the $238,000 net capital loss.
B) Norbett's taxable income is $15,230,000.
C) The $238,000 net capital loss is a favorable book/tax difference.
D) The $238,000 net capital loss is a temporary book/tax difference.
Q2) A corporation can use the installment sale method of accounting for both book and tax purposes.
A)True
B)False
Q3) Mrs Beld sold marketable securities with a $79,600 tax basis to her daughter for $60,000 cash. Two years later, the daughter sold the securities through her broker for $93,000. Compute the daughter's gain recognized on sale.
A) $13,400
B) $19,600
C) $33,000
D) None of the above
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Chapter 9: Nontaxable Exchanges
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105 Verified Questions
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Sample Questions
Q1) A taxpayer who receives boot in a nontaxable exchange must recognize gain equal to the lesser of the FMV of the boot or the gain realized.
A)True
B)False
Q2) A flood destroyed a business asset owned by Boochi Company. Boochi's adjusted tax basis in the asset was $87,100. Six months after the flood, Boochi used its $100,000 insurance settlement to replace the asset. Boochi can recognize a $12,900 gain or it can elect to defer gain recognition.
A)True
B)False
Q3) Determine Mrs Brinkley's realized and recognized gain on the exchange and the tax basis in her 4,200 M&W shares.
A) $228,500 gain realized and recognized; $340,200 basis in M&W shares
B) $228,500 gain realized and recognized; $111,700 basis in M&W shares
C) $228,500 gain realized and no gain recognized; $111,700 basis in M&W shares
D) None of the above
Q4) Tax neutrality for asset exchanges is the exception rather than the rule.
A)True
B)False
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Chapter 10: Sole Proprietorships
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Sample Questions
Q1) Which of the following amounts are not subject to self-employment tax?
A) General partner's share of partnership income
B) Limited partner's share of partnership income
C) Sole proprietor's income from business activity
D) Guaranteed payment to general partner
Q2) Loretta withdraws $100,000 cash from the S corporation each year. As a result of an audit, the IRS asserts that $75,000 of the cash withdrawal should be considered a salary payment to Loretta. What are the payroll tax consequences of this recharacterization?
A) No payroll taxes will be owed as a result of the audit.
B) Loretta and Country Collectibles will each be liable for unpaid payroll taxes as a result of the audit.
C) Only Loretta will be liable for unpaid payroll taxes as a result of the audit.
D) Only Country Collectibles will be liable for unpaid payroll taxes as a result of the audit.
Q3) Corporations cannot be shareholders in an S corporation.
A)True
B)False
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Page 12
Chapter 11: The Corporate Taxpayer
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Sample Questions
Q1) Corporation F owns 95 percent of the outstanding stock of Corporation G. This year, the corporations' records provide the following information:
a. Compute each corporation's taxable income if they file separate tax returns.
b. Compute consolidated taxable income if Corporation F and Corporation G file a consolidated tax return.
Q2) A significant advantage of issuing stock instead of debt is that payment of dividends is discretionary.
A)True
B)False
Q3) Liston, Inc. had taxable income of $1 million for calendar year 2018. Compute Liston's regular tax liability.
A) $340,000
B) $350,000
C) $210,000
D) $200,000
Q4) Corporations are rarely targeted in political debates over taxation.
A)True
B)False
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Chapter 12: The Choice of Business Entity
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Sample Questions
Q1) Which of the following statements regarding the accumulated earnings tax is true?
A) The accumulated earnings tax is imposed instead of the regular corporate income tax.
B) The accumulated earnings tax is intended to coerce corporations to pay dividends.
C) The accumulated earnings tax is calculated by the corporation and paid on its annual corporate income tax return.
D) All of the above statements are true.
Q2) Chou, who is in the 37 percent marginal tax bracket, is the sole shareholder of Liu Corporation. This year, Liu earned $200,000 of taxable income and distributed $50,000 to Ms. Chou. Calculate the combined tax cost for Liu and Ms. Chou.
A) $42,000
B) $60,500
C) $74,000
D) $52,000
Q3) Typical family-owned businesses are operated as passthrough entities.
A)True
B)False
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14
Chapter 13: Jurisdictional Issues in Business Taxation
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Sample Questions
Q1) Which of the following would qualify as a permanent establishment for income tax treaty purposes?
A) The presence of corporate employees in the host country for a limited time period.
B) Shipment of goods by the foreign corporation to customers in the host country.
C) Maintenance of a sales office in the host country.
D) All of the above would qualify as a permanent establishment.
Q2) Tradewinds is a Bermuda corporation that is 100% owned by Larkin, a U.S. corporation. Which of the following transactions generates subpart F income for U.S. tax purposes?
A) Tradewinds manufactures costume jewelry in Bermuda and sells the jewelry to Larkin for distribution in the United States and Canada.
B) Tradewinds manufactures costume jewelry at its plant in Mexico and sells the jewelry to Larkin for distribution in the United States and Canada.
C) Tradewinds purchases costume jewelry from a related supplier in China and sells the jewelry at retail in Bermuda.
D) None of the above generates subpart F income.
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Chapter 14: The Individual Tax Formula
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Sample Questions
Q1) Mr and Mrs Daniels, ages 45, and 42, had the following income items in 2018: Salaries and wages
\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) \(\quad\)\(\quad\)$ 122,500
Interest income
\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) \(\quad\)\(\quad\)\(\quad\)\(\quad\)6,300
Dividends eligible for 15% rate \(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) \(\quad\) 4,000
Capital gain eligible for 15% rate \(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)1,900
Mr and Mrs Daniels have no dependents and claim the standard deduction. Compute their income tax liability on a joint return.
A) $15,820
B) $19,978
C) $22,348
D) None of the above.
Q2) Adjusted gross income equals total income less itemized deductions.
A)True
B)False
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Page 16
Chapter 15: Compensation and Retirement Planning
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Sample Questions
Q1) Jason, a single individual, is employed by KLD Inc. but doesn't participate in any employer-sponsored retirement plan. Jason's annual contribution to his Roth IRA is deductible.
A)True
B)False
Q2) On June 30, 2015, Kelso Inc., a calendar year corporation, issued 2,000 shares of its publicly traded stock as compensation to its employee, Nick Penn. On date of issuance, the stock's fair market value was $13,500. Under the terms of his 2015 compensation contract, Mr Penn couldn't dispose of the stock before February 1, 2019, and if he terminated his employment with Kelso before that date, he had to forfeit the stock back to Kelso. On February 1, 2019, the fair market value of the 2,000 shares was $20,000. Which of the following statements is true?
A) If Mr. Penn elected to recognize income with respect to the restricted stock in 2015, Kelso was allowed to deduct $13,500 as employee compensation in 2015.
B) Kelso was allowed to deduct $13,500 as employee compensation in 2015.
C) Kelso is allowed to deduct $20,000 as employee compensation in 2019.
D) None of the above is true.
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Page 17
Chapter 16: Investment and Personal Financial Planning
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Sample Questions
Q1) Up to $100,000 of loss recognized on the sale of Section 1244 stock by a married individual filing a joint return is characterized as ordinary loss.
A)True
B)False
Q2) Which of the following statements about the federal gift tax is false?
A) The tax is imposed on the donor.
B) The tax is based on the fair market value of the gifted property.
C) An individual can give away $10 million (adjusted for inflation) every year without being subject to tax.
D) The donor's basis in the gifted property carries over to become the donee's basis.
Q3) The interest earned on investments in U.S. debt obligations is subject to state taxation.
A)True B)False
Q4) All gratuitous transfers of property are subject to gift tax.
A)True
B)False
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18
Chapter 17: Tax Consequences of Personal Activities
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Sample Questions
Q1) Mr and Mrs Allen made the following interest payments. Determine their deduction for each payment.
a. $28,000 on a $400,000 acquisition mortgage secured by their personal residence
b. $5,000 on a $60,000 second mortgage secured by their personal residence. The Allens used the proceeds to pay off credit card debt and take a second honeymoon.
c. $2,400 on credit card debt
d. $1,500 on a bank loan incurred to purchase a new family car
e. $1,890 on an unsecured bank loan incurred to pay for a new roof on their personal residence
Q2) Which of the following government transfer payments is included in the recipient's gross income?
A) Food stamps
B) Need-based welfare payments
C) Unemployment compensation
D) None of the above is included.
Q3) Unemployment benefits are excluded from gross income.
A)True
B)False
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Chapter 18: The Tax Compliance Process
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Sample Questions
Q1) Mr Braco is an enrolled agent who prepares tax returns for a living. In preparing Mr and Mrs Colter's Form 1040, Mr Braco claimed a deduction based on an unreasonable legal position. Mr Braco's compensation for the return was $3,800. What is the consequence to Mr Braco if the IRS disallows the deduction?
A) The IRS can terminate Mr. Braco's status as an enrolled agent.
B) The IRS can impose a $1,900 penalty on Mr. Braco.
C) The IRS can impose a negligence penalty on the Colters but can't penalize Mr. Braco.
D) The IRS can impose a civil fraud penalty on Mr. Braco.
Q2) In which of the following is not a condition for relief of liability under the innocent spouse rule?
A) The deficiency must be attributable to erroneous items of the person's spouse.
B) The person must establish that in signing the return he or she did not know, and had no reason to know, that the return understated the correct tax.
C) Taking into account all the facts and circumstances, it is inequitable to hold the person liable for the deficiency.
D) The person is divorced from or in the process of divorcing their spouse.
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