Tax Research and Practice
Exam Questions
Course Introduction
Tax Research and Practice provides students with a comprehensive understanding of the tools and techniques used in researching complex tax issues. The course emphasizes the use of primary and secondary tax authorities, interpretation of statutes, regulations, and judicial decisions, and the application of research methodology to real-world tax scenarios. Students will develop practical skills in identifying, locating, and assessing pertinent tax information, as well as communicating research findings effectively through written memoranda and client correspondence. Case studies and ethical considerations are integrated to prepare students for professional tax practice in a dynamic regulatory environment.
Recommended Textbook
McGraw Hills Taxation of Individuals 2018 Edition 9th Edition by Spilker Brian C
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1589 Verified Questions
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Chapter 1: An Introduction to Tax
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Sample Questions
Q1) Property taxes may be imposed on both real and personal property.
A)True
B)False
Answer: True
Q2) The two components of the tax calculation are the tax rate and the taxpayer's status.
A)True
B)False Answer: False
Q3) Which of the following is considered a tax?
A) Tolls
B) Parking meter fees
C) Annual licensing fees
D) A local surcharge paid on retail sales to fund public schools
E) Entrance fees paid at national parks
Answer: D
Q4) Excise taxes are typically levied on the value of a good purchased.
A)True
B)False Answer: False
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Chapter 2: Tax Compliance, The IRS and Tax Authorities
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Sample Questions
Q1) The tax return filing requirements for individual taxpayers only depend on the taxpayer's filing status.
A)True
B)False
Answer: False
Q2) Generally,code sections are arranged (grouped together):
A) chronologically.
B) by topic.
C) randomly.
D) by length.
E) None of the choices are correct.
Answer: B
Q3) Which of the following is not considered a secondary authority?
A) Text book.
B) Private Letter Ruling.
C) Tax article.
D) Tax service.
E) None of the choices are correct.
Answer: B
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Page 4
Chapter 3: Tax Planning Strategies and Related Limitations
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Sample Questions
Q1) Which of the following is an example of the income shifting strategy?
A) A corporation paying its shareholders a $20,000 dividend.
B) A corporation paying its owner a $20,000 salary.
C) A high tax rate taxpayer investing in tax exempt municipal bonds.
D) A cash-basis business delaying billing its customers until after year end.
E) None of the choices are correct.
Answer: B
Q2) If Joel earns a 10% after-tax rate of return,$10,000 received in two years is worth how much today? Use Exhibit 3.1 in the text.(Round present and future value amounts to 3 places)
A) $10,000.
B) $9,090.
C) $8,260.
D) $11,000.
E) None of the choices are correct.
Answer: C
Q3) The present value concept becomes more important as interest rates increase.
A)True
B)False
Answer: True
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Chapter 4: Individual Income Tax Overview, Exemptions, and Filing Status
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Sample Questions
Q1) Sam and Tacy have been married for 25 years.They have filed a joint return every year of their marriage.They have two sons Christopher and Zachary.Christopher is 19 years old and Zachary is 14 years old.Christopher lived in his parents' home from January through August and he lived in his own apartment from September through December.During the year,Christopher attended college for one month before dropping out.Christopher's living expenses totaled $12,000 for the year.Of that,Christopher paid $5,000 from income he received while working a part time job.Sam and Tacy provided the remaining $7,000 of Christopher's support.Zachary lived at home the entire year and did not earn any income.How many personal and dependency exemptions are Sam and Tacy entitled to claim for the year and for whom are they allowed to claim the exemption(s)?
Q2) If no one qualifies as the dependent of an unmarried taxpayer,the unmarried taxpayer may still be able to qualify for the head of household filing status.
A)True
B)False
Q3) The character of income is a factor in determining the rate at which the income is taxed.
A)True
B)False
Page 6
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Chapter 5: Gross Income and Exclusions
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Sample Questions
Q1) Interest earned on a city of Denver bond is excluded from gross income (for federal tax purposes).
A)True B)False
Q2) Constructive receipt represents the principle that cash basis taxpayers will be taxed on income when it is made available to them without substantial restrictions.
A)True
B)False
Q3) This year Ed celebrated his 25 year as an employee of Designer Jeans Company.In recognition of his long and loyal service,the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus.What amount must Ed include in his gross income?
A) $2,250.
B) $2,000.
C) $250.
D) Zero if Ed offers to contribute his watch and bonus to a qualified charity.
E) Zero - all employee awards are excluded from gross income.
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Page 7
Chapter 6: Individual Deductions
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Sample Questions
Q1) Which of the following is a true statement?
A) Personal exemptions, but not dependency exemptions, are subject to phase-out.
B) A married filing joint taxpayer with AGI of $500,000 would not be able to deduct personal and dependency exemptions.
C) At most, only 80% of exemptions are subject to phase-out.
D) Itemized deductions, but not exemptions, are subject to phase-out.
E) None of the choices are true.
Q2) Which of the following is a true statement?
A) For purposes of the deduction for educational interest, an educational loan must be used to pay tuition to any type of school.
B) The maximum deduction for educational interest is $5,000 for married taxpayers filing jointly.
C) Self-employed taxpayers are not allowed to deduct health care premiums if the taxpayer is eligible to participate in their spouse's employer-provided health plan.
D) Self-employment taxes paid by self-employed taxpayers are deductible as business expenses.
E) All of the choices are true.
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Chapter 7: Investments
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Sample Questions
Q1) Unused investment interest expense:
A) expires after the current year.
B) is carried back two years.
C) is carried forward twenty years.
D) is carried forward indefinitely.
E) None of the choices are correct.
Q2) To qualify under the passive activity rental real estate exception,the taxpayer must (1)own at least 15 percent of the property and (2)participate in the process of making management decisions.
A)True
B)False
Q3) What is the tax treatment for qualified small business stock acquired in 2017 and held for more than five years and what is the tax treatment if held for less than five years?
Q4) What is the correct order of the loss limitation rules?
A) tax basis, at-risk amount, passive loss limits
B) at-risk amount, tax basis, passive loss limits
C) passive loss limits, at-risk amount, tax basis
D) tax basis, passive loss limits, at-risk amount
E) passive loss limits, tax basis, at-risk amount
Page 9
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Chapter 8: Individual Income Tax Computation and Tax Credits
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Sample Questions
Q1) Employees are not allowed to deduct FICA taxes they pay.
A)True
B)False
Q2) The wage base for which of the following taxes is capped?
A) Federal income.
B) Social Security.
C) Medicare.
D) Alternative minimum.
Q3) A marriage penalty occurs when a couple pays more taxes by filing a joint tax return than they would have paid had they filed married filing separate returns.
A)True
B)False
Q4) Taxpayers are not required to file a tax return unless their gross income passes a certain threshold.This threshold is generally the ________.
A) applicable standard deduction amount.
B) personal exemption amount.
C) twice the applicable standard deduction amount.
D) applicable standard deduction amount plus the personal exemption amount.
Page 10
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Chapter 9: Business Income, Deductions, and Accounting Methods
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Sample Questions
Q1) Sam operates a small chain of pizza outlets in Fort Collins,Colorado.In November of this year Sam decided to attend a two-day management training course.Sam could choose to attend the course in Denver or Los Angeles.Sam decided to attend the course in Los Angeles and take an eight-day vacation immediately after the course.Sam reported the following expenditures from the trip:
CourseTuition &nb sp; $2,500
Air
Fare &nb sp; 800
Hotel (10 nights) &nb sp;1,200
Rental car ( 10 days) 900 Meals ( 10 days) &nbs p; 1,500 What amount of travel expenditures can Sam deduct?
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Chapter 10: Property Acquisition and Cost Recovery
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Sample Questions
Q1) Jaussi purchased a computer several years ago for $2,200 and used it for personal purposes.On November 10 of the current year,when the fair market value of the computer was $800,Jaussi converted it to business use.What is Jaussi's tax basis for the computer?
Q2) Oksana started an LLC on November 2 of the current year.She incurred $30,000 of start-up costs.How much of the start-up costs can be immediately expensed for the year? How much amortization may Oksana deduct in the first year?
Q3) The MACRS depreciation tables automatically switch to the straight-line method when the straight-line method yields a higher annual depreciation amount than the declining balance method.
A)True
B)False
Q4) All taxpayers may use the §179 immediate expensing election on certain property.
A)True
B)False
Q5) The method for tax amortization is always the straight-line method.
A)True
B)False
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Chapter 11: Property Dispositions
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Sample Questions
Q1) Which of the following transactions results solely in §1245 gain?
A) Sale of machinery held for less than one year.
B) Sale of machinery held for more than one year and where the gain realized exceeds the accumulated depreciation.
C) Sale of machinery held for more than one year and where the accumulated depreciation exceeds the gain realized.
D) Sale of land held for more than one year and where the amount realized exceeds the adjusted basis.
E) None of the choices are correct.
Q2) Alexandra sold equipment that she uses in her business for $100,000.Alexandra bought the equipment two years ago for $90,000 and has claimed $25,000 of depreciation expense.What is the amount and character of Alexandra's gain or loss?
Q3) A loss realized for property destroyed in a hurricane is deferred under the involuntary conversion rules.
A)True
B)False
Q4) Explain whether the sale of a machine used in a trade or business that is sold at a loss generates an ordinary or capital loss?
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Page 13
Chapter 12: Compensation
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Sample Questions
Q1) Employees may exclude from income items such as occasional theatre tickets,t-shirts,or a Thanksgiving turkey.
A)True
B)False
Q2) Rick recently received 500 shares of restricted stock from his employer,Crazy Corporation,when the share price was $5 per share.Rick's restricted shares vested three years later when the market price was $12.Rick held the shares for a little more than a year after vesting and sold them when the market price was $15.What is the amount of Rick's compensation income if Rick made an election under section 83(b)when the stock was granted? Assuming a marginal tax rate of 30 percent,what is the amount of Rick's ordinary income amount and tax liability at the time of the income inclusion?
Q3) On Form W-4,an employee can only claim one allowance for each personal or dependency exemption that will be claimed on the employee's income tax return.
A)True
B)False
Q4) Leesburg paid its employee $200,000 of compensation for the year.What is the after-tax cost of paying the salary assuming a 30 percent marginal tax rate (ignore payroll taxes)?
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Page 14
Chapter 13: Retirement Savings and Deferred Compensation
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Sample Questions
Q1) Both employers and employees may contribute to defined contribution plans.However,the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.
A)True
B)False
Q2) Which of the following statements is true regarding distributions from Roth 401(k)accounts?
A) There are no minimum distribution requirements for distributions from Roth 401(k) accounts.
B) Qualified distributions are subject to taxation.
C) A taxpayer receiving a nonqualified distribution from a Roth 401(k) account may be taxed on a portion but not all of the distribution.
D) None of the choices is a true statement.
Q3) A SEP IRA is an example of a self-employed retirement account.
A)True
B)False
Q4) Taxpayers never pay tax on the earnings of a traditional 401(k)account.
A)True
B)False
Page 15
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Chapter 14: Tax Consequences of Home Ownership
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Sample Questions
Q1) Patrick purchased a home on January 1,year 1 for $600,000 by making a down payment of $100,000 and financing the remaining $500,000 with a 30-year loan,secured by the residence,at 6 percent.During year 1,Patrick made interest-only payments on the loan of $30,000.On July 1,year 1,when his home was worth $600,000 Patrick borrowed an additional $75,000 secured by the home at an interest rate of 8 percent.During year 1,he made interest-only payments on this loan in the amount of $3,000.What amount of the $33,000 interest expense Patrick paid during year 1 may he deduct as an itemized deduction?
A) $0.
B) $3,000.
C) $30,000.
D) $33,000.
Q2) On March 31,year 1,Mary borrowed $200,000 to buy her principal residence.Mary paid 3 points to reduce her interest rate from 6 percent to 5 percent.The loan is for a 30-year period.What is Mary's year 1 deduction for her points paid?
A) $50.
B) $150.
C) $4,500.
D) $6,000.
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Page 16