Tax Research Exam Bank
Course Introduction
Tax Research is a course designed to equip students with the skills necessary to identify, analyze, and resolve tax issues using authoritative sources of tax law. The course emphasizes the methodologies for conducting effective tax research, including the use of primary and secondary sources such as the Internal Revenue Code, Treasury Regulations, case law, and IRS rulings. Students learn to apply tax research tools and databases, evaluate the relevance and reliability of different sources, and effectively communicate their findings through professional tax memoranda and client letters. The course also covers ethical considerations and standards for tax practitioners, ensuring students are prepared to support decision-making in professional tax environments.
Recommended Textbook McGraw Hills Taxation of Individuals and Business Entities 7th Edition by Spilker
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25 Chapters
2779 Verified Questions
2779 Flashcards
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Chapter 1: An Introduction to Tax
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Sample Questions
Q1) Margaret recently received a parking ticket. This is a common example of a local tax.
A)True
B)False Answer: False
Q2) The tax base for the federal income tax is taxable income.
A)True
B)False Answer: True
Q3) Common examples of sin taxes include the taxes imposed on airline tickets and gasoline.
A)True
B)False
Answer: False
Q4) Estimated tax payments are one way the federal income tax system addresses the "certainty" criterion in evaluating tax systems.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Tax Compliance, the Irs, and Tax Authorities
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Sample Questions
Q1) For the following tax returns, identify the method the IRS likely used to select the return for audit.
a. Dan made a mistake in adding his income on his tax return.
b. Juanita failed to report her salary from her 2nd job on her tax return.
c. Michael and Venita deducted a relatively large amount of travel expenses on their tax return for their business. The travel expense is large relative to other taxpayers in similar businesses with similar levels of income.
d. Paul and Melissa recently went through a very nasty divorce. One of the issues was Paul's less than forthright accounting of his income in determining the appropriate level of alimony.
Answer: (a) Document perfection (b) Information matching (c) DIF system (d) Spousal tip.
Q2) Closed facts are especially conducive to tax planning.
A)True
B)False
Answer: False
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Chapter 3: Tax Planning Strategies and Related Limitations
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110 Verified Questions
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Sample Questions
Q1) If Rudy has a 25% tax rate and a 6% after-tax rate of return, a $30,000 tax deduction in four years will save how much tax in today's dollars (rounded)?
A) $30,000
B) $7,500
C) $28,290
D) $5,940
E) None of these
Answer: D
Q2) If tax rates are decreasing:
A) taxpayers should accelerate income
B) taxpayers should defer deductions
C) taxpayers should defer income
D) taxpayers should defer deductions and accelerate income
E) None of these
Answer: C
Q3) The goal of tax planning is tax minimization.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Individual Income Tax Overview, Exemptions, and Filing Status
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Sample Questions
Q1) For AGI deductions are commonly referred to as deductions "above the line."
A)True
B)False
Q2) In June of year 1, Edgar's wife Cathy died and Edgar did not remarry during the year. What is his filing status for year 1 (assuming they did not have any dependents)?
A) Married filing jointly
B) Single
C) Qualifying widower
D) Head of household
Q3) Taxpayers may prepay their tax liability through withholdings and through estimated tax payments.
A)True
B)False
Q4) What is the couple's gross income?
Q5) An individual may never be considered as both a qualifying relative and a qualifying child of the same taxpayer.
A)True
B)False
Q6) What is the couple's taxable income?
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Chapter 5: Gross Income and Exclusions
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Sample Questions
Q1) Andres has received the following benefits this year. \[\begin{array} { l r }
\text { Salary } & \$ 92,000 \\
\text { Contribution to qualified pension plan } & 10,200 \\
\text { Qualified health insurance premiums } & 8,400 \\
\text { Year-end bonus } & 15,000 \\
\text { Group-term life insurance premiums (face } = \$ 40,000 ) & 1,750 \\
\text { Whole life insurance premiums (face } = \$ 100,000 ) & 2,420 \\
\text { Disability insurance premiums } & 1,800
\end{array}\] Besides these benefits Andres missed work for two months due to an illness. During his illness Andres received $6,500 in sick pay from a disability insurance policy. Assume Andres has disability insurance provided by his employer as a nontaxable fringe benefit. What amount, if any, must Andres include in gross income this year?
Q2) Wendell is an executive with CFO Tires. At the beginning of this year the corporation loaned Wendell $50,000 at an interest rate of one percent. Wendell would have paid interest of $2,500 this year if the interest rate on the loan had been set at the prevailing Federal interest rate. Wendell used the funds as a down payment on a vacation home and during the year he paid $500 of interest to CFO. On December 31, CFO forgave the loan and remaining interest. What amount of gross income does Wendell recognize from the loan this year?
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Page 7
Chapter 6: Individual Deductions
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Sample Questions
Q1) Taxpayers traveling for the primary purpose of receiving essential and deductible medical care may deduct the cost of travel.
A)True
B)False
Q2) Which of the following taxes will not qualify as an itemized deduction?
A) personal property taxes assessed on the value of specific property.
B) state, local, and foreign income taxes.
C) real estate taxes on a residence.
D) gasoline taxes on personal travel.
E) None of these qualifies as an itemized deduction.
Q3) The deduction for investment interest in excess of the net investment income carries forward to the subsequent year.
A)True
B)False
Q4) Rental or royalty expenses are deductible "for" AGI.
A)True
B)False
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8
Chapter 7: Individual Income Tax Computation and Tax Credits
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Sample Questions
Q1) Miley, a single taxpayer, plans on reporting $27,900 of taxable income this year (all of her income is from a part-time job). She is considering applying for a second part-time job that would give her an additional $10,000 of taxable income. By how much will the income from the second job increase her tax liability (use the tax rate schedules)?
A) $1,000
B) $1,500
C) $1,600
D) $2,500
Q2) Which of the following is not one of the general tax credit categories?
A) Nonrefundable personal
B) Refundable personal
C) Business
D) Refundable business
Q3) Depending on the year, the original (unextended) due date for an individual's tax return may be before April 15.
A)True
B)False
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Page 9
Chapter 8: Business Income, Deductions, and Accounting Methods
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Sample Questions
Q1) Rock Island Corporation generated taxable income (before the domestic production activities deduction) of $10 million this year. The total income included $4,500,000 of qualified production activities income. The company paid $500,000 in W-2 wages to generate the qualified production activity income. What is Rock Island's domestic production activities deduction for the year?
Q2) Danny owns an electronics outlet in Dallas. This year he paid $600 to register for a four-day course in management in Chicago. Danny paid $800 in airfare and $1,000 for five nights lodging. After the course, Danny spent the last day sightseeing. During the trip, Danny also paid $140 a day for meals, and $80 a day for a rental car. What amount of these travel-related expenditures may Danny deduct as business expenses?
Q3) Crystal operates a business that provides typing and delivery services. This year Crystal spent $2,500 to purchase special shirts that identify her employees and provide some notoriety for her business. The shirts are especially colorful and include logos on the front pocket and back. Besides salary payments, Crystal also compensates her employees by offering to pay whole life insurance premiums for any that want to provide insurance coverage for their beneficiaries. This year Crystal paid $5,000 in life insurance premiums. What amount of these payments can Crystal deduct? Crystal is on the cash method and calendar year.
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Chapter 9: Property Acquisition and Cost Recovery
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Sample Questions
Q1) The 200 percent or double declining balance method is allowable for five and seven year property.
A)True
B)False
Q2) In 2014, Northern LLC placed in service on September 6th machinery and equipment (7-year property) with a basis of $2,200,000. Assume that Northern has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing (ignore any potential bonus expensing), rounded to the nearest whole number. Assume the 2013 §179 limits are extended to 2014.
Q3) Assume that Bethany acquires a competitor's assets on March 31st. The purchase price was $150,000. Of that amount, $125,000 is allocated to tangible assets and $25,000 is allocated to goodwill (a §197 intangible asset). What is Bethany's amortization expense for the current year, rounded to the nearest whole number?
A) $0
B) $1,250
C) $1,319
D) $1,389
E) None of these
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11
Chapter 10: Property Dispositions
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Sample Questions
Q1) Bateman Corporation sold an office building that it used in its business for $800,000. Bateman bought the building ten years ago for $600,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Bateman's gain or loss?
A) $40,000 ordinary and $360,000 §1231 gain.
B) $200,000 ordinary and $200,000 §1231 gain.
C) $400,000 ordinary gain.
D) $400,000 capital gain.
E) None of these.
Q2) Which one of the following is not true regarding a like-kind exchange?
A) Loss on like-kind property is not recognized.
B) Gains on boot given are deferred.
C) Losses on boot given are not recognized.
D) Securities can be like-kind with any other securities.
E) All of these.
Q3) Buzz Corporation sold an office building that it used in its business for $500,000. Buzz bought the building ten years ago for $650,000 and has claimed $200,000 of depreciation expense. What is the amount and character of Buzz's gain or loss?
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Chapter 11: Investments
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Sample Questions
Q1) What rate should be used when calculating the after-tax future value of investments with a constant rate of return that is taxed annually?
A) annual before-tax rate of return
B) annual after-tax rate of return
C) marginal tax rate
D) preferential tax rate
E) average tax rate
Q2) Unrecaptured §1250 gain is taxed at the 28 percent preferential capital gains rate. A)True
B)False
Q3) The Crane family recognized the following types of investment income during 20X6: (1) $1,500 qualified dividends, (2) $3,000 long-term capital gains, and (3) $850 taxable interest. Additionally, the Crane family has $500 in investment expenses and their other miscellaneous itemized deductions exceed 2% of their AGI for the year. The Crane family paid $3,333 in investment interest expense during 20X6. What is the best option for the Crane family if they want to maximize their deduction in 20X6 for investment interest expense? Show all possibilities.
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Page 13
Chapter 12: Compensation
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Sample Questions
Q1) An employee can indicate whether they want an additional amount withheld for payroll taxes on the Form W-4.
A)True B)False
Q2) Big Bucks paid its CEO $1,500,000 of compensation for the year. What is the after-tax cost of paying the salary assuming a 30 percent marginal tax rate?
Q3) Which of the following pairs of items is not needed to calculate the after-tax proceeds for a same-day sale?
A) Strike price and market price on exercise date.
B) Strike price and market price on grant date.
C) Market price on sale date and market price on exercise date.
D) Market price on sale date and marginal tax rate.
Q4) Group-term life insurance is a fringe benefit that can be partially taxable and partially tax free.
A)True B)False
Q5) Current compensation is usually comprised of salary, wages, and bonuses. A)True B)False
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Chapter 13: Retirement Savings and Deferred Compensation
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Sample Questions
Q1) When a taxpayer receives a nonqualified distribution from a Roth 401(k) account the taxpayer contributions are deemed to be distributed first. If the amount of the distribution exceeds the taxpayer contributions, the remainder is from the account earnings.
A)True
B)False
Q2) Shauna received a distribution from her 401(k) account this year. In which of the following situations will Shauna be subject to an early distribution penalty?
A) Shauna is 60 years of age but not yet retired when she receives the distribution.
B) Shauna is 58 years of age but not yet retired when she receives the distribution.
C) Shauna is 56 years of age and retired when she receives the distribution.
D) Shauna is 69 years of age but not yet retired when she receives the distribution.
Q3) In 2014, Tyson (age 22) earned $3,500 from his part-time job and he reported $15,000 of interest income (unearned income). Assuming he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution Tyson can make in 2014?
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Page 15
Chapter 14: Tax Consequences of Home Ownership
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Sample Questions
Q1) For determining whether a taxpayer qualifies to exclude gain on the sale of a principal residence, the periods of ownership and use need not be continuous nor do they need to cover the same two-year period.
A)True
B)False
Q2) Shantel owned and lived in a home for five years before marrying Daron. Shantel and Daron lived in the home for two years before selling it at a $700,000 gain. Shantel was the sole owner of the residence until it was sold. How much of the gain may Shantel and Daron exclude?
A) $0
B) $250,000
C) $500,000
D) $700,000
Q3) Jorge owns a home that he rents for 360 days and uses for personal purposes for five days. Jorge is not required to allocate expenses associated with the home between rental and personal use.
A)True
B)False
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Chapter 15: Entities Overview
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Sample Questions
Q1) An unincorporated entity with more than one owner is, by default, taxed as a partnership.
A)True
B)False
Q2) On which tax form does a single member LLCs with one individual owner report its income and losses?
A) Form 1120
B) Form 1120S
C) Form 1065
D) Form 1040, Schedule C
Q3) Which legal entity provides the least flexible legal arrangement for owners?
A) Corporation
B) LLC
C) Partnership
D) Sole Proprietorship
Q4) Tax rules require that entities be classified the same way for tax purposes as they are classified for legal purposes.
A)True
B)False
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Chapter 16: Corporate Operations
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Sample Questions
Q1) ValuCo gives you the following information: \[\begin{array} { | l | c | }
\hline \text { Current year items } & \text { Amount } \\
\hline \begin{array} { l }
\text { Interest from tax-exempt bonds funding a public } \\
\text { activity }
\end{array} & \$ 14,000 \\
\hline 70 \text { percent dividends received deduction } & \$ 60,000 \\
\hline 80 \text { percent dividends received deduction } & \$ 40,000 \\
\hline
\end{array}\] What is its ACE adjustment for the year? Is it favorable or unfavorable?
Q2) BTW Corporation has taxable income in the current year that can be offset with an NOL from a previous year. What is the nature of the book-tax difference created by the net operating loss carryover deduction in the current year?
A) Permanent; favorable
B) Permanent; unfavorable
C) Temporary; favorable
D) Temporary; unfavorable
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Page 18
Chapter 17: Accounting for Income Taxes
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Sample Questions
Q1) ASC 740 is the sole source of rules related to accounting for income taxes.
A)True
B)False
Q2) Irish Corporation reported pretax book income of $1,000,000 in 2014. Included in the computation were favorable temporary differences of $300,000, unfavorable temporary differences of $100,000, and favorable permanent differences of $200,000. Compute Irish's book equivalent of taxable income. Use this number to compute the company's total income tax provision or benefit for 2014, assuming a tax rate of 34%.
Q3) As part of its uncertain tax position assessment, Madison Corporation records interest and penalties related to its unrecognized tax benefits of $1,000,000. Which of the following statements about recording this amount is most correct?
A) Madison must record the expense separate from its income tax provision.
B) Madison can elect to include the expense as part of its income tax provision or record the expense separate from its income tax provision, provided the company discloses which option it chose.
C) Madison must record the expense in its income tax provision.
D) Madison does not record the expense until it is paid.
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Page 19
Chapter 18: Corporate Taxation: Nonliquidating Distributions
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Sample Questions
Q1) Buckeye Company is owned equally by James and his brother Terrelle, each of whom own 500 shares in the company. Terrelle wants to reduce his ownership in the company, and it was decided that the company will redeem 200 of his shares for $5,000 per share on December 31, 20X3. Terrelle's income tax basis in each share is $1,000. Buckeye has current E&P of $10,000,000 and accumulated E&P of $20,000,000. What is the amount and character (capital gain or dividend) recognized by Terrelle because of the stock redemption?
Q2) Brothers and sisters are considered "family" under the stock attribution rules that apply to stock redemptions.
A)True
B)False
Q3) Goose Company is owned equally by Val and her sister Eugenia, each of whom own 500 shares in the company. Val wants to reduce her ownership in the company and have the transaction treated as an exchange for tax purposes. Determine the minimum amount of stock that Goose must redeem from Val for her to treat the redemption as being "substantially disproportionate with respect to the shareholder" and receive exchange treatment.
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Page 20
Chapter 19: Corporate Formation, Reorganization, and Liquidation
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Sample Questions
Q1) Gain or loss is always recognized when realized for tax purposes.
A)True
B)False
Q2) Which of the following requirements do not have to be met in a section 351 transaction?
A) Each transferor of property must receive stock equal to at least 80 percent of the fair market value of the property transferred.
B) In the aggregate, the transferors of property to the corporation must collectively control the corporation immediately after the transfers.
C) Only property transferred to a corporation is eligible for deferral.
D) All transfers of property to a corporation must be made simultaneously to qualify for deferral.
Q3) Which of the following amounts is not included in the computation of a property's adjusted basis in an exchange?
A) Selling expenses incurred by the buyer
B) Acquisition cost of the buyer
C) Capital improvements made to the property by the buyer
D) Depreciation of the property by the buyer
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Chapter 20: Forming and Operating Partnerships
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Sample Questions
Q1) What is the difference between a partner's tax basis and at-risk amount?
Q2) Tim, a real estate investor, Ken, a dealer in securities, and Hardware, Inc., a retail lumber store form a partnership called HKT, LP. HKT is in the home building business. Tim recently purchased his interest in HKT while the other partners purchased their interest several years ago. During X3, HKT reports a $12,000 gain from the sale of a stock in a wholesale lumber company it purchased in X1 for investment purposes. Which of the following statements best represents how their portion of the gain should be reported to the partner?
A) Tim - Short-term capital gain
B) Ken - Ordinary Income
C) Hardware, Inc. - Long-term capital gain
D) All of these accurately report the gain to the partner
E) None of these accurately report the gain to the partner
Q3) Partnerships can use special allocations to shift built-in gains and built-in losses on contributed property from a partner who contributed the property to other partners.
A)True
B)False
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Page 22
Chapter 21: Dispositions of Partnership Interests and Partnership Distributions
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Sample Questions
Q1) Tyson is a 25% partner in the KT Partnership. On January 1, KT distributes $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000), and land with a fair value of $8,000 (inside basis of $12,000) to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in KT is $24,000. What is Tyson's basis in the distributed inventory and land?
A) $8,000 inventory, $12,000 land
B) $16,000 inventory, $8,000 land
C) $0 inventory, $8,000 land
D) $8,000 inventory, $0 land
Q2) Riley is a 50% partner in the RF Partnership and has an outside basis of $56,000 at the end of the year prior to any distributions. On December 31, Riley receives a proportionate operating distribution of $6,000 cash and a parcel of land with a $14,000 fair value and an $8,000 basis to RF. What is Riley's basis in the distributed property?
A) Cash $6,000, land $0
B) Cash $6,000, land $8,000
C) Cash $6,000, land $14,000
D) Cash $6,000, land $22,000
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Chapter 22: S Corporations
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Sample Questions
Q1) Like partnerships and C corporations, S corporations face several restrictions on using the cash method of accounting.
A)True
B)False
Q2) S corporations are not entitled to a dividends received deduction.
A)True
B)False
Q3) During the post-termination transition period, property distributions are tax-free to shareholders to the extent they do not exceed the corporation's AAA balance and the individual shareholder's basis in the stock.
A)True
B)False
Q4) Similar to an S corporation shareholder's stock basis, the AAA may not have a negative balance.
A)True
B)False
Q5) Losses not deductible due to the basis rules are carried over to future years. A)True
B)False
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Chapter 23: State and Local Taxes
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Sample Questions
Q1) Mighty Manny, Incorporated manufactures ice scrapers and distributes them across the midwestern United States. Mighty Manny is incorporated and headquartered in Michigan. It has product sales to customers in Illinois, Indiana, Iowa, Michigan, Minnesota, Wisconsin, and Wyoming. It has sales personnel only where discussed. Determine the state in which Mighty Manny does not have sales and use tax nexus given the following scenarios:
A) Mighty Manny has sales personnel that visit Minnesota. These sales employees follow procedures that comply with Public Law 86-272. The orders are received and sent to Michigan for acceptance. The goods are shipped by FedEx into Minnesota.
B) Mighty Manny's trucks drive through Nebraska to deliver goods to Mighty Manny's products to customers in other states.
C) Mighty Manny provides design services to another manufacturer located in Wisconsin. While the services are performed in Michigan, Mighty Manny's designers visit Wisconsin at least quarterly to deliver the new designs and receive feedback.
D) Mighty Manny receives online orders from its Illinois client. Because the orders are so large, the goods are delivered weekly on Mighty Manny's trucks.
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Chapter 24: The Us Taxation of Multinational Transactions
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Q1) Which statement best describes the U.S. framework for taxing non-U.S. persons on income earned from U.S. sources?
A) Income that is characterized as effectively connected income is subject to net taxation while income that is characterized as fixed and determinable, annual or periodic income is subject to a withholding tax applied to gross income.
B) Income that is characterized as effectively connected income is subject to a withholding tax applied to gross income while income that is characterized as fixed and determinable, annual or periodic income is subject to net taxation.
C) All U.S. source income is subject to net taxation, regardless of whether it is characterized as effectively connected or as fixed and determinable, annual or periodic income.
D) All U.S. source income is subject to a withholding tax applied to gross income, regardless of whether it is characterized as effectively connected or as fixed and determinable, annual or periodic income.
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Chapter 25: Transfer Taxes and Wealth Planning of the Cfa Institute
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Sample Questions
Q1) Grace transferred $800,000 into trust with the income to be paid annually to her spouse, Isaiah, for life and the remainder to Taylor. Calculate the amount of the taxable gifts from the transfers.
Q2) Tracey is unmarried and owns $7 million in stock and bonds. What is the result if Tracey dies this year and leaves all of her property to a qualified charity?
A) Tracey's gross estate will be zero.
B) Tracey's estate tax basis will be zero.
C) Tracey's taxable estate will be zero.
D) Tracey's estate will have a tentative estate tax of zero.
E) None of these.
Q3) Property inherited from a decedent has an adjusted basis equal to the value of the property included in the decedent's estate.
A)True
B)False
Q4) The gift-splitting election only applies to gifts made by taxpayers who reside in community property states.
A)True
B)False
Page 27
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