Tax Research Study Guide Questions
Course Introduction
Tax Research is a course designed to develop students abilities to identify, analyze, and resolve complex tax issues using primary and secondary tax authorities. The course emphasizes methods for effective tax research, including the use of IRS rulings, Treasury regulations, court decisions, and statutory law. Students will learn to navigate electronic tax research databases, critically evaluate sources, communicate research findings in both written and oral formats, and apply ethical standards in tax research and practice. Through practical case studies and problem-solving exercises, students will gain the skills necessary to provide accurate and defensible tax advice for individuals and businesses.
Recommended Textbook
Concepts in Federal Taxation 2014 21st Edition by Kevin E. Murphy
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Chapter 1: Federal Income Taxation - an Overview
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Sample Questions
Q1) A CPA may prepare tax returns using estimates provided by the taxpayer if it is impracticable to obtain exact data and the estimates are reasonable.
A)True
B)False
Answer: True
Q2) Frank and Fran are married and have a 2013 taxable income of $280,000.They also received $20,000 of tax-exempt income.Their average tax rate is:
A)23.1%
B)24.5%
C)25.3%
D)33.0%
E)35.0%
Answer: B
Q3) All tax practitioners are governed by the AICPA's Code of Professional Conduct. A)True
B)False
Answer: False
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Page 3
Chapter 2: Income Tax Concepts
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Q1) During the current year,Trane invests $35,000 in each of two separate corporations.Each investment gives him a 20% ownership interest.Brazil Corporation is a regular corporation that has taxable income of $200,000 and pays dividends totaling $50,000.China Corporation is an S corporation that has taxable income of $100,000 and pays $50,000 of dividends.As a result of these two investments,Trane
I.Has $40,000 of taxable income from Brazil Corporation.
II.Has $20,000 of taxable income from China Corporation.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: B
Q2) Which of the following is a taxable entity?
A)Sole Proprietorship.
B)Partnership.
C)S Corporation.
D)C Corporation.
Answer: D
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Chapter 3: Income Sources
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Sample Questions
Q1) Nathan loans $50,000 to Ramona on January 1 of the current year.The terms of the loan require Ramona to pay Nathan $5,000 per year on December 31 each year for the next 10 years (i.e.,no interest is charged on the loan).Assuming that the applicable federal rate is 6% and Ramona has total investment income of $1,200 during the current year:
I.If Ramona is Nathan's sister,Nathan must recognize $3,000 of interest income from the loan.
II.If Ramona is an employee of Nathan's,Nathan must recognize interest income of $3,000 and receives a deduction for compensation paid of $3,000.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: B
Q2) Net collectibles gains are taxed at a maximum rate of 25 percent.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Income Exclusions
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Q1) Ward and June are in the 28% tax bracket.Included in their assets is a Dell Corporation bond with a face value of $10,000.The bond pays $1,000 per year in interest.Ward and June gift the bond to their son,Wally (age 19),on January 1,2013.Wally is in the 10% tax bracket.Wally's taxable income from the receipt of the bond and the bond interest in 2013 is
A)$ -0-
B)$ 1,000
C)$ 1,500
D)$10,000
E)$11,000
Q2) Gordon's family health insurance costs $6,000 annually.Gordon and his wife are in the 28% marginal tax rate bracket.His employer offers a cafeteria plan that would allow him to cover the insurance premium.How much would the insurance coverage effectively cost if he took advantage of his employer's cafeteria plan?
A)$1,680
B)$3,000
C)$4,320
D)$5,000
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Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) Reasonable Expense
A)Specifically disallowed.
B)Appropriate and helpful.
C)Considered a trade or business.
D)Not considered a trade or business.
E)Problems with this generally arise with related parties.
F)This is met when services or property are provided to the taxpayer.
G)Normal, common, and accepted but not necessarily regularly recurring.
H)This is met when the existence and the amount of a liability have been established.
Q2) Active Trader
A)Specifically disallowed.
B)Appropriate and helpful.
C)Considered a trade or business.
D)Not considered a trade or business.
E)Problems with this generally arise with related parties.
F)This is met when services or property are provided to the taxpayer.
G)Normal, common, and accepted but not necessarily regularly recurring.
H)This is met when the existence and the amount of a liability have been established.
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Chapter 6: Business Expenses
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Sample Questions
Q1) In July of this year,Sam performs financial consulting services for William.On August 1,Sam sends William a bill for $1,200.As of September 30,Sam had not heard from William.After repeated efforts to collect the fee,Sam discovers in November that William has left the state and cannot be found.If Sam is an accrual basis taxpayer,for the current year he can deduct
A)$ - 0 -
B)A $800 ordinary loss
C)A $1,200 ordinary loss
D)A $1,200 short-term capital loss
E)A $1,200 long-term capital loss
Q2) Deductions for adjusted gross income include
I.Contribution to a Roth IRA.
II.Contribution to conventional IRA
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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8
Chapter 7: Losses: Deductions and Limitations
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Sample Questions
Q1) The wash sale provisions apply to which of the following?
I.Tom realizes an $8,000 loss on the June 17,2013,sale of 650 shares of Roadrunner Corporation common stock.He replaces the 650 shares with Hawke Inc.,stock on July 8,2013.
II.Rosie realizes a $6,000 loss on the December 29,2013,sale of 40 Billings corporate bonds.Each bond has a face value of $1,000.She replaces the Billings corporate bonds with 30 Redeemer corporate bonds,each with a face value of $1,000 on January 16,2014.The Redeemer bonds have the same interest rate,maturity date,but a different bond rating (AAA)as the Billings bonds.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Lu-Yin purchased her consulting business with $75,000 of her own funds and she borrowed $125,000 from the local bank.If she is personally responsible for the loan,she is at risk only for $50,000.
A)True
B)False
Q3) Why did Congress enact the at-risk rules?
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Page 9
Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Which of the following qualify for the medical expense deduction?
I.Over-the-counter cough medicine.
II.Chiropractic treatments.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Cory is a 32 years old,unmarried,and has no children.Cory's father lives in a nursing home.
I.Because Cory's father does not live in the same household,Cory cannot file as a head of household.
II.If his father's taxable income is less than $3,900 and the other dependency tests are met,Cory will file as head of household.
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 non-support test and the principle residence test to be a qualifying child.
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Chapter 9: Acquisitions of Property
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Q1) On February 3 of the current year,Samantha converts her house to a rental property.Samantha's adjusted basis in the house is $150,000 and the fair market value is $120,000 on the date of conversion.Samantha uses the rental for 3 years and properly deducts depreciation totaling $12,000.Then,she sells the house for $130,000.What is the amount of the gain or (loss)recognized on the sale?
A)No gain or loss
B)$ 8,000 gain
C)$20,000 loss
D)$22,000 gain
E)$ 8,000 loss
Q2) The general rule for determining the basis of inherited property is that the basis in the hands of the heir is its fair market value at the date of death or at the alternative valuation date.
A)True
B)False
Q3) Perry inherits stock from his Aunt Margaret that had a basis of $40,000 to Margaret and a fair market value of $54,000 on May 20,2013,the date of her death.Paul sells the stock on June 21,2013 for $65,000.What is the amount and character of the gain or loss on the sale?
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Page 11
Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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Sample Questions
Q1) Why would a taxpayer ever elect to use the alternative depreciation system (ADS)rather than the MACRS?
Q2) Amortization
A)Computers, and automobiles.
B)Used to recover the investment in intangible assets.
C)Used to recover the investment in long-lived tangible business-use assets.
D)An attempt to stimulate capital investment by small businesses.
E)Used to recover the investment in assets that waste away through extraction.
Q3) Rand Company purchases and places into service a company automobile costing $40,000 in April 2012.What is the 2012 depreciation deduction on the auto?
A)$ 2,960
B)$ 7,200
C)$ 8,000
D)$11,160
E)$40,000
Q4) MACRS applies to new and used depreciable personal property used for the production of income.
A)True
B)False
Page 12
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Chapter 11: Property Dispositions
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Sample Questions
Q1) When a taxpayer sells only a portion of the securities that they own,the average cost method is used to establish the cost basis for the shares sold.
A)True
B)False
Q2) Cathy owns property subject to a mortgage of $5,000.Annual real estate taxes are $800 and are due and payable on December 31.Cathy sells her property on July 1 of the current year.The buyer assumes her $5,000 mortgage,and Cathy agrees to finance the sale by taking a mortgage note of $50,000 and property valued at $7,500.The buyer agrees to pay the seller's portion of the property taxes.What is Cathy's amount realized?
A)$50,000
B)$57,500
C)$62,500
D)$62,900
E)$63,300
Q3) Discuss the general differences between Section 1245 and Section 1250 property.
Q4) Net collectibles gains are taxed at a maximum rate of 28%.
A)True
B)False
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Page 13
Chapter 12: Nonrecognition Transactions
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Sample Questions
Q1) The recognition of a loss realized on an involuntary conversion is mandatory.
A)True
B)False
Q2) Rosilyn trades her old business-use luxury car with an adjusted basis of $13,000 and an outstanding loan liability balance of $2,000 for a new business-use economy car valued at $9,000 plus $3,000 cash from Bob's Auto Sales and Loan Company.Bob assumes Rosilyn's loan balance.What is Rosilyn's amount realized on the transaction?
A)$ 3,000
B)$ 9,000
C)$12,000
D)$13,000
E)$14,000
Q3) A Cadillac automobile used 100% for business for a Ford Mustang automobile used 100% for business.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q4) Compare the deferral of recognition of losses resulting from an involuntary conversion with the deferrals for like-kind exchanges.
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Page 14
Chapter 13: Choice of Business Entity - General Tax and
Nontax Factorsformation
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Sample Questions
Q1) Continuity of life refers to whether an entity continues to operate or technically dissolves and ceases to exist in its present form when a change occurs in the ownership structure.
A)True B)False
Q2) Zeppo and Harpo are equal owners of the Marx Corporation.During the current year,they agree to admit Groucho as a shareholder.Groucho will contribute $35,000 in cash and property worth $75,000 (adjusted basis of $55,000)for 40% of Marx Corporation's stock.How much gain will Groucho recognize from the transfer of the assets to the corporation?
A)$ -0-
B)$20,000
C)$35,000
D)$55,000
E)$75,000
Q3) Does the selection of a corporate entity ever make sense based on a desire for lower marginal tax rates? Discuss.
Q4) Corporations generally are required to use the accrual method of accounting.
A)True B)False
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Chapter 14: Choice of Business Entity - Operations and Distributions
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Q1) Byron is a partner in the Dowdy Group.At the close of the current year,Byron's basis in the partnership is $34,000.At that time,the partnership distributes cash of $8,000 and property with a basis of $9,000 and a fair market value of $13,000 to each partner.What is Byron's basis in the partnership after the distribution?
A)$13,000
B)$17,000
C)$26,000
D)$34,000
Q2) Sensor Corporation was formed and began operations in 2011.For that year,it had operating income of $50,000,long-term capital gains of $25,000 and short-term capital losses of $10,000.In 2012,the corporation had $5,000 of net long-term capital losses,and in 2013 the corporation had $20,000 of net long-term capital losses.How much capital loss is available to carry forward to 2014?
A)$ - 0 -
B)$10,000
C)$15,000
D)$20,000
E)$25,000
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Chapter 15: Choice of Business Entity - Other
Considerations
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Sample Questions
Q1) Kelly purchases a warehouse for her sole proprietorship on January 5,2013 for $1,000,000.She claims MACRS depreciation of $25,641 for the year.The depreciation under the Alternative Depreciation System (ADS)is $25,000.What is the amount of Kelly's AMT adjustment for depreciation on the warehouse?
A)no adjustment is necessary
B)a positive $ 641
C)a negative $ 641
D)a positive $25,641
E)a negative $25,641
Q2) In 2013,Billie decides to purchase a house by withdrawing $15,000 from his IRA.Brandan qualifies as a first-time home- buyer.The $15,000 consists of $12,600 in nondeductible contributions and $2,400 in income earned on the plan's assets.Billie will have to pay an early withdrawal penalty of
A)$ -0-
B)$ 240
C)$ 500
D)$1,260
E)$1,500
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Chapter 16: Tax Research
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Sample Questions
Q1) The most important source of current federal income tax law is the A)Internal Revenue Code of 1986, as amended.
B)IRS.
C)U.S. Supreme Court.
D)U.S. Tax Court.
Q2) Which of the following is (are)secondary sources of tax law?
I.Tax Notes.
II.LEXIS.
III.RIA Federal Tax Citator.
IV.Tax Court Memorandum.
A)Statements I, II, and III are correct.
B)Statements I and II are correct.
C)Statements II and IV are correct.
D)Only statement IV is correct.
E)Only statement III is correct.
Q3) The Tax Court will not necessarily follow a U.S.Court of Appeal decision unless the taxpayer lives in the geographic jurisdiction of the appellate court.
A)True
B)False
Q4) Describe the steps of the tax research process.
Page 18
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