Taxation in the United States Study Guide Questions
Course Introduction
This course offers a comprehensive overview of the principles, structure, and application of federal, state, and local taxation in the United States. Emphasizing the Internal Revenue Code, it explores the taxation of individuals, corporations, partnerships, and other entities, focusing on income, deductions, credits, and tax compliance. Students will analyze tax policies, ethical considerations, and the impact of taxation on decision-making for both individuals and businesses. Additional topics include tax planning, recent legislative developments, and the administrative procedures of the Internal Revenue Service (IRS). Through case studies and practical examples, learners gain the foundational knowledge essential for tax-related professions or further study in accounting and law.
Recommended Textbook
Concepts in Federal Taxation 2018 25th Edition by Kevin
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16 Chapters
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E. Murphy
Page 2
Chapter 1: Conceptual Foundations of Tax Law
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Sample Questions
Q1) The return selection program designed to select returns with the highest probability of errors is
A)The TCMP.
B)The DIF program.
C)The special audit program.
D)The document perfection program.
E)The information-matching program.
Answer: B
Q2) Pay-as-you-go withholding is consistent with Adam Smith's criteria of
A)Certainty.
B)Convenience.
C)Economy.
D)Fairness.
E)Transparency.
Answer: B
Q3) Horizontal equity exists when two similarly situated taxpayers are taxed the same.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Income Tax Concepts
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Sample Questions
Q1) The IRS has a penalty for underpayment of estimated taxes.This penalty exists because of which of the following concepts,constructs,or doctrines?
A)Pay-As-You-Go.
B)Tax Benefit Rule.
C)Substance-Over-Form.
D)Administrative Convenience.
E)Ability-To-Pay.
Answer: A
Q2) Which of the following is a taxable entity?
A)Sole Proprietorship.
B)Partnership.
C)S Corporation.
D)C Corporation.
Answer: D
Q3) At what three points in time might a given expenditure be deductible?
Answer: 11ea8564_c7f5_09ad_9aec_d953679c751c_TB1197_00
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Page 4
Chapter 3: Income Sources
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Sample Questions
Q1) Elizabeth sells a painting that has a fair market value of $9,000 to Jonathan for $6,000.Which of the following statements about the tax effect of the sale is/are correct?
I.If Elizabeth is an art dealer and she sold the painting to Jonathan because she needed cash quickly,Jonathan does not recognize any income from the sale.
II.If Jonathan owns 60% of Elizabeth's company,Jonathan does not recognize any income from the sale.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: A
Q2) The holding period for receiving long-term capital gain treatment is more than 12 months.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Income Exclusions
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Sample Questions
Q1) Bob and Linda purchased their vacation home in 2014 for $400,000.They financed the purchase with a $350,000 mortgage.In 2017,they fall upon hard times and cannot make the mortgage payments,and their mortgage is foreclosed.The mortgage company sells the house for $300,000.At the time of the sale,the mortgage balance is $325,000.The mortgage company cancels the remaining debt on the mortgage.How much income do Bob and Linda have from the cancellation of the remaining debt on their home?
A)$- 0 -
B)$25,000
C)$75,000
D)$100,000
Q2) Systech offered its stockholders a choice between stock and cash for their annual dividend.Since Carol has chosen stock,she does not have to include the dividend in income.
A)True
B)False
Q3) Gifts received are not subject to income taxation;however the donor is subject to the gift tax rules on the making of a gift.
A)True
B)False
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Page 6
Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) Bonnie's sister,Diane,wants to open a restaurant.Because Diane is short of funds,Bonnie purchases the building and leases it to Diane.No agreement is signed,and Bonnie tells Diane not to worry about paying rent until the cash flow can support it.Also,Bonnie promises not to sell the property to anyone other than Diane.
I.Any expenditures Bonnie makes regarding the building would be classified as production of income expenses.
II.The building rental has the characteristics of a gift.
III.The dominant motive in acquiring the building is to earn an economic benefit (profit).
IV.Bonnie's property tax expenses related to the property are deductible.
A)Only statement II is correct.
B)Only statement III is correct.
C)Statements I,II,and IV are correct.
D)Statements II and IV are correct.
E)Statements I,II,III,and IV are correct.
Q2) Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.
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Page 7
Chapter 6: Business Expenses
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Sample Questions
Q1) Charlie is single and operates his barber shop as a sole proprietorship.During the current year,Charlie paid $2,200 for his personal health insurance plan and $4,000 for health insurance for his employees.How much of these premiums can be deducted for Charlie's adjusted gross income?
A)$- 0 -
B)$2.200
C)$4,000
D)$5,100
E)$6,200
Q2) Carlos is single and has a 7 year-old child.Carlos' adjusted gross income for the year is $101,000.The maximum amount he can contribute to his child's Coverdell Education Savings Account is
A)$- 0B)$800
C)$1,200
D)$2,000
E)$4,000
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Chapter 7: Losses -- Deductions and Limitations
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Sample Questions
Q1) An operating loss occurs when an entity's deductions exceeds the income generated for the period.
A)True
B)False
Q2) Olivia sells some stock she purchased several years ago for $9,000 to her brother Jack for $12,000.One year later Jack sells the stock for $15,000.The tax consequences to Olivia and Jack are:
Olivia Jack
A)$3,000 gain
$3,000 gain
B)No gain or loss $6,000 gain
C)No gain or loss $3,000 gain
D)$3,000 gain $6,000 gain
E)No gain or loss No gain or loss
Q3) Virginia owns a business that rents power equipment to construction companies.Despite maintaining,delivering,and picking up the equipment,Virginia's business is passive since it is a rental activity.
A)True
B)False
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Chad pays $2,000 of interest on $20,000 of debt incurred for the purchase of municipal bonds and corporate bonds.Chad receives $800 of interest on the municipal bonds and $800 of interest on the corporate bonds.What is his allowable deduction on the $2,000 of interest? Explain your answer and show all calculations.
Q2) Debra and Ken refinance their personal residence on July 1,2017.They borrow $96,000 over a 20-year period and paid points of $1,920.For 2017,what amount of the points is deductible?
A)$- 0 -
B)$48
C)$96
D)$480
E)$960
Q3) Federal quarterly estimate of $3,000 paid by a self-employed taxpayer.
A)Not Deductible
B)Deductible - For AGI
C)Deductible - From AGI
Q4) Discuss why the distinction between deductions for adjusted gross income and deductions from adjusted gross income is important for individual taxpayers.
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Page 10
Chapter 9: Acquisitions of Property
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Sample Questions
Q1) If the executor of a decedent's estate elects the alternate valuation date and none of the estate's property is sold or distributed before the alternate date,the estate's assets are valued as of how many months after the date of death?
A)0,date of death is the correct valuation date.
B)3 months.
C)6 months.
D)9 months.
E)12 months.
Q2) Lydia purchased a sapphire bracelet for $3,000 while vacationing in Hong Kong during 2005.Lydia gives the bracelet to her daughter Amy when she graduates from college in 2017.The bracelet is appraised at $8,000 on that date.In October 2017,Amy sells the bracelet for $9,000.How is Amy's holding period for the bracelet determined?
A)It depends on whether a gift tax was paid at the time of the gift.
B)It begins in 2005.
C)It begins in 2017.
D)It is irrelevant because the transfer was a gift and gifts are always considered to be held long-term.
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Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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Sample Questions
Q1) Carolyn purchases a new delivery truck (5-year MACRS property)costing $508,000 for use in her floral business on January 5,2017.If Carolyn's taxable income from the floral business before any special elections is $8,000 for 2017,what is her maximum allowable cost recovery on the delivery truck in 2017?
A)$-0-
B)$8,000
C)$108,000
D)$500,000
E)$508,000
Q2) Shannon purchases equipment classified as 3-year property on December 19,2076,at a cost of $100,000.Section 179 is not elected and Shannon does not use the straight-line method.Shannon purchased no other depreciable property in 2017.What is the amount of the MACRS depreciation deduction for 2017?
A)$5,000
B)$8,330
C)$20,000
D)$33,333
Q3) Why would a taxpayer ever elect to use the alternative depreciation system (ADS)rather than the MACRS?
Page 12
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Chapter 11: Property Dispositions
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Sample Questions
Q1) In July 2017,Hillary sells a stamp from her stamp collection at a gain of $500.Hillary purchased the stamp in 2010.If Hillary is in the 25% marginal tax rate bracket and has no other capital asset sales in 2017,what is her tax on the sale of the stamp?
A)$- 0 -
B)$25
C)$50
D)$75
E)$125
Q2) Joyce receives investment property from her mother as a gift in 2017.Her mother paid $15,000 for the property in 2011,and it is valued at $18,000 on the date of the gift.Joyce sells the property eight months later for $16,000.Joyce's realized gain or loss is
A)$1,000 loss
B)$2,000 loss
C)$1,000 gain
D)$2,000 gain
E)$16,000 gain
Q3) What incentive provisions or preferential treatments exist for capital gains?
Q4) Discuss the general differences between Section 1245 and Section 1250 property.
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Page 13
Chapter 12: Nonrecognition Transactions
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Sample Questions
Q1) A personal residence for a vacation home.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q2) The general mechanism used to defer gains and losses from a transaction includes certain adjustments to the basis of the replacement property.These adjustments include I.subtracting deferred losses.
II.adding deferred gains.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Office building for office equipment.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q4) Computer for delivery truck.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
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Chapter 13: Choice of Business Entity -- General Tax and
Nontax Factorsformation
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Sample Questions
Q1) A new corporation's choice for its annual accounting period I.must be approved by the IRS.
II.must be the same as its majority shareholder.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Moses is a 20% partner in an auto parts store where he works full-time.His share of the partnership income is $70,000,which is also his net-self-employment income.
I.Moses must pay self-employment tax at the rate of 15.3% on 92.35% of the partnership income.
II.Moses is allowed a deduction for AGI for 50% of the self-employment tax he pays during the year.
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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Chapter 14: Choice of Business Entity -- Operations and Distributions
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Sample Questions
Q1) Owner basis adjusted for liabilities
A)Sole Proprietorship.
B)Partnership.
C)Corporation.
D)S Corporation.
Q2) Boston Company,an electing S corporation,has an operating loss of $400,000 for the current year.Hank owns a 40% interest in the company and is a material participant.At the beginning of the year,Hank's adjusted basis in the stock is $30,000.During the year the company borrows $100,000 with a recourse note.How much of the loss can Hank deduct on his current-year income tax return?
A)$- 0 -
B)$ 30,000
C)$ 70,000
D)$160,000
E)$200,000
Q3) A sole proprietor may deduct investment interest and investment expense without limitations if investments are made in the name of the business.
A)True
B)False
Page 16
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Chapter 15: Choice of Business Entity -- Other Considerations
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Sample Questions
Q1) Which of the following is (are)AMT tax preference item(s)?
I.Net operating loss deduction.
II.Exclusion of gain on qualified small business stock.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Kelly purchases a warehouse for her sole proprietorship on January 5,2017 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
Q3) Any structure over 100 years old is eligible for the rehabilitation tax credit.
A)True
B)False
Page 17
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Chapter 16: Tax Research
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Sample Questions
Q1) The initial appeal from the U.S.Court of Federal Claims is to the A)U.S.District Court.
B)U.S.Tax Court.
C)U.S.Supreme Court.
D)U.S.Court of Appeals for the Federal Circuit.
Q2) Dwayne is upset by an IRS agent's decision after an audit of Dwayne's tax return.Dwayne tells you,"I'm taking this case all the way to the Supreme Court." Comment on the appropriateness of Dwayne's statement.
Q3) Which of the following is a permanent citation?
I.Rev.Proc.84-33,1984-1 C.B.134.
II.Rev.Rul.92-83,I.R.B.No.14,6.
III.O'Neil v.Comm. ,44 TCM 843 (1989).
IV.Prop.Reg.Sec.1.283-4(c).
A)Only statement I is correct.
B)Statements I,II,and IV are correct.
C)Statements I and III are correct.
D)Statements II and III are correct.
E)Statements I,II,III,and IV are correct.
Q4) Describe the steps of the tax research process.
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