Taxation of Individuals Chapter Exam Questions
Course Introduction
This course provides an in-depth examination of the federal income tax system as it applies to individual taxpayers. Students will explore the foundational principles and concepts of tax law, including gross income determination, allowable deductions, exemptions, tax credits, and the calculation of taxable income. The course also covers tax planning strategies, compliance requirements, and the ethical considerations involved in tax practice. Emphasis is placed on practical application through case studies and the use of tax software, preparing students to handle common individual tax issues encountered in professional practice.
Recommended Textbook
South western Federal Taxation 2017 Comprehensive Edition 40th Edition by William
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Page 2
H. Hoffman
Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Q1) A Federal excise tax is still imposed on admission to theaters. A)True
B)False Answer: False
Q2) The Federal excise tax on cigarettes is an example of a proportional tax.
A)True
B)False
Answer: True
Q3) When Congress enacts a tax cut that is phased in over a period of years, revenue neutrality is achieved.
A)True
B)False
Answer: False
Q4) The states that impose a general sales tax also have a use tax.
A)True
B)False
Answer: True
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Chapter 2: Working With the Tax Law
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Q1) The test for whether a child qualifies for dependency status is first conducted under the qualified child requirement.
A)True
B)False
Answer: True
Q2) Which statement is incorrect with respect to taxation on the CPA exam?
A)The CPA exam now has only four parts.
B)There are no longer case studies on the exam.
C)A candidate may not go back after exiting a testlet.
D)Simulations include a four-function pop-up calculator.
E)None of the above are incorrect.
Answer: B
Q3) Which tax source may override a Regulation section?
A)Revenue Ruling.
B)Revenue Procedure.
C)U.S.tax treaty.
D)Technical Advice Memoranda.
E)None of the above.
Answer: C
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Chapter 3: Computing the Tax
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Q1) The kiddie tax does not apply as to a child whose earned income is more than one-half of his or her support.
A)True
B)False
Answer: True
Q2) In determining the filing requirement based on gross income received, both additional standard deductions (i.e., age and blindness) are taken into account.
A)True
B)False
Answer: False
Q3) Darren, age 20 and not disabled, earns $4,000 during 2012.Darren's parents cannot claim him as a dependent unless he is a full-time student.
A)True
B)False
Answer: True
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Chapter 4: Gross Income: Concepts and Inclusions
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Q1) Jake is the sole shareholder of an S corporation that earned $50,000 in 2012. The corporation was short on cash and therefore distributed only $15,000 to Jake in 2012. Jake is required to recognize $15,000 of income from the S corporation in 2012.
A)True
B)False
Q2) In 2004, Terry purchased land for $150,000. In 2012, Terry received $10,000 from a local cable television company in exchange for Terry allowing the company to run an underground cable across Terry's property. Terry is not required to recognize income from receiving the $10,000 because it was a return of his capital invested in the land.
A)True
B)False
Q3) The realization requirement gives an incentive to own assets that have increased in value and to sell assets whose value has decreased.
A)True
B)False
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Chapter 5: Gross Income: Exclusions
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Q1) Sonja is a United States citizen who has worked in Spain for the past 10 months.She received $5,000 a month as compensation.Her employer has offered to extend Sonja's contract to work in Spain for another 5 months at the same rate of pay.If she rejects the offer, she can return to the United States and receive the same salary.While working in Spain, she is subject to the Spain income tax, which is approximately 11% of her gross pay.The marginal tax rate on her income taxed in the United States is 25%.Compare Sonja's after-tax income assuming she remains in Spain with her after-tax income if she returns to the United States.
Q2) Carin, a widow, elected to receive the proceeds of a $150,000 life insurance policy on the life of her deceased husband in 10 installments of $17,500 each.Her husband had paid premiums of $60,000 on the policy. In the first year, Carin collected $17,500 from the insurance company.She must include in gross income:
A)$0.
B)$2,500.
C)$10,000.
D)$25,000.
E)None of the above.
Q3) What Federal income tax benefits are provided for college students?
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Chapter 6: Deductions and Losses: in General
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Q1) A salary that is classified as unreasonable by the IRS is disallowed as a deduction to the corporation.
A)True
B)False
Q2) Martha rents part of her personal residence in the summer for 3 weeks for $3,000.Anne rents all of her personal residence for one week in December for $2,500.Anne must include the $2,500 in her gross income whereas Martha is not required to include the $3,000 in her gross income.
A)True
B)False
Q3) For a vacation home to be classified in the personal/rental use category, what attributes must be present?
Q4) Which of the following cannot be deducted as a § 162 business expense?
A)Expenses of investing in rental property.
B)Charitable contributions made by a sole proprietorship.
C)Fines and penalties.
D)Only a.and c.cannot.
E)a., b., and c.cannot.
Q5) Under what circumstance can a bribe be deducted?
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Q1) For the year 2012, Amber Corporation has taxable income of $880,000, alternative minimum taxable income of $600,000, and qualified production activities income (QPAI) of $640,000. The total W-2 wages paid to employees engaged in qualified domestic production activities are $116,000. Amber's DPAD for 2012 is:
A)$54,000.
B)$57,600.
C)$58,000.
D)$79,200.
E)None of the above.
Q2) Research and experimental expenditures do not include expenditures for ordinary testing of materials for quality control.
A)True
B)False
Q3) If rental property is completely destroyed, the amount of the loss is the adjusted basis of the property at the time of the destruction reduced by $100 and 10% of AGI.
A)True
B)False
Q4) How is qualified production activities income (QPAI) calculated?
Page 9
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Chapter 8: Depreciation, Cost Recovery, Amortization, and Depletion
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Q1) The statutory dollar cost recovery limits under § 280F do not apply to all automobiles.
A)True
B)False
Q2) Discuss the effect on the cost recovery method of a taxpayer election if the uniform capitalization rules apply to a farming business.
Q3) Diane purchased a factory building on November 15, 1993, for $5,000,000.She sells the factory building on February 2, 2012.Determine the cost recovery deduction for the year of the sale.
A)$16,025.
B)$19,844.
C)$26,458.
D)$158,750.
E)None of the above.
Q4) The cost of a covenant not to complete for 20 years incurred in connection with the acquisition of a business is amortized over 20 years.
A)True
B)False
Q5) Discuss the reason for the inclusion amount with respect to leased automobiles.
Page 10
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Q1) A participant, who is age 38, in a cash or deferred arrangement plan [§ 401(k)] may contribute up to what amount in 2012?
A)$12,000.
B)$16,500.
C)$17,000.
D)$17,500.
E)None of the above.
Q2) An individual, age 40, who is not subject to the phase-out provision may contribute a deductible amount to a Roth IRA up to $5,000 per year in 2012.
A)True
B)False
Q3) Nick Lee is a linebacker for the Baltimore Ravens (a professional football club).During the football season he rents an apartment in a Baltimore suburb.The rest of the time he lives with his family in Ann Arbor (MI) and works at a local bank as a vice president in charge of public relations.Can Nick deduct his expenses while away from Ann Arbor? Explain.
Q4) In terms of income tax treatment, what is the difference between common law and statutory employees?
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Q1) Samuel, an individual who has been physically handicapped for a year, paid $15,000 for the installation of wheelchair ramps, support bars, railings, and widening doorways in his personal residence.These improvements increased the value of his personal residence by $4,000.How much of Samuel's expenditures qualify as a medical expense deduction (subject to the 7.5% floor)? Explain.
Q2) During the year, Eve (a resident of Billings, Montana) spends three consecutive weeks in Louisville, Kentucky.One week is spent representing the Billings First Christian Church at the national convention, and two weeks are spent vacationing with relatives.One third of Eve's travel expenses will qualify as a charitable deduction.
A)True
B)False
Q3) Contributions to public charities in excess of 50% of AGI may be carried back 3 years or forward for up to 5 years.
A)True
B)False
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Chapter 11: Investor Losses
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Q1) Tonya owns an interest in an activity (not real estate) that converted recourse financing to nonrecourse financing.Recapture of previously allowed losses is required if Tonya's at-risk amount is reduced below zero as a result of the debt restructuring.
A)True
B)False
Q2) Stan, a computer lab manager, earns a salary of $80,000 and receives $25,000 in dividends and interest during the year.In addition, he incurs a loss of $40,000 from an investment in a non-real estate passive activity.His at-risk amount in the activity at the beginning of the year is $55,000.What is Stan's adjusted gross income for this year?
A)$65,000.
B)$70,000.
C)$105,000.
D)None of the above.
Q3) Last year, Wanda gave her daughter a passive activity (adjusted basis of $80,000; fair market value of $160,000) with suspended losses of $20,000. In the current year, her daughter realizes income of $10,000 from the activity.What are the tax effects to Wanda and her daughter?
Q4) What special passive loss treatment is available to real estate activities?
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Chapter 12: Tax Credits and Payments
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Q1) During 2012, Barry (who is single and has no children) earned a salary of $13,000.He is age 30.His earned income credit for the year is:
A)$0.
B)$75.
C)$400.
D)$475.
E)None of the above.
Q2) Explain the purpose of the tax credit for rehabilitation expenditures and describe the general characteristics of its computation.
Q3) Qualified research and experimentation expenditures are not only eligible for the 20% tax credit, but also can be expensed in the year incurred.
A)True
B)False
Q4) A taxpayer's earned income credit is dependent on the number of his or her qualifying children.
A)True
B)False
Q5) Discuss the treatment of unused general business credits.
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Chapter 13: Property Transactions: Determination of Gain or
Loss, Basis Considerations, and Nontaxable
Exchanges-Part 1
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Q1) At a particular point in time, a taxpayer can have one or two principal residences for § 121 exclusion purposes.
A)True
B)False
Q2) Abby exchanges 3,000 shares of Osprey, Inc., stock for 1,500 shares of Blue Heron, Inc., stock.Abby's adjusted basis for the Osprey stock is $270,000 and the fair market value of the Blue Heron stock is $300,000.Abby's recognized gain is $0 and her adjusted basis for the Blue Heron stock is $270,000.
A)True
B)False
Q3) If the alternate valuation date is elected by the executor of the estate, the basis of all of the property included in the decedent's estate becomes the fair market value 6 months after the decedent's death.
A)True
B)False
Q4) The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.
Page 15
A)True
B)False
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Chapter 13: Property Transactions: Determination of Gain or
Loss, Basis Considerations, and Nontaxable
Exchanges-Part 2
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Q1) Tariq sold certain U.S.Government bonds and State of Oregon bonds at a loss to offset short-term capital gain from a previous transaction.He felt that the U.S.Government and State of Oregon bonds were "good" investments, so he repurchased identical securities within one week.Do these transactions constitute wash sales?
Q2) Discuss the treatment of realized gains from involuntary conversions.
Q3) For disallowed losses on related-party transactions, who has the right of offset?
Q4) Butch sells land with an adjusted basis of $88,000 and a fair market value of $160,000 to Cynthia, his wife, for $160,000.Discuss how the tax consequences would differ if Butch and Cynthia had never been married.
Q5) Joseph converts a building (adjusted basis of $50,000 and fair market value of $40,000) from personal use to business use.Justin receives a building with a $40,000 fair market value ($50,000 donor's adjusted basis) from his mother as a gift.Discuss the tax consequences with respect to Joseph's and Justin's adjusted basis.
Q6) Define an involuntary conversion.
Q7) Define fair market value as it relates to property transactions.
Page 16
Q8) What kinds of property do not qualify under the like-kind provisions?
Q9) Can related parties take advantage of the like-kind exchange provisions?
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Chapter 14: Property Transactions: Capital Gains and
Losses, 1231, Recapture Provisions
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Q1) When a patent is transferred, the most common forms of payment received by the transferor are a lump sum and/or periodic payment.
A)True
B)False
Q2) Vertigo, Inc., has a 2012 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2011.For 2012, Vertigo's net § 1231 loss is treated as:
A)Ordinary loss.
B)Ordinary gain.
C)Capital loss.
D)Capital gain.
E)None of the above.
Q3) An individual taxpayer with 2012 net short-term capital loss of $5,000 generally can deduct up to $3,000 for AGI and carry the balance forward to 2013.
A)True
B)False
Q4) Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.
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Chapter 15: Alternative Minimum Tax
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Q1) Kerri, who had AGI of $120,000, itemized her deductions in the current year.She incurred unreimbursed employee business expenses of $8,500.Kerri must make a positive AMT adjustment of $2,400 in computing AMT.
A)True
B)False
Q2) Will all AMT adjustments reverse? That is, do they relate to timing differences?
Q3) Is it possible that no AMT adjustment is necessary for medical expenses in calculating AMTI even though the floor limitation is different (7.5% of AGI for regular income tax compared to 10% for AMT purposes)?
Q4) When qualified residence interest exceeds qualified housing interest, the positive adjustment required in calculating AMT is a timing adjustment.That is, in the future, there will be an offsetting negative adjustment.Comment on the validity of this statement.
Q5) The amount of the deduction for medical expenses under the regular income tax may be different than for AMT purposes.
A)True
B)False
Q6) Can AMT adjustments and preferences be both positive and negative?
Q7) Why is there a need for a second tax system called the alternative minimum tax?
Page 19
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Chapter 16: Accounting Periods and Methods
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Q1) Taylor sold a capital asset on the installment basis and did not charge interest on the deferred payment due in three years.
A)Interest will be imputed, thus increasing the total gross income from the transactions.
B)Interest will be imputed, thus decreasing the capital gain.
C)Interest will not be imputed because the contract is for less than five years.
D)Interest will be imputed, thus increasing the buyer's basis in the asset.
E)None of the above.
Q2) In 2012, Father sold land to Son for $150,000 cash and an installment note for $450,000 due in 2016.Father's basis was $240,000.In 2013, after paying $27,000 interest but nothing on the principal, Son sold the land for $600,000 cash.As a result of the second disposition, what gain must Father recognize in 2013?
A)None if Son did not pay Father any principal that year.
B)$90,000.
C)$270,000.
D)$360,000.
E)None of the above.
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Chapter 17: Corporations: Introduction and Operating Rules
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Q1) In the current year, Oriole Corporation donated a painting worth $30,000 to the Texas Art Museum, a qualified public charity.The museum included the painting in its permanent collection.Oriole Corporation purchased the painting 5 years ago for $10,000.Oriole's charitable contribution deduction is $30,000 (ignoring the taxable income limitation).
A)True
B)False
Q2) If a C corporation uses straight-line depreciation on real estate (§ 1250 property), no gain on the sale of the property will be recaptured as ordinary income.
A)True
B)False
Q3) Employment taxes apply to all entity forms of operating a business. As a result, employment taxes are a neutral factor in selecting the most tax effective form of operating a business.
A)True
B)False
Q4) Discuss the purpose of Schedule M-1.Give two examples of an addition and two examples of a subtraction that could be reported on Schedule M-1.
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Chapter 18: Corporations: Organization and Capital Structure
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Q1) Ruth transfers property worth $200,000 (basis of $60,000) to Goldfinch Corporation.In return, she receives 80% of its stock (worth $180,000) and a long-term note, executed by Goldfinch and made payable to Ruth (worth $20,000).Ruth will recognize no gain on the transfer.
A)True
B)False
Q2) Ashley, a 70% shareholder of Wren Corporation, transfers property with a basis of $250,000 and a fair market value of $900,000 to Wren Corporation for additional stock.Ashley owns 78% of Wren after the transfer.Two other shareholders in Wren transfer a nominal amount of property to Wren along with Ashley's transfer so that Ashley and the two shareholders own 90% of the Wren stock after the transfer.Does Ashley have taxable gain on the transfer?
Q3) What is the rationale underlying the tax deferral treatment available under § 351?
Q4) A secret process and patentable invention both constitute "property" under § 351. A)True B)False
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Chapter 19: Corporations: Distributions Not in Complete
Liquidation
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Q1) Maria and Christopher each own 50% of Cockatoo Corporation, a calendar year taxpayer.Distributions from Cockatoo are: $750,000 to Maria on April 1 and $250,000 to Christopher on May 1.Cockatoo's current E & P is $300,000 and its accumulated E & P is $600,000. How much of the accumulated E & P is allocated to Christopher's distribution?
A)$0.
B)$75,000.
C)$150,000.
D)$300,000.
E)None of the above.
Q2) Betty's adjusted gross estate is $9 million.The death taxes and funeral and administration expenses of her estate total $1.2 million.Included in Betty's gross estate is stock in Heron Corporation, valued at $3.3 million as of the date of her death in 2012.Betty had acquired the stock six years ago at a cost of $810,000.If Heron Corporation redeems $1.2 million of Heron stock from the estate, the transaction will qualify under § 303 as a redemption to pay death taxes and receive sale or exchange treatment.
A)True
B)False
Q3) How does the payment of a property dividend affect E & P?
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganizations
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Q1) The related-party loss limitation in a complete liquidation can apply to a distribution or sale of property while the built-in loss limitation applies only to distributions of property.
A)True
B)False
Q2) Pursuant to a complete liquidation, Lilac Corporation distributes the following assets to its unrelated shareholders: land held for three years as an investment (basis of $300,000, fair market value of $600,000), inventory (basis of $100,000, fair market value of $80,000), and marketable securities held for four years as an investment (basis of $200,000, fair market value of $240,000). What are the tax consequences to Lilac Corporation as a result of the liquidation?
A)Lilac Corporation would recognize no gain or loss on the liquidation.
B)Lilac Corporation would recognize a net capital gain of $320,000.
C)Lilac Corporation would recognize a net capital gain of $340,000 and an ordinary loss of $20,000.
D)Lilac Corporation would recognize a net capital gain of $340,000.
E)None of the above.
Q3) Lyon has 100,000 shares outstanding that are worth $10 per share.It uses 32% of its stock plus $80,000 to
Page 24
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Chapter 21: Partnerships
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Q1) During the current year, MAC Partnership reported the following items of receipts and expenditures: $300,000 sales, $60,000 utilities and rent, $100,000 salaries to employees, $40,000 guaranteed payment to partner Mitchell, investment interest income of $4,000, a charitable contribution of $6,000, and a distribution of $20,000 to partner Chad.Austin is a 40% partner.What items will be reflected on Austin's Schedule K-1?
Q2) Carlos receives a proportionate liquidating distribution consisting of $8,000 cash and inventory with a basis to the partnership of $5,000 and a fair market value of $6,000.His basis in his partnership interest was $15,000 immediately before the distribution.Carlos assigns a basis of $5,000 to the inventory, and recognizes a $2,000 capital loss.
A)True
B)False
Q3) On Form 1065, partners' capital accounts should be determined using the same method on Schedule L, Schedule M-2, and the Schedules K-1 prepared for the partners.
A)True
B)False
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Chapter 22: S: Corporations
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Q1) The carryover period for the NOLs of a C corporation continues to run during S corporation years.
A)True
B)False
Q2) On January 1, 2012, Zundel, Inc., an electing S corporation, has $4,000 of AEP and a balance of $10,000 in AAA.Zundel has two shareholders, Erin and Maine, each of whom owns 500 shares of Zundel's stock.Zundel's 2012 taxable income is $5,000.Zundel distributes $6,000 to each shareholder on February 1, 2012, and distributes another $3,000 to each shareholder on September 1.How is Erin taxed on this distribution?
A)$500 dividend income.
B)$1,000 dividend income.
C)$1,500 dividend income.
D)$3,000 dividend income.
Q3) The amount of any distribution to an S corporation shareholder is equal to the ____________________ plus the fair market value of any other property distributed..
Q4) Advise your client how income, expenses, gain, and losses are allocated to shareholders of an S corporation.
Q5) How may an S corporation manage its liability for the built-in gains tax?
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Chapter 23: Exempt Entities
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Q1) The excise taxes such as the tax on self-dealing and the tax on excess business holdings are imposed on exempt organizations classified as private foundations and are not imposed on exempt organizations classified as public charities.
A)True
B)False
Q2) If an organization qualifies for exempt status for Federal income tax purposes, it is exempt from all Federal income taxes.
A)True
B)False
Q3) Personal property rental income is subject to and real property rental income is not subject to the unrelated business income tax.
A)True
B)False
Q4) An exempt entity in no circumstance is subject to Federal income tax.
A)True
B)False
Q5) Discuss any negative tax consequences that result from an exempt organization being classified as a private foundation.
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Chapter 24: Multistate Corporate Taxation
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Q1) An ad valorem property tax is based on the asset's current ____________________.
Q2) Under Public Law 86-272, a state is prohibited from taxing a business if the only connection with the state is the _____________________ of orders for sales of tangible personal property that are sent outside the state for approval or rejection and, if approved, are filled and shipped by the business from a point outside of the state.
Q3) In computing the property factor, property owned by the corporation typically is valued at its ____________________, but without adjusting for depreciation. or
Q4) Leased property, when included in the property factor, usually is valued at ____________________ times its annual rental, even though the taxpayer does not own the asset. or
Q5) The sales/use tax that is employed by most U.S.states does not fall on all retail transactions. Identify at least five sales/use tax exemptions that states often allow, eliminating certain transactions from the tax base.
Q6) P.L.86-272 ____________________ (does/does not) create nexus when the seller runs a booth with inventory samples, at a one-week trade show in the state.
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Chapter 25: Taxation of International Transactions
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Q1) Krebs, Inc., a U.S.corporation, operates an unincorporated branch manufacturing operation in the U.K.Krebs, Inc., reports $900,000 of taxable income from the U.K.branch on its U.S.tax return, along with $1,600,000 of taxable income from its U.S.operations.The U.K.branch income is all general limitation basket income.Krebs paid $270,000 in U.K.income taxes related to the $900,000 in branch income. Assuming a U.S.tax rate of 35%, what is Krebs' U.S.tax liability after any allowable foreign tax credits?
A)$0.
B)$270,000.
C)$605,000.
D)$875,000.
Q2) Which of the following determinations does not require knowing the amounts of one's U.S.- versus foreign-source income?
A)Calculation of a U.S.person's total taxable income.
B)Calculation of U.S.withholding tax on the FDAP income of foreign persons.
C)Calculation of the foreign earned income exclusion.
D)Calculation of a foreign person's income effectively connected with carrying on a U.S.trade or business.
Q3) Discuss the primary purposes of income tax treaties.
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Chapter 26: Tax Practice and Ethics
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147 Verified Questions
147 Flashcards
Source URL: https://quizplus.com/quiz/70927
Sample Questions
Q1) A tax preparer is in violation of Circular 230 if he or she:
A)Files a tax return that includes a math error.
B)Charges a fee to prepare an original Form 1120 equal to one-third of the taxpayer's refund due.
C)Fails to inform the IRS of an error on the client's prior-year return.
D)All of the above are Circular 230 violations.
Q2) In a criminal fraud case, the burden is on the taxpayer to show that he or she was innocent "beyond the shadow of any reasonable doubt."
A)True
B)False
Q3) Circular 230 allows a tax preparer to:
A)Take a position on a tax return that is contrary to a decision of the U.S.Supreme Court.
B)Operate the "Tax Nerd's Blog" on the Internet.
C)Charge a $5,000 fee to prepare a Form 1040EZ.
D)Avoid signing a tax return that is likely to be audited.
Q4) If the auditor comes to the taxpayer's office to review a tax return, the review is called a(n) ____________________ audit.
Q5) The IRS is a subsidiary agency of the Department of the ____________________.
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Chapter 28: Income Taxation of Trusts and Estates
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145 Verified Questions
145 Flashcards
Source URL: https://quizplus.com/quiz/70926
Sample Questions
Q1) Consider the term distributable net income as it is used with respect to the Federal income taxation of trusts and estates. How is this amount computed? Where is it used in computing the parties' taxable incomes?
Q2) When the Holloway Trust terminated this year, it held a $1 million NOL carryforward. How is the loss carryforward treated? Does it expire with the trust or can another taxpayer use it? Be specific.
Q3) A decedent's income in respect of a decedent is subject to the Federal income tax, but it is excluded from the estate tax.
A)True
B)False
Q4) When a beneficiary receives a distribution from a trust of an asset other than cash, the realized loss could be disallowed under the ____________________ rule.
Q5) Judy can claim one-third of the Sweet Estate's cost recovery deductions, because she received one-third of the fiduciary's distributable net income (DNI).
A)True
B)False
Q6) The Form 1041 of a calendar-year trust is due on ____________________ 15.
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