Taxation of Individuals Practice Questions
Course Introduction
Taxation of Individuals provides a comprehensive overview of the federal income tax system as it applies to individual taxpayers. The course examines the principles and regulations governing gross income, exclusions, deductions, credits, and the computation of tax liability. Students will explore the tax consequences of common life events, such as employment, investment, marriage, and home ownership, as well as tax planning strategies and compliance requirements. Emphasis is placed on the interpretation and application of the Internal Revenue Code and Treasury regulations, preparing students for practical tax problem-solving and ethical considerations in personal tax matters.
Recommended Textbook
Pearsons Federal Taxation 2018 Individuals 31st Edition by Timothy J. Rupert
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18 Chapters
2328 Verified Questions
2328 Flashcards
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Chapter 1: An Introduction to Taxation
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Sample Questions
Q1) Which of the following taxes is progressive?
A) sales tax
B) excise tax
C) property tax
D) federal income tax
Answer: D
Q2) When new tax legislation is being considered by Congress
A) the tax bill will usually originate in the Senate.
B) different versions of the House and Senate bills are reconciled by the Speaker of the House and the President of the Senate.
C) different versions of the House and Senate bills are reconciled by a Joint Conference Committee.
D) after the President of the United States approves a tax bill, the Joint Conference Committee must then vote on passage of the bill.
Answer: C
Q3) Regressive tax rates decrease as the tax base increases.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Determination of Tax
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Sample Questions
Q1) Carter dies on January 1,2017.A joint return election is made in 2017 and Marjorie properly qualifies as a surviving spouse for the two following years.Marjorie has one child that she claims as a dependent for this same period.The number of personal and dependency exemptions allowed Marjorie in 2017 and in 2018,respectively:
A) 1 and 1.
B) 2 and 2.
C) 3 and 2.
D) 3 and 3.
Answer: C
Q2) A widow or widower may file a joint tax return and claim an exemption for the deceased spouse in the year of the spouse's death as long as the surviving spouse does not remarry before the end of the year.
A)True
B)False
Answer: True
Q3) Nonresident aliens are allowed a full standard deduction.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Gross Income: Inclusions
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Sample Questions
Q1) Mike won $700 in a football pool.This amount is not taxable.
A)True
B)False
Answer: False
Q2) Insurance proceeds received because of the destruction of property are
A) included in gross income in all cases.
B) excluded from gross income completely.
C) included in gross income to the extent the proceeds are less than the adjusted basis of the replacement property.
D) included in gross income only to the extent the proceeds exceed the adjusted basis of the replacement property.
Answer: D
Q3) Becky wins a car and furniture on a television game show.The fair market value of these items is taxable to Becky.
A)True
B)False
Answer: True
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Chapter 4: Gross Income: Exclusions
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Sample Questions
Q1) Punitive damages are taxable unless they are awarded for physical injuries.
A)True
B)False
Q2) A nursing home maintains a cafeteria that is used by employees,patients,and visitors.The value of free meals provided to employees while on duty so that they may be available for emergency calls is not taxable.
A)True
B)False
Q3) Mattie has group term life insurance coverage of $120,000 provided by her employer on a nondiscriminatory basis.She must include premiums for $120,000 of coverage in gross income,determined by using IRS tables.
A)True
B)False
Q4) Sumedha is the beneficiary of her mother's $500,000 life insurance policy.She receives $54,000 per year over ten years in settlement of her mother's policy.Sumedha will exclude the $54,000 proceeds received each year from the life insurance company.
A)True
B)False
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Page 6
Chapter 5: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) The holding period of property received from a decedent is based on the actual time the property is held by the decedent.
A)True
B)False
Q2) The taxable portion of a gain from qualified small business stock is taxed at a top tax rate of
A) 15%.
B) 18%.
C) 20%.
D) 28%.
Q3) Rita died on January 1,2017 owning an asset with a FMV of $730,000 that she purchased in 2010 for $600,000.Bert inherited the asset from Rita.When Bert sells the asset for $800,000 on August 20,2017,he must recognize a
A) STCG of $70,000.
B) LTCG of $70,000.
C) STCG of $200,000.
D) LTCG of $200,000.
Q4) Distinguish between the Corn Products doctrine and the ruling in the Arkansas Best Corporation case.
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Chapter 6: Deductions and Losses
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Sample Questions
Q1) Erin,Sarah,and Timmy are equal partners in EST Partnership.Sarah also owns 40% of Elton Corporation.The remaining shareholders of Elton Corporation are: Erin (24%) and Sarah's uncle (36%).What percent ownership does Sarah directly or constructively own in Elton Corporation?
A) 40%
B) 64%
C) 76%
D) 100%
Q2) Tess has started a new part-time business.She is concerned that the IRS will call it a hobby if her return is audited.This first year of business showed a small profit,and she expects it to continue to show modest profits.She would like to take advantage of the three out of five year profit rule to shift the burden of proof to the IRS.Because of the three-year statute of limitations,this will not be possible for the first year of business.
A)True
B)False
Q3) During the current year,Charlene borrows $10,000 to purchase Kansas City bonds.Charlene incurs $800 of interest on her outstanding loan.How much interest expense may Charlene deduct in the current year?
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Chapter 7: Itemized Deductions
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Sample
Questions
Q1) Jeffrey,a T.V.news anchor,is concerned about the wrinkles around his eyes.Because it is job-related,the cost of a face lift to eliminate these wrinkles is a deductible medical expense.
A)True
B)False
Q2) Special documentation rules apply to donation of A) motor vehicles.
B) boats.
C) airplanes.
D) All of the above.
Q3) Sacha purchased land in 2010 for $35,000 that she held as a capital asset.This year,she contributed the land to the Boy Scouts of America (a charitable organization) for use as a site for a summer camp.The market value of the land at the date of contribution is $40,000.Sacha's adjusted gross income is $90,000.Assuming no special elections,Sacha's maximum deductible contribution this year is
A) $13,000.
B) $27,000.
C) $35,000.
D) $40,000.
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Page 9
Chapter 8: Losses and Bad Debts
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Sample Questions
Q1) A bona fide debtor-creditor relationship can never exist in the case of related parties.
A)True
B)False
Q2) One of the requirements which must be met for stock to be considered Section 1244 stock is that the corporation cannot have more than $10 million of total capital and paid in surplus as of the stock issuance.
A)True
B)False
Q3) The sale of inventory at a loss results in an ordinary loss.
A)True
B)False
Q4) A taxpayer has generated a net operating loss in the current year and is weighing whether to carry back the NOL or elect to carry forward the NOL.The factors to consider in making this decision include all of the following except
A) marginal tax rates in the relevant years.
B) tax credits available in the carryback years.
C) time value of money.
D) refundable tax credits expected in future years.
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Chapter 9: Employee Expenses and Deferred Compensation
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Sample Questions
Q1) Clarissa is a very successful real estate agent.She spends $5,000 per year taking her clients out to dinner upon completion of a sale.Unfortunately,Clarissa is not a good recordkeeper and does not maintain receipts.However,such entertainment is standard practice in her field,and trade journals indicate that $5,000 is a reasonable amount for a successful high-end agent.Before consideration of the 2% of AGI floor,Clarissa will be allowed to deduct $2,500.
A)True
B)False
Q2) Travel expenses related to temporary work assignments of two years or less are deductible.
A)True
B)False
Q3) Kim currently lives in Buffalo and works in Rochester,a 60-mile commute each way.Kim accepts a new job in a town outside of Rochester,and the new commute is 75-miles each way.Kim decides the commute for the new job is too long,and she moves to Rochester.Kim is eligible to deduct her moving expenses.
A)True
B)False
Q4) When are home-office expenses deductible?
Page 11
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Chapter 10: Depreciation, cost Recovery, amortization, and Depletion
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Sample Questions
Q1) Enrico is a self-employed electrician.In May of the current year,Enrico acquired a used van (5-year property) for $12,000.He used the van 80% for business and 20% for personal purposes.Enrico does not take any Sec.179 deduction.The maximum depreciation deduction for the van is
A) $1,200.
B) $2,400.
C) $6,720.
D) $1,920.
Q2) Under the MACRS system,the same convention that applies in the year of acquisition (e.g.,half-year,mid-quarter,or mid-month) also applies in the year of disposition.
A)True
B)False
Q3) In calculating depletion of natural resources each period,
A) cost depletion must be used.
B) percentage depletion must be used.
C) the greater of cost depletion or percentage depletion must be used.
D) the smaller of cost depletion or percentage depletion must be used.
Q4) Why would a taxpayer elect to use the alternative depreciation system rather than the MACRS rules?
Page 12
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Chapter 11: Accounting Periods and Methods
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Sample Questions
Q1) All of the following statements are true except A) once adopted, an accounting period normally cannot be changed without approval by the IRS.
B) taxpayers who change from one accounting period to another must annualize their income for the resulting short period.
C) taxpayers filing an initial tax return are required to annualize the year's income and prorate exemptions and credits.
D) an existing partnership can change its tax year without prior approval if the partners with a majority interest have the same tax year to which the partnership changes.
Q2) A business which provides a warranty on goods sold will deduct a reserve for warranty expense consistent with the reporting on its financial statements.
A)True
B)False
Q3) Contracts for services including accounting,legal and architectural services do not qualify for long-term contract treatment.
A)True
B)False
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Page 13
Chapter 12: Property Transactions: Nontaxable Exchanges
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Sample Questions
Q1) A owns a ranch in Wyoming,which B offers to purchase.A is not willing to sell the ranch but is willing to exchange the ranch for an apartment complex in Louisiana.The complex is available for sale.B purchases the apartment complex in Louisiana from C and transfers it to A in exchange for A's ranch.The ranch and the complex each have a $1,000,000 fair market value.Which of the following is true?
A) The transaction qualifies as a like-kind exchange for B but not for A.
B) The transaction qualifies as a like-kind exchange for both B and A.
C) The transaction qualifies as a like-kind exchange for A but not for B.
D) The transaction does not qualify as a like-kind exchange for either B or A.
Q2) For purposes of nontaxable exchanges,cash and non-like-kind property constitute boot.
A)True
B)False
Q3) All or part of gain realized on an involuntary conversion is deferred but not permanently excluded if qualifying replacement property is acquired within the requisite period of time.
A)True
B)False
Q4) Discuss the basis rules of property received in a nontaxable like-kind exchange.
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Chapter 13: Property Transactions: Sec1231 and Recapture
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Sample Questions
Q1) What is the purpose of Sec.1245 and what is its significance?
Q2) In addition to the normal recapture rules of Sec.1250,corporations which sell depreciable real estate are subject to additional recapture rules of Sec.291.
A)True
B)False
Q3) All of the following statements regarding Sec.1245 are true except
A) Sec. 1245 does not apply to any buildings placed in service after 1986.
B) Sec. 1245 applies to assets sold or exchanged at a gain or at a loss.
C) Sec. 1245 property includes nonresidential real estate that qualified as recovery property under the ACRS rules unless the taxpayer elected to use the straight-line method of cost recovery.
D) Sec. 1245 ordinary gain treatment applies to total depreciation or amortization allowed or allowable but not more than the realized gain.
Q4) For a business,Sec.1231 property does not include A) timber, coal, or domestic iron ore.
B) inventory purchased 24 months ago.
C) an office building purchased five years ago.
D) land used in the business that was purchased two years ago.
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Page 15
Chapter 14: Special Tax Computation Methods, tax Credits, and Payment of Tax
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Sample Questions
Q1) Self-employment taxes include components for
A) Medicare hospital insurance and SUTA.
B) Social Security and FUTA.
C) FICA and FUTA.
D) Social Security and Medicare hospital insurance.
Q2) The general business credits are refundable credits.
A)True
B)False
Q3) Ava has net earnings from self-employment of $125,000.She also earned salary of $170,000 from a job held earlier in the year.How much Additional Medicare Tax will be owed on the self-employment income?
A) $0
B) $769
C) $855
D) $3,625
Q4) For purposes of the AMT,only the foreign tax credit and refundable personal credits are allowed to reduce the tentative minimum tax.
A)True
B)False
Page 16
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Chapter 15: Tax Research
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Sample Questions
Q1) Which of the following statements about the Statements on Standards for Tax Services is true?
A) A CPA is never allowed to use a taxpayer's estimates when preparing a tax return.
B) The CPA must tell the IRS upon becoming aware that an error has been made on a past tax return.
C) The CPA may in good faith rely on information provided by the taxpayer, without verifying the reliability of that information if reasonable inquiries are made where the information furnished appears to be incorrect.
D) The CPA should not recommend that a taxpayer take a certain position if there is any doubt as to whether the position would be approved by the IRS upon audit.
Q2) The phrase "Entered under Rule 155" indicates that
A) the computation of the exact amount of the tax deficiency has been left to the litigating parties.
B) the court has not reached a decision concerning the appropriate tax treatment of an issue.
C) the parties have agreed not to appeal the decision.
D) only one Tax Court judge reviewed the case.
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Page 17
Chapter 16: Corporations
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Sample Questions
Q1) In the current year,Bosc Corporation has taxable income of $100,000,and its regular tax liability is $22,250.Bartlett's AMT adjustments other than ACE are $70,000,and it has $320,000 of adjusted current earnings.What is the amount of Bosc Corporation's AMT liability?
Q2) If a corporation owns less than 20% of the stock of the distributing corporation,the dividends-received deduction is not allowed for the recipient corporation.
A)True B)False
Q3) If a corporation's charitable contributions exceed the deduction limitation in a particular year,the excess
A) is not deductible in any future year.
B) becomes a carryforward to a maximum of five succeeding years.
C) may be carried back to the third preceding year.
D) is carried over indefinitely.
Q4) In general,net operating losses of a corporation are carried back 3 years and forward for 20 years.
A)True B)False
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Page 18
Chapter 17: Partnerships and S Corporations
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Sample Questions
Q1) Realto LLC is a tax partnership which has four equal partners.The LLC holds highly appreciated real estate in midtown Manhattan.Trina is about to purchase a 20% ownership interest in the LLC.To minimize her future tax burden as a partner,she should negotiate a Sec.754 election with the current partners.
A)True
B)False
Q2) Which of the following assets may cause a partner to recognize ordinary income rather than capital gain on the sale of a partnership interest?
A) land
B) marketable securities
C) inventory
D) buildings which have been placed in service after 1986
Q3) A partnership's liabilities have increased by year-end.As a result,partners' bases in their partnership interests will increase.
A)True
B)False
Q4) Why are some partnership items separately stated?
Q5) What are special allocations of partnership items and when are they permitted?
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Chapter 18: Taxes and Investment Planning
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Sample Questions
Q1) Sylvia makes a one-time $2,000 deductible contribution into a deductible traditional IRA account,which will earn 8% annually before taxes.Twenty-five years later,at age 65,she withdraws all of the accumulation from the IRA when she is in the 15% marginal tax bracket.What is the total of her after-tax accumulated proceeds from the IRA?
A) $6,000
B) $8,541
C) $11,642
D) $13,697
Q2) The formula for the after-tax accumulation (ATA) for the Exempt Model is
A) ATA = AT$ (1 - t)<sup>n</sup>.
B) ATA = AT$ (1 + t)<sup>n</sup>.
C) ATA = AT$ (1 + R)<sup>n</sup>.
D) ATA = AT$ (1 - R)<sup>n</sup>.
Q3) In a progressive tax system,an investor can benefit from tax-exempt bonds when
A) the investor's marginal tax rate is equal to that of the marginal investor.
B) the investor's marginal tax rate exceeds that of the marginal investor.
C) the investor's marginal tax rate is less than that of the marginal investor.
D) None of the above.
Q4) Discuss the decision rules for current salary versus deferred compensation.
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