Advanced Federal Taxation Test Bank
Course Introduction
Advanced Federal Taxation delves into complex tax concepts and regulations affecting individuals, corporations, partnerships, estates, and trusts within the United States. The course emphasizes the application and analysis of federal tax law, including the Internal Revenue Code, Treasury regulations, and judicial decisions. Topics include corporate reorganizations, consolidated tax returns, multistate taxation, international taxation principles, alternative minimum tax, and tax planning strategies. Through case studies and problem-solving exercises, students develop skills in tax research, compliance, and ethical considerations, preparing them for professional practice or further study in taxation.
Recommended Textbook
Principles of Taxation for Business and Investment Planning 2018 21st Edition by Sally Jones
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1806 Verified Questions
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Chapter 1: Taxes and Taxing Jurisdictions
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Sample Questions
Q1) Which of the following sources of tax law carries the least authority?
A)Revenue ruling
B)Treasury regulation
C)Section 736 of the Internal Revenue Code
D)The three sources of tax law have equal authority
Answer: A
Q2) The property tax on a rent house owned by Mr.Janey increased by $1,200 this year.Mr.Janey increased the monthly rent charged to his tenant,Ms.Lacey,by $45.Who bears the incidence of the property tax increase?
A)Mr.Janey
B)Ms.Lacey
C)Both Mr.Janey and Ms.Lacey
D)Neither Mr.Janey nor Ms.Lacey
Answer: C
Q3) A sales tax can best be described as a(n):
A)Consumption tax
B)Income tax
C)Activity tax
D)Ad valorem tax
Answer: A
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Chapter 2: Policy Standards for a Good Tax
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Sample Questions
Q1) Congress recently amended the tax law to make it easier for individuals to file their income tax returns electronically (online).Which of the following statements is true?
A)The amendment is intended to improve the efficiency of the tax.
B)The amendment is intended to improve the equity of the tax.
C)The amendment is intended to improve the simplicity of the tax.
D)The amendment is intended to improve the convenience of the tax.
Answer: D
Q2) If a tax has a proportionate rate structure,a taxpayer's marginal rate and average rate are equal.
A)True
B)False
Answer: True
Q3) A static forecast of the incremental revenue from a tax rate increase presumes that:
A)The tax base will not change because of the rate increase.
B)The tax base will increase by the same proportion as the rate increase.
C)The tax base will decrease by the same proportion as the rate increase.
D)The tax rate and the tax base are correlated.
Answer: A
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Chapter 3: Taxes As Transaction Costs
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Sample Questions
Q1) Which of the following statements about public market transactions is true?
A)The parties negotiate directly with each other.
B)The parties must engage in unilateral instead of bilateral tax planning.
C)The parties are not transacting at arm's length.
D)Both parties have flexibility in determining the legal and financial characteristics of the transaction.
Answer: B
Q2) Which of the following statements about marginal tax rates is false?
A)A taxpayer's marginal rate does not change over time.
B)As the marginal rate decreases,the after-tax cost of a deductible expense increases.
C)As the marginal rate decreases,the after-tax value of an income-generating transaction increases.
D)Both a taxpayer's marginal rate does not change over time and,as the marginal rate decreases,the after-tax cost of a deductible expense increases.
Answer: A
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5
Chapter 4: Maxims of Income Tax Planning
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Sample Questions
Q1) A taxpayer who invests in a growth stock rather than a stock that pays an annual dividend is engaging in tax planning based on the:
A)Entity variable
B)Time period variable
C)Jurisdiction variable
D)Character variable
Q2) Varson Inc.and Vonsell Inc.are owned by the same family.The family decides to purchase $150,000 of deductible advertising that will benefit the businesses operated by both corporations.Which of the following statements is true?
A)If Varson's marginal tax rate is higher than Vonsell's marginal tax rate,Vonsell should purchase the advertising to minimize after-tax cost.
B)If Varson's marginal tax rate is higher than Vonsell's marginal tax rate,the tax law requires Vonsell to purchase the advertising.
C)If Varson's marginal tax rate is higher than Vonsell's marginal tax rate,Varson can claim a $150,000 deduction on its tax return regardless of which corporation purchases the advertising.
D)None of the above is true.
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Chapter 5: Tax Research
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Sample Questions
Q1) Which of the following statements regarding documentation of research conclusions is false?
A)A research memorandum is a permanent record of the research process.
B)A researcher communicates his or her conclusions to the client in a letter containing information similar to that in the research memorandum.
C)Technical references are generally inappropriate in a client letter.
D)A research memorandum contains only research conclusions and not a detailed analysis of legal authorities supporting those conclusions.
Q2) When performing step three of the tax research process:
A)A commercial tax service may provide an excellent starting point.
B)The researcher must discover all the facts concerning the client's transaction.
C)The researcher must communicate his or her conclusions to the client.
D)The researcher should always consult primary authorities first before turning to secondary authorities for guidance.
Q3) Tax judicial decisions each have a single,unique citation.
A)True
B)False
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Chapter 6: Taxable Income From Business Operations
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116 Verified Questions
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Sample Questions
Q1) Which of the following statements concerning the cash method of accounting is true?
A)A cash basis taxpayer who is in constructive receipt of an income item must recognize that income,even if the item is not in the taxpayer's actual possession.
B)A cash basis taxpayer can deduct the purchase cost of business equipment.
C)A cash basis taxpayer does not recognize gross income on receipt of an economic benefit unless that benefit consists of money.
D)A cash basis taxpayer can deduct interest when it is paid,regardless of the time period for which the interest is charged.
Q2) Welch Inc.has used a fiscal ending September 30 as its taxable year since its incorporation in 1988.The shareholders have decided to shut down Welch's business and dissolve the corporation on March 31.Which of the following statements is false?
A)Welch's final tax return will be a short-period return.
B)Welch's final tax return will include its income from October 1 to March 31.
C)Welch must annualize its taxable income on its final tax return.
D)None of the above is false.
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Page 8
Chapter 7: Property Acquisitions and Cost Recovery
Deductions
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116 Verified Questions
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Sample Questions
Q1) Mann Inc.,a calendar year taxpayer,incurred $49,640 start-up expenditures during the preoperating phase of a new business venture.The business started operations in November.Mann expensed the $49,640 on its current-year financial statements.Which of the following statements is true?
A)The start-up expenditures resulted in a $49,640 unfavorable book/tax difference.
B)The start-up expenditures resulted in a $44,144 unfavorable book/tax difference.
C)The start-up expenditures resulted in a $49,640 favorable book/tax difference.
D)The start-up expenditures did not result in a book/tax difference.
Q2) Hextone Inc.,which has a 35% tax rate,purchased a new business asset.First-year book depreciation was $14,890,and first-year MACRS depreciation was $27,090.As a result of this book/tax difference,Hextone recorded a $4,270 deferred tax liability.
A)True
B)False
Q3) Environmental clean-up costs are generally deductible in the year incurred. A)True B)False
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Chapter 8: Property Dispositions
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Sample Questions
Q1) Langtry Corporation recognized $798,000 ordinary income,$13,000 net Section 1231 loss,and $6,000 net capital loss this year.Langtry's taxable income is $785,000.
A)True
B)False
Q2) Because land is nondepreciable,it is always a capital asset. A)True
B)False
Q3) The sale of business inventory always generates ordinary income or loss. A)True
B)False
Q4) Mrs.Lex realized a $78,400 gain on sale of investment land to S&T,which issued a 10-year note in full payment.Mrs.Lex must recognize the gain in the year of sale unless she elects to use the installment sale method to recognize gain over the term of the note.
A)True B)False
Q5) The installment sale method of accounting is not applicable to realized losses. A)True B)False
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Chapter 9: Nontaxable Exchanges
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107 Verified Questions
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Sample Questions
Q1) A taxpayer who receives or pays boot in a nontaxable exchange must recognize gain to the extent of the FMV of the boot.
A)True
B)False
Q2) IPM Inc.and Zeta Company formed IPeta Inc.by transferring business assets in exchange for 1,000 shares of IPeta common stock.IPM transferred assets with a $675,000 FMV and a $283,000 adjusted tax basis and received 600 shares.Zeta transferred assets with a $450,000 FMV and a $98,000 adjusted tax basis and received 400 shares.Compute IPM and Zeta's realized and recognized gain on the exchange.
A)IPM realized $392,000 gain and recognized no gain.Zeta realized $352,000 gain and recognized no gain
B)IPM realized and recognized $392,000 gain.Zeta realized and recognized $352,000 gain.
C)IPM realized $392,000 gain and recognized no gain.Zeta realized and recognized $352,000 gain.
D)There is not enough information to compute realized and recognized gain.
Q3) All types of business and investment real properties are like-kind.
A)True
B)False
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Page 11
Chapter 10: Sole Proprietorships, Partnerships, llcs, and S
Corporations
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Sample Questions
Q1) A partnership is an unincorporated business activity owned by at least two taxpayers.
A)True
B)False
Q2) A partner's distributive share of partnership nondeductible losses does not decrease his or her tax basis in the partnership interest.
A)True
B)False
Q3) A limited liability company that has only one member is generally treated as a disregarded entity for federal tax purposes.
A)True
B)False
Q4) Which of the following statements about partnerships is false?
A)A partnership is a legal entity that may enter into valid contracts.
B)Partnerships are unincorporated entities.
C)Only individuals may be partners in a partnership.
D)Partnerships are sometimes referred to as passthrough entities since they do not pay federal income tax.
Page 12
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Chapter 11: The Corporate Taxpayer
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Sample Questions
Q1) The federal tax law considers the member corporations of an affiliated group to be a single entity for federal tax purposes.An example of this treatment is the requirement to share the 15% tax bracket.
A)True
B)False
Q2) A corporation that owns more than $10 million of total assets uses which schedule to reconcile book income to taxable income?
A)Schedule M-1
B)Schedule M-2
C)Schedule M-3
D)Schedule M-4
Q3) John's,Inc.manufactures and sells fine furniture.What is John's regular tax liability if it had taxable income of $40,000,000?
A)$14,000,000
B)$13,600,000
C)$15,600,000
D)$16,000,000
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Chapter 12: The Choice of Business Entity
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Sample Questions
Q1) For the current tax year,Cuddle Corporation's $500,000 of taxable income is all considered to be personal holding company income.The corporation did not pay dividends.Which of the following statements is true?
A)The corporation will owe a personal holding company tax of $170,000.
B)The corporation will owe a regular tax of $100,000.
C)The corporation's total tax liability will be $340,000.
D)The corporation's total tax liability will be $270,000.
Q2) Gwen and Travis organized a new business as an LLC in which they own equal interests.The new business generated a $10,000 operating loss its first year.If Gwen's marginal tax rate is 35%,her tax savings from the first-year LLC loss is:
A)$3,500
B)$1,750
C)$5,000
D)$3,250
Q3) A brother-sister controlled group consists of two or more corporations controlled by the same set of individual shareholders.
A)True
B)False
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Chapter 13: Jurisdictional Issues in Business Taxation
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Sample Questions
Q1) The sales factor in the UDITPA state income tax apportionment formula equals in-state sales divided by total sales.
A)True
B)False
Q2) Which of the following statements regarding Internal Revenue Code Section 482 is false?
A)Section 482 applies if related corporations charge each other arms-length transfer prices.
B)Section 482 is designed to prevent shifting of income from a high tax rate member of a related group to a low tax rate member.
C)The prevailing attitude of the courts is that the IRS's determination of transfer price should be upheld unless the taxpayer can show that the IRS was arbitrary or capricious.
D)Section 482 can be used to override artificial transfer prices established between related parties.
Q3) Foreign value-added taxes and excise taxes are eligible for the U.S.foreign tax credit.
A)True B)False
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Chapter 14: The Individual Tax Formula
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Sample Questions
Q1) Ms.Kilo is an unmarried individual.She has $219,344 taxable income in 2017.Compute Ms.Kilo's regular tax liability if she files as a single taxpayer and if she files as a surviving spouse.
A)Single $57,500; surviving spouse $61,924
B)Single $55,990; surviving spouse $54,174
C)Single $43,896; surviving spouse $48,468
D)None of the above
Q2) Hunter,age 17,is claimed as a dependent on his parents' tax return.This year,Hunter earned $8,500 for appearing in a television commercial.Compute Hunter's standard deduction.
A)$1,050
B)$8,500
C)$6,350
D)$0
Q3) The majority of individual taxpayers take the standard deduction rather than itemizing.
A)True
B)False
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Chapter 15: Compensation and Retirement Planning
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Sample Questions
Q1) Mrs.Lee,age 70,withdrew $10,000 from her Roth IRA this year.Mrs.Lee opened this account in 2000.The balance in the account at year-end was $76,600,which included $50,000 of contributions.Compute the taxable portion of the $10,000 withdrawal.
A)$0
B)$4,226
C)$5,774
D)$10,000
Q2) Which of the following statements regarding the tax consequences of wages is false?
A)Cash basis employees must report wages in the year payment is actually or constructively received.
B)Employees may elect whether or not their employer withholds income and payroll taxes from their wages.
C)Whether wages are currently deductible by the employer depends on the type of services rendered by the employee.
D)Wages paid to business employees are either deductible by the employer or treated as a capitalized cost.
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Chapter 16: Investment and Personal Financial Planning
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Sample Questions
Q1) Mr.and Mrs.Golding own 13,850 shares in PTJ mutual fund.This year,they received a $6,390 cash distribution from PTJ.Which of the following statements is false?
A)Some or all of the distribution may be a capital gain distribution.
B)Some or all of the distribution may be a qualifying dividend.
C)Some or all of the distribution may be ordinary income.
D)None of the above is false.
Q2) Cash basis individuals must accrue market discount on a bond as annual interest income over the life of the bond.
A)True
B)False
Q3) Ms.Kerry,who itemized deductions on Schedule A,paid $15,000 interest on funds borrowed to acquire taxable bonds.She also paid $660 of management fees that were fully deductible on Schedule A.Her AGI is $100,000,which includes $19,700 of interest income.How much of the interest expense can she deduct?
A)$0
B)$19,040
C)$19,700
D)$15,000
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Page 18
Chapter 17: Tax Consequences of Personal Activities
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Sample Questions
Q1) Gary is a successful architect who also sings at weddings.This year,he received $5,400 of fees for his singing and spent $6,250 on voice lessons,sheet music,and travel to the weddings.Which of the following statements is true?
A)Because the singing activity resulted in a loss,Gary can't treat it as a business.
B)If facts and circumstances support Gary's claim that his singing activity is a business,he can deduct an $850 above-the-line loss.
C)Because Gary's primary source of income is his architecture practice,he can't treat the singing activity as a business.
D)None of the above is true.
Q2) For federal income tax purposes,a taxpayer may deduct state and federal employment taxes as an itemized deduction.
A)True
B)False
Q3) Gains realized on the sale of personal use assets are generally taxable.
A)True
B)False
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Chapter 18: The Tax Compliance Process
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Q1) The revenue agent who audited Mr.Silver's 2014 Form 1040 concluded that Mr.Silver deliberately disregarded the tax rules about charitable contributions.Consequently,the agent disallowed $19,320 of Mr.Silver's contribution deduction.Mr.Silver also miscalculated his AMT in spite of his good faith effort to make the difficult calculation.Because of these two errors,the agent assessed a tax deficiency for 2014.Which of the following statements is false?
A)The agent has the authority to impose a negligence penalty in addition to the deficiency.
B)The agent could impose a negligence penalty on the entire deficiency.
C)The agent could impose a negligence penalty on the portion of the deficiency attributable to the disallowed contribution deduction.
D)If the agent imposes a negligence penalty,Mr.Silver has the right to appeal the penalty.
Q2) Employees who deliberately have excess income tax withheld from their salaries in order to receive a tax refund are making an interest-free loan of the excess withholding to the government.
A)True
B)False
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