Income Taxation
Pre-Test Questions
Course Introduction
Income Taxation provides students with a comprehensive understanding of the fundamental principles, laws, and regulations governing the taxation of individual and corporate income. The course explores the theoretical foundations and practical application of income tax rules, including the determination of taxable income, allowable deductions, tax credits, and compliance requirements. It also considers current issues in tax policy and planning, ethical considerations, and the impacts of tax legislation on individuals and businesses. Through case studies and problem-solving exercises, students gain the analytical skills needed to interpret tax statutes and apply tax concepts to real-world scenarios.
Recommended Textbook
Concepts in Federal Taxation 2017 24th Edition by Kevin E. Murphy
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16 Chapters
2073 Verified Questions
2073 Flashcards
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Chapter 1: Federal Income Taxation-An Overview
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Sample Questions
Q1) Elrod is an employee of Gomez Inc.During 2016,Elrod receives a salary of $120,000 from Gomez.What amount should Gomez withhold from Elrod's salary as payment of Elrod's social security and medicare taxes?
A)$7,440.00
B)$7,803.40
C)$8,422.65
D)$9,087.00
E)$9,180.00
Answer: D
Q2) Which of the following payments meets the IRS definition of a tax?
A)Sewer fee charged added to a city trash collection bill.
B)A special assessment paid to the county to pave a street.
C)A levy on the value of a deceased taxpayer's estate.
D)Payment of $300 to register an automobile. The $300 consists of a $50 registration fee and $250 based on the weight of the auto.
Answer: C
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3
Chapter 2: Income Tax Concepts
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Sample Questions
Q1) Carter sold 100 shares of Mitsui,Inc.for $8,000 but he only recognized $2,000 as income because the original purchase price was $6,000.This is due to the A)Ability to Pay Concept.
B)Administrative Convenience Concept.
C)Arm's-Length Transaction Concept.
D)Capital Recovery Concept.
E)Business Purpose Concept.
Answer: D
Q2) Sam coaches a little league baseball team.He makes 15 copies of the team's schedule to give to the players on his employer's copy machine.The cost of the copies is not income to Sam due to the A)Ability to Pay Concept.
B)Administrative Convenience Concept.
C)Arm's-Length Transaction Concept.
D)Capital Recovery Concept.
E)Pay-as-You-Go Concept.
Answer: B
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Chapter 3: Income Sources
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Sample Questions
Q1) The hybrid method of accounting provides that taxpayers will account for sales of merchandise and the related cost of goods sold on the accrual basis and all other items of income and expense on the cash basis.
A)True
B)False
Answer: True
Q2) Rachael purchased 300 shares of Smelt,Inc.stock for $25 per share.At the end of the year,the stock price has risen to $30 per share.Rachael does not recognize taxable income even though there has been a $1,500 increase in wealth.
A)True
B)False
Answer: True
Q3) Friendly Finance loans Anne $10,000 and she will pay $13,130 at the end of three years.Since Friendly is on a cash basis,it will recognize the $3,130 interest income when the loan is repaid.
A)True
B)False
Answer: False
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5
Chapter 4: Income Exclusions
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Sample Questions
Q1) Dick lives rent-free in an apartment (value $675/month)in a complex where he is the apartment manager and must be on the premises to handle problems.
Q2) Ferris inherited State of Florida general-purpose bonds worth $2,400 from his grandfather in 2014.He received $120 interest on the bonds in 2014,2015,and 2016.In 2016,he sells the bonds for a gain of $300.Ferris excludes the value of the bonds received and the bond interest,but must include a $300 capital gain in his 2016 gross income.Which of the following Concepts,Constructs,and/or Doctrines form the basis for this treatment?
I.Capital Recovery Concept
II.Legislative Grace Concept
III.Constructive Receipt Doctrine
IV.Realization Concept
A)Statements I and II are correct.
B)Statements I and IV are correct.
C)Statements II, III, and IV are correct.
D)Statements I, II, and III are correct.
E)Statements I, II, and IV are correct.
Q3) Jeane's employer pays his medical premiums each month ($130/month).
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Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) Lobbying expense
A)Automobile used 75% for business.
B)Investment expenses on municipal bonds.
C)Cost of investigating a new trade or business that the taxpayer enters.
D)Can be separated into two classifications.
E)Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.
Q2) An individual should be indifferent whether an expense is deducted for or deducted from adjusted gross income.
A)True
B)False
Q3) Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.
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Chapter 6: Business Expenses
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Sample Questions
Q1) Rhonda and Ralph are married.Rhonda earns $81,000 annually,and Ralph earns $6,000 annually working part-time.Their AGI is $108,000.Rhonda participates in an employer-sponsored retirement plan.Ralph's company does not have a pension plan.Rhonda and Ralph contribute the maximum amount allowable annually to their IRAs.What is their allowable deduction for this year's contributions?
A)$0 -
B)$2,200
C)$5,500
D)$8,000
E)$11,000
Q2) Carlos is single and has a 7 year-old child.Carlos' adjusted gross income for the year is $101,000.The maximum amount he can contribute to his child's Coverdell Education Savings Account is
A)$- 0 -
B)$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) Active participant
A)A loss that is generally not deductible.
B)The borrower is personally liable for the debt.
C)The loss is used to offset income in future periods.
D)A liability that is only secured by the underlying property.
E)The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business.
Q2) Why did Congress enact the at-risk rules?
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) To be a qualifying relative,an individual must meet certain tests.These tests include, I.the gross income test.
II.the age test.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Which of the following qualify for the medical expense deduction?
I.Insulin.
II.Medicare insurance premiums.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Self-employed sports agent pays $6,000 of self-employment tax.Amount: $3,000
Q4) Federal quarterly estimate of $3,000 paid by a self-employed taxpayer.
Q5) Explain the support test and the gross income test to be a qualifying relative.
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Chapter 9: Acquisitions of Property
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Sample Questions
Q1) David pays $35,000 cash and issues a mortgage note for $95,000 to purchase land.He pays $750 to his attorney for reviewing the purchase agreement.David's initial basis in the land is
A)$- 0 -
B)$35,000
C)$35,750
D)$130,000
E)$130,750
Q2) 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
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11
Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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Sample Questions
Q1) Listed property
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.
Q2) In June 2015,Chase purchases a new car for $37,000.He uses the car 75% for business purposes.What is Chase's maximum depreciation deduction for the car in 2015?
A)$5,550
B)$2,960
C)$4,200
D)$8,370
E)$11,160
Q3) While Congress has enacted several different depreciation methods,all currently owned assets are depreciated using the method in effect when the asset was placed in service.
A)True
B)False
Q4) Discuss why listed property gets special attention.
Page 12
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Chapter 11: Property Dispositions
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Sample Questions
Q1) Discuss the general differences between Section 1245 and Section 1250 property.
Q2) Tonya purchased 500 shares of Home Depot,Inc.common stock on December 13,2013,at a cost of $3,600.She paid a commission of $150 on the purchase.On February 18,2015,she received 250 shares of Home Depot,Inc.common stock as a tax-free dividend.Tonya sells 600 shares for $3,700 on January 8,2016,and pays a $100 commission on the sale.Tonya's gain (loss)on the sale is characterized as:
A)Long-term capital gain of $600.
B)Long-term capital gain of $500; short-term capital gain of $100.
C)Long-term capital loss of $50.
D)Short-term capital gain of $600.
Q3) All of the gain from the sale of qualified small business stock,purchased after 9/27/2010 and held more than five years is excluded from tax.
A)True
B)False
Q4) For depreciable real property,all depreciation taken must be recaptured and treated as ordinary income.
A)True
B)False
Q5) George sells his personal use automobile at a loss of $4,300.
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Chapter 12: Non-Recognition Transactions
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Q1) The holding period of an asset received in a like-kind exchange includes the holding period of the transferred asset.
A)True
B)False
Q2) A business use automobile for a personal use automobile.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q3) Norm acquired office equipment for his business at a cost of $10,000.After two years of use,Norm exchanges the equipment for different equipment with a fair market value of $7,000.MACRS depreciation on the original equipment was $4,753 The exchange qualifies as a like-kind exchange.Immediately after the exchange Norm sells the new equipment for $7,000 cash.What is the amount and character of the gain recognized?
A)No gain or loss.
B)$1,753 Section 1231 gain.
C)$1,753 Section 1245 ordinary income.
D)$4,753 Section 1231 gain.
E)$4,753 section 1245 ordinary income, and $3,000 Section 1231 loss.
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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) Carlos is the contoller for Rooney Corporation.Carlos owns a 20% interest in Rooney.He receives a salary of $60,000 and fringe benefits costing $6,000.Rooney's taxable income before considering the payments to and on behalf of Carlos is $250,000.Rooney distributes a $50,000 dividend to its shareholders.How much income does Carlos have from Rooney?
A)$60,000
B)$70,000
C)$76,000
D)$96,800
E)$102,800
Q3) Does the selection of a corporate entity ever make sense based on a desire for lower marginal tax rates? Discuss.
Page 15
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Chapter 14: Choice of Business Entity-Operations and Distributions
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Q1) Ed's adjusted basis in his partnership interest at the beginning of the tax year is $35,000.The partnership has operating income of $20,000 for the current year.Ed is a 50% partner,and he receives a current distribution of $40,000 cash this year.What is (are)the tax effect of these events?
I.Ed recognizes $10,000 of ordinary income from the partnership for the year.
II.Ed recognizes $40,000 of ordinary income due to the distribution.
III.Ed's adjusted basis in his partnership interest at the close of the tax year is zero.
A)Statements II and III are correct.
B)Only statement I is correct.
C)Statements I, II, and III are correct.
D)Only statement III is correct.
E)Statements I and III are correct.
Q2) Since Wisher,Inc.owns 80% of Patriot,Inc.(a U.S.corporation)the dividend received deduction rate is 100%.
A)True
B)False
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Chapter 15: Choice of Business Entity-Other Considerations
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Q1) On May 21,2014,Becker Corporation granted Howard an option to acquire 200 shares of the company's stock for $8 per share.The fair market price of the stock on the date of grant was $14.The option did not have a readily ascertainable fair market value.Howard exercises the option on July 7,2016,when the fair market value of the stock is $20.How much must she report as income at the date of exercise?
A)$-0-
B)$1,200
C)$2,400
D)$7,200
E)$10,800
Q2) On May 1,2015,Peyton is granted the right to acquire 500 shares of the Simon Corporation for $18 per share.The option qualifies under the company's incentive stock option plan.The current fair market value of the stock is $10.On September 18,2016 when the stock is selling for $20 per share,Peyton exercises his option to purchase the stock.Peyton sells the shares on November 15,2017,for $30 per share.Determine the tax consequences for Peyton and the Simon Corporation on the
a.Date of grant
b.Date of exercise
c.Date of sale
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Chapter 16: Tax Research
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Sample Questions
Q1) How should the following citation be interpreted? Hewlett Packard Co.v.Comm.,67 T.C.736 (1975).
A)A 1967 decision of the Tax Court, found on page 736.
B)A decision of the Court of Claims, found in Volume 67, on page 736.
C)A 1975 decision of the Tax Court, found in Volume 736.
D)A decision of the Tax Court, found on page 736, in Volume 67.
Q2) 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
Q3) The National Office of the IRS issues private letter rulings and technical advice memoranda and these pronouncements are binding on the IRS.
A)True
B)False
Q4) The final step in the tax research process is to reach a conclusion,make a recommendation and communicate the results to the client.
A)True
B)False
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