Introduction to Taxation Test Bank
Course Introduction
Introduction to Taxation provides students with a foundational understanding of the principles, purposes, and types of taxation systems. The course covers key concepts such as tax law structure, tax administration, and the role of taxes in economic and social policy. Students will learn about federal, state, and local taxation, assess various types of taxes (including income, sales, and property taxes), and explore the impact of taxation on individuals, businesses, and government operations. By the end of the course, students will gain insight into tax compliance, reporting requirements, and the ethical considerations surrounding tax practices.
Recommended Textbook
Concepts in Federal Taxation 2019 26th Edition Kevin E. Murphy
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16 Chapters
2071 Verified Questions
2071 Flashcards
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Chapter 1: Federal Income Taxation-An Overview
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150 Verified Questions
150 Flashcards
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Sample Questions
Q1) Which of the following payments is a tax?
I.Artis paid the IRS a penalty of $475 (above his $11,184 income tax balance due) because he had significantly underpaid his estimated income tax.
II.Lindsey paid $135 to the State of Indiana to renew her CPA license.
III.Carrie paid a $3.50 toll to cross the Mississippi River.
IV.Darnell paid $950 to the County Treasurer's Office for an assessment on his business equipment.
A)Only statement IV is correct.
B)Only statement III is correct.
C)Statements II and IV are correct.
D)Statements I, II, and III are correct.
E)Statements I, II, III, and IV are correct.
Answer: A
Q2) Congress is required to insure that the tax law has the following characteristics: equality, certainty, convenience, and economy.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Income Tax Concepts
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Sample Questions
Q1) Drew Corporation purchased machinery costing $825,000 in 2017. Drew paid $5,000 for installation and testing of the machinery. Under a special election, Drew expensed $500,000 of the cost of the machinery in 2017. Drew also deducted depreciation on the machinery of $46,443 in 2017 and $79,593 in 2018. Drew's repair and maintenance costs on the machinery were $10,200 in 2017 and $13,300 in 2018. What is Drew Corporation's adjusted basis in the machinery at the end of 2018?
A)$175,468
B)$198,964
C)$203,964
D)$325,000
E)$698,964
Answer: C
Q2) An asset's adjusted basis is the amount of unrecovered investment after considering any increases and decreases in the original purchase price.
A)True
B)False
Answer: True
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4
Chapter 3: Income Sources
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Sample Questions
Q1) Art has worked for Denver's Diamond Dealers (DDD) for ten years. During the current year, Art marries and moves from his downtown apartment to a house in the suburbs. Before he was married, Art always rode the bus to work. Because there is no bus service to his new home, Art needs to purchase a car. Wayne, the owner of DDD gives Art $17,000 to purchase a used car. Which of the following statements concerning the $17,000 payment is/are correct?
I.If DDD does not require Art to repay the $17,000, Art has $17,000 of compensation income.
II.If DDD requires Art to repay the $17,000, Art has no compensation income from the receipt of the $17,000.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: C
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Page 5
Chapter 4: Income Exclusions
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160 Flashcards
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Sample Questions
Q1) Laura's employer pays the first $5,000 in childcare benefits under their childcare assistance plan.
A)Fully excluded from gross income.
B)Fully included in gross income.
C)Partially excluded from gross income.
Q2) Barbara was the legal owner of a $100,000 life insurance policy on herself. Glenna is the stated beneficiary. Shortly before her death, Barbara transfers ownership of the policy to Glenna for $15,000. Glenna makes one premium payment in the amount of $1,000 before Barbara dies. Glenna subsequently receives the $100,000 life insurance proceeds. How much of the $100,000 is taxable to Glenna?
A)$- 0 -
B)$15,000
C)$84,000
D)$85,000
E)$100,000
Q3) The interest from Guam Water Authority bonds is excluded from income as "Municipal Bond Interest."
A)True
B)False
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Page 6
Chapter 5: Introduction to Business Expenses
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167 Verified Questions
167 Flashcards
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Sample Questions
Q1) Covenant not to compete for 4 years
A)Capitalized and amortized over a number of accounting periods
B)Expensed in the period incurred
C)Not deductible
D)Can be capitalized and amortized or deductible depending on the amount of the expenditure
Q2) A necessary expense is one that is appropriate and helpful to the taxpayer's income activity.
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.
Q4) If someone provides a taxpayer with either property or services, economic performance occurs when
A)The taxpayer actually uses the property.
B)The property or services are actually provided.
C)The liability to pay for the property or services exists.
D)The taxpayer pays the other person for the property or services.
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Chapter 6: Business Expenses
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Sample Questions
Q1) Walter recently received a notice of an income tax deficiency of $21,000 from the IRS. He hires an attorney to handle his IRS problems. Walter's legal expenses are $4,000. Can Walter deduct the legal expenses?
I.He can deduct the full amount if the tax deficiency relates to his business.
II.He can deduct the full amount if the tax deficiency relates to rental income other than business income.
III.He can deduct the legal fees if the income tax deficiency is personal in nature.
A)Only statement I is correct.
B)Only statement II is correct.
C)Only statement III is correct.
D)Statements I and II are correct.
E)Statements I and III are correct.
Q2) A taxpayer may use either the actual cost method or the standard mileage rate for deducting auto expenses.
A)True
B)False
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Chapter 7: Losses-Deductions and Limitations
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129 Verified Questions
129 Flashcards
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Sample Questions
Q1) Casualty loss
A)Limited to $3,000 annually for individuals.
B)When an asset is disposed of for less than its basis.
C)An excess of business deductions over business income.
D)A trade or business in which the taxpayer is not a material participant.
E)A loss that results from some sudden, unexpected, or unusual event.
F)Any asset that is not a receivable, inventory, or depreciable or real property used in a trade or business.
Q2) Which of the following losses are generally deductible?
I.Loss on the sale of corporate stock.
II.Losses incurred in carrying on a trade or business.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) While most rental activities are classified as passive, an exception is low-income housing.
A)True
B)False
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Anita receives a state income tax refund of $550 in May 2018. When she filed her 2017 federal income tax return, she used the standard deduction amount. Although the all-inclusive income concept would require Anita to report the $550 in her federal gross income for 2018, she may exclude it. What tax concept explains why the exclusion is permitted in this case?
A)Wherewithal to pay.
B)Tax benefit rule.
C)Ability to pay.
D)Assignment of income.
E)Administrative convenience.
Q2) Sale of stock results in a loss of $7,000. The only other capital transaction for the year results in a gain of $6,000. Amount: $7,000
A)Not Deductible
B)Deductible - For AGI
C)Deductible - From AGI
Q3) Taxpayer contribution of $250 to the Democratic Party.
A)Not Deductible
B)Deductible - For AGI
C)Deductible - From AGI
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Page 10
Chapter 9: Acquisitions of Property
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Sample Questions
Q1) The split basis rules for business property prevent the deduction of the disallowed personal loss through depreciation or a loss from the sale of business property.
A)True
B)False
Q2) Whenever the donor's adjusted basis is used to compute a gain or loss on the donee's disposition of property received by gift, the donee's holding period is always the period of time the property was owned by the donee only.
A)True
B)False
Q3) Pedro purchased all of the stock of Regis Corporation. Since he purchased all of the stock the basis in all of the corporation's assets must be restated to fair market value. A)True
B)False
Q4) Randall is given five acres of land in 2005. At the time of the gift, the land had a fair market value of $182,000, and its adjusted basis to the donor was $160,000. What is Randall's gain if he sells the land for $184,000?
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Page 11
Chapter
and Amortization
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110 Flashcards
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Sample Questions
Q1) Cost recoverable intangible properties include I.Uranium ore.
II.Patents.
III.Agreements not to compete.
IV.Copyrights.
A)Statements I and IV are correct.
B)Only statement IV is correct.
C)Statements II and III are correct.
D)Statements II, III, and IV are correct.
E)Statements I, II, III, and IV are correct.
Q2) Mary Wilson purchases a factory building on September 29, 2018, for $4,000,000 (exclusive of the amount allocated to the land). It elects the alternative depreciation system (ADS). What is the 2018 depreciation deduction?
A)$29,167
B)$30,000
C)$42,424
D)$70,833
E)$100,000
Q3) Discuss why listed property gets special attention.
Page 12
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Chapter 11: Property Dispositions
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Sample Questions
Q1) Gross selling price includes
I.the amount of a seller's debt assumed by the buyer.
II.the fair market value of services received by the seller from the buyer.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Explain why a taxpayer would ever consider using accelerated depreciation methods on personal property, given the provisions of Section 1245.
Q3) For depreciable real property, all depreciation taken must be recaptured and treated as ordinary income.
A)True B)False
Q4) Discuss the general differences between Section 1245 and Section 1250 recapture provisions.
Q5) Net collectibles gains are taxed at a maximum rate of 28%. A)True B)False
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Chapter 12: Non-Recognition Transactions
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Sample Questions
Q1) Carrie owns a business building with an adjusted basis of $95,000 and an appraised fair market value of $98,000. The city of Millerville condemns the property for a new highway. The condemnation award is $98,000. Carrie invests $90,000 of the proceeds into a new building on the other side of the city. What is the gain or loss that Carrie must recognize due to the transactions?
A)No gain or loss
B)$3,000 gain
C)$3,000 loss
D)$8,000 gain
E)$5,000 loss
Q2) Commonalties of nonrecognition transactions include that I.gains on all transactions must be recognized when the taxpayer has the wherewithal-to-pay.
II.tax attributes carryover from the original asset to the replacement asset.
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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Page 14
Chapter 13: Choice of Business Entity-General Tax and
Nontax
Factorsformation
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Sample Questions
Q1) Partnership debts assumed by a partner is deemed to be a cash contribution and increases the partner's basis in the partnership.
A)True
B)False
Q2) Which of the following entities can provide fringe benefits to owner/employees that are not taxable to the owner/employee?
I.Sole proprietorships
II.S corporations
III.Partnerships
IV.Corporations
A)Statements I and II are correct.
B)Statements II, III and IV are correct.
C)Statements II and IV are correct.
D)Only statement IV is correct.
E)Statements I and III are correct.
Q3) Does the selection of a corporate entity ever make sense based on a desire for lower marginal tax rates? Discuss.
Q4) Discuss the characteristics of a personal service corporation (PSC).
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Chapter 14: Choice of Business Entity-Operations and Distributions
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Sample Questions
Q1) Not a separate entity
A)Sole Proprietorship.
B)Partnership.
C)Corporation.
D)S Corporation.
Q2) The Gilpin Partnership has an operating loss of $400,000 for the current year. Hawkins is a general partner and owns a 40% interest in the partnership. At the beginning of the year, Hawkins' adjusted basis in the partnership interest is $30,000. During the year the partnership borrows $120,000 with a recourse note. How much of the partnership loss can Hawkins deduct on his current-year income tax return?
A)$- 0 -
B)$30,000
C)$70,000
D)$78,000
E)$200,000
Q3) Corporations that sell depreciable real property are not subject to depreciation recapture rules
A)True
B)False
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Chapter 15: Choice of Business Entity-Other Considerations
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Sample Questions
Q1) Posie is an employee of Geiger Technology and earns $90,000 in 2018. The maximum amount Geiger can contribute to a profit sharing plan on behalf of Posie is
A)$6,000
B)$13,500
C)$22,500
D)$25,000
E)$55,000
Q2) In 2018, Billie decides to purchase a house by withdrawing $15,000 from her IRA. Billie qualifies as a first-time home- buyer. The $15,000 consists of $12,600 in nondeductible contributions and $2,400 in income earned on the plan's assets. Billie will have to pay an early withdrawal penalty of
A)$-0-
B)$240
C)$500
D)$1,260
E)$1,500
Q3) Any structure over 100 years old is eligible for the rehabilitation tax credit.
A)True
B)False
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Page 17
Chapter 16: Tax Research
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Sample Questions
Q1) A tax treaty with a foreign country negotiated by the president is considered a legislative source of tax law.
A)True
B)False
Q2) 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
Q3) Which of the following is a characteristic of U.S. District Courts?
A)A District Court is a national court that hears cases from taxpayers anywhere in the U.S.
B)The District Court judges are tax specialists who hear only tax cases.
C)A taxpayer need not pay any alleged deficiency in order to bring an action against the IRS.
D)The taxpayer may obtain a jury trial; the jury decides matters of fact but not matters of law.
Q4) Taxpayers may choose one of several different courts in which to initiate litigation. Discuss the pros and cons of the different trial level courts.
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