Tax Research and Practice
Practice Questions
Course Introduction
Tax Research and Practice is designed to equip students with the advanced skills needed to effectively navigate the complex landscape of tax law. Emphasizing both federal and state tax issues, this course focuses on the methodologies and tools necessary for conducting thorough tax research, including the use of primary and secondary sources, tax databases, and interpretive guidance from regulatory agencies. Students will learn to analyze tax problems, apply relevant law to fact patterns, and communicate their findings through professional tax memoranda and client communications. Real-world case studies and practical exercises will foster critical thinking, ethical awareness, and the ability to make informed tax recommendations.
Recommended Textbook
South Western Federal Taxation 2014 Individual Income Taxes 37th Edition by William Hoffman
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Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Q1) Scott files his tax return 65 days after the due date.Along with the return,Scott remits a check for $50,000 which is the balance of the tax owed.Disregarding the interest element,Scott's total failure to file and to pay penalties are:
A) $8,250.
B) $7,500.
C) $6,000.
D) $750.
E) None of the above.
Answer: B
Q2) The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith's canon of certainty.
A)True
B)False
Answer: False
Q3) In cases of doubt,courts have held that tax relief provisions should be narrowly construed in favor of taxpayers.
A)True
B)False
Answer: False
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Chapter 2: Working With the Tax Law
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Q1) Which of the following is not published in the Cumulative Bulletin?
A) Revenue Rulings.
B) Proposed Regulations.
C) Actions on Decisions.
D) Letter Rulings.
E) General Counsel Memoranda.
Answer: D
Q2) A Revenue Ruling is a judicial source of Federal tax law.
A)True
B)False Answer: False
Q3) Technical Advice Memoranda deal with completed transactions.
A)True
B)False
Answer: True
Q4) A taxpayer can obtain a jury trial in the U.S.Court of Federal Claims.
A)True
B)False Answer: False
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Chapter 3: Tax Formula and Tax Determination; an
Overview of Property Transactions
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Q1) Once a child reaches age 19,the kiddie tax no longer applies.
A)True
B)False Answer: False
Q2) When the kiddie tax applies,the child need not file an income tax return because the child's income will be reported on the parents' return.
A)True
B)False Answer: False
Q3) When separate income tax returns are filed by married taxpayers,one spouse cannot claim the other spouse as an exemption.
A)True
B)False Answer: False
Q4) Once they reach age 65,many taxpayers will switch from itemizing their deductions from AGI and start claiming the standard deduction.
A)True
B)False Answer: True
Page 5
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Chapter 4: Gross Income: Concepts and Inclusions
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Q1) Melissa is a compulsive coupon clipper.She often brags about the time she purchased a cart full of groceries for $5.00,when the cost without coupons would have been $50.Discuss whether Melissa realizes gross income from her coupon clipping.
Q2) On a particular Saturday,Tom had planned to paint a room in his house,but his employer gave him the opportunity to work that day.If Tom works,he must hire a painter for $120.For Tom to have a positive cash flow from working and hiring the painter:
A) Tom must earn more than $160 if he is in the 25% marginal tax bracket.
B) Tom must earn at least $160 if he is in the 33% marginal tax bracket.
C) Tom must earn at least $150 if he is in the 25% marginal tax bracket.
D) Tom must earn at least $135 if he is in the 15% marginal tax bracket.
E) None of the above.
Q3) Terri purchased an annuity for $100,000.She was to receive $8,000 per year and her life expectancy was 20 years.She died after receiving 15 payments.Terri's final return should reflect a loss of $40,000 (5 payments not made ´ $8,000).
A)True
B)False
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Chapter 5: Gross Income: Exclusions
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Q1) Because graduate teaching assistantships are awarded on the basis of academic achievement,the payments are generally scholarships and therefore are excluded from gross income.
A)True
B)False
Q2) The earnings from a qualified state tuition program account are deferred from taxation until they are used for qualified higher education expenses.At that time,the amount taken from the fund must be included in the gross income of the person who contributed to the account.
A)True
B)False
Q3) Ashley received a scholarship to be used as follows: tuition $6,000; room and board $9,000; and books and laboratory supplies $2,000.Ashley is required to include only $9,000 in her gross income.
A)True
B)False
Q4) If a tax-exempt bond will yield approximately .65 (1 - .35)times the yield on a taxable bond of equal risk,who benefits from the tax exemption: the Federal government,the state and local governments who issue the bonds,or the investors?
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Chapter 6: Deductions and Losses: in General
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Q1) Robin and Jeff own an unincorporated hardware store.They determine their salaries at the end of the year by using the amount required to reduce the net income of the hardware store to $0.Based on this policy,Robin and Jeff each receive a total salary of $125,000.This is paid as follows: $8,000 per month and $29,000 on December 31.Determine the amount of the salary deduction.
Q2) Depending on the nature of the expenditure,expenses incurred in a trade or business may be deductible for or from AGI.
A)True
B)False
Q3) The period in which an accrual basis taxpayer can deduct an expense is determined by applying the economic performance and all events tests.
A)True
B)False
Q4) Under no circumstance can a loss on the sale of a personal use asset be deducted.
A)True
B)False
Q5) Under what circumstance can a bribe be deducted?
Q6) Brenda invested in the following stocks and bonds during 2012.
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) On June 2,2011,Fred's TV Sales sold Mark a large HD TV,on account,for $12,000.Fred's TV Sales uses the accrual method.In 2012,when the balance on the account was $8,000,Mark filed for bankruptcy.Fred was notified that he could not expect to receive any of the amount owed to him.In 2013,final settlement was made and Fred received $1,000.How much bad debt loss can Fred deduct in 2013?
A) $0.
B) $7,000.
C) $8,000.
D) $12,000.
E) None of the above.
Q2) Discuss the treatment,including the carryback and carryforward periods,of casualty losses incurred with personal use property.
Q3) Discuss the calculation of nonbusiness deductions for purposes of determining an individual's NOL.
Q4) For tax years beginning in 2012,the domestic production activities deduction (DPAD)for a sole proprietor is calculated by multiplying 9% times adjusted gross income. A)True B)False
Page 9
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Chapter 8: Depreciation, cost Recovery, amortization, and Depletion
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Sample Questions
Q1) All personal property placed in service in 2012 and used in a trade or business qualifies for additional first-year depreciation.
A)True
B)False
Q2) The cost recovery basis for property converted from personal use to business use may be the fair market value of the property at the time of the conversion.
A)True
B)False
Q3) Norm purchases a new sports utility vehicle (SUV)on October 12,2012,for $50,000.The SUV has a gross vehicle weight of 6,200 lbs.It is used 100% of the time for business and it is the only business asset acquired by Norm during 2012.Compute the maximum deduction with respect to the SUV for 2012.Norm does take additional first-year depreciation.
Q4) Under the alternative depreciation system (ADS),the half-year convention must be used for personalty.
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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Sample Questions
Q1) Madison is an instructor of fine arts at a local community college.If she spends $600 (not reimbursed)on art supplies for her classes,$250 of this amount can be claimed as a deduction for AGI.
A)True
B)False
Q2) Which,if any,of the following expenses are not subject to the 2%-of-AGI floor?
A) Safety shoes purchased by an employed plumber.
B) Reimbursed employee expenses. Taxpayer-employee renders an adequate accounting to the employer.
C) Unreimbursed employee expenses.
D) Tax return preparation fee paid by a non-employed retiree.
E) None of the above.
Q3) Marvin lives with his family in Alabama.He has two jobs: one in Alabama and one in North Carolina.Marvin's tax home is where he lives (Alabama).
A)True
B)False
Q4) Once set for a year,when might the IRS change the rate for the automatic mileage method?
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) Helen pays nursing home expenses of $3,000 per month for her mother.The monthly charge covers the following items: $1,400 for medical care,$900 for lodging,and $700 for food.Under what circumstances can Helen include the $3,000 per month payment when computing her medical expense deduction for the year? If Helen is not allowed to include the entire payment,how much can she include?
Q2) In 2012,Shirley sold her personal residence to Mike for $400,000.Before the sale,Shirley paid the real estate taxes of $7,030 for the calendar year.For income tax purposes,the deduction is apportioned as follows: $4,000 to Shirley and $3,030 to Mike.
a. What is Mike's basis in the residence?
b. What is Shirley's amount realized from the sale of the residence?
c. What amount of real estate taxes can Mike deduct?
d. What amount of real estate taxes can Shirley deduct?
Q3) Warren sold his personal residence to Alicia on July 1,2012.He had paid $4,200 in real property taxes on March 1,2012,the due date for property taxes for 2012.Warren must increase the amount realized for his property by the portion of the $4,200 allocable to Alicia.
A)True
B)False
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Chapter 11: Investor Losses
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Sample Questions
Q1) Jenny spends 32 hours a week,50 weeks a year,operating a DVD rental store that she owns.She also owns a music store in another city that is operated by a full-time employee.Jenny spends 140 hours per year working at the music store.She elects not to group them together as a single activity under the "appropriate economic unit" standard.
A) Neither store is a passive activity.
B) Both stores are passive activities.
C) Only the DVD rental store is a passive activity.
D) Only the music store is a passive activity.
E) None of the above.
Q2) Services performed by an employee are treated as being related to a real estate trade or business if the employee performing the services has more than a 5% ownership interest in the employer.
A)True
B)False
Q3) Ken has a $40,000 loss from an investment in a partnership in which he does not materially participate.He paid $30,000 for his interest.How much of the loss is disallowed by the at-risk rules? How much is disallowed by the passive loss rules?
Q4) What special passive loss treatment is available to real estate activities?
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Chapter 12: Alternative Minimum Tax
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Q1) AGI is used as the base for application of percentage limitations (i.e.,20%,30%,50%)that apply to the charitable contribution deduction for regular income tax purposes.Modified AGI is used as the base for application of percentage limitations that apply to the charitable contribution deduction for AMT purposes.
A)True
B)False
Q2) Danica owned a car that she used exclusively for business.The car was purchased in 2010 and sold in 2012 for a recognized gain of $9,000.However,the sale resulted in no AMT.Why?
Q3) What itemized deductions are allowed for both regular income tax purposes and for AMT purposes?
Q4) Identify an AMT adjustment that applies for the individual taxpayer that does not apply for the corporate taxpayer and identify an AMT adjustment that applies for the corporate taxpayer that does not apply for the individual taxpayer.
Q5) Ashlyn is subject to the AMT in 2012.She calculates her AMT base to be $200,000.What are the AMT rates that apply for Ashlyn?
Q6) Under what circumstances are corporations exempt from the AMT?
Q7) Will all AMT adjustments reverse? That is,do they relate to timing differences?
Page 14
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Chapter 13: Tax Credits and Payment Procedures
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Sample Questions
Q1) During the year,Purple Corporation (a U.S.Corporation)has U.S.-source income of $900,000 and foreign income of $300,000.The foreign-source income generates foreign income taxes of $75,000.The U.S.income tax before the foreign tax credit is $408,000.Purple Corporation's foreign tax credit is:
A) $56,250.
B) $75,000.
C) $102,000.
D) $408,000.
E) None of the above.
Q2) A taxpayer who qualifies for the low-income housing credit claims the credit over a 15-year period.
A)True
B)False
Q3) Child care payments to a relative are not eligible for the credit for child and dependent care expenses if the relative is a child (under age 19)of the taxpayer.
A)True
B)False
Q4) Describe the withholding requirements applicable to employers.
Q5) Discuss the treatment of unused general business credits.
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Chapter 14: Property Transactions: Determination of Gain or
Loss and Basis Considerations
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Q1) Monroe's delivery truck is damaged in an accident.Monroe's adjusted basis for the delivery truck prior to the accident is $20,000.If Monroe receives insurance proceeds of $21,000 and recognizes a casualty gain of $1,000,his adjusted basis for the delivery truck after the accident is $21,000.
A)True
B)False
Q2) The amount received for a utility easement on land is included in the gross income of the taxpayer.
A)True
B)False
Q3) Capital recoveries include:
A) The cost of capital improvements.
B) Ordinary repair and maintenance expenditures.
C) Payments made on the principal of a mortgage on taxpayer's building.
D) Amortization of bond premium.
E) All of the above.
Q4) Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a nephew.
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Q5) For disallowed losses on related-party transactions,who has the right of offset?
Chapter 15: Property Transactions: Nontaxable Exchanges
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Q1) Agnes,a calendar year taxpayer,lists her principal residence with a realtor on January 7,2012,enters into a contract to sell on March 5,2012,and sells (i.e.,the closing date)the residence on May 15,2012.The realized gain on the sale is $240,000.Which date is the appropriate ending date in determining if the residence has been owned and used by the taxpayer as the principal residence for at least two years during the prior five-year period?
A) January 7, 2012.
B) March 5, 2012.
C) May 15, 2012.
D) December 31, 2012.
E) None of the above.
Q2) Evelyn's office building is destroyed by fire on July 12,2012.The adjusted basis is $315,000.She receives insurance proceeds of $350,000 on August 31,2012.Calculate the amount that Evelyn must reinvest in qualifying property in order that her recognized gain be $20,000.Assume she elects § 1033 (nonrecognition of gain from an involuntary conversion)postponement treatment.
Q3) Discuss the treatment of losses from involuntary conversions.
Q4) Distinguish between a direct involuntary conversion and an indirect involuntary conversion.
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Chapter 16: Property Transactions: Capital Gains and Losses
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Q1) Recognized gains and losses must be properly classified.Proper classification depends upon:
A) The tax status of the property.
B) The manner of the property's disposition.
C) The holding period of the property.
D) a., b., and c.
E) None of the above.
Q2) A worthless security had a holding period of 11 months when it became worthless on December 10,2012.The investor who had owned the security had a basis of $10,000 for it.Which of the following statements is correct?
A) The investor has a long-term capital loss of $10,000.
B) The investor has a short-term capital loss of $10,000.
C) The investor has a nondeductible loss of $10,000.
D) The investor has a short-term capital gain of $10,000.
E) None of the above.
Q3) All collectibles long-term gain is subject to a potential alternative tax rate of 28%.
A)True
B)False
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Chapter 17: Property Transactions: Section 1231 and Recapture Provisions
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Sample Questions
Q1) Vanna owned an office building that had been held more than one year when it was sold for $567,000.The real estate had an adjusted basis of $45,000 for the land and $233,000 for the building.Straight-line depreciation of $162,000 had been taken on the building.What is the amount and initial character of the gain or loss from disposition of the real estate? Is any of the gain unrecaptured § 1250 (25%)gain?
Q2) An individual has the following recognized gains and losses from disposition of § 1231 assets (all the assets were vacant land): $15,000 gain,$10,000 loss,$25,000 gain,and $2,000 loss.The individual has a $5,500 § 1231 lookback loss.The individual also has a $16,000 net short-term capital loss from the disposition of stock.Which of the following statements is correct?
A) The taxpayer has $5,500 ordinary gain and $6,500 net long-term capital gain.
B) The taxpayer has $12,000 net long-term capital gain.
C) The taxpayer has $28,000 ordinary gain and $16,000 net short-term capital loss.
D) The taxpayer has $5,500 ordinary loss and $6,500 net long-term capital gain.
E) None of the above.
Q3) Section 1245 may apply to depreciable farm equipment.
A)True
B)False
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Chapter 18: Accounting Periods and Methods
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Q1) Ted,a cash basis taxpayer,received a $150,000 bonus in 2012 when he was in the 35% marginal tax bracket.In 2013,when Ted was in the 28% marginal tax bracket,it was discovered that the bonus was incorrectly computed,and Ted was required to refund $40,000 to his employer.As a result of the refund,Ted can reduce his 2013 tax liability by $14,000 (.35 ´ $40,000).
A)True
B)False
Q2) Abby sold her unincorporated business which consisted of equipment and goodwill.The equipment had an original cost of $200,000 and Abby had claimed $120,000 in depreciation (adjusted basis = $80,000).Abby had no basis in the goodwill.The sales price for the business was $250,000,with $150,000 for the equipment and $100,000 for the goodwill.The buyer agreed to pay $120,000 on June 30,2012,and $130,000 (plus interest at the Federal rate)in two years.Abby's gain to be reported in 2012 (exclusive of interest)is:
A) $40,000.
B) $51,000.
C) $102,000.
D) $118,000.
E) $170,000.
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Chapter 19: Deferred Compensation
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Q1) The $1 million limitation for deductible executive compensation does not apply to the alternative minimum tax.
A)True
B)False
Q2) Scott,age 68,has accumulated $850,000 in a defined contribution plan,$100,000 of which represents his own after-tax contributions.If the full amount is distributed in 2012,his early distribution penalty is:
A) $0.
B) $75,000.
C) $85,000.
D) $127,500.
E) None of the above.
Q3) Samuel,age 53,has a traditional deductible IRA with an account balance of $112,000.Of this amount,$82,000 represents contributions and $30,000 represents earnings.In 2012,he converts his traditional IRA into a Roth IRA.What amount must Samuel include in his gross income,if any,in 2012?
Q4) If a person has funds from sources other than retirement assets when he or she retires,which retirement asset should be spent first?
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Chapter 20: Corporations and Partnerships
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Q1) Emerald Corporation and Gold Corporation each own 500 shares of IBM Corporation common stock and each receives the same amount of cash dividends on their stock investment.The dividends received deduction each corporation can claim may not be the same.
A)True
B)False
Q2) Jerry is the sole shareholder of Bluejay Corporation,a calendar year C corporation.As of January 1,2012,Bluejay has a deficit of $50,000 in accumulated E & P.During 2012,it has current E & P of $300,000 and distributes a cash dividend of $400,000 to its shareholder.As of January 1,2012,Jerry's basis in the Bluejay stock is $75,000.One result of these transactions is:
A) Dividend income to Jerry of $250,000.
B) Dividend income to Jerry of $300,000.
C) Dividend income to Jerry of $400,000.
D) As of January 1, 2013, Bluejay Corporation has a deficit in accumulated earnings and profits of $150,000.
E) None of the above.
Q3) Why were the check-the-box Regulations issued?
Q4) What causes a partner's basis in a partnership interest to fluctuate?
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