Tax Research
Study Guide Questions
Course Introduction
Tax Research is an advanced course designed to equip students with the skills and knowledge necessary to conduct comprehensive research on complex tax issues. The course explores the primary and secondary sources of tax law, including the Internal Revenue Code, Treasury regulations, case law, IRS rulings, and other authoritative literature. Students learn how to approach tax questions, develop effective research strategies, utilize specialized tax databases, and analyze the findings to reach sound conclusions. Emphasis is placed on communication of research results through written reports and oral presentations, as well as on the ethical responsibilities of the tax professional in applying the law.
Recommended Textbook
Concepts in Federal Taxation 2014 21st Edition by Kevin
E. Murphy
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Chapter 1: Federal Income Taxation - an Overview
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151 Flashcards
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Sample Questions
Q1) Which of the following types of taxes rely solely on "income" as the tax base for determining the amount of tax liability?
I.Sales Tax
II.Property Tax
III.Gift Tax
IV.Social Security Tax
V.Excise Tax
A)Statements I, II, III, IV, and V are correct.
B)Statements I, III, and IV are correct.
C)Statements II and IV are correct.
D)Only statement IV is correct.
E)None of the above types of taxes relies on income for its tax base.
Answer: D
Q2) A state sales tax levied on all goods and services sold is an example of a A)progressive tax.
B)regressive tax.
C)proportional tax.
D)value added tax.
Answer: C
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Chapter 2: Income Tax Concepts
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Sample Questions
Q1) Realization
A)Taxpayer reports income when received in cash or its equivalent and takes deductions as they are paid.
B)A deduction taken in one year that is recovered in a later year is reported as income in the year of recovery to the extent that the deduction reduced taxable income.
C)Taxpayer reports income as earned and deductions as incurred.
D)The result of an arms-length transaction.
E)Exclusions and deductions result from specific acts of Congress that must be strictly applied and interpreted.
F)The taxability of a transaction is determined by the reality of the transaction rather than some contrived appearance.
G)The reporting of an item of income or expense on a tax return
H)No income is realized until the taxpayer's invested capital is recovered.
I)All income received is taxable unless some specific provision of the tax law allows exclusion of the item.
J)These taxpayers are not deemed to transact at arms-length.
Answer: D
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Chapter 3: Income Sources
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Sample Questions
Q1) Marvin and Simone are a retired couple living on income from their investments and Social Security benefits.During the current year,they receive the following: \(\begin{array} { l r }
\text {Consulting fee from Burton Industries } &\$ 35,000 \\
\text {Interest on municipal bonds } &7,000 \\
\text { Social Security benefits } &20,000 \end{array}\)
Marvin and Simone's adjusted gross income is:
A)$45,000
B)$47,800
C)$52,000
D)$55,000
E)$61,000
Answer: B
Q2) For any unrecovered portion of an annuity investment,the taxpayer is allowed a deduction in the year of death.
A)True
B)False
Answer: True
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Chapter 4: Income Exclusions
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Sample Questions
Q1) Gus owes $50,000 in credit card debt to Neighbor's Bank.Gus was having financial difficulties during the current year and Neighbor's Bank agreed to reduce Gus's debt to $20,000 to help him get his financial affairs in order and avoid bankruptcy.
I.If Gus's assets were $100,000 and his liabilities were $150,000 before the discharge,he is not taxed on any of the $30,000 debt reduction.
II.If Gus's assets were $80,000 and his liabilities were $100,000 before the discharge,he is taxed on all $30,000 of the debt reduction.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Julian's tenant improves her side of the duplex by making improvements to the bathroom and kitchen that are worth $750.Julian does not adjust her rent for the $750 improvements.
A)Fully excluded from gross income.
B)Fully included in gross income.
C)Partially excluded from gross income.
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Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) Jackie recently retired from the U.S.Coast Guard after 30 years of service.She would like to open a boat shop to operate in her retirement years.Jackie incurs $3,800 of expenses while investigating sites for her shop and while checking out boat franchises.What are the tax effects of the expenses Jackie incurs?
I.If Jackie enters the boat business,she can deduct the costs only by capitalizing them and amortizing them over 180 months.
II.They are not deductible if Jackie does not enter the ski and boat business.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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.
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Chapter 6: Business Expenses
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Sample Questions
Q1) Jay obtains a new job in Boston and moves from Reno during the current year.He incurs the following moving expenses: \(\begin{array}{lr}
\text {Transportation of household goods } &\$ 5,700 \\
\text { House-hunting trips to Boston } &600 \\
\text {Cost of transporting Jay's family } &2,300 \\
\text {Meals incurred while moving the family } &200 \\
\text {Temporary living expenses while waiting for the new residence to be ready } &1,000 \end{array}\)
What is Jay's moving expense deduction?
A)$ - 0 -
B)$ 5,700
C)$ 8,000
D)$ 9,700
E)$ 9,800
Q2) Walter is a cash basis taxpayer with a drapery cleaning business.In the current year he determines he will never receive payment from Davis for cleaning services provided to Davis.Can Walter record a deduction for the bad debt? Explain.
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Page 8
Chapter 7: Losses: Deductions and Limitations
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Sample Questions
Q1) A passive activity
I.includes an interest in a limited partnership held by a limited partner investor.
II.includes a working interest in an oil and gas deposit.
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 events is a "casualty" loss?
I.Lightning damage.
II.Loss of the topsoil on a farm from a flood.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Virginia owns a business that rents power equipment to construction companies.Despite maintaining,delivering,and picking up the equipment,Virginia's business is passive since it is a rental activity.
A)True
B)False
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) To recognize such basic personal living costs as food and clothing,each individual taxpayer is allowed a personal exemption of $3,900 in 2013.
A)True
B)False
Q2) During 2013,Marla earns $2,700 from a summer job.She also has interest income of $2,400.Marla,age 19,is a full-time student at Western College.Her parents claim her as a dependent.Their taxable income is $100,000.What is Marla's tax liability for 2013?
A)$ 210
B)$ 265
C)$ 300
D)$ 450
E)$ 525
Q3) Any charitable contributions made in excess of the individual's limitation on charitable contributions can be carried forward seven years.
A)True
B)False
Q4) Explain the non-support test and the principle residence test to be a qualifying child.
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Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Oscar buys a 10% interest in Britanny Corporation paying $92,000 cash on January 1,2012.During 2012,Britanny Corporation reports a loss of $30,000 and pays cash dividends to shareholders of $10,000.For 2013,Britanny Corporation has a loss of $60,000 and pays cash dividends of $20,000.If Britanny Company is organized as an S Corporation,Oscar's basis in the Britanny Corporation stock at the end of 2013 is:
A)$ 80,000
B)$ 86,000
C)$ 92,000
D)$ 98,000
E)$ 104,000
Q2) 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
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Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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Sample Questions
Q1) Amortization
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) What is the MACRS recovery period for a warehouse placed in service on August 31,2013?
A)10 years.
B)27.5 years.
C)31.5 years.
D)39 years.
E)40 years.
Q3) Discuss why listed property gets special attention.
Q4) Under the computation of the alternative minimum tax,the Alternative Depreciation System may be used but is not required.
A)True
B)False
Page 12
Q5) Why would a taxpayer ever elect to use the alternative depreciation system (ADS)rather than the MACRS?
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Chapter 11: Property Dispositions
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Sample Questions
Q1) Johnson Corporation's 2013 business operating income is $200,000.Johnson also recognizes an $8,000 Section 1231 loss,an $11,000 Section 1231 gain,and a $5,000 long-term capital loss from the sale of investment securities.What is Johnson Corporation's 2013 taxable income?
A)$195,000
B)$198,000
C)$200,000
D)$203,000
E)$211,000
Q2) Section 1250 property
A)Stocks, bonds, options.
B)Depreciable real property.
C)Taxed at an effective rate of 14%.
D)Taxed at a maximum rate of 25%.
E)Gain or loss on the sale of artwork.
F)Depreciable tangible personal property.
G)Subject to full recapture as ordinary income of all depreciation taken.
H)Gain on real property attributable to excess depreciation is ordinary income.
Q3) What incentive provisions or preferential treatments exist for capital gains?
Q4) Discuss the general differences between Section 1245 and Section 1250 property.
Page 13
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Chapter 12: Nonrecognition Transactions
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Sample Questions
Q1) Tony and Faith sell their home for $495,000,incurring selling expenses of $25,000.They purchased the residence for $85,000 and made capital improvements totaling $20,000 during the 20 years they lived there.What is their realized gain and recognized gain on the sale?
\(\begin{array}{cc}
\text { Realized } & \text { Recognized } \\
a.\$ 365,000 & \$-0- \\
b.\$ 365,000 & \$ 115,000 \\
c.\$ 385,000 & \$ 135,000 \\
d.\$ 385,000 & \$-0- \\
e.\$ 390,000 & \$-0\end{array}\)
Q2) A personal residence for a vacation home.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q3) Office copier for an office fax machine.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q4) Discuss the type of property that is qualified replacement property for involuntary conversion provisions for gain deferrals.
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Chapter 13: Choice of Business Entity - General Tax and
Nontax Factorsformation
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Sample Questions
Q1) Limited Partnership
A)An entity with conduit tax characteristics that provides limited liability to its owners.
B)An organization of two or more persons operating a business that is not taxed.
C)A general partnership that offers limited liability to the partners.
D)An association created under the laws of a state giving owners limited liability.
E)Retains legal characteristics while obtaining tax characteristics of a conduit.
F)A partnership in which the liability of at least one partner is limited.
Q2) Partners have extensive flexibility in choosing their tax year-end for their partnership.
A)True
B)False
Q3) Limited liability refers to
A)whether the entity ceases to exist with a change in ownership.
B)who manages the entity.
C)whether the owners are risking any more than they invested in the firm.
D)the ease with which ownership can be transferred.
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) Salem Inc.is an electing S corporation with current year operating income of $300,000.The $300,000 does not include the amount it realized on the sale of a building for $330,000.The building was purchased in 2004 for $250,000 and $20,000 in straight-line depreciation had been taken on the building up to the date of its sale.How should Salem Inc.report these results to its shareholders?
A)Operating income of $320,000 and Section 1231 gain of $80,000.
B)Operating income of $400,000.
C)Operating income of $304,000 and Section 1231 gain of $96,000.
D)Operating income of $380,000 and unrecaptured Section 1250 gain of $20,000.
E)Operating income of $300,000 and Section 1231 gain of $80,000 and unrecaptured Section 1250 gain of $20,000.
Q2) Since Wisher,Inc.owns 80% of Patriot,Inc.(a U.S.corporation)the dividend received deduction rate is 100%.
A)True B)False
Q3) Discuss two tax-planning techniques that can be used by a 100% owner-employee to reduce his/her tax liability.
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Chapter 15: Choice of Business Entity - Other
Considerations
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Sample Questions
Q1) Patricia and her daughter Sheila each own 50% of Draper,Inc.Patricia is the president and CFO of the corporation and receives a salary of $125,000.Other individuals with similar responsibilities as Patricia are paid approximately the same salary.Sheila,who is vice president,is paid a salary of $50,000.However,Sheila is not involved in the business decisions and rarely visits the office.Which of the following are correct statements?
I.Draper can deduct $175,000 as salary expense.
II.Sheila must report $50,000 as income.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) When calculating AMTI,individual taxpayers must add back the following:
I.The standard deduction amount.
II.Casualty and theft losses.
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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Chapter 16: Tax Research
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Sample Questions
Q1) A taxpayer who loses in the U.S.Tax Court may appeal directly to the:
A)Supreme Court.
B)U.S. Court of Federal Claims.
C)U.S. District Court.
D)U.S. Circuit Court of Appeals.
E)Any of the above.
Q2) Taxpayers may choose one of several different courts in which to initiate litigation.Discuss the pros and cons of the different trial level courts.
Q3) Title 26 of the U.S.Code includes
I.Bankruptcy legislation.
II.Employment tax legislation.
III.Estate and Gift tax legislation.
IV.Alcohol and Tobacco tax legislation.
A)Only statement II is correct.
B)Statements II and III are correct.
C)Statements II, III, and IV are correct.
D)Statements I, II, III, and IV are correct.
E)None of the above are in Title 26.
Q4) Describe the steps of the tax research process.
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