Eastern Illinois University
FIN 3300
Final Exam Topics
Calculations will be required for items in bold.
Income Tax Fundamentals
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
Internal Revenue Code:
Treasury Regulations
Revenue Rulings
Private Letter Rulings
United States Tax Court
Small Tax Court
Legislation
Who Must File
Filing Status
Statute of limitations
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
Determination of Income Tax Liability
Gross Income
- “Above the Line Deductions”
= AGI (Adjusted Gross Income)
- Standard or Itemized Deductions
-Personal and Dependency Exemptions
= Taxable Income
Tax Based on Filing Status
Types of income
Exclusions from income
Income timing
Above the Line Deductions
Itemized Deductions
Personal Exemptions
Credits
1)
2)
3)
4)
5)
6)
7)
Child tax credit
a) Phaseout amounts provided
Adoption credit
Child tax credit
a) Phaseout amounts provided
Hope and Lifetime Education credits
a) Phaseout amounts provided
Calculation of Tax
a) Tax Tables provided
Payments of Tax
a) Withholding
b) Estimated Payments
Self-employment tax
Trusts/Estates
1)
2)
Trusts
a) Types of trusts
b) Income tax treatment of trusts
Estates
a) Probate estate
b) Taxation of trusts
Accounting Methods
1)
2)
3)
Cash basis
a) Constructive receipt
Self-Employment Tax
Partnerships
a) Taxation
b) Advantages
c) Disadvantages
S and C Corporations
1)
2)
3)
1)
2)
3)
4)
5)
1)
2)
3)
S Corporations
a) Taxation
b) Requirements
c) Losses
C corporations
a) Dividends
LLCs/LLPs
a) Taxation
b) Requirements
MACRS: tables provided
Section 179 election
Allocation of cost of an asset
Depreciation recapture
a) Section 1245: personal property
b) Section 1250: real estate
Listed property
At-Risk Rules
a) Real estate
Passive Activity Losses
a) Passive activity
b) Rental activities
c) Phaseout amounts provided
Grouping of passive activities
Depreciation
Passive Activity Losses
Alternative minimum tax
1)
Calculation
a) Preferences
i)
Incentive stock options (ISOs)
b) AMTI Exemption
c) Phaseout amounts provided
d) AMT Credits
e) Alternative minimum tax
f)
AMT Planning Techniques
g) NQSOs
1)
2)
3)
4)
5)
Qualified organizations
Amount deductible
Substantiation
IRA Contributions
Charitable Trusts
a) CRAT
b) CRUT
1)
1)
2)
3)
4)
5)
Capital assets:
Long-term vs. short-term
Basis
Capital gains tax rates
Capital losses
Section 1231 gains and losses
1)
2)
3)
4)
5)
6)
7)
Qualifying property
Gain recognized
Basis in property received
Basis in old property
Related parties
Forward exchanges
Reverse exchanges
Charitable Contributions
Capital Gains and Losses
Like Kind Exchanges and Capital Transactions
8)
9)
10)
11)
12)
13)
14)
15)
Specific identification
Average cost
Calls
Puts
Collars
Installment sales
Wash sales
Sale of Personal Residence
1)
2)
3)
4)
5)
6)
Marriage Penalty
Married Filing Separate
Property division
Alimony
Child support
QDRO
Marriage and Divorce
1)
2)
Retirement Plans
Defined Benefit vs. Defined Contribution Pension Plans
a) Defined Benefit Plans
b) Defined Contribution Plans
i)
Maximum contribution for the year
c) Distributions: Pension Plan/Normal Retirement Age
d) Joint and Survivor Annuity after retirement
e) Distributions Prior to 59½
f)
Minimum Distributions
IRAs – Contribution Limit
a) Traditional and Roth
b) IRA Investment Options
Employee Benefits
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)
16)
17)
18)
19)
Employee Stock Purchase Plans (ESPPs)
Stock Appreciation Rights (SARs)
Restricted Stock
Junior Stock
Phantom stock
Fringe Benefits
Taxation of Fringe Benefits
Group Medical Plans
a) COBRA Provisions
Group Term Life Insurance
Group Disability Insurance
Cafeteria Plan
Flexible Spending Accounts
Health Savings Accounts
Voluntary Employees Beneficiary Association (VEBA)
Salary Continuation Plans
Group Long-Term Care Insurance
Business Continuation Plans
Split-Dollar Life Insurance
Key Person Life Insurance
1)
Which of the following sources of Federal income tax law is not drafted by the Internal Revenue Service?
a) Internal Revenue Code
b) Treasury Regulations
c) Revenue Rulings
d) Private Letter Rulings
2)
Wanda Wright was assessed an additional $786,000 in taxes for failing to include income from watch sales on his
2008 Federal income tax return. In which of the following courts can Ms. Wright appeal this deficiency without
payment of the disputed amount of income tax prior to hearing the case?
a) United States Tax Court
b) United States Tax Court small tax cases
c) Both a) and b)
d) Neither a) or b)
3)
Tax
a)
b)
c)
d)
4)
Which of the following statements is correct?
i)
The Internal Revenue Service will automatically refund any income taxes due to an individual who is not
required to file a Federal income tax return
ii) If an individual fails to file a Federal income tax return in 2008, the Internal Revenue Service can assess a
deficiency 80 years later for taxes owed by the individual for 2008
iii) If a couple is married on December 31, 2008, they can file married filing joint for 2008
(a) i) and iii)
(b) ii) and iii)
(c) ii) only
(d) iii) only
5)
Which of the following does not reduce AGI?
a) $1,000 of self-employed health insurance
b) $1,000 of charitable contributions
c) $1,000 of contributions to a Traditional IRA
d) $1,000 of student loan interest
6)
Which of the following is included in gross income of Merle Mizaur?
a) A $13,000 gift she received from Beatrice Bushue
b) $22,000 she inherited from her Aunt Edna
c) A $2,000 gain on the sale of bonds issued by the city of Chicago
d) A $175,000 gain on the sale of her home she has lived in for six years
7)
Which of the following is included in gross income of Loretta Luce?
a) $15,000 in disability insurance benefits from a policy she purchased
b) $45 of pizza her employer provided when she was required to work overtime
c) $600 of dividends which were reinvested into additional shares of the Dive Bomb international stock mutual
fund
d) A $3,000 scholarship which paid for her tuition at the University of Mattoon
8)
Which of the following are not subject to phase out based on the amount of the taxpayer’s income?
a) Itemized deductions
b) Personal exemptions
c) Hope education credit
d) Traditional IRA deductions
e) Mortgage interest expense
9)
Medith and Melbert Mizaur have two children, Megbert and Meggplant. Megbert, age 22, is a graduate student at
the University of Effingham and lives with his parents who provide all of his support. Meggplant, age 18, is married
and files a joint return with her husband, L. Phunt. Megghead, age 2, is Megbert’s daughter and lives with the
Mizaur’s. How many exemptions can the Mizaurs claim?
a) 2
b) 3
c) 4
d) 5
e) 6
legislation originates in:
The Senate Finance committee
The House Ways and Means committee
The Treasury Department
The House Committee on Taxation
10) Theodore Tumang purchased 100 shares of Infail for $10,000. He gave the shares to his neice Sally Smoes in 2004
when the 100 shares had a value of $3,000. Ms. Smoes sold the stock in 2008 for $9,000. What is the amount of
capital gain Mr. Smoes will report in 2008?
a) -1,000
b) 0
c) 6,000
d) 9,000
11) Milford and Maquerty Mizaur have AGI of $255,000. They have no children. What is their deduction for personal
and depednency exemptions in 2008?
a) 0
b) 7,008
c) 7,203
d) 7,268
e) 7,300
12) Merv and Mabel Mizaur had AGI of $700,000 in 2008. They had itemized deductions of $17,400. What is the
amount of itemized deductions or stanard deduction they will be able to deduct on their Federal income tax return?
a) 0
b) 1,404
c) 11,400
d) 12,068
e) 17,400
13) The
a)
b)
c)
d)
e)
first estimated tax payment of Federal income taxes for 2008 is due:
Janaury 15, 2008
April 15, 2008
December 31, 2008
January 15, 2009
April 15, 2009
14) Beulah and Bluggy Bushue have AGI of $110,000 before a $3,000 loss from an apartment building in Charleston,
Illinois. Bluggy works 650 hours per year mowing the lawn at the building and showing the apartments to
prospective tenants. What is the amount of the loss for the apartment buidling the Bushues can deduct in 2008?
a) 0
b) 1,500
c) 3,000
d) 5,000
e) 20,000
15) Leo and Lona Lewis go to a charity dinner-dance and pay $450 for the tickets. The fair market value of the ticket is
$185. All proceeds from the event go directly to this qualified charity. They file a joint tax return and are aware that
the value of the tickets is LESS THAN what was paid. The allowable charitable contribution on their federal tax return
should be:
a) $185
b) $225
c) $265
d) $450
16) Marvin Mizaur purchased a new combine for $96,000. It was the only equipment he purchased during the year. His
income from farming prior to depreciation of the combine was $47,000. What is the maximum amount of Section
179 expense he can claim for the combine in 2008?
a) 0
b) 47,000
c) 56,000
d) 96,000
e) 112,000
17) Sally Sackman purchased a honey wagon (seven-year property) for $71,000 on January 31, 2008. It is the only
equipment she purchased during the year. What is the amount of depreciation she can claim in 2008 if her income
from farming prior to depreciation was $7,000?
a) 7,000
b) 10,146
c) 17,750
d) 35,500
e) 71,000
18) Which of the following is not a requirement for an S corporation?
a)
b)
c)
d)
all shareholders must elect to have the corporation become an S corporation
an S corporation must have a single class of stock
only individuals may be S corporation shareholders
an S corporation may have no more than 100 shareholders
19) Beulah Bushue owns all of the stock of Bushue Bricks, an S corporation. During 2008, the company had a loss of
$31,000 and it made a distribution of $3,000 to the owner. What is the amount of loss Mr. Bushue can include on
his Form 1040 if he had basis of $14,000 in the company’s stock at the start of 2008 and he made a loan of $10,000
to the business during the year?
a) 11,000
b) 14,000
c) 21,000
d) 24,000
e) 31,000
20) Delilah Davis has a portfolio of $1,000,000 in his 401(k) plan at retirement. Academic studies have shown the
maximum Mr. Yates should withdraw each year if he wishes to avoid the risk of “outliving his money” is:
a) 10,000
b) 40,000
c) 80,000
d) 100,000
21) With a defined contribution plan, the employee has:
a) Investment risk if the investments in the retirement plan decline in value
b) Life expectancy risk if the employee lives longer than his life expectancy
c) Both a) and b)
d) Neither a) or b)
22) Which of the following is correct?
a) If you are disabled, you can not withdraw funds from a defined contribution plan until you are 59 ½
b) An individual who is 61 years old must take a distribution from his Traditional IRA
c) Both a) and b)
d) Neither a) or b)
23) Which of the following would be preferable to hold in a retirement plan?
a) An actively managed equity fund
b) A double short Russell 5000 ETF
c) A zero coupon corporate bond
d) Shares of Citibank
24) What are the two largest sources of funds for the Federal government?
a) Corporate income taxes and tariffs
b) Social security taxes and corporate income taxes
c) Excise taxes and corporate income taxes
d) Individual income taxes and social security taxes
25) Beulah Bushue owns an apartment building with a value of $500,000 and an adjusted basis of $470,000. Boris
Brown owns a dairy farm with a value of $320,000 and an adjusted basis of $110,000. Brown transfers the land
and $180,000 to Bushue in exchange for the apartment building. What is the amount of taxable gain recognized
by Bushue on the exchange?
a) 0
b) 30,000
c) 180,000
d) 500,000
26) What is the amount of taxable gain recognized by Brown on the exchange?
a) 0
b) 110,000
c) 180,000
d) 210,000
27) What is the amount of Bushue’s basis in the dairy farm after the exchange?
a) 290,000
b) 320,000
c) 470,000
d) 500,000
28) What is the amount of Brown’s basis in the apartment building after the exchange?
a) 110,000
b) 290,000
c) 320,000
d) 430,000
29) Mearl Mizaur purchased 200 shares of Dive Bomb mutual fund on July 28, 2001 for $12,000. On August 21, 2008,
Mrs. Mizaur purchased an additional 200 shares for $20,000. On June 24, 2009, Mr. Mizaur sold 100 shares for
$8,400. What is Mrs. Mizaur’s gain on the sale (loss) of the shares if she can’t specifically identify the shares sold?
a) -7,600
b) -3,600
c) 400
d) 2,400
30) Which of the following is included in an employee’s taxable income?
a) The use of a company car to drive from home to work
b) Meals provided at the place of business due to employee’s being unable to leave work
c) Both a) and b)
d) neither a) or b)
31) Which of the following is included in an employee’s taxable income?
a) Employer payment of employee’s dues at an athletic club located down the block from the employer
b) Employer reimbursement of $2,000 of education expenses for an employee
c) Both a) and b)
d) neither a) or b)
32) Which of the following is included in an employee’s taxable income?
a) Group-term life insurance coverage of $80,000
b) Sale of inventory to employees below cost
c) Both a) and b)
d) neither a) or b)
33) Which of the following is included in an employee’s taxable income?
a) Employer reimbursement of $10,000 to assist an employee with an adoption
b) Employer reimbursement of $600 per month for employee parking
c) Both a) and b)
d) neither a) or b)
34) On April 17, 2006, Delilah Davis received 500 shares of Intel with a value of $10,000 as a gift from her brother
Delbert. He had purchased the shares in 1981 for $1,000. Ms. Davis purchased 200 additional shares of Intel for
$6,000 on April 25, 2008. Then on May 30, 2008 she sold 100 shares for $3,200. If she can not specifically identify
the shares she sold, Ms. Davis will have:
a) a short-term capital loss of $2,800
b) a short-term capital gain of $200
c) a long-term capital gain of $1,200
d) a long-term capital gain of $3,000
35) On April 17, 2006, Dorkus Davis inherited 500 shares of Ameren with a value of $30,000 from her mother Dinji. She
had purchased the shares in 1981 for $2,000. Ms. Davis purchased 100 additional shares of Ameren for $3,000 on
April 25, 2008. Then on May 15, 2008 she sold 100 shares for $3,200. If she can not specifically identify the shares
she sold, Ms. Davis will have:
a) a long-term capital loss of $2,800
b) a short-term capital gain of $200
c) a long-term capital gain of $2,600
d) neither a capital gain or loss
36) On April 17, 2006, Doorbell Davis inherited 500 shares of Ameren with a value of $30,000 from her mother Dinji.
She had purchased the shares in 1981 for $2,000. Ms. Davis purchased 100 additional shares of Ameren for $2,000
on March 25, 2008. Then on May 25, 2008 she sold 100 shares for $2,800. If she can not specifically identify the
shares she sold, Ms. Davis will have:
a) a long-term capital loss of $3,200
b) a short-term capital gain of $200
c) a long-term capital gain of $2,600
d) neither a capital gain or loss
37) Marvin Mizaur owns 1,000 shares of Google which he purchased for $60 per share. Mr. Mizaur is worried the price
of Google stock may fall dramatically due to an earnings report to be released next week. Mr. Mizaur should:
a) buy calls on Google stock
b) sell calls on Google stock
c) buy puts on Google stock
d) sell puts on Google stock
38) Milford Mizaur owns 100,000 shares of Google which he purchased for $60 per share. Mr. Mizaur is worried the
concentrated position he has in Google stock. His nephew, Telli Traore, a bright finance recommends a collar. This
will require Mr. Mizaur to:
a) buy calls on Google stock and sell puts
b) buy puts on Google stock and sell calls
c) sell calls on Google stock and sell puts
d) buy puts on Google stock and buy calls
39) Calice and Calbert Cook have filed for divorce. You represent Alice. Which of the following assets should you
recommend Calice seek in the property settlement?
a) 1,000 shares of Petro Canada stock purchased for $32,000 with a current value of $50,000
b) 1,000 shares of Ameren stock purchased for $82,000 with a current value of $50,000
c) farm land purchased for $12,000 with a current value of $50,000
d) the Cook’ home which was purchased for $32,000 with a current value of $50,000
40) Which of the following is correct?
a) The maximum payment for medical expenses from an HSA is $10,000,000.
b) A pre-existing condition for medical insurance purposes is medical condition the insured had at birth.
c) Both a) and b)
d) Neither a) or b)
41) Group term life insurance coverage up to _________ is not taxable to the employee.
a) 10,000
b) 50,000
c) 75,000
d) 100,000
e) 750,000
42) Sam Smoes earns $120,000 per year as an elephant trainer at the Mattoon Zoo. What is the maximum amount of
disability insurance he will be able to purchase?
a) 3,000 per month
b) 5,000 per month
c) 7,000 per month
d) 10,000 per month
e) 12,000 per month
43) Sam Smoes purchased a disability insurance policy which defines disability as being “unable to perform duties of his
usual occupation”. After an elephant sits on Sam, he receives $3,000 per month from his disability insurance policy.
Which of the following statements are correct?
a) If Sam is able to regain feeling in his right arm and is hired by the Chicago Flubs as a “closer”, he will no longer
be eligible for disability insurance payments.
b) The disability insurance payments will not be subject to federal income tax.
c) Both a) and b)
d) Neither a) or b)
44) Which of the following statements are correct?
a) Funds set aside for medical expenses in a flexible spending account are forfeited if they are not spent by the
end of the year.
b) To have a Health Savings Account an individual must be covered by a health insurance policy with a high
deductible.
c) Both a) and b)
d) Neither a) or b)
45) A QDRO permits:
a) the distribution of funds from a retirement account to an ex-spouse without payment of income taxes or
penalty
b) the distribution of funds from a retirement account to an ex-spouse requiring payment of income taxes but no
penalty
c) long-term care payments to be received by a spouse without payment of income taxes
d) continuation of health insurance coverage for an employee changing jobs
46) Distributions more than five years after the funds were contributed to a _________ by an individual age 60 are not
subject to income tax.
a) Traditional IRA
b) Roth IRA
c) both a) and b)
d) Neither a) or b)
47) Which of the following does not require the employee to purchase stock?
a) phantom stock
b) SARs
c) Both a) and b)
d) Neither a) or b)
48) What form of fringe benefits package allows an employee to select the fringe benefits she prefers?
a) COBRA
b) QDRO
c) cafeteria
d) VEBA
49) An employee can purchase permanent insurance for the cost of term insurance under a:
a) split-dollar life insurance plan
b) long-term care insurance plan
c) key-man life insurance plan
d) cafeteria life insurance plan
50) In order to postpone the taxation of compensation to a future year, an employee must
a) Ask to defer the compensation to a later year prior to earning the compensation
b) Have the risk of losing the deferred compensation if her employer becomes insolvent
c) Both a) and b)
d) Neither a) or b
51) Which of the following types of trusts allows an employee to defer the taxation of funds placed into the trust?
a) Secular
b) Rabbi
c) Both a) and b)
d) Neither a) or b
52) Payments received under which of the following is subject to FICA tax?
a) phantom stock
b) SARs
c) Both a) and b)
d) Neither a) or b)
53) Turtle Tumang had brain surgery so she could learn to tell time. Her major medical insurance policy had a $1,000
deductible and a 80/20 co-pay with a maximum out of pocket of $5,000. If the cost of the surgery is $21,000, what
is the amount Cook will be required to pay?
a) $1,000
b) $4,200
c) $4,600
d) $5,000
54) HSAs:
a) Require a high deductible health insurance policy
b) Permit tax-free earnings for funds used for medical expenses
c) Both a) and b)
d) Neither a) or b)
55) Transferring assets to an irrevocable trust:
i)
Reudces the probate estate
ii) Reduces the taxable estate
(a) i) only
(b) ii) only
(c) both i) and ii)
(d) neither i) or ii)
56) Income from a grantor trust is taxed to:
i)
The grantor of the trust
ii) The trust if the income is not distributed
iii) The beneficiaries of the trust if it is distributed
(a) ii) only
(b) i) and ii)
(c) i, ii) and iii)
(d) i) and ii)
(e) i) only
57) Calice Cook purchased an apartment building in 1985 for $220,000. She has taken a total of $190,000 of
deprecation during the time she has owned the building. In 2008, she sells the building for $720,000. What is the
amount of taxable income Cook will have from the sale in 2008?
a) 0
b) 30,000
c) 190,000
d) 690,000
e) 720,000
58) Which of the following type of regulations represents primary authority?
a) proposed
b) temporary
c) interpretive
d) legislative
59) A taxpayer who is unsure of the tax treatment by the Internal Revenue Service for a transation involving a
substantial amount of money may request a:
a) revenue procedure
b) technical advice memorandum
c) revenue ruling
d) private letter ruling
60) Mabel Mizaur’s husband Malph was fatally injured by a wayward elephant at the circus on December 24, 2007. The
Mizaurs have a two-year old son, Malph, Jr. Mabel qualifies for married filing joint status for:
a) 2007, 2008, and 2009
b) 2007
c) 2007, 2008
d) she must file as head of household for all years
61) Marvin Mizaur, who has a 35% marginal tax rate, purchased a 4 percent coupon bond issued by the city of Mattoon
at par. The taxable equivalent yield for this bond is ___ .
a) 1.4%
b) 2.8%
c) 6.15%
d) 10.15%
62) Tu Tu Tumang, age 72, received $20,000 of social security benefits in 2008. What is the maximum amout of
benefits that may be subject to income tax in 2008?
a) $3,000
b) $4,000
c) $17,000
d) $20,000
63) Tommy Trakes purchased 10,000 shares of Jones Soda for $220,000. She sold all 10,000 shares three years later in
2008 for $40,000. What is the maximum amount of capital loss Trakes can deduct in 2008?
a) 0
b) 3,000
c) 90,000
d) 180,000
64) What type of trust can accumulate trust income and make charitable contributions?
a) complex
b) simple
c) accumulation
d) complete
65) Which of the following assets included in a decedent’s estate would create IRD?
a) $56,000 in a 401(k) plan
b) $437,000 in life insurance proceeds
c) a $320,000 home owned entirely by the decedent
d) $791,000 of IBM stock owned by the decedent
66) Mutual agency:
a) creates liability for the general partners for the acts of other partners related to the business
b) creates unlimited liability for limited partners
c) requires distributions from a grantor trust
d) is required to form an LLC
67) Which of the following statements about S corporations is false?
a) all corporations with one shareholder are automatically considered to be S corporations
b) the corporation can only have one class of stock
c) the corporation must have less than 100 shareholders
d) generally there is no corporate income tax on S corporations
68) Which of the following is not a non-taxable fringe benefit for an employee?
a) Reimbursement for $200 of parking expense each month
b) $100 for a monthly pass on the Charleston Metro Authority commuter bus
c) Flights from Chicago to Springfield on a charter plane owned by the state of Illinois at a cost of $4,900 per
flight to allow the state governor to spend extra time combing his hair each morning
d) Reimbursement for an employee moving household goods from Chicago to Springfield
e) Lodging for a forest ranger
69) An individual under the age of 55 can contribute _______ to an HSA in 2009.
a) 2,000
b) 2,900
c) 5,000
d) 5,800
e) 6,000