Federal Taxation Exam Questions with 100% Correct Answers (Latest 2023)

Adjusted Gross Income (AGI) Correct Answer Gross income less "above the line deductions" Gross Income Definition Correct Answer Gross income includes any economic benefit or any clearly realized accession to your wealth. Realization Correct Answer The increased or decreased value of an asset is not taken into account for tax purposes until it is realized through the sale or other disposition of the asset. Non-cash Receipts (Barters) Correct Answer Gross income includes FMV of any property received and the FMV of any services received. --Ex: Summer associate gets season tickets -- will have to report FMV of tickets in gross income. Claim of Right Correct Answer Definition: The taxpayer has received property or funds under a "claim of right" when they are received without restriction as to use or disposition. --Tip: Look at whether taxpayer can access the money for claim of right. Rule: Property or funds received under a claim of right must be reported for tax purposes even though the taxpayer may later be required to return the property, funds, or their equivalent. --Ex: P received royalties from lawsuit, but case being appealed. P must report royalty as part of gross income even if has to return it after appeal. Illegally Acquired INcome Correct Answer Taxable income! Tax Benefit Rule Correct Answer If a taxpayer takes a deduction in one year and recovers the property that gave rise to the deduction in a later tax year, the taxpayer has tax benefit income, to the extent that the earlier deduction provided a tax savings or tax benefit. --Ex: Taxpayer donated property valued at $150K to qualified charity in Year 1. Deducted $150K on year 1 tax return. Charity returns property in year 2, now worth $200K. Taxpayer has tax benefit income in year 2 of the amount of prior deduction, ($150K) not the FMV. --Note: Does not work if year 1 didn't take the deductions, or taxpayer had no income and didn't claim any income. Alimony - Special Income Rule Correct Answer Unless otherwise provided in the written agreement, alimony is taxable to the receiving spouse and deductible to the paying spouse. (above the line deduction)