TABLE OF CONTENTS
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Chapter 1: An Introduction to Taxation and Understanding the Federal Tax Law
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Chapter 2: Working with the Tax Law
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Page 1
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,Chapter 03: Tax Formula and Tax Determination
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Chapter 04: Gross Income: Concepts and Inclusions
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Chapter 05: Gross Income: Exclusions
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Chapter 06: Deductions and Losses: In General
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Chapter 07: Deductions and Losses: Certain Business Expenses
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Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
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Chapter 09: Deductions: Employee and Self-Employed-Related Expense
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Chapter 10: Deductions and Losses: Certain Itemized Deductions
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Chapter 11: Investor Losses
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Chapter 12: Alternative Minimum Tax
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Chapter 13: Tax Credits and Payment Procedures
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Chapter 14: Property Transactions: Determination of Gain or Loss and
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Chapter 15: Property Transactions: Nontaxable Exchanges
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Chapter 16: Property Transactions: Capital Gains and Losses
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Chapter 17: Property Transactions: 1231 and Recapture Provisions
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Chapter 18: Accounting Periods and Methods
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Chapter 19: Deferred Compensation
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Chapter 20: Corporations and Partnerships
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Page 2
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, Chapter 01 2025 Individuals
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Answers at the end of each chapter
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Indicate whether the statement is true or false.
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hj h j 1. Sales made over the internet are not exempt from the application of a general sales (or use) tax.
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
a. True
b. False
hj h j 2. Upon audit by the IRS, Faith is assessed a deficiency of $40,000 of which $25,000 is attributable to negligence.
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
The 20% negligence penalty will apply to $25,000.
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a. True
b. False
hj h j 3. Ultimately, most taxes are paid by individuals.
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a. True
b. False
hj h j 4. Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remainthe same.
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj jh hj
a. True
b. False
hj h j 5. The principal objective of the FUTA tax is to provide some measure of retirement security.
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
a. True
b. False
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6. If more IRS audits are producing a higher number of no change results, this indicates increased compliance onthe pa
h j hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj jh hj
rt of taxpayers.
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a. True
b. False
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7. A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state thatlevi
h j hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj jh
es no such taxes.
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a. True
b. False
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8. A calendar year taxpayer files his 2023 Federal income tax return on March 4, 2024. The return reflects an overpaym
h j hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
ent of $6,000, and the taxpayer requests a refund of this amount. The refund is paid on May 16, 2024.The refund need not inclu
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj jh hj hj hj hj
de interest.
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a. True
b. False
hj h j 9. A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.
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a. True
b. False
Page 3hj
, Name: Class: Date: hj
Chapter 01 2025 Individuals
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hj h j 10. For Federal income tax purposes, there never has been a general amnesty period.
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a. True
b. False
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11. To lessen or eliminate the effect of multiple taxation, a taxpayer who is subject to both foreign and U.S. income taxes on
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the same income is allowed either a deduction or a credit for the foreign tax paid.
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a. True
b. False
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12. Because it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize a gain inthe ye
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ar the installment sale occurs.
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a. True
b. False
hj h j 13. The amount of a taxpayer’s itemized deductions will increase the chance of being audited by the IRS.
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a. True
b. False
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14. In 2024, José, a widower, sells land (fair market value of $100,000) to his daughter, Linda, for $50,000. José has not mad
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e a taxable gift.
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a. True
b. False
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15. For omissions from gross income in excess of 25% of that reported, there is no statute of limitations on additio
h j hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
nal income tax assessments by the IRS.
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a. True
b. False
hj h j 16. Stealth taxes have the effect of generating additional taxes from all taxpayers.
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a. True
b. False
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17. Jason’s business warehouse is destroyed by fire. Because the insurance proceeds exceed the basis of the property
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, a gain results. If Jason shortly reinvests the proceeds in a new warehouse, no gain is recognized due to the application of the w
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
herewithal to pay concept. hj hj hj
a. True
b. False
hj h j 18. An inheritance tax is a tax on a decedent’s right to pass property at death.
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a. True
b. False
hj h j 19. When interest is charged on a deficiency, any part of a month counts as a full month.
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a. True
b. False
Page 4 hj
hj hj hj
Chapter 1: An Introduction to Taxation and Understanding the Federal Tax Law
hj hj hj hj hj hj hj hj hj hj hj hj
Chapter 2: Working with the Tax Law
hj hj hj hj hj hj hj
Page 1
hj
,Chapter 03: Tax Formula and Tax Determination
hj hj hj hj hj hj hj
Chapter 04: Gross Income: Concepts and Inclusions
hj hj hj hj hj hj hj
Chapter 05: Gross Income: Exclusions
hj hj hj hj hj
Chapter 06: Deductions and Losses: In General
hj hj hj hj hj hj hj
Chapter 07: Deductions and Losses: Certain Business Expenses
hj hj hj hj hj hj hj hj
Chapter 08: Depreciation, Cost Recovery, Amortization, and Depletion
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Chapter 09: Deductions: Employee and Self-Employed-Related Expense
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Chapter 10: Deductions and Losses: Certain Itemized Deductions
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Chapter 11: Investor Losses
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Chapter 12: Alternative Minimum Tax
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Chapter 13: Tax Credits and Payment Procedures
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Chapter 14: Property Transactions: Determination of Gain or Loss and
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Chapter 15: Property Transactions: Nontaxable Exchanges
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Chapter 16: Property Transactions: Capital Gains and Losses
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Chapter 17: Property Transactions: 1231 and Recapture Provisions
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Chapter 18: Accounting Periods and Methods
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Chapter 19: Deferred Compensation
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Chapter 20: Corporations and Partnerships
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Page 2
hj
, Chapter 01 2025 Individuals
hj hj hj
Answers at the end of each chapter
hj hj hj hj hj hj
Indicate whether the statement is true or false.
h j h j h j h j h j h j h j
hj h j 1. Sales made over the internet are not exempt from the application of a general sales (or use) tax.
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
a. True
b. False
hj h j 2. Upon audit by the IRS, Faith is assessed a deficiency of $40,000 of which $25,000 is attributable to negligence.
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
The 20% negligence penalty will apply to $25,000.
hj hj hj hj hj hj hj
a. True
b. False
hj h j 3. Ultimately, most taxes are paid by individuals.
hj hj hj hj hj hj hj
a. True
b. False
hj h j 4. Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remainthe same.
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj jh hj
a. True
b. False
hj h j 5. The principal objective of the FUTA tax is to provide some measure of retirement security.
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
a. True
b. False
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6. If more IRS audits are producing a higher number of no change results, this indicates increased compliance onthe pa
h j hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj jh hj
rt of taxpayers.
hj hj
a. True
b. False
hj
7. A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state thatlevi
h j hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj jh
es no such taxes.
hj hj hj
a. True
b. False
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8. A calendar year taxpayer files his 2023 Federal income tax return on March 4, 2024. The return reflects an overpaym
h j hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
ent of $6,000, and the taxpayer requests a refund of this amount. The refund is paid on May 16, 2024.The refund need not inclu
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj jh hj hj hj hj
de interest.
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a. True
b. False
hj h j 9. A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
a. True
b. False
Page 3hj
, Name: Class: Date: hj
Chapter 01 2025 Individuals
hj hj hj
hj h j 10. For Federal income tax purposes, there never has been a general amnesty period.
hj hj hj hj hj hj hj hj hj hj hj hj hj
a. True
b. False
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11. To lessen or eliminate the effect of multiple taxation, a taxpayer who is subject to both foreign and U.S. income taxes on
h j hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
the same income is allowed either a deduction or a credit for the foreign tax paid.
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
a. True
b. False
hj
12. Because it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize a gain inthe ye
h j hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj jh hj
ar the installment sale occurs.
hj hj hj hj
a. True
b. False
hj h j 13. The amount of a taxpayer’s itemized deductions will increase the chance of being audited by the IRS.
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
a. True
b. False
hj
14. In 2024, José, a widower, sells land (fair market value of $100,000) to his daughter, Linda, for $50,000. José has not mad
h j hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
e a taxable gift.
hj hj hj
a. True
b. False
hj
15. For omissions from gross income in excess of 25% of that reported, there is no statute of limitations on additio
h j hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
nal income tax assessments by the IRS.
hj hj hj hj hj hj
a. True
b. False
hj h j 16. Stealth taxes have the effect of generating additional taxes from all taxpayers.
hj hj hj hj hj hj hj hj hj hj hj hj
a. True
b. False
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17. Jason’s business warehouse is destroyed by fire. Because the insurance proceeds exceed the basis of the property
h j hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
, a gain results. If Jason shortly reinvests the proceeds in a new warehouse, no gain is recognized due to the application of the w
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
herewithal to pay concept. hj hj hj
a. True
b. False
hj h j 18. An inheritance tax is a tax on a decedent’s right to pass property at death.
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
a. True
b. False
hj h j 19. When interest is charged on a deficiency, any part of a month counts as a full month.
hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj hj
a. True
b. False
Page 4 hj
