McGraw-Hill's Taxation of Individuals
and Business Entities 2020 questions
and answers 2025
§1231 assets - ✔ ✔ depreciable or real property used in a taxpayer's trade or business owned for
more than one year.
§1231 look-back rule - ✔ ✔ a tax rule requiring taxpayers to treat current year net §1231 gains as
ordinary income when the taxpayer has deducted a §1231 loss as an ordinary loss in the five years pre-
ceding the current tax year.
§1245 property - ✔ ✔ tangible personal property and intangible property subject to cost recovery
deductions.
§1250 property - ✔ ✔ real property subject to cost recovery deductions.
§162(m) limitation - ✔ ✔ the $1 million deduction limit on nonperformance-based salary paid to cer-
tain key executives.
§179 expense - ✔ ✔ an incentive for small businesses that allows them to immediately expense a
certain amount of tangible personal property placed in service during the year.
§197 intangibles - ✔ ✔ intangible assets that are purchased that must be amortized over 180
months regardless of their actual useful lives.
§291 depreciation recapture - ✔ ✔ the portion of a corporate taxpayer's gain on real property that is
converted from §1231 gain to ordinary income.
§338 election - ✔ ✔ an election by a corporate buyer of 80-percent-or-more of a corporation's stock
to treat the acquisition as an asset acquisition and not a stock acquisition.
§338(h)(10) election - ✔ ✔ a joint election by the corporate buyer and corporate seller of the stock
of a subsidiary of the seller to treat the acquisition as a sale of the subsidiary's assets by the seller to the
buyer.
§481 adjustment - ✔ ✔ a change to taxable income associated with a change in accounting methods.
§704(b) capital accounts - ✔ ✔ partners' capital accounts maintained using the accounting rules pre-
scribed in the Section 704(b) regulations. Under these rules, capital accounts reflect the fair market val-
ue of property contributed to and distributed property from partnerships.
, 12-month rule - ✔ ✔ regulation that allows prepaid business expenses to be currently deducted
when the contract does not extend beyond 12 months and the contract period does not extend beyond
the end of the tax year following the year of the payment.
30-day letter - ✔ ✔ the IRS letter received after an audit that instructs the taxpayer that he or she
has 30 days to either (1) request a conference with an appeals officer or (2) agree to the proposed ad-
justment.
83(b) election - ✔ ✔ a special tax election that employees who receive restricted stock or other
property with ownership restrictions can make to accelerate income recognition from the normal date
when restrictions lapse to the date when the restricted stock or other property is granted. The election
also accelerates the employer's compensation deduction related to the restricted stock or other proper-
ty.
90-day letter - ✔ ✔ the IRS letter received after an audit and receipt of the 30-day letter that ex-
plains that the taxpayer has 90 days to either (1) pay the proposed deficiency or (2) file a petition in the
U.S. Tax Court to hear the case. The 90-day letter is also known as the statutory notice of deficiency.
Abandoned spouse - ✔ ✔ a married taxpayer who lives apart from his or her spouse for the last six
months of the year (excluding temporary absences), who files a tax return separate from his or her
spouse, and who maintains a household for a qualifying child.
Accelerated death benefits - ✔ ✔ early receipt of life insurance proceeds that are not taxable under
certain circumstances, such as the taxpayer is medically certified with an illness that is expected to cause
death within 24 months.
Accountable plan - ✔ ✔ an employer's reimbursement plan under which employees must submit
documentation supporting expenses to receive reimbursement and reimbursements are limited to legit-
imate business expenses.
Accounting method - ✔ ✔ the procedure for determining the taxable year in which a business rec-
ognizes a particular item of income or deduction, thereby dictating the timing of when a taxpayer re-
ports income and deductions.
Accounting period - ✔ ✔ a fixed period in which a business reports income and deductions.
Accrual method - ✔ ✔ a method of accounting that generally recognizes income in the period
earned and recognizes deductions in the period that liabilities are incurred.
Accrued market discount - ✔ ✔ a ratable amount of the market discount at the time of purchase
(based on the number of days the bond is held over the number of days until maturity when the bond is
purchased) that is treated as interest income when a bond with market discount is sold before it ma-
tures.
and Business Entities 2020 questions
and answers 2025
§1231 assets - ✔ ✔ depreciable or real property used in a taxpayer's trade or business owned for
more than one year.
§1231 look-back rule - ✔ ✔ a tax rule requiring taxpayers to treat current year net §1231 gains as
ordinary income when the taxpayer has deducted a §1231 loss as an ordinary loss in the five years pre-
ceding the current tax year.
§1245 property - ✔ ✔ tangible personal property and intangible property subject to cost recovery
deductions.
§1250 property - ✔ ✔ real property subject to cost recovery deductions.
§162(m) limitation - ✔ ✔ the $1 million deduction limit on nonperformance-based salary paid to cer-
tain key executives.
§179 expense - ✔ ✔ an incentive for small businesses that allows them to immediately expense a
certain amount of tangible personal property placed in service during the year.
§197 intangibles - ✔ ✔ intangible assets that are purchased that must be amortized over 180
months regardless of their actual useful lives.
§291 depreciation recapture - ✔ ✔ the portion of a corporate taxpayer's gain on real property that is
converted from §1231 gain to ordinary income.
§338 election - ✔ ✔ an election by a corporate buyer of 80-percent-or-more of a corporation's stock
to treat the acquisition as an asset acquisition and not a stock acquisition.
§338(h)(10) election - ✔ ✔ a joint election by the corporate buyer and corporate seller of the stock
of a subsidiary of the seller to treat the acquisition as a sale of the subsidiary's assets by the seller to the
buyer.
§481 adjustment - ✔ ✔ a change to taxable income associated with a change in accounting methods.
§704(b) capital accounts - ✔ ✔ partners' capital accounts maintained using the accounting rules pre-
scribed in the Section 704(b) regulations. Under these rules, capital accounts reflect the fair market val-
ue of property contributed to and distributed property from partnerships.
, 12-month rule - ✔ ✔ regulation that allows prepaid business expenses to be currently deducted
when the contract does not extend beyond 12 months and the contract period does not extend beyond
the end of the tax year following the year of the payment.
30-day letter - ✔ ✔ the IRS letter received after an audit that instructs the taxpayer that he or she
has 30 days to either (1) request a conference with an appeals officer or (2) agree to the proposed ad-
justment.
83(b) election - ✔ ✔ a special tax election that employees who receive restricted stock or other
property with ownership restrictions can make to accelerate income recognition from the normal date
when restrictions lapse to the date when the restricted stock or other property is granted. The election
also accelerates the employer's compensation deduction related to the restricted stock or other proper-
ty.
90-day letter - ✔ ✔ the IRS letter received after an audit and receipt of the 30-day letter that ex-
plains that the taxpayer has 90 days to either (1) pay the proposed deficiency or (2) file a petition in the
U.S. Tax Court to hear the case. The 90-day letter is also known as the statutory notice of deficiency.
Abandoned spouse - ✔ ✔ a married taxpayer who lives apart from his or her spouse for the last six
months of the year (excluding temporary absences), who files a tax return separate from his or her
spouse, and who maintains a household for a qualifying child.
Accelerated death benefits - ✔ ✔ early receipt of life insurance proceeds that are not taxable under
certain circumstances, such as the taxpayer is medically certified with an illness that is expected to cause
death within 24 months.
Accountable plan - ✔ ✔ an employer's reimbursement plan under which employees must submit
documentation supporting expenses to receive reimbursement and reimbursements are limited to legit-
imate business expenses.
Accounting method - ✔ ✔ the procedure for determining the taxable year in which a business rec-
ognizes a particular item of income or deduction, thereby dictating the timing of when a taxpayer re-
ports income and deductions.
Accounting period - ✔ ✔ a fixed period in which a business reports income and deductions.
Accrual method - ✔ ✔ a method of accounting that generally recognizes income in the period
earned and recognizes deductions in the period that liabilities are incurred.
Accrued market discount - ✔ ✔ a ratable amount of the market discount at the time of purchase
(based on the number of days the bond is held over the number of days until maturity when the bond is
purchased) that is treated as interest income when a bond with market discount is sold before it ma-
tures.
