104 Test Bank for Concepts in Federal Taxation 2012 19th Edition
Test Bank for Concepts in Federal Taxation 2012
19th Edition
True-False Questions
All
tax practitioners
are governed by the AICPA’s Code of
Professional
Conduct.
1.
True
2.
False
A
regressive
tax rate
structure
as increases.
a tax in which the
average
tax rate
decreases
as is
thedefined
tax base
1.
True
2.
False
Self-employed
are required to make quarterly payments of
their estimated people
tax liability.
1.
True
2.
False
The
marginal
taxorrate
the of
rate
taxwill
thatbe
will
be paid
on the
dollar
of income
theisrate
taxofthat
saved
by the
nextnext
dollar
of deduction.
1.
True
2.
False
Employers
are required
to pay
aeach
Federal
Unemployment
Taxofofup
6.2%
of
the
first
$10,000
in
wages
to
employee
less
a
credit
to
5.4% of state unemployment taxes paid.
1.
True
2.
False
Adam
identified
efficient,for
certainty,
as the Smith
four basic
requirements
a good convenience,
tax system. and economy
1.
True
2.
False
Congress
is required
to insure
thatconvenience,
the tax law has
theeconomy.
following
characteristics:
equality,
certainty,
and
1.
True
2.
False
The
statute
of
limitations
is three
years,and
six there
yearsisif no
thestatute
taxpayer
omits
gross
income
in
excess
of
25%,
limitations if the taxpayer willfully defrauds the government. of
1.
True
2.
False
A
deferral
like aninexclusion
in that it does
not subject
have a current
tax
effect,
butais
itdeferral
differs
that
an
exclusion
isatnever
totime
taxation,
whereas
will
be
subject
to
tax
some
point
of
in
the
future.
1.
True
2.
False
Tax
avoidance
occurs
whenactual
a taxpayer
uses fraudulent methods or
deceptive
behavior
to hide
tax liability.
1.
True
2.
False
A
tax is an enforced contribution used to finance the functions of
government.
1.
True
2.
False
An
lossthe
results
fromincome.
an excess of allowable deductions for a
tax annual
year over
reported
1.
True
2.
False
Gifts
to qualified
charitable
organizations
may
be deducted
as a
contribution,
but
not
to
exceed
50%
of
an
individual
taxpayer’s
adjusted gross income.
1.
True
2.
False
Horizontal
equity exists when two similarly situated taxpayers are
taxed the same.
1.
True
2.
False
A
CPA may
prepare
tax returns
using estimates
provided
by the
taxpayer
if
it
is
impracticable
to
obtain
exact
data
and
the
estimates
are reasonable.
1.
True
2.
False
Multiple Choice Questions-Page 1
Which
of the following are included among Adam Smith's criteria for
evaluating
Economy. a tax? I. Convenience. II. Fairness. III. Neutrality. IV.
1.
Statements I and II are correct.
2.
Statements I, II, and III are correct.
3.
Statements I and IV are correct.
4.
Statements II and III are correct.
5.
Statements I, II, III, and IV are correct.
Adam
Smith's
structure
that isconcept of vertical equity is found in a tax rate
1.
Regressive.
2.
Proportional.
3.
Horizontal.
4.
Progressive.
5.
Economical.
Which
of the
Adam
Smith'sthat
requirements
for
a goodtax
taxrate
system
best
supports
argument
the
federal
income
structure
should be progressive?
1.
Certainty.
2.
Convenience.
3.
Equality.
4.
Neutrality.
5.
Sufficiency.
When
planning
for an
investment
that
will
extend
over will
several
years,
the
ability
to
predict
how
the
results
of
the
investment
be
taxed
is
important. This statement is an example of
1.
Certainty.
2.
Transparency
3.
Equality.
4.
Neutrality.
5.
Fairness.
Jim
and Anna
are
married
and$20,000
have a 2011
taxable income
of Their
$280,000.
They
also
received
of
tax-exempt
income.
effective tax rate is:
1.
22.7%
2.
23.3%
3.
24.9%
4.
33.0%
5.
35.0%
Which
of the following
statement
is/are
included in
Adam
Smith’s
four
requirements
for
a
good
tax
system?
I.
Changes
in
the
tax
law
should
be madeII.as
needed
to raise
revenueinand
for proper
administration.
A
tax
should
be
imposed
proportion
to to
a pay a
taxpayer's
ability
to
pay.
III.
A
taxpayer
should
be
required
tax
when
it is IV.
most
likely
to be convenient
for the
taxpayer
to
make
the
payment.
The
government
must
collect
taxes
equal
to
it’s
expenses.
1.
Statements I and II are correct.
2.
Statements I and IV are correct.
3.
Statements II and III are correct.
4.
Statements II and IV are correct.
5.
Statements III and IV are correct.
Jessica
is single
and has
a 2011 taxable
income
of $199,800.
She
also
received
$15,000
of
tax-exempt
income.
Jessica's
marginal
tax
rate is
1.
22.8%
2.
23.3%
3.
25.0%
4.
28.0%
5.
33.0%
Which of the following payments would not be considered a tax?
1.
An assessment based on the selling price of the vehicle.
2.
A local assessment for new sewers based on the amount of water used.
3.
A local assessment for schools based on the value of the taxpayer's property.
4.
A surcharge based upon the amount of income tax already calculated.
Which of the following payments meets the IRS definition of a tax?
1.
A fee paid on the value of property transferred from one individual to another by gift.
2.
A one-time additional property tax assessment to add a sidewalk to the neighborhood.
3.
A fee paid on the purchase of aerosol producing products to fund ozone research.
4.
A fee for a sticker purchased from a city that must be attached to garbage bags before
the city garbage trucks will pick up the bags.
5.
All of the above meet the definition of a tax.
Based
onisthe
definition
given in Chapter
1 of
the
text,
which
ofa the
following
a
tax?
I.
A
registration
fee
paid
to
the
state
to
get
car III.
license
plate;
II.
2%
special
sales
tax
for
funding
public
education;
A
special property
tax assessment
for installing
sidewalks
in the on
taxpayer's
neighborhood;
IV.
An
income
tax
imposed
by
Chicago
persons living or working within the city limits.
1.
Only statement I is correct.
2.
Only statement III is correct.
3.
Only statement IV is correct.
4.
Statements I and IV are correct.
5.
Statements II and IV are correct.
Terry
is a worker
in isthe
countryPretoria
Pretoria.imposes
His salary
is $46,000
and
his
taxable
income
$52,000.
a
Worker
Tax
as If
follows:
Employers
withhold
a
tax
of
20%
of
all
wages
and
salaries.
taxable
income
as reported
on the employee's
income tax
return
is
greater
than
$50,000,
an
additional
10%
tax
is
withheld
on
all
income. Terry's marginal tax rate is:
1.
0%
2.
10%
3.
20%
4.
30%
Andrea
is single
and has
a 2011 taxable
income
of $199,800
She
also
received
$15,000
of
tax-exempt
income.
Andrea's
average
tax
rate is
1.
22.8%
2.
23.3%
3.
25.4%
4.
28.5%
5.
33.0%
Which
ofofthe
following
payments
is aincome
tax? I. tax
Artisbalance
paid thedue)
IRS a
penalty
$475
(above
his
$11,184
because
he had
significantly
underpaid
histoestimated
income
tax; II.
Lindsey
paid
$135
to
the
State
of
Indiana
renew
her
CPA
license'
III.
Carrie
paid
a $3.50
toll
to cross the
Mississippi
River; IV. Darnell
paid
$950
to
the
County
Treasurer's
Office
for
an
assessment
on his
business equipment.
1.
Only statement IV is correct.
2.
Only statement III is correct.
3.
Statements II and IV are correct.
4.
Statements I, II, and III are correct.
5.
Statements I, II, III, and IV are correct.
Maria
is single
andofhas
a 2011 taxable
$200,000.
received
$15,000
tax-exempt
income.income
Maria'sofeffective
taxShe
ratealso
is:
1.
22.8%
2.
23.7%
3.
25.0%
4.
28.0%
5.
33.0%
If
a taxpayer
has a choice
of receiving
income
intax
therates
current
year
versus
the
following
year,
which
of
the
following
is
important
in determining the year in which he should include the income?
1.
Average.
2.
Effective.
3.
Composite.
4.
Marginal.
Bob
and Linda
are
married
and$20,000
have a of
2011
taxable income
ofTheir
$280,000.
They
also
received
tax-exempt
income.
marginal tax rate is:
1.
23.5%
2.
24.9%
3.
28.0%
4.
33.0%
5.
35.0%
Vertical
equity:
I. tax
means
thatpay
those
taxpayers
who have of
thethe
greatest
ability
to
pay
the
should
the
greatest
proportion
tax.III.II.is
means
that
two
similarly
situated
taxpayers
are
taxed
the
same.
reflected
in
the progressive
nature
of thewith
federal
income tax
system.
IV.
exists
when
Avis,
a
single
individual
4
dependent
children,
and
Art,tax
a single
individual
with
no dependents,
income
on equal
$26,000
annual
salaries. both pay $2,400
1.
Statements III and IV are correct.
2.
Statements II and III are correct.
3.
Statements I and III are correct.
4.
Only statement IV is correct.
5.
Statements I, II, III, and IV are correct.
According
to the
definition, which of the following is not a
characteristic
of aIRS
tax?
1.
The payment to the governmental authority is required by law.
2.
The payment relates to the receipt of a specific benefit.
3.
The payment is required pursuant to the legislative power to tax.
4.
The purpose of requiring the payment is to provide revenue to be used for the public or
governmental purposes.
Which of the following payments meets the IRS definition of a tax?
1.
Sewer fee charged added to a city trash collection bill.
2.
A special assessment paid to the county to pave a street.
3.
A levy on the value of a deceased taxpayer's estate.
4.
Payment of $300 to register an automobile. The $300 consists of a $50 registration fee
and $250 based on the weight of the auto.
Horizontal
equity:
I. means
that
thosepay
taxpayers
who have
the of
greatest
ability
to
pay
the
tax
should
the
greatest
proportion
the
tax.III.
II.ismeans
thatintwo
similarly
situated
taxpayers
are taxed
the
same.
reflected
the
progressive
nature
of
the
federal
income
tax
system.
IV.
exists
whenindividual
Avis, a single
individual
with 4both
dependent
children,
and
Art,
a
single
with
no
dependents,
pay
$2,400 income tax on equal $26,000 annual salaries.
1.
Statements III and IV are correct.
2.
Statements II and III are correct.
3.
Statements I and III are correct.
4.
Only statement IV is correct.
5.
Statements I, II, III, and IV are correct.
Pay-as-you-go withholding is consistent with Adam Smith's criteria of
1.
Certainty.
2.
Convenience.
3.
Economy.
4.
Fairness.
5.
Transparency.
Jaun
plans
to give
$5,000
to
the His
American
Diabetes
Association.
Jaun's
marginal
tax
rate
is
28%.
average
tax
rate
is 25%. Jaun's
after-tax cost of the contribution is
1.
$1,250
2.
$1,400
3.
$3,600
4.
$3,750
5.
$5,000
Katie
pays
$10,000
in tax-deductible
property
taxes. Katie’s
marginal
tax
rate
is
25%,
average
tax
rate
is
24%,
and
effective
tax
rate
is
20%. Katie's tax savings from paying the property tax is:
1.
$ 1,600
2.
$ 2,000
3.
$ 2,400
4.
$ 2,500
5.
$10,000
Frank
and Fran are
married and have a 2011 taxable income of
$280,000.
average taxThey
ratealso
is: received $20,000 of tax-exempt income. Their
1.
23.2%
2.
24.9%
3.
22.3%
4.
33.0%
5.
35.0%
83 Free Test Bank for Concepts in Federal Taxation 2012
19th Edition by Murphy Multiple Choice Questions-Page
2
Katarina,
aforsingle
taxpayer,
has income
total income
from allinto
sources
of
$100,000
2011.
Her
taxable
after
taking
consideration
$25,000
in tax
deductions
and
$10,000
in exclusions
is $65,000.
Katarina’s
liability
is
$12,375.
What
are
Katarina's
marginal,
average, and effective tax rates?
1.
28% marginal; 19.0% average; 19.0% effective.
2.
25% marginal; 16.5% average; 16.5% effective.
3.
25% marginal; 16.5% average; 19.0% effective.
4.
25% marginal; 19.0% average; 16.5% effective.
5.
28% marginal; 16.5% average; 19.0% effective.
Greg
pays
sales
taxtax
of $7.20
on the
the purchase
purchase of
of aa similar
lamp for
$120.
Michelle
paid
sales
of
$9
on
lamp
for
$150.
Greg's
taxable
income
for
the
current
year
is
$40,000.
Michelle's
taxable
income
is $55,000.
I. TheII.structure
of theofsales
tax
is
progressive
if
based
on
taxable
income.
The
structure
the
sales tax is proportional if based on sales price.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct.
4.
Neither statement is correct.
The
term "tax
law"
as used
in your(i.e.
textbook
includes:
I. Treasury
regulations.
II.
College
textbooks
“Concepts
in
Federal
Income
Taxes”).
III.
Internal
Revenue
Code
of
1986.
IV.
Tax
related
decisions of a U.S. Circuit Court of Appeals.
1.
Only statement III is correct.
2.
Statements I, III, and IV are correct.
3.
Statements I and III are correct.
4.
Only statement II is correct.
5.
All four statements are correct.
Heidi
and
Anastasia
are residents
of the mythical
country
of Wetland.
Heidi
pays
$1,500
income
tax
on
taxable
income
of
$6,000.
Anastasia
pays
income
tax
of
$21,000 on taxable
income ofIII.$72,000.
The
income
tax
structure
is
I.
Progressive.
II.
Proportional.
Regressive. IV. Value-added. V. Marginal.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Only statement III is correct.
4.
Only statement V is correct.
5.
Statements II and IV are correct.
Sally
is an electrician.
electrician employed
by
Bogieyear,
Company.
Sam
is is
a selfemployed
During
the
current
Sally's
salary
$85,000
and Sam's
net self-employment
income
is $85,000.
Which
of
the
following
statements
about
the
Social
Security
and
selfemployment
taxes
paid is/are
correct?
I. Sam's
self-employment
tax
is
greater
than
the
Social
Security
tax
paid
on
Sally's
income.
II.
Sam
and Sally pay the same amount of tax
1.
Only statement I is correct.
2.
Only statement II is correct
3.
Both statements are correct
4.
Neither statement is correct
Jered
and
Samantha
are married.
Their 2011
taxable
income isIf the
$80,000
before
considering
their
mortgage
interest
deduction.
mortgage
$10,000
for 2011, what are the tax savings
attributableinterest
to theirtotals
interest
deduction?
1.
$ 1,500
2.
$ 2,500
3.
$ 2,800
4.
$ 3,300
5.
$10,000
Employment taxes are
1.
revenue neutral.
2.
regressive .
3.
value-added.
4.
progressive.
5.
proportional.
How
much additional
Social
Security
tax earnings
does Elise
pay
inyear
2011
on
her
$10,000
Christmas
bonus?
Her
total
for
the
(before
the bonus) are $110,000.
1.
$0
2.
$ 145
3.
$ 620
4.
$ 765
How
much additional
Social
Security
tax earnings
does Betty
pay
inyear
2011
on
her
$10,000
Christmas
bonus?
Her
total
for
the
(before
the bonus) are $100,000.
1.
$145.00
2.
$269.20
3.
$566.60
4.
$641.00
5.
$765.00
Taxpayer
paystax
taxofof$6,600
$3,300on
on$20,000.
taxable income
while
taxpayer BApays
The taxofis$10,000
a
1.
proportional tax.
2.
regressive tax.
3.
progressive tax.
4.
horizontal tax.
A
tax provision
has
been
discussed
thattowould
add an additional
marginal
tax
rate
of
39%
to
be applied
an individual's
taxable law,
income
in
excess
of
$800,000.
If
this
provision
were
to
become
what
overall distributional impact would it have on our current income
tax system?
1.
Proportional.
2.
Regressive.
3.
Progressive.
4.
Disproportional.
5.
None of the above.
Lee's
2011 taxable
is individual.
$88,000 before
considering
charitable
contributions.
Lee
isincome
a single
Sheinmakes
a donation
of
$10,000
to
the
American
Heart
Association
December
2011.
By
how
much
did
Lee's
marginal
tax
rate
decline
simply
because
of
the
donation?
1.
0%
2.
10%
3.
3%
4.
5%
5.
8%
Rayburn
is the sole owner
of a dance
studio.
During
theiscurrent
year,
his
net
self-employment
income
from
the
dance
studio
$50,000.
What is Rayburn 's self-employment tax?
1.
$3,825.00
2.
$5,738.00
3.
$6,200.00
4.
$7,650.00
When property is transferred, gift and estate taxes are based on the
1.
fair market value of the assets on the date of transfer.
2.
replacement cost of the transferred property.
3.
transferor's original cost of the transferred property.
4.
transferor's adjusted basis of the transferred property.
5.
fair market value less adjusted basis on the date of the transfer.
Oliver
pays
sales
taxtax
ofof
$7.20
onthe
thepurchase
purchaseofofaasimilar
lamp for
$120.
Michelle
paid
sales
$9 on
lamp
for
$150.
Oliver's
taxable
income
for
the
current
year
is
$40,000.
Michelle's
taxable
income
is
$55,000.
I.
The
structure
of
the
sales
tax
is
regressive
if
based
on
taxable
income.
II.
The
structure
of
the
sales
tax is
proportional
if based
ononsales
price.
III. TheIV.
structure
of
the
sales
tax
is
progressive
based
taxable
income.
The
average sales tax paid on a purchase eq
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Statements III and IV are correct.
4.
Statements II and IV are correct.
5.
Statements I, II, and IV are correct.
A
property
tax:
I.onispersonal
levied onproperty
the value
of
property.
II. isthan
referred
to
as
ad
valorem.
III.
is
more
common
a
tax
on
real
property. IV. is based upon assessed value rather than actual
transactions.
1.
Only statement I is correct.
2.
Statements II and III are correct.
3.
Statements I, II, and IV are correct.
4.
Statements I, II, III, and IV are correct.
Samantha
is a self-employed
electrician.
2011, selfher net selfemployment
is $120,000.
What isDuring
Samantha's
employment income
tax?
1.
$15,570.00
2.
$15,606.80
3.
$16,128.00
4.
$16,723.20
5.
$18,360.00
Joy
receives
a used As
caraworth
$13,000
from
her will
uncle
as $13,000
a
graduation
present.
result
of
the
gift:
I.
Joy
have
taxable income. II. Joy’s uncle’s gift will subject him to the gift tax. of
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct.
4.
Neither statement is correct.
The Federal income tax is a
1.
revenue neutral tax.
2.
regressive tax.
3.
value-added tax.
4.
progressive tax.
5.
form of sales tax.
Elrod
isofan
employee
of Gomez
Inc.
During
2011,
ElrodGomez
receives a
salary
$120,000
from
Gomez.
What
amount
should
withhold
from
Elrod's
salary
as
payment
of
Elrod's
social
security and
medicare taxes?
1.
$7,440.00
2.
$7,803.40
3.
$8,064.00
4.
$8,361.60
5.
$9,180.00
Alan
is aofsingle
taxpayer
with
a gross
income
of
$88,000,
aJosh
taxable
income
$66,000,
and
an
income
tax
liability
of
$12,625.
also
has
$8,000
of effective
tax-exempt
average,
and
tax interest
rates? income. What are Alan's marginal,
1.
25% marginal; 17.1% average; 19.1% effective.
2.
28% marginal; 15.9% average; 21.7% effective.
3.
28% marginal; 17.1% average; 21.7% effective.
4.
25% marginal; 19.1% average; 17.1% effective.
Phyllis
is an
electricianDuring
employed
by Bogie
Company.
Phil
is aisselfemployed
electrician.
the
current
year,
Phyllis's
salary
$75,000
and Phil's
net self-employment
income
is $75,000.
Which of
the
following
statements
about
the
Social
Security
and
selfemployment
taxes
paid Security
is/are correct?
I. Phil's
self-employment
tax is
greater
than
the
Social
tax
paid
on
Phyllis's
income.
II.
Phil
pays
more
taxsame
than Phyllis pays in Social Security
tax. III.
Philself-employment
and Phyllis pay the
1.
Only statement I is correct.
2.
Only statement I is correct.
3.
Only statement IV is correct.
4.
Statements I and III are correct.
5.
Statements II and IV are correct.
Shara's
2011
taxable income
isis$42,000
before
considering
charitable
contributions.
Shara
a
single
individual.
She
makes a
donation
of
$5,000
to
the
American
Heart
Association
in
December
2011.
By of
how
did Shara's marginal tax rate decline simply
because
themuch
donation?
1.
0%
2.
7%
3.
3%
4.
5%
5.
10%
An
excise
tax:
I.product
is levied
on
the value
of property.
II.sale
is levied
on the
quantity
of
the
or
service.
III.
differs
from
an
tax,
because a sales tax is imposed on the value of property.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Statements I and II are correct.
4.
Statements II and III are correct.
5.
Statements I, II, and III are correct.
Sally
is an electrician.
electrician employed
by
Bogieyear,
Company.
Sam
is is
a selfemployed
During
the
current
Sally's
salary
$85,000
and Sam's
net self-employment
income
is $85,000.
Which
of
the
following
statements
about
the
Social
Security
and
selfemployment
taxes
paid
is/are
correct?
I. Sam
paystax.
more
selfemployment
tax
than
Sally
pays
in Social
Security
II.
Sam's
employment
tax
is
equal
to
the
Social
Security
tax
paid
on
Sally'sselfincome.
1.
Only statement I is correct.
2.
Only statement II correct.
3.
Both statements are correct.
4.
Neither statement is correct.
How
much additional
Social
Security
tax earnings
does Connie
payyear
in 2011
on
her
$10,000
Christmas
bonus?
Her
total
for
the
(before
the bonus) are $42,000.
1.
$0
2.
$145.00
3.
$620.00
4.
$765.00
A
sales tax levied on all goods and services sold is an example
of state
a
1.
progressive tax.
2.
regressive tax.
3.
proportional tax.
4.
value added tax.
Which
of for
thedetermining
following types
of taxes of
rely
solely
on "income"
as the
tax
base
the
amount
tax
liability?
I.
Sales
Tax;
Property Tax; III. Gift Tax; IV. Social Security Tax; V. Excise Tax II.
1.
Statements I, II, III, IV, and V are correct.
2.
Statements I, III, and IV are correct.
3.
Statements II and IV are correct.
4.
Only statement IV is correct.
5.
None of the above types of taxes relies on income for its tax base.
Marie
earns $80,000
sales manager
for Household
much Social
Security as
anda medicare
tax does
Marie haveBooks.
to pay?How
1.
$ 4,960.00
2.
$ 6,120.00
3.
$ 6,400.00
4.
$12,240.00
83 Free Test Bank for Concepts in Federal Taxation 2012
19th Edition by Murphy Multiple Choice Questions-Page
3
Betty
hiresthe
Sam
to prepare
her federal decided
income tax
return. In
preparing
return,
Sam
erroneously
to
exclude
consulting
fees
because
he
estimated
that
Betty's
expenses
should
have
exceeded
the income
she received.
If the
IRS detects
Betty's
underpayment
of
tax,
what
is
the
likely
result?
I.
Betty
is
not tax
subject
to
the negligence
penalty
since
sheinrelied
on
a professional
preparer
and
reported
her
income
good
faith.
II.
Sam
is
liable
for
payment of Betty's tax due plus interest and negligenc
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct
4.
Neither statement is correct.
Trang
is$10,000
in the 15%
marginal
tax expenses.
bracket in the
current
year. She
owes
a
bill
for
business
Since
she
reports
taxable
income
on
a
cash
basis,
she
can
deduct
the
$10,000
in
either
this
year
or
next
year,
depending
on
when
she
makes
the
payment.
She
can
pay the
bill
at any
timeinterest
beforecharge.
JanuaryShe
31 of
next year,
without
incurring
the
normal
12%
expects
to
be
in
the
25%
marginal
year. Without
the time value
of money,
whatbracket
are hernext
tax savings
if she considering
p
1.
Current year $1,000.
2.
Current year $1,500.
3.
Next year $1,000.
4.
Next year $2,500.
5.
Next year $1,500.
Based
on the couple
following
information,
what
is the
2011 $120,000;
taxable income
for
a married
with
two
children?
Total
income
Excludable
income
2,000;
Deductions
for
AGI
5,000;
Allowable
itemized deductions 8,000
1.
$ 79,000
2.
$ 86,600
3.
$ 87,000
4.
$ 90,200
5.
$112,000.
Tax
planning
involves
the
timing
of income
and I.deductions.
General
rules
of
thumb
to
follow
when
planning
include:
putting
income
the
year with the lowest marginal tax rate. II. deferring recognitioninto
of
income.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct.
4.
Neither statement is correct.
Tax
planning
involves
the
timing
of income
and I.deductions.
General
rules
of
thumb
to
follow
when
planning
include:
deferring
recognition
income. II. putting deductions into the year with highest
marginal taxofrate.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct.
4.
Neither statement is correct.
The
incomeare
taxbroken
formulainto
for classes:
individualI. taxpayers
is unique
in that
deductions
This
dichotomy
of
deductions
results
in(AGI).
an intermediate
income
number is
called
adjusted
gross
income
II.
One
class
of
deductions
called
exclusions
from
income.
III.
One
class
of
deductions
is
called
deductions
for
adjusted
gross
IV. not
Expenses
as deductions
for adjusted
gross income.
income are
limited qualifying
by the income
of the taxpayer.
1.
Statements III and IV are correct.
2.
Statements II and III are correct.
3.
Statements I, III and IV are correct.
4.
Only statement IV is correct.
5.
Statements I, II, III, and IV are correct.
Tax
evasion usually
involves
certain
elements.
Which
of the following
are
elements
necessary
for
tax
evasion
to
occur?
I.
Nondisclosure
of
the
relevant
facts
on
the
taxpayer’s
tax
return.
II.
Underpayment
of
tax.
III. Avoiding
detection
by the
IV. taxpayer
Willfulness
the part of
the taxpayer.
V. An
affirmative
actIRS.
by the
to on
misrepresent.
1.
Statements I, II, and III are correct.
2.
Statements I, II, IV, and V are correct.
3.
Statements I and III are correct.
4.
Only statement IV is correct.
5.
All of the five listed elements are correct.
Betty
hiresthe
Sam
to prepare
her federal decided
income tax
return. In
preparing
return,
Sam
erroneously
to
exclude
consulting
fees
because
he
estimated
that
Betty's
expenses
should
have
exceeded
the income
she received.
If the
IRS detects
Betty's
underpayment
of
tax,
what
is
the
likely
result?
I.
Betty
is
not tax
subject
to
the
negligence
penalty
since
she
relied
on
a
professional
preparer
reported
income
in and
gooda faith.
II. Betty is liable for
payment and
of the
tax dueher
plus
interest
negligenc
1.
Only I is correct.
2.
Only II is correct.
3.
Only III is correct.
4.
I and III are correct.
5.
I and IV are correct.
Sonya
owes
a deductible
expense
that
she
can pay
either tax
(and
deduct)
this
year
or
next
year.
She
is
in
the
25%
marginal
rate
bracket.
Which
of
the
following
statements
about
this
payment
is/are
correct?
I.
Deductions
should
always
be
taken
as
soon
as
possible.
Sonya
should
pay tax
the rate
expense
thisnext
year.
II. Ifshe
Sonya
expects
to be in
the
28%
marginal
bracket
year,
should
pay
the
expense
thisnext
year.year,
III. Ifshe
Sonya
expects
to be in the 15% marginal tax
rate bracket
should
pay th
1.
Only statement II is correct.
2.
Only statement IV is correct.
3.
Statements I and III are correct.
4.
Statements I and IV are correct.
5.
Statements III and IV are correct.
For
2011, Nigel
and Lola,
married
taxpayers
withouttochildren,
calculated
their
total
allowable
itemized
deductions
be $17,100.
Accordingly,
Nigel
and
Lola
file
jointly
and
should
deduct
from
adjusted
gross
income:
I.
the
standard
deduction
amount
of $11,600.
II.
total
itemized
deductions
equal
to
$17,100.
III.
one
personal
and
one
dependency exemption amount. IV. exemption amounts totaling
$7,400.
1.
Only statement I is correct.
2.
Statements I and IV are correct.
3.
Statements I, III, and IV are correct.
4.
Statements II and IV are correct.
5.
Statements I, II, III, and IV are correct.
Which
of the
following
are types
of IRS examinations?
I. Information
matching
program.
II.
Office
examination.
III.
Field
examination.
IV.
Revenue agent report.
1.
Statements II and III are correct.
2.
Only statement III is correct.
3.
Statements I and IV are correct.
4.
Statements I, II and III are correct.
5.
Only statement II is correct.
Tax
planning
involves
the
timing
of income
and I.deductions.
General
rules
of
thumb
to
follow
when
planning
include:
putting
income
into
the year with the lowest marginal tax rate. II. deferring deductions.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct.
4.
Neither statement is correct.
The
return
selectionofprogram
highest
probability
errors is designed to select returns with the
1.
The TCMP.
2.
The DIF program.
3.
The special audit program.
4.
The document perfection program.
5.
The information-matching program.
Ordinary
incomeearn.
is: I. the
commonnotype
of income
that under
individuals
and
businesses
II.
receives
special
treatment
tax
laws.
III.
the
character
of
the
gain
from
the
sales
of
shares
of
stock.
held more than one year
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Statements I and II are correct.
4.
Statements I and III are correct.
5.
Statements I, II, and III are correct.
All
tax of
practitioners
whoI.prepare
tax returns
for
a fee Code
are subject
to
which
the
following?
IRS
Circular
230.
II.
AICPA
of
Professional
III. Statements
Standards Conduct
for Tax Services.
IV. American Conduct.
Bar Association
Code of on
Professional
1.
Only statement I is correct.
2.
Statements I, II, and III are correct.
3.
Statements II and III are correct.
4.
Statements II and IV are correct.
5.
Statements I, II, III, and IV are correct.
Carolyn
and Craig
are married.
They
have twodependency
children (8 years old
and
13 years
old)
living
with
them.
How
exemptions
are
claimed
on Carolyn
and many
Craig's 2011 tax return?
1.
0
2.
1
3.
2
4.
3
5.
4
Which
of the
following
taxpayers
usedbasis
tax evasion
tactics
when filing
their
2011
tax
return?
I.
Fern,
a
cash
accountant
intentionally
billed
clients for from
services
on until
December
31,Samual
2011, to
avoida receiving
cash
payments
clients
2012.
II.
made
mathematical
mistake onofa tax.
schedule
in his
taxnot
return
thatthe
resulted
in
a
$2,000
underpayment
The
IRS
does
detect
mistake.
III.
Beverlychildcare
accidentally
underreported
providing
in her
home. IV. Bo,$800
a of income she earned
1.
Statements I and III are correct.
2.
Only statement II is correct.
3.
Statements II and III are correct.
4.
Statemenst III and IV are correct.
5.
Only statement IV is correct.
Alice
is a plumber
and collector
ofwork,
rare she
stamps.
Instead of
always
receiving
cash
payments
for
her
occasionally
has
herthen
customers
send
their
payments
to
a
stamp
broker.
The
broker
makes
stamp
purchases
on value
Alice'sofbehalf
and mails
the stamps
to
her.
Alice
never
reports
the
the
stamps
received
as
income
on
her tax
return.
I.subject
Alice's to
actions
are of
a form
of tax evasion.
II.
Alice's
actions
are
payment
tax,
interest,
and
penalty
if
detected by the IRS.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct.
4.
Neither statement is correct.
Glenna
put
money
inrequired
savings to
accounts
inthe
50 IRS
different
banks. She
knows
a
bank
is
not
report
to
any
interest
itthe
pays
her
that
totals
less
than
$10.
Because
the
banks
do
not
report
payments
to the Which
IRS, Glenna
does
not report
the
interest
received as
taxable
income.
of
the
following
is
(are)
true?
I.
Glenna's
actions
are
taxreturn
evasion
because
shetax.
intentionally
misrepresented
facts
on
a
tax
to
avoid
paying
II.
Glenna's
actions are tax
avoidance because the IRS will never
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Statements I and III are correct.
4.
Statements II and III are correct.
5.
Statements I, II, and III are correct.
The
Statements
onrunning
Standards
for Tax
Services
(SSTS)
have
common
concepts
through
most
of
them.
Which
of themay in
following
statements
are
parts
of
the
SSTSs?
I.
The
preparer
good
faith
rely upon,
without verification,
information
furnished III.
by the
client.
II.
There
is
confidentiality
of
the
CPA-client
relationship.
Taxpayer
supplied
estimates
may
bethe
used
to prepare
if it is
impractical
to obtain
exact
data
and
are returns
reasonable.
IV. The preparer
must
never
disclose
to estimates
the
1.
Only statement II is correct.
2.
Statements I, II, and IV are correct.
3.
Statements II and III are correct.
4.
Statements I, II, and III are correct.
5.
Statements I, II, III, and IV are correct.
The
calculation
of an individual's
income
taxfollowing
includesare
certain
deductions
for
adjusted
gross
income.
The
examples
of
this
class
of
deductions:
I.
Trade
or
business
expenses.
II.
Rental
expenses. III. Interest on student loans. IV. Investment interest
1.
Statements I and II are correct.
2.
Statements I, II, and III are correct.
3.
Only statement I is correct.
4.
Only statement III is correct.
5.
Statements I, II, III, and IV are correct.
Christy's
2011 taxadditional
return was
audited
during
November
2012. The
auditor
proposed
tax
due
of
$1,500.
Christy
disagreed.
What
should
Christy
do next? with
I. Within
30 days,
sheletter.
mustIII.
fileShe
a
protest.
II.
She
must
respond
a
written
protest
may respond with an oral protest.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Only statement III is correct.
4.
Statements I and III are correct.
5.
Statements I and II are correct.
Which of the following is an example of tax evasion?
1.
Beth invests money in tax exempt municipal bonds instead of corporate bonds.
2.
Bryan uses the cafeteria plan offered by his employer to fund pension plan
contributions for his retirement.
3.
Bauregard, a very wealthy 87-year-old individual, gives bonds to each of his
grandchildren so that the interest income on them would be taxed at a lower tax rate.
4.
Bertha won $500 cash in an amateur mud-wrestling contest but doesn't report it on her
tax return.
5.
All of the above are examples of tax evasion.
How
a taxpayer
have to
file aof
petition
with the U.S. Tax
Courtlong
afterdoes
receiving
a Statutory
Notice
Deficiency?
1.
10 days
2.
30 days
3.
90 days
4.
120 days
5.
180 days.
Sarah
owes
a deductible
expense
that
she
can
either
pay tax
(andrate
deduct)
this
year
or
next
year.
She
is
in
the
25%
marginal
bracket.
Which
of the following
statements
about
this current
payment
is/are
correct?
I.
Deductions
should
always
be
taken
in
the
year..
Sarah
should
pay tax
the rate
expense
thisnext
year.year,
II. If she
Sarah
expects
to
be in
the
28%
marginal
bracket
should
pay
the
expense next year.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct.
4.
Neither statement is correct.
Betty
hiresthe
Sam
to prepare
her federal decided
income tax
return. In
preparing
return,
Sam
erroneously
to
exclude
consulting
fees
because
he
estimated
that
Betty's
expenses
should
have
exceeded
the income
she received.
If the
IRS detects
Betty's
underpayment
of
tax,
what
is
the
likely
result?
I.
Betty
is
liable for
payment
of
the
tax
due
plus
interest
and
a
negligence
penalty.
II.liable
Sam
is
liable
for
payment
of
Betty's
negligence
penalty.
Betty
is
for the payment of the tax due plus interest.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct
4.
Neither statement is correct.
Which
of the
following
statements
is/arefrom
correct?
I. There
is aincome
minimum
allowable
standard
deduction
adjusted
gross
of
individuals.
II.
Corporations
are
allowed
deductions
from
adjusted
gross
income.
III.
Corporations
are
allowed
a
standard
deduction.
IV.
Personal
exemptions
of
individuals
are
deductible
for
adjusted
gross
income.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Statements II and IV are correct.
4.
Statements I and IV are correct.
5.
Statements I and III are correct.
Which
of business
the following
is/are categorized
as itemized
deduction(s)?
I.
Trade
or
expenses.
II.
Rental
expenses.
III.
Property
taxes
on personal residence. IV. Investment interest expense.
1.
Only statement I is correct.
2.
Only statement IV is correct.
3.
Statements I and III are correct.
4.
Statements III and IV are correct.
5.
Statements I, II, and IV are correct.
Adjusted
gross income
(AGI):
I. is
is unique
used totoprovide
limitations
on tax
certain
deductions
from
AGI.
II.
the
individual
income
formula.
III. isfrom
the result
subtracting certain allowable personal
expenditures
grossbefore
income.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Only statement III is correct.
4.
Statements I and II are correct.
5.
Statements I, II, and III are correct.
Exemption
amounts
and itemized
deductions
are twooftypes
of
reductions
used
to
calculate
taxable
income.
Which
the
following
are
characteristics
of these
types or
of the
deductions?
I.deduction.
Taxpayers
deduct
the
larger
of
itemized
deductions
standard
II.
Exemption
amounts
are dependent
on amounts
of expenditures
for
dependents.
III.
Deductions
for
adjusted
gross
income
are
limited
to
those
incurred
in
a
trade
or
business,
incurred
in
the
earning
of
income, and certain specifically allowed personal e
1.
Only statement III is correct.
2.
Statements I and II are correct.
3.
Statements I and III are correct.
4.
Statements II and III are correct.
5.
Statements I, II, and III are correct.
Free Text Questions
Ed
travels from
one construction
site to another
pursuing
his
work
as
an
insulator.
Because
of
family
problems
and
being
on
the
road
so
much,
Ed
overlooked
filing his
2002
tax return.
Ed
hasn't
filedmissed
any
returns
since
2005
because
he
is
afraid
the
IRS
will
find
the
returns
and put
him sure
in jailthat
andhis
heemployers
won't be able
to support
his
family.
Ed
carefully
makes
withhold
more
income
tax
thanhe
is would
necessary.
returns
get a Ed
taxknows
refun for certain that if he filed the late
Answer Given
No. Evasion is the willful concealment of certain facts in order to receive a tax benefit.
Ed has not evaded; he has just failed to file a return. He is not receiving a tax benefit.
In fact, he probably has over-paid his tax liability.
Monty
is aan
licensed
Certified
Public
Accountant.
Last
year heInc. This
prepared
individual
income
tax
return
for
Apple
Bakeries,
year
Apple
Bakeries income
switchedtax
toreturns
a different
tax
return preparer.
This
year
he
is
preparing
for
a
completely
separate
business,
Cinnamon
Rollthe
Bakery,
Inc. The
owner
of Cinnamon
Roll
asked
Monty
to
give
him
tax
return
data
from
Apple
Bakeries,
to a
help
estimate
the
tax
liability
of
Cinnamon
Roll
Bakery,
Inc.
Is
there
professional responsibility issue for
Answer Given
AICPA Code of Professional Conduct Rule 301 (confidentiality) would not allow Monty
to disclose this information without Apple's consent. SSTS NO. 3 allows a CPA to use
information from the tax return of another taxpayer if the information would not violate
the confidentiality of the relationship and is relevant to and necessary for the
preparation of the return. Monty would violate Apple's confidential relationship. In
addition, the information does not appear to be relevant or necessary for the
preparation of Cinnamon's return.
Nora
andwith
Nathan
work for
Cozener
Construction
Company.
Nora is a
foreman
an
annual
salary
of
$110,000.
Nathan
is
a
carpenter
who
earned
total
wages
ofwill
$52,000
during
the current
year.
a.b.How
much
Social
Security
tax
Nora
and
Nathan
have
to
pay?
According
the definitions
in Chapter 1, Explain.
is the social security tax
regressive,toproportional,
or progressive?
Answer Given
a. Nathan is under the $106,800 MHI base amount and will pay 7.65% tax on his
entire $52,000 of wages, a total of $3,978 ($52,000 ´ 7.65%). Nora is over the MHI
base amount and will pay 6.2% on the $106,800 MHI base amount and 1.45% on her
entire salary for a total tax of $8,216.60 [($106,800 ´ 6.2%) + ($110,000 ´ 1.45%)]; b. A
proportional tax rate structure is defined as a tax for which the average tax rate
remains constant as the tax base increases. The Social Security tax is composed of
two components - a tax of 6.2% on the first $106,800 of wages and salaries and a tax
of 1.45% on all wages and salaries. When viewed as two separate taxes, the Social
Security tax meets the definition of a proportional tax because a constant rate of tax is
applied throughout each tax base. However, when the total tax paid is considered, the
tax becomes regressive. A regressive tax is defined as a tax in which the average tax
rate decreases as the tax base increases. If total wages and salaries are considered
the tax base, then the use of the $106,800 maximum tax base for the MHI portion
makes the tax regressive. This is illustrated in Nathan and Nora's situation. Nathan's
average tax rate is 7.65% on wages of $52,000. Nora's average tax rate is 7.47%
($8,216.60 ÷ $110,000). Thus, the average tax rate decreases as total wages and
salaries increase past the $106,800 MHI base.
On
December
28,for
2011,
Doris
and Dan are
considering
one
last
financial
decision
2011,
a
contribution
of
$1,000
to
the
American
Diabetes
Association.
If 2011
they make
thetax
$1,000
it will be
fully
deductible
on their
income
return.contribution,
Their filing
status
is
married
filing
jointly.
Their
2011
taxable
income
before
this
contribution
is
$150,000.
If
they
make
this
contribution,
what
is
its
after-tax cost?
Answer Given
The after tax cost is $720: 2011 marginal rate is 28%
Amy
hired
Carey,
a CPA, to
prepare
her 2011
federal
incomeher
tax
return.
Amy
had
prepared
her
own
2010
return.
In
reviewing
records,
Carey
discovered
that Amy
had recorded
$5,000
of as
consulting
income
she
received
by
check
in
December
2010
though
it had been received in 2011. What should Carey do about
this situation?
Answer Given
Under SSTS No. 6, Carey should inform Amy of the error and recommend that she
correct the error. In this case, Amy should file an Bamended return for 2010 to correct
the understatement of income. If Amy will not correct the error, Casey will have to
consider whether he should continue to prepare the 2011 return.
Raquel
is Agent's
a recentReport
law school
graduate.
Shereturn
is upset
byshe
an must
IRS pay
Revenue
on
her
income
tax
that
an
additional
$2,000
in tax
on all
lastthe
year's
income.
Raquel tells
you
that
she
"...
will
take
her
case
way
to
the
Supreme
Court.”
What
is the
probability Raquel will be able to take her case to the
Supreme
Court.
Answer Given
It is very unlikely that Raquel will take her case to the Supreme Court. First, the
Supreme Court hears very few tax-related cases - generally those that involve
constitutional, jurisdictional, or novel issues. Second, most disputes with the IRS are
settled without trial. Third, she must first file her case in Trial Court and appeal it to an
appellate court before the Supreme Court would hear the case. She may win at one of
the lower court levels. Even is she loses in the lower courts, litigating is costly and she
may decide that the expense isn't worth the $2,000 in tax.
19th Edition
True-False Questions
All
tax practitioners
are governed by the AICPA’s Code of
Professional
Conduct.
1.
True
2.
False
A
regressive
tax rate
structure
as increases.
a tax in which the
average
tax rate
decreases
as is
thedefined
tax base
1.
True
2.
False
Self-employed
are required to make quarterly payments of
their estimated people
tax liability.
1.
True
2.
False
The
marginal
taxorrate
the of
rate
taxwill
thatbe
will
be paid
on the
dollar
of income
theisrate
taxofthat
saved
by the
nextnext
dollar
of deduction.
1.
True
2.
False
Employers
are required
to pay
aeach
Federal
Unemployment
Taxofofup
6.2%
of
the
first
$10,000
in
wages
to
employee
less
a
credit
to
5.4% of state unemployment taxes paid.
1.
True
2.
False
Adam
identified
efficient,for
certainty,
as the Smith
four basic
requirements
a good convenience,
tax system. and economy
1.
True
2.
False
Congress
is required
to insure
thatconvenience,
the tax law has
theeconomy.
following
characteristics:
equality,
certainty,
and
1.
True
2.
False
The
statute
of
limitations
is three
years,and
six there
yearsisif no
thestatute
taxpayer
omits
gross
income
in
excess
of
25%,
limitations if the taxpayer willfully defrauds the government. of
1.
True
2.
False
A
deferral
like aninexclusion
in that it does
not subject
have a current
tax
effect,
butais
itdeferral
differs
that
an
exclusion
isatnever
totime
taxation,
whereas
will
be
subject
to
tax
some
point
of
in
the
future.
1.
True
2.
False
Tax
avoidance
occurs
whenactual
a taxpayer
uses fraudulent methods or
deceptive
behavior
to hide
tax liability.
1.
True
2.
False
A
tax is an enforced contribution used to finance the functions of
government.
1.
True
2.
False
An
lossthe
results
fromincome.
an excess of allowable deductions for a
tax annual
year over
reported
1.
True
2.
False
Gifts
to qualified
charitable
organizations
may
be deducted
as a
contribution,
but
not
to
exceed
50%
of
an
individual
taxpayer’s
adjusted gross income.
1.
True
2.
False
Horizontal
equity exists when two similarly situated taxpayers are
taxed the same.
1.
True
2.
False
A
CPA may
prepare
tax returns
using estimates
provided
by the
taxpayer
if
it
is
impracticable
to
obtain
exact
data
and
the
estimates
are reasonable.
1.
True
2.
False
Multiple Choice Questions-Page 1
Which
of the following are included among Adam Smith's criteria for
evaluating
Economy. a tax? I. Convenience. II. Fairness. III. Neutrality. IV.
1.
Statements I and II are correct.
2.
Statements I, II, and III are correct.
3.
Statements I and IV are correct.
4.
Statements II and III are correct.
5.
Statements I, II, III, and IV are correct.
Adam
Smith's
structure
that isconcept of vertical equity is found in a tax rate
1.
Regressive.
2.
Proportional.
3.
Horizontal.
4.
Progressive.
5.
Economical.
Which
of the
Adam
Smith'sthat
requirements
for
a goodtax
taxrate
system
best
supports
argument
the
federal
income
structure
should be progressive?
1.
Certainty.
2.
Convenience.
3.
Equality.
4.
Neutrality.
5.
Sufficiency.
When
planning
for an
investment
that
will
extend
over will
several
years,
the
ability
to
predict
how
the
results
of
the
investment
be
taxed
is
important. This statement is an example of
1.
Certainty.
2.
Transparency
3.
Equality.
4.
Neutrality.
5.
Fairness.
Jim
and Anna
are
married
and$20,000
have a 2011
taxable income
of Their
$280,000.
They
also
received
of
tax-exempt
income.
effective tax rate is:
1.
22.7%
2.
23.3%
3.
24.9%
4.
33.0%
5.
35.0%
Which
of the following
statement
is/are
included in
Adam
Smith’s
four
requirements
for
a
good
tax
system?
I.
Changes
in
the
tax
law
should
be madeII.as
needed
to raise
revenueinand
for proper
administration.
A
tax
should
be
imposed
proportion
to to
a pay a
taxpayer's
ability
to
pay.
III.
A
taxpayer
should
be
required
tax
when
it is IV.
most
likely
to be convenient
for the
taxpayer
to
make
the
payment.
The
government
must
collect
taxes
equal
to
it’s
expenses.
1.
Statements I and II are correct.
2.
Statements I and IV are correct.
3.
Statements II and III are correct.
4.
Statements II and IV are correct.
5.
Statements III and IV are correct.
Jessica
is single
and has
a 2011 taxable
income
of $199,800.
She
also
received
$15,000
of
tax-exempt
income.
Jessica's
marginal
tax
rate is
1.
22.8%
2.
23.3%
3.
25.0%
4.
28.0%
5.
33.0%
Which of the following payments would not be considered a tax?
1.
An assessment based on the selling price of the vehicle.
2.
A local assessment for new sewers based on the amount of water used.
3.
A local assessment for schools based on the value of the taxpayer's property.
4.
A surcharge based upon the amount of income tax already calculated.
Which of the following payments meets the IRS definition of a tax?
1.
A fee paid on the value of property transferred from one individual to another by gift.
2.
A one-time additional property tax assessment to add a sidewalk to the neighborhood.
3.
A fee paid on the purchase of aerosol producing products to fund ozone research.
4.
A fee for a sticker purchased from a city that must be attached to garbage bags before
the city garbage trucks will pick up the bags.
5.
All of the above meet the definition of a tax.
Based
onisthe
definition
given in Chapter
1 of
the
text,
which
ofa the
following
a
tax?
I.
A
registration
fee
paid
to
the
state
to
get
car III.
license
plate;
II.
2%
special
sales
tax
for
funding
public
education;
A
special property
tax assessment
for installing
sidewalks
in the on
taxpayer's
neighborhood;
IV.
An
income
tax
imposed
by
Chicago
persons living or working within the city limits.
1.
Only statement I is correct.
2.
Only statement III is correct.
3.
Only statement IV is correct.
4.
Statements I and IV are correct.
5.
Statements II and IV are correct.
Terry
is a worker
in isthe
countryPretoria
Pretoria.imposes
His salary
is $46,000
and
his
taxable
income
$52,000.
a
Worker
Tax
as If
follows:
Employers
withhold
a
tax
of
20%
of
all
wages
and
salaries.
taxable
income
as reported
on the employee's
income tax
return
is
greater
than
$50,000,
an
additional
10%
tax
is
withheld
on
all
income. Terry's marginal tax rate is:
1.
0%
2.
10%
3.
20%
4.
30%
Andrea
is single
and has
a 2011 taxable
income
of $199,800
She
also
received
$15,000
of
tax-exempt
income.
Andrea's
average
tax
rate is
1.
22.8%
2.
23.3%
3.
25.4%
4.
28.5%
5.
33.0%
Which
ofofthe
following
payments
is aincome
tax? I. tax
Artisbalance
paid thedue)
IRS a
penalty
$475
(above
his
$11,184
because
he had
significantly
underpaid
histoestimated
income
tax; II.
Lindsey
paid
$135
to
the
State
of
Indiana
renew
her
CPA
license'
III.
Carrie
paid
a $3.50
toll
to cross the
Mississippi
River; IV. Darnell
paid
$950
to
the
County
Treasurer's
Office
for
an
assessment
on his
business equipment.
1.
Only statement IV is correct.
2.
Only statement III is correct.
3.
Statements II and IV are correct.
4.
Statements I, II, and III are correct.
5.
Statements I, II, III, and IV are correct.
Maria
is single
andofhas
a 2011 taxable
$200,000.
received
$15,000
tax-exempt
income.income
Maria'sofeffective
taxShe
ratealso
is:
1.
22.8%
2.
23.7%
3.
25.0%
4.
28.0%
5.
33.0%
If
a taxpayer
has a choice
of receiving
income
intax
therates
current
year
versus
the
following
year,
which
of
the
following
is
important
in determining the year in which he should include the income?
1.
Average.
2.
Effective.
3.
Composite.
4.
Marginal.
Bob
and Linda
are
married
and$20,000
have a of
2011
taxable income
ofTheir
$280,000.
They
also
received
tax-exempt
income.
marginal tax rate is:
1.
23.5%
2.
24.9%
3.
28.0%
4.
33.0%
5.
35.0%
Vertical
equity:
I. tax
means
thatpay
those
taxpayers
who have of
thethe
greatest
ability
to
pay
the
should
the
greatest
proportion
tax.III.II.is
means
that
two
similarly
situated
taxpayers
are
taxed
the
same.
reflected
in
the progressive
nature
of thewith
federal
income tax
system.
IV.
exists
when
Avis,
a
single
individual
4
dependent
children,
and
Art,tax
a single
individual
with
no dependents,
income
on equal
$26,000
annual
salaries. both pay $2,400
1.
Statements III and IV are correct.
2.
Statements II and III are correct.
3.
Statements I and III are correct.
4.
Only statement IV is correct.
5.
Statements I, II, III, and IV are correct.
According
to the
definition, which of the following is not a
characteristic
of aIRS
tax?
1.
The payment to the governmental authority is required by law.
2.
The payment relates to the receipt of a specific benefit.
3.
The payment is required pursuant to the legislative power to tax.
4.
The purpose of requiring the payment is to provide revenue to be used for the public or
governmental purposes.
Which of the following payments meets the IRS definition of a tax?
1.
Sewer fee charged added to a city trash collection bill.
2.
A special assessment paid to the county to pave a street.
3.
A levy on the value of a deceased taxpayer's estate.
4.
Payment of $300 to register an automobile. The $300 consists of a $50 registration fee
and $250 based on the weight of the auto.
Horizontal
equity:
I. means
that
thosepay
taxpayers
who have
the of
greatest
ability
to
pay
the
tax
should
the
greatest
proportion
the
tax.III.
II.ismeans
thatintwo
similarly
situated
taxpayers
are taxed
the
same.
reflected
the
progressive
nature
of
the
federal
income
tax
system.
IV.
exists
whenindividual
Avis, a single
individual
with 4both
dependent
children,
and
Art,
a
single
with
no
dependents,
pay
$2,400 income tax on equal $26,000 annual salaries.
1.
Statements III and IV are correct.
2.
Statements II and III are correct.
3.
Statements I and III are correct.
4.
Only statement IV is correct.
5.
Statements I, II, III, and IV are correct.
Pay-as-you-go withholding is consistent with Adam Smith's criteria of
1.
Certainty.
2.
Convenience.
3.
Economy.
4.
Fairness.
5.
Transparency.
Jaun
plans
to give
$5,000
to
the His
American
Diabetes
Association.
Jaun's
marginal
tax
rate
is
28%.
average
tax
rate
is 25%. Jaun's
after-tax cost of the contribution is
1.
$1,250
2.
$1,400
3.
$3,600
4.
$3,750
5.
$5,000
Katie
pays
$10,000
in tax-deductible
property
taxes. Katie’s
marginal
tax
rate
is
25%,
average
tax
rate
is
24%,
and
effective
tax
rate
is
20%. Katie's tax savings from paying the property tax is:
1.
$ 1,600
2.
$ 2,000
3.
$ 2,400
4.
$ 2,500
5.
$10,000
Frank
and Fran are
married and have a 2011 taxable income of
$280,000.
average taxThey
ratealso
is: received $20,000 of tax-exempt income. Their
1.
23.2%
2.
24.9%
3.
22.3%
4.
33.0%
5.
35.0%
83 Free Test Bank for Concepts in Federal Taxation 2012
19th Edition by Murphy Multiple Choice Questions-Page
2
Katarina,
aforsingle
taxpayer,
has income
total income
from allinto
sources
of
$100,000
2011.
Her
taxable
after
taking
consideration
$25,000
in tax
deductions
and
$10,000
in exclusions
is $65,000.
Katarina’s
liability
is
$12,375.
What
are
Katarina's
marginal,
average, and effective tax rates?
1.
28% marginal; 19.0% average; 19.0% effective.
2.
25% marginal; 16.5% average; 16.5% effective.
3.
25% marginal; 16.5% average; 19.0% effective.
4.
25% marginal; 19.0% average; 16.5% effective.
5.
28% marginal; 16.5% average; 19.0% effective.
Greg
pays
sales
taxtax
of $7.20
on the
the purchase
purchase of
of aa similar
lamp for
$120.
Michelle
paid
sales
of
$9
on
lamp
for
$150.
Greg's
taxable
income
for
the
current
year
is
$40,000.
Michelle's
taxable
income
is $55,000.
I. TheII.structure
of theofsales
tax
is
progressive
if
based
on
taxable
income.
The
structure
the
sales tax is proportional if based on sales price.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct.
4.
Neither statement is correct.
The
term "tax
law"
as used
in your(i.e.
textbook
includes:
I. Treasury
regulations.
II.
College
textbooks
“Concepts
in
Federal
Income
Taxes”).
III.
Internal
Revenue
Code
of
1986.
IV.
Tax
related
decisions of a U.S. Circuit Court of Appeals.
1.
Only statement III is correct.
2.
Statements I, III, and IV are correct.
3.
Statements I and III are correct.
4.
Only statement II is correct.
5.
All four statements are correct.
Heidi
and
Anastasia
are residents
of the mythical
country
of Wetland.
Heidi
pays
$1,500
income
tax
on
taxable
income
of
$6,000.
Anastasia
pays
income
tax
of
$21,000 on taxable
income ofIII.$72,000.
The
income
tax
structure
is
I.
Progressive.
II.
Proportional.
Regressive. IV. Value-added. V. Marginal.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Only statement III is correct.
4.
Only statement V is correct.
5.
Statements II and IV are correct.
Sally
is an electrician.
electrician employed
by
Bogieyear,
Company.
Sam
is is
a selfemployed
During
the
current
Sally's
salary
$85,000
and Sam's
net self-employment
income
is $85,000.
Which
of
the
following
statements
about
the
Social
Security
and
selfemployment
taxes
paid is/are
correct?
I. Sam's
self-employment
tax
is
greater
than
the
Social
Security
tax
paid
on
Sally's
income.
II.
Sam
and Sally pay the same amount of tax
1.
Only statement I is correct.
2.
Only statement II is correct
3.
Both statements are correct
4.
Neither statement is correct
Jered
and
Samantha
are married.
Their 2011
taxable
income isIf the
$80,000
before
considering
their
mortgage
interest
deduction.
mortgage
$10,000
for 2011, what are the tax savings
attributableinterest
to theirtotals
interest
deduction?
1.
$ 1,500
2.
$ 2,500
3.
$ 2,800
4.
$ 3,300
5.
$10,000
Employment taxes are
1.
revenue neutral.
2.
regressive .
3.
value-added.
4.
progressive.
5.
proportional.
How
much additional
Social
Security
tax earnings
does Elise
pay
inyear
2011
on
her
$10,000
Christmas
bonus?
Her
total
for
the
(before
the bonus) are $110,000.
1.
$0
2.
$ 145
3.
$ 620
4.
$ 765
How
much additional
Social
Security
tax earnings
does Betty
pay
inyear
2011
on
her
$10,000
Christmas
bonus?
Her
total
for
the
(before
the bonus) are $100,000.
1.
$145.00
2.
$269.20
3.
$566.60
4.
$641.00
5.
$765.00
Taxpayer
paystax
taxofof$6,600
$3,300on
on$20,000.
taxable income
while
taxpayer BApays
The taxofis$10,000
a
1.
proportional tax.
2.
regressive tax.
3.
progressive tax.
4.
horizontal tax.
A
tax provision
has
been
discussed
thattowould
add an additional
marginal
tax
rate
of
39%
to
be applied
an individual's
taxable law,
income
in
excess
of
$800,000.
If
this
provision
were
to
become
what
overall distributional impact would it have on our current income
tax system?
1.
Proportional.
2.
Regressive.
3.
Progressive.
4.
Disproportional.
5.
None of the above.
Lee's
2011 taxable
is individual.
$88,000 before
considering
charitable
contributions.
Lee
isincome
a single
Sheinmakes
a donation
of
$10,000
to
the
American
Heart
Association
December
2011.
By
how
much
did
Lee's
marginal
tax
rate
decline
simply
because
of
the
donation?
1.
0%
2.
10%
3.
3%
4.
5%
5.
8%
Rayburn
is the sole owner
of a dance
studio.
During
theiscurrent
year,
his
net
self-employment
income
from
the
dance
studio
$50,000.
What is Rayburn 's self-employment tax?
1.
$3,825.00
2.
$5,738.00
3.
$6,200.00
4.
$7,650.00
When property is transferred, gift and estate taxes are based on the
1.
fair market value of the assets on the date of transfer.
2.
replacement cost of the transferred property.
3.
transferor's original cost of the transferred property.
4.
transferor's adjusted basis of the transferred property.
5.
fair market value less adjusted basis on the date of the transfer.
Oliver
pays
sales
taxtax
ofof
$7.20
onthe
thepurchase
purchaseofofaasimilar
lamp for
$120.
Michelle
paid
sales
$9 on
lamp
for
$150.
Oliver's
taxable
income
for
the
current
year
is
$40,000.
Michelle's
taxable
income
is
$55,000.
I.
The
structure
of
the
sales
tax
is
regressive
if
based
on
taxable
income.
II.
The
structure
of
the
sales
tax is
proportional
if based
ononsales
price.
III. TheIV.
structure
of
the
sales
tax
is
progressive
based
taxable
income.
The
average sales tax paid on a purchase eq
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Statements III and IV are correct.
4.
Statements II and IV are correct.
5.
Statements I, II, and IV are correct.
A
property
tax:
I.onispersonal
levied onproperty
the value
of
property.
II. isthan
referred
to
as
ad
valorem.
III.
is
more
common
a
tax
on
real
property. IV. is based upon assessed value rather than actual
transactions.
1.
Only statement I is correct.
2.
Statements II and III are correct.
3.
Statements I, II, and IV are correct.
4.
Statements I, II, III, and IV are correct.
Samantha
is a self-employed
electrician.
2011, selfher net selfemployment
is $120,000.
What isDuring
Samantha's
employment income
tax?
1.
$15,570.00
2.
$15,606.80
3.
$16,128.00
4.
$16,723.20
5.
$18,360.00
Joy
receives
a used As
caraworth
$13,000
from
her will
uncle
as $13,000
a
graduation
present.
result
of
the
gift:
I.
Joy
have
taxable income. II. Joy’s uncle’s gift will subject him to the gift tax. of
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct.
4.
Neither statement is correct.
The Federal income tax is a
1.
revenue neutral tax.
2.
regressive tax.
3.
value-added tax.
4.
progressive tax.
5.
form of sales tax.
Elrod
isofan
employee
of Gomez
Inc.
During
2011,
ElrodGomez
receives a
salary
$120,000
from
Gomez.
What
amount
should
withhold
from
Elrod's
salary
as
payment
of
Elrod's
social
security and
medicare taxes?
1.
$7,440.00
2.
$7,803.40
3.
$8,064.00
4.
$8,361.60
5.
$9,180.00
Alan
is aofsingle
taxpayer
with
a gross
income
of
$88,000,
aJosh
taxable
income
$66,000,
and
an
income
tax
liability
of
$12,625.
also
has
$8,000
of effective
tax-exempt
average,
and
tax interest
rates? income. What are Alan's marginal,
1.
25% marginal; 17.1% average; 19.1% effective.
2.
28% marginal; 15.9% average; 21.7% effective.
3.
28% marginal; 17.1% average; 21.7% effective.
4.
25% marginal; 19.1% average; 17.1% effective.
Phyllis
is an
electricianDuring
employed
by Bogie
Company.
Phil
is aisselfemployed
electrician.
the
current
year,
Phyllis's
salary
$75,000
and Phil's
net self-employment
income
is $75,000.
Which of
the
following
statements
about
the
Social
Security
and
selfemployment
taxes
paid Security
is/are correct?
I. Phil's
self-employment
tax is
greater
than
the
Social
tax
paid
on
Phyllis's
income.
II.
Phil
pays
more
taxsame
than Phyllis pays in Social Security
tax. III.
Philself-employment
and Phyllis pay the
1.
Only statement I is correct.
2.
Only statement I is correct.
3.
Only statement IV is correct.
4.
Statements I and III are correct.
5.
Statements II and IV are correct.
Shara's
2011
taxable income
isis$42,000
before
considering
charitable
contributions.
Shara
a
single
individual.
She
makes a
donation
of
$5,000
to
the
American
Heart
Association
in
December
2011.
By of
how
did Shara's marginal tax rate decline simply
because
themuch
donation?
1.
0%
2.
7%
3.
3%
4.
5%
5.
10%
An
excise
tax:
I.product
is levied
on
the value
of property.
II.sale
is levied
on the
quantity
of
the
or
service.
III.
differs
from
an
tax,
because a sales tax is imposed on the value of property.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Statements I and II are correct.
4.
Statements II and III are correct.
5.
Statements I, II, and III are correct.
Sally
is an electrician.
electrician employed
by
Bogieyear,
Company.
Sam
is is
a selfemployed
During
the
current
Sally's
salary
$85,000
and Sam's
net self-employment
income
is $85,000.
Which
of
the
following
statements
about
the
Social
Security
and
selfemployment
taxes
paid
is/are
correct?
I. Sam
paystax.
more
selfemployment
tax
than
Sally
pays
in Social
Security
II.
Sam's
employment
tax
is
equal
to
the
Social
Security
tax
paid
on
Sally'sselfincome.
1.
Only statement I is correct.
2.
Only statement II correct.
3.
Both statements are correct.
4.
Neither statement is correct.
How
much additional
Social
Security
tax earnings
does Connie
payyear
in 2011
on
her
$10,000
Christmas
bonus?
Her
total
for
the
(before
the bonus) are $42,000.
1.
$0
2.
$145.00
3.
$620.00
4.
$765.00
A
sales tax levied on all goods and services sold is an example
of state
a
1.
progressive tax.
2.
regressive tax.
3.
proportional tax.
4.
value added tax.
Which
of for
thedetermining
following types
of taxes of
rely
solely
on "income"
as the
tax
base
the
amount
tax
liability?
I.
Sales
Tax;
Property Tax; III. Gift Tax; IV. Social Security Tax; V. Excise Tax II.
1.
Statements I, II, III, IV, and V are correct.
2.
Statements I, III, and IV are correct.
3.
Statements II and IV are correct.
4.
Only statement IV is correct.
5.
None of the above types of taxes relies on income for its tax base.
Marie
earns $80,000
sales manager
for Household
much Social
Security as
anda medicare
tax does
Marie haveBooks.
to pay?How
1.
$ 4,960.00
2.
$ 6,120.00
3.
$ 6,400.00
4.
$12,240.00
83 Free Test Bank for Concepts in Federal Taxation 2012
19th Edition by Murphy Multiple Choice Questions-Page
3
Betty
hiresthe
Sam
to prepare
her federal decided
income tax
return. In
preparing
return,
Sam
erroneously
to
exclude
consulting
fees
because
he
estimated
that
Betty's
expenses
should
have
exceeded
the income
she received.
If the
IRS detects
Betty's
underpayment
of
tax,
what
is
the
likely
result?
I.
Betty
is
not tax
subject
to
the negligence
penalty
since
sheinrelied
on
a professional
preparer
and
reported
her
income
good
faith.
II.
Sam
is
liable
for
payment of Betty's tax due plus interest and negligenc
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct
4.
Neither statement is correct.
Trang
is$10,000
in the 15%
marginal
tax expenses.
bracket in the
current
year. She
owes
a
bill
for
business
Since
she
reports
taxable
income
on
a
cash
basis,
she
can
deduct
the
$10,000
in
either
this
year
or
next
year,
depending
on
when
she
makes
the
payment.
She
can
pay the
bill
at any
timeinterest
beforecharge.
JanuaryShe
31 of
next year,
without
incurring
the
normal
12%
expects
to
be
in
the
25%
marginal
year. Without
the time value
of money,
whatbracket
are hernext
tax savings
if she considering
p
1.
Current year $1,000.
2.
Current year $1,500.
3.
Next year $1,000.
4.
Next year $2,500.
5.
Next year $1,500.
Based
on the couple
following
information,
what
is the
2011 $120,000;
taxable income
for
a married
with
two
children?
Total
income
Excludable
income
2,000;
Deductions
for
AGI
5,000;
Allowable
itemized deductions 8,000
1.
$ 79,000
2.
$ 86,600
3.
$ 87,000
4.
$ 90,200
5.
$112,000.
Tax
planning
involves
the
timing
of income
and I.deductions.
General
rules
of
thumb
to
follow
when
planning
include:
putting
income
the
year with the lowest marginal tax rate. II. deferring recognitioninto
of
income.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct.
4.
Neither statement is correct.
Tax
planning
involves
the
timing
of income
and I.deductions.
General
rules
of
thumb
to
follow
when
planning
include:
deferring
recognition
income. II. putting deductions into the year with highest
marginal taxofrate.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct.
4.
Neither statement is correct.
The
incomeare
taxbroken
formulainto
for classes:
individualI. taxpayers
is unique
in that
deductions
This
dichotomy
of
deductions
results
in(AGI).
an intermediate
income
number is
called
adjusted
gross
income
II.
One
class
of
deductions
called
exclusions
from
income.
III.
One
class
of
deductions
is
called
deductions
for
adjusted
gross
IV. not
Expenses
as deductions
for adjusted
gross income.
income are
limited qualifying
by the income
of the taxpayer.
1.
Statements III and IV are correct.
2.
Statements II and III are correct.
3.
Statements I, III and IV are correct.
4.
Only statement IV is correct.
5.
Statements I, II, III, and IV are correct.
Tax
evasion usually
involves
certain
elements.
Which
of the following
are
elements
necessary
for
tax
evasion
to
occur?
I.
Nondisclosure
of
the
relevant
facts
on
the
taxpayer’s
tax
return.
II.
Underpayment
of
tax.
III. Avoiding
detection
by the
IV. taxpayer
Willfulness
the part of
the taxpayer.
V. An
affirmative
actIRS.
by the
to on
misrepresent.
1.
Statements I, II, and III are correct.
2.
Statements I, II, IV, and V are correct.
3.
Statements I and III are correct.
4.
Only statement IV is correct.
5.
All of the five listed elements are correct.
Betty
hiresthe
Sam
to prepare
her federal decided
income tax
return. In
preparing
return,
Sam
erroneously
to
exclude
consulting
fees
because
he
estimated
that
Betty's
expenses
should
have
exceeded
the income
she received.
If the
IRS detects
Betty's
underpayment
of
tax,
what
is
the
likely
result?
I.
Betty
is
not tax
subject
to
the
negligence
penalty
since
she
relied
on
a
professional
preparer
reported
income
in and
gooda faith.
II. Betty is liable for
payment and
of the
tax dueher
plus
interest
negligenc
1.
Only I is correct.
2.
Only II is correct.
3.
Only III is correct.
4.
I and III are correct.
5.
I and IV are correct.
Sonya
owes
a deductible
expense
that
she
can pay
either tax
(and
deduct)
this
year
or
next
year.
She
is
in
the
25%
marginal
rate
bracket.
Which
of
the
following
statements
about
this
payment
is/are
correct?
I.
Deductions
should
always
be
taken
as
soon
as
possible.
Sonya
should
pay tax
the rate
expense
thisnext
year.
II. Ifshe
Sonya
expects
to be in
the
28%
marginal
bracket
year,
should
pay
the
expense
thisnext
year.year,
III. Ifshe
Sonya
expects
to be in the 15% marginal tax
rate bracket
should
pay th
1.
Only statement II is correct.
2.
Only statement IV is correct.
3.
Statements I and III are correct.
4.
Statements I and IV are correct.
5.
Statements III and IV are correct.
For
2011, Nigel
and Lola,
married
taxpayers
withouttochildren,
calculated
their
total
allowable
itemized
deductions
be $17,100.
Accordingly,
Nigel
and
Lola
file
jointly
and
should
deduct
from
adjusted
gross
income:
I.
the
standard
deduction
amount
of $11,600.
II.
total
itemized
deductions
equal
to
$17,100.
III.
one
personal
and
one
dependency exemption amount. IV. exemption amounts totaling
$7,400.
1.
Only statement I is correct.
2.
Statements I and IV are correct.
3.
Statements I, III, and IV are correct.
4.
Statements II and IV are correct.
5.
Statements I, II, III, and IV are correct.
Which
of the
following
are types
of IRS examinations?
I. Information
matching
program.
II.
Office
examination.
III.
Field
examination.
IV.
Revenue agent report.
1.
Statements II and III are correct.
2.
Only statement III is correct.
3.
Statements I and IV are correct.
4.
Statements I, II and III are correct.
5.
Only statement II is correct.
Tax
planning
involves
the
timing
of income
and I.deductions.
General
rules
of
thumb
to
follow
when
planning
include:
putting
income
into
the year with the lowest marginal tax rate. II. deferring deductions.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct.
4.
Neither statement is correct.
The
return
selectionofprogram
highest
probability
errors is designed to select returns with the
1.
The TCMP.
2.
The DIF program.
3.
The special audit program.
4.
The document perfection program.
5.
The information-matching program.
Ordinary
incomeearn.
is: I. the
commonnotype
of income
that under
individuals
and
businesses
II.
receives
special
treatment
tax
laws.
III.
the
character
of
the
gain
from
the
sales
of
shares
of
stock.
held more than one year
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Statements I and II are correct.
4.
Statements I and III are correct.
5.
Statements I, II, and III are correct.
All
tax of
practitioners
whoI.prepare
tax returns
for
a fee Code
are subject
to
which
the
following?
IRS
Circular
230.
II.
AICPA
of
Professional
III. Statements
Standards Conduct
for Tax Services.
IV. American Conduct.
Bar Association
Code of on
Professional
1.
Only statement I is correct.
2.
Statements I, II, and III are correct.
3.
Statements II and III are correct.
4.
Statements II and IV are correct.
5.
Statements I, II, III, and IV are correct.
Carolyn
and Craig
are married.
They
have twodependency
children (8 years old
and
13 years
old)
living
with
them.
How
exemptions
are
claimed
on Carolyn
and many
Craig's 2011 tax return?
1.
0
2.
1
3.
2
4.
3
5.
4
Which
of the
following
taxpayers
usedbasis
tax evasion
tactics
when filing
their
2011
tax
return?
I.
Fern,
a
cash
accountant
intentionally
billed
clients for from
services
on until
December
31,Samual
2011, to
avoida receiving
cash
payments
clients
2012.
II.
made
mathematical
mistake onofa tax.
schedule
in his
taxnot
return
thatthe
resulted
in
a
$2,000
underpayment
The
IRS
does
detect
mistake.
III.
Beverlychildcare
accidentally
underreported
providing
in her
home. IV. Bo,$800
a of income she earned
1.
Statements I and III are correct.
2.
Only statement II is correct.
3.
Statements II and III are correct.
4.
Statemenst III and IV are correct.
5.
Only statement IV is correct.
Alice
is a plumber
and collector
ofwork,
rare she
stamps.
Instead of
always
receiving
cash
payments
for
her
occasionally
has
herthen
customers
send
their
payments
to
a
stamp
broker.
The
broker
makes
stamp
purchases
on value
Alice'sofbehalf
and mails
the stamps
to
her.
Alice
never
reports
the
the
stamps
received
as
income
on
her tax
return.
I.subject
Alice's to
actions
are of
a form
of tax evasion.
II.
Alice's
actions
are
payment
tax,
interest,
and
penalty
if
detected by the IRS.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct.
4.
Neither statement is correct.
Glenna
put
money
inrequired
savings to
accounts
inthe
50 IRS
different
banks. She
knows
a
bank
is
not
report
to
any
interest
itthe
pays
her
that
totals
less
than
$10.
Because
the
banks
do
not
report
payments
to the Which
IRS, Glenna
does
not report
the
interest
received as
taxable
income.
of
the
following
is
(are)
true?
I.
Glenna's
actions
are
taxreturn
evasion
because
shetax.
intentionally
misrepresented
facts
on
a
tax
to
avoid
paying
II.
Glenna's
actions are tax
avoidance because the IRS will never
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Statements I and III are correct.
4.
Statements II and III are correct.
5.
Statements I, II, and III are correct.
The
Statements
onrunning
Standards
for Tax
Services
(SSTS)
have
common
concepts
through
most
of
them.
Which
of themay in
following
statements
are
parts
of
the
SSTSs?
I.
The
preparer
good
faith
rely upon,
without verification,
information
furnished III.
by the
client.
II.
There
is
confidentiality
of
the
CPA-client
relationship.
Taxpayer
supplied
estimates
may
bethe
used
to prepare
if it is
impractical
to obtain
exact
data
and
are returns
reasonable.
IV. The preparer
must
never
disclose
to estimates
the
1.
Only statement II is correct.
2.
Statements I, II, and IV are correct.
3.
Statements II and III are correct.
4.
Statements I, II, and III are correct.
5.
Statements I, II, III, and IV are correct.
The
calculation
of an individual's
income
taxfollowing
includesare
certain
deductions
for
adjusted
gross
income.
The
examples
of
this
class
of
deductions:
I.
Trade
or
business
expenses.
II.
Rental
expenses. III. Interest on student loans. IV. Investment interest
1.
Statements I and II are correct.
2.
Statements I, II, and III are correct.
3.
Only statement I is correct.
4.
Only statement III is correct.
5.
Statements I, II, III, and IV are correct.
Christy's
2011 taxadditional
return was
audited
during
November
2012. The
auditor
proposed
tax
due
of
$1,500.
Christy
disagreed.
What
should
Christy
do next? with
I. Within
30 days,
sheletter.
mustIII.
fileShe
a
protest.
II.
She
must
respond
a
written
protest
may respond with an oral protest.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Only statement III is correct.
4.
Statements I and III are correct.
5.
Statements I and II are correct.
Which of the following is an example of tax evasion?
1.
Beth invests money in tax exempt municipal bonds instead of corporate bonds.
2.
Bryan uses the cafeteria plan offered by his employer to fund pension plan
contributions for his retirement.
3.
Bauregard, a very wealthy 87-year-old individual, gives bonds to each of his
grandchildren so that the interest income on them would be taxed at a lower tax rate.
4.
Bertha won $500 cash in an amateur mud-wrestling contest but doesn't report it on her
tax return.
5.
All of the above are examples of tax evasion.
How
a taxpayer
have to
file aof
petition
with the U.S. Tax
Courtlong
afterdoes
receiving
a Statutory
Notice
Deficiency?
1.
10 days
2.
30 days
3.
90 days
4.
120 days
5.
180 days.
Sarah
owes
a deductible
expense
that
she
can
either
pay tax
(andrate
deduct)
this
year
or
next
year.
She
is
in
the
25%
marginal
bracket.
Which
of the following
statements
about
this current
payment
is/are
correct?
I.
Deductions
should
always
be
taken
in
the
year..
Sarah
should
pay tax
the rate
expense
thisnext
year.year,
II. If she
Sarah
expects
to
be in
the
28%
marginal
bracket
should
pay
the
expense next year.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct.
4.
Neither statement is correct.
Betty
hiresthe
Sam
to prepare
her federal decided
income tax
return. In
preparing
return,
Sam
erroneously
to
exclude
consulting
fees
because
he
estimated
that
Betty's
expenses
should
have
exceeded
the income
she received.
If the
IRS detects
Betty's
underpayment
of
tax,
what
is
the
likely
result?
I.
Betty
is
liable for
payment
of
the
tax
due
plus
interest
and
a
negligence
penalty.
II.liable
Sam
is
liable
for
payment
of
Betty's
negligence
penalty.
Betty
is
for the payment of the tax due plus interest.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Both statements are correct
4.
Neither statement is correct.
Which
of the
following
statements
is/arefrom
correct?
I. There
is aincome
minimum
allowable
standard
deduction
adjusted
gross
of
individuals.
II.
Corporations
are
allowed
deductions
from
adjusted
gross
income.
III.
Corporations
are
allowed
a
standard
deduction.
IV.
Personal
exemptions
of
individuals
are
deductible
for
adjusted
gross
income.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Statements II and IV are correct.
4.
Statements I and IV are correct.
5.
Statements I and III are correct.
Which
of business
the following
is/are categorized
as itemized
deduction(s)?
I.
Trade
or
expenses.
II.
Rental
expenses.
III.
Property
taxes
on personal residence. IV. Investment interest expense.
1.
Only statement I is correct.
2.
Only statement IV is correct.
3.
Statements I and III are correct.
4.
Statements III and IV are correct.
5.
Statements I, II, and IV are correct.
Adjusted
gross income
(AGI):
I. is
is unique
used totoprovide
limitations
on tax
certain
deductions
from
AGI.
II.
the
individual
income
formula.
III. isfrom
the result
subtracting certain allowable personal
expenditures
grossbefore
income.
1.
Only statement I is correct.
2.
Only statement II is correct.
3.
Only statement III is correct.
4.
Statements I and II are correct.
5.
Statements I, II, and III are correct.
Exemption
amounts
and itemized
deductions
are twooftypes
of
reductions
used
to
calculate
taxable
income.
Which
the
following
are
characteristics
of these
types or
of the
deductions?
I.deduction.
Taxpayers
deduct
the
larger
of
itemized
deductions
standard
II.
Exemption
amounts
are dependent
on amounts
of expenditures
for
dependents.
III.
Deductions
for
adjusted
gross
income
are
limited
to
those
incurred
in
a
trade
or
business,
incurred
in
the
earning
of
income, and certain specifically allowed personal e
1.
Only statement III is correct.
2.
Statements I and II are correct.
3.
Statements I and III are correct.
4.
Statements II and III are correct.
5.
Statements I, II, and III are correct.
Free Text Questions
Ed
travels from
one construction
site to another
pursuing
his
work
as
an
insulator.
Because
of
family
problems
and
being
on
the
road
so
much,
Ed
overlooked
filing his
2002
tax return.
Ed
hasn't
filedmissed
any
returns
since
2005
because
he
is
afraid
the
IRS
will
find
the
returns
and put
him sure
in jailthat
andhis
heemployers
won't be able
to support
his
family.
Ed
carefully
makes
withhold
more
income
tax
thanhe
is would
necessary.
returns
get a Ed
taxknows
refun for certain that if he filed the late
Answer Given
No. Evasion is the willful concealment of certain facts in order to receive a tax benefit.
Ed has not evaded; he has just failed to file a return. He is not receiving a tax benefit.
In fact, he probably has over-paid his tax liability.
Monty
is aan
licensed
Certified
Public
Accountant.
Last
year heInc. This
prepared
individual
income
tax
return
for
Apple
Bakeries,
year
Apple
Bakeries income
switchedtax
toreturns
a different
tax
return preparer.
This
year
he
is
preparing
for
a
completely
separate
business,
Cinnamon
Rollthe
Bakery,
Inc. The
owner
of Cinnamon
Roll
asked
Monty
to
give
him
tax
return
data
from
Apple
Bakeries,
to a
help
estimate
the
tax
liability
of
Cinnamon
Roll
Bakery,
Inc.
Is
there
professional responsibility issue for
Answer Given
AICPA Code of Professional Conduct Rule 301 (confidentiality) would not allow Monty
to disclose this information without Apple's consent. SSTS NO. 3 allows a CPA to use
information from the tax return of another taxpayer if the information would not violate
the confidentiality of the relationship and is relevant to and necessary for the
preparation of the return. Monty would violate Apple's confidential relationship. In
addition, the information does not appear to be relevant or necessary for the
preparation of Cinnamon's return.
Nora
andwith
Nathan
work for
Cozener
Construction
Company.
Nora is a
foreman
an
annual
salary
of
$110,000.
Nathan
is
a
carpenter
who
earned
total
wages
ofwill
$52,000
during
the current
year.
a.b.How
much
Social
Security
tax
Nora
and
Nathan
have
to
pay?
According
the definitions
in Chapter 1, Explain.
is the social security tax
regressive,toproportional,
or progressive?
Answer Given
a. Nathan is under the $106,800 MHI base amount and will pay 7.65% tax on his
entire $52,000 of wages, a total of $3,978 ($52,000 ´ 7.65%). Nora is over the MHI
base amount and will pay 6.2% on the $106,800 MHI base amount and 1.45% on her
entire salary for a total tax of $8,216.60 [($106,800 ´ 6.2%) + ($110,000 ´ 1.45%)]; b. A
proportional tax rate structure is defined as a tax for which the average tax rate
remains constant as the tax base increases. The Social Security tax is composed of
two components - a tax of 6.2% on the first $106,800 of wages and salaries and a tax
of 1.45% on all wages and salaries. When viewed as two separate taxes, the Social
Security tax meets the definition of a proportional tax because a constant rate of tax is
applied throughout each tax base. However, when the total tax paid is considered, the
tax becomes regressive. A regressive tax is defined as a tax in which the average tax
rate decreases as the tax base increases. If total wages and salaries are considered
the tax base, then the use of the $106,800 maximum tax base for the MHI portion
makes the tax regressive. This is illustrated in Nathan and Nora's situation. Nathan's
average tax rate is 7.65% on wages of $52,000. Nora's average tax rate is 7.47%
($8,216.60 ÷ $110,000). Thus, the average tax rate decreases as total wages and
salaries increase past the $106,800 MHI base.
On
December
28,for
2011,
Doris
and Dan are
considering
one
last
financial
decision
2011,
a
contribution
of
$1,000
to
the
American
Diabetes
Association.
If 2011
they make
thetax
$1,000
it will be
fully
deductible
on their
income
return.contribution,
Their filing
status
is
married
filing
jointly.
Their
2011
taxable
income
before
this
contribution
is
$150,000.
If
they
make
this
contribution,
what
is
its
after-tax cost?
Answer Given
The after tax cost is $720: 2011 marginal rate is 28%
Amy
hired
Carey,
a CPA, to
prepare
her 2011
federal
incomeher
tax
return.
Amy
had
prepared
her
own
2010
return.
In
reviewing
records,
Carey
discovered
that Amy
had recorded
$5,000
of as
consulting
income
she
received
by
check
in
December
2010
though
it had been received in 2011. What should Carey do about
this situation?
Answer Given
Under SSTS No. 6, Carey should inform Amy of the error and recommend that she
correct the error. In this case, Amy should file an Bamended return for 2010 to correct
the understatement of income. If Amy will not correct the error, Casey will have to
consider whether he should continue to prepare the 2011 return.
Raquel
is Agent's
a recentReport
law school
graduate.
Shereturn
is upset
byshe
an must
IRS pay
Revenue
on
her
income
tax
that
an
additional
$2,000
in tax
on all
lastthe
year's
income.
Raquel tells
you
that
she
"...
will
take
her
case
way
to
the
Supreme
Court.”
What
is the
probability Raquel will be able to take her case to the
Supreme
Court.
Answer Given
It is very unlikely that Raquel will take her case to the Supreme Court. First, the
Supreme Court hears very few tax-related cases - generally those that involve
constitutional, jurisdictional, or novel issues. Second, most disputes with the IRS are
settled without trial. Third, she must first file her case in Trial Court and appeal it to an
appellate court before the Supreme Court would hear the case. She may win at one of
the lower court levels. Even is she loses in the lower courts, litigating is costly and she
may decide that the expense isn't worth the $2,000 in tax.