Individual Taxation Exam Bank
Course Introduction
Individual Taxation is a comprehensive course designed to provide students with an in-depth understanding of the principles, laws, and practices related to federal income taxation of individuals. The course covers topics such as income determination, deductions, tax credits, filing requirements, tax computation, and tax planning strategies. Students will gain practical experience by analyzing real-life scenarios, preparing individual tax returns, and applying current tax regulations. Emphasis is placed on ethical considerations, taxpayer rights, and the impact of tax law changes on individuals, equipping students with the knowledge and skills necessary for both personal and professional tax planning and compliance.
Recommended Textbook
South western Federal Taxation 2017 Comprehensive Edition 40th Edition by William H. Hoffman
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Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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159 Verified Questions
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Sample Questions
Q1) A major disadvantage of a flat tax type of income tax is its complexity.
A)True
B)False
Answer: False
Q2) Which, if any, of the following provisions cannot be justified as mitigating the effect of the annual accounting period concept?
A)Nonrecognition of gain allowed for involuntary conversions.
B)Net operating loss carryback and carryover provisions.
C)Carry over of excess charitable contributions.
D)Use of the installment method to recognize gain.
E)Carry over of excess capital losses.
Answer: A
Q3) Tracy has just been audited and the IRS agent has issued an RAR that assesses a large deficiency.Since Tracy disagrees with the result, her next step is to go to court.Do you agree?
Answer: Tracy might save herself time and expense by going to the Appeals Division of the IRS.Here, the IRS has the authority to negotiate a settlement based on the "hazards of litigation" (i.e., the probabilities of winning or losing).If a settlement is reached, resort to the courts is avoided.
Page 3
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Chapter 2: Working With the Tax Law
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Sample Questions
Q1) What is the role of the Joint Conference Committee in the legislative process?
Answer: When the Senate version of a bill differs from that passed by the House, the Joint Conference Committee, which includes members of both the House Ways and Means Committee and the Senate Finance Committee, is called upon to resolve the differences.The deliberations of the Joint Conference Committee usually produce a compromise between the two versions, which is then voted on by both the House and the Senate.If both bodies accept the bill, it is referred to the President for approval or veto.
Q2) Which of these is not a correct citation to the Internal Revenue Code?
A)Section 211.
B)Section 1222(1).
C)Section 2(a)(1)(A).
D)Section 280B.
E)All of above are correct cites.
Answer: E
Q3) There is a direct conflict between a Code section adopted in 2004 and a treaty with France (signed in 2008).The Code section controls.
A)True
B)False
Answer: False
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Chapter 3: Computing the Tax
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Sample Questions
Q1) Kyle and Liza are married and under 65 years of age.During 2012, they furnish more than half of the support of their 19-year old daughter, May, who lives with them.She graduated from high school in May 2011. May earns $15,000 from a part-time job, most of which she sets aside for future college expenses.Kyle and Liza also provide more than half of the support of Kyle's cousin who lives with them.Liza's father, who died on January 3, 2012, at age 90, has for many years qualified as their dependent.How many personal and dependency exemptions should Kyle and Liza claim?
A)Two.
B)Three.
C)Four.
D)Five.
E)None of the above.
Answer: C
Q2) Maude's parents live in another state and she cannot claim them as her dependents.If Maude pays their medical expenses, can she derive any tax benefit from doing so? Explain.
Answer: If Maude could otherwise claim her parents as dependents except for not satisfying either the gross income or the joint return tests, she can claim any medical expenses paid on their behalf.
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Page 5
Chapter 4: Gross Income: Concepts and Inclusions
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Q1) In the case of a zero interest below-market loan by a corporation to a shareholder-employee, what difference does it make to the corporation and the shareholder whether the loan is characterized as a corporation's loan to its shareholder or a corporation's loan to its employee?
Q2) Thelma and Mitch were divorced.The couple had a joint brokerage account that included stocks with a basis of $600,000 and a fair market value of $1,000,000.Under the terms of the divorce agreement, Mitch would receive the stocks and Mitch would pay Thelma $100,000 each year for 6 years, or until Thelma's death, whichever should occur first.Thelma and Mitch lived apart when the payments were made by Mitch.Mitch paid the $600,000 to Thelma over the six-year period.The divorce agreement did not contain the word "alimony." Then, Mitch sold the stocks for $1,300,000.Mitch's recognized gain from the sale is:
A)$0.
B)$1,000,000 ($1,300,000 - $300,000).
C)$700,000 ($1,300,000 - $600,000).
D)$300,000 ($1,300,000 - $1,000,000).
E)None of the above.
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Page 6
Chapter 5: Gross Income: Exclusions
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Sample Questions
Q1) Amber Machinery Company purchased a building from Ted for $250,000 cash and a mortgage of $750,000.One year after the transaction, the mortgage had been reduced to $725,000 by principal payments by Amber, but it was apparent that Amber would not be able to continue to make the monthly payments on the mortgage.Ted reduced the amount owed by Amber to $600,000.This reduced the monthly payments to a level that Amber could pay.Amber must recognize $125,000 income from the reduction in the debt by Ted.
A)True B)False
Q2) John told his nephew, Steve, "if you maintain my house when I cannot, I will leave the house to you when I die.Steve maintained the house and when John died Steve inherited the house.The value of the residence must be included in Steve's gross income.
A)True B)False
Q3) The CEO of Cirtronics Inc., discovered that the company's competitor had adopted a cafeteria plan for its employees. The CEO is concerned about retaining his talented employees and would like you to provide a brief explanation as to why a cafeteria plan may be attractive to the company's employees.
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Chapter 6: Deductions and Losses: in General
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Sample Questions
Q1) Which of the following is not a related party for constructive ownership purposes under § 267?
A)The taxpayer's cousin.
B)The taxpayer's brother.
C)The taxpayer's grandmother.
D)A corporation owned more than 50% by the taxpayer.
E)None of the above.
Q2) Briefly discuss the disallowance of deductions for capital expenditures.
Q3) Under what circumstance can a bribe be deducted?
Q4) Fines and penalties paid for violations of the law (e.g., illegal dumping of hazardous waste) are deductible only if they relate to a trade or business.
A)True
B)False
Q5) Ordinary and necessary business expenses, other than cost of goods sold, of an illegal drug trafficking business do not reduce taxable income.
A)True
B)False
Q6) Discuss the application of the "one-year rule" on prepayments by a cash basis taxpayer.
Page 8
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) Depreciation on a building used for research may be a research and experimental expense.
A)True
B)False
Q2) For tax years beginning in 2012, the domestic production activities deduction (DPAD) for a sole proprietor is calculated by multiplying 9% times adjusted gross income.
A)True
B)False
Q3) A farming NOL may be carried back 2 years.
A)True
B)False
Q4) Last year, taxpayer had a $10,000 nonbusiness bad debt. Taxpayer also had an $8,000 short-term capital gain and taxable income of $35,000. If taxpayer collects the entire $10,000 during the current year, $8,000 needs to be included in gross income.
A)True
B)False
Q5) How is qualified production activities income (QPAI) calculated?
Page 9
Q6) Discuss the effect of alimony in computing a net operating loss.
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Chapter 8: Depreciation, Cost Recovery, Amortization, and Depletion
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Sample Questions
Q1) Percentage depletion enables the taxpayer to recover more than the cost of an asset.
A)True
B)False
Q2) Polly purchased a new hotel on July 20, 2012, for $6,000,000.On January 20, 2019, the building was sold.Determine the cost recovery deduction for the year of the sale.
Q3) The basis of cost recovery property must be reduced by the cost recovery allowed. A)True B)False
Q4) Norm purchases a new sports utility vehicle (SUV) on October 12, 2012, for $50,000.The SUV has a gross vehicle weight of 6,200 lbs.It is used 100% of the time for business and it is the only business asset acquired by Norm during 2012.Compute the maximum deduction with respect to the SUV for 2012. Norm does take additional first-year depreciation.
Q5) All listed property is subject to the substantiation requirements of § 274. A)True B)False
Page 10
Q6) Discuss the reason for the inclusion amount with respect to leased automobiles.
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Sample Questions
Q1) For the spousal IRA provision to apply, a joint return must be filed.
A)True
B)False
Q2) Joyce, age 39, and Sam, age 40, who have been married for seven years, are both active participants in qualified retirement plans.Their total AGI for 2012 is $120,000.Each is employed and earns a salary of $65,000.What are their combined deductible contributions to traditional IRAs?
A)$0.
B)$3,000.
C)$4,000.
D)$8,000.
E)None of the above.
Q3) Jake performs services for Maude. If Jake provides his own helper and tools, this is indicative of independent contractor (rather than employee) status.
A)True
B)False
Q4) Jacob is a landscape architect who works out of his home.He wonders whether or not he will have nondeductible commuting expenses when he drives to the locations of his clients.Please comment.
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) Jeanne had an accident while hiking on vacation.She sustained nose injuries that required cosmetic surgery.While having the surgery done to restore her appearance, she had additional surgery done to reshape her chin, which was not injured in the accident.The surgery to restore her appearance cost $15,000 and the surgery to reshape her chin cost $4,000.How much of Jeanne's surgical fees will qualify as a deductible medical expense (before application of the 7.5% limitation)?
A)$0.
B)$4,000.
C)$15,000.
D)$19,000.
E)None of the above.
Q2) Judy paid $40 for Girl Scout cookies and $40 for Boy Scout popcorn.Judy may claim an $80 charitable contribution deduction.
A)True
B)False
Q3) Taxes assessed for local benefits, such as a new sidewalk, are not deductible as real property taxes.
A)True
B)False
Page 12
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Chapter 11: Investor Losses
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Q1) Pat sells a passive activity for $100,000 that has an adjusted basis of $55,000.During the years of her ownership, $60,000 of losses have been incurred that were suspended under the passive activity loss rules.In addition, the passive activity generated tax credits of $10,000 that were not utilized and suspended.Determine the tax treatment to Pat on the disposition of the property.
Q2) Judy owns a 20% interest in a partnership (not real estate) in which her at-risk amount was $35,000 at the beginning of the year.The partnership borrowed $50,000 on a recourse note and made a $40,000 profit during the year.Her at-risk amount at the end of the year is $43,000.
A)True
B)False
Q3) A taxpayer is considered to be a material participant in a significant participation activity if he or she spends at least 400 hours in the activity.
A)True
B)False
Q4) Identify the types of income that are classified as investment income. Discuss the flexibility that a taxpayer has with respect to certain types of income that may potentially be considered investment income.
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Page 13
Chapter 12: Tax Credits and Payments
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Sample Questions
Q1) Bob and Sally are married, file a joint tax return, have AGI of $108,000, and have two children.Del is beginning her freshman year at State College during Fall 2012, and Owen is beginning his senior year at Southwest University during Fall 2012.Owen completed his junior year during the Spring semester of 2010 (i.e., he took a "leave of absence" during the 2011-2012 school year).Both Del and Owen are claimed as dependents on their parents' tax return.Del's qualifying tuition expenses and fees total $5,000 for the Fall semester, while Owen's qualifying tuition expenses were $6,100 for the Fall 2012 semester.Del's room and board costs were $3,200 for the Fall semester.Owen did not incur room and board costs since he lived with his aunt and uncle during the year.Full payment is made for the tuition and related expenses for both children at the beginning of each semester.In addition to the children's college expenses, Bob also spent $3,000 on professional education seminars during the year in order to maintain his license as a practicing dentist.Bob attended the seminars during July and August 2012.Compute the available education tax credits for Bob and Sally for 2012.
A)$3,100.
B)$5,000.
C)$5,480.
D)$5,600.
E)None of the above.
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Page 14
Chapter 13: Property Transactions:
Determination of Gain or Loss, Basis Considerations, and Nontaxable
Exchanges-Part 1
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Q1) Lynn purchases a house for $52,000.She converts the property to rental property when the fair market value is $115,000.After deducting depreciation (cost recovery) expense of $1,130, she sells the house for $120,000.What is her recognized gain or loss?
A)$0.
B)$6,130.
C)$37,630.
D)$69,130.
E)None of the above.
Q2) Vanessa's personal residence was condemned, and she received a condemnation award of $475,000.Vanessa had owned and occupied the residence for 15 years.The adjusted basis in the residence at the time of condemnation was $200,000.Vanessa used part of the condemnation proceeds to purchase a new residence for $210,000.What is Vanessa's recognized gain or loss and her basis in the new residence?
A)$0; $185,000.
B)$0; $210,000.
C)$15,000; $200,000.
D)$25,000; $210,000.
E)None of the above.
Page 15
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Chapter 13: Property Transactions: Determination of Gain or
Loss, Basis Considerations, and Nontaxable
Exchanges-Part 2
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Sample Questions
Q1) Discuss the treatment of losses from involuntary conversions.
Q2) Define qualified small business stock under § 1045.
Q3) Robert sold his ranch which was his principal residence during the current taxable year.At the date of the sale, the ranch had an adjusted basis of $460,000 and was encumbered by a mortgage of $200,000.The buyer paid him $500,000 in cash, agreed to take the title subject to the $200,000 mortgage, and agreed to pay him $100,000 with interest at 6 percent one year from the date of sale.How much is Robert's recognized gain on the sale?
Q4) For gifts made after 1976, when will part of the gift tax paid by the donor be added to the donee's basis?
Q5) What is a deathbed gift and what tax consequences apply?
Q6) Mandy and Greta form Tan, Inc., by transferring the following assets to the corporation in exchange for 5,000 shares of stock each.
Mandy: Cash of $450,000
Greta: Land (worth $450,000; adjusted basis of $90,000). How much gain must Tan recognize on the receipt of these assets?
Q7) How is the donee's basis calculated for the gift of appreciated property for a gift made before 1977? Assume the donor pays gift tax. Page 16
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Page 17
Chapter 14: Property Transactions: Capital Gains and Losses,
1231, Recapture Provisions
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Q1) Which of the following creates potential § 1245 depreciation recapture and potential § 1231 gain?
A)Depreciable equipment held more than one year and sold for more than its original cost.
B)Amortizable goodwill held more than one year and disposed of for less than its adjusted basis.
C)Land held more than one year and sold for more than was paid for it.
D)Inventory held more than one year and sold for more than was paid for it.
E)None of the above.
Q2) A barn held more than one year and used in a business is destroyed in a tornado. The barn originally cost $356,000 and was fully depreciated using straight-line depreciation. The barn was insured for its $543,000 replacement cost minus a deductible of $1,000. Which of the statements below is correct concerning these facts?
A)The barn was a long-term personal use asset.
B)There is a casualty loss from disposition of the barn.
C)The recognized gain from disposition of the barn is $186,000.
D)The recognized gain from disposition of the barn is subject to special netting rules. E)c.and d.
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Chapter 15: Alternative Minimum Tax
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Q1) Tad and Audria, who are married filing a joint return, have AMTI of $256,000 for 2012. Calculate their AMT exemption.
Q2) Andrea, who is single, has a personal exemption deduction in calculating her 2012 taxable income.She has no dependency deductions.What is the amount of the AMT adjustment in calculating AMTI?
Q3) Because passive losses are not deductible in computing either taxable income or AMTI, no adjustment for passive losses is required for AMT purposes.
A)True
B)False
Q4) The AMT adjustment for mining exploration and development costs can be avoided if the taxpayer elects to write off the expenditures in the year incurred for regular income tax purposes, rather than writing off the expenditures over a 10-year period for regular income tax purposes.
A)True
B)False
Q5) The AMT does not apply to qualifying "small corporations."
A)True
B)False
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Chapter 16: Accounting Periods and Methods
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Q1) A retailer must actually receive a claim for refund from the customer before a deduction can be taken for the refund.
A)True
B)False
Q2) Under the percentage of completion method, if the actual costs are ____ the estimated costs, the taxpayer must pay interest on the underpayment of prior years' taxes.
A)Greater than.
B)Less than.
C)Equal to or greater than.
D)Equal to.
E)None of the above.
Q3) Yard Corporation, a cash basis taxpayer, received $10,000 from a customer in 2011.In 2011, the customer filed a claim for a refund of the fee.In 2012, Yard refunded the customer $6,000.In 2011, Yard paid $5,000 in estimated state income tax.In May 2012, Yard received a state income tax refund of $2,000 for overpayment of its 2011 income tax.Yard was in the 35% marginal tax bracket in 2011 and in the 15% marginal tax bracket in 2012.What are the tax effects of the 2012 payment to the customer and the collection of the state income taxes overpaid?
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Page 20
Chapter 17: Corporations: Introduction and Operating Rules
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Q1) No dividends received deduction is allowed unless the corporation has held the stock for more than 90 days.
A)True
B)False
Q2) Because of the taxable income limitation, no dividends received deduction is allowed if a corporation has an NOL for the current taxable year.
A)True
B)False
Q3) A personal service corporation with taxable income of $100,000 will have a tax liability of $22,250.
A)True
B)False
Q4) On December 31, 2012, Lavender, Inc., an accrual basis C corporation, accrues a $90,000 bonus to Barry, its vice president and a 70% shareholder.Lavender pays the bonus to Barry, who is a cash basis taxpayer, on March 15, 2013.Lavender can deduct the bonus in 2013, the year in which it is included in Barry's gross income.
A)True
B)False
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Chapter 18: Corporations: Organization and Capital Structure
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Q1) If a shareholder owns stock received as a gift from her mother, it cannot be § 1244 stock.
A)True
B)False
Q2) Five years ago, Joe, a single taxpayer, acquired stock in a corporation that qualified as a small business corporation under § 1244, at a cost of $55,000.Joe wants to give his son, Jake, $15,000 to help finance Jake's college education.The stock is currently worth $15,000.Joe is considering selling the stock in the current year for $15,000 and giving the cash to Jake.As an alternative, Joe could give the stock to Jake and let Jake sell it for $15,000.Which alternative should Joe choose?
Q3) Kim, a real estate dealer, and others form Eagle Corporation under § 351.Kim contributes inventory (land held for resale) in return for Eagle stock.The holding period for the stock includes the holding period of the inventory.
A)True
B)False
Q4) For transfers falling under § 351, what are the holding period rules for stock received by the shareholder and for the assets transferred to the corporation?
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Chapter 19: Corporations: Distributions Not in Complete Liquidation
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Q1) If stock rights are taxable, the recipient has income to the extent of the fair market value of the rights.
A)True
B)False
Q2) Tangelo Corporation has an August 31 year-end.Tangelo had $50,000 in accumulated E & P at the beginning of its 2012 fiscal year (September 1, 2011) and during the year, it incurred a $75,000 operating loss.It also distributed $65,000 to its sole shareholder, Cass, on November 30, 2011.If Cass is a calendar year taxpayer, how should she treat the distribution when she files her 2011 income tax return (assuming the return is filed by April 15, 2012)?
A)$65,000 of dividend income.
B)$60,000 of dividend income and $5,000 recovery of capital.
C)$50,000 of dividend income and $15,000 recovery of capital.
D)The distribution has no effect on Cass in the current year.
E)None of the above.
Q3) When computing E & P, taxable income is not adjusted for additional first-year depreciation.
A)True
B)False
Page 23
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganizations
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Q1) Magenta Corporation acquired land in a § 351 exchange one year ago.The land had a basis of $320,000 and a fair market value of $350,000 on the date of the transfer.Magenta Corporation has two shareholders, Mark (70%) and Megan (30%), who are brother and sister.Magenta Corporation adopts a plan of liquidation in the current year.On this date, the land has decreased in value to $250,000.Magenta Corporation sells the land for $250,000 and distributes the proceeds pro rata to Mark and Megan.What amount of loss may Magenta Corporation recognize on the sale of the land?
A)$0.
B)$21,000.
C)$30,000.
D)$70,000.
E)None of the above.
Q2) Explain whether shareholders are exempted from gain/loss recognition in nontaxable corporate reorganization or the gain/loss recognition is merely postponed.If postponed, what is the vehicle for ensuring the postponed gain/loss will be recognized in the future?
Q3) Lyon has 100,000 shares outstanding that are worth $10 per share.It uses 32% of its stock plus $80,000 to
Q4) Discuss the role of letter rulings in corporate reorganizations.
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Chapter 21: Partnerships
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Q1) Aaron owns a 30% interest in a continuing partnership.The partnership distributes a $35,000 year-end cash payment to all the partners.In a proportionate nonliquidating distribution, the partnership also distributed property (basis of $15,000, fair market value of $20,000) to Aaron.Immediately before the distribution, Aaron's basis in the partnership interest was $50,000.As a result of the distribution, Aaron recognizes:
A)No gain or loss.
B)Ordinary loss of $5,000.
C)Capital loss of $5,000.
D)Ordinary gain of $5,000.
E)Capital gain of $5,000.
Q2) A partnership cannot use the cash method of accounting if one of the partners is a C corporation.
A)True
B)False
Q3) A gain will only arise on a distribution of cash that exceeds the partner's basis in the partnership interest.For this purpose, only cash, checks, and credit card charges are treated as cash.
A)True
B)False
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Page 25
Chapter 22: S: Corporations
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Q1) S corporation status allows shareholders to realize tax benefits from corporate losses
Q2) Which, if any, of the following items has no effect on the stock basis of an S corporation shareholder?
A)Short-term capital loss.
B)Long-term capital gain.
C)Cost of goods sold.
D)Net sales.
E)A mortgage taken by the S corporation.
Q3) Post-termination distributions that are charged against OAA are received tax-free.
A)True
B)False
Q4) Depreciation recapture income is a Schedule K item.
A)True
B)False
Q5) To make a valid S election, the entity must file a properly completed Form
Q6) How may an S corporation manage its liability for the built-in gains tax?
Q7) Outline the requirements that an entity must meet to elect S corporation status.
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Chapter 23: Exempt Entities
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Q1) A corporate payment to an exempt organization that qualifies as a qualified sponsorship payment is not subject to the unrelated business income tax (UBIT).
A)True
B)False
Q2) An exempt organization can avoid classification as a private foundation if it is broadly publicly supported.To be broadly publicly supported, which of the following is required?
A)The exempt organization does not receive support from a feeder organization.
B)An external support test is satisfied.
C)An internal support test is satisfied.
D)Only b.and c.must be satisfied.
E)a., b., and c.must be satisfied.
Q3) Robin, Inc., an exempt organization, acquired a building for $500,000 which it will lease to XYZ, Inc., for $35,000 annually.To finance the acquisition of the building, Robin secures a mortgage on it of $312,500.Advise Robin as to whether it has any unrelated debt-financed income or deductions.
Q4) If an exempt organization is required to file an annual information return, on what form is it filed?
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Chapter 24: Multistate Corporate Taxation
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Q1) Troy, an S corporation, is subject to tax only in State
A. On Schedule K of its Federal Form 1120S, Troy reported ordinary income of $2,000,000 from its business, municipal bond interest of $150,000, taxable interest of $150,000, and charitable contributions of $300,000.A does not recognize S status, but it does follow the Federal provisions with respect to the determination of taxable income for a corporation.Determine Troy's A taxable income.
Q2) A state sales tax usually falls upon:
A)Sales of groceries.
B)Sales of widgets made to out-of-state customers.
C)Sales of widgets made to the ultimate consumer of the product or service.
D)Sales of real estate.
Q3) List which items are included in the payroll factor of a state. Consider all forms of compensation that an employee might receive. Apply the general UDITPA rules.
Q4) Typically, corporate income taxes constitute about 20 percent of a state's tax collections.
A)True
B)False
Q5) An ad valorem property tax is based on the asset's current
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Chapter 25: Taxation of International Transactions
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Q1) WaterCo, a domestic corporation, purchases inventory for resale from unrelated distributors outside the United States and resells this inventory to customers inside the United States with title passing inside the United States.What is the source of WaterCo's inventory sales income?
A)100% U.S.source.
B)100% foreign source.
C)50% U.S.source and 50% foreign source.
D)50% foreign source and 50% sourced based on location of manufacturing assets.
Q2) Unused foreign tax credits are carried back one year and then forward 10 years. A)True B)False
Q3) A domestic corporation is one whose assets are primarily (> 50%) located in the U.S. A)True B)False
Q4) Your client holds foreign tax credit (FTC) carryforwards, i.e., it is in an "excess credit" position. Give at least three planning ideas that the client should implement, so as to free up the suspended FTCs.
Q5) Discuss the primary purposes of income tax treaties.
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Chapter 26: Tax Practice and Ethics
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Q1) A tax preparer can incur a penalty if the client's return includes an unreasonable or ___________________ tax return position that understates the tax liability.
Q2) The tax professional can do more than just tax compliance work. He or she can work with the client in consultation over the strategy and tactics of dealing with a Federal tax audit.
A)True
B)False
Q3) The IRS periodically updates its list of "audit initiatives," the areas of tax enforcement that will receive special attention during the current tax year. List five or more of the current IRS audit initiatives.
Q4) Leo underpaid his taxes by $250,000.Portions of the underpayment were attributable to negligence ($90,000) and to civil fraud ($160,000).Compute the total penalties incurred.
Q5) According to the IRS, the annual "Tax Gap" totals about $______________________ billion. or
Q6) According to AICPA rules, the CPA cannot take an aggressive tax return position on the basis of the "audit ____________________."
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Chapter 28: Income Taxation of Trusts and Estates
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Q1) Beneficiary Terry received $30,000 from the Urgent Trust.Trust accounting income for the year was $50,000.The trust generated $20,000 in cost recovery deductions.How much can Terry deduct with respect to the cost recovery deductions that Urgent generated?
A)$0.
B)$8,000.
C)$12,000.
D)$20,000.
Q2) Estates and trusts can claim Federal income tax deductions for costs incurred in maintaining investments in U.S.state and local bonds.
A)True
B)False
Q3) When the Holloway Trust terminated this year, it held a $1 million NOL carryforward. How is the loss carryforward treated? Does it expire with the trust or can another taxpayer use it? Be specific.
Q4) A fiduciary's distribution deduction shifts the tax burden for current-year income from the entity to the beneficiary.
A)True
B)False
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