Introduction to Taxation Exam Bank
Course Introduction
Introduction to Taxation provides students with a foundational understanding of the principles, concepts, and systems of taxation. The course covers the rationale for taxation, the different types of taxes at the federal, state, and local levels, and the role of taxation in government and society. Students explore tax policy, tax administration, and the impact of taxation on individuals, businesses, and the economy. Emphasis is placed on the structure of income tax, the basics of tax compliance, and the interpretation of tax statutes and cases. This course prepares students for further study in taxation and related legal, accounting, or business fields.
Recommended Textbook
Prentice Halls Federal Taxation 2015 Comprehensive 28th Edition by Timothy J. Rupert
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Chapter 1: Tax Research
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Q1) The phrase "Entered under Rule 155" indicates that
A)the computation of the exact amount of the tax deficiency has been left to the litigating parties.
B)the court has not reached a decision concerning the appropriate tax treatment of an issue.
C)the parties have agreed not to appeal the decision.
D)only one Tax Court judge reviewed the case.
Answer: A
Q2) Indicate which courts decided the case cited below.Also indicate on which pages and in which publications the authority is reported.
U.S.v.Maclin P.Davis,397 U.S.301,25AFTR 2d 70-827,70-1 USTC &9289 (1970).
Answer: This case appears in Vol.397,page 301,of the United States Supreme Court Reports.It is also recorded in Vol.25,pages 70-827,of the American Federal Tax Reports,Second Series,and in Vol.1,paragraph 9289 of the 1970 CCH reporter the U.S.Tax Cases.
Q3) Final regulations have almost the same legislative weight as the IRC.
A)True
B)False
Answer: True
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Page 3
Chapter 2 an Introduction to Taxation
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Q1) Which of the following steps,related to a tax bill,occurs first?
A)signature or veto by the President of the United States
B)consideration by the Senate
C)consideration by the House Ways and Means Committee
D)consideration by the Joint Conference Committee
Answer: C
Q2) The marginal tax rate is useful in tax planning because it measures the tax effect of a proposed transaction.
A)True
B)False
Answer: True
Q3) Alan files his 2014 tax return on April 1,2015.His return contains no misstatements or omissions of income.The statute of limitations for changes to the return expires
A)April 1,2018.
B)April 15,2018.
C)April 15,2017.
D)The statute of limitations never expires.
Answer: B
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Chapter 3: Corporate Formations and Capital Structure
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Q1) Matt and Sheila form Krupp Corporation.Matt contributes property with an FMV of $55,000 and a basis of $35,000.Sheila contributes property with an FMV of $75,000 and a basis of $40,000.Matt sells his stock to Paul shortly after the exchange.The transaction will
A)not qualify under Sec.351.
B)qualify under Sec.351 if Matt can show that the sale to Paul was not part of a prearranged plan.
C)qualify with respect to Sheila under Sec.351 whether Matt qualifies or not.
D)qualify under Sec.351 only if an advance ruling has been obtained.
Answer: B
Q2) The check-the-box regulations permit an LLC to be taxed as a C corporation.
A)True
B)False
Answer: True
Q3) Identify which of the following statements is false.
A)A solely owned corporation is a sole proprietorship.
B)A sole proprietorship is a separate taxable entity.
C)A sole proprietor is considered to be an employee of the business.
D)All of the above are false.
Answer: D
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Chapter 4: I: Determination of Tax
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Q1) Mia is a single taxpayer with projected AGI of $250,000 in 2014. She is considering selling a long-term investment before year-end. She expects to realize a gain of $25,000. If Mia sells the investment by December 31,her 2014 taxable income will increase by $25,000.
A)True
B)False
Q2) A taxpayer can receive innocent spouse relief if
A)the understated tax is attributable to erroneous items of the other spouse. B)the innocent spouse did not know and had no reason to know that there was an understatement of tax.
C)under the circumstances,it would be inequitable to hold the innocent spouse liable for the understated tax.
D)All of the above conditions apply.
Q3) Foreign exchange student Yung lives with Harold and Betty while he studies in the US. He moved into their home January 5,2014 and has resided with them for the remainder of the year. Yung does not pay anything for his room and board. Harold and Betty provide all of Yung's meals. Yung receives a scholarship to pay for his tuition,books and fees. He works on campus,earning $4,000 a year. What tax issues should Harold and Betty consider?
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Page 6
Chapter 5: The Corporate Income Tax
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Q1) West Corporation purchases 50 shares (less than 1%)of Perch Corporation common stock on April 3.The ex-dividend date is April 4.West Corporation pays $50,000 for the stock and receives a dividend of $5,000 on the Perch stock.On May 1,West Corporation sells the Perch stock for $45,000.West's taxable income before the dividends-received deduction is $4,000.West's dividends-received deduction is
A)$3,500.
B)$3,200.
C)$2,800.
D)$0.
Q2) Jackson Corporation,not a dealer in securities,realizes taxable income of $80,000 from the operation of its business.Additionally,Jackson Corporation realizes a $10,000 long-term capital loss from the sale of marketable securities.Explain the treatment of the loss on the corporate return for this and any other years.
Q3) A C corporation must use a calendar year as its tax year unless it has a substantial business purpose to use a fiscal year.
A)True
B)False
Q4) How does the use of an NOL differ for individual and corporate taxpayers?
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Chapter 6: Gross Income: Inclusions
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Sample Questions
Q1) The requirements for a payment to be considered as alimony include all of the following except
A)be made in cash or property.
B)be made pursuant to a divorce,separation or a written agreement between the spouses.
C)terminate at the death of the payee.
D)not be designated as being other than alimony.
Q2) Which of the following is not included in gross income when received?
A)interest received on bank accounts
B)royalties paid to an author
C)amounts received to cancel or modify a lease
D)refundable security deposit
Q3) Marisa and Kurt divorced in 2012.Under the terms of the divorce agreement,Marisa was to pay Kurt $110,000 in 2012 and $60,000 each year following until Kurt's death or remarriage.What must Kurt report on his tax return for 2014 regarding these transactions?
Q4) Under the tax concept of income,all realized income is recognized and subject to tax.
A)True
B)False
Page 8
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Chapter 7: Corporate Nonliquidating Distributions
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Sample Questions
Q1) A partial liquidation of a corporation is treated as a dividend in the case of a corporate shareholder.
A)True
B)False
Q2) On April 1,Delta Corporation distributes $120,000 in cash to each of its two equal shareholders,Sarah and Matt.At the time of the distribution,Delta's E&P is $160,000.Sarah's basis in her stock is $50,000 and Matt's basis in his stock is $20,000.How are the distributions characterized to Sarah and Matt? Be specific.
Q3) Peter owns all 100 shares of Parker Corporation's stock.His basis in the stock is $30,000.Parker Corporation has $300,000 of E&P.Parker Corporation redeems 25 of Peter's shares for $90,000.What are the consequences to Peter and to Parker Corporation?
Q4) Digger Corporation has $50,000 of current and accumulated E&P.On March 1,Digger distributes land with a $30,000 FMV and a $17,500 adjusted basis to Dave,its sole shareholder.The land is subject to a $5,000 liability which Dave assumes.
a)What are the amount and character of the distribution?
b)What is Dave's basis in the property?
c)When does his holding period for the property begin?
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Page 9
Chapter 8: Gross Income: Exclusions
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Q1) Meals may be excluded from an employee's gross income provided they are furnished on the employer's business premises and are for the convenience of the employer.
A)True
B)False
Q2) Brad suffers from congestive heart failure and has been admitted to a nursing home where he is expected to spend the remainder of his life.His doctor has certified him as chronically ill.Brad receives $320 per day from his life insurance policy for 100 days ($32,000)as accelerated death benefits.Brad's nursing home care costs $300 per day ($30,000 for the 100 days of care). Brad will be allowed to exclude A)$0.
B)$30,000.
C)$32,000.
D)$2,000.
Q3) Payments received from a workers' compensation plan are taxable.
A)True
B)False
Q4) Discuss briefly the options available for avoiding double taxation for the U.S.citizen earning income from sources outside the United States.
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Chapter 9: Other Corporate Tax Levies
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Q1) The personal holding company tax
A)may be imposed regardless of the number of equal stockholders in a corporation.
B)may be eliminated by the payment of a deficiency dividend.
C)qualifies as a tax credit,which may be used by the shareholders to reduce their individual income taxes.
D)applies to any corporation whose shareholders satisfy the stock ownership requirement.
Q2) Identify which of the following statements is false.
A)Adjusted current earnings (ACE)is the same as E&P.
B)A corporation's positive adjusted current earnings (ACE)adjustment equals 75% of the excess of its ACE over its preadjustment AMTI (AMTI before this adjustment and the alternative tax NOL deduction).
C)A corporation's negative adjusted current earnings (ACE)adjustment equals 75% of the excess of its preadjustment AMTI (AMTI before this adjustment and the alternative tax NOL deduction)over its ACE,but may not exceed the cumulative "net" ACE adjustment amounts from all post-1989 tax years.
D)The ACE adjustment is not required of S corporations.
Q3) Define personal holding company income.
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11
Chapter 10: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) Tina purchases a personal residence for $278,000,but subsequently converts the property to rental property when its FMV is $275,000.Assume depreciation of $65,000 has been deducted after conversion to rental use.If Tina sells the property for $200,000,her realized gain or loss will be
A)($10,000)loss.
B)($13,000)loss.
C)($75,000)loss.
D)($78,000)loss.
Q2) On July 25,2013,Karen gives stock with a FMV of $7,500 and a basis of $8,000 to her nephew Bill.Karen had purchased the stock on March 18,2013. Bill sold the stock on April 18,2014 for $6,000.As a result of the sale,what must Bill report on his 2014 tax return?
A)($1,500)STCL
B)($1,500)LTCL
C)($2,000)STCL
D)($2,000)LTCL
Q3) Donald has retired from his job as a corporate manager. He buys and sells stocks on a daily basis. He spends 8-9 hours daily studying prospective stock purchases and market news. What tax issues should Donald consider?
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Chapter 1: Corporate Liquidating Distributions
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Q1) Albert receives a liquidating distribution from Glidden Corporation as part of a complete redemption of its stock.Albert receives cash of $5,000 and other property with an adjusted basis of $6,000 and an FMV of $10,000.Albert's basis in the Glidden stock surrendered is $8,000.How much gain does he recognize?
Q2) Identify which of the following statements is false.
A)A corporation must file an information return with the Internal Revenue Service within thirty days of adopting a resolution to liquidate.
B)The adoption of a formal plan of liquidation can provide additional benefits under tax laws to the corporation and its shareholders.
C)A plan of liquidation must be produced in writing in order to be accepted by the Internal Revenue Service.
D)The adoption of a plan of liquidation permits a parent corporation a three-year time period to carry out the complete liquidation of its subsidiary.
Q3) What are the tax consequences of a cash-method shareholder,subsequent to a liquidation,if obligated to pay a contingent liability of the liquidated corporation?
Q4) Are liquidation and dissolution the same? Explain your answer.
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Page 13
Chapter 12: Deductions and Losses
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Q1) Which of the following statements is false?
A)A tax deduction is allowed to a taxpayer for estimated warranty expense.
B)A tax deduction is allowed in association with a warranty only in the year in which warranty work is performed.
C)A tax deduction is allowed for a contested amount if the amount is paid prior to final settlement.
D)No tax deduction is allowed to an accrual basis taxpayer for the amount of a down payment for a non-recurring expense when the work is to be performed in a subsequent period.
Q2) Rachel has significant travel and entertainment expenses for her work,but she has not kept receipts. She will be able to deduct a reasonable amount of these ordinary and necessary expenses under the Cohan rule.
A)True
B)False
Q3) Deductions for adjusted gross income include all of the following except
A)contributions to certain retirement plan arrangements.
B)alimony.
C)expenses attributable to production of rental income.
D)unreimbursed employee business expenses.
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Page 14
Chapter 13: Corporate Acquisitions and Reorganizations
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Q1) On July 1,in connection with a recapitalization of Yorktown Corporation,Robert Moore exchanges 1,000 shares of Yorktown preferred stock,which cost him $95,000,for 1,000 shares of Yorktown common stock worth $108,000 and bonds having a principal amount of $10,000 and an FMV of $10,500.What is the amount of Moore's realized and recognized gain?
Q2) Identify which of the following statements is true.
A)When the acquiring corporation makes the Sec.338 election,the target corporation is treated in many respects as a new corporation.
B)A Sec.338 election requires the adoption of the old target corporation's tax year by the new target corporation.
C)Tax attributes of the target corporation are not lost when a Sec.338 deemed liquidation election is made.
D)All of the above are false.
Q3) In a nontaxable reorganization,the acquiring corporation has a holding period for the acquired assets that begins on the day after the transaction date.
A)True
B)False
Q4) Briefly describe A,B,C,D,and G reorganization types.
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Page 15
Chapter 14: Itemized Deductions
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Q1) Sacha purchased land in 2010 for $35,000 that she held as a capital asset.This year,she contributed the land to the Boy Scouts of America (a charitable organization)for use as a site for a summer camp.The market value of the land at the date of contribution is $40,000.Sacha's adjusted gross income is $90,000.Assuming no special elections,Sacha's maximum deductible contribution this year is A)$13,000.
B)$27,000.
C)$35,000.
D)$40,000.
Q2) Interest expense incurred in the taxpayer's trade or business is deductible as a for AGI deduction without limitation if the taxpayer materially participates in the business. A)True
B)False
Q3) Acquisition indebtedness for a personal residence includes debt incurred to substantially improve the residence.
A)True
B)False
Q4) Discuss the timing of the allowable medical expense deduction.
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Page 16
Chapter 15: Consolidated Tax Returns
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Q1) A member's portion of a consolidated NOL may be carried back against that member's taxable income from the preceding two separate return years.
A)True
B)False
Q2) Jason and Jon Corporations are members of an affiliated group whose taxable incomes (before dividends)are $90,000 and $100,000,respectively.Jason Corporation owns all of the Jon stock.Jon Corporation received a dividend from a less-than-20%-owned corporation of $9,900 and $25,000 from a 100%-owned nonconsolidated insurance company.Jon Corporation distributed a $40,000 dividend to Jason Corporation.Jason Corporation also received dividends from a 25%-owned corporation of $9,500.The consolidated dividends-received deduction for federal income tax purposes is what?
Q3) Which of the following is not reported by an affiliated group on a consolidated basis?
A)capital gain
B)section 1231 gain
C)casualty & theft gain
D)All of the above are included.
Q4) What are the five steps in calculating consolidated taxable income?
Q5) Define intercompany transactions and explain the two types of transactions.
Page 17
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Chapter 16: Losses and Bad Debts
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Q1) What is required for an individual to be considered as actively participating in a real estate activity for purposes of utilizing the $25,000 ceiling on rental real estate losses?
Q2) Which of the following expenses or losses could create a net operating loss for an individual taxpayer?
A)large losses on sales of investment assets
B)an operating loss from a sole proprietorship
C)large charitable contributions
D)all of the above
Q3) Lisa loans her friend,Grace,$10,000 to finance a new business.If Grace defaults on the loan,Lisa may take a deduction for a business bad debt in the year of total worthlessness.
A)True
B)False
Q4) When personal-use property is covered by insurance,no deduction is available for a casualty loss of the property unless the taxpayer timely files an insurance claim for the loss.
A)True
B)False
Q5) What are some factors which indicate that a debt may be worthless?
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Chapter 17: Partnership Formation and Operation
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Q1) Stan had a basis in his partnership interest at the beginning of last year of $30,000.There was no change in partnership liabilities during the year.His share of the partnership's ordinary loss last year was $40,000 and the partnership had no separately stated items.This year,Stan has a distributive share of ordinary income of $30,000.The taxable income from the partnership reported on Stan's personal income tax return this year (ignoring the at-risk and passive activity loss limitations)is
A)$10,000 ordinary loss.
B)$20,000 ordinary income.
C)$30,000 ordinary income.
D)$40,000 ordinary income.
Q2) Mario contributes inventory to a partnership on August 1 of this year in exchange for a 20% partnership interest.Mario had purchased the inventory on July 2 of last year.His holding period for the partnership interest begins
A)July 2 of last year.
B)July 3 of last year.
C)August 1 of the current year.
D)August 2 of the current year.
Q3) What is included in partnership taxable income?
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Page 19
Chapter 18: Employee Expenses and Deferred Compensation
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Q1) Employees receiving nonqualified stock options recognize ordinary income at the grant date or exercise date if there is a readily ascertainable fair market value.
A)True
B)False
Q2) Matt is a sales representative for a local company. He entertains customers as part of his job. During the current year he spends $3,000 on business entertainment. The company provides him an expense allowance of $2,000 under a nonaccountable plan.
How will Matt treat the $2,000 partial reimbursement and the $3,000 entertainment expense?
A)He will deduct the $1,000 net expense as a miscellaneous itemized deduction,subject to the 2% of AGI floor.
B)He will deduct $500 of the net expense as a miscellaneous itemized deduction,subject to the 2% of AGI floor.
C)He will recognize $2,000 of income and deduct $3,000 as a miscellaneous itemized deduction,subject to the 2% of AGI floor.
D)He will recognize $2,000 of income and deduct $1,500 as a miscellaneous itemized deduction,subject to the 2% of AGI floor.
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Page 20
Chapter 19: Special Partnership Issues
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Q1) Identify which of the following statements is true.
A)On December 31 of the current year,Max Curcio's adjusted basis for his interest in the Maduro & Motta Partnership is $36,000.Maduro & Motta distributes cash of $6,000 and a parcel of land held as an investment to Curcio in liquidation of his entire interest in the partnership.The land has an adjusted basis of $18,000 to the partnership and an FMV of $42,000.Curcio's basis in the land is $18,000.
B)Jake has a basis in his partnership interest of $40,000 before receiving a liquidating distribution of $5,000 cash,inventory with a basis of $4,000 and an FMV of $5,000,and land with a basis of $3,000 and an FMV of $6,000.Jake will receive no further distributions.He can recognize a loss of $28,000 at the time the liquidating distribution is received.
C)A partner's holding period for a partnership interest is never considered when determining the holding period for property distributed in a liquidating distribution.
D)All of the above are false.
Q2) What are the advantages of a firm being formed as a limited liability company (LLC)instead of as a limited partnership?
Q3) What are some advantages and disadvantages of making a Section 754 election?
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Page 21
Chapter 20: Depreciation cost Recovery amortization and Depletion
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Q1) Under the MACRS system,if the aggregate basis of all personal property placed in service during the last three months of the year exceeds 40% of the cost of all personal property placed in service during the tax year,the mid-quarter convention is required.
A)True
B)False
Q2) If a new luxury automobile is used 100% for business and placed in service in 2014,the maximum MACRS depreciation on the vehicle for 2014 is $3,160.
A)True
B)False
Q3) Eric is a self-employed consultant. In May of the current year,Eric acquired a computer system (5-year property)for $7,000 and used the computer 30% for business.Eric does not use Sec.179.The maximum depreciation deduction for is A)$210.
B)$420.
C)$700.
D)$2,100.
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22
Chapter 21: S Corporations
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Q1) A testamentary trust can be an S shareholder for two years,beginning on the date the stock transfers to the trust.
A)True
B)False
Q2) King Corporation,an electing S corporation,is 100% owned by Crystal.On January 1 of the current year,her adjusted basis in the King stock is $30,000.During the year,King reports an ordinary loss of $30,000,tax-exempt municipal bond income of $15,000,dividend income from domestic corporations of $5,000,a long-term capital loss of $20,000,and a short-term capital loss of $30,000.What is Crystal's basis for the King stock at the end of the year?
Q3) Which of the following corporate tax levies are imposed on an S corporation?
A)corporate income tax
B)corporate alternative minimum tax
C)accumulated earnings tax
D)None of these taxes are imposed on an S corporation.
Q4) Shamrock Corporation has two classes of common stock outstanding.The Class A and Class B common stock give the shareholders identical rights and interests in the profits and assets of the corporation.Class A has one vote per share.Class B is nonvoting.Can Shamrock Corporation make an S corporation election?
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Chapter 22: Accounting Periods and Methods
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Q1) Lloyd Corporation,a calendar year accrual basis taxpayer,pays its insurance premium each year on June 1,the anniversary of the policy.The premium paid this year is $9,600 while last year's was $9,000.How much of is Lloyd's deduction for insurance this year?
Q2) In general,a change in accounting method must be approved by the IRS.
A)True
B)False
Q3) A taxpayer's tax year must coincide with the year used to keep the taxpayer's books and records.
A)True
B)False
Q4) Sela sold a machine for $140,000.The machine originally cost $90,000 and $10,000 of MACRS depreciation had been allowable.The buyer assumed an existing loan of $40,000,paid $20,000 cash down and agreed to pay $10,000 per year for eight years plus interest.Selling expenses are $10,000.The total gross profit for installment sale recognition purposes is
A)$30,000.
B)$40,000.
C)$50,000.
D)$60,000.
Page 24
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Chapter 23: The Gift Tax
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Q1) Which of the following is a completed gift?
A)Greta transfers $50,000 to a revocable trust benefiting her children Hans and Julio.
B)Juan purchases a ski chalet using his own funds,but listing Penelope as a joint owner.
C)Horatio transfers $60,000 to a bank account with Hazel.Hazel does not contribute any money to the account.
D)Mike changes the beneficiary of his policy to Meredith.
Q2) Identify which of the following statements is true.
A)The creation of a joint bank account constitutes a taxable gift.
B)The creation of a joint tenancy by one person will result in a gift equal to the other joint tenant's pro rata interest in the property.
C)The naming of a life insurance policy beneficiary constitutes a gift for transfer tax purposes.
D)Since municipal bond interest is exempt from federal income taxation,gifting the bonds escapes the gift tax.
Q3) Discuss the statutory exemptions from the gift tax.
Q4) Discuss the purpose of the gift tax annual exclusion.
Q5) Contrast the Crummey trust with the Sec.2503(c)trust.
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Page 25
Chapter 24: Property Transactions: Nontaxable Exchanges
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Q1) Dean exchanges business equipment with a $120,000 adjusted basis for $40,000 cash and business equipment with a $140,000 FMV.What is the amount of gain which Dean recognizes on the exchange?
A)$0
B)$20,000
C)$40,000
D)$60,000
Q2) A owns a ranch in Wyoming,which B offers to purchase.A is not willing to sell the ranch but is willing to exchange the ranch for an apartment complex in Louisiana.The complex is available for sale.B purchases the apartment complex in Louisiana from C and transfers it to A in exchange for A's ranch.The ranch and the complex each have a $1,000,000 fair market value.Which of the following is true?
A)The transaction qualifies as a like-kind exchange for B but not for A.
B)The transaction qualifies as a like-kind exchange for both B and A.
C)The transaction qualifies as a like-kind exchange for A but not for B.
D)The transaction does not qualify as a like-kind exchange for either B or A.
Q3) Discuss the basis rules of property received in a nontaxable like-kind exchange.
Q4) Discuss the rules regarding the holding period for like-kind property received in a nontaxable exchange.
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Chapter 25: The Estate Tax
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Q1) Compare the credits available for estate tax purposes with the credits available for gift tax purposes.What differences exist?
Q2) For 2014,the unified credit is equivalent to a statutory exemption of
A)$1,000,000.
B)$1,500,000.
C)$780,800.
D)$5,340,000.
Q3) Identify which of the following statements is true.
A)Reversionary interests of less than 5% are includible in the gross estate.
B)A reversionary interest means a chance exists that the property may pass back to the transferor under the terms of the transfer.
C)If a reversionary interest exceeds 3% of the property's value,the amount that is included in the estate is not the value of the reversionary interest,but rather the date-of-death value of the gifted property less the value of intervening life estates.
D)All of the above are false.
Q4) Melissa transferred $650,000 in trust in 2006: income for life to herself,the remainder to her son.What part,if any,of the value of the trust's assets will be included in Melissa's estate?
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Chapter 26: Property Transactions: Section 1231 and Recapture
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Q1) A net Sec.1231 gain is treated as ordinary income to the extent of any nonrecaptured net Sec.1231 losses for the preceding five years.
A)True
B)False
Q2) Sec.1231 property must satisfy a holding period of more than one year.
A)True
B)False
Q3) If the recognized losses resulting from involuntary conversions arising from casualty or theft exceed the recognized gains from such events (i.e.a net loss from the casualty),all of the involuntary conversions are treated as ordinary gains and losses.
A)True
B)False
Q4) The additional recapture under Sec.291 is 25% of the difference between the amount that would have been recaptured if the property was Sec.1245 property and the actual recapture under Sec.1250.
A)True
B)False
Q5) What is the purpose of Sec.1245 and what is its significance?
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Chapter 27: Income Taxation of Trusts and Estates
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Q1) Karly created a $300,000 trust that provided her mother with a lifetime income interest starting on January 1,with the remainder to go to her son.Karly expressly retained the power to revoke both the income and remainder interests at any time.Who will be taxed on the trust's income?
A)Karly's mother
B)Karly's son
C)Karly
D)the trust
Q2) An example of income in respect to a decedent (IRD)for a cash method of accounting taxpayer is
A)interest earned but not received prior to death.
B)salary earned but not received prior to death.
C)gain from an installment sale entered into before death.
D)All of the above are examples.
Q3) Outline the classification of principal and income under the Revised Uniform Principal and Income Act.
Q4) A trust must distribute all of its income annually.Capital gains are allocated to principal.The trust has dividend income of $12,000,capital gains of $6,000,and no expenses.Calculate the trust's taxable income.
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Chapter 28: Special Tax Computation Methods, tax Credits, and Payment of Tax
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Q1) Sam and Megan are married with two dependent children.Both Sam and Megan work,earning $50,000 and $55,000,respectively.Their AGI totals $110,000.They incur $6,500 of qualifying child care expenses of which $2,500 is reimbursed by Megan's dependent care program at work.
What is the amount of their child and dependent care credit?
Q2) Refundable tax credits
A)only offset a taxpayer's tax liability.
B)may only be used if the taxpayer is receiving a refund.
C)have all expired but may be reinstated with new tax legislation.
D)allow the excess over the taxpayer's tax liability to be paid to the taxpayer.
Q3) Lavonne has a regular tax liability of $13,356 on taxable income of $70,000. She also has tax preferences of $25,000 and positive adjustments attributable to limitations on itemized deductions of $15,000.Lavonne is single and takes a $3,950 personal exemption for herself only. Lavonne's alternative minimum tax for 2014 is
A)$0.
B)$2,543.
C)$16,271.
D)none of the above.
Q4) Discuss when Form 6251,Alternative Minimum Tax,must be filed.
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Chapter 29: Administrative Procedures
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Q1) Jayne and Jon jointly file a tax return this year.Jayne fraudulently reports two expenses on Schedule C: $2,000 and $2,500.The IRS audits the return,assesses a $1,050 deficiency,and begins collection efforts two years after the timely filing by Jayne and Jon.What must Jon do to be relieved of the $1,050 tax liability?
Q2) Which of the following items can be omitted from a taxpayer's request for a ruling?
A)names,addresses,and taxpayer identification numbers of all interested parties
B)a detailed explanation of the transaction
C)the particular conclusion desired by the taxpayer
D)the location of the IRS district office that has examination jurisdiction
Q3) What is the difference between the burden of proof for civil and criminal fraud?
Q4) How does the IRS regulate the activities of compensated tax return preparers? In particular,list six acts that will cause a compensated tax return preparer to incur a penalty.
Q5) A taxpayer who fails to file and fails to pay taxes is subject to a combined 5% monthly penalty on the underpayment.
A)True
B)False
Q6) For innocent spouse relief to apply,five conditions must be met.Explain them.
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