Tax Compliance and Planning Study Guide Questions
Course Introduction
This course provides a comprehensive overview of tax compliance and planning strategies for individuals and businesses. Students will explore the principles and procedures for adhering to federal, state, and local tax laws, emphasizing accurate tax return preparation, recordkeeping, and the handling of audits. The course also delves into effective tax planning methods to minimize tax liabilities and maximize financial outcomes, covering topics such as income deferral, deductions, credits, and the tax implications of various business structures and transactions. Practical case studies and real-world scenarios equip students with the skills needed to navigate the complexities of the tax environment and make informed financial decisions.
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) Identify which of the following statements is false.
A)The number "5" in the citation Reg.Sec.1.166-5 refers to the paragraph number.
B)The Cumulative Bulletin is issued semiannually while the Internal Revenue Bulletin is issued weekly.
C)The citation Rev.Rul.2006-5,I.R.B.2006-1,33,indicates that the revenue ruling can be found on page 33 of the 1st I.R.B.for 2006.
D)All of the above are false.
Answer: A
Q2) Which regulation deals with the gift tax?
A)Reg.Sec.1.165-5
B)Reg.Sec.20.2014-5
C)Reg.Sec.25.2518-5
D)Reg.Sec.301.7002-5
Answer: C
Q3) Tax Court memorandum decisions
A)cannot be appealed.
B)are not published.
C)have less precedential value than regular decisions.
D)usually deal with factual variations of issues litigated previously.
Answer: D
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Chapter 2 an Introduction to Taxation
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Q1) Denzel earns $130,000 in 2014 through his job as a sales manager.What is his FICA tax?
A)$9,139
B)$8,951
C)$8,698
D)$9,945
Answer: A
Q2) Rocky and Charlie form RC Partnership as equal partners.Rocky contributes $100,000 into RC while Charlie contributes real estate with a fair market value of $100,000.During the current year,RC earned net income of $600,000.The partnership distributes $200,000 to each partner.The amount that Rocky should report on his individual tax return is A)$0.
B)$100,000.
C)$200,000.
D)$300,000.
Answer: D
Q3) Describe the components of tax practice.
Answer: a.Tax compliance and procedure. b.Tax research. c.Tax planning and consulting. d.Financial planning.
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Page 4
Chapter 3: Corporate Formations and Capital Structure
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Q1) Barry,Dan,and Edith together form a new corporation; Barry and Dan each contribute property in exchange for stock.Within two weeks after the formation,the corporation issues additional stock to Edith in exchange for property.Barry and Dan each hold 10,000 shares and Edith will receive 9,000 shares.Which transactions will qualify for nonrecognition?
A)Only the first transaction will qualify for nonrecognition.
B)Only the second transaction will qualify for nonrecognition.
C)Because of the step transaction doctrine,neither transaction will qualify.
D)Both transactions will qualify under Sec.351 if they are part of the same plan of incorporation.
Answer: D
Q2) If a corporation's total adjusted bases for all properties transferred exceed the total FMV of the properties,the corporation's bases in the property is limited to FMV if no election is made.
A)True
B)False
Answer: True
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Page 5
Chapter 4: I: Determination of Tax
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Q1) Which of the following is not considered support for the dependent support test?
A)food
B)clothing
C)rental value of lodging
D)value of services rendered by the taxpayer for the dependent
Q2) In 2014 the standard deduction for a married taxpayer filing a joint return and who is 67 years old with a spouse who is 65 years old is
A)$12,400.
B)$13,600.
C)$14,800.
D)$15,500.
Q3) In order to qualify to file as surviving spouse,all of the following criteria must be met by the widow or widower except
A)he or she and the decedent must have shared the same household as of date of death.
B)he or she must be a U.S.citizen or resident.
C)he or she be qualified to file a joint return in the year of death.
D)he or she must have at least one dependent child living at home the entire year and pay over half of the expenses of the home.
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Page 6
Chapter 5: The Corporate Income Tax
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Q1) If a controlling shareholder sells depreciable property to a controlled corporation and the property is depreciable by the purchaser,any gain on the sale is a 1231 gain.
A)True
B)False
Q2) Corporate estimated tax payments are due April 15,June 15,September 15,and January 15.
A)True
B)False
Q3) Walter,who owns all of the Ajax Corporation stock,purchases a truck from Ajax Corporation in January.The truck cost $12,000 and has a $10,000 adjusted basis.Walter pays the truck's $8,000 FMV.Later in the same year,Walter sells the truck to an unrelated party for $13,000.With respect to these transactions,
A)Ajax Corporation reports a loss of $2,000 and Walter reports a gain of $5,000.
B)Ajax Corporation reports no loss and Walter reports a gain of $3,000.
C)Ajax Corporation reports a loss of $4,000 and Walter reports a gain of $5,000.
D)Ajax Corporation reports no loss and Walter reports a gain of $5,000.
Q4) Describe the domestic production activities deduction.
Q5) Discuss the estimated tax filing requirements for a C corporation.
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Chapter 6: Gross Income: Inclusions
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Q1) Under the accrual method of accounting,income is considered earned when all the events have occurred which fix the right to receive the income and when the amount of income can be determined with reasonable accuracy.
A)True
B)False
Q2) As a result of a divorce,Matthew pays Jasmine alimony of $75,000 in year one and $25,000 per year in subsequent years.How much is deductible by Matthew in year one?
A)$25,000
B)$35,000
C)$40,000
D)$75,000
Q3) Jacob,who is single,paid educational expenses of $16,000 in the current year.He redeemed Series EE bonds and received principal of $8,000 and interest of $3,000.Jacob has other adjusted gross income of $80,000. The $3,000 exclusion must be reduced by A)$0.
B)$1,400.
C)$1,600.
D)$3,000.
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Chapter 7: Corporate Nonliquidating Distributions
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Q1) John owns 70% of the May Corporation stock and 60% of the June Corporation stock.John sells one-half of his interest in May Corporation to June Corporation for $45,000.The E&P accounts of May and June are $25,000 and $35,000,respectively.The result would be that
A)John has sold his stock and reports a capital gain or loss.
B)John has sold his stock and reports a capital gain but no loss.
C)the transaction is treated as a contribution to May's capital and a redemption of June stock.
D)the sale is recast as a dividend paid to John,first by June and then by May.
Q2) Identify which of the following statements is true.
A)The holding period for property received by a shareholder in a nonliquidating distribution begins on the day after the distribution.
B)When making a nonliquidating distribution,a corporation recognizes gains and losses.
C)When making a nonliquidating distribution,the corporation's E&P is reduced by the property's FMV even though the property's basis is greater than its FMV.
D)All of the above are false.
Q3) Define Sec.306 stock.
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Chapter 8: Gross Income: Exclusions
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Sample Questions
Q1) Greg is the owner and beneficiary of a $100,000 policy on the life of his mother.Greg gives the policy to his brother,Don.Don subsequently pays premiums of $40,000.Upon his mother's death,how much of the insurance proceeds must Don include in income?
A)$0
B)$40,000
C)$60,000
D)$100,000
Q2) 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
Q3) Benefits covered by Section 132 which may be excluded from an employee's gross income do not include
A)employee's use of an employer-owned health club.
B)membership fees in professional organizations.
C)employer-provided vehicle for personal use.
D)hotel employee's use of a vacant hotel room.
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Chapter 9: Other Corporate Tax Levies
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Q1) Which of the following entities is subject to the accumulated earnings tax?
A)Sec.501 tax-exempt corporation
B)personal holding company
C)C corporation
D)S corporation
Q2) In the current year,Sun Corporation's federal income taxes before credits are $220,000.Its TMT is $100,000.Their only available credit is a research credit (part of the general business credit)of $160,000.The general business credit is limited to what amount?
Q3) Which of following generally does not indicate an unreasonable earnings accumulation?
A)loans to shareholders
B)expenditure of corporate funds for the personal benefit of the shareholders
C)planned expansion of business facilities
D)investments in properties or securities unrelated to the activities of the corporation
Q4) The general business credit can be used to offset the alternative minimum tax.
A)True
B)False
Q5) How is the accumulated earnings tax liability computed?
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Chapter 10: Property Transactions: Capital Gains and Losses
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Q1) Unlike an individual taxpayer,the corporate taxpayer does not utilize the 25% and 28% specialty capital gain rates,but it does apply the 15% tax rate to adjusted net capital gain.
A)True
B)False
Q2) Stella has two transactions involving the sale of capital assets during the year resulting in a STCL of $5,200 and LTCL of $2,400.As a result,Stella can offset
A)$5,200 of ordinary income and have a LTCL carryforward of $2,400.
B)$3,000 of ordinary income and have a $4,600 STCL carryforward.
C)$3,000 of ordinary income and have a $2,200 STCL carryforward and $2,400 LTCL carryforward.
D)$7,600 of ordinary income.
Q3) Armanti received a football championship ring in college. During difficult economic times,Armanti sold the ring at a pawn shop. What are the tax issues of the sale to Armanti?
Q4) What type of property should be transferred to heirs at a decedent's death and why? Should estate planning also mean that some property is transferred prior to death? Why?
Q5) What are arguments for and against preferential treatment of capital gains?
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Chapter 1: Corporate Liquidating Distributions
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Q1) For that following set of facts,what are the tax consequences to Parent Corporation,Subsidiary Corporation,and a Subsidiary Corporation shareholder,Melisa? Parent Corporation owns 80% of Subsidiary Corporation's stock.Melisa owns the remaining 20% of the Subsidiary stock.Parent and Melisa's stock have adjusted bases of $100,000 and $25,000,respectively,for their Subsidiary stock.Subsidiary distributes land having a $125,000 adjusted basis and a $200,000 FMV to Parent and $50,000 in cash to Melisa.
Q2) 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?
Q3) The general rule for tax attributes of liquidating corporations is
A)they disappear when the liquidation is complete.
B)they carry over for five years.
C)they disappear only for controlled subsidiary corporations.
D)they carry over for an indefinite period of time.
Q4) What attributes of a controlled subsidiary corporation are carried over to the parent when the subsidiary is liquidated?
Q5) Are liquidation and dissolution the same? Explain your answer.
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Chapter 12: Deductions and Losses
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Q1) Brent must substantiate his travel and entertainment expenses.Which of the following is not required for documentation?
A)company expense report
B)business relationship to the taxpayer of individuals entertained
C)purpose of the expenditure
D)time and place of the travel or entertainment
Q2) List those criteria necessary for an expenditure to be deductible as business or investment expenses.
Q3) Discuss tax planning considerations which a taxpayer may use to possibly avoid classification of an activity as a hobby.
Q4) Diane,a successful accountant with an annual income of $150,000,also enjoys raising and training race horses,an activity in which she spends about 10 hours per week.Over the past five years her winnings from races have amounted to $20,000.She employs neighborhood children to feed the horses but has a professional trainer who works with the horses about 5 hours per week.Discuss some of the factors that might enter into the determination of whether or not this activity is a hobby or a trade/business.
Q5) Discuss why the distinction between deductions for AGI and from AGI is important to individuals.
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Chapter 13: Corporate Acquisitions and Reorganizations
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Q1) Identify which of the following statements is true.
A)A deemed liquidation election is available when a target corporation is liquidated into its parent corporation.
B)Corporate purchasers generally prefer Sec.338 treatment because of the significant tax savings originating from the step-up in basis.
C)The Sec.338 deemed liquidation rules require that 100% of the target corporation's stock be purchased.
D)All of the above are false.
Q2) Shareholders in Boxer Corporation exchange all of their nonvoting Class B common stock for additional shares of Boxer's Class A common stock.Which of the following statements is correct?
A)If boot is added to the exchange,the entire gain realized on the exchange is recognized in full.
B)The exchange is a Type F reorganization,assuming all requirements are met.
C)The exchange is tax-free even if no plan of reorganization has been created.
D)The basis of the Class A common stock received is equal to its FMV.
Q3) What are the advantages and disadvantages of a Type C reorganization?
Q4) What are the two steps of a Sec.338 deemed liquidation election?
Q5) What are the advantages and disadvantages of a Type B reorganization?
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Chapter 14: Itemized Deductions
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Q1) When are points paid on a loan deductible as interest expense?
Q2) In 2014,Carlos filed his 2013 state income tax return and paid taxes of $800.Also in 2014,Carlos's employer withheld state income tax of $750 from Carlos's salary.In 2015,Carlos filed his 2014 state income tax return and paid an additional $600 of state income tax due for 2014.How much state income tax can Carlos deduct on his 2014 federal income tax return for state income tax?
A)$1,350
B)$1,400
C)$1,550
D)$2,150
Q3) Which of the following is deductible as interest expense?
A)personal credit card interest
B)interest to purchase tax-exempt bonds
C)bank service charges on personal account
D)interest on a home equity loan to purchase a car
Q4) Medical expenses paid on behalf of an individual who could be the taxpayer's dependent except for the gross income or joint return tests are deductible as itemized deductions.
A)True
B)False
Page 16
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Chapter 15: Consolidated Tax Returns
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Q1) What are the five steps in calculating consolidated taxable income?
Q2) Identify which of the following statements is true.
A)When applying the large corporation rules for purposes of determining underpayments,each member of an affiliated group is considered separately.
B)The entire consolidated tax liability cannot be collected from one group member.
C)Once consolidated tax returns have been filed for two consecutive years,the affiliated group must pay estimated taxes on a consolidated basis.
D)All of the above are false.
Q3) Identify which of the following statements is true.
A)The parent corporation may elect that the affiliated group use its NOL as a carryforward only.
B)A portion of a consolidated NOL can be carried back or forward to a separate return year of an individual group member.
C)The entire consolidated NOL may be available as a carryback or a carryover to a separate return year of one of the members of an affiliated group.
D)All of the above are true.
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Chapter 16: Losses and Bad Debts
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Q1) Which of the following is most likely not considered a casualty?
A)fire loss
B)water damage caused by a busted water heater
C)death of a pine tree due to a two-day infestation of pine beetles
D)water damage to the walls and ceiling of a taxpayer's personal residence as the result of gradual deterioration of the roof
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) A theft loss is deducted in the year in which the theft is discovered.
A)True
B)False
Q4) The total worthlessness of a security generally results in an ordinary loss.
A)True
B)False
Q5) What must an individual taxpayer prove to receive a worthless security deduction?
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Chapter 17: Partnership Formation and Operation
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Q1) Under what conditions will a special allocation of partnership depreciation be recognized? Assume the partnership has no nonrecourse liabilities.
Q2) Doug purchases a 20% interest in the Quix Partnership for $10,000 on January 1,2019,and begins to materially participate in the partnership's business.The Quix Partnership uses the calendar year as its tax year.At the time of the purchase,the Quix Partnership has $4,000 in liabilities,and Doug's share is 20%.What is Doug's basis in his partnership interest on January 1,2010?
Q3) Bob contributes cash of $40,000 and Carol contributes land with a basis of $25,000 and an FMV of $40,000 to become equal partners in the BC Partnership.The partnership immediately obtains a $30,000 mortgage on the land and the partners will share the economic risk of loss equally.What are the two partners' bases in the partnership after these transactions are completed?
Q4) When computing the partnership's ordinary income,a deduction is allowed for A)contributions to charitable organizations.
B)net operating losses.
C)net short-term capital losses.
D)guaranteed payments to partners.
Q5) What is included in partnership taxable income?
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Chapter 18: Employee Expenses and Deferred Compensation
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Q1) Commuting to and from a job location is a deductible expense.
A)True
B)False
Q2) When are home-office expenses deductible?
Q3) If an employee incurs travel expenditures and is fully reimbursed by the employer,neither the reimbursement nor the deduction is reported on the employee's tax return if reporting is pursuant to an accountable plan.
A)True
B)False
Q4) Gwen traveled to New York City on a business trip for her employer.Gwen spent 4 days in business meetings and conferences and then spent 2 days sightseeing in the area.Gwen's plane fare for the trip was $250.Meals cost $160 per day.Hotels and other incidental expenses amounted to $250 per day. Gwen was not reimbursed by her employer for any expenses.Her AGI for the year is $50,000 and she itemizes but has no other miscellaneous itemized deductions.Gwen may deduct (after limitations)
A)$570.
B)$890.
C)$1,890.
D)$1,570.
Page 20
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Chapter 19: Special Partnership Issues
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Q1) Identify which of the following statements is false.
A)On June 30 of the current year,James Roe sells his interest in the Roe & Doe Partnership for $30,000.Roe's adjusted basis in Roe & Doe at June 30 is $7,500 before apportionment of any partnership income for the current year.The Roe & Doe Partnership uses the calendar year as its tax year and has no liabilities on June 30.Roe's distributive share of partnership income up to June 30 is $22,500.Roe acquired his interest in the partnership five years ago.Roe will have a long-term capital gain on the sale of his interest of $22,500.
B)Section 751 assets include all inventory and all unrealized receivables in a sale or exchange situation.
C)When a partnership interest is sold,the buyer and seller can allocate the sale price among the Sec.751 assets and non-Sec.751 assets in any reasonable manner.
D)Statements B and C are true.
Q2) Eicho's interest in the DPQ Partnership is terminated when her basis in the partnership is $70,000.She receives a liquidating distribution of $20,000 cash and inventory with a $24,000 basis and a $40,000 FMV.She also receives,as part of the distribution,a desk that has a $100 basis and a $200 FMV to the partnership.What is her gain or loss,and what is her basis in the items received?
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Chapter 20: Depreciation cost Recovery amortization and Depletion
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Q1) In the current year George,a college professor,acquired a computer system (5-year property)for $1,000 and used the computer 80% for teaching and research-related activities and the remaining 20% for personal use.Because George's employer provides him with a computer in his office at the university,the employer does not require him to have a computer at home.No election was made regarding Sec.179.The maximum depreciation deduction is A)$0.
B)$200.
C)$160.
D)$800.
Q2) When depreciating 5-year property,the final year of depreciation will be year A)3)
B)4)
C)5)
D)6)
Q3) Most taxpayers elect to expense R&E expenditures because of the immediate tax benefit.
A)True
B)False
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Chapter 21: S Corporations
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Q1) Even if the termination of an S election is considered to be inadvertent,the election to terminate is irrevocable.
A)True
B)False
Q2) A corporation must make an S election for the current year after March 15 in the case of a calendar-year corporation.
A)True B)False
Q3) Eagle Corporation has always been an S corporation.Eagle is 100% owned by Katy.Katy's adjusted basis in the Eagle stock is $100,000 on January 1 of the current year.During the current year,Eagle distributes XYZ stock (a capital asset)to Katy.The XYZ stock has a $50,000 FMV and a $40,000 adjusted basis on Eagle's books.The XYZ stock has been held as an investment for four years by Eagle.Eagle Corporation reports $40,000 of ordinary income in the current year.What is Katy's basis in the Eagle stock at the beginning of the next year?
Q4) Garret and Hans own all the stock of GH Corporation.Garret sells all his GH stock to Olga on February 12.The next day,GH makes an S election.For the election to apply to the current year,who must consent to the election?
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Chapter 22: Accounting Periods and Methods
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Q1) Interest is not imputed on a gift loan between two individuals totaling $14,000 except when the borrowed funds are used to purchase income-producing property.
A)True
B)False
Q2) Partnerships,S corporations,and personal service corporations may elect a taxable year which results in a tax deferral of four months or less.
A)True
B)False
Q3) Taxpayers who change from one accounting period to another must annualize their income for the resulting short period.
A)True
B)False
Q4) Under the cash method of accounting,income is reported for the tax year in which payments are actually or constructively received.
A)True
B)False
Q5) What is the significance of the Thor Power Tool Co.case?
Q6) Discuss the purpose of the imputed interest rules.
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Chapter 23: The Gift Tax
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Q1) On September 1,George transfers his entire ownership rights in a $250,000 life insurance policy on his own life to his sister,Sally.The policy's interpolated terminal reserve is $30,000 as of September 1.On July 1,George had paid the policy's $6,000 annual premium.On July 1 of the subsequent year,George again paid the premium on the policy.What are the gift tax consequences in the subsequent year,if any?
Q2) Interest-free or below-market loans
A)must always have interest imputed on them.
B)may result in treating the borrower as paying interest.
C)result in treating the entire loan proceeds as a gift.
D)will always result in at least $1,000 of interest income being imputed.
Q3) A Sec."2503(c)trust"
A)is a discretionary trust for a beneficiary of any age.
B)is intended for beneficiaries over the age of 20.
C)requires distribution of trust assets to the beneficiary at age 21.
D)can be formed only by the parent(s)of the beneficiaries.
Q4) Discuss the negative aspects of gifts.
Q5) Describe the penalties for undervaluing gifts on a gift tax return.
Q6) Contrast the Crummey trust with the Sec.2503(c)trust.
Q7) Discuss the purpose of the gift tax annual exclusion.
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Chapter 24: Property Transactions: Nontaxable Exchanges
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Q1) Ed owns a racehorse with a $600,000 basis used for breeding purposes.The racehorse is killed in a tornado,and Ed collects $1,000,000 from the insurance company.He purchases another horse for $550,000.What is the amount of gain recognized on the transaction?
A)$0
B)$50,000
C)$350,000
D)$400,000
Q2) Bobbie exchanges business equipment (adjusted basis $160,000)for other business equipment that has a FMV of $140,000.Bobbie also receives $30,000 cash.Bobbie's basis in the new equipment is
A)$130,000.
B)$140,000.
C)$160,000.
D)$170,000.
Q3) In a like-kind exchange,both the property transferred and the property received must be held by the taxpayer either for productive use in a trade or business or for investment.
A)True
B)False
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Chapter 25: The Estate Tax
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Q1) At Mark's death,Mark owed a debt of $40,000 plus $2,000 of accrued interest.Mark's funeral expenses were $5,000,and Mark's charge card had a balance due of $400.The expected administration costs for the estate are $2,000.Assume the estate will owe no income taxes in the next few years and that the taxable estate is expected to be in excess of $1 million.What amount should the estate deduct?
Q2) Identify which of the following statements is false.
A)Annuities not related to employment are valued in the gross estate at the cost of a comparable contract multiplied by a fraction that represents the portion of the purchase price that the decedent has contributed.
B)If an annuity ceases payments with the death of the decedent and nothing is to be received by any other party,the annuity is included in the gross estate.
C)When persons other than spouses own property jointly,the amount included in the joint owner's gross estate is measured in accordance with the consideration the decedent furnished to purchase the property.
D)Statements A and C are true.
Q3) Compare the credits available for estate tax purposes with the credits available for gift tax purposes.What differences exist?
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Chapter 26: Property Transactions: Section 1231 and Recapture
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Q1) Clarise bought a building three years ago for $180,000 to use in her business.The straight-line method of depreciation was used and $15,000 of depreciation deductions were allowed.During the current year,Clarise sells the building to her wholly-owned corporation for $235,000.The tax results to Clarise are
A)$70,000 ordinary income.
B)$70,000 of Sec.1231 gain.
C)$55,000 ordinary income and $15,000 Sec.1231 gain.
D)$15,000 of ordinary income and $55,000 Sec.1231 gain.
Q2) Sec.1245 can increase the amount of gain recognized on an asset.
A)True
B)False
Q3) With regard to noncorporate taxpayers,all of the following statements are true regarding Sec.1250 recapture except
A)Sec.1250 affects the character of the gain,not the amount of the gain.
B)Sec.1250 applies to assets sold or exchanged at either a gain or a loss.
C)Sec.1250 ordinary income does not exist if the straight-line method of depreciation is used.
D)Sec.1250 ordinary income is never more than the additional depreciation allowed.
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Chapter 27: Income Taxation of Trusts and Estates
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Q1) Panther Trust has net accounting income and distributable net income of $100,000,$75,000 from taxable sources and $25,000 from tax-exempt sources.During the year,the trust makes a mandatory distribution to Julius and Steve of $50,000 each.The distribution deduction is
A)$25,000.
B)$50,000.
C)$75,000.
D)$100,000.
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) A tax entity,often called a fiduciary,includes all of the following except A)estates.
B)complex trusts.
C)testamentary trusts.
D)All of the above are fiduciaries.
Q4) Explain the three functions of distributable net income (DNI).
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Chapter 28: Special Tax Computation Methods, tax Credits, and Payment of Tax
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Q1) One-half of the self-employment tax imposed is allowed as a for AGI deduction.
A)True
B)False
Q2) All of the following statements regarding self-employment income/tax are true except:
A)The self-employment tax is imposed on net earnings from self-employment over $400.
B)Self-employment tax is computed separately for married individuals filing joint returns. C)Independent contractors are subject to self-employment tax on the amount of net earnings from the self-employment activity.
D)Employees who have a business in addition to their regular employment are not subject to the self-employment tax since FICA is withheld on their wages.
Q3) In computing AMTI,adjustments are A)limited.
B)added only.
C)subtracted only.
D)either added or subtracted.
Q4) Discuss when Form 6251,Alternative Minimum Tax,must be filed.
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Chapter 29: Administrative Procedures
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Q1) Identify which of the following statements is false.
A)If fraud is asserted in a tax transaction,the burden of proof falls on the IRS.
B)The civil fraud penalty consists of 75% of the tax underpayment attributable to fraud plus 25% of the interest payable on the portion of the underpayment resulting from the fraud.
C)The government must prove its case "beyond a reasonable doubt" in order for the court or jury to convict a taxpayer of criminal fraud.
D)The fraud penalty can be imposed with respect to income,gift,and estate tax returns.
Q2) How does a taxpayer determine if "substantial authority" exists for a tax treatment the taxpayer desires to adopt?
Q3) On July 25 of the following year,Joy files her current calendar- year tax return.She had requested extensions as required.On October 8,she pays the amount due.The tax shown on her return is $22,000.Her current-year withholding tax is $21,000.Joy pays no estimated taxes and does not claim any tax credits on her current-year return.Calculate the penalties that the IRS is likely to assess.Ignore the penalty for underpayment of estimated taxes.Assume she did not commit fraud.
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