Tax Planning Practice Exam
Course Introduction
Tax Planning is a comprehensive course that explores the strategic process of arranging finances in order to minimize tax liabilities while complying with the law. The course delves into the principles of tax law, the interpretation of tax codes, and the practical application of tax-saving strategies for individuals, businesses, and corporations. Topics include income deferral, deductions, credits, and the use of various tax-deferred investment vehicles. Case studies and real-world scenarios are utilized to illustrate effective tax planning decisions and ethical considerations. Students will develop the analytical skills necessary to assess tax implications of financial decisions and implement tax-efficient strategies within personal and organizational contexts.
Recommended Textbook
South western Federal Taxation 2017 Comprehensive Edition 40th Edition by William H. Hoffman
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3604 Flashcards
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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) The Federal estate and gift taxes are examples of progressive taxes.
A)True
B)False Answer: True
Q2) A state income tax can be imposed on nonresident taxpayers who earn income within the state or on an itinerant basis.
A)True
B)False Answer: True
Q3) Which, if any, of the following is a typical characteristic of an ad valorem tax on personalty?
A)Taxpayer compliance is greater for personal use property than for business use property.
B)The tax on automobiles sometimes considers the age of the vehicle.
C)Most states impose a tax on intangibles.
D)The tax on intangibles generates considerable revenue since it is difficult for taxpayers to avoid.
E)None of the above.
Answer: B
Page 3
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Chapter 2: Working With the Tax Law
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Sample Questions
Q1) The test for whether a child qualifies for dependency status is first conducted under the qualified child requirement.
A)True
B)False
Answer: True
Q2) What statement is not true with respect to Temporary Regulations?
A)May not be cited as precedent.
B)Issued as Proposed Regulations.
C)Automatically expire within three years after the date of issuance.
D)Found in the Federal Register.
E)All of the above statements are true.
Answer: A
Q3) Which items tell taxpayers the IRS's reaction to certain court decisions?
A)Notices.
B)Revenue Procedures.
C)Revenue Rulings.
D)Actions on Decisions.
E)Procedural Regulations.
Answer: D
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Page 4
Chapter 3: Computing the Tax
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Sample Questions
Q1) List at least three exceptions to the application of the kiddie tax.
Answer: · Unearned income of $1,900 or less.
· Age 19 (or age 24 if a full-time student) or older.
· Both parents deceased.
· Earned income in excess of 50% of support.
· Married and filing a joint return with spouse.
Q2) Nelda is married to Chad, who abandoned her in early June of 2012.She has not seen or communicated with him since then. She maintains a household in which she and her two dependent children live.Which of the following statements about Nelda's filing status in 2012 is correct?
A)Nelda can use the rates for single taxpayers.
B)Nelda can file a joint return with Chad.
C)Nelda can file as a surviving spouse.
D)Nelda can file as a head of household.
E)None of the above statements is appropriate.
Answer: D
Q3) Once a child reaches age 19, the kiddie tax no longer applies.
A)True
B)False
Answer: False
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Chapter 4: Gross Income: Concepts and Inclusions
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Sample Questions
Q1) Sharon made a $60,000 interest-free loan to her son, Todd, who used the money to start a new business.Todd's only sources of income were $25,000 from the business and $490 of interest on his checking account.The relevant Federal interest rate was 5%.Based on the above information:
A)Todd's business net profit will be reduced by $3,000 (.05 ´ $60,000) of interest expense.
B)Sharon must recognize $3,000 (.05 ´ $60,000) of imputed interest income on the below- market loan.
C)Todd's gross income must be increased by the $3,000 (.05 ´ $60,000) imputed interest income on the below market loan.
D)Sharon does not recognize any imputed interest income and Todd does not recognize any imputed interest expense.
E)None of the above is correct.
Q2) Ted earned $150,000 during the current year.He paid Alice, his former wife, $75,000 in alimony.Under these facts, the tax is paid by the person who benefits from the income rather than the person who earned the income.
A)True
B)False
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Page 6
Chapter 5: Gross Income: Exclusions
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Q1) Albert had a terminal illness which required almost constant nursing care for the remaining two years of his estimated life, according to his doctor.Albert had a life insurance policy with a face amount of $100,000.Albert had paid $10,000 of premiums on the policy.The insurance company has offered to pay him $75,000 to cancel the policy, although its cash surrender value was only $60,000.Albert accepted the $75,000.Albert used $5,000 to pay his medical expenses.Albert made a miraculous recovery and lived another 20 years.As a result of cashing in the policy:
A)Albert is not required to recognize any gross income because of his terminal illness.
B)Albert must recognize $65,000 ($75,000 - $10,000) of gross income.
C)Albert must recognize $10,000 ($75,000 - $60,000 - $5,000) of gross income.
D)Albert must recognize $75,000 of gross income, but he has $5,000 of deductible medical expenses.
E)None of the above.
Q2) For a person who is in the 35% marginal tax bracket, $1,000 of tax-exempt income is equivalent to $1,350 of income that is subject to tax.
A)True
B)False
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Page 7
Chapter 6: Deductions and Losses: in General
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Sample Questions
Q1) A political contribution to the Democratic Party or the Republican Party is not deductible, but a contribution to the Presidential Election Campaign Fund is deductible.
A)True
B)False
Q2) Are there any circumstances under which lobbying expenditures are deductible?
Q3) In a related party transaction where realized loss is disallowed, when can the disallowed loss be used by the buyer on the subsequent sale of the property? In the case of a related party disallowed loss transaction, can the related party seller's disallowed loss be used by a taxpayer other than the related party buyer?
Q4) Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.
Q5) Ralph wants to give his daughter $1,000 for Christmas. As an alternative, she suggests that he pay the property taxes on her residence. If Ralph pays the property taxes, he cannot deduct them.
A)True
B)False
Q6) Under what circumstance can a bribe be deducted?
Q7) What losses are deductible by an individual taxpayer?
Page 8
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) The cost of repairs to damaged property is not an acceptable measure of the loss in value of the property.
A)True
B)False
Q2) When a nonbusiness casualty loss is spread between two taxable years, the loss in the second year is reduced by 10% of adjusted gross income for the first year.
A)True
B)False
Q3) A taxpayer may carry any NOL incurred back two years.
A)True
B)False
Q4) If an election is made to defer deduction of research expenditures, the amortization period is based on the expected life of the research project if less than 60 months.
A)True
B)False
Q5) Identify the factors that should be considered in determining whether a transaction is a bona fide loan or a gift.
Page 9
Q6) How is qualified production activities income (QPAI) calculated?
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Chapter 8: Depreciation, Cost Recovery, Amortization, and Depletion
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Sample Questions
Q1) Carlos purchased an apartment building on November 16, 2012, for $3,000,000.Determine the cost recovery for 2012.
A)$9,630.
B)$11,910.
C)$13,950.
D)$22,740.
E)None of the above.
Q2) Mary purchased a new five-year class asset on March 7, 2012.The asset was listed property (not an automobile).It was used 60% for business and the rest of the time for personal use.The asset cost $600,000.Mary made the § 179 election.The income from the business before the § 179 deduction was $400,000.Mary does take additional first-year depreciation. Determine the total deductions with respect to the asset for 2012.
A)$72,000.
B)$250,000.
C)$272,000.
D)$360,000.
E)None of the above.
Q3) Discuss the beneficial tax consequences of an SUV not being classified as a passenger automobile.
Page 10
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Q1) An individual is considered an active participant in an employer-sponsored retirement plan merely because an individual's spouse is an active participant for any part of a plan year in applying the IRA phase-out provision.
A)True
B)False
Q2) In terms of meeting the distance test for purposes of deducting moving expenses, which of the following statements is correct?
A)The taxpayer's new job location must be at least 50 miles away from the old job.
B)The taxpayer's new residence must be at least 50 miles away from the new job.
C)The taxpayer's new residence must be at least 50 miles away from the old residence.
D)The taxpayer's new job location must be at least 50 miles farther from the old residence than the old residence was to the old job.
E)None of the above.
Q3) In terms of income tax treatment, what is the difference between common law and statutory employees?
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) In January 2013, Pam, a calendar year cash basis taxpayer, made an estimated state income tax payment for 2012. The payment is deductible in 2012.
A)True B)False
Q2) A taxpayer pays points to obtain financing to purchase a personal residence.At the election of the taxpayer, the points can be deducted as interest expense for the year paid.
A)True B)False
Q3) Samuel, an individual who has been physically handicapped for a year, paid $15,000 for the installation of wheelchair ramps, support bars, railings, and widening doorways in his personal residence.These improvements increased the value of his personal residence by $4,000.How much of Samuel's expenditures qualify as a medical expense deduction (subject to the 7.5% floor)? Explain.
Q4) In applying the percentage limitations, carryovers of charitable contributions must be claimed after contributions in the current year are considered (FIFO rule).
A)True B)False
Page 12
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Chapter 11: Investor Losses
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Sample Questions
Q1) Vic's at-risk amount in a passive activity is $200,000 at the beginning of the current year.His current loss from the activity is $80,000.Vic had no passive activity income during the year.At the end of the current year:
A)Vic has an at-risk amount in the activity of $120,000 and a suspended passive loss of $80,000.
B)Vic has an at-risk amount in the activity of $200,000 and a suspended passive loss of $80,000.
C)Vic has an at-risk amount in the activity of $120,000 and no suspended passive loss.
D)Vic has an at-risk amount in the activity of $200,000 and no suspended passive loss.
E)None of the above.
Q2) Mary Jane participates for 100 hours during the year in an activity she owns. She has no employees and is the only participant in the activity. The activity is a significant participation activity.
A)True
B)False
Q3) Describe the general rules that limit the deduction of investment interest expense.
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Page 13
Chapter 12: Tax Credits and Payments
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Sample Questions
Q1) A taxpayer may qualify for the credit for child and dependent care expenses if the taxpayer's dependent is age 13 or less.
A)True
B)False
Q2) The credit for child and dependent care expenses is an example of a refundable credit.
A)True
B)False
Q3) In March 2012, Gray Corporation hired two individuals, both of whom were certified as long-term recipients of family assistance benefits.Each employee was paid $11,000 during 2012.Only one of the individuals continued to work for Gray Corporation in 2013, earning $9,000 during the year.No additional workers were hired in 2013.Gray Corporation's work opportunity tax credit amounts for 2012 and 2013 are:
A)$4,000 in 2012, $4,000 in 2013.
B)$8,000 in 2012, $4,500 in 2013.
C)$8,000 in 2012, $5,000 in 2013.
D)$8,000 in 2012, $9,000 in 2013.
E)None of the above.
Q4) Discuss the treatment of unused general business credits.
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Chapter 13: Property Transactions:
Determination of Gain or Loss, Basis Considerations, and Nontaxable
Exchanges-Part 1
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Sample Questions
Q1) In addition to other gifts, Megan made a gift of stock to Jeri in 1975.Megan had purchased the stock in 1973 for $7,500.At the time of the gift, the stock was worth $20,000.If Megan paid $850 of gift tax on the transaction in 1975, what is Jeri's gain basis for the stock?
A)$7,500.
B)$8,350.
C)$9,017.
D)$20,000.
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.
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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) Under what circumstance is there recognition of some or all of the realized gain associated with the giving of boot by the taxpayer in a like-kind exchange?
Q2) Janet, age 68, sells her principal residence for $500,000.She purchased it twenty-two years ago for $150,000.Selling expenses are $30,000 and repair expenses to get the house in a marketable condition to sell are $15,000.Janet's objective is to minimize the taxes she must pay associated with the sale.Calculate her recognized gain.
Q3) Evelyn's office building is destroyed by fire on July 12, 2012.The adjusted basis is $315,000.She receives insurance proceeds of $350,000 on August 31, 2012.Calculate the amount that Evelyn must reinvest in qualifying property in order that her recognized gain be $20,000.Assume she elects § 1033 (nonrecognition of gain from an involuntary conversion) postponement treatment.
Q4) Discuss the effect of a liability assumption on the seller's amount realized and the buyer's adjusted basis.
Q5) Peggy uses a delivery van in her business.The adjusted basis is $39,000, and the fair market value is $34,000.The delivery van is stolen and Peggy receives insurance proceeds of $34,000.Determine Peggy's realized and recognized gain or loss.
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Chapter 14: Property Transactions: Capital Gains and Losses,
1231, Recapture Provisions
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Q1) A business machine purchased April 10, 2011, for $62,000 was fully depreciated in 2011 using § 179 immediate expensing. On August 15, 2012, the sole proprietor who owned the machine gave it to his son. On that date, the machine's fair market value was $57,000. The son did not use the machine in business or hold it as inventory and the machine was sold on November 22, 2012, for $53,000.What is the amount and nature of the gain or loss from disposition of the machine? Where is it reported in the son's tax return?
Q2) Section 1231 property includes nonpersonal use property where casualty losses exceed casualty gains for the taxable year. A)True B)False
Q3) A business taxpayer trades in a used fully depreciated machine on a replacement machine. Because the machine traded in was worth more than the replacement machine, the taxpayer received cash in the transaction.Assume the used machine originally cost $100,000, was worth $32,000 when it was traded in, and the replacement machine was worth $20,000. Consequently, the taxpayer received $12,000 cash in the transaction.Is there recognized gain in this transaction and, if so, what type of gain?
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Chapter 15: Alternative Minimum Tax
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Q1) If a gambling loss itemized deduction is permitted for regular income tax purposes, there will be no AMT adjustment associated with the gambling loss.
A)True
B)False
Q2) Julia's tentative AMT is $94,000. Her regular income tax liability is $72,000. Julia's AMT is $22,000.
A)True
B)False
Q3) Durell owns a construction company that builds residential housing.The company is eligible to use the completed contract method for regular income tax purposes.What can Durell do to minimize his AMT?
Q4) The amount of the deduction for medical expenses under the regular income tax may be different than for AMT purposes.
A)True
B)False
Q5) Ashlyn is subject to the AMT in 2012.She calculates her AMT base to be $200,000.What are the AMT rates that apply for Ashlyn?
Q6) Discuss the tax year in which an AMT adjustment is first required for an ISO.
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Chapter 16: Accounting Periods and Methods
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Q1) 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?
Q2) A C corporation in the manufacturing business must use a calendar year as its tax year unless the corporation has a business reason for using a tax year that is not a calendar year.
A)True
B)False
Q3) Ted, a cash basis taxpayer, received a $150,000 bonus in 2012 when he was in the 35% marginal tax bracket.In 2013, when Ted was in the 28% marginal tax bracket, it was discovered that the bonus was incorrectly computed, and Ted was required to refund $40,000 to his employer.As a result of the refund, Ted can reduce his 2013 tax liability by $14,000 (.35 ´ $40,000).
A)True
B)False
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Page 19
Chapter 17: Corporations: Introduction and Operating Rules
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Q1) Under the "check-the-box" Regulations, a two-owner LLC that fails to elect to be to treated as a corporation will be taxed as a sole proprietorship.
A)True
B)False
Q2) Red Corporation, which owns stock in Blue Corporation, had net operating income of $200,000 for the year.Blue pays Red a dividend of $40,000.Red takes a dividends received deduction of $28,000.Which of the following statements is correct?
A)Red owns 80% of Blue Corporation.
B)Red owns 20% or more, but less than 80% of Blue Corporation.
C)Red owns 80% or more of Blue Corporation.
D)Red owns less than 20% of Blue Corporation.
E)None of the above.
Q3) Schedule M-2 is used to reconcile unappropriated retained earnings at the beginning of the year with unappropriated retained earnings at the end of the year.
A)True
B)False
Q4) Explain the rules regarding the accounting periods available to corporate taxpayers.
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Chapter 18: Corporations: Organization and Capital Structure
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Q1) In order to induce Yellow Corporation to build a new manufacturing facility in Knoxville, Tennessee, the city donates land (fair market value of $400,000) and cash of $100,000 to the corporation. Several months after the donation, Yellow Corporation spends $450,000 (which includes the $100,000 received from Knoxville) on the construction of a new plant located on the donated land.
A)Yellow recognizes income of $100,000 as to the donation.
B)Yellow has a zero basis in the land and a basis of $450,000 in the plant.
C)Yellow recognizes income of $500,000 as to the donation.
D)Yellow has a zero basis in the land and a basis of $350,000 in the plant.
E)None of the above.
Q2) Even if boot is generated under § 357(b) (i.e., the liability is not supported by a bona fide business purpose), the transferor shareholder may not have to recognize gain.
A)True
B)False
Q3) In order to encourage the development of an industrial park, a county donates land to Ecru Corporation.The donation does not result in gross income to Ecru.
A)True
B)False
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Chapter 19: Corporations: Distributions Not in Complete
Liquidation
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Q1) The adjusted gross estate of Debra, decedent, is $8 million.Debra's estate will incur death taxes and funeral and administration expenses of $1 million.Debra's gross estate includes stock in Silver Corporation that she had purchased twelve years ago for $600,000 (date of death fair market value of $3 million).At the time of her death in 2012, Debra owned 80% of the stock in Silver Corporation.Silver Corporation (E & P of $4 million) redeems all of the estate's stock in the corporation for $3 million.Debra's will names her daughter, Dena, who owns the remaining 20% interest in Silver Corporation, as her sole heir.With respect to this redemption, Debra's estate has the following income:
A)$0.
B)$2.4 million long-term capital gain.
C)$1 million dividend.
D)$3 million dividend.
E)None of the above.
Q2) A distribution from a corporation will be taxable to the recipient shareholders only to the extent of the corporation's E & P.
A)True
B)False
Q3) When is a redemption to pay death taxes under § 303 most advantageous?
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganizations
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Q1) Yoko purchased 10% of Toyger Corporation's stock six years ago for $70,000.In a transaction qualifying as a "Type C" reorganization, Yoko received $50,000 cash and 8% of Angora Corporation's stock (valued at $100,000) in exchange for her Toyger stock.Prior to the reorganization, Toyger had $200,000 accumulated earnings and profits and Angora had $300,000.How does Yoko treat the exchange for tax purposes?
A)As a recognized $50,000 long-term capital gain.
B)As a $50,000 dividend.
C)As a $20,000 dividend and a $30,000 capital gain.
D)As a $30,000 dividend and a $20,000 capital gain.
E)None of the above.
Q2) Corporate shareholders would prefer to have a gain on a reorganization treated as a dividend rather than as a capital gain, because of the dividends received deduction. A)True
B)False
Q3) Lyon has 100,000 shares outstanding that are worth $10 per share.It uses 32% of its stock plus $80,000 to
Q4) Compare the sale of a corporation's assets with a sale of its stock from the perspective of the seller.
Page 23
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Chapter 21: Partnerships
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Q1) Allison and Taylor form a partnership by each making contributions of $90,000 cash to partnership capital.The partnership purchases an asset for $600,000, using the cash and financing the rest with a $420,000 recourse note.Allison is allocated 75% of partnership profits and losses until the date when the total partnership profits exceed total partnership losses.After that date, the profits and losses are shared equally between the two partners.The partners expect the partnership to have losses for the first three years of operations and profits thereafter.How will the recourse debt be shared between the partners for basis purposes immediately after the property is acquired? The recourse debt will be allocated $360,000 to Allison and $60,000 to Taylor.According to the constructive liquidation scenario, the $600,000 partnership asset is deemed worthless.The asset is deemed to be sold for the $0 value and the loss is allocated $450,000 to Allison and $150,000 to Taylor.This reduces Allison's capital account to a deficit of ($360,000) and Taylor's to a deficit of ($60,000).Each partner is then deemed to contribute cash to the partnership to eliminate this capital account deficit (Allison contributes $360,000; Taylor contributes $60,000).The partnership is deemed to use these cash contributions to pay the $420,000 partnership liability.
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Chapter 22: S: Corporations
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Q1) During 2012, Dana Rippel, the sole shareholder of a calendar year S corporation, received a distribution of $16,000.On December 31, 2011, her stock basis was $4,000.The corporation earned $11,000 ordinary income during the year.It has no accumulated E & P.Which statement is correct?
A)Rippel recognizes a $1,000 LTCG.
B)Rippel's stock basis will be $2,000.
C)Rippel's ordinary income is $15,000.
D)Rippel's return of capital is $11,000.
Q2) To make a valid S election, the entity must file a properly completed Form ____________________.
Q3) An S corporation shareholder's basis includes his or her direct investments plus a ratable share of any corporate liabilities.
A)True
B)False
Q4) When loss assets are distributed by an S corporation, a shareholder's basis is equal to the asset's fair market value.
A)True
B)False
Q5) Tax-exempt income is listed on Schedule ____________________ of Form 1120S.
Page 25
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Chapter 23: Exempt Entities
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Q1) If an exempt organization is required to file an annual information return, on what form is it filed?
Q2) Watch, Inc., a § 501(c)(3) exempt organization, solicits contributions through a mail campaign.An executive, who recently completed an executive MBA degree program, recommends that personal address labels be included as an additional way to motivate the potential donor to contribute.The value of these labels is $9.00 per potential donor.What is the effect of the inclusion of the address labels on Watch's unrelated business income?
Q3) An entity satisfies the "not-for-profit" requirement for exempt status if its total expenses for the year exceed its gross income.
A)True
B)False
Q4) Even though a church is not required to obtain IRS approval of its exempt status, it still must file Form 990 (Return of Organization Exempt from Income Tax) annually.
A)True
B)False
Q5) Under what circumstances are bingo games not treated as an unrelated trade or business?
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Chapter 24: Multistate Corporate Taxation
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Q1) 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.
Q2) All of the U.S.states use an apportionment formula based on the sales, property, and payroll factors.
A)True
B)False
Q3) All of the U.S.states have adopted a tax based on net taxable income.
A)True
B)False
Q4) Roughly five percent of all taxes paid by businesses in the U.S.are to state, local, and municipal jurisdictions.
A)True B)False
Q5) When a _________________________ is in effect, out-of-state sales that are not subject to tax in the destination state are pulled back into the sales factor numerator of the origination state.
Q6) The starting point in computing state taxable income generally is ____________________.
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Chapter 25: Taxation of International Transactions
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Q1) A tax haven often is:
A)A country with high internal income taxes.
B)A country with no or low internal income taxes.
C)A country without income tax treaties.
D)A country that prohibits "treaty shopping."
Q2) GlobalCo, a foreign corporation not engaged in a U.S.trade or business, receives $80,000 in interest income from deposits with the foreign branch of a U.S.bank.The U.S.bank earns 24% of its income from foreign sources.How much of GlobalCo's interest income is U.S.source?
A)$0.
B)$19,200.
C)$60,800.
D)$80,000.
Q3) Which of the following income items does not represent Subpart F income if it is earned by a controlled foreign corporation in Fredonia? Purchase of inventory from the U.S.parent, followed by:
A)Sale to anyone outside Fredonia.
B)Sale to anyone inside Fredonia.
C)Sale to a related party outside Fredonia.
D)Sale to a non-related party outside Fredonia.
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Chapter 26: Tax Practice and Ethics
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Q1) An individual is not subject to an underpayment penalty until more than $____________________ is due and unpaid through estimated taxes. or
Q2) 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.
Q3) When a tax dispute is resolved, interest is paid by or to the government. List three or more features of the interest computations that arise when a tax return is audited.
Q4) Clara underpaid her taxes by $50,000.Of this amount, $15,000 was due to negligence on her part, as her record-keeping system is highly inadequate.Determine the amount of any negligence penalty
Q5) In the context of civil tax fraud, the burden of proof is on the IRS to show by a "preponderance of the evidence" that the taxpayer had a specific intent to evade a tax.
A)True
B)False
Q6) A taxpayer's return might be selected for audit on the basis of the ____________________ score that the IRS computes.
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Chapter 28: Income Taxation of Trusts and Estates
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Q1) Which of the following is the annual maximum amount to be included as gross income by all of the income beneficiaries of the trust or estate?
A)Distributable net income.
B)Entity taxable income.
C)Adjusted gross income.
D)Fiduciary accounting income.
Q2) The Doyle Trust reports distributable net income for the year of $100,000 and no income from tax-exempt sources.Under the terms of the trust instrument, the trustee must distribute $20,000 to Roger and $20,000 to Sally.After paying these amounts, the trustee is empowered to make additional distributions at its discretion.Exercising this authority, the trustee distributes an additional $25,000 to Roger and $50,000 to Sally.How much gross income from the trust must Sally recognize?
A)$70,000.
B)$60,000.
C)$40,000.
D)$20,000.
Q3) Trusts can select any fiscal Federal income tax year.
A)True
B)False
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