Tax Test 1 – 1,2 and 3

Flashcard maker : Marguerite Castillo
Which, if any, of the following statements best describes the history of the Federal income tax?

a. The Federal income tax on individuals was held by the U.S. Supreme Court to be allowable under the U.S. Constitution.
b. It did not exist during the Civil War.
c. The Federal income tax on corporations was held by the U.S. Supreme Court to be allowable under the U.S. Constitution.
d. Both the Federal income tax on individuals and on corporations was held by the U.S. Supreme Court to be contrary to the U.S. Constitution.
e. None of these choices are correct.

c. The Federal income tax on corporations was held by the U.S. Supreme Court to be allowable under the U.S. Constitution.
Which, if any, is not one of Adam Smith’s canons of taxation?

a. Convenience.
b. Equality.
c. Economy.
d. Simplicity.
e. Certainty

d. Simplicity.
Which, if any, of the following taxes are proportional (rather than progressive)?

a. Federal estate tax.
b. All of these choices are correct.
c. Federal gift tax.
d. Federal corporate income tax.
e. State general sales tax.

e. State general sales tax.
Which, if any, of the following transactions will increase a taxing jurisdiction’s revenue from the ad valorem tax imposed on real estate?

a. A large property owner issues a conservation easement as to some of her land.
b. A resident dies and leaves his farm to his church.
c. None of these choices are correct.
d. A tax holiday issued 10 years ago has expired.
e. A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons

d. A tax holiday issued 10 years ago has expired.
Which, if any, of the following transactions will decrease a taxing jurisdiction’s ad valorem tax revenue imposed on real estate?

a. A public school is razed and turned into a city park.
b. None of these choices are correct.
c. A local university sells a dormitory that will be converted for use as an apartment building.
d. A tax holiday is granted to an out-of-state business that is searching for a new factory site.
e. An abandoned church is converted to a restaurant.

d. A tax holiday is granted to an out-of-state business that is searching for a new factory site.
Taxes not imposed by the Federal government include:

a. Customs duties (tariffs on imports).
b. None of these choices are correct.
c. Tax on rent cars.
d. Gas guzzler tax.
e. Tobacco excise tax.

c. Tax on rent cars.
Taxes levied by both states and the Federal government include:

a. General sales tax.
b. Franchise tax.
c. Hotel occupancy tax.
d. Custom duties.
e. None of these choices are correct

e. None of these choices are correct
A use tax is imposed by:

a. None of these choices are correct.
b. All states and not the Federal government.
c. The Federal government and a majority of the states.
d. Most of the states and not the Federal government.
e. The Federal government and all states.

d. Most of the states and not the Federal government.
Burt and Lisa are married and live in a common law state. Burt wants to make gifts to their four children in 2014 What is the maximum amount of the annual exclusion they will be allowed for these gifts?

a. $28,000.
b. None of these choices are correct.
c. $14,000.
d. $112,000.
e. $56,000

d. $112,000.
Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is:

a. To take advantage of the per donee annual exclusion.
b. To shift income to higher bracket donees.
c. To take advantage of the higher unified transfer tax credit available under the gift tax.
d. To avoid a future decline in value of the property transferred.
e. None of these choices are correct.

a. To take advantage of the per donee annual exclusion.
A characteristic of FICA is that:

a. It is administered by both state and Federal governments.
b. None of these choices are correct.
c. It is imposed only on the employer.
d. It provides a modest source of income in the event of loss of employment.
e. It does not apply when one spouse works for the other spouse.

b. None of these choices are correct.
Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is:

a. To avoid a future decline in value of the property transferred.
b. To take advantage of the higher unified transfer tax credit available under the gift tax.
c. To take advantage of the per donee annual exclusion.
d. None of these choices are correct.
e. To shift income to higher bracket donees.

c. To take advantage of the per donee annual exclusion.
Which of the following is a characteristic of the audit process?

a. If a taxpayer disagrees with the IRS auditor’s finding, the only resort is to the courts.
b. Self-employed taxpayers are less likely to be selected for audit than employed taxpayers.
c. Less important issues are handled by means of a correspondence audit.
d. Most taxpayer audits involve \”special\” agents.
e. None of these choices are correct.

c. Less important issues are handled by means of a correspondence audit.
David files his tax return 45 days after the due date. Along with the return, David remits a check for $40,000 which is the balance of the tax owed. Disregarding the interest element, David’s total failure to file and to pay penalties are:​
Failure to pay penalty [0.5% × $40,000 × 2 (two months violation)]
$ 400
Plus: Failure to file penalty [5% × $40,000 × 2 (two months violation)] $4,000
Less: Failure to pay penalty
(400)
3,600
Total penalties
$4,000

Failure to pay penalty [0.5% × $40,000 × 2 (two months violation)]
$ 400
Plus: Failure to file penalty [5% × $40,000 × 2 (two months violation)] $4,000
Less: Failure to pay penalty
(400)
3,600
Total penalties
$4,000

Failure to pay penalty [0.5% × $40,000 × 2 (two months violation)]
$ 400
Plus: Failure to file penalty [5% × $40,000 × 2 (two months violation)] $4,000
Less: Failure to pay penalty
(400)
3,600
Total penalties
$4,000

a. $3,600.
b. $4,400.
c. None of these choices are correct.
d. $4,000.
e. $400.

d. $4,000.
A characteristic of the fraud penalties is:

a. Criminal fraud can result in a fine and a prison sentence.
b. The IRS has the same burden of proof in the case of criminal fraud than with civil fraud.
c. When negligence and civil fraud apply to a deficiency, the negligence penalty predominates.
d. The criminal fraud penalty is 75% of the deficiency attributable to the fraud.
e. None of these choices are correct.

a. Criminal fraud can result in a fine and a prison sentence.
Indicate which, if any, statement is incorrect. State income taxes:

a. Can piggyback to the Federal version.
b. None of these choices are correct.
c. Can decouple from the Federal version.
d. Cannot apply to visiting nonresidents.
e. Can provide occasional amnesty programs.

d. Cannot apply to visiting nonresidents.
In terms of probability, which of the following taxpayers would be least likely to be audited by the IRS?

a. Taxpayer just received a $3 million personal injury award as a result of a lawsuit.
b. Taxpayer owns and operates a check-cashing service.
c. Taxpayer just won a $1 million slot machine jackpot at a Las Vegas casino.
d. Taxpayer is an employed electrician.
e. Taxpayer has been audited several times before.

d. Taxpayer is an employed electrician.
A characteristic of FUTA is that:

a. None of the above.
b. It is imposed on both employer and employee.
c. Compliance requires following guidelines issued by both state and Federal regulatory authorities.
d. It is applicable to spouses of employees but not to any children under age 18.
e. It is imposed solely on the employee

c. Compliance requires following guidelines issued by both state and Federal regulatory authorities.
Regarding proper ethical guidelines, which (if any) of the following is correct?

a. None of these choices are correct.
b. The use of client estimates in preparing a return may be acceptable.
c. Under no circumstances should a question on a tax return be left unanswered.
d. If the exact amount of a deduction is not certain (e.g., around mid-$600s) , it should be recorded as an odd amount (i.e., $649) so as to increase the appearance of greater certainty.
e. If a client has made a mistake in a prior year’s return and refuses to correct it, you should withdraw from the engagement.

b. The use of client estimates in preparing a return may be acceptable.
Provisions in the tax law that promote energy conservation and more use of alternative (non-fossil) fuels can be justified by:

a. Encouragement of small business.
b. None of these choices are correct.
c. Promoting administrative feasibility.
d. Economic and social considerations.
e. Political considerations.

d. Economic and social considerations.
The Internal Revenue Code was first codified in what year?

a. 1954
b. 1939
c. 1913
d. 1986
e. 1923

b. 1939
Tax bills are handled by which committee in the U.S. House of Representatives?

a. Ways and Means Committee
b. Finance Committee
c. Taxation Committee
d. None of these choices are correct.
e. Budget Committee

a. Ways and Means Committee
Federal tax legislation generally originates in what body?

a. Senate Floor
b. Internal Revenue Service
c. Senate Finance Committee
d. None of these choices are correct.
e. House Ways and Means Committee

e. House Ways and Means Committee
Subtitle A of the Internal Revenue Code covers which of the following taxes?

a. Employment taxes
b. Excise taxes
c. All of these choices are correct.
d. Estate and gift taxes
e. Income taxes

e. Income taxes
Which of these is not a correct citation to the Internal Revenue Code?

a. Section 211
b. Section 1222(1)
c. All of these choices are correct cites.
d. Section 280B
e. Section 2(a)(1)(A)

c. All of these choices are correct cites.
Which of the following is not an administrative source of tax law?

a. All of these choices are administrative sources.
b. Technical Advice Memoranda
c. Field Service Advice
d. Revenue Procedure
e. General Counsel Memorandum

a. All of these choices are administrative sources.
Which of the following sources has the highest tax validity?

a. Revenue Procedure
b. Regulations
c. None of these choices are correct.
d. Internal Revenue Code section
e. Revenue Ruling

d. Internal Revenue Code section
Which of the following types of Regulations has the highest tax validity?

a. Legislative
b. Procedural
c. None of these choices are correct.
d. Interpretive
e. Temporary

a. Legislative
Which statement is not true with respect to a Regulation that interprets the tax law?

a. Issued by the U.S. Congress.
b. Designed to provide an interpretation of the tax law.
c. All of these statements are true.
d. Carries more legal force than a Revenue Ruling.
e. Issued by the U.S. Treasury Department.

a. Issued by the U.S. Congress.
Which item may not be cited as a precedent?

a. Technical Advice Memoranda
b. U.S. District Court decision
c. None of these choices are correct.
d. Regulations
e. Temporary Regulations

a. Technical Advice Memoranda
Which of the following indicates that a decision has precedential value for future cases?

a. Stare decisis
b. En banc
c. Golsen doctrine
d. Reenactment doctrine
e. None of these choices are correct.

a. Stare decisis
If a taxpayer decides not to pay a tax deficiency, he or she must go to which court?

a. U.S. Court of Federal Claims
b. U.S. Tax Court
c. Appropriate U.S. Circuit Court of Appeals
d. None of these choices are correct.
e. U.S. District Court

b. U.S. Tax Court
What statement is not true with respect to Temporary Regulations?

a. Found in the Federal Register.
b. May not be cited as precedent.
c. All of these statements are true.
d. Issued as Proposed Regulations.
e. Automatically expire within three years after the date of issuance.

b. May not be cited as precedent.
A taxpayer may not appeal a case from which court:

a. U.S. Court of Federal Claims.
b. U.S. District Court.
c. Small Case Division of the U.S. Tax Court.
d. None of these choices are correct.
e. U.S. Circuit Court of Appeals.

c. Small Case Division of the U.S. Tax Court.
Which publisher offers the Standard Federal Tax Reporter?

a. Commerce Clearing House
b. Research Institute of America
c. None of these choices are correct.
d. Prentice-Hall
e. LexisNexis

a. Commerce Clearing House
The IRS will not acquiesce to the following tax decisions:

a. U.S. Court of Federal Claims.
b. U.S. Tax Court.
c. U.S. District Court.
d. All of these choices are correct.
e. Small Case Division of the U.S. Tax Court.

e. Small Case Division of the U.S. Tax Court.
What administrative release deals with a proposed transaction rather than a completed transaction?

a. Letter Ruling
b. Determination Letter
c. Field Service Advice
d. None of these choices are correct.
e. Technical Advice Memorandum

a. Letter Ruling
A taxpayer who loses in a U.S. District Court may appeal directly to the:

a. All of these choices are correct.
b. U.S. Supreme Court.
c. U.S. Tax Court.
d. U.S. Court of Federal Claims.
e. U.S. Circuit Court of Appeals.

e. U.S. Circuit Court of Appeals.
Which court decision would probably carry more weight?

a. Regular U.S. Tax Court decision
b. U.S. District Court decision
c. Tax Court Memorandum decision
d. U.S. Court of Federal Claims
e. Reviewed U.S. Tax Court decision

e. Reviewed U.S. Tax Court decision
A jury trial is available in the following trial court:

a. None of these choices are correct.
b. U.S. District Court.
c. U.S. Circuit Court of Appeals.
d. U.S. Court of Federal Claims.
e. U.S. Tax Court.

b. U.S. District Court.
Tony, age 15, is claimed as a dependent by his grandmother. During 2014, Tony had interest income from Boeing Corporation bonds of $1,000 and earnings from a part-time job of $700. Tony’s taxable income is:

a. $1,700 – $1,050 = $650.
b. $1,700.
c. $1,700 – $1,000 = $700.
d. None of these choices are correct.
e. $1,700 – $700 – $1,000 = $0.

a. $1,700 – $1,050 = $650.
In 2014, Cindy had the following transactions:

Salary $ 90,000
Short-term capital gain from a stock investment 4,000
Moving expense to change jobs (11,000)
Received repayment of $20,000 loan she made to her sister in 2010 (includes no interest) 20,000
State income taxes (5,000)

Cindy’s AGI is:
a. $98,000.
b. $114,000.
c. $94,000.
d. $83,000.
e. $103,000.

d. $83,000.
During 2014, Marvin had the following transactions:

Salary $50,000
Bank loan (proceeds used to buy personal auto) 10,000
Alimony paid 12,000
Child support paid 6,000
Gift from aunt 20,000

Marvin’s AGI is:
a. $38,000.
b. $44,000.
c. $64,000.
d. $32,000.
e. $56,000.

a. $38,000.
Which, if any, of the statements regarding the standard deduction is correct?

a. May be taken as a for AGI deduction.
b. Not available to taxpayers who choose to deduct their personal and dependency exemptions.
c. None of these choices are correct.
d. Some taxpayers may qualify for two types of standard deductions.
e. The basic standard deduction is indexed for inflation but the additional standard deduction is not.

d. Some taxpayers may qualify for two types of standard deductions.
During 2014, Sarah had the following transactions:

Salary $ 80,000
Interest income on City of Baltimore bonds 1,000
Damages for personal injury (car accident) 100,000
Punitive damages (same car accident) 200,000
Cash dividends from Chevron Corporation stock 7,000

Sarah’s AGI is:
a. $285,000.
b. $187,000.
c. $287,000.
d. $387,000.
e. $185,000.

c. $287,000.
Which, if any, of the following statements relating to the standard deduction is correct?

a. If a taxpayer is claimed as a dependent of another, his (or her) additional standard deduction is allowed in full (i.e., no adjustment is necessary).
b. If a taxpayer is claimed as a dependent of another, no basic standard deduction is allowed.
c. If spouses file separate returns, both spouses must claim the standard deduction (rather than itemize their deductions from AGI).
d. If a taxpayer dies during the year, his (or her) standard deduction must be prorated.
e. None of these choices are correct.

a. If a taxpayer is claimed as a dependent of another, his (or her) additional standard deduction is allowed in full (i.e., no adjustment is necessary).
Wilma, age 70 and single, is claimed as a dependent on her daughter’s tax return. During 2014, she had interest income of $2,500 and $800 of earned income from babysitting. Wilma’s taxable income is:
a. $1,750.
b. $900.
c. $750.
d. None of these choices are correct.
e. $2,200.
d. None of these choices are correct.
Sylvia, age 17, is claimed by her parents as a dependent. During 2014, she had interest income from a bank savings account of $2,000 and income from a part-time job of $4,200. Sylvia’s taxable income is:
a. None of these choices are correct.
b. $6,200 – $4,550 = $1,650.
c. $6,200 – $1,000 = $5,200.
d. $6,200 – $5,700 = $500.
e. $4,200 – $4,550 = $0.
b. $6,200 – $4,550 = $1,650.
Kyle and Liza are married and under 65 years of age. During 2014, they furnish more than half of the support of their 19-year old daughter, May, who lives with them. She graduated from high school in May 2013. May earns $15,000 from a part-time job, most of which she sets aside for future college expenses. Kyle and Liza also provide more than half of the support of Kyle’s cousin who lives with them. Liza’s father, who died on January 3, 2014, at age 90, has for many years qualified as their dependent. How many personal and dependency exemptions should Kyle and Liza claim?
a. Four
b. None of these choices are correct.
c. Two
d. Five
e. Three
a. Four
During 2014, Esther had the following transactions:

Salary $70,000
Interest income on Xerox bonds 2,000
Inheritance from uncle 40,000
Contribution to traditional IRA 5,500
Capital losses 2,500

Esther’s AGI is:
a. $67,000.
b. $104,000.
c. $62,000.
d. $102,000.
e. $64,000.

e. $64,000.
Regarding the tax formula and its relationship to Form 1040, which, if any, of the following statements is correct?

a. An \”above the line deduction\” refers to a deduction from AGI.
b. The taxable income (TI) amount appears both at the bottom of page 1 and at the top of page 2 of Form 1040.
c. None of these choices are correct.
d. A \”page 1 deduction\” refers to a deduction for AGI.
e. Most exclusions from gross income are reported on page 2 of Form 1040.

d. A \”page 1 deduction\” refers to a deduction for AGI.
Which of the following items, if any, is deductible?

a. Substantiated gambling losses (not in excess of gambling winnings) from state lottery.
b. Premiums paid on personal life insurance policy.
c. Speeding ticket incurred while on business.
d. Contributions to mayor’s reelection campaign.
e. Parking expenses incurred in connection with jury duty—taxpayer is a dentist.

a. Substantiated gambling losses (not in excess of gambling winnings) from state lottery.
In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?

a. In arriving at taxable income, a taxpayer must choose between the standard deduction and claiming personal and dependency exemptions.
b. In arriving at taxable income, a taxpayer must choose between the standard deduction and deductions from AGI.
c. None of these choices are correct.
d. The formula does not apply if a taxpayer elects to claim the standard deduction.
e. In arriving at AGI, personal and dependency exemptions must be subtracted from gross income.

b. In arriving at taxable income, a taxpayer must choose between the standard deduction and deductions from AGI.
Which, if any, of the following is a deduction for AGI?

a. Medical expenses.
b. Funeral expenses.
c. Loss on the sale of a personal residence.
d. Child support payments.
e. Contributions to a traditional Individual Retirement Account.

e. Contributions to a traditional Individual Retirement Account.
In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?

a. In arriving at taxable income, a taxpayer must elect between claiming deductions for AGI and deductions from AGI.
b. In arriving at taxable income, a taxpayer must elect between deductions for AGI and the standard deduction.
c. In arriving at AGI, a taxpayer must elect between claiming deductions for AGI and deductions from AGI.
d. If a taxpayer has deductions for AGI, the standard deduction is not available.
e. None of these choices are correct.

e. None of these choices are correct.

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