Tax Exam 2.0
Elise, age 20, is a full-time college student in 2019 with earned income from wages of $4,400 and interest income of $500. Elise's parents provide more than 1/2 of her support and claim her as a dependent. When filing her tax return, Elise's taxable income is:
$150 ***AGI = $4,400 earned income + $500 unearned income = $4,900. $4,900 - standard deduction ($4,400 + 350) = taxable income of $150. See example 2-34 and 2-35.
FOR THIS QUESTION, PLEASE TURN TO PAGE 3-22 OF YOUR TEXTBOOK, AND USE THE TABLE IN THE TEXT TO REFERENCE THE CORRECT NUMBER OF ANTICIPATED PAYMENTS. Mr. Kitten, age 72, will be receiving an annuity (from a qualified retirement plan) through his employer. His contribution to the annuity is $80,000. He is to receive $1,500 per month starting April 1 of the current year, and continuing for life. Mr. Kitten's reportable annuity income to be included on his current year tax return is:
$9,000
The term "tax law" includes A) legislation. B) treasury regulations. C) judicial decisions. D) all of the above
D)
A revenue ruling is issued by the Internal Revenue Service only in response to a verbal inquiry by a taxpayer.
FALSE
Appeals from the U.S. Tax Court are to the Court of Appeals for the Federal Circuit.
FALSE
Taxpayers must pay the disputed tax prior to filing a case with the Tax Court.
FALSE
Appeals from the Court of Appeals go to the Supreme Court under a writ of certiorari. The Supreme Court decides whether or not they will hear the case.
TRUE
Small case procedures of the U.S. Tax Court requires that the amount in dispute not exceed a) $5,000. b) $10,000. c) $50,000. d) $100,000.
c) $50,000
In 2019, if a single individual with taxable income of $37,200 has a long-term capital gain, it is taxed at: a) 0%. b) 20%. c) 10%. d) 15%
a) 0%
The taxpayer must pay the disputed tax in advance, and file a lawsuit for a refund, when initiating a lawsuit in the: a) U.S. District Court b) Two of the other answers are correct. c) U.S. Court of Federal Claims d) U.S. Tax Court
b) ***A taxpayer who wants to litigate in a U.S. District Court or the U.S. Court of Federal Claims must first pay the deficiency to the IRS, then file a claim for a refund.
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 applicable Senate committee. c) consideration by the entire Senate. d) consideration by the House Ways and Means Committee.
d) consideration by the House Ways and Means Committee
Carla redeemed EE bonds which potentially qualify for the educational exclusion. The redemption consists of $14,000 principal and $6,000 interest. The net qualifying educational expenses are $11,000. Her AGI is below the threshold for phase-out of the exclusion. The taxable interest amount is:
$2,700 ***$6000 x [$11,000 / ($14,000 + $6,000)] = $3,300 exclusion. Taxable amount = $6,000 - $3,300 = $2,700. See pg 3-14
Paul, a cash basis taxpayer, owns an apartment building. The following information was available for the current year: 1. An analysis of the bank deposit slips showed recurring monthly rents received totaled $50,000 for the current year. 2. On December 31, the tenant in Apartment 2B paid Paul a $2,000 fee to cancel the lease on December 31 (the lease expired in June of next year). 3. The lease of the tenant in Apartment 3A expired on December 31 of the current year and the tenant left improvements valued at $1,000. The improvements were not made by the tenant in lieu of any required rent. In computing rental income for the year, Paul should report gross rents of
$52,000
Seymour earned $75,000 as a sanitation consultant in 2019. Seymour is divorced, single, with one child living with him, Edna, who is 25. Edna attends college full-time, and additionally earned wages of $4,300 as a bartender. Seymour provides more than ½ of Edna's support, and he also fully supports his elderly father who lives in his own home. Seymour loaned his sister money several years ago, and she sent him a check for the interest due, $2,500, this year. He received the check in the mail on December 31 very late, but could not get to the bank in time to cash it. So, he waited until January 2, 2020 to cash the check. Seymour also received $8,000 in dividends on Microsoft Inc. stock that he owns, $1,700 in interest on City of Ottawa, Canada bonds, and $1,800 from Tacoma, Washington municipal sewer district bonds. Seymour was injured during the year in car accident, and received a jury verdict that awarded him $10,000 as compensation for his injuries/medical bills, $2,000 for lost wages, and $1,500 for the emotional distress suffered when the other driver spit on him in a fit of road rage. Seymour receives some fringe benefits through his job. His employer pays for his medical insurance: the insurance premiums the company pays are $7,000 per year. He also received job training through the local college, and his employer paid $5,750 for his education costs He paid his ex-wife $4,200 in alimony during the year (specified in his 2014 divorce decree), and paid $2,600 in child support. Seymour has $15,000 in itemized deductions in 2019. 1. Seymour's AGI is: 2. Seymour's taxable income is:
1) $87,000 2) $68,650 a. Salary = 75000. Include in income. b. Interest income from sister = 2500. Include in income. This was constructively received, even though he couldn't get to the bank in time. c. Microsoft dividends = 8000. Include in income. d. Ottawa bonds = 1700. Foreign bond interest income is included in income. e. Tacoma bonds = 0. Interest income from political subdivisions of the U.S. is excluded from income. f. Court award for medical bills/injuries = 0. Court awards for medical injuries are excluded from income. g. Court award for lost wages = 2000. Awards for lost wages are included in income, unless the lost wage amount comes from a disability policy paid for by the employee (which is not the case here, as this is a court award). h. Court award for emotional distress = 1500. Awards for emotional distress are included in income unless the award is specifically tied to physical injuries (i.e. proven by medical bills) related to emotional distress. i. Medical insurance premiums = 0. Medical insurance premiums paid for by an employer are a statutory exclusion from taxable income. j. Employer-funded education costs = 500. Only 5250 can be excluded from an employees income for employer-funded education. Amounts over 5250 are included in income. k. Alimony paid = (4200) deduction for AGI in 2019. Note: divorce is pre-2019, so alimony remains deductible. l. Child support paid = 0. Not income to the recipient, and not a deduction for the payer. 1. ADD A-L above: AGI = 87000. From AGI, subtract the standard deduction for head of household (Edna is NOT his dependent, as she is too old (for a qualifying child) and makes too much money (for a qualifying relative). His elderly father is his dependent (a qualifying relative)(see page 2-22). His standard deduction amount is greater than the amount of his itemized deductions. Standard deduction = 18,000 2. Taxable income = 87,000 - 18,350 = 68.650.
According to the Statements on Standards for Tax Services , if a CPA believes that a client's prior-year tax return contains false information, the CPA should report this to the: A) IRS. B) SEC. C) AICPA. D) None of the above. The CPA does not report the false information to any external agencies, unless required by law.
D) None of the above. The CPA does not report the false information to any external agencies, unless required by law.
Final regulations have almost the same legislative weight as the IRC.
TRUE
The Internal Revenue Code of 1986 contains the current version of the tax law.
TRUE
The Golsen rule is best described as follows: a) The Tax Court follows the Golsen rule when if follows the precedent existing in the circuit court of appeals to which the tax case in question is appealable. b) The Golsen rule permits the IRS to adopt a policy of announcing whether, in future cases involving similar facts and circumstances, it will follow adverse federal court decisions. c) Taxpayers have the legal flexibility accorded by the Golsen decision to choose among different courts when filing a lawsuit. d) The Golsen rule allows the Tax Court to reach a decision regarding the tax treatment of an issue, but leave computation of the deficiency amount to the litigating parties.
a)
Squeak Corporation, a calendar year cash basis taxpayer, sells packages of foreign language lessons to individuals planning to work overseas. In December 2019, it sold and received payment of $600,000 for 24-month lesson packages to be provided evenly through 2020 and 2021. Squeak Corporation will recognize the $600,000 of income: a) all in 2019. b) half in 2020 and half in 2021. c) all in 2020. d) all in 2021.
a) ***See pages 3-8 and 3-9. Remember, this is a cash-basis taxpayer, not an accrual-basis taxpayer as per the discussion on pages 3-11 through 3-12!
Michael is an employee of StayHere Hotels, Inc. in Washington, DC. On his vacation, Michael travels to San Francisco and stays at a StayHere Hotel for six nights free of charge. The regular rate for a hotel room at StayHere in San Francisco is $300 a night. His ability to stay in the hotel without charge is based on the availability of empty rooms. How much income must Michael report due to the use of the San Francisco hotel room? a) $0 b) $300 c) $360 d) $1,800
a) $0 ***The hotel rooms are considered a no-additional cost benefit. Pages 4-13 through 4-14; and Topic Review I:4-2.
Mr. T has been a night watchman at Y Company for 10 years. During the current year, he received the following benefits from Y Company: 1. Salary = $15,000 2. Hospitalization insurance premiums paid for by the company = $3,600 3. Required lodging on Y's premises for Y's convenience as a condition to Mr. T's employment = $2,400 4. Reward for preventing a break-in = $1,000 5. Christmas ham = $15 What amount is includable in Mr. T's gross income in the current year? a) $16,000 b) $17,400 c) $16,015 d) $15,000
a) $16,000
Rebecca is the beneficiary of a $500,000 insurance policy on her husband's life. She elects to receive $52,000 per year for 10 years rather than receive the entire amount in a lump sum. Of the amount received each year: a) $2,000 is taxable income. b) $50,000 is taxable income. c) $52,000 is taxable income. d) $5,000 per year is tax free as a death benefit
a) $2,000 is taxable income. ***Each year, $50,000 of the payments are tax-free as return of capital (insurance proceeds). $500,000/10 = $50,000; thus, $52,000 - $50,000 = $2,000 is taxable. See pages 4-5 through 4-6 including example I:4-6.
Annisa, who is 28 and single, has adjusted gross income of $55,000 and itemized deductions of $5,000. Annisa will have taxable income in 2019 of: a) $42,800 b) $55,000 c) $38,800 d) $50,000
a) $42,800 ***$55,000 - $12,200 (standard deduction) = $42,800
Emil won $5,000 in a state lottery, and spent $400 for the purchase of lottery tickets. Emil elected the standard deduction on his income tax return. The amount of lottery winnings that should be included in Emil's current-year adjusted gross income is: a) $5,000 b) $0 c) $700 d) $4,600
a) $5,000
Marcy, age 12, earned $300 from babysitting during the current year (2019). Her parents claim her as a dependent. She also had interest and dividends of $2,700 during the year. She did not itemize deductions. What is her net unearned income for the current year (assume Marcy has no itemized deductions connected with the production of her unearned income)? a) $500 b) $1,600 c) $2,700 d) $3,000
a) $500 *updated for 2019 tax law; 1,100 statutory deduction and 1,100 standard deduction
Judith spend several years studying the human body. Finally, her research provided a new method for making surgical incisions that left no scars. Much to Judith's amazement, she was awarded a Nobel Prize that year. Judith was awarded $50,000 outright (which was paid directly to a recognized charity designated by Judith) and another $75,000 on the condition that she continue her research. How much must Judith include in her gross income for the year? a) $75,000 b) $0 c) $50,000 d) $125,000
a) $75,000
Ruby Diaz is a commission salesperson. She is a cash-method taxpayer. At the end of the year, her earnings for the year were $75,000. During the year, she also received $10,000 in advances on future commissions and repaid $8,000 of those advances during the year. How much should Ruby report for the year? a) $77,000 b) $75,000 c) $87,000 d) $85,000
a) $77,000
Julia, age 57, purchases an annuity for $33,600. Julia will receive $400 per month for the rest of her life. The expected return multiple is 20.0. At age 88, the amount that Julia may exclude from income is: a) 0 b) 1,680 c) 4,800 d) 3,120
a) 0 ***Once life expectancy is reached (for Julia, that is 57 + 20 = 77), the annual exclusion is no longer available because the original investment has been recovered.
Mr. and Mrs. P are filing a joint return for the current year (2019). They have two children. Marie, who is 18, lived with them and earned $4,200 from a part-time job. James is 24, lives with them all year, and attends college as a full-time student. He earned $4,000 during the summer. Mr. and Mrs. P provide over 1/2 of their children's support. Mrs. P's mother also lives with them, but is self supporting. How many persons can Mr. and Mrs. P claim as dependents? a) 2 b) 3 c) 4 d) 5
a) 2
A single taxpayer provided the following information for 2019: Salary: $ 80,000 Interest on state bonds: 5,000 Allowable itemized deductions: 11,000 What is taxable income for 2019? a) 67,800 b) 63,000 c) 72,800 d) 69,800
a) 67,800
The Senate equivalent of the House Ways and Means Committee is the Senate: a) Finance Committee. b) Ways and Means Committee. c) Tax Committee. d) Joint Conference Committee.
a) Finance Committee.
Which of the following should not be included in Mr. W's gross income for the current year? a) Life insurance proceeds of $10,000 received as a beneficiary as a result of the death of Mr. W's brother b) $200 of dental work Mr. W. recieved in exchange for repairs made by Mr. W to his dentist's residence c) $5,000 in executors fees received from the estate of Mr. W's brother d) A new car worth $7,000 given to Mr. W by his employer for his valuable services
a) Life insurance proceeds of $10,000 received as a beneficiary as a result of the death of Mr. W's brother
All of the following income items are included in an employees gross income except: a) Medical insurance premiums paid by an employer for the employee and spouse b) Severance pay for cancellation of employment c) Vacation allowance d) Payment from an employer while sick or injured
a) Medical insurance premiums paid by an employer for the employee and spouse
Which of the following is NOT excluded from gross income of the recipient taxpayer? a) Payments in lieu of wages (while not able to work due to an injury) from an insurance policy paid for by the taxpayer's employer b) Worker's compensation benefits c) Payments in lieu of wages (while not able to work due to an injury) from an insurance policy paid for by the taxpayer d) Lump-sum payment from an insurance policy for loss of a hand in an automobile accident
a) Payments in lieu of wages (while not able to work due to an injury) from an insurance policy paid for by the taxpayer's employer
Identify which of the following statements is FALSE. a) The U.S. Tax Court must follow the previous decisions of the U.S. District Court for the district in which the taxpayer lives. b) The U.S. Tax Court follows the previous decisions of the U.S. Court of Appeals to which the tax matter is appealable. c) The opportunity for "forum shopping" occurs when different precedents on the same point exist. d) The U.S. Tax Court is a trial court.
a) The U.S. Tax Court must follow the previous decisions of the U.S. District Court for the district in which the taxpayer lives.
Which of the following courts is not a trial court for tax cases? a) U.S. Bankruptcy Court. b) U.S. District Court. c) U.S. Tax Court. d) U.S. Court of Federal Claims.
a) U.S. Bankruptcy Court
A jury trial is permitted in the a) U.S. District Court b) U.S. Tax Court c) U.S. Court of Federal Claims. d) U.S. Tax Court, when small case procedures are used
a) U.S. District Court.
Identify which of the following statements is FALSE: a) When tax advisers speak of the "tax law", they usually have in mind only the Internal Revenue Code. b) Members from both the House and Senate are on the Conference Committee. c) Records of committee hearings are helpful in determining Congressional intent. d) All of the above are false.
a) When tax advisors speak of the "tax law," they usually have in mind just the Internal Revenue Code.
During the course of an audit, a CPA discovers an error in a prior return. According to the Statements on Standards for Tax Services, the CPA should: a) ask the client for permission to disclose the error to the IRS. b) withdraw from the engagement. c) inform the IRS of the error, regardless of whether the client grants permission. d) correct the error in the current year's tax return.
a) ask the client for permission to disclose the error to the IRS.
For 2019, the general rule is that taxpayers must file a tax return only if their gross income equals or exceeds a) their standard deduction b) their adjusted gross income c) their personal exemption d) tax returns are not required to be filed for 2018!
a) their standard deduction
Examples of income which are constructively received include all of the following except a) a check received after banking hours b) a paycheck received from an employer, when the employer does not have funds in the bank to cover the check c) interest credit to a savings account d) dividends automatically reinvested in additional shares of a mutual fund
b) ***If funds are not available to the employee, they cannot be constructively received.
Paul makes the following property transfers in the current year: $22,000 cash to his wife $34,000 cash to a qualified charity $220,000 house to his son $3,000 computer to an unrelated friend The total of Paul's taxable gifts (ignoring any gift splitting with his spouse), subject to the unified transfer tax is a) 213,000 b) 205,000 c) 233,000 d) 278,000
b) $205,000
Over the years Rianna paid $65,000 in premiums on a life insurance policy with a face value of $100,000. Upon reaching 65, while still in good health, Rianna surrendered the policy and collected $95,000. In the year of collection, Rianna will report a) no income. b) $30,000 of taxable income. c) $5,000 of tax loss. d) $95,000 of taxable income.
b) $30,000 of taxable income. ***$95,000 - $65,000 = $30,000. The basis is recovered tax free. See text pages 4-5 through 4-6.
Charleen is claimed as a dependent on her parents' tax return. She had a part-time job during 2019 and earned $1,900 during the year, in addition to $2,700 of interest income. What is her tax due for 2019? a) 343 b) 235 c) 718 d) 0
b) 235 ***Gross income = 1,900 + 2,700 = 4,600. Standard deduction = 1,900 + 350 = 2,250. Taxable income as a dependent = 4,600 - 2,250 = 2,350. Net unearned income = 2,700 - 1,100 - 1,100 = $500. Earned taxable income (ETI) = 2,350 - 500 = 1,850 10% tax applies to the 1st $4,450 ($1,850 + 2,600) of Charleen's income (see the brackets on page 2-25). Charleen's "kiddie" tax = 10% x $2,350 = $235.
Which of the following citations denotes a regular decision of the Tax Court? a) 41 TCM 1272. b) 35 T.C. 1083 (2003). c) 39 AFTR 2d 77-640 (1977). d) all of the above.
b) 35 T.C. 1083 (2003)
Michele, age 20, is a full-time college student with earned income from wages of $5,200 and interest income of $700. Michelle's parents provide more than one-half of her support. Michelle's 2019 taxable income is a) 0 b) 350 c) 4,850 d) 700
b) 350 ***Earned income = 5,200. Interest income = $700. AGI = 5,200 + 700 = 5,900. AGI - standard deduction (or itemized deductions if larger) = taxable income Standard deduction: 5,200 + 350 = 5,550. Taxable income = 5,900 - 5,550 = 350.
Which of the following statements regarding qualified tuition plans (QTP) is incorrect? a) Distributions can be made tax-free to pay for room and board at college. b) Distributions made from the QTP for college tuition will be tax-free in addition to qualifying for the American Opportunity Tax Credit or Lifetime Learning Credit. c) Katie's parents had established a QTP for Katie, but she has received a "full-ride" scholarship. Katie's parents can name her sister as a replacement beneficiary of the QTP. d) Distributions of income not used for qualified higher education expenses are taxable and subject to a 10% penalty.
b) Distributions made from the QTP for college tuition will be tax-free in addition to qualifying for the American Opportunity Tax Credit or Lifetime Learning Credit. ***The amount of any QTP exclusion is reduced by any American Opportunity Tax Credits and Lifetime Learning Credits used by the beneficiary (page 4-8).
Anna is supported entirely by her three sons John, James, and Joseph who provide for her support in the following percentages: John = 10% James = 40% Joseph = 50% Assuming a multiple support declaration exists, which of the brothers may claim his mother as a dependent? a) any of the sons b) James or Joseph c) Joseph only d) none of them
b) James or Joseph ***No one person provides more than 50% of the support, but those that provide over 10% up to and including 50% are qualifying individuals, and can claim a dependency exemption if a multiple support agreement is executed.
Which of the following is a true statement regarding primary authority of tax law? a) Articles in the Journal of Taxation are viewed as primary authority. b) Primary authority includes the Code, as well as its administrative and judicial interpretations. c) The Bloomberg BNA Daily Tax Reporter is a source of primary tax authority. d) Tax services are sources of primary tax authority.
b) Primary authority includes the Code, as well as administrative and judicial interpretations.
A client wants to take a tax return position with less than a 10% probability of being upheld in court. The CPA should: a) take the clients position but not sign the tax return. b) inform the client that the position does not have a realistic possibility of success. c) ask the client to sign a waiver of his right to sue the CPA in the event the IRS disallows the position. d) take the client's desired position and sign the return as usual.
b) inform the client that the position does not have a realistic possibility of success.
Carla redeemed EE bonds which qualify for the educational exclusion. The redemption consisted of $14,000 principal and $6,000 interest. The net qualifying educational expenses are $10,000. Her AGI is below the threshold for phase-out of the exclusion. The taxable interest is: a) 2,400 b) 6,000 c) 3,000 d) 0
c)
Fatima's employer funds child care for all employees' children. She pays nothing for this service. The cost of Fatima's child care is $7,200 per year. How much of the child care benefits are taxable to Fatima? a) 7,200 b) 5,000 c) 2,200 d) 0
c)
In 2017 Bonnie, a sole proprietor, loaned her employee, John, $10,000 to help him buy a car. In 2019, before he repaid the $10,000, Bonnie told John that she was "tearing up" the $10,000 note in recognition of his strong job performance. How should John treat the amount forgiven? a) excludible gift in the year of the loan b) taxable income in the year of the loan c) taxable income in the year of forgiveness d) excludible gift in the year of forgiveness
c)
Which one of the following items is not considered gross income for tax purposes? a) gambling winnings b) illegal income c) face amount of life insurance received due to the death of the insured d) cash dividends
c) ***Page 3-22. The face amount of life insurance received because of the death of the insured is not taxable.
An electrician completes a rewiring job and is paid $1,000 by the customer in November. In December, the customer has a small fire in his house and sues the electrician for the repayment of the $1,000 fee plus damages. The electrician reaches a settlement with the customer in the following February and refunds the $1,000 fee. How should the electrician treat these events when he files his tax return in April? a) Both the income and the deduction will be reported on the same tax return (for the year of receipt). b) The income will be reported for the year of receipt, and then an amended return will be filed in the following year to claim a refund. c) The income will be reported in the year of receipt, and a tax deduction will be claimed on the tax return for the year of repayment. d) No income will be reported.
c) ***The claim of right doctrine requires the recipient of a disputed amount to include the amount in gross income in the year of receipt. If the amount is later repaid, a deduction is taken on the return for the year of repayment.
Deborah, who is single, is claimed as a dependent by her parents. She had a part-time job during the current year (2019) and earned $850 during the year, in addition to $500 of interest income. What is her standard deduction? a) $850 b) $1,050 c) $1,200 d) $6,300
c) $1,200 ***Standard deduction = the greater of (i) $1,100, or (2) earned income + $350 (up to the maximum standard deduction of $12,200). $850 + $350 = $1,200.
Elisa sued her former employer for discrimination. She was awarded $200,000 for lost wages, $30,000 for medical expenses related to emotional distress resulting from the discrimination, and $300,000 in punitive damages. The amount taxable is a) $0. b) $200,000. c) $500,000. d) $530,000.
c) $500,000. ***$200,000 + $300,000 = $500,000. The medical expenses are not taxable. See pages 4-8 through 4-9 including example 1:4-13.
For 2019, if a single individual with $28,500 of taxable income has a $2,000 long-term capital gain, it is taxed at a) 10% b) 15% c) 0% d) 20%
c) 0%
The primary citation for a federal circuit court of appeals case would be: a) 40 AFTR 2d 78-1234. b) 44 F.Supp. 403. c) 31 F.3d. 134 d) 79-2 USTC ¶9693.
c) 3 F.3d 134.
Ralph's business records were lost as a result of Hurricane Katrina. CPA Jane prepares Ralph's return using estimates. What do the Statements on Standards for Tax Services state about the use of estimates? a) Estimates may not be used. b) Estimates may be used without disclosing their use to the IRS. c) Estimates may be used, but Jane should disclose their use to the IRS. d) The Statements on Standards for Tax Services do not address the use of estimates.
c) Estimates may be used, but Jane should disclose their use to the IRS.
Which of the following item(s) must be included in the income of the respective employees? a) ABC Hospital Corporation provides free meals in the hospital cafeteria to employees while on duty in order that they be available for emergency calls. b) The state of California highway patrol organization provides its officers with a daily meal allowance to compensate them for meals eaten at any location while they are on duty. c) IBX Corporation requires its employees to work overtime three evenings each year when the company takes inventory. The corporation pays for take-out dinners on its premises on these evenings. d) More than one, but not all, of the amounts must be included in income.
c) IBX Corporation requires its employees to work overtime three evenings each year when the company takes inventory. The corporation pays for take-out dinners on its premises on these evenings.
Which of the following is secondary authority? a) Internal Revenue Code. b) Treasury Regulations. c) RIA and CCH tax services. d) Revenue Ruling.
c) RIA and CCH tax services
Which of the following statements about the Statements on Standards for Tax Services is true? a) A CPA is never allowed to use a taxpayer's estimates when preparing a tax return. b) The CPA must tell the IRS upon becoming aware that an error has been made on a prior return. c) The CPA may, in good faith, rely on information provided by the taxpayer, without verifying the reliability of the information if reasonable inquiries are made where the information furnished appears to be incorrect. d) The CPA should not recommend that a taxpayer take a certain position if there is any doubt as to whether the position would be approved by the IRS on audit.
c) The CPA may in good faith rely on information provided by the taxpayer, without verifying the reliability of that information if reasonable inquiries are made where the information furnished appears to be incorrect.
A tax case cannot be appealed when initiated in the: a) U.S. Court of Federal Claims b) U.S. Tax Court c) U.S. Tax Court using small case procedures. d) none of the above.
c) U.S. Tax Court using the small case procedures.
Statements on Standards for Tax Services are issued by: a) the SEC. b) the IRS. c) the AICPA. d) the FASB
c) the AICPA.
The Tax Court departs from its general policy of ruling uniformly for all taxpayers where: a) a U.S. District Court has ruled differently on the issue in the taxpayer's jurisdiction. b) the U.S. Court of Federal Claims has ruled differently on the issue in the taxpayer's jurisdiction. c) the Court of Appeals in the circuit to which the Tax Court decision would be appealed has ruled differently on the issue. d) the IRS has indicated that it will acquiesce.
c) the Court of Appeals in the circuit to which the Tax Court decision would be appealed has ruled differently on the issue.
All of the following items are included in gross income except: a) Income from discharge of indebtedness. b) rent income c) interest earned on a bank account d) child support payments received
d)
Amy's employer provides her with several fringe benefits. Which of the following are included in her taxable income? a) employee discounts b) employer's contribution to a retirement plan on Amy's behalf c) group term life insurance premium paid by the employer for $40,000 of coverage for Amy d) year-end bonus check
d)
Which of the following best describes the weight of a final treasury regulation? a) Treasury regulations are equal in weight to the Internal Revenue Code. b) Treasury regulations carry less weight than revenue rulings. c) Treasury regulations carry less weight than revenue procedures. d) Treasury regulations carry more weight than private letter rulings.
d) ***Final treasury regulations have almost the same weight as the IRC. Letter rulings have limited weight, and are only binding on the taxpayer to whom the ruling is addrressed.
Reva is a single taxpayer with a taxable pension of $24,000, tax-exempt interest of $8,000, and Social Security benefits of $10,000. What is the amount of her taxable Social Security benefits? a) 10,000 b) 8,500 c) 5,000 d) 7,050
d) ***Her provisional income is $24,000 + $8,000 + $5,000 (.50 × $10,000) = $37,000. The taxable Social Security benefits are equal to $7,050 which is the lesser of 1. $8,500 (.85 × $10,000) or 2. $7,050 computed as follows: [($37,000 - $34,000 threshold) ×.85] + the lesser of $4,500 or $5,000 (50% of Social Security benefits). Chapter 3, page 25, example 3-33.
Which of the following is a trial court for tax cases? a) U.S. District Court b) U.S. Supreme Court c) U.S. Circuit Court of Appeal d) Two of the other answers are correct e) U.S. Tax Court
d) ***The U.S. Tax Court and U.S. District Court are trial courts. See the diagram on page C1-15.
Which of the following citations is the primary citation for a U.S. District Court case? a) 43 AFTR 2d 79-1023. b) 79-1 USTC ¶9323 c) 55 F.2d 930. d) 40 F.Supp. 453.
d) 40 F.Supp. 453
When the House and Senate versions of a tax bill are not in agreement, the disagreements are resolved by the: a) Ways and Means Committee. b) Mediation Committee. c) Revenue Committee. d) Conference Committee.
d) Conference Committee.
Which of the following distributions is nontaxable? a) Mutual fund distribution from its net realized long-term capital gains in the amount of $1,000. You have adjusted basis of $10,000 in the mutual fund. b) Return of capital distribution from a utility company in the amount of $2,000. You have a zero basis in this stock. c) Your $25,000 share of ordinary income earned in the current year by an S corporation. d) Dividend on an insurance policy in the amount of $1,000. As of the date of this dividend, your net premiums exceed the total dividends by $3,500.
d) Dividend on an insurance policy in the amount of $1,000. As of the date of this dividend, your net premiums exceed the total dividends by $3,500.
The committee that is responsible for holding hearings on tax legislation for the House of Representatives is the: a) Finance Committee b) Joint Committee on Taxation c) Conference Committee d) Ways and Means Committee.
d) Ways and Means Committee.
Child support is: a) deductible by both the payer and the payee. b) deductible by the payer and included in income by the payee. c) included in income by the payer and deducted by the payee. d) an item which does not affect the payer's or the payee's tax reporting (i.e. not deductible or included in income).
d) an item which does not affect the payer's or the payee's tax reporting (i.e. not deductible or included in income). ***The code specifically excluded child support from taxable income, and does not allow a deduction for child support payments. Page 3-18.
When Congress passes a statute with language such as, "The Secretary shall prescribe such regulations as he may deem necessary," the regulations ultimately issued for that statute are a) congressional regulations. b) statutory regulations. c) interpretive regulations. d) legislative regulations.
d) legislative regulations.
Mrs. Doe, by herself, maintains her home in which she and her unmarried daughter resided for the entire year. Her daughter does not qualify as her dependent. Mrs. Doe's husband died last year. What is Mrs. Doe's filing status for the current year? a) surviving spouse b) married filing joint c) head of household d) single
d) single
