Tax true false test 1
. Robert's employer provides all of its employees a $40,000 group term life insurance policy. The cost of this policy must be included in Robert's income.
F
Adam Smith identified efficient, certainty, convenience, and economy as the four basic requirements for a good tax system.
F
All tax practitioners are governed by the AICPA's Code of Professional Conduct.
F
An accrual basis taxpayer does not have income until there is an actual or constructive receipt of income earned.
F
An individual can legally assign income to another individual, and the assignment relieves the owner of the income from paying tax on the income.
F
Any income earned subsequent to the death of the decedent from inherited property is excludable from the heir's taxable income.
F
Benji hired his three-year-old son to work in his engineering consulting firm. As long as Benji fills out all the forms and properly deposits the paychecks in his son's bank account, he will be able to deduct the expenditure as a business expense
F
Brandon and Judy divorce during the year and agree that Brandon will pay Judy $24,000 a year in alimony. Brandon will be able to reduce his income by $24,000, but Judy does not have to report any income since it was not earned..
F
Congress is required to insure that the tax law has the following characteristics: equality, certainty, convenience, and economy.
F
Connie received a $1,000 scholarship to attend State University from a local civic group based on her grades and community activities. The $1,000 is included in income.
F
Connie was walking her dog when she came across a paper bag with $20,000 in it. She turned the money into the police. After the appropriate period of time, no one claimed the money and the police returned the money to Connie. Connie does not have to recognize any taxable income since it was not derived from capital or labor.
F
Employers are required to pay a Federal Unemployment Tax of 6.2% of the first $10,000 in wages to each employee less a credit of up to 5.4% of state unemployment taxes paid.
F
Frank rents an apartment to Pete and collects a cleaning deposit to be repaid at the end of the lease. Under the claim-of-right doctrine, Frank includes the deposit in income when collected.
F
Friendly Finance loans Anne $10,000 and she will pay $13,130 at he end of three years. Since Friendly is on a cash basis, it will recognize the $3,130 interest income when the loan is repaid.
F
Health Savings Accounts are available only to self-employed individuals or small businesses.
F
John sells his uncle Bob land held for investment for $10,000 that he had purchased 3 years ago for $12,000. John is precluded from taking the $2,000 loss under the arm's-length transaction concept since this is a related party transaction.
F
Matt, a U.S. citizen, can exclude all of his $100,000 salary he earned as a bullfighter in Spain where he lived all year, from his U.S. tax return.
F
Myra's employer paid her health and accident insurance premium of $5,600. Since she had the option to take the cash and purchase her own insurance, the $5,600 must be included in income.
F
Net collectibles gains are taxed at a maximum rate of 25 percent.
F
Ron won a $25,000 award for his research in microbiology and he immediately transferred the prize to his brother who does similar research. The income is excluded from Ron's taxable income.
F
Ruth purchased an annuity contract for $10,000. When she turns 65, she will receive $150 a month for the rest of her life. The first $10,000 she receives is a return of her capital and is not taxable.
F
Systech offered its stockholders a choice between stock and cash for their annual dividend. Since Carol has chosen stock, she does not have to include the dividend in income.
F
Tax avoidance occurs when a taxpayer uses fraudulent methods or deceptive behavior to hide actual tax liability.
F
The Nadal Company mails its annual dividend check on December 31. Even when the shareholders receive their check in the following year, they must report the income in the year the check was written and mailed.
F
The holding period for receiving long-term capital gain treatment is 12 months or more.
F
Under the ability-to-pay concept, taxpayers are required to have tax withheld from income or to make estimated tax payments so that the taxpayer avoids a large tax liability at the end of the year.
F
Under the pay-as-you-go concept, the tax base used to compute the taxpayer's income tax liability is a net income number.
F
A CPA may prepare tax returns using estimates provided by the taxpayer if it is impracticable to obtain exact data and the estimates are reasonable.
T
A deferral is like an exclusion in that it does not have a current tax effect, but it differs in that an exclusion is never subject to taxation, whereas a deferral will be subject to tax at some point of time in the future.
T
A regressive tax rate structure is defined as a tax in which the average tax rate decreases as the tax base increases.
T
A tax is an enforced contribution used to finance the functions of government.
T
According to the U.S. Supreme Court, income may be defined as the gain derived from capital, from labor, or from both combined provided it is understood to include profit gained through sale or conversion of capital assets.
T
All deductions are allowed because of the legislative grace concept.
T
An annual loss results from an excess of allowable deductions for a tax year over the reported income.
T
An asset's adjusted basis is the amount of unrecovered investment after considering any increases and decreases in the original purchase price.
T
Any deduction taken in a prior year that is recovered in a subsequent year is reported as income in the year it is recovered, to the extent that a tax benefit was received from the deduction.
T
Bethany bought a new suit to wear to work. She will not be able to deduct the cost of the suit even though she wears it to work.
T
Clarance rented office space to an attorney who left town before the lease was completed. The attorney left several bookcases and other improvements to cover the remaining rent. Clarance must include in income the value of the leasehold improvements to the extent of the remaining rent that was due.
T
For any unrecovered portion of an annuity investment, the taxpayer is allowed a deduction in the year of death.
T
Gifts received are not subject to income taxation; however the donor is subject to the gift tax rules on the making of a gift.
T
Gifts to qualified charitable organizations may be deducted as a contribution, but not to exceed 50% of an individual taxpayer's adjusted gross income.
T
Horizontal equity exists when two similarly situated taxpayers are taxed the same.
T
Julian is operating an illegal gambling operation. Even though the income is not legal, it is classified as earned.
T
Melvin was in an accident which was the other driver's fault. Melvin received $15,000 for pain and suffering, emotional distress, and lost wages. Melvin may exclude the entire $15,000.
T
Mercedes has a net long-term capital gain of $3,000 and a net short-term capital loss of $10,000. She can deduct $3,000 of the $7,000 net loss as a deduction for adjusted gross income in the current year. She must defer realizing any tax benefit from the remaining $4,000 loss until the next year.
T
No-additional-cost services and employee discounts must be made available to employees on a nondiscriminatory basis and must also be in the same line of business in which the employee works to be excluded from the employee's income.
T
Patrick ran up a large credit card debt. Since the bank wanted to keep Patrick's account they forgave $5,000 of his balance. Patrick was solvent before and after the forgiveness. He has to include the $5,000 in his income.
T
Rachael purchased 300 shares of Smelt, Inc. stock for $25 per share. At the end of the year, the stock price has risen to $30 per share. Rachael does not recognize taxable income even though there has been a $1,500 increase in wealth.
T
Self-employed people are required to make quarterly payments of their estimated tax liability.
T
Terry owns 100% of Terry Manufacturing, Inc, and has the corporation pay his son's college tuition. Terry must include the payments in his taxable income.
T
The administrative convenience concept explains why some items are not treated consistently when the cost of implementing a concept exceeds the benefit of using it.
T
The hybrid method of accounting provides that taxpayers will account for sales of merchandise and the related cost of goods sold on the accrual basis and all other items of income and expense on the cash basis.
T
The interest from Guam Water Authority bonds is excluded from income as "Municipal Bond Interest."
T
The marginal tax rate is the rate of tax that will be paid on the next dollar of income or the rate of tax that will be saved by the next dollar of deduction.
T
The statute of limitations is three years, six years if the taxpayer omits gross income in excess of 25%, and there is no statute of limitations if the taxpayer willfully defrauds the government.
T
The taxpayer will be able to benefit from capital recovery on business equipment over the life of the asset and any remaining capital will be recovered when the asset is sold.
T
To keep the employees on the premises in case an emergency arises, the Riverview Hotel provides meals to its employees in a room adjacent to their restaurant. Since the meals are provided as a convenience to the employer and on their premises, the value of the meals is excluded in the income of the employees.
T
Under the Wherewithal to Pay concept, income should be recognized and a tax paid on the income when the taxpayer has the resources to pay the tax.
T
Under the all-inclusive income concept, the tax law always starts with the proposition that all receipts of cash are taxable.
T
When Rick found out that Ryan's liabilities exceeded his assets by $15,000, he forgave Ryan the $1,000 he owed Rick in hoping that Ryan might get back on his feet. Ryan is allowed to exclude the $1,000 from income.
T