ACCT 409: Chapter 2

What type of tax authority is the U.S. Constitution, the Internal Revenue Code, and tax treaties?

Legislative

Which type of tax authority is the Internal Revenue Code of 1986?

Legislative

_______ rulings are less authoritative and more specific than revenue rulings and regulations.

Letter

What is the due date for calendar-year partnership income tax returns, assuming the date does NOT fall on a Saturday, Sunday or holiday?

March 15

Which of the following is NOT necessarily a part of effective tax planning?

Minimizing tax paments

The concept that $1 today is worth more than $1 in the future is known as:

Present Value

Which of the following choices describes the official sources of the tax law generated by one of the branches of government?

Primary Authorities

Which of the following statements is INCORRECT?

Primary authorities include IRS forms and publications.

Curtis invests $250,000 in a city of Athens bond that pays 7 percent interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent. How much implicit tax would Curtis pay on the city of Athens bond?

$5,000

Curtis invests $250,000 in a city of Athens bond that pays 7 percent interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent. How much explicit tax would Curtis incur on interest earned on the Initech, Inc. bond?

$5,400

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham bonds. Using the U.S. tax rate schedule for 2019, how much federal tax will he owe?

$9,059

Andre has the option of receiving $1,800 today or $1,860 a year from now. Assuming Andre can invest the money and earn 4 percent this year, he would have $ __________ a year from now. He should take the $

- 1800 x 4% = 72 1800 + 72 = 1872 - 1800

Match the three basic tax planning strategies with their description: Timing Income Shifting Conversion

- Accelerating tax deductions and deferring the recognition of taxable income - Moving income and deductions from taxpayers in one tax bracket to taxpayers in a different tax bracket - Changing the type of income to a more tax-favored form of income

The Treasury Department is charged with ______ and ______ the tax laws of the United States.

- Administering - Interpreting

Taxes influence which of the following decisions?

- Business Decisions - Personal Decisions - Political Decisions - Investment Decisions

Which of the following statements are correct regarding tax filing requirements?

- Estates are required to file income tax returns if their gross income exceeds $600. - All corporations must file regardless of income.

Which of the following criteria determine whether an individual must file a tax return?

- Filing status - Gross Income - Age

Treasury regulations come in three forms: _________ regulations have been issued in their final form and represent the Treasury's interpretations of the Code; _________ regulations have a limited life but carry high authoritative weight; and ________ regulations, which have the lowest authority.

- Final - Temporary - Proposed

Which of the following taxpayer characteristics are NOT factors in determining whether or not a taxpayer is required to file a tax return?

- Gender - Race

Treasury regulations have different purposes. __________ regulations represent the Treasury's understanding of the Code. _____________ regulations explain Treasury Department's policies as they relate to administering the Code. And, ____________ regulations are issued when the Treasury Department has been instructed to address an issue in an area of law.

- Interpretative - Procedural - Legislative

The ________ authorities are official sources of the tax law generated by one of the branches of government. The _________ authorities are unofficial tax authorities that help explain the law.

- Primary - Secondary

Revenue __________ and revenue ________ are second in administrative authoritative weight after regulations.

- Rulings - Procedures

Starting with the court having the highest level of authority ,rank the courts in order of authoritative rank.

1. U.S. Supreme Court 2. Circuit Courts of Appeal 3. U.S. Tax Court 4. U.S Court of Federal Claims 5. District Courts

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham bonds. Using the U.S. tax rate schedule for year 2019, what is his effective tax rate (rounded)?

13.94 Percent

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham bonds. Using the U.S. tax rate schedule for 2019, what is his average tax rate (rounded)?

15.10 Percent

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham bonds. Using the U.S. tax rate schedule for year 2019, what is his current marginal tax rate?

22.00 Percent

What is the statute of limitations for tax returns where over 25 percent of gross income has been omitted in a particular tax year?

6 Years

Curtis invests $250,000 in a city of Athens bond that pays 7 percent interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent. If Curtis invested in the Initech, Inc. bonds, what would be his after-tax rate of return from this investment?

6.84 Percent

Curtis invests $250,000 in a city of Athens bond that pays 7 percent interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent. What is Curtis's after-tax rate of return on the city of Athens bond?

7.00 Percent

Which of the choices below BEST describes the judicial doctrine of stare decisis?

A court will rule consistently with its previous rulings and the rulings of higher courts with appellate jurisdiction.

U.S Tax Court

A taxpayer feels very confident in her position and lacks the funds to pay the assessment

Which of the following principles encourages a vertically equitable tax system?

Ability to pay principle

Which of the following statements is correct regarding extensions?

An extension to file is granted automatically at the request of the taxpayer.

The due date for filing an individual tax return is ___________ 15th (assuming the date does not fall on a holiday or a weekend day).

April

What is the due date for calendar-year corporate income tax returns assuming the date does NOT fall on a Saturday, Sunday or holiday?

April 15th

___________ must file annually, regardless of the level of income.

Corporations

The __________system assigns a score to each tax return representing the probability the tax liabilities on the return have been underreported.

Discriminant Function

All tax returns are checked for mathematical and tax calculation errors with a process referred to as the ___________ program.

Document perfection

A Joint Conference Committee report is important, but is NOT considered an authority of the tax law when disputing a tax position. True or False?

False

If an individual taxpayer discovers that he has a balance due on his tax return, but he does NOT have the money to pay the amount, he should file an extension in order to extend the date at which the payment is required to be made. True or False?

False

The primary purpose of effective tax planning is to minimize taxable income, thus minimizing a taxpayer's tax liability for the year. True or False?

False

There is no statute of limitations for_________ returns or failure to file.

Fraud

Where does a tax bill originate in the legislative process for enacting a law?

House of Representatives

Our _______ system has the ultimate authority to interpret the Internal Revenue Code and to settle disputes between the IRS and taxpayers.

Judicial

Which of the following choices is NOT a primary tax authority?

IRS Publication

No Statute of Limitations

If the taxpayer commits fraud or doesn't file a tax return

Three Years

If the taxpayer misreports income (not exceeding 25 percent of gross income) or deductions

Six Years

If the taxpayer omits items of gross income that exceed 25 percent of gross income

What is the main statutory tax authority?

Internal Revenue Code

Which of the Treasury regulations represent the understanding that the Treasury Department has of the Internal Revenue Code?

Interpretative

The ___________Committee attempts to reconcile the House and Senate versions of a tax bill.

Joint Conference

Sally has NOT completed her tax return and the due date is approaching. She estimates that she will owe no more than $1,500, but she doesn't have time to finish her return by April 15th. She has decided to file an extension. Which of the following statements describes what she needs to do when filing the extension?

She should send in a $1,500 payment when filing the extension

What judicial doctrine means that a court will rule consistently with its previous rulings and the rulings of higher courts with appellate jurisdiction?

Stare decisis

Which of the following is NOT a computer initiative that helps the IRS identify tax returns that may have an understated tax liability?

Statistical percentage program

Primary sources consist of statutory, administrative, and judicial sources of the law. The ________ source includes committee reports from the House Ways and Means Committee or the Senate Finance Committee.

Statutory

What is the gross income threshold for most taxpayers to determine whether a return is required to be filed?

Sum of standard deduction and additional deductions for taxpayers age 65 or older.

The U.S. __________ Court agrees to hear only a few tax cases each year. The cases must have great significance to a broad cross-section of taxpayers or settle disagreement among the circuit courts in order to be heard in this court

Supreme

Which trial court does NOT require the taxpayer to pay the deficiency before the case is heard?

Tax Court

Which of the following statements is INCORRECT regarding tax planning?

Tax planning is important because taxes are the primary determinant of how a transaction is structured.

Which of the following statements is INCORRECT regarding Treasury regulations?

Temporary regulations carry less authoritative weight than final regulations.

Which of the following statements is correct?

The Supreme Court and the Internal Revenue Code represent the highest tax-specific authorities in tax law

Which trial court provides for a jury trial?

The U.S. District Court

Which trial court has a small claims division for tax liabilities of $50,000 or less?

The U.S. Tax Court

How does the losing party in a trial court decide which U.S. Circuit Court of Appeals will hear the case?

The case must be appealed to the U.S. Circuit Court with jurisdiction over the taxpayer's case (typically based on the taxpayer's residence).

Who has the ultimate authority to interpret the IRC and settle tax disputes?

The judicial System

Which of the following reasons is NOT sufficient for the U.S. Supreme Court to agree to hear a tax case?

The tax issues are not clearly covered in the Internal Revenue Code.

U.S. District Court

The tax return position is low on technical support, but high on emotional appeal

What action does the 30-day letter provide a taxpayer if the taxpayer does NOT agree with an assessment after being audited by the IRS?

The taxpayer can request an appeals conference.

U.S. Court of Federal Claims

The taxpayer knows that the Circuit Court of Appeals in the circuit in which she resides has ruled against a similar tax return position in the past

What action does the 90-day letter provide a taxpayer if the taxpayer does NOT agree with an assessment after being audited by the IRS and participating in the appeals conference?

The taxpayer should petition the U.S. Tax Court to hear the case.

What audit function does the document perfection program perform?

This program checks the tax return for mathematical and tax calculation errors.

The _________ is charged with administering and interpreting the tax laws.

Treasury Department

Which of the following primary authorities is NOT a legislative source of authority?

Treasury Regulations

To where does a losing party in a trial level court appeal the decision?

U.S. Circuit Court of Appeal