Tax Quizzes and Post-Coverage Quizzes

The implicit tax rate on a fully tax-disfavored asset (an asset whose income is included in gross income) is zero. T/F

True

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/F

True

The mass tax system provides Congress a means to carry out social and economic policy through the tax code. T/F

True

The percentage of the population subject to the income tax is significantly higher after WWII than before WWII T/F

True

The tax base for the Federal income tax is taxable income. T/F

True

The vast majority of tax credits phase out as income levels rise. T/F

True

Withholding was implemented during WWII to establish the pay-as-we-go system. This helped to make the tax acceptable and improved the likelihood of collection. T/F

True

Tax Preferences (exclusions, deductions, and credits) potentially decrease horizontal equity T/F

True

The Internal Revenue Code also is known as Title 26 of the Federal Code T/F

True

The Internal revenue Service is a branch of the Treasury Department. T/F

True

The Treasury Regulations carry the same authoritative weight as the Internal Revenue Code. T/F

True

Evan, age 18, has wages of $7,000, interest income of $6,000 and dividend income of $10,000. Evan uses the standard deduction and is allowable as a dependent on his parents' tax return. His parents have taxable income of $500,000. What is the MTR for the portion of the income taxed at Mike's rate? a) 0 b) 10% c) 15% d) 25% e) 28% f) 33% g) 35% h) 39.6%

10%

A single taxpayer has an MTR of 25%. Her dividend preference rate is: a) 0% b) 10% c) 15% d) 20% e) 25%

15%

Which of the following was (were) undertaken during WWII to make the income tax acceptable? (check all that apply) - Creating of withholding at the source - passage of the 16th Amendment - Appeals to patriotism - Indexation of deductions and credits for inflation - Revision of the Internal Revenue Code

- Creating of withholding at the source - Appeals to patriotism

Tyler, age 20, earned $8,000 in wages and had taxable interest income of $3,000. He uses the standard deduction and is not allowable as a dependent on his parents' tax return. The amount of Tyler's income taxed at his parents' marginal tax rate is: a) 0 b) $900 c) $2,100 d) $3,000 e) $4,650

0

A $1,000 tax credit provides less economic value ot the taxpayer than a $1,000 tax deduction. T/F

False

An asset with a tax preference will have a pretax return that is higher than an asset that is tax disfavored (i.e. has no tax preference) T/F

False

Congress provides a concise definition of taxable income in section 61. T/F

False

During 2017, taxpayer receives a Form 1099-G from the state indicating a state income tax refund of $200 for 2016. Taxpayer did not itemize deductions in 2016. The state income tax refund must be included in gross income in 2017. T/F

False

For 2017, a child who is allowable as a dependent on his or her parents' tax return also receives a personal exemption on his or her own return. T/F

False

For 2018, the exemption amount of $4,050 for a dependent child is being replaced by a $1,000 tax credit. This will create a tax savings for a taxpayer whose tax rate is 35% T/F

False

PJ, who is 17 years old and allowable as a dependent on his parent's tax return, earns $2,600 working part-time during 2017. He will have to pay tax on this income at his parent's tax rate per the kiddie tax rule T/F

False

Tax expenditures generally decrease the complexity of the tax system T/F

False

The average rate will be lower than the effective rate when the taxpayer has income that is excluded. T/F

False

The kiddie tax calculation may be used to reduce the amount of tax paid. T/F

False

The purpose of good tax planning is always to minimize the tax liability paid T/F

False

Tax evasion usually involves certain elements. Which of the following are elements necessary for tax evasion to occur? 1. Nondisclosure of the relevant facts on the taxpayer's tax return 2. underpayment of tax 3. avoiding detection by the IRS 4. willfulness on the part of the taxpayer 5. an affirmative act by the taxpayer to misrepresent

Statements 1, 2, 4, 5 are correct

A deduction for AGI will produce a tax benefit that is greater than the stated tax rate (i.e. rate from the tax rate schedule) in cases where the taxpayer's deductions from AGI and tax credits are subject to phase out limitations. T/F

True

According to the class notes, the overall audit rate is less than one percent. T/F

True

Because it does not take the implicit tax into account, the effective tax rate is understated when the taxpayer has income that is excluded from gross income. T/F

True

Bracket creep occurs when a taxpayer's income increases as a result of inflation adjustments and pushes her into a higher tax bracket. T/F

True

Exlusions and deductions have the same effect on taxable income, but they have different causes. Exclusions are income items received that are not taxable, whereas deductions are expenditures (or set amounts used in place of the actual expenditure). T/F

True

Realization must before income is recognized T/F

True

Jaime is considering an investment in either a corporate bond with a pretax return of 4.5 percent or a municipal bond with a pretax return of 3.8 percent. Assume that the assets possess equal risk. Jaime has a marginal tax rate of 25 percent and an average tax rate of 17 percent. What is the implicit tax rate on the municipal bond and the asset that would give Jaime the greatest after-tax return? a) 15.6 %, municipal bond b) 15.6%, corporate bond c) 18.4%, municipal bond d) 21.0%, corporate bond e) 25%, indifferent between the corporate bond and the muni bond

a) 15.6 %, municipal bond

Which of the following is (are) a legislative source of the tax law? (check all that apply) a) Internal Revenue Code b) Tresury Regulation c) IRS Revenue Rulings d) IRS Revenue Procedures e) Letter Rulings

a) Internal Revenue Code

Which of the following is (are) a conduit entity? (Check all the apply) a) Sole Proprietorship b) partnership c) S Corporation d) C Corporation e) individuals

a) Sole Proprietorship b) partnership c) S Corporation

Which of the following is (are) not an itemized deduction(s)? (Check all that apply) a) alimony paid b) charitable contributions c) real estate taxes on a personal residence d) student loan interest e) state income taxes paid f) home mortgage interest g) personal property taxes on autos

a) alimony paid d) student loan interest

Constructive receipt applies to which accounting method? a) cash b) accrual c) both cash and accrual d) neither cash not accrual

a) cash

Which of the following tax credits have the potential to be refundable? (refundable means that if the tax credit available exceeds the tax liability, the excess is paid out to the taxpayer.) a) child tax credit b) lifetime learning tax credit c) american opportunity tax credit d) child- and dependent-care tax credit e) earned income tax credit

a) child tax credit e) earned income tax credit

Which type of IRS exam is conducted through the mail? a) correspondence examination b) office examination c) field examination d) forensic examination e) fraud examination

a) correspondence examination

Which of the following is (are) deductions from adjusted gross income (AGI)? (check all that apply) a) itemized deductions b) rental expenses c) standard deduction d) dependency exemptions e) moving expenses f) student loan interest paid

a) itemized deductions c) standard deduction d) dependency exemptions

Which of the following is (are) an itemized deduction(s)? (check all that apply) a) medical expenses b) charitable contributions c) student loan interest d) state income taxes paid e) real estate taxes on a personal residence f) home mortgage interest

a) medical expenses b) charitable contributions d) state income taxes paid e) real estate taxes on a personal residence f) home mortgage interest

Adam Smith's concept of vertical equity is found in a tax rate structure that is a) progressive b) proportional c) marginal d) regressive

a) progressive

The self-employment tax is which type of tax? a) social security tax b) income tax c) excise tax d) sales tax e) unemployment tax

a) social security tax

Which of the following is (are) a conduit entity? (check all that apply) a) sole proprietorship b) partnership c) S Corporation d) C Corporation e) individuals

a) sole proprietorship b) partnership c) S Corporation

When completing a tax return with taxable income under $100,000, the tax is determined using: a) tax table b) tax rate schedule c) either the tax table or the tax rate schedule

a) tax table

Which of the following are deductions for Adjusted Gross Income (AGI)? (Check all that apply) a) trade or business expenses b) itemized deductions c) alimony paid e) student loan interest f) rental and royalty expenses

a) trade or business expenses c) alimony paid e) student loan interest f) rental and royalty expenses

I. Claim of right applies when a payment has been physically received and no restriction exists on the ability to use the funds. II. Constructive receipt applies when a payment has not been received but has been made available to the taxpayer. a) only I is true b) only II is true c) Both I and II are true d) neither I or II are true

c) Both I and II are true

in the citation, ss 1.132-5(g), the (g) refers to: a) the fifth regulation issued for Section 132 b) a subsection c) a paragraph d) a subparagraph e) a clause

c) a paragraph

Which concept justifies the phase-out of the child credit? a) assignment of income b) pay as you go c) ability to pay d) related parties e) tax benefit rule

c) ability to pay

The tax benefit of a dollar of exclusion or deduction (select all of the following that are correct) a. depends on the tax rate b. is more valuable than a dollar of credit c. is greater when the tax rate is higher than when it is lower d. is the same for all taxpayers

a. depends on the tax rate c. is greater when the tax rate is higher than when it is lower

The pretax return on a corporate bond is 5%. The pretax return on a muni bond is 4%. The implicit tax rate on the muni bond is: a) 0 b) 20% c) 25% d) 33% e) 75% f) 80%

b) 20%

The statute of limitations is the time period during which taxpayers may correct tax returns or the IRS may challenge information in tax returns. As a general rule, how long is the statute of limitations? a) 1 year from the time that tax return is due b) 3 years from the time the tax return is due c) 6 years from the time the tax return is due d) tax returns are open forever

b) 3 years from the time the tax return is due

Which of the following is (are) an administrative source of the tax law? (check all that apply) a) Internal Revenue Code b) Treasury Regulations c) IRS Revenue Rulings d) IRS Revenue Procedures e) Letter Rulings

b) Treasury Regulations c) IRS Revenue Rulings d) IRS Revenue Procedures e) Letter Rulings

Which item in the tax equation is used to determine phase-outs and limitations (e.g., phase-out of the child credit)? a) gross income b) Adjusted gross income c) taxable income d) itemized deductions e) redundable tax credits

b) adjusted gross income

Doug owns a shopping center. The lease agreements require that the payments be made to a partnership in which Doug's two children are the partners. Which concept applies to the treatment of the rental income? a) ability to pay b) assignment of income c) pay as you go d) administrative convenience e) tax benefit rule

b) assignment of income

Which of the following would reduce the incentive to shift income? a) more preference rates b) less preference rates c) preference rates have no impact on the incentive to shift income

b) less preference rates

Which tax rate is used for decision making? a) effective rate b) marginal rate c) average rate d) flat rate e) progressive rate

b) marginal rate

In order to compute the tax when taking an exam or a quiz, we will use: a) tax table b) tax rate schedule c) either the tax table or the tax rate schedule

b) tax rate schedule

According to the IRS definition, which of the following is not a characteristic of a tax? a) the payment to the governmental authority is required by law b) the payment relates to the receipt of a specific benefit c)the payment is required pursuant to the legislative power to tax d) the purpose of requiring the payment is to provide revenue to be used for the public or governmental purposes

b) the payment relates tot he receipt of a specific benefit

Which concept is used by Congress to justify the creation of deferrals? a) ability to pay concept b) wherewithal to pay concept c) pay as you go concept d) claim of right e) constructive receipt

b) wherewithal to pay concept

A Taxpayer files as single for 2017 with the following information: Salary 60,000 Interest 2,000 Dividends 3,000 Dependents 0 Municipal bond interest 1,000 Itemized deductions 5,000 IRA Contribution 2,000 Tax withholding 4,000 The taxpayer's adjusted gross income (AGI) is: a) $66,000 b) $65,000 c) $63,000 d) $62,000 e) $58,000 f) $56,650 g) $53,950 h) $52,600 i) $48,600

c) $63,000

Taxpayer files as single. She has taxable income of $91,900 for 2017. The taxpayer's marginal tax rate is: a) 15% b) 25% c) 28% d) 33% e) 20.36% f) 5.69%

c) 28%

Tax expenditures... a) are direct spending by the federal government to carryout social and economic objectives through government agencies b) have been used less by Congress since WWII c) Are indirect spending by the federal government to carryout social and economic policy through preferences in the tax code d) improve horizontal and vertical equity

c) are indirect spending by the federal government to carryout social and economic policy through preference sin the tax code

The rules that limit the deduction of losses from related party transactions is a result of which concept? a) ability to pay b) administrative concenience c) arm's length transaction d) pay as you go e) assignment of income

c) arm's length transaction

Congress created the kiddie tax to eliminate the tax benefit arising from parents transferring income-producing income assets to children. Prior to the creation of the kiddie tax, which concept indicates that the investment income be taxed to the child? a) substance over form b) administrative convenience c) assignment of income d) tax benefit rule e) ability to pay

c) assignment of income

Dann likes to run in long races. He spends thousands of dollars on a shoes, gear, entry fees and travel to races. Because he has won prize money on a couple of occasions, Dann files a Schedule C for his racing business in which he reports the income and deducts all the expenses, resulting in a large net loss. Which concept would the IRS use to challenge the deductibility of the expenses? a) legislative grace b) capital recovery c) business purpose d) ability to pay e) wherewithal to pay

c) business purpose

Many of the tax law changes created by The Tax Cuts and Jobs Act of 2017 revert back to previous law in 2025, unless Congress takes action. Which of Adam Smith's criteria for evaluating a tax does this violate? a) economy b) equality c) certainty d) convenience

c) certainty

Which of the following will reduce or eliminate bracket creep? (select all of the following that are correct) a) increasing the number of tax credits available b) increasing the number of tax expenditures c) indexing the standard deduction and exemption amounts for inflation d) reducing the number of tax brackets e) indexing the end points of the tax brackets for inflation

c) indexing the standard deduction and exemption amounts for inflation d) reducing the number of tax brackets e) indexing the end points of the tax bracket for inflation

All income realized is taxable unless Congress creates an exclusion. Exclusions are a function of which concept? a) tax benefit rul b) wherewithal to pay c) legislative grace d) ability to pay e) all-inclusive income

c) legislative grace

If the rate of tax remains constant as income increases, the rate structure is a) marginal b) regressive c) proportional d) progressive e) effective

c) proportional

The matching of information reports from third parties (e.g. Form 1099) to the amounts reported on the tax return is the description of which tax return selection process? a) the TCMP b) the DIF program c) the information matching program d) the document perfection program e) the special audit programs

c) the information matching program

Erin, age 17, has wages of $3,000, interest from a savings account of $2,500, and municipal bond interest of $1,500. Erin uses the standard deduction and is allowable as a dependent on her parents' return. How much is Erin's taxable income? a) 0 b) $400 c) $1,650 d) $2,150 e) $2,500 f) $3,650 g) $4,450 h) $5,950 i) $7,000

d) $2,150

Madison, age 17, is allowable as a dependent on her parent's return. She has interest income of $10,000 and dividend income of $30,000. She paid state income taxes of $2,000 during the current year. Madison's allowable amounts for 2017 are a) 0 b) $1,050 c) $2,100 d) $3,050 e) $4,050 f) $6,300 g) $6,350

d) $3,050

For 2017, Rebecca, age 17, earned $3,000 working part-time. She also has $20,000 interest income. Rebecca is a dependent of her parents, who have taxable income of $550,000. How much is Rebecca's standard deduction for 2017? a) $1,050 b) $2,100 c) $3,000 d) $3,350 e) $4,050 f) $6,350

d) $3,350

Steve owns apartment buildings. The leases direct that all rent payments from the tenants are to be deposited into a bank account held in the name of his son. Steve does not have access to the funds. Therefore, he does not think she needs to include the rent payment in his gross income. What concept or doctrin applies to this situation? a) Tax Benefit Rule b) Ability to Pay Concept c) Pay As You Go Concept d) Assignment of Income Doctrine e) Annual Accounting Period Concept

d) Assignment of Income Doctrine

The shift from a "class" tax to a "mass" tax was significant because it resulted in a) victory in WWII b) the indexation of amounts like the standard deduction and exemptions c) the renumbering of the Internal Revenue Code d) Congress' use of tax expenditures to influence social and economic behavior e) a reduction in the number of tax expenditures

d) Congress' use of tax expenditures to influence social and economic behavior

Loss deductions from related party transactions are disallowed because they violate which concept? a) ability to pay b) assignment of income c) administrative convenience d) arm's length transaction e) pay as you go

d) arm's length transaction

Which tax rate is to be used to make decisions? a) average tax rate b) effective tax rate c) progressive tax rate d) marginal tax rate e) regressive tax rate

d) marginal tax rate

For 2017, which amount of the child's taxable income is taxed at the parent's marginal tax rate? a) earned income b) net earned income c) parent provided income d) net unearned income e) unearned income

d) net unearned income

The IRS has a penalty for underpayment of estimated taxes. This penalty exists because of which concept? a) tax benefit rule b) administrative concenience c) ability to pay d) pay as you go e) substance over form

d) pay as you go

Which of the following is (are) deductions from adjusted gross income (AGI)? (check all that apply) a) individual retirement account (IRA) contributions b) child tax credit c) moving expenses d) personal and dependency exemptions e) itemized deductions f) standard deduction

d) personal and dependency exemptions e) itemized deductions f) standard deduction

If the rate of tax increases as income increases, the rate structure is a) marginal b) regressive c) proportional d) progressive e) effective

d) progressive

Barney operates a sole proprietorship. He paid a supplier $10,000 in 2016 for an amount that he deducted as a supplies expense. In January 2017, the supplier determines that Barney was due a 2% discount for paying early and remits $200 to Barney. Which concept is used to determine the appropriate tax treatment? a) ability to pay b) claim of right c) assignment of income d) tax benefit rule e) pay as you go

d) tax benefit rule

The realization requirement was created by a) congress b) IRS c) treasury department d) the courts e) the 16th amendment

d) the courts

For 2017, what is the maximum age at which the kiddie tax will apply? a) 14 b) 17 c) 18 d) under 24 and a full-time student

d) under 24 and a full-time student

Taxpayer has the potential for a $1,000 credit and tax rate of 12%. What amount of deduction would provide the same tax benefit as the $1,000 credit? a) $120 b) $1,000 c) $1,667 d) $6,667 e) $8,333 f) $9,000

e) $8,333

Which concept justifies the progressive rate structure? a) administrative convenience b) annual accounting period c) assignment of income d) pay as you go e) ability to pay

e) ability to pay

In the kiddie tax calculation, section 1(g) allows the gross unearned income to be reduced by the allowable amounts of $2,100. Which concept justifies using the $2,100 amount? a) ability to pay b) tax benefit rule c) substance over form d) related party transactions e) administrative convenience

e) administrative convenience

The implicit tax rate is a) the total rederal income tax divided by the sum of taxable income plus exluded income b) the total federal income tax divided by taxable income c) always the same as the marginal tax rate d) the rate of tax on the next dollar of income e) the forgone return as a result of a tax preference

e) the forgone return as a result of a tax preference

The implicit tax rate a) is the rate of tax paid of the Federal government b) is the same as the average tax rate c) is the same as the marginal tax rate d) is the same as the effective tax rate e) is a measure of how much higher the rate of return is for an asset that receives a tax preference f) is the measure of how much lower the rate of return is for an asset that receives a tax preference

f) is the measure of how much lower the rate of return is for an asset that receives a tax preference

A taxpayer files as single for 2017 with the following information: Salary 60,000 Interest 2,000 Dividentds 3,000 Dependents 0 Municipal bond interest 1,000 Itemized deductions 5,000 IRA Contribution 2,000 Tax Withholding 4,000 The Taxpayer's taxable income (TI) is: a) $66,000 b) $65,000 c) $63,000 d) $62,000 e) $58,000 f) $56,650 g) $ 53,950 h) $ 52,600 i) $48,600

h) $52,600