Act 330 exam 1

66) The child credit is for taxpayers with dependent children under the age of

B) 17.

56) Anita, who is divorced, maintains a home in which she and her 16 year old daughter live. Anita provides the majority of the support for her daughter and for a son, age 23, who is enrolled part-time at the university and lives in the dorm. The son also works in the campus bookstore and earns spending money of $4,500. How many personal and dependency exemptions may Anita claim?

B) 2

80) Kate files her tax return 36 days after the due date. When she files the return, she sends a check for $2,000 which is the balance of the tax owed by her. Kate's penalty for failure to file a return will be

B) 5% per month (or factor thereof) up to a maximum of 25%.

48) In 2016, an estate is not taxable unless the sum of the taxable estate and taxable gifts made after 1976 exceeds

D) $5,450,000.

87) The oldest age at which the "Kiddie Tax" could apply to a dependent child is

D) 23

35) Taxable income for an individual is defined as

D) AGI reduced by deductions from AGI and personal and dependency exemptions.

64) Hoyt rented office space two years ago to Harris, receiving the first and last months' rent plus a security deposit of $1,000. In early January of this year, Harris moves and Hoyt refunds $250 of the deposit and keeps the remainder to cover $500 which is spent for repairs to the office space and one week of unpaid rent that amounts to $250. How would this information be reflected on Hoyt's tax return this year?

A) $750 income and $500 deduction

95) If an individual with a marginal tax rate of 15% has a long-term capital gain, it is taxed at

A) 0%.

58) Amy's employer provides her with several fringe benefits. Which of the following are included in her taxable income?

A) Christmas bonus check

38) Which of the following taxes is regressive?

A) Federal Insurance Contributions Act (FICA)

68) Which of the following serves as the highest authority for tax research, planning, and compliance activities?

A) Internal Revenue Code

69) All of the following are executive (administrative) sources of tax law except

A) Internal Revenue Code.

67) The term "tax law" includes

A) Internal Revenue Code. B) Treasury Regulations. C) judicial decisions.

101) Married couples will normally file jointly. Identify a situation where a married couple may prefer to file separately.

A) The spouse with lower income has substantial medical expenses. B) a couple is separated and contemplating divorce. C) One spouse can be held responsible for the entire tax liability.

59) Which of the following bonds do not generate tax-exempt Federal income?

A) U.S. Treasury bonds

72) You may choose married filing jointly as your filing status if you are married and both you and your spouse agree to file a joint return. Which of the following facts would prevent you from being considered married for filing purposes?

A) You were married for several years, but your divorce became final in December.

63) In an S corporation, shareholders

A) are taxed on their proportionate share of earnings.

78) The requirements for a payment to be considered as alimony include all of the following except

A) be made in cash or property.

68) All of the following fringe benefits paid for by the employer may be excluded from an employee's gross income except

A) discounts on services of 25 percent.

78) In order to qualify to file as surviving spouse, all of the following criteria must be met by the widow or widower except

A) he or she and the decedent must have shared the same household as of date of death.

74) When a spouse dies, the surviving spouse for the year of death

A) may file a married filing jointly return.

82) Which is not a component of tax practice?

A) providing clients tax refund advance loans

71) A tax bill introduced in the House of Representatives is then

A) referred to the House Ways and Means Committee for hearings and approval.

96) The term "Social Security benefits" does not include

A) supplementary medicare benefits.

84) For a taxpayer who is not insolvent nor under bankruptcy proceedings, the discharge of debt is generally

A) taxable.

55) Horizontal equity means that

A) taxpayers with the same amount of income pay the same amount of tax.

52) One of the requirements that must be met in order to defer recognition of income for advance payments for goods is

A) the taxpayer's method of accounting for the sale for tax purposes is the same as the method used for financial reporting purposes.

102) A taxpayer can receive innocent spouse relief if

A) the understated tax is attributable to erroneous items of the other spouse. B) the innocent spouse did not know and had no reason to know that there was an understatement of tax. C) under the circumstances, it would be inequitable to hold the innocent spouse liable for the understated tax.

42) Which of the following types of itemized deductions are included in the category of miscellaneous expenses that are deductible only if the aggregate amount of such expenses exceeds 2% of the taxpayer's adjusted gross income?

A) unreimbursed employee business expenses

79) Which of the following dependent relatives does not have to live in the same household as the taxpayer who is claiming head of household filing status?

C) father

66) What is an important aspect of a limited liability partnership?

B) A partner has unlimited liability arising from his or her own acts of negligence or misconduct or similar acts of any person under his or her direct supervision, but does not have unlimited liability in other matters.

94) Ray is starting a new business and trying to decide between a C corporation, S corporation and partnership. Which of the following statements regarding his decision is correct?

B) A partner in a partnership is taxed on his or her share of partnership income.

76) Alan files his 2012 tax return on April 1, 2013. His return contains no misstatements or omissions of income. The statute of limitations for changes to the return expires

B) April 15, 2016.

60) All of the following are classified as flow-through entities for tax purposes except

B) C corporations.

74) When returns are processed, they are scored to determine their potential for yielding additional tax revenues. This program is called

B) Discriminant Function System.

51) Which of the following statements regarding the qualified tuition plans (QTP) is incorrect?

B) Distributions made from the QTP for college tuition will be tax-free in addition to qualifying for the American Opportunity credit or lifetime learning credit.

50) Which of the following statements regarding qualified tuition programs is incorrect?

B) Distributions of income are taxed to the donor if the proceeds are not used for higher education expenses.

89) Eva and Lisa each retired this year and started receiving distributions from their respective retirement plans. Eva's plan was funded with all pre-tax contributions, whereas Lisa's plan was funded with only after-tax contributions. With respect to the tax treatment of their retirement plan distributions,

B) Eva's distributions will be fully taxable, and Lisa's distributions will not be taxable.

82) Under the terms of their divorce agreement, Humphrey transferred Corporation H stock to his former wife, Greta as a property settlement. At the time of the transfer, the stock had a basis to Humphrey of $40,000 and a fair market value of $55,000. What is the tax consequence of this transaction to Humphrey, and what is Greta's basis in the Corporation H stock?

B) Humphrey has no gain or loss; Greta's basis is $40,000.

75) Which of the following individuals is most likely to be audited?

B) Marvella has a $145,000 net loss from her unincorporated business (a horse farm). She also received

57) All of the following statements are true except

B) Municipal bond interest is taxable.

59) Which of the following is not a taxpaying entity?

B) Partnership

57) Which of the following is not an objective of the federal income tax law?

B) Reduce employment.

103) Form 4868, a six-month extension of time to file, allows a taxpayer to

C) extend the filing date of the return but the estimated amount of tax due must still be paid by the original due date of the return.

92) While using a metal detector at the beach during spring break, Toni uncovered some rare coins with a current fair market value of $9,000. What are her tax consequences regarding this find?

B) She reports the entire FMV as income.

71) Which of the following item(s) must be included in the income of the respective employees?

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.

73) Tom and Alice were married on December 31 of last year. What is their filing status for last year?

B) They file as married joint or married separate.

74) Which of the following is least likely to result in a constructive dividend?

B) a sale of a corporation's asset to a shareholder at fair market value

75) Alimony is

B) deductible by the payor and included in income by the payee.

40) Which of the following credits is considered a refundable credit?

B) earned income credit

37) Which of the following is not excluded from income? (Assume that any amounts received by the taxpayer were kept.)

B) fair market value of prize won on a game show.

44) When property is transferred, the gift tax is based on

B) fair market value on the date of transfer.

43) The unified transfer tax system

B) imposes a single tax upon transfers of property during an individual's life and at death.

36) All of the following items are generally excluded from income except

B) interest on corporate bonds.

107) Daniel plans to invest $20,000 in either a corporate bond paying 5% or a tax-exempt bond with a 4% interest rate. The bonds have an equivalent level of risk. Daniel has a 33% marginal tax rate and wants to maximize his after-tax earnings. Daniel should

B) invest in the tax-exempt bond since its yield is more than the after-tax return on the corporate bond.

35) Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays tax of $12,000 on $120,000. The tax is a

B) proportional tax.

Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays tax of $12,000 on $120,000. The tax is a

B) proportional tax.

56) Vertical equity means that

B) taxpayers with larger amounts of income should pay more tax than taxpayer's with lower amounts of income.

64) All of the following statements are true except

B) the net income of an S corporation is subject to double taxation because it is taxed at the entity level and dividends paid from the S corporation to individual shareholders are also taxed.

100) In order to shift the taxation of dividend income from a parent to a child,

B) the parent must transfer ownership of the stock to the child.

39) All of the following items are deductions for (not from) adjusted gross income except

B) unreimbursed employee business expenses.

46) Which one of the following items is not considered gross income for tax purposes?

C) face amount of life insurance received due to the death of the insured

85) Thomas purchased an annuity for $20,000 that will pay him $500 per month for ten years. What amount should Thomas include in his income each year?

C) $4,000

84) As a result of a divorce, Michael pays Judy $75,000 in year one and $25,000 per year in subsequent years. How much of the $75,000 in year one is properly characterized as alimony and will not be recaptured later?

C) $40,000

60) Tony supports the following individuals during the current year: Miranda, his former mother-in-law who lives in her own home and has no gross income; his cousin, Jeff, age 23, who is a full-time student, earns $7,000 during the year, and lives with Tony all year long; and Matt, age 22, who is Tony's brother, is a full-time student living on campus and earns $8,000 during the year. How many dependency exemptions may Tony claim?

C) 2

59) Julia provides more than 50 percent of the support for three individuals: Theresa, an unrelated child who lives with Julia all year long; Margaret, Julia's cousin, who lives in another city; and Emma, Julia's daughter who lives in her own home. Each of the potential dependents earned less than $3,900. How many dependency exemptions can Julia claim on her 2013 tax return?

C) 2

55) Sarah, who is single, maintains a home in which she, her 15-year old brother, and her 21-year-old niece live. Sarah provides the majority of the support for her brother, her niece, and her cousin, age 18, who is enrolled full-time at the university and lives in an apartment. While the niece and cousin have no income, her brother has a part-time job and earns $4,000 per year. How many personal and dependency exemptions may Sarah claim?

C) 3

76) Carter dies on January 1, 2012. A joint return election is made in 2012 and Marjorie properly qualifies as a surviving spouse for the two following years. Marjorie has one child that she claims as a dependent for this same period. The number of personal and dependency exemptions allowed Marjorie in 2012 and in 2013 is, respectively

C) 3 and 2.

58) John supports Kevin, his cousin, who lived with him throughout 2013. John also supports three other individuals who do not live with him: Donna, who is John's mother Melissa, who John's stepsister Morris, who is Kevin's brother Assume that Donna, Melissa, Morris and Kevin each earn less than $3,900. How many personal and dependency exemptions may John claim?

C) 4

54) Ben, age 67, and Karla, age 58, have two children who live with them and for whom they provide total support. Their daughter is 21 years old, blind, is not a full-time student and has no income. Her twin brother is 21 years old, has good sight, is a full-time student and has income of $4,500. Ben and Karla can claim how many personal and dependency exemptions on their tax return?

C) 4

57) Amber supports four individuals: Erin, her stepdaughter, who lives with her; Amy, her cousin, who lives in another state; Britney, her friend, who lives legally in Amber's home all year long; and Charlie, her father, who lives in another state. Assume that the dependency requirements other than residence are all met. How many personal and dependency exemptions may Amber claim?

C) 4

81) What are the correct monthly rates for calculating failure to file and failure to pay penalties?

C) Failure to file 5.0% Failure to pay 0.5%

73) The Senate equivalent of the House Ways and Means Committee is the Senate

C) Finance Committee.

51) Which of the following statements is incorrect?

C) Gift taxes are levied on the recipient of a gift.

50) Examples of income which are constructively received include all of the following except

C) a paycheck received from employer, when employer does not have funds in the bank to cover the check.

53) Which of the following advance payments cannot qualify for income tax deferral?

C) advance collection of rent without associated services

54) Speak Corporation, a calendar year accrual basis taxpayer, sells packages of foreign language lessons to individuals planning to work overseas. In December, 2013, it sold and received payment for $600,000 of 24-month lesson packages to be provided evenly through 2014 and 2015. Speak Corporation will recognize the $600,000 of income

C) all in 2014.

58) Which of the following is not a social objective of the tax law?

C) an exclusion for interest earned by large businesses

70) Which of the following steps, related to a tax bill, occurs first?

C) consideration by the House Ways and Means Committee

65) Which of the following is not an advantage of a limited liability company (LLC)?

C) default tax treatment as a corporation, unless otherwise elected

72) When new tax legislation is being considered by Congress,

C) different versions of the House and Senate bills are reconciled by a Joint Conference Committee.

67) Benefits covered by Section 132 which may be excluded from an employee's gross income do not include

C) employer-provided vehicle for personal use.

80) Sally divorced her husband three years ago and has not remarried. Since the divorce she has maintained her home in which she and her now sixteen-year-old daughter reside. The daughter is a qualified child. Sally signed the dependency exemption over to her ex-spouse. What is Sally's filing status for the current year and how many exemptions may she claim?

C) head of household and one

82) Liz and Bert divorce and Liz receives custody of their child. Bert is ordered by the court to pay child support of $10,000 per year, and Liz agrees in writing to allow Bert to claim the dependency exemption for the child. If Liz maintains the home in which she and her child live, her filing status and exemptions claimed will be

C) head of household and one exemption.

81) Dave, age 59 and divorced, is the sole support of his mother age 83, who is a resident of a local nursing home for the entire year. Dave's mother had no income for the year. Dave's filing status and exemptions claimed are

C) head of household and two exemptions.

77) Edward, a widower whose wife died in 2010, maintains a household for himself and his daughter who qualifies as his dependent. Edward's most favorable filing status for 2013 is

C) head of household.

83) The filing status in which the rates increase most rapidly is

C) married filing separately.

53) A married person who files a separate return can claim a personal exemption for his spouse if the spouse is not the dependent of another and has

C) no gross income.

37) Which of the following taxes is proportional?

C) sales tax

75) In 2010, Leo's wife died. Leo has two small children, ages 2 and 4, living at home whom he supports entirely. Leo does not remarry and is not claimed as a dependent on another's return during any of this period. In 2011, 2012, and 2013, Leo's most advantageous filing status is, respectively

C) surviving spouse, surviving spouse, head of household.

79) The IRS must pay interest on

C) tax refunds paid later than 45 days after the due date.

104) Lester, a widower qualifying as a surviving spouse, has $209,000 of salary, five personal and dependency exemptions and itemizes deductions. Lester must use which form to report his taxable income?

D) Form 1040

47) The regular standard deduction is available to which one of the following taxpayers?

D) an abandoned spouse

76) Child support is

D) an item which does not affect the payor's or the payee's tax reporting.

37) All of the following items are included in gross income except

D) child support payments received.

63) All of the following items are excluded from gross income except

D) disability income from an employer-financed policy.

83) In 2012 Betty loaned her son, Juan, $10,000 to help him buy a car. In 2013, before he repaid the $10,000, Betty told Juan that she was "tearing up" the $10,000 note as a graduation present. How should Juan treat the amount forgiven?

D) excludable gift in year of forgiveness

85) To qualify as an abandoned spouse, the taxpayer is not required to

D) have a son or daughter in the home for the entire year.

69) All of the following are requirements for excluding employee achievement awards except for

D) if paid in cash, must be less than $400.

100) Insurance proceeds received because of the destruction of property are

D) included in gross income only to the extent the proceeds exceed the adjusted basis of the replacement property.

36) Which of the following taxes is progressive?

D) income tax

86) In October 2012, Joy and Paul separated and have not lived with each other since, but they are still legally married. They do not file a joint return. Joy supports their children after the separation and pays the cost of maintaining their home. Joy's filing status in 2012 and 2013 is, respectively,

D) married filing separately and head of household.

77) With respect to alimony and property settlements in a divorce or separation, all of the following are true with the exception of

D) no deduction is allowed for alimony paid to the former spouse if a property settlement is also paid.

54) Which of the following is not one of Adam Smith's canons of taxation?

D) paid by all citizens

65) Which of the following is not included in gross income when received?

D) refundable security deposit

91) Jan purchased an antique desk at auction. For two years, the desk sat in Jan's garage until she decided to restore it. This year, while cleaning and restoring the desk, Jan discovered $1,500 in a hidden compartment inside one drawer. With respect to the $1,500, Jan must

D) report $1,500 on this year's tax return.

38) All of the following items are deductions for adjusted gross income except

D) state and local income taxes.

87) The discharge of certain student loans is excluded from income if all of the following are present except for

D) the loan forgiveness is based on age.

84) A married taxpayer may file as head of household under the abandoned spouse provisions if all of the following are met except

D) the taxpayer must have been married for at least two years.

62) Which of the following is not considered support for the dependent support test?

D) value of services rendered by the taxpayer for the dependent

64) Which one of the following fringe benefits allows for discrimination between highly compensated employees and other employees to be present?

D) working condition