Tax Chapter 12 True/False

True

The incremental research activities credit is 20% of the qualified research expenses that exceed the base amount.

False

A LIFO method is applied to general business credit carryovers, carrybacks, and utilization of credits earned during a particular year.

False

A small employer incurs $1,500 for consulting fees related to establishing a qualified retirement plan for its 75 employees. As a result, the employer may claim the credit for small employer pension plan startup costs for $750.

False

A taxpayer may qualify for the credit for child and dependent care expenses if the taxpayer's dependent is under age 17.

False

A taxpayer who meets the age requirement and receives no Social Security benefits will be entitled to the full tax credit for the elderly.

False

A taxpayer who qualifies for the low-income housing credit claims the credit over a 20-year period.

True

A taxpayer's earned income credit is dependent on the number of his or her qualifying children.

False

All foreign taxes qualify for the foreign tax credit.

False

All taxpayers are eligible to take the basic research credit.

True

An employer's tax deduction for wages is affected by the work opportunity tax credit.

False

An expatriate who works in a country with an income tax rate higher than the U.S. rate probably will find the foreign earned income exclusion preferable to the foreign tax credit.

False

An individual generally may claim a credit for adoption expenses in the year in which the expenses are paid.

False

Any unused general business credit must be carried back 3 years and then forward for 20 years.

True

Child and dependent care expenses include amounts paid for general household services.

True

Because current U.S. corporate income tax rates are higher than many foreign corporate income tax rates, the overall limitation does not yield a lower foreign tax credit than the amount of foreign taxes actually paid.

False

BlueCo incurs $900,000 during the year to construct a facility that will be used exclusively for the care of its employees' pre-school age children during normal working hours. The credit for employer-provided child care available to BlueCo this year is $225,000.

False

Both education tax credits are available for qualified tuition expenses, and in certain instances, also may be available for room and board.

True

Child care payments to a relative are not eligible for the credit for child and dependent care expenses if the relative is a child (under age 19) of the taxpayer.

False

Cardinal Company incurs $800,000 during the year to construct a facility that will be used exclusively for the care of its employees' pre-school age children during normal working hours. Assuming Cardinal claims the credit for employer-provided child care this year, its basis in the newly constructed facility is $640,000.

False

Certain high-income individuals are subject to three additional Medicare taxes beginning in 2013—on wages, unearned income, and tax credits claimed.

False

If an employee holds two jobs during the year, an overwithholding of FICA tax will result.

True

Employers are encouraged by the work opportunity tax credit to hire individuals who have been long-term recipients of family assistance welfare benefits.

False

Expenses that are reimbursed by a taxpayer's employer under a dependent care assistance program can also qualify for the credit for child and dependent care expenses.

True

For purposes of computing the credit for child and dependent care expenses, the qualifying employmentrelated expenses are limited to an individual's actual or deemed earned income.

True

For the current year, the base amount for the Social Security portion (old age, survivors, and disability insurance) is different from that for the Medicare portion of FICA.

False

If a taxpayer chooses to claim a foreign tax credit, part of the foreign income taxes paid can also be claimed as a deduction.

False

If a taxpayer is required to recapture any tax credit for rehabilitation expenditures, the recapture amount need not be added to the adjusted basis of the rehabilitation expenditures.

False

If the cost of a building constructed and placed into service by an eligible small business in the current year includes the cost of a wheelchair ramp, the cost of the ramp qualifies for the disabled access credit.

False

In computing the foreign tax credit, the greater of the foreign income taxes paid or the overall limitation is allowed.

False

John owns and operates a real estate agency as a sole proprietor. On a full-time basis, he employs his 17year old daughter as a receptionist and his 22-year old son as a bookkeeper. Both children are subject to FICA withholding.

True

Nonrefundable credits are those that reduce the taxpayer's tax liability but are not paid when the amount of the credit (or credits) exceeds the taxpayer's tax liability.

False

Only married taxpayers with children are qualified to receive the earned income credit.

False

Only self-employed individuals are required to make estimated tax payments.

False

Qualified rehabilitation expenditures include the cost of acquiring the building, but not the cost of acquiring the land.

True

Qualified research and experimentation expenditures are not only eligible for the 20% tax credit, but also can be expensed in the year incurred.

True

Qualifying tuition expenses paid from the proceeds of a tax-exempt scholarship do not give rise to an education tax credit.

True

Some (or all) of the tax credit for rehabilitation expenditures will have to be recaptured if the rehabilitated property is disposed of prematurely or if it ceases to be qualifying property.

True

The American Opportunity credit is available per eligible student, while the lifetime learning credit is calculated per taxpayer.

True

The additional Medicare taxes assessed on high-income individuals carry differing tax rates depending on the tax base.

False

The calculation of FICA and the self-employment tax both involve two components: the Social Security portion and the Medicare portion, each portion of which is imposed on the same base amounts.

True

The child tax credit is based on the number of the taxpayer's qualifying children under age 17.

False

The credit for child and dependent care expenses is an example of a refundable credit.

False

The disabled access credit is computed at the rate of 50% of all access expenditures incurred by the taxpayer during the year.

True

The disabled access credit was enacted to encourage small businesses to make their businesses more accessible to disabled individuals.

False

The earned income credit is available only if the taxpayer has at least one qualifying child in the household.

True

The earned income credit, a form of a negative income tax, is a refundable credit.

False

The education tax credits (i.e., the American Opportunity credit and the lifetime learning credit) are available to help defray the cost of higher education regardless of the income level of the taxpayer.

False

The low-income housing credit is available to low-income tenants who reside in qualifying low-income housing.

False

The maximum child tax credit under current law is $1,500 per qualifying child.

True

The maximum credit for child and dependent care expenses is $2,100 if only one spouse is employed and the other spouse is a full-time student.

False

The purpose of the tax credit for rehabilitation expenditures is to encourage the relocation of businesses from older, economically distressed areas (i.e., inner city) to newer locations.

True

The purpose of the work opportunity tax credit is to encourage employers to hire individuals from specified target groups traditionally subject to high rates of unemployment.

True

The tax benefit received from a tax credit is never affected by the tax rate of the taxpayer.

False

The tax benefits resulting from tax credits and tax deductions are affected by the tax rate bracket of the taxpayer.

True

The tax credit for rehabilitation expenditures for certified historic structures differs from that for qualifying structures that are not certified historic structures.

False

The work opportunity tax credit is available only for wages paid to qualifying individuals during their first year of employment.

False

Unless a taxpayer is disabled, the tax credit for the elderly or disabled is available only if the taxpayer is at least 59 1/2 years old.

False

Unused foreign tax credits can be carried back three years and forward fifteen years.