Tax Test 1

Which item in the tax equation is used to determine phase-outs and limitations (e.g., phase-out of the child credit)? - Gross income - AGI - Taxable income - Itemized deductions - Refundable tax credits

AGI

Which concept justifies the phase-out of the child credit? - Assignment of income. - Pay as you go. - Ability to pay. - Related parties. - Tax benefit rule.

Ability to pay

Which concept justifies the progressive rate structure? - Administrative convenience - Annual accounting period - Assignment of income - Pay as you go - Ability to pay

Ability to pay

Tax levied on a taxpayer should be based on the amt. they can afford to pay. Progressive TR structure falls under this concept

Ability to pay Concept

A concept that is fundamental to the progressive tax structure

Ability-to-pay Concept

Who was subject to income tax prior to WWII?

About 5% of the population --- class tax (tax on the wealthy)

When focused on TVM, what should you do with deductions?

Accelerate

Taxpayer reports income as earned and deductions as incurred

Accural Method

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? Ability to pay. Tax benefit rule. Substance over form. Related party transactions. Administrative convenience

Admin. convenience

Allows the omission of items from the tax base for which the costs of compliance exceeds the revenue generated

Administrative Connivence Concept

States that items my be omitted from the tax base whenever the cost of implementing a concept exceeds the benefit of using it Ex.) Standard deduction

Administrative Convenience Concept

Which of following are NOT itemized deductions? - Alimony paid - Charitable contributions - Real estate taxes on a personal residence - Student loan interest - State income taxes paid - Home mortgage interest - Personal property taxes on auto

Alimony paid, Student loan interest

What does gross income consist of in todays tax system?

All income unless otherwise specifically excluded by Congress

Definition of Income

All increases in wealth that have been realized must be recognized unless Congress specifically excludes or defers

All income received is considered taxable unless a specific provision can be found that excludes the item

All-Inclusive Income Concept

All income received is taxable unless some specific provision of the tax law allows exclusion fo the item

All-inclusive Income Concept

States that all entities must report the results of their operations annually and each year must stand apart form other years

Annual Account Period Concept

All taxpayers must report the results of their operations on an annual basis

Annual Accounting Period Concept

Tax expenditures... a. Are direct spending by the federal govt. to carryout social and economic objectives through govt. agencies b. have be used less b Congress since WWII c. Are indirect spending by the federal govt. to carryout social and economic policy through preference in the tax code d. Improve horizontal and vertical equity

Are indirect spending by the federal govt. to carrot social and economic policy through preference in the tax code

All parties have bargained in good faith and for their individual benefits, not for the groups benefit

Arm's Length Transaction

Loss deductions from related party transactions are disallowed because they violate which concept? - Ability to pay. - Assignment of income. - Administrative convenience. - Arm's length transaction. - Pay as you go.

Arm's length transaction

The rules that limit the deduction of losses from related party transactions is a result of which concept? - Ability to pay - Administrative convenience - Arm's length transaction - Pay as you go - Assignment of income.

Arm's length transaction

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? - Ability to pay. - Assignment of income. - Pay as you go. - Administrative convenience. - Tax benefit rule.

Assignment of Income

Income from services must be taxed to the taxpayer rendering the service and income form property must be taxed to the owner of the property

Assignment of Income

All income earned form services provided by an entity is to be taxed to that entity

Assignment of Income Doctrine

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 payments in his gross income. What concept or doctrine applies to this situation? - Tax Benefit Rule. - Ability to Pay Concept. - Pay As You Go Concept. - Assignment of Income Doctrine - Annual Accounting Period Concept..

Assignment of Income Doctrine

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? - Substance over form. - Administrative convenience. - Assignment of income. - Tax benefit rule. - Ability to pay

Assignment of income

Tax / TI

Average tax rate

Amount invested in an asset

Basis

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. - Only I is true - Only II is true - Both I and II are true - Neither I nor II are true

Both I and II are true

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. - Only I is true - Only II is true - Both I and II are true - Neither I nor II are true

Both I and II are true

Means a deduction only for an expenditure that is made for some business or economic purpose that exceeds any tax avoidance motive. Expenditure must be made in connection with a profit seeking activity

Business Purpose Concept

To be deductible, an expenditure must be made for a business or economic purpose that is greater than any tax avoidance motive of the taxpayer

Business Purpose Concept

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? - Legislative grace. - Capital recovery. - Business purpose. - Ability to pay. - Wherewithal to pay.

Business purpose

A tax year that ends on December 31

Calendar Year

Any asset that isn't receivable, inventory, real, or depreciable property used in a trade or business, or certain intangible assets, such as copyrights

Capital Asset

No income is realized until the taxpayer's invest capital is recovered

Capital Recovery Concept

States that no income is taxed until all capital previously invested in the asset is recovered

Capital Recovery Concept

The amount of a deduction may not exceed its cost

Capital Recovery Concept

Constructive receipt applies to which accounting method? Cash Accrual Both cash and accrual Neither cash not accrual

Cash

Taxpayer reports income when received in cash or its equivalent and takes deduction as they are paid

Cash Method

Adam Smith's Criteria: taxpayer should be able to readily predict when, where, and how a tax will be levied

Certainty

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 tax does this violate?

Certainty

Income is subject to tax when it is received w/o restrictions as to its use or disposition

Claim of Right

States that a realization occurs whenever an amount is received w/o restriction as to its disposition

Claim of Right Doctrine

Taxable or Conduit? Partnership, S-Corp

Conduit

Allocates income, losses, and deduction to its owners for inclusion in their personal returns

Conduit Entity

The shift from a "class" tax to a "mass" tax was significant because it resulted in a. Victory in WWI 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 economic behavior e. A reduction in the number of tax expenditures

Congress' use to tax expenditures to influence social and economic behavior

Income is considered received when it is created to the taxpayer's account or made unconditionally available to the taxpayer

Constructive Receipt

Cash Basis taxpayers are deemed to be in the receipt of income when it's credited to their accts. or otherwise made available to them

Constructive Receipt Doctrine

Adam Smith's Criteria: needs to be easy to assess, collect, and administer

Convenience

Routinely handled by mail and routinely involve requests for supporting docs

Correspondence Examinations

Which type of tax audit is most likely to occur? - Field exam - Office exam - Correspondence exam - Proctology exam

Correspondence exam

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

Correspondence examination

Which of the following was (were) undertaken during WWII to make the income tax acceptable Creation of withholding at the source Passage of the 16th Amendment Appeals to patriotism Indexation of deductions and credits for inflation Revision of the Internal Rev. Code

Creation of withholding at the source Appeals to patriotism

Expense item that are allowed to reduce tax liability

Credit

expense item that is allowed to reduce taxable income

Deduction

When focused on TVM, what should you do with income?

Defer

Income item received that is not taxed in current year, but will be taxed in later year

Deferral

Collecting tax revenue and spending via programs

Direct spending

Result of TCMP findings. Used cpu programs. Returns out of line were evaluated by IRS personnel

Discriminant Function

Which court requires the disputed tax to be paid before a tax case is heard? - Tax Court - District Court

District Court

Virtually all returns are checked for mathematical, tax calculation, and clerical errors IRS recalculates amt. of tax due and sends explanation to taxpayer

Document Perfection Program

Adam Smith's Criteria: nominal collection costs and minimal compliance costs

Economy

Tax / (TI + Excluded Income)

Effective tax rate

Each tax unit must keep separate records and report results separate from other tax units

Entity Concept

Each tax unit must keep separate records and report the results of its operations separate and apart form other tax units

Entity Concept

Adam Smith's Criteria: each taxpayer enjoys fair and equitable treatment

Equity

Which of the following is (are) an administrative source of the tax law? (Check all that apply). - Internal Revenue Code - Treasury Regulations - IRS Rev. Rulings - IRS Rev. Procedures - Private Letter Rulings

Everything EXCEPT Internal Revenue Code

Which of the following items will cause realized income to not equal recognized income? (Check all that apply) - Exclusion - Deduction - Deferral - Credit - Appraised value

Exclusion, Deferral

Income item received that is not included in taxable income

Exclusions

(Pretax return - After-Federal-tax return) / Pretax return

Explicit Tax Rate

Rate of tax paid to the federal governemt

Explicit Tax Rate

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

False

T/F - 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).

False

T/F - Changes in value result in income

False

T/F - Congress provides a concise definition of taxable income in Section 61

False

T/F - 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.

False

T/F - 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.

False

T/F - 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%

False

T/F - Individual taxpayers are required to electronically file tax returns

False

T/F - 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 rules.

False

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

False

T/F - The Code considers TVM

False

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

False

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

False

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

False

Conducted at taxpayers place of business --- handled by experienced IRS agents. Most taxpayers are represented by their tax advisor

Field Examination

Any tax year that ends on the last day of a month other than December

Fiscal Year

When two similarly situated taxpayers are taxed the same

Horizontal equity

(Pretax return on disfavored asset - Pretax return on tax favored asset) / Pretax return on tax disfavored asset

Implicit Tax Rate

The forgone return as a result of a tax preference

Implicit Tax Rate

When focused on MTR, where should you put deductions?

In year with highest expected MTR

When focused on MTR, where should you put income?

In year with lowest expected MTR

A progressive tax rate structure means that as income increases, the rate of tax - Increases - Is constant - Decreases

Increases

Which of the following will reduce or eliminate bracket creep? (Select all that apply) - Increasing the number of tax credits available - Increasing the number of tax expenditures - Indexing the standard deduction and exemption amounts for inflation - Reducing the number of tax brackets - Indexing the end points of the tax brackets for inflation

Indexing the standard deduction and exemption amounts for inflation, Reducing the number of tax brackets, and Indexing the end points of the tax brackets for inflation

Incentives into code to get market to take action Ex.) deduction for charitable contribution

Indirect spending

Information and forms are matched to a taxpayer's return

Information matching Program

Which audit method compares Form 1099-INT received from a bank to the interest income reported on a taxpayer's return? - Discriminant Function (DIF) - Taxpayer Compliance Measurement Function (TCMP) - Document perfection program - Information matching program - Special audit function

Information matching program

A type of expenses deduction that embodies the profit motive requirement

Investment Expenses

The implicit tax rate - Is the rate of tax paid to the Federal government. - Is the same as the average tax rate. - Is the same as the marginal tax rate. - Is the same as the effective tax rate. - Is a measure of how much higher the rate of return is for an asset that receives a tax preference. - Is the measure of how much lower the rate of return is for an asset that receives a tax preference.

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

What changed about income tax from before WWII to during WWII?

It became a mass tax (70% of pop.) instead of a class tax. This caused an implementation issue (significant increase in taxpayers)

Which of the following assets is a capital asset? - Land held by the taxpayer as inventory. - Land held by the taxpayer as an investment. - Land used in the taxpayer's business.

Land held by the taxpayer as an investment

All income realized is taxable unless Congress creates an exclusion. Exclusions are a function of which concept? - Tax benefit rule. - Wherewithal to pay. - Legislative grace. - Ability to pay. - All-inclusive income.

Legislative Grace

Exclusions and deductions result from specific acts of Congress which must be strictly applied ad interpreted

Legislative Grace Concept

States that any tax relief if the result of specific acts of Congress that must be applied and interpreted strictly. Congress can grant an exclusion from income

Legislative Grace Concept

Which of the following would reduce the incentive to shift income? - More prefernce rates. - Less preference rates. - Preference rates have no impact on the incentive to shift income.

Less preference rates

Which tax rate is used for decision making?

Marginal Tax Rate

Which tax rate is to be used to make decisions?

Marginal tax rate

What opportunities did the tax structure, as it existed after WWII, create?

Mass tax (carry out social and economic policy thru tax), use tax law to influence behavior

Objective of tax planning

Maximize after-tax wealth

For 2017, which amount of the child's taxable income is taxed at the parent's marginal tax rate? - Earned income. - Net earned income. - Parent provided income. - Net unearned income. - Unearned income.

Net Unearned Income

Conducted at tax local district office of IRS --- taxpayer notified by letter of date and time of exam. Taxpayer usually represents themselves

Office Examination

In the citation, §1.132-5(g), the (g) refers to - The fifth regulation issued for Section 132 - A subsection - A paragraph - A subparagraph - A clause

Paragraph

The IRS has a penalty for underpayment of estimated taxes. This penalty exists because of which concept? - Tax benefit rule - Administrative convenience - Ability to pay - Pay as you go - Substance over form

Pay as you go

Requires taxpayers to pay a rate as they generate income

Pay as you go Concept

A category of expenses that is specially disallowed

Personal Expenses

Which of the following is (are) deductions from adjusted gross income (AGI)? (Check al that apply) - Individual retirement account (IRA) contributions. - Child tax credit. - Moving expenses. - Personal and dependency exemptions - Itemized deductions.

Personal and dependency exemptions, Itemized deductions, Standard deduction

Lower rates of tax for certain income items

Preference Rates

Ability to pay, as currently defined, is implemented using a tax rate structure that is - Regressive - Proportional - Flat - Horizontal - Progressive

Progressive

Adam Smith's concept of vertical equity is found in a tax rate structure that is

Progressive

If the rate of tax increases as income increases, the rate structure is - Regressive - Proportional - Progressive - Marginal

Progressive

If the rate of tax remains constant as income increase, the rate structure is - Progressive - Proportional - Regressive - Marginal

Proportional

What were the major objectives of income tax prior to WWII?

Raise Revenue and Redistribute wealth

What was the purpose of income tax during WWII?

Raise revenue for the war and control inflation

The result of an arm's length transaction

Realization

States that no income is recognized for tax purposes until it has been realized by the taxpayer

Realization Concept

The reporting of an item of income or expense in a tax return

Recognition

These taxpayers are not deemed to transact at arm's-length

Related Party

What act established our current tax system?

Revenue Act of 1913

Issued to explain internal IRS administrative practices and procedures

Revenue Procedures

Interpretations by the IRS of the Code & regulations as they apply to specific factual situations

Revenue Rulings

How is citation SS35(c)(2)(B)(ii)

Section 35, subsection c, paragraph 2, subparagraph B, clause 2

The self-employment tax is which type of tax?

Social Security tax

Which of the following is (are) a conduit entity? (Check all that apply) - Sole Proprietorship. - Partnership. - S Corporation. - C Corporation. - Individuals

Sole Proprietorship, Partnership, S Corporation

Which of the following is (are) a conduit entity? (Check all that apply) - Sole Proprietorship. - Partnership. - S Corporation. - C Corporation. - Individuals

Sole Proprietorship, Partnership, S Corporation

Combine cpu and manual selection based on various standards that change periodically

Special Audit Programs

The taxability of a transaction is determined by the reality of the transaction rather than some contrived appearance

Substance over Form

States that taxability of a transaction is determined by the reality of the transaction, rather than some (perhaps contrived) appearance

Substance over Form Doctrine

Lawful modes of minimizing tax liability

Tax Avoidance

A deduction taken in one year that is recovered in a later year is reported as income in the year of recovery to the extent that the deduction reduced taxable income

Tax Benefit Rule

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 is received from the deduction

Tax Benefit Rule

Fraudulent behavior, deception, concealment, destruction of records to gain a tax advantage

Tax Evasion

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? - Ability to pay. - Claim of right. - Assignment of income. - Tax benefit rule. - Pay as you go.

Tax benefit rule

Taylor does work for Kelsey. Kelsey pays Taylor $4,000 in December 2017. Dissatisfied with the work, Kelsey sues Taylor. Taylor, under court order, pays $1,000 back to Kelsey during 2018. The tax concepts to be used to determine the appropriate treatment of the transactions for Kelsey and Taylor, respectively, is - Tax benefit rule; claim of right. - Constructive receipt; tax benefit rule. - Claim of right; assignment of income. - Claim of right; tax benefit rule. - Assignment of income; constructive receipt.

Tax benefit rule; Claim of right

In order to compute the tax when taking an exam or a quiz, we will use - tax table - tax rate schedule - either one

Tax rate schedule

When completing a tax return with taxable income under $100,000, the tax is determined using - Tax table - Tax rate schedule - Either

Tax table

Taxable or Conduit? Individuals, C-Corp, Estates, and some Trusts

Taxable

A tax entity that is liable for the payment of tax

Taxable Entity

Audit examination of random returns to determine compliance and noncompliance patterns (program has been discontinued)

Taxpayer Compliance Measurement Program (TCMP)

The realization requirement was created by - Congress. - IRS - Treasury Department. - The courts. - The 16th Amendment.

The courts

The implicit tax rate is - The total federal income tax divided by the sum of taxable income plus exluded income. - The total federal income tax divided by taxable income. - Always the same as the marginal tax rate. - The rate of tax on the next dollar of income. - The forgone return as a result of a tax preference.

The forgone return as a result of a tax preference

The matching information reports from third parties to the amounts reported on the tax return is the description of which tax return selection process? a. TCMP b. DIF program c. Information matching program d. Document perfection program e. Special audit programs

The information matching program

According to the IRS definition, which of the following is not a characteristic of tax? 1. The pmt. to the governmental authority is required by law 2. Then pmt. relates to the receipt of a specific benefit 3. The pmt. is required pursuant to the legislative power to tax 4. The purpose of requiring the pmt. is to provide revenue to be used for the public or governmental purposes

The payment relates to the receipt of a specific benefit

T/F - 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.

True

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

True

T/F - 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

True

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

True

T/F - Exclusions and deductions have same outcome, but different causes

True

T/F - Exclusions 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)

True

T/F - Realization must come before income is recognized

True

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

True

T/F - The first contact that the IRS has with a taxpayer regarding a potential tax return issue is through the U.S. mail.

True

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

True

T/F - 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.

True

T/F - The overall audit rate is less than one percent. The probability that a particular return will be selected increases as the complexity of the tax return increases

True

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

True

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

True

T/F - 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

True

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

True

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

True

For 2017, what is the maximum age at which the kiddie tax will apply? - 14 - 17 - 18 - Under 24 and a full-time student.

Under 24 and a full-time student

When taxpayers have different situations and are taxed differently, but fairly in relation to their ability to pay taxes

Vertical equity

History if income tax may be divided into two major periods. What is the line of demarcation?

WWII

Which concept is used by Congress to justify the creation of deferrals? - Ability to Pay Concept. - Wherewithal to Pay Concept. - Pay as You Go Concept. - Claim of Right. - Constructive Receipt.

Wherewithal to Pay Concept

Congress wants the income from certain property transactions to be deferred. Which concept will they use to justify this decision? - Realization. - Wherewithal to pay. - Ability to pay. - Claim of right. - Constructive receipt.

Wherewithal to pay

Income should be recognized and a tax paid when the taxpayer has the resources to pay the tax

Wherewithal to pay

States that income should be recognized and a tax paid on the income when the taxpayers has the resources to pay the tax. Provides rationale for deferral of recognition

Wherewithal to pay Concept

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 - $0 - $900 - $2,100 - $3,000 - $4,650

$0

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? - 0 - $400 - $1,650 - $2,150 - $2.500 - $3,650 - $4,450 - $5,950 - $7,000

$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

$3,050 ($2,000 + constant of $1,050)

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? - $1,050 - $2,100. - $3,000. - $3,350. - $4,050. - $6,350

$3,350

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 taxable income (TI) is

$52,600

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

$63,000

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?

$8,333

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.) - Child Tax Credit - Lifetime Learning Tax Credit - American Opportunity Tax Credit - Child- and Dependent-Care Tax Credit - Earned Income Tax Credit

- Child Tax Credit - Child- and Dependent-Care Tax Credit - Earned Income Tax Credit

The tax benefit of a dollar of exclusion or deduction (Select all of the following that are correct) - Depends on the tax rate - Is more valuable than a dollar of credit - Is greater when the tax rate is higher than when it is lower - Is the same for all taxpayers

- Depends on the tax rate - Is greater when the tax rate is higher than when it is lower

Which of the follow is (are) deductions from AGI? (check all that apply) - itemized deductions - Rental expenses - Standard deduction - Dependency exemptions - Moving expenses - Student loan interest paid

- Itemized deductions - Rental expenses - Standard deduction - Dependency exemptions

Which of the following is (are) an itemized deduction(s)? (Check all that apply) - Medical expenses - Charitable contributions - Student loan interest - State income taxes paid - Real estate taxes on a personal residence - Home mortgage interest

- Medical expenses - Charitable contributions - State income taxes paid - Real estate taxes on a personal residence - Home mortgage interest

Which of the following are deduction for AGI? - Trade or business expenses - Itemized deductions - Alimony paid - Student loan interest - Rental and royalty expenses

- Trade or business expenses - Alimony paid - Student loan interest - Rental and royalty expenses

Which of the following elements are 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

1, 2, 4, and 5

List the Criteria used in selection of a tax base according to Adam Smith

1. Equity 2. Convenience 3. Certainty 4. Economy

What steps were taken during WWII to make the tax acceptable?

1. Patriotism 2. Fear of the enemy 3. Guilt of being home 4. Pay as you go

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 Evan's rate?

10%

A single taxpayer has an MTR of 25%. Her dividend pref. rate is

15%

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? - 15.6 percent; municipal bond. - 15.6 percent; corporate bond. - 18.4 percent; municipal bond. - 21.0 percent; corporate bond. - 25 percent; indifferent between the corporate bond and the muni bond.

15.6%, municipal bond

What amendment (and year) gave Congress the authority to create income tax?

16th Amendment in 1913

What year was tax forgiven? And what year did withholding begin?

1942; 1943

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

20%

Taxpayer files as single. She has taxable income of $91,900 for 2017. The taxpayer's marginal tax rate is

28%

Generally, how long is the statute of limitations for an income tax return?

3 years

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 statue of limitations?

3 years from the time the tax return is due