Fed Tax Exam 1

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Nikita is the sole shareholder in World Corporation and has owned the stock for 17 years. Nikita's basis in his stock is $52,000, the purchase price. At the beginning of the year, World Corporation had $20,000 in accumulated earnings and profits. In addition, the company generated $5,000 in earnings and profits during the current year. At the end of the year, World Corporation distributes $48,000 to Nikita. How is this distribution characterized for tax purposes?

$25,000 of taxable dividend income, $23,000 non-taxable return of capital

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

A self-employed graphic designer with business income of approximately 200,000

The term "tax law" includes

All of the above (judicial decisions, internal revenue code, treasury regulations)

A taxpayer can receive innocent spouse relief if

All of the above conditions apply (the innocent spouse did not know and had no reason to know that there was an understatement of tax; the understated tax is attributable to erroneous items of the other spouse; under the circumstances, it would be inequitable to hold the innocent spouse liable for the understated tax)

Linh and Hoang are a married couple who elect to file separate returns. Linh has a salary of $120,000 per year and Hoang's salary is $75,000. They own several rental properties as joint investments, earning $20,000 per year. In addition, they receive dividend income of $10,000 on stocks purchased by Linh before their marriage. Several years ago, Hoang invested a large bonus in an investment account which yields $3,000 of interest this year. If Linh and Hoang live in Idaho, what amount of income should Linh report on her tax return?

114,000

Linh and Hoang are a married couple who elect to file separate returns. Linh has a salary of $120,000 per year and Hoang's salary is $75,000. They own several rental properties as joint investments, earning $20,000 per year. In addition, they receive dividend income of $10,000 on stocks purchased by Linh before their marriage. Several years ago, Hoang invested a large bonus in an investment account which yields $3,000 of interest this year. If Linh and Hoang live in Arizona, what amount of income should Linh report on her tax return?

117,500

Ellen is the owner of an accrual-basis landscaping company. On July 1 of the current year, she sells three maintenance contracts, each beginning on July 1. 3 month contract for $2,000 12 month contract for $16,000 36 month contract for $14,400 Ellen collects payment in full on each of the contracts on July 1. How much revenue should Ellen report in the current year?

12,400

Ellen is the owner of an accrual-basis landscaping company. On October 1 of the current year, she sells three maintenance contracts, each beginning on October 1. 3 month contract for $1,000 12 month contract for $8,000 36 month contract for $7,200 Ellen collects payment in full on each of the contracts on October 1. How much revenue should Ellen report in year 2?

12,600

Christina, who is single and in the 32% marginal tax bracket, is considering purchasing a vacation home secured by a mortgage loan. Because she owns just one other home, the interest from this mortgage loan is deductible, as well as the property taxes. Christina projects that she will pay mortgage interest and property taxes of $40,000 per year on the vacation home. Christina has other itemized deductions of $10,000 per year. What is Christina's tax savings from purchasing the vacation home?

12,800

In March of the current year, Kieran's food truck is completely destroyed by fire. He files a timely claim with his insurance company and receives payment of $280,000, of which $150,000 has been allocated to the cost of the truck and $130,000 for lost income. Kieran's basis in the food truck at the time of the fire is $150,000. How much of the insurance payment must be included in Kieran's income for the current year?

130,000

Kate has generously provided support to four people over the past year. Steve, a close family friend, who has lived in Kate's home since April. Anthony, her seventeen-year-old son, has lived with Kate all year. Carol, Kate's mother, lives in her own home but is unable to support herself. Kylee, Kate's cousin, lives with a friend but is completely supported by Tate. None of the individuals listed above have earned more than $4,000 during the year. How many dependents can Kate claim for the current year?

On January 1, 2020, Raffi rents her late grandmother's home to Bill. The home is in need of many repairs and Bill has agreed to pay rent of $800 per month and completely repaint the interior and exterior of the home with paint that Raffi supplies. Raffi estimates that she would have to pay at least $20,000 to have the home repainted professionally, so she is willing to accept rent that is well below the market. Bill lives in the home all year, pays the agreed upon rent, and performs all of the painting. How much rent revenue should Raffi report for 2020?

29,600

Rising Star Corporation had gross income of $2 million and incurred ordinary and necessary expenses of $600,000. Based on 2020 rates, how much tax will Rising Star owe?

294,000

Tate has generously provided support to four people over the past year. Maria, a close family friend, has lived in Tate's home all year. Anthony, his seventeen-year-old son, has lived with Tate all year. Ellen, Tate's mother, lives in her own home but is unable to support herself. Kylee, Tate's cousin, lives with a friend but is completely supported by Tate. None of the individuals listed above have earned more than $4,000 during the year. How many dependents can Tate claim for the current year?

3,600

Ted and Beth are married and have 2 children, Lauren and Nick. Beth is an eye surgeon and earns $600,000 per year. Ted would like to reduce their taxable income by transferring some certificates of deposit which generate $5,000 of interest per year to daughter Lauren, who has no other income. How much of the $5,000 will be taxed to Nick?

3,900

Martin is considering the purchase of either taxable or tax-exempt bonds. Martin is in the 25% tax bracket. The taxable bonds pay 5% interest, while the tax-free bonds pay 3% interest. What is the after-tax yield of the taxable bonds?

3.75%

Rocky and Charlie form RC Partnership as equal partners. Rocky contributes $100,000 into RC while Charlie contributes real estate with a cost and fair market value of $100,000. During the current year, RC earned net income of $600,000. The partnership distributes $200,000 to each partner. The amount that Rocky should report on his individual tax return is

300,000

Kelsey and Ryan have formed a partnership to operate a restaurant. Kelsey contributes real estate appropriate for a restaurant. Although it is currently valued at $100,000, she paid $80,000 for the property several years ago. Ryan contributes cash of $100,000. The partnership agreement states that Kelsey will receive 75% of the profits and losses, based on her vast experience in the industry, with Ryan receiving a 25% share. In the business' first year of operation, it has income of $600,000. The partnership files a 1065 return. How much income should Kelsey report on her tax return from the partnership?

450,000

Neil is single with taxable income of $210,000. What is his gross tax for 2020? Please refer to the 2020 Tax Rate Schedules and deduction amounts provided in the Quick Reference section of your textbook.

48,295

At the beginning of 2020, Helen has assets with a total value of $50,000, including a car and investment account. Helen earns $50,000 as a policy analyst. During the year, she spends $28,000 of her salary on rent, utilities, food, and other expenditures. She saves the remaining $22,000 in the investment account. At the end of 2020, her assets, including the car and investment account, are worth $80,000. What is Helen's economic income for 2020?

58,000

Yasmine is a cash method taxpayer. In November, she rents an apartment for a period of one year to a new tenant, receiving the first month's rent of $2,000 as well as the last month's rent. In December, she receives the December rent of $2,000. How much rental income should Yasmine report in the current year?

6,000

Mary Beth and Art Zylo are married and file a joint return. They have two children, ages 7 and 9. They have the following items of income and expense: Mary Beth's salary $50,000 Art's salary 45,000 Interest (taxable) 5,000 IRA contribution (Mary Beth) 3,000 IRA contribution (Art) 3,000 Itemized deductions 34,000 Federal income tax withholding 9,500 Please refer to the 2020 Tax Rate Schedules and deduction amounts provided in the Quick Reference section of your textbook. What is the amount of the Zylos' tax for 2020?

6,805

60,000

Mateo is a single taxpayer with taxable income of $45,000. Included in this amount is $4,000 of long-term capital gains. What is Mateo's tax on the capital gains for 2020?

600

Lacy and Jane Kingsbury are married and filing a joint return. They have three children, ages 1, 3, and 5. The Kingsburys have the following items of income and expense: Lacy's salary $40,000 Jane's salary 48,000 Interest (taxable) 5,000 IRA contribution (Lacy) 3,000 IRA contribution (Jane) 3,000 Itemized deductions 22,000 Federal income tax withholding 9,000 Please refer to the 2020 Tax Rate Schedules and deduction amounts provided in the Quick Reference section of your textbook. What is the Kingsburys' taxable income for 2020?

62,200

Oliver is a head of household with taxable income of $300,000. What is his gross tax for 2020? Please refer to the 2020 Tax Rate Schedules and deduction amounts provided in the Quick Reference section of your textbook.

78,353.50

What is Rama's potential tax savings from his charitable donation of $25,000?

8,000

Lindsay Wolfe is a single taxpayer. She has provided you with the following information to prepare her 2019 tax return: Her W2 reflects wages of $100,000, with $20,000 of federal income taxes and $4,000 of state income taxes withheld. She has earned interest of $2,000 on a CD given to her by her grandmother. Lindsay's uncle died during the year and she received $10,000 from his estate. Lindsay borrowed $40,000 to buy a nice car and will begin repaying this amount next year. Lindsay owns her own home and has paid $10,000 in mortgage interest and $5,000 in property taxes during 2019. Please refer to the 2020 Tax Rate Schedules and deduction amounts provided in the Quick Reference section of your textbook. What is Lindsay's taxable income for 2020?

83,000

Adnan is a single taxpayer who earned $97,000 in 2020 as a plumber. He is renting an apartment for $2,000 per month. In addition, he donates $3,000 to a local animal shelter. Please refer to the 2020 Tax Rate Schedules and deduction amounts provided in the Quick Reference section of your textbook. Using the information above and 2020 rates, what is Adnan's taxable income?

84,600

Willis is a single homeowner who earned $97,000 in 2019 as a plumber. He pays $3,000 in property taxes and mortgage interest of $5,000. In addition, he donates $2,000 to a local animal shelter. Please refer to the 2020 Tax Rate Schedules and deduction amounts provided in the Quick Reference section of your textbook. Using the information above and 2020 rates, what is Willis' taxable income?

84,600

All of the following are classified as flow−through entities for tax purposes except

C corporations

Which of the following types of income is reported on Schedule D?

Capital Gains

Which of the following persons has income from the discharge of a debt?

Charlotte has been diagnosed with a chronic disease and will not be able to continue in her current job. Although she's not insolvent, she lacks the monthly income to repay her car loan. Her lender has agreed to reduce her monthly payments by $200 and reduce the principal balance as long as Charlotte agrees to make the last 24 payments on the loan.

Which of the following is included in gross income?

Disability insurance benefits when premiums are paid by the employer

Which of the following is included in gross income?

Employer-paid meals in the company dining room for key executives

Which of the following fringe benefits CANNOT be excluded from income?

Employer-paid membership in an athletic club

Lucky Enterprises is considering offering a benefit to all employees which will provide $5,000 in tuition reimbursement annually to all employees. Which of the following employees receives the greatest tax benefit from the employer provided tuition benefit?

Estelle, the company's controller, is a married taxpayer in the 37% tax bracket. Estelle would like to continue her education and earn a Masters in Taxation.

Payments from an annuity purchased from an insurance company are not taxable until the taxpayer has recovered the purchase price of the annuity.

False

Qualified dividends received by individuals are taxed at the same rate as ordinary income.

False

The portion of a taxpayer's wages that are garnished by court order and forwarded to pay a delinquent bank loan are not taxable income to the taxpayer.

False

Ellen, a CPA, prepares a tax return for Frank, a plumber, in exchange for installing a new sink. Since no cash changed hands, neither taxpayer is required to report any income.

False

Which of the following is an example of assignment of income?

Lucas directs his bank to pay all interest on his certificates of deposit to his son Mylo.

Which landmark Supreme Court case focuses on the assignment of income?

Lucas v. Earl

Diego and Gabriella were married and had no dependent children. Diego dies on January 3, 2020. What filing status should Gabriella use for 2020?

Married filing jointly

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

Marvella has a $145,000 net loss from her unincorporated business (a horse farm). She also received $950,000 salary as a CEO of a corporation.

Estella files her 2020 tax return on March 20, 2021 and is due a refund of $2,500. The filing deadline for 2020 is April 15, 2021. The IRS must send Estella a refund no later than ________ to avoid paying interest.

May 30, 2021

Bikash has been a loyal employee for many years. After his death in the current year, his family and estate receive the following amounts. Which of the following can be excluded from gross income?

Out of affection for their dear coworker, Bikash's coworkers take up a collection and present the family with $500 to assist with burial expenses.

Which of the following is included in gross income?

Pensions

Ashley and Benjamin divorced in 2017 and have one dependent child, Ximena. Ashley receives full custody of Ximena and Benjamin is ordered to pay child support. As part of the divorce agreement, Ashley agrees in writing to allow Benjamin to claim the dependency exemption for Ximena. If Ashley maintains the home in which she and Ximena live, what is Benjamin's most favorable filing status?

Single

Until about 100 years ago, attempts to impose a federal income tax were ruled unconstitutional. The amendment to the U.S. Constitution allowing the imposition of a federal income tax is the

Sixteenth Amendment

Which of the following must be disclosed on the tax return?

Social Security benefits

Ella was injured at work and sued her employer. The court awarded her $35,000 to cover medical bills, $25,000 in lost wages, and $50,000 in punitive damages. Which of these amounts are taxable?

The lost wages and punitive damages are taxable for a total of $75,000.

Gregory receives 100 shares of stock from his employer as a year−end bonus. The fair market value of the stock should be included in Gregory's income for the year.

True

Gross income may be realized when a taxpayer receives economic benefit even if no cash is received.

True

Improvements to leased property made by a lessee are includible in the lessor's gross income only if made in lieu of rent or if rent is reduced because of the improvements.

True

Interest credited to a bank savings account is taxed regardless of whether or not it is withdrawn.

True

Interest on Series E and Series EE U.S. savings bonds need not be reported until the bonds mature.

True

Property settlements made incident to a divorce have no immediate tax consequences; that is, the transfer from one spouse to another is not taxable.

True

The wherewithal−to−pay concept provides that a tax should be collected when the taxpayer has the financial resources to pay the tax.

True

The cash receipts and disbursements method of accounting is used by most individual taxpayers and most noncorporate businesses that do not have inventories.

True

Under the cash method of accounting, income is reported in the year the taxpayer actually or constructively receives the income.

True

With some exceptions, amounts withdrawn from a pension plan prior to the normal starting date are subject to a ten percent nondeductible penalty.

True

Where does a tax law typically start?

Ways and Means Committee of the House of Representatives

In 2017, 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 2018, 2019, and 2020, Leo's most advantageous filing status is, respectively

surviving spouse, surviving spouse, head of household

Priya's client is investigating several investment alternatives. The client wishes to minimize taxes and maximize after-tax cash flows. Priya's engagement is best described as ________.

tax planning

Which of the following types of income must be reported on the tax return?

tax-exempt interest

Assuming a calendar tax year and the conventional 15th of the month due date, all of the following business entities must file their 2020 tax returns by the March 15, 2021 except

the C corporation

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 $4,800. Which of the following statements is correct regarding Ben and Karla's ability to claim the twins as dependents?

the couple can claim both twins as dependents

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

the parent must transfer ownership of the stock to the child

Section 108 allows the discharge of debt to excluded from income when ________.

the taxpayer is insolvent or debts have been discharged through bankruptcy

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

unreimbursed employee business expenses

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?

you were married for several years, but your divorce became final in December

Annisa, who is 28 and single, has adjusted gross income of $55,000, itemized deductions of $5,000 and a lifetime learning credit of $1,000. In 2020, Annisa will have taxable income of

42,600

In 2019, Ginger had $3,000 in state income taxes withheld from her wages by her employer. When she files her 2019 taxes, Ginger takes the standard deduction and has no taxable income as the result of losses during the year. In 2020, she receives a refund of the $3,000 of state taxes that were withheld in 2019. How much of this amount must be included in Ginger's income in 2020?

In 2019, Molly had $2,000 in state income taxes withheld from her wages by her employer. When she files her 2019 taxes, Molly takes the standard deduction and has no taxable income as the result of losses during the year. In 2020, she receives a refund of the $2,000 of state taxes that were withheld in 2019. How much of this amount must be included in Molly's income in 2020?

Irvin and Alison are a married couple with two adult children. Their 21-year-old son Thomas is employed as an accountant and lives in another state. Their 24-year-old daughter Melody worked for the first three months of the year as a lawyer, but left her job because of a serious illness. Melody earned $13,500 during her three months of employment, but was forced to move in with her parents when she became ill. Since that time, her parents have provided 90% of her support. How many dependents can Irvin and Alison claim?

Samya began college in August 2020. She received a scholarship covering her first semester's tuition in the amount of $28,000 and took out a student loan for $14,000 to cover room, board, and books. Considering just the loan and scholarship, what is Samya's taxable income for 2020?

Sonja began college in August 2020. She received a scholarship covering her first semester's tuition in the amount of $30,000 and took out a student loan for $10,000 to cover room, board, and books. Considering just the loan and scholarship, what is Sonja's taxable income for 2020?

If an individual with a taxable income of $15,000 has a long−term capital gain in 2020, it is taxed at

Tomas, aged 70, purchases an annuity for $60,000. Under the terms of the annuity, Tomas will receive $400 per month for life. The expected return multiple for an individual 70 years of age is 16. How much income must Tomas report each year from the annuity payments?

1,050

Sebastian has one child, Nicolas, age 6. Sebastian has adjusted gross income of $20,000 and his gross income tax is $800. After considering the child tax credit, what is the amount of Sebastian's refund?

1,200

Caleb, who is in the 37% marginal tax bracket, wishes to reduce his tax bill by giving his niece a gift of a certificate of deposit that pays $5,000 in interest per year. Caleb's niece is in the 12% marginal tax bracket and this additional income is not enough to move her to the next bracket. What is the tax savings associated with this transfer?

1,250

During 2020, Oliver received the following: Oliver won $1,000 in a raffle conducted by a local charity. Oliver's employer gave each employee a gift of $250 at the annual holiday party. Oliver's mother gave him a car valued at $9,000. How much income must Oliver recognize in 2020 because of the three events listed above?

1,250

Charlotte pays $8,000 in tax deductible property taxes. Charlotte's marginal tax rate is 24%, effective tax rate is 20% and average rate is 22%. Charlotte's tax savings from paying the property tax is

1,920

In 2020, an estate is not taxable unless the sum of the taxable estate and taxable gifts made after 1976 exceeds

11,580,000

Greg is a single homeowner who earned $207,000 in 2019 as a painter. He pays $6,000 in property taxes and mortgage interest of $12,000. In addition, he donates $4,000 to the United Way. Please refer to the 2020 Tax Rate Schedules and deduction amounts provided in the Quick Reference section of your textbook. Using the information above and 2020 rates, what is Greg's taxable income?

185,000

14,050

On June 1, 2020, Ellen turned 65. Ellen has been a widow for five years and has no dependents. Her standard deduction is

14,050

Linh and Hoang are a married couple who elect to file separate returns. Linh has a salary of $120,000 per year and Hoang's salary is $75,000. They own several rental properties as joint investments, earning $20,000 per year. In addition, they receive dividend income of $10,000 on stocks purchased by Linh before their marriage. Several years ago, Hoang invested a large bonus in an investment account which yields $3,000 of interest this year. If Linh and Hoang live in Maryland, what amount of income should Linh report on her tax return?

140,000

If a single taxpayer with a marginal tax rate of 24% has a long−term capital gain in 2020, it is taxed at

15%

Johanna is a student at State University. She receives a scholarship of $40,000, which she uses to pay the following obligations: Tuition and fees $25,000 Books $2,000 Room and board $13,000 Johanna also has a job on campus, earning $2,000 during the current year. How much income must Johanna report from the scholarship and on-campus employment?

15,000

Jacob is a single taxpayer with a pension of $42,000 and Social Security benefits of $18,000 per year. How much of Jacob's Social Security benefits must be included in income?

15,300

Eric dies in the current year and has a gross estate valued at $16,500,000. The estate incurs funeral and administrative expenses of $100,000 and also pays off Eric's debts which amount to $250,000. Eric bequeaths $600,000 to his wife. Eric made no taxable transfers during his life. Eric's taxable estate will be

15,550,000

Sarah contributes $25,000 to a church. Sarah's marginal tax rate is 35% while her average tax rate is 25%. After considering her tax savings, Sarah's contribution costs

16,250

On January 1, 2020, Tashi rents her late grandmother's home to Phil. The home is in need of many repairs and Phil has agreed to pay rent of $500 per month and completely repaint the interior and exterior of the home with paint that Tashi supplies. Tashi estimates that she would have to pay at least $12,000 to have the home repainted professionally, so she is willing to accept rent that is well below the market. Phil lives in the home all year, pays the agreed upon rent, and performs all of the painting. How much rent revenue should Tashi report for 2020?

18,000

Deven and Anya are a married couple with taxable income of $125,000. What is their gross tax for 2020? Please refer to the 2020 Tax Rate Schedules and deduction amounts provided in the Quick Reference section of your textbook.

19,080

Eileen is a cash basis taxpayer. Early in the day on December 31, 2020, a client comes into her office with a check for $6,000. The client asks Eileen not to deposit the check until January 4, 2021, because there are currently insufficient funds to cover the check. When she opens her mail later in the day, Eileen receives a check for $2,500 from a customer for work performed during December. As it is after banking hours, she deposits the check into her account on January 2, 2021. How much income should Eileen report in 2020 as result of these two transactions?

2,500

Santiago and Isabella are a married couple with two children, ages 10 and 13. Their adjusted gross income is $415,000. What is the amount of their child tax credit for 2020?

2,500

What is the maximum that employees can contribute tax-free to a flexible spending account for health care benefits for 2020?

2,750

If a single taxpayer with a marginal tax rate of 37% has a long−term capital gain in 2020, it is taxed at

20%

20,000

In 2008, Kyle acquired 20% of the common stock of Farm Specialty Products, a qualified small business corporation, for $250,000. Kyle sells the stock for $650,000 in 2020. What gain must be recognized upon the sale of the Farm Specialty Products stock by Kyle?

200,000

Agustina and Santiago have decided to divorce. At the time of the divorce in 2013, the couple divide their marital assets and Santiago receives stock in Large Corporation. The stock was purchased in 2005 at a cost of $65,000 and is valued at $87,000 at the time of the divorce. In 2020, Santiago sells the stock for $98,000. What is the amount of the gain reported in 2013 and 2020?

2013: $0 2020: $33,000

Paul makes the following property transfers in the current year: • $22,000 cash to his wife • $34,000 cash to a qualified charity • $220,000 house to his son • $3,000 computer to an unrelated friend The total of Paul's taxable gifts, assuming he does not elect gift splitting with his spouse, subject to the unified transfer tax is

205,000

Using the information above and 2020 rates, what is Christina's average tax rate?

21.45%

Johanna is a student at Prestige University. She receives a scholarship of $60,000, which she uses to pay the following obligations: Tuition and fees $40,000 Books $2,000 Room and board $18,000 Johanna also has a job on campus, earning $5,000 during the current year. How much income must Johanna report from the scholarship and on-campus employment?

23,000

A corporation has revenue of $350,000 and deductible business expenses of $240,000. What is the federal income tax, before credits?

23,100

What is the penalty for the omission of the $100,000 of income, assuming that it is paid two years after the due date of the return?

24,750

In 2020, Brett and Lashana (both 50 years old) file a joint tax return claiming as a dependent their son who is blind. Their standard deduction is

24,800

Sofia has been permanently disabled by a chronic disabling medical condition and is required to live in a nursing home for all of the current year. Sofia receives $25,000 from a disability income policy purchased by her former employer. She also receives reimbursements of $32,000 from a long-term insurance contract that she purchased in 2015. Assuming no other income, what is Sofia's adjusted gross income for the current year?

25,000

Grandy is the acting CEO of Innovation Corporation for a period of one year. Rather than receiving a salary of $1 million in the current year, he has elected to receive $250,000 in the current year and $200,000 per year over the next five years. If Grandy has no other income, what is his AGI for the current year?

250,000

In 2020, the standard deduction for a married taxpayer filing a joint return and who is 67 years old with a spouse who is 65 years old is

27,400

In 2020, Maria gives her darling daughter a gift of $50,000 for her twenty-first birthday. What is the amount of Maria's taxable gift?

35,000

Christina, who is single, is considering purchasing a vacation home secured by a mortgage loan. Because she owns just one other home, the interest from this mortgage loan is deductible, as well as the property taxes. Christina projects that she will pay mortgage interest and property taxes of $40,000 per year on the vacation home. Her adjusted gross income is $230,000. Christina has other itemized deductions of $10,000 per year. Please refer to the 2020 Tax Rate Schedules and deduction amounts provided in the Quick Reference section of your textbook. What is Christina's tax liability for 2020?

38,615.50

Brianna's mother died in 2019 and Brianna was the beneficiary of her mother's life insurance. Brianna was given the option of receiving a lump sum settlement of $200,000 or ten annual payments of $24,000. Brianna elects the ten annual payments and receives the first payment of $24,000 on January 15, 2020. How much of this payment must be included in Brianna's income in 2020?

4,000

Santiago and Isabella are a married couple with three children, ages 10, 14, and 18. Their adjusted gross income is $115,000. What is the amount of their child tax credit for 2020?

4,500

Martin is considering the purchase of either taxable or tax-exempt bonds. Martin is in the 28% tax bracket. The taxable bonds pay 6% interest, while the tax-free bonds pay 4% interest. What is the after-tax yield of the taxable bonds?

4.32%

Kelsey and Ryan have formed a partnership to operate a restaurant. Kelsey contributes real estate appropriate for a restaurant. Although it is currently valued at $100,000, she paid $80,000 for the property several years ago. Ryan contributes cash of $100,000. The partnership agreement states that Kelsey will receive 75% of the profits and losses, based on her vast experience in the industry, with Ryan receiving a 25% share. In the business' first year of operation, it has income of $600,000. The partnership files a 1065 return. If the partnership distributes cash of $50,000 to Kelsey at the end of the first year of operation, what is her basis in the partnership?

480,000

Anna's mother died in 2019 and Anna was the beneficiary of her mother's life insurance. Anna was given the option of receiving a lump sum settlement of $250,000 or ten annual payments of $30,000. Anna elects the ten annual payments and receives the first payment of $30,000 on January 15, 2020. How much of this payment must be included in Anna's income in 2020?

5,000

Elena is filing her tax return two months after the due date. Her tax liability is $2,000 and she had $1,500 of withholding, leaving $500 due. What is Elena's penalty for late filing and payment?

50,000

At the beginning of 2020, Kellen has assets with a total value of $40,000, including a car and investment account. Kellen earns $50,000 as a policy analyst. During the year, she spends $35,000 of her salary on rent, utilities, food, and other expenditures. She saves the remaining $15,000 in the investment account. At the end of 2020, her assets, including the car and investment account, are worth $75,000. What is Kellen's accounting income for 2020?

50,000

Ace Corporation has taxable income of $250,000. What is Ace Corporation's tax for 2020?

52,500

Caleb, who is in the 37% marginal tax bracket, wishes to reduce his tax bill by giving his niece a gift of a certificate of deposit that pays $2,500 in interest per year. Caleb's niece is in the 10% marginal tax bracket and this additional income is not enough to move her to the next bracket. What is the tax savings associated with this transfer?

675

70,000

Glenda died in 2020, leaving behind a gross estate of $20,000,000. Her will transfers half of the estate to her husband, Miles, and the remainder (after expenses) to her young daughter, Penelope. Funeral expenses amount to $50,000. What is Glenda's taxable estate?

9,950,000

Pinja is a 48-year-old employee of Maximum Corporation. Her employer provides $100,000 of group term life insurance to all employees, at an average cost to the company of $250 per employee. How much of this amount will be included in Pinja's gross income? You may wish to reference Table I:4-1 on page 4-12.

Ted and Beth are married and have 2 children, Lauren and Nick. Beth is an eye surgeon and earns $600,000 per year. Ted would like to reduce their taxable income by transferring some certificates of deposit which generate $2,000 of interest per year to their son Nick, who has no other income. How much of the $2,000 will be taxed to Nick?

900

Iceland Travel Corporation had gross income of $600,000 and incurred ordinary and necessary expenses of $150,000. Based on 2020 rates, how much tax will Iceland Travel owe?

94,500

Taxable income for an individual is generally defined as

AGI reduced by the greater of the standard deduction or itemized deductions

________ are non-taxable payments made by an insurance company to a terminally ill person, as well as periodic payments made to a chronically ill person.

Accelerated death benefits

Economist ________ outlined the four criteria for a "good" tax structure.

Adam Smith

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

Failure-to-file - 5.0% Failure-to-pay - 0.5%

A married couple separates in late 2018, but the related legal documents are not drafted and finalized until 2019. The alimony payments will be taxable to the recipient and deductible by the payor, but the property settlement and child support will have no tax impact.

False

An individual buys 200 shares of Target Corporation stock. In lieu of receiving quarterly dividends, the individual signs an agreement to have dividends reinvested by Target into additional shares of stock. The individual does not receive dividend checks so he need not recognize the quarterly dividends for tax purposes.

False

For a cash−basis taxpayer, security deposits received on rental property are taxable to the landlord upon receipt.

False

Gross income is limited to amounts received in the form of cash.

False

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

Finance Committee

Which of the following statements is incorrect?

Gift taxes are imposed on the recipient of a gift

Penelope is a recent college graduate employed by a regional CPA firm. Which of the following sources would provide the LEAST authoritative web-based reference for tax research?

Google search

Head of household

Hugo incurred $200,000 of federal student loan debt while attending college to become a teacher. His loan agreement states that his debt will be completely discharged if he is employed in a low-income area for a period of 10 years. Hugo graduates from college in 2015, starts working in 2017, and has his debt discharged in 2024. When will Hugo report income from the discharge of indebtedness?

Hugo does not need to recognize any income from the discharge of indebtedness.

Grand Corporation provides each of its employees with health and dental insurance, paying premiums of $15,000 per employee. This benefit is provided pre-tax. Which of the following employees receives the greatest tax benefit from the employer provided insurance?

Hugo, the company's senior vice president, is an unmarried taxpayer in the 37% tax bracket.

Which of the following employees is eligible for the foreign-earned income exclusion for 2020?

In 2020, Belden, a US citizen, works in his company's Aspen, Colorado office from January through the end of May. On June 1, he moves to Australia where he expects to be assigned for the next 15 months.

Which of the following employees is eligible for the foreign-earned income exclusion for 2020?

In 2020, Marie, a US citizen, works in her company's Hoboken, New Jersey office from January through the end of August. On September 1, she moves to France where she expects to be assigned for the next 14 months.

Which of the following is the most authoritative source of tax law?

Internal Revenue Code

In which committee are the House and Senate versions of a proposed tax law reconciled?

Joint Conference Committee

Riya files for an extension of her 2020 return. The due date of the return is April 15, 2021. Riya must file her return no later than ________.

October 15, 2021

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

Redistribution of wealth

Which of the following items of income is reported on Schedule E?

Rents

Ava reports income from a sole proprietorship and interest earned on savings accounts. In addition to the Form 1040, she will need to file

Schedule 1

Which of the following Code sections require that the discharge of indebtedness be included in income?

Section 61

Which of the following persons has income from the discharge of a debt?

Shady Corporation has a $100,000 outstanding loan with First Bank. Shady has experienced declining revenues and is trying to cut costs. Although Shady Corporation is not insolvent, First Bank agrees to new terms and discharges $20,000 of Shady's outstanding debt.

Which of the following employees must include amounts described below in their gross income?

Shristi is a social worker who makes home visits. She is provided with a $10 per day meal allowance to cover the cost of eating meals out while working.

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

They file as married filing jointly or married filing separately

A check received after banking hours is considered constructively received by the payee even though the check cannot be converted to cash.

True

A key factor in determining tax treatment of distributions from qualified retirement plans is whether the employee made pre−tax or after−tax contributions.

True

A taxpayer may not avoid responsibility for payment of income taxes by assigning the income to a third party.

True

Alimony received under the terms of a divorce agreement entered into in 2018 is taxable to the recipient while child support payments are not.

True

Becky wins a car and furniture on a television game show. The fair market value of these items is taxable to Becky.

True

Except as otherwise provided, gross income means all income from whatever source derived.

True

For federal income tax purposes, income is allocated between a husband and wife depending on the state of residence.

True

Which of the following individuals is least likely to be audited?

a college student with three part-time jobs

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

a partner in a partnership is taxed on his or her share of partnership income

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

an exclusion for interest earned by large businesses

In an S corporation, shareholders

are taxed on their proportionate share of earnings

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

all of the above (one spouse can be held responsible for the entire tax liability; the spouse with lower income has substantial medical expenses; a couple is separated and contemplating divorce)

Which of the following is NOT a deduction for AGI?

charitable contributions

All of the following items are included in gross income except

child support payments received

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

consideration by the House Ways and Means Committee

When new tax legislation is being considered by Congress

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

Which of the following credits is considered a refundable credit?

earned income credit

The CEO of a large corporation would like to reward employees without increasing their taxable income. Which of the following awards is excluded from gross income?

educational assistance plans

In 1776, Adam Smith outlined four criteria for a "good" tax structure, which include all of the following EXCEPT ________.

equality

Form 4868, a six−month extension of time to file, allows a taxpayer to

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.

When property is transferred, the gift tax is based on

fair market value on the date of transfer

Which of the following taxes is progressive?

federal income tax

As of 2019, the largest source of federal revenues is ________.

individual income taxes

The largest source of revenues for the federal government comes from

individual income taxes

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

may file a married filing jointly return

Which of the following is not a taxpaying entity?

partnership

The corporate tax rate is

proportional

Which is not a component of tax practice?

providing clients tax refund advance loans

Which of the following taxes is proportional?

sales tax

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

state and local income taxes

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