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Taxation Intro
Tax Determination
Personal Exemptions
Dependency Exemp
Property Transactions
100
One of the motivations for making a gift is to save on income taxes.
TRUE. This presumes that income-producing property is involved and that the donee is in a lower tax bracket than the donor.
100
Surviving spouse filing status begins in the year in which the deceased spouse died.
FALSE. Surviving spouse filing status begins in the year following the year of death.
100
Jason’s business warehouse is destroyed by fire. As the insurance proceeds exceed the basis of the property, a gain results. If Jason shortly reinvests the proceeds in a new warehouse, no gain is recognized due to the application of the wherewithal to pay concept.
TRUE
100
A parent employs his twin daughters, age 17, in his sole proprietorship. The daughters are subject to FICA coverage.
FALSE. There is an exemption for taxpayer’s children who are under age 18.
100
The phaseout of the benefits of personal and dependency exemptions for certain taxpayers is scheduled to be eliminated.
TRUE. But the rescission is not completed until 2010.
200
A parent employs his twin daughters, age 17, in his sole proprietorship. The daughters are subject to FICA coverage.
FALSE There is an exemption for taxpayer’s children who are under age 18.
200
A landlord leases property upon which the tenant makes improvements. The improvements are significant and are not made in lieu of rent. At the end of the lease, the value of the improvements are not income to the landlord. This rule is an example of: a. The wherewithal to pay concept. b. The tax benefit rule. c. The arm’s length concept. d. A clear reflection of income result. e. None of the above.
A.
200
In 2008, Hal furnishes more than half of the support of his ex-wife and her father, neither of whom lives with him. The divorce occurred in 2007. Hal may claim the father-in-law but not the ex-wife as dependents.
TRUE. The father-in-law meets the relationship test, but the ex-wife does not. However, except in the year of divorce, an ex-wife can be a dependent under the member of the household test.
200
Benjamin, age 16, is claimed as a dependent by his parents. During 2008, he earned $700 at a car wash. Benjamin’s standard deduction is $1,200 ($900 + $300).
FALSE. His standard deduction is the greater of $900 or $1,000 ($700 + $300).
200
In determining whether the support test is met for dependency exemption purposes, only the taxable portion of a scholarship is considered.
FALSE. In applying the support test, all of the scholarship is disregarded. Scholarships are treated differently for purposes of the gross income test.
300
Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is: a. To take advantage of the per donee annual exclusion. b. To avoid a future decline in value of the property transferred. c. To take advantage of the higher unified transfer tax credit available under the gift tax. d. To shift income to higher bracket donees. e. None of the above.
A. The per donee annual exclusion is only available for gift tax purposes
300
Grace, age 67 and single, is claimed as a dependent on her son’s tax return. During 2008, she had interest income of $2,400 and $700 of earned income from baby sitting. Grace’s taxable income is: a. $150. b. $750. c. $850. d. $2,100. e. None of the above.
B. $3,100 gross income – greater of $900 or ($700 earned income + $300) – $1,350 (additional standard deduction for age 65 and older) = $750. She is not eligible for a personal exemption.
300
Spencer and Ashley are married and live in a common law state. Spencer wants to make gifts to their four children in 2008. What is the maximum amount of the annual exclusion they will be allowed for these gifts? a. $48,000. b. $96,000. c. $1,096,000. d. $2,096,000. e. None of the above.
B
300
Characteristics of the “Fair Tax” (i.e., national sales tax) include which, if any, of the following: a. Abolition of the Federal individual (but not the corporate) income tax. b. Abolition of all Federal income taxes but retention of payroll taxes (including the self-employment tax). c. Abolition of all Federal income taxes and payroll taxes but retention of the Federal estate and gift taxes. d. Abolition of all Federal income and payroll taxes as well as the Federal estate and gift taxes. e. None of the above.
D
300
Anna is a widow, age 74 and blind, who is claimed as a dependent by her son. During 2008, she received $4,800 in Social Security benefits, $1,200 in bank interest, and $1,800 in cash dividends from stocks. Anna’s taxable income for 2008 is: a. $3,000 – $900 – $2,700 = $0. b. $3,000 – $2,600 = $400. c. $3,000 – $900 – $1,350 = $750. d. $7,800 – $900 – $2,700 = $4,200. e. None of the above.
A. Although Anna has no earned income, she is entitled to a minimum regular standard deduction of $900. She also is allowed additional standard deductions for age and blindness of $2,700 ($1,350 + $1,350). At this level of income, the Social Security benefits are a nontaxable exclusion.
400
Which of the following is not a characteristic of the audit process? a. The IRS can reward informants when the information provided leads to the collection of additional taxes. b. Most taxpayer audits do not involve “special” agents. c. Self-employed taxpayers are more likely to be selected for audit than employed taxpayers. d. Less important issues are handled by means of a correspondence audit. e. If a taxpayer disagrees with the IRS auditor’s finding, the only resort is to the courts.
E. next step after an initial audit would be the Appeals Division within the IRS. Settlement at this level could avoid costly litigation
400
Emily, whose husband died in December 2008, maintains a household in which her dependent daughter lives. Which (if any) of the following is her filing status for the tax year 2008? (Note: Emily is the executor of her husband’s estate.) a. Single. b. Married, filing separately. c. Surviving spouse. d. Head of household. e. Married, filing jointly.
E
400
A characteristic of FUTA is that: a. It is imposed on both employer and employee. b. It is imposed solely on the employee. c. Compliance requires following guidelines issued by both state and Federal regulatory authorities. d. It is applicable to spouses of employees but not to any children under age 18. e. None of the above.
C
400
A characteristic of the fraud penalties is: a. Civil fraud can result in a fine and a prison sentence. b. When negligence and civil fraud apply to a deficiency, both penalties are imposed. c. The criminal fraud penalty is 75% of the deficiency attributable to the fraud. d. The IRS has a greater burden of proof in the case of criminal fraud than with civil fraud. e. None of the above.
D. In the case of criminal fraud, the IRS must also show willfulness on the part of the taxpayer
400
Grace, age 67 and single, is claimed as a dependent on her son’s tax return. During 2008, she had interest income of $2,400 and $700 of earned income from baby sitting. Grace’s taxable income is: a. $150. b. $750. c. $850. d. $2,100. e. None of the above.
B. $3,100 gross income – greater of $900 or ($700 earned income + $300) – $1,350 (additional standard deduction for age 65 and older) = $750. She is not eligible for a personal exemption.
500
Which, if any, of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS)? a. Penalties are imposed for failure to file a return or pay a tax on time. b. Prepaid income is taxed in the year received and not in the year earned. c. Annual adjustments for indexation increases the amount of the standard deduction allowed. d. Casualty losses must exceed $100 per event and 10% of AGI to be deductible. e. A deduction is allowed for charitable contributions.
E. particularly when trying to value property contributions, will add to the audit effort required by the IRS.
500
Which of the following taxpayers may file as a head of household in 2008? Ron provides all the support for his mother, Betty, who lives by herself in an apartment in Fort Lauderdale. Ron pays the rent and other expenses for the apartment and properly claims his mother as a dependent. Tammy provides over one-half the support for her 18-year old brother, Dan. Dan earned $4,200 in 2008 working at a fast food restaurant and is saving his money to attend college in 2009. Dan lives in Tammy’s home. Joe’s wife left him late in December of 2007. No legal action was taken and Joe has not heard from her in 2008. Joe supported his 6-year-old son, who lived with him throughout 2008. a. Ron only. b. Tammy only. c. Joe only. d. Ron and Joe only. e. Ron, Tammy, and Joe.
E. Ron may file as a head of household. His mother is not required to live in his household in order for him to qualify as a head of household. Tammy can claim Dan as a dependent because Dan is a qualifying child and is not subject to the gross income requirement. Joe can file as a head of household under the abandoned spouse rules
500
The proposed flat tax: a. Would simplify the income tax. b. Would eliminate the income tax. c. Would tax the increment in value as goods move through the production and manufacturing stages to the marketplace. d. Is a tax on consumption. e. None of the above.
A. There is only a single rate. The tax base is simplified by taxing only limited types of income. Many deductions and credits would be eliminated
500
Which, if any, of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS)? a. Penalties are imposed for failure to file a return or pay a tax on time. b. Prepaid income is taxed in the year received and not in the year earned. c. Annual adjustments for indexation increases the amount of the standard deduction allowed. d. Casualty losses must exceed $100 per event and 10% of AGI to be deductible. e. A deduction is allowed for charitable contributions.
E. particularly when trying to value property contributions, will add to the audit effort required by the IRS
500
For tax year 2008, an exception to the kiddie tax rules includes: a. A child who is a full-time student. b. A child who is married and files a joint return. c. A child who is 18 years old. d. A child whose unearned income is more than half of his or her support. e. None of the above.
B