Question 1.1. (TCO 1) The Internal Revenue Code is an example of
judicial authority.
statutory authority.
administrative authority.
All of the above
Question 2.2. (TCO 2) A tax that is based on a person's eye color does not meet the standard that a good tax should be
sufficient.
convenient.
efficient.
fair.
Question 3.3. (TCO 3) John and Jennie Thomas are married and wish to file their taxes jointly. They are both 52 years old, neither is legally blind, and they had combined wage income of $125,000 in 2013. They also had interest income of $5,000 from a certificate of deposit and itemized deductions of $24,000. Their adjusted gross income for 2013 is
$93,100.
$98,200.
$125,000.
$130,000.
Question 4.4. (TCO 4) Which of the following is a true statement?
Independent contractors are highly compliant when it comes to paying taxes.
Independent contractors do not control the work that they do.
An independent contractor can have more than one client at a time.
A company is required to withhold taxes from an independent contractor.
Question 5.5. (TCO 5) Julia owns a condominium near the university that she rents to students. The condominium generated a $21,000 loss in 2013. Before the loss deduction, Julia's AGI was $75,000. How much of the loss on the condominium is deductible for Julia? (Points : 5)
$25,000
$21,000
$4,000
$0
Question 6.6. (TCO 6) An inter vivos transfer is
the transfer of money between bank accounts.
when property is transferred after the death of the transferor.
when property is transferred as a gift while the transferor is still alive.
when property is transferred as a gift while the transferee is still alive.
Question 7.7. (TCO 7) Quentin and Linda were divorced in 2012. In 2013, Quentin paid Linda $25,000 in alimony and $4,600 in child support. Linda received a W-2 from her job for $35,000 in 2013. What is Linda's AGI?
$25,000
$35,000
$60,000
$64,6000
Question 8.8. (TCO 8) A revenue agent has determined that Michael understated his tax liability for 2013 by $100,000. The agent concluded that $25,000 of the understatement was due to sloppy record keeping, and the remainder of the understatement was caused by his misapplication of a complex tax provision. What is the negligence penalty that the revenue agent can impose on Michael?
$20,000
$5,000
$2,500
$0
Question 9.9. (TCO 8) A revenue agent has determined that Michael understated his tax liability for 2013 by $85,000. The agent concluded that $30,000 of the understatement was due to sloppy record keeping, and the remainder of the understatement was caused by his misapplication of a complex tax provision. What is the negligence penalty that the revenue agent can impose on Michael?
$10,000
$6,000
$4,000
$0
Question 10.10. (TCO 9) In which of the following payment situations is there an allowable tax deduction?
$500 penalty for illegal gambling
$500 fine for speeding
$500 payment of a legal kickback
$100 failure to pay tax penalty
Question 11.11. (TCO 9) In which of the following situations does a cash-basis taxpayer have a fully deductible expense during the current tax year?
Prepayment of 3 months of insurance in September
Prepayment of 24 months of rent in July
Both taxpayers have a fully deductible expense during the current tax year.
Neither taxpayer has a fully deductible expense during the current tax year.
Question 12.12. (TCO 10) Which of the following is a true statement?
Leverage refers to selling an asset through debt financing.
Tax basis excludes money borrowed to acquire an asset.
Leverage can increase the after-tax cost of purchased assets.
None of the above
Question 13. 13. (TCO 10) What is the difference between a recognized gain or loss and a realized gain or loss? Would you rather have a realized gain or loss or a recognized gain or loss?
Question 14. 14. (TCO 9) Explain how a company chooses a taxable year. What do you think the taxable year for the following businesses would be?
i. A major league baseball team
ii. A chimney cleaning business
iii. A software consulting business
Question 15. 15. (TCO 8) Matthew and Mia have been house hunting. The real estate agent is trying to convince them that they should buy as much of the house as they can possibly afford. They are in a 33% tax bracket, so he has assured them that spending $28,000 a year on mortgage payments will reduce their taxes by $9,240. They may be even more reduced in the future as they continue to rack up the big raises over the next few years. The couple has always used the standard deduction and isn't really sure how the itemizing thing really works. Mia vaguely remembers her tax professor in college warning the class that some real estate agents tend to oversell the tax benefits of home ownership. What factors would cause the actual tax savings of a $28,000 mortgage payment to be less than the payment times the couple's highest ETR (estimated tax rate)?
Question 16. 16. (TCO 6) How is a taxable estate calculated? How do lifetime gifts fit into this equation? If you had an estate worth $10 million, what would you do to plan for passing your estate to your heirs with minimal tax consequences?
Question 17. 17. (TCO 3) Explain the formula for computing individual taxable income. Why do you think this formula is so much more complicated than the formula for computing corporate taxable income?
Question 18. 18. (TCO 1) What is the relationship between tax base and tax rate in determining the revenue collected by the government? Give an example of how a particular tax would fit into the various components of the equation.