Essentials of Federal Taxation Brian Spilker 11th Edition- Test Bank

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Essentials of Federal Taxation Brian Spilker 11th Edition- Test Bank

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Chapter 2   Tax Compliance, the IRS, and Tax Authorities

 

1) Corporations are required to file a tax return annually regardless of their taxable income.

 

2) The tax return filing requirements for individual taxpayers only depend on the taxpayer’s filing status.

 

3) If a taxpayer is due a refund, she does not have to file a tax return.

 

4) If April 15th falls on a Saturday, the due date for individual tax returns will be on Monday, April 17th (assuming it is not a holiday).

 

5) If an individual taxpayer is unable to file a tax return by its original due date, the taxpayer can request an automatic nine-month extension to file the return.

 

6) An extension to file a tax return does not extend the due date for tax payments.

 

7) The statute of limitations for IRS assessment generally ends four years after the date a tax return is filed.

 

8) For fraudulent tax returns, the statute of limitations for IRS assessment is 10 years.

 

9) The IRS DIF system checks each tax return for mathematical mistakes and errors.

 

10) Joel reported a high amount of charitable contributions as a deduction on his individual tax return relative to taxpayers with similar income levels. The information matching program is the IRS program most likely to identify Joel’s tax return for audit.

 

11) Office examinations are the most common type of IRS audit.

 

12) The three basic types of IRS examinations are computer exams, office exams, and business exams.

 

13) The “30-day” letter gives the taxpayer the opportunity to request an appeals conference or agree to a proposed IRS adjustment on the taxpayer’s income tax return.

 

14) The “90-day” letter gives the taxpayer the opportunity to pay a proposed IRS tax adjustment or file a petition in the U.S. District Court to contest the adjustment and hear the case.

 

15) If a taxpayer has little cash and a very technical tax case about which she feels very strongly that the tax rules are “on her side,” she should prefer to have her case tried in the U.S. Tax Court.

 

 

 

16) In researching a tax issue, Eric finds that the U.S. Circuit Court of Appeals for the Federal Circuit previously has ruled in favor of his tax position, whereas the 11th Circuit (Eric’s circuit) previously has ruled against his tax position. If Eric is contemplating litigating his tax position with the IRS, he should prefer to have his case first tried by the U.S. Tax Court.

 

17) If a taxpayer loses a case at the circuit court level, he is granted an automatic appeal hearing with the Supreme Court.

 

18) Secondary authorities are official sources of the tax law with a lesser “weight” than primary authorities.

 

19) Revenue rulings and revenue procedures are examples of primary authorities.

 

20) The Internal Revenue Code and tax treaties are examples of statutory authorities.

 

21) Because the U.S. District Court hears a broader set of cases, decisions by the U.S. District Court may be considered to have more authoritative weight than those by the U.S. Court of Federal Claims.

 

22) Temporary regulations have more authoritative weight than revenue rulings.

 

23) Proposed and temporary regulations have the same authoritative weight.

 

24) An acquiescence indicates that the IRS lost a court case and that it has decided to follow the court’s ruling in the future.

 

25) The Internal Revenue Code of 1986 is the name of the current income tax code of the United States of America.

 

26) As required by the Constitution, all tax bills are supposed to originate in the House of Representatives.

 

27) The Senate Ways and Means Committee is in charge of drafting tax bills in the U.S. Senate.

 

28) Closed facts are especially conducive to tax planning.

 

29) Of the two basic types of tax services, beginning tax researchers often prefer topical tax services.

 

30) In researching a question of fact, the researcher should focus her efforts on identifying authorities with fact patterns similar to her client’s facts.

 

31) Under the Statements on Standards for Tax Services, a CPA may recommend a tax return position if the position is frivolous and the position is not disclosed on the tax return.

 

 

 

32) In general, a CPA will satisfy his professional responsibilities under the Statements on Standards for Tax Services when recommending a tax return position if he complies with the standards imposed by the applicable tax authority.

 

33) Under the tax law, taxpayers may be subject to both civil and criminal penalties for underpaying their tax liability (e.g., due to fraud).

 

34) A taxpayer can avoid an underpayment penalty if there is substantial authority that supports her tax return position.

 

35) If the IRS assesses additional tax on a tax return upon audit, a taxpayer may be subject to interest and penalties on the underpayment.

 

36) Which of the following is not a factor that determines whether a taxpayer is required to file a tax return?

1. A) Filing status.
2. B) Taxpayer’s gross income.
3. C) Taxpayer’s employment.
4. D) Taxpayer’s age.
5. E) None of the choices are correct.

 

37) If Paula requests an extension to file her individual tax return in a timely manner, the latest she could file her return without a failure-to-file penalty is:

1. A) September 15th.
2. B) October 15th.
3. C) August 15th.
4. D) November 15th.
5. E) None of the choices are correct.

 

38) If Lindley requests an extension to file her individual tax return in a timely manner, the latest she could pay her tax due without penalty is:

1. A) April 15th.
2. B) October 15th.
3. C) August 15th.
4. D) November 15th.
5. E) None of the choices are correct.

 

39) Corporations are required to file a tax return only if their taxable income is greater than:

1. A) $0.
2. B) $1,000.
3. C) $600.
4. D) $750.
5. E) None of the choices are correct. Corporations are always required to file a tax return.

 

 

 

40) Generally, if April 15th falls on a Saturday, individual tax returns will be due on:

1. A) April 14th.
2. B) April 15th.
3. C) April 16th.
4. D) April 17th.
5. E) None of the choices are correct.

 

41) Dominic earned $1,500 this year, and his employer withheld $200 of federal income tax from his salary. Assuming that Dominic is single, 30 years old, and will have zero tax liability this year, he:

1. A) is required to file a tax return.
2. B) is not required to file a tax return but should file a return anyway.
3. C) is required to file a tax return but should not file because he owes no tax.
4. D) is not required to file a tax return and should not file a return.
5. E) None of the choices are correct.

 

42) Greg earned $25,500 this year and had $1,500 of federal income taxes withheld from his salary. Assuming that Greg is single, 25 years old, and will have a total tax liability of $1,402 (and thus will receive a $98 refund), he:

1. A) is required to file a tax return.
2. B) is not required to file a tax return but should file a return anyway.
3. C) is required to file a tax return but should not file because he owes no tax.
4. D) is not required to file a tax return and should not file a return.
5. E) None of the choices are correct.

 

43) Bill filed his 2019 tax return on March 15th, 2020. The statute of limitations for IRS assessment on Bill’s 2019 tax return should end:

2022. A) March 15th, 2022.
2023. B) April 15th, 2022.
2024. C) March 15th, 2023.
2025. D) April 15th, 2023.
2026. E) None of the choices are correct.

 

44) Henry filed his 2019 tax return on May 15th, 2020. The statute of limitations for IRS assessment on Henry’s 2018 tax return should end:

2022. A) May 15th, 2022.
2023. B) April 15th, 2022.
2024. C) May 15th, 2023.
2025. D) April 15th, 2023.
2026. E) None of the choices are correct.

 

 

 

45) Allen filed his 2019 tax return on May 15th, 2020, and underreported his gross income by 30 percent. Assuming Allen’s underreporting is not due to fraud, the statute of limitations for IRS assessment on Allen’s 2019 tax return should end:

2022. A) May 15th, 2022.
2023. B) April 15th, 2022.
2024. C) May 15th, 2023.
2025. D) April 15th, 2023.
2026. E) None of the choices are correct.

 

46) Andy filed a fraudulent 2019 tax return on May 1, 2020. The statute of limitations for IRS assessment on Andy’s 2019 tax return should end:

2023. A) May 1st, 2023.
2024. B) April 15th, 2023.
2025. C) May 1st, 2026.
2026. D) April 15th, 2026.
2027. E) None of the choices are correct.

 

47) Martin has never filed a 2019 tax return despite earning approximately $30,000 providing landscaping work in the community. In what tax year, will the statute of limitations expire for Martin’s 2019 tax return?

2022. A) 2022.
2023. B) 2023.
2024. C) 2026.
2025. D) 2027.
2026. E) None of the choices are correct.

 

48) Which of the following is not a common method that the IRS uses to select returns for audit?

1. A) DIF system.
2. B) Tax Select system.
3. C) Information matching.
4. D) Document perfection.
5. E) None of the choices are correct.

 

49) Leslie made a mathematical mistake in computing her tax liability. Which audit program will likely catch Leslie’s mistake?

1. A) DIF system.
2. B) Mathematical correction.
3. C) Document perfection.
4. D) Information matching.
5. E) None of the choices are correct.

 

 

 

50) Tyrone claimed a large amount of charitable contributions as a tax deduction relative to taxpayers with similar levels of income. If Tyrone’s tax return is chosen for audit because of his large charitable contributions, which audit program likely identified Tyrone’s tax return for audit?

1. A) DIF system.
2. B) Deduction Detective.
3. C) Document perfection.
4. D) Information matching.
5. E) None of the choices are correct.

 

51) Ramon’s tax return was randomly selected for audit. Which IRS program likely selected Ramon’s return for audit?

1. A) DIF system.
2. B) National Research Program.
3. C) Document perfection.
4. D) Information matching.
5. E) None of the choices are correct.

 

52) Which of the following audits is the most common and typically less comprehensive?

1. A) Correspondence.
2. B) Random.
3. C) Office.
4. D) Field.
5. E) None of the choices are correct.

 

53) Which of the following audits is the least common, broadest in scope, and typically most complex?

1. A) Correspondence.
2. B) Targeted.
3. C) Office.
4. D) Field.
5. E) None of the choices are correct.

 

54) Dan received a letter from the IRS that gave him the choice of (1) requesting a conference with an appeals officer or (2) agreeing to a proposed tax adjustment. Dan received the:

1. A) 30-day letter.
2. B) 90-day letter.
3. C) Appeals letter.
4. D) Tax adjustment letter.
5. E) None of the choices are correct.

 

 

 

55) Basu received a letter from the IRS that gave him the choice of (1) paying a proposed deficiency or (2) filing a petition with the U.S. Tax Court. Basu received the:

1. A) 30-day letter.
2. B) 90-day letter.
3. C) Appeals letter.
4. D) Tax adjustment letter.
5. E) None of the choices are correct.

 

56) Which of the following courts is the only court that provides for a jury trial?

1. A) Tax Court.
2. B) U.S. Court of Federal Claims.
3. C) U.S. District Court.
4. D) U.S. Circuit Court of Appeals.
5. E) None of the choices are correct.

 

57) Lavonda discovered that the 5th Circuit (where Lavonda resides) has recently issued a favorable opinion with respect to an issue that she is going to litigate with the IRS. Lavonda should choose which of the following trial courts to hear her case:

1. A) Tax Court only.
2. B) U.S. Court of Federal Claims only.
3. C) U.S. District Court only.
4. D) Tax Court or the U.S. District Court.
5. E) Tax Court or the U.S. Court of Federal Claims.

 

58) Lavonda discovered that the U.S. Circuit Court of Appeals for the Federal Circuit has recently issued a favorable opinion with respect to an issue that she is going to litigate with the IRS. Lavonda should choose which of the following trial courts to hear her case:

1. A) Tax Court only.
2. B) U.S. Court of Federal Claims only.
3. C) U.S. District Court only.
4. D) Tax Court or the U.S. District Court.
5. E) Tax Court or the U.S. Court of Federal Claims.

 

59) Rowanda could not settle her tax dispute with the IRS at the appeals conference. If she wants to litigate the issue but does not have sufficient funds to pay the proposed tax deficiency, Rowanda should litigate in the:

1. A) U.S. District Court.
2. B) U.S. Circuit Court of Appeals.
3. C) U.S. Court of Federal Claims.
4. D) Tax Court.
5. E) None of the choices are correct.

 

 

 

60) Which of the following is not considered a primary authority?

1. A) Tax Court case.
2. B) Treasury Regulation.
3. C) Revenue ruling.
4. D) Tax service.
5. E) None of the choices are correct.

 

61) Which of the following is not considered a secondary authority?

1. A) Textbook.
2. B) Private letter ruling.
3. C) Tax article.
4. D) Tax service.
5. E) None of the choices are correct.

 

62) Which of the following has the highest authoritative weight?

1. A) Textbook.
2. B) Private letter ruling.
3. C) Revenue ruling.
4. D) Tax service.
5. E) Tax article.

 

63) Which of the following has the highest authoritative weight?

1. A) Legislative regulation.
2. B) Private letter ruling.
3. C) Revenue ruling.
4. D) Action on decision.
5. E) Revenue procedure.

 

64) Josephine is considering taking a six-month rotation in Paris for her job. Which type of authority may be especially helpful in determining the tax consequences of Josephine’s job in Paris?

1. A) Determination letter.
2. B) Private letter ruling.
3. C) Tax treaty.
4. D) Regulation.
5. E) Revenue procedure.

 

65) Generally, code sections are arranged (grouped together):

1. A) chronologically.
2. B) by topic.
3. C) randomly.
4. D) by length.
5. E) None of the choices are correct.

 

 

 

66) Which of the following has the lowest authoritative weight?

1. A) Legislative regulation.
2. B) Private letter ruling.
3. C) Revenue ruling.
4. D) Interpretative regulation.
5. E) Revenue procedure.

 

67) Which judicial doctrine means that a court will rule consistently with its previous rulings and the rulings of higher courts with appellate jurisdiction?

1. A) Judicial hierarchy.
2. B) The Goldman
3. C) Judicial consistency.
4. D) Stare decisis.
5. E) None of the choices are correct.

 

68) The regulation with the lowest authoritative weight is the:

1. A) Procedural regulation.
2. B) Interpretative regulation.
3. C) Proposed regulation.
4. D) Legislative regulation.
5. E) None of the choices are correct.

 

69) Princess, who resides in the 2nd Circuit, recently found a circuit court case that is favorable to her income tax research question. Which of the following circuits would she prefer to have issued the opinion?

1. A) 2nd
2. B) Federal Circuit.
3. C) 1st
4. D) 2ndCircuit or the Federal Circuit.
5. E) None of the choices are correct.

 

70) Jaime recently found a “favorable” trial–level court opinion directly on point for her tax question. Which trial-level court would she prefer to have issued the opinion?

1. A) Tax Court.
2. B) District Court.
3. C) Circuit Court.
4. D) Divorce Court.
5. E) None of the choices are correct.

 

71) Which of the following committees typically initiates tax legislation?

1. A) House Ways and Means Committee.
2. B) Joint Conference Committee.
3. C) Senate Finance Committee.
4. D) Senate Tax Committee.
5. E) None of the choices are correct.

 

72) Edie would like to better understand a new code section enacted four weeks ago. Which of the following authorities will help Edie understand the newly enacted code section?

1. A) IRS regulations.
2. B) U.S. Tax Court cases.
3. C) Committee reports.
4. D) IRS revenue rulings.
5. E) None of the choices are correct.

 

73) If the president vetoes tax legislation, Congress:

1. A) cannot override the president’s veto.
2. B) can override the president’s veto with a 50 percent positive vote in the House and Senate.
3. C) can override the president’s veto with a two-thirds positive vote in the House and Senate.
4. D) can override the president’s veto with a 75 percent positive vote in the House and Senate.
5. E) None of the choices are correct.

 

74) Jeremy has a new client. He has identified a research question that relates to a transaction that the client completed several months ago. This type of research question will primarily involve:

1. A) open facts.
2. B) new facts.
3. C) old facts.
4. D) closed facts.
5. E) None of the choices are correct.

 

75) In a planning context,

1. A) closed facts are preferred to open facts.
2. B) new facts are preferred to old facts.
3. C) old facts are preferred to new facts.
4. D) open facts are preferred to closed facts.
5. E) None of the choices are correct.

 

76) Which of the following types of tax services is arranged by code section?

1. A) legal tax service.
2. B) annotated tax service.
3. C) professional tax service.
4. D) topical tax service.
5. E) None of the choices are correct.

 

77) Which of the following is not a common tool used in conducting tax research?

1. A) citator.
2. B) annotated tax service.
3. C) topical tax service.
4. D) keyword search.
5. E) None of the choices are correct.

 

 

 

78) Which of the following is not a source of a tax practitioner’s professional responsibilities?

1. A) AICPA Code of Professional Conduct.
2. B) Statements on Standards for Tax Services.
3. C) Circular 230.
4. D) State board of accountancy statutes.
5. E) None of the choices are correct.

 

79) According to Statements on Standards for Tax Services No. 1, a tax practitioner can recommend a tax return position:

1. A) if the position is frivolous and disclosed on the tax return.
2. B) if the position complies with the standards imposed by the applicable tax authority.
3. C) only if the position meets the “more likely than not” standard.
4. D) only if the position meets the “clear and convincing evidence” standard.
5. E) None of the choices are correct.

 

80) Circular 230 was issued by:

1. A) AICPA.
2. B) State boards of accountancy.
3. C) American Bar Association.
4. D) IRS.
5. E) None of the choices are correct.

 

81) Which of the following is a false statement? A taxpayer filing a fraudulent tax return:

1. A) is potentially subject to criminal penalties.
2. B) is potentially subject to civil penalties.
3. C) is potentially subject to fines and a prison sentence.
4. D) will have an unlimited statute of limitations for the fraudulent tax return.
5. E) None of the choices are correct.

 

82) For which of the following tax violations is a civil penalty not imposed on taxpayers?

1. A) failure to file a tax return.
2. B) failure to pay tax owed.
3. C) fraud.
4. D) failure to make estimated tax payments.
5. E) None of the choices are correct.

 

83) A taxpayer can avoid a substantial understatement of tax penalty:

1. A) if the position is frivolous and disclosed on the tax return.
2. B) if the position has a realistic possibility of being sustained by the IRS or courts.
3. C) if there is substantial authority to support the position.
4. D) if the position has a reasonable basis and is not disclosed on the tax return.
5. E) None of the choices are correct.

 

 

 

84) A taxpayer can avoid a substantial understatement of tax penalty:

1. A) if the position is frivolous and disclosed on the tax return.
2. B) if the position has a realistic possibility of being sustained by the IRS or courts.
3. C) if the position is not frivolous and disclosed on the tax return.
4. D) if the position has a reasonable basis and is disclosed on the tax return.
5. E) None of the choices are correct.

 

85) Which types of penalties are only imposed after normal due process including a trial?

1. A) criminal penalties.
2. B) civil penalties.
3. C) criminal and civil penalties.
4. D) Failure-to-file penalty.
5. E) None of the choices are correct.

 

86) A tax practitioner can avoid IRS penalty relating to a tax return position:

1. A) if the position is frivolous and disclosed on the tax return.
2. B) if the position has a realistic possibility of being sustained by the IRS or courts.
3. C) if there is substantial authority to support the position.
4. D) if the position has a reasonable basis and is not disclosed on the tax return.
5. E) None of the choices are correct.

 

87) A tax practitioner can avoid IRS penalty relating to a tax return position:

1. A) only if the position has a more likely than not chance of being sustained by the IRS or courts.
2. B) if the position has a realistic possibility of being sustained by the IRS or courts.
3. C) if there is not substantial authority to support the position.
4. D) if the position has a reasonable basis and is disclosed on the tax return.
5. E) None of the choices are correct.

 

88) Tina has a very complex tax return and it looks like she will not be able to file her tax return by its due date. When is her tax return due? What are Tina’s options for paying her tax due and filing her tax return this year? What are the consequences if Tina does not file or pay her tax in a timely manner? Be specific.

 

89) For the following taxpayers indicate whether the taxpayer should file a tax return and why.

 

1. Robert earned $50,000 this year as a staff accountant. His estimated tax liability is $4,500, and he expects to receive a $500 tax refund.
2. Amy earned $4,000 this year working part-time. She will have no federal tax liability and has not made any federal tax payments.
3. Ty earned $2,500 this summer and had $200 of federal taxes withheld from his paycheck. He will have no federal tax liability this year.
4. Startup Corporation had a $50,000 loss this year.
5. The Walker Family Trust earned $500 of gross income this year.

 

 

 

90) For the 2019 tax returns, indicate when the statute of limitations expires and why.

 

2020. Phoenix filed his tax return on February 28, 2020.
2021. Jill and Randy filed their tax return on August 16, 2020.
2022. Although required to file, Catherine chose not to file a tax return this year because she was expecting a tax refund and could not pull together all the information needed to file the return.
2023. Jerry filed his tax return on May 22, 2020, but has accidentally underreported his taxable income by 30 percent.

 

91) For the 2019 tax returns, indicate when the statute of limitations expires and why.

 

2020. Simon filed his tax return on April 10, 2020.
2021. Billy and Barbara filed their tax returns late on December 1, 2020.
2022. Pearson earns a living through various illegal activities. He filed his tax return on March 14, 2020, but did not report his illegal income on his tax return.
2023. Luther filed his tax return on July 17, 2020, but has accidentally underreported his gross income by 20 percent.

 

92) For the following tax returns, identify the method the IRS likely used to select the return for audit.

 

1. Dan made a mistake in adding his income on his tax return.
2. Juanita failed to report her salary from her second job on her tax return.
3. Michael and Venita deducted a relatively large amount of travel expenses on their tax return for their business. The travel expense is large relative to other taxpayers in similar businesses with similar levels of income.
4. Paul and Melissa recently went through a very nasty divorce. One of the issues was Paul’s less than forthright accounting of his income in determining the appropriate level of alimony.

 

93) For the following tax returns, identify which of the three audit types will most likely be utilized.

 

1. The IRS selected Don’s return for audit because of his high itemized deductions. The IRS would like documentation of these deductions.
2. Large Public Corporation is a very large publicly traded corporation. It is involved in many complex transactions that have significant tax ramifications.
3. George and Barbara operate a small business out of their home. The IRS has identified a couple of issues that may relate to their business.
4. The IRS selected Bill and Hillary’s tax return for review because of some of their investment sales. They would like a better understanding of the transactions and parties involved.

 

94) The IRS has recently completed its audit of Lorene’s corporation. As a tax novice, she has very little understanding regarding the audit process and what happens next. Describe the post-audit process for Lorene and identify her options.

 

 

 

95) Mel recently received a 30-day letter from the IRS. Although his tax return being audited has several potential large issues (potential tax consequences of $70,000 − $80,000), the IRS agent auditing his return only identified one item that will require a modest adjustment of $10,000. Mel feels strongly that the $10,000 adjustment would not hold up in court and was surprised that the IRS agent did not identify some of the other potential larger issues. What are Mel’s choices with respect to the 30-day letter and what factors should influence his decisions?

 

96) Kim has decided to litigate a tax issue with the IRS. Describe the trial – level courts that Kim may use to litigate the case.

 

97) For the following taxpayers, please recommend the most advantageous trial – level court(s) to litigate a tax issue with the IRS.

 

1. Joe is litigating a tax issue with the IRS that is considered a question of fact (i.e., the answers depend on the facts of the case). There is not a lot of authority on point for this case, but Joe has a very appealing story to justify his position that is likely to be viewed sympathetically by his peers.
2. The Circuit Court of Appeals for the Federal Circuit recently issued an opinion that is very favorable to the issue that Jesse plans to litigate with the IRS.
3. The Circuit Court of Appeals for the Federal Circuit recently issued an opinion that is not favorable to the issue that Hank plans to litigate with the IRS.
4. The 7thCircuit (where Elizabeth resides) recently issued an opinion that is very favorable to the issue that Elizabeth plans to litigate with the IRS.

 

98) A client has recently learned of a proposed tax bill that would increase the tax rates on investment gains by 5 percent. The president does not support this increase. Please describe for your client the process by which new tax legislation is created and how the president’s disapproval may influence the enactment of the bill.

 

99) Chris and Chuck were recently debating whether the Internal Revenue Code is “logical.” Chris offers that she has briefly reviewed the Code and could hardly understand its organizational structure, if there is one. Please describe the basic organization of the Code and how understanding its organization may be especially beneficial to the tax researcher.

 

100) Carey was researching a tax issue and located what appears to be a favorable IRS regulation. He knows that regulations serve different purposes and are issued in different forms. Which purpose and which form of regulation would provide Carey the most confidence that he has found an authority that carries a lot of weight for the long term? How could Carey check the status of this regulation?

 

101) Campbell was researching a tax issue and found a favorable tax court opinion and an IRC Code Section that appear to answer the question. Is she finished with the research process? If so, why? If not, what must she do?

 

 

 

102) Roddy was researching an issue and found a favorable tax court decision that addresses his issue. He also determined that there was a nonacquiescence for the case. Who issued the nonacquiescence? What is it? What does it mean and how would it affect Roddy’s reliance on the court case?

 

103) Raul was researching an issue and found two tax court decisions issued within six months of each other, one for a taxpayer residing in California and the other for a taxpayer residing in New York, whose rulings were inconsistent. Raul knows that the federal tax law does not differ by state and the issue was exactly the same in both cases. Raul is confused because he thought that a basic judicial doctrine was that a court is supposed to rule consistently. Name and describe this judicial doctrine that requires judicial consistency and discuss why the tax court may have intentionally ruled inconsistently in this example.

 

104) Rebecca is at a loss. A new tax law was recently passed, and she needs to get a better understanding of why the tax law was passed and the intent of the law from an official authority. Describe what authorities may be especially helpful to Rebecca and why she can’t find many authorities that discuss the new law.

 

105) Lakeisha, a first-year staff accountant, was researching a tax issue and found what appears to be the answer to her question in her introductory tax textbook that she bought three years ago. She is thrilled because she thought it would take much longer to find her answer. What type of authority is the textbook? What are other examples of this type of authority? Can Lakeisha base her research conclusion on the textbook or similar authorities? Any suggestions for Lakeisha?

 

106) Kodak is a beginning tax researcher. He knows that the first step of the research process is to get an understanding of the facts surrounding the transaction being researched. Describe the two basic types of facts, the sources of facts for a research project, and any advice that may help Kodak.

 

107) Caitlin is a tax manager for an accounting firm, and Duff is a first-year staff accountant. Describe the differences in the manner in which Caitlin and Duff may identify research issues and in general how one may identify research questions.

 

108) Lindy, a tax intern, is beginning her first tax research case for her employer. Her manager has given her a basic understanding of the facts and has identified the basic research question. Lindy is now ready to begin searching for relevant tax authorities. Describe the different types of research tools available to help a tax researcher locate relevant authority and identify which type may be especially useful for Lindy.

 

109) Hong, an introductory tax student, is beginning his first research project. He has a complete understanding of the relevant facts for his project and has identified the initial research questions. He is now ready to begin using a tax service to identify relevant authorities. What are some suggestions for him on how to use tax services to identify relevant authorities?

 

 

 

110) Mary Ann is working on a pretty big research project. Her manager has alerted her to the possibility that some of her research questions are likely to be questions of fact, whereas others are likely to be questions of law. Explain the difference between the two types of questions and how this would influence her research.

 

111) Nolene suspects that one of her new clients may be intentionally underreporting his taxable income. What are the potential ramifications to her client for this behavior? What are the consequences to Nolene if she assists the client in underreporting income? Any advice for Nolene?

 

112) Houston has found conflicting authorities that address a research question for one of his clients. The majority of the authorities provide a favorable answer for his client. Nonetheless, there are several authorities that provide an unfavorable answer. Houston estimates that if the client takes the more favorable position on its tax return there is approximately a 60 percent chance that the position will be sustained upon audit or judicial proceeding. If the client takes this position on its tax return, will Houston be subject to penalty? Will the client potentially be subject to penalty?

 

Essentials of Federal Taxation, 11e (Spilker)

Chapter 4   Individual Income Tax Overview, Dependents, and Filing Status

 

1) The only from AGI deductions are the standard deduction and itemized deductions.

 

2) Taxpayers need not include an income item in gross income unless there is a specific tax provision requiring the taxpayer to include the income item in gross income.

 

3) The standard deduction amount for married filing separately taxpayers (MFS) is less than the standard deduction amount for married filing jointly taxpayers.

 

4) Taxpayers are generally allowed to claim deductions for expenditures unless a specific tax provision indicates the expenditure is not deductible.

 

5) From AGI deductions are generally more valuable to taxpayers than for AGI deductions.

 

6) From AGI deductions are commonly referred to as deductions “below the line.”

 

7) For AGI deductions are commonly referred to as deductions “below the line.”

 

8) For AGI deductions are commonly referred to as deductions “above the line.”

 

9) Itemized deductions and the standard deduction are deductions from AGI but the deduction for qualified business income is a deduction for AGI.

 

10) The standard deduction amount varies by filing status.

 

11) Taxpayers are allowed to deduct a specific amount for each of their dependents.

 

12) A personal automobile is a capital asset.

 

13) The character of income is a factor in determining the rate at which the income is taxed.

 

14) Inventory is a capital asset.

 

15) Qualified dividends are taxed at the same rate as ordinary income.

 

16) Certain types of income are taxed at a lower rate than ordinary income.

 

17) In addition to the individual income tax, individuals may be required to pay taxes imposed on tax bases other than the individual’s regular taxable income.

 

18) Tax credits reduce taxable income dollar for dollar.

 

19) Tax credits are generally more valuable than tax deductions because tax credits reduce a taxpayer’s gross tax liability dollar for dollar while tax deductions do not.

 

20) Taxpayers may prepay their tax liability through withholdings and through estimated tax payments.

 

21) Taxpayers are allowed to claim a child tax credit for their qualifying children and certain other qualifying dependents.

 

22) In certain circumstances, a taxpayer who provides less than half the support of another may still be able to claim that person as a dependent as a qualifying relative.

 

23) A taxpayer who is claimed as a dependent on another’s tax return may not claim any dependents on his or her tax return.

 

24) Anna is a qualifying child of her parents. However, she was recently married. Anna and her husband filed a joint return. If they had filed separately, Anna would have owed no taxes, though her husband would have owed just $5. Because Anna herself owed no taxes, her parents can still claim her as a dependent.

 

25) To be considered a qualifying child of a taxpayer, the individual must be the son or daughter of the taxpayer.

 

26) For purposes of the qualifying child residence test, a child’s temporary absence from the taxpayer’s home to attend school full time is counted as though the child lived in the taxpayer’s home during the absence.

 

27) An individual may never be considered as both a qualifying relative and a qualifying child of the same taxpayer.

 

28) An individual may be considered as a qualifying child of her parents and a qualifying child of her grandparents in the same year.

 

29) An individual may meet the relationship test to be a taxpayer’s qualifying relative even if the individual has no family relationship with the taxpayer.

 

30) When determining whether a child meets the qualifying child support test for the parents, scholarships earned by the child do not count as self-support provided by the child.

 

31) When determining whether a child meets the qualifying child support test for the child’s grandparents, scholarships earned by the child do not count as self-support provided by the child.

 

32) An individual with gross income of $5,000 could qualify as a qualifying child of another taxpayer but could not qualify as a qualifying relative of another taxpayer.

 

33) An individual receiving $5,000 of tax-exempt income during the year could qualify as a qualifying child of another taxpayer but could not qualify as a qualifying relative of another taxpayer.

 

34) The relationship requirement is more broadly defined (includes more relationships) for a qualifying relative than for a qualifying child.

 

35) The relationship requirement for qualifying relative includes cousins.

 

36) The relationship test for qualifying relative requires the potential qualifying relative to have a family relationship with the taxpayer.

 

37) The test for qualifying child includes an age restriction but the test for qualifying relative does not.

 

38) The test for a qualifying child includes a gross income restriction while the test for qualifying relative does not.

 

39) If a taxpayer does not provide more than half the support of a child, that child cannot qualify as the taxpayer’s qualifying child.

 

40) To determine filing status, a taxpayer’s marital status is determined on January 1 of each tax year in question.

 

41) It is generally more advantageous from a tax perspective for a married couple to file separately than it is for them to file jointly.

 

42) It is generally more advantageous for liability protection purposes for a married couple to file separately than it is for them to file jointly.

 

43) Jeremy and Annie are married. During the year Jeremy dies. When Annie files her tax return for the year in which her husband dies, she may file under the married filing jointly filing status even if she does not remarry.

 

44) Jennifer and Stephan are married at year-end and they file separate tax returns. If Jennifer itemizes deductions on her return, Stephan must also itemize deductions on his return even if his itemized deductions don’t exceed his standard deduction.

 

45) Bonnie and Ernie file a joint return. Bonnie works and receives income during the year but Ernie does not. If the couple files a joint tax return, Ernie is responsible for paying any taxes due if Bonnie is unable to pay the taxes.

 

46) Eric and Josephine were married in Year 1. In Year 2, Eric dies. The couple did not have any children. Assuming Josephine does not remarry, she may file as a qualifying widow in Year 3.

 

47) Taxpayers who file as qualifying widows/widowers use a different tax rate schedule than taxpayers who are married filing jointly for tax purposes.

 

 

 

48) A taxpayer may not qualify for the head of household filing status if she does not have any dependent children.

 

49) A taxpayer may qualify for the head of household filing status if she has no dependent children but pays more than half of the cost of maintaining a separate household for her dependent mother and/or father.

 

50) If an unmarried taxpayer provides more than half the support for a cousin who lives in the taxpayer’s home for the entire year, the taxpayer will qualify for head of household filing status.

 

51) If an unmarried taxpayer is eligible to claim another as a dependent, the taxpayer is automatically eligible for the head of household filing status.

 

52) Charles, who is single, pays all of the costs of maintaining a home for himself and Damarcus. Charles and Damarcus have no family relationship but Damarcus lives with Charles for the entire year. Damarcus qualifies as a qualifying relative of Charles. (Charles claims Damarcus as a dependent on his tax return.) Charles qualifies for head of household filing status.

 

53) In certain circumstances, a married taxpayer who does not file a joint tax return with her spouse may qualify for the head of household filing status.

 

54) If no one qualifies as the dependent of an unmarried taxpayer, the unmarried taxpayer may still be able to qualify for the head of household filing status.

 

55) The income tax base for an individual tax return is:

1. A) Realized income from whatever source derived.
2. B) Gross income.
3. C) Adjusted gross income.
4. D) Adjusted gross income minus from AGI deductions.

 

56) Which of the following series of inequalities is generally most accurate?

1. A) Gross income ≥ adjusted gross income ≥ taxable income
2. B) Adjusted gross income ≥ gross income ≥ taxable income
3. C) Adjusted gross income ≥ taxable income ≥ gross income
4. D) Gross income ≥ taxable income ≥ adjusted gross income

 

57) Which of the following statements regarding realized income is true?

1. A) Taxpayers need not include realized income in gross income unless a specific provision of the tax code requires them to do so.
2. B) Realized income requires some type of transaction or exchange with a second party.
3. C) Once income is realized it cannot be excluded from gross income.
4. D) None of these statements are true.

 

 

 

58) Which of the following statements regarding exclusions and/or deferrals is false?

1. A) Exclusions are favorable because taxpayers never pay tax on income that is excluded.
2. B) Interest income from municipal bonds is excluded from gross income.
3. C) Deferrals are income items taxpayers realize in one year but include in gross income in a subsequent year.
4. D) An income item need not be realized in order to qualify as an exclusion item.

 

59) Sally received $60,000 of compensation from her employer and she received $500 of interest from a corporate bond. What is the amount of Sally’s gross income from these items?

1. A) $0.
2. B) $500.
3. C) $60,000.
4. D) $60,500.

 

60) Lebron received $50,000 of compensation from his employer and he received $400 of interest from a municipal bond. What is the amount of Lebron’s gross income from these items?

1. A) $0.
2. B) $400.
3. C) $50,000.
4. D) $50,400.

 

61) Joanna received $60,000 compensation from her employer, the value of her stock in ABC company appreciated by $5,000 during the year (but she did not sell any of the stock), and she received $30,000 of life insurance proceeds from the death of her husband. What is the amount of Joanna’s gross income from these items?

1. A) $60,000.
2. B) $65,000.
3. C) $95,000.
4. D) $90,000.

 

62) Which of the following statements regarding tax deductions is false?

1. A) Taxpayers are not entitled to any deductions unless specific provisions in the tax code allow the deductions.
2. B) Deductions can be labeled as deductions above the line or deductions below the line.
3. C) From AGI deductions tend to be associated with business activities while for AGI deductions tend to be associated with personal activities.
4. D) The standard deduction is a from AGI deduction.

 

63) Which of the following statements regarding for AGI tax deductions is true?

1. A) Taxpayers subtract for AGI deductions from gross income to determine AGI.
2. B) A taxpayer may deduct for AGI deductions only if the deductions exceed the taxpayer’s standard deduction amount.
3. C) The deduction for qualified business income is a for AGI deduction.
4. D) A taxpayer may deduct for AGI deductions only if the deductions exceed the taxpayer’s itemized deductions.

 

64) All of the following are for AGI deductions except:

1. A) Contributions to qualified retirement accounts.
2. B) Rental and royalty expenses.
3. C) Business expenses for a self-employed taxpayer.
4. D) Charitable contributions.

 

65) Which of the following is NOT a from AGI deduction?

1. A) Standard deduction.
2. B) Itemized deduction.
3. C) Deduction for qualified business income.
4. D) None of these. All of these are from AGI deductions.

 

66) Which of the following is not an itemized deduction?

1. A) Alimony paid.
2. B) Medical expenses.
3. C) Real estate taxes.
4. D) Charitable contributions.

 

67) Which of the following shows the correct relationship among standard deduction amounts for the respective filing statuses?

1. A) Single > Head of Household > Married Filing Jointly
2. B) Married Filing Jointly > Married Filing Separately > Head of Household
3. C) Married Filing Jointly > Head of Household > Single
4. D) Head of Household > Married Filing Separately > Married Filing Jointly

 

68) Which of the following types of income are not considered ordinary income?

1. A) Compensation income.
2. B) Net long-term capital gains (in excess of short-term capital losses).
3. C) Qualified dividend income.
4. D) Both compensation income and qualified dividend income.
5. E) Both net long-term capital gains (in excess of short-term capital losses) and qualified dividend income.

 

69) All of the following represent a type or character of income except:

1. A) Tax-exempt.
2. B) Capital.
3. C) Qualified dividend.
4. D) Normal.

 

70) Which of the following statements is true?

1. A) Income character determines the tax year in which the income is taxed.
2. B) Income character depends on the taxpayer’s filing status.
3. C) Qualified dividend income is taxed at a lower rate than an equal amount of ordinary income.
4. D) A taxpayer selling a capital asset at a gain recognizes ordinary income.

 

 

 

71) Which of the following statements regarding tax credits is true?

1. A) Tax credits reduce taxable income dollar for dollar.
2. B) Tax credits provide a greater tax benefit the greater the taxpayer’s marginal tax rate.
3. C) Tax credits reduce taxes due dollar for dollar.
4. D) None of these statements are true.

 

72) Jamison’s gross tax liability is $7,000. Jamison had $2,000 of available credits and he had $4,000 of taxes withheld by his employer. What are Jamison’s taxes due (or taxes refunded) with his tax return?

1. A) $5,000 taxes due.
2. B) $1,000 taxes due.
3. C) $1,000 tax refund.
4. D) $3,000 taxes due.

 

73) Madison’s gross tax liability is $9,000. Madison had $3,000 of tax credits available and she had $8,000 of taxes withheld by her employer. What are Madison’s taxes due (or taxes refunded) with her tax return?

1. A) $0 taxes due and $0 tax refund.
2. B) $6,000 taxes due.
3. C) $2,000 tax refund.
4. D) $1,000 taxes due.

 

74) Which of the following statements regarding dependents is false?

1. A) A taxpayer may be allowed to claim another as a dependent even if the taxpayer has no family relationship with the other person.
2. B) To qualify as a dependent of another, an individual must be a resident of the United States.
3. C) An individual who qualifies as a dependent of another taxpayer may not claim any dependents.
4. D) An individual cannot qualify as a dependent of another as a qualifying relative taxpayer if the individual’s gross income exceeds a certain amount.

 

75) Which of the following statements regarding dependents is true?

1. A) To qualify as a dependent of another, an individual must be a resident of the United States.
2. B) To qualify as a dependent of another, an individual may not file a joint return with the individual’s spouse under any circumstance.
3. C) To qualify as a dependent of another, an individual must have a family relationship with the other person.
4. D) To qualify as a dependent of another, an individual must be either a qualifying child or a qualifying relative of the other person.

 

76) All of the following are tests for determining qualifying child status except the ________.

1. A) gross income test
2. B) age test
3. C) support test
4. D) residence test

 

77) Which of the following relationships does NOT pass the relationship test for a qualifying child?

1. A) Stepsister’s daughter.
2. B) Half-brother.
3. C) Cousin.
4. D) Stepsister.

 

78) Anna is a 21-year-old full-time college student (she plans on returning home at the end of the school year). Her total support for the year was $34,000 (including $8,000 of tuition). Anna covered $12,000 of her support costs out of her own pocket (from savings, she did not work) and she received an $8,000 scholarship that covered all of her tuition costs. Which of the following statements regarding who is allowed to claim Anna as an exemption is true?

1. A) Even if Anna’s parents provided the remaining $14,000 of support for Anna ($34,000 minus $12,000 minus $8,000), they would not be able to claim her as a dependent.
2. B) Even if Anna’s grandparents provided the remaining $14,000 of support for Anna ($34,000 minus $12,000 minus $8,000), they would not be able to claim her as a dependent.
3. C) Because she provided more than half her own support, Anna would not qualify as her parents’ dependent.
4. D) None of these statements are true.

 

79) Charlotte is the Lucas family’s 22-year-old daughter. She is a full-time student at an out-of-state university but plans to return home when the school year ends. During the year, Charlotte earned $4,000 of income working part time. Her support totaled $30,000 for the year. Of this amount, Charlotte paid $7,000 with her own funds, her parents paid $14,000, and Charlotte’s grandparents paid $9,000. Which of the following statements most accurately describes whether Charlotte’s parents can claim Charlotte as a dependent?

1. A) Yes, Charlotte is a qualifying child of her parents.
2. B) No, Charlotte fails the support test for both qualifying children and qualifying relatives.
3. C) No, Charlotte does not pass the gross income test.
4. D) Yes, Charlotte is a qualifying relative of her parents.

 

80) In Year 1, the Bennetts’ 25-year-old daughter, Jane, is a full-time student at an out-of-state university but she plans to return home after the school year ends. In previous years, Jane has never worked and her parents have always been able to claim her as a dependent. In Year 1, a kind neighbor offers to pay for all of Jane’s educational and living expenses. Which of the following statements is most accurate regarding whether Jane’s parents would be allowed to claim Jane as a dependent for Year 1, assuming the neighbor pays for all of Jane’s support?

1. A) No, Jane must include her neighbor’s gift as income and thus fails the gross income test for a qualifying relative.
2. B) Yes, because she is a full-time student and does not provide more than half of her own support, Jane is considered her parent’s qualifying child.
3. C) No, Jane is too old to be considered a qualifying child and her parents fail the support test of a qualifying relative because they did not provide more than half her support.
4. D) Yes, because she is a student, her absence is considered as “temporary.” Consequently she meets the residence test and is considered a qualifying child of the Bennetts.

 

81) Sheri and Jake Woodhouse have one daughter, Emma, who is 16 years old. They also have taken in Emma’s friend, Harriet, who has lived with them since February of the current year and is also 16 years of age. The Woodhouses have not legally adopted Harriet but Emma often refers to Harriet as her “sister.” The Woodhouses provide all of the support for both girls, and both girls live at the Woodhouse residence. Which of the following statements is true regarding whom Sheri and Jake may claim as dependents for the current year?

1. A) They may claim Emma as a dependent qualifying child but may not claim Harriet as a dependent.
2. B) They may claim Emma as a dependent qualifying child and they may claim Harriet as a dependent qualifying child.
3. C) They may claim Emma as a dependent qualifying child and they may claim Harriet as a dependent qualifying relative.
4. D) None of these statements are true.

 

82) Char and Russ Dasrup have one daughter, Siera, who is 16 years old. In November of last year, the Dasrups took in Siera’s 16-year-old friend Angela, who has lived with them ever since. The Dasrups have not legally adopted Angela but Siera often refers to Angela as her “sister.” The Dasrups provide all of the support for both girls, neither girl receives any income during the year, and both girls live at the Dasrups’ residence. Which of the following statements is true regarding whom Char and Russ may claim as dependents for the current year?

1. A) They may claim Siera as a dependent qualifying child; they are not allowed to claim Angela as a dependent.
2. B) They may claim Siera as a dependent qualifying child and they may claim Angela as a dependent qualifying child.
3. C) They may claim Siera as a dependent qualifying child and they may claim Angela as a dependent qualifying relative.
4. D) None of these statements are true.

 

83) In order to be a qualifying relative of another, an individual’s gross income must be less than ________.

1. A) the applicable standard deduction amount
2. B) a fixed amount specified for the particular tax year
3. C) one-half of the individual’s support
4. D) None of the choices are correct.

 

84) Catherine de Bourgh has one child, Anne, who is 18 years old at the end of the year. Anne lived at home for seven months during the year before leaving home to attend State University for the remaining five months of the year. During the year, Anne earned $6,000 while working part time. Catherine provided 80 percent of Anne’s support and Anne provided the rest. Which of the following statements regarding whether Anne is Catherine’s qualifying child for the current year is correct?

1. A) Anne is a qualifying child of Catherine.
2. B) Anne is not a qualifying child of Catherine because she fails the gross income test.
3. C) Anne is not a qualifying child of Catherine because she fails the residence test.
4. D) Anne is not a qualifying child of Catherine because she fails the support test.

 

85) Katy has one child, Dustin, who is 18 years old at the end of the year. Dustin lived at home for three months during the year before leaving home to work full time in another city. During the year, Dustin earned $15,000. Katy provided more than half of Dustin’s support for the year. Which of the following statements regarding whether Katy may claim Dustin as a dependent for the current year is accurate?

1. A) Dustin is a qualifying child of Katy.
2. B) Dustin fails the residence test for a qualifying child but he is considered a qualifying relative of Katy.
3. C) Dustin fails the support test for a qualifying relative.
4. D) Dustin fails the gross income test for a qualifying relative.

 

86) William and Charlotte Collins divorced in November of Year 1. William moved out and Charlotte remained in their house with their 10-month-old daughter, Autumn. Diana, Charlotte’s mother, lived in the home and acted as Autumn’s nanny for all of Year 1. William provided 70 percent of Autumn’s support, Diana provided 20 percent, and Charlotte provided 10 percent. When the time came to file their tax returns for Year 1, William, Charlotte, and Diana each wanted to claim Autumn as a dependent. Their respective AGIs for Year 1 were $50,000, $35,000, and $52,000. Who has priority to claim Autumn as a dependent?

1. A) William.
2. B) Charlotte.
3. C) Diana.
4. D) They must negotiate amongst themselves.

 

87) All of the following are tests for determining qualifying relative status except ________.

1. A) relationship test
2. B) gross income test
3. C) support test
4. D) residence test

 

88) Which of the following statements regarding the difference between the requirements for a qualifying child and the requirements for a qualifying relative is false?

1. A) The relationship requirement is more broadly defined (more inclusive) for qualifying relatives than for qualifying children.
2. B) Qualifying children are subject to age restrictions while qualifying relatives are not.
3. C) The support test for qualifying relatives focuses on the support the potential dependent self-provides while the support test for qualifying children focuses on the support the taxpayer provides.
4. D) Qualifying relatives are subject to a gross income restriction while qualifying children are not.

 

 

 

89) Earl and Lawanda Jackson have been married for 15 years. They have no children. Ned, who is an old friend from high school, has been living with the Jacksons during the current year. Which of the following is a true statement regarding whether the Jacksons can claim Ned as a dependent for the current year?

1. A) If Ned moved into the Jackson’s home in June and he lived there for the remainder of the year, he may qualify as the Jackson’s qualifying relative.
2. B) Assume that Ned originally moved into the Jackson’s home two years ago and he has lived there ever since. If this year Ned earned $3,000 at a part-time job and he received $5,000 in municipal bond interest, he may qualify as the Jackson’s dependent so long as the Jacksons provided more than half his support.
3. C) If Ned lived in the Jackson’s home for the entire year, he will qualify as their dependent no matter who provided his support.
4. D) If Ned is over 19 or he is not a full-time student, he cannot qualify as the Jackson’s dependent.

 

90) Michael, Diane, Karen, and Kenny provide support for their mother, Janet, who is 75 years old. Janet lives by herself in an apartment in Los Angeles. Janet’s gross income for the year is $3,000. Janet provides 10 percent of her own support, Michael provides 40 percent of Janet’s support, Diane provides 8 percent of Janet’s support, Karen provides 10 percent of Janet’s support, and Kenny provides the remaining 32 percent of Janet’s support. Under a multiple support agreement, who is eligible to claim Janet as a dependent as a qualifying relative?

1. A) Michael, Diane, Karen, and Kenny.
2. B) Michael, Karen, and Kenny.
3. C) Michael and Kenny.
4. D) Michael.

 

91) Filing status determines all of the following except ________.

1. A) the applicable standard deduction amount
2. B) the appropriate tax rate schedule or tax table
3. C) the top-stated marginal rate in the tax rate schedule
4. D) the AGI threshold for reductions in certain tax benefits

 

92) Which of the following is not a filing status?

1. A) Head of household.
2. B) Unmarried.
3. C) Qualifying widow or widower.
4. D) Married filing jointly.

 

93) Lydia and John Wickham filed jointly in Year 1. They divorced in Year 2. Late in Year 2, the IRS discovered that the Wickhams underpaid their Year 1 taxes by $2,000. Both Lydia and John worked in Year 1 and received equal income but John had $2,000 less tax withheld than Lydia did. Who is legally liable for the tax underpayment?

1. A) Lydia.
2. B) John.
3. C) Both Lydia and John.
4. D) Neither Lydia nor John.

 

94) In June of Year 1, Edgar’s wife, Cathy, died, and Edgar did not remarry during the year. What is his filing status for Year 1 (assuming they did not have any dependents)?

1. A) Married filing jointly.
2. B) Single.
3. C) Qualifying widower.
4. D) Head of household.

 

95) In June of Year 1, Eric’s wife, Savannah, died. Eric did not remarry during Year 1, Year 2, or Year 3. Eric maintains the household for his dependent daughter, Catherine, in Year 1, Year 2, and Year 3. Which is the most advantageous filing status for Eric in Year 2?

1. A) Head of household.
2. B) Qualifying widower.
3. C) Single.
4. D) Married filing separately.

 

96) Which of the following statements about a qualifying person for head of household filing status is true?

1. A) One individual (who is a qualifying person) may qualify more than one taxpayer for head of household filing status.
2. B) The taxpayer is required to live with a qualifying person for the entire year in order to qualify for head of household filing status.
3. C) A taxpayer’s parent cannot be a qualifying person for purposes of determining head of household filing status.
4. D) A qualifying person must have a family relationship with the taxpayer in order for the qualifying person to qualify the taxpayer for head of household filing status.

 

97) In June of Year 1, Jake’s wife, Darla, died. The couple did not have any children and Jake did not remarry in Year 1 or Year 2. Which is the most favorable filing status for Jake in Year 2?

1. A) Married filing separately.
2. B) Single.
3. C) Head of household.
4. D) Qualifying widower.

 

98) Jan is unmarried and has no children, but she provides all of the financial support for her mother, who lives in an apartment across town. Jan’s mother qualifies as Jan’s dependent. Which is the most advantageous filing status available to Jan?

1. A) Single.
2. B) Head of household.
3. C) Qualifying individual.
4. D) Surviving single.

 

 

 

99) Jane is unmarried and has no children, but provides more than half of her mother’s financial support. Jane’s mother lives in an apartment across town and has a part-time job earning $5,000 a year. Which is the most advantageous filing status available to Jane?

1. A) Single.
2. B) Head of household.
3. C) Qualifying individual.
4. D) Surviving single.

 

100) In April of Year 1, Martin left his wife, Marianne. While the couple was apart, they were not legally divorced. Marianne found herself having to financially provide for the couple’s only child (who qualifies as Marianne’s dependent) and to pay all the costs of maintaining the household. When Marianne filed her tax return for Year 1, she filed a return separate from Martin. What is Marianne’s most favorable filing status for Year 1?

1. A) Married filing separately.
2. B) Single.
3. C) Head of household.
4. D) Qualifying widow.

 

101) In April of Year 1, Martin left his wife, Marianne. The couple has two children under the age of 15. While the couple was apart, they were not legally divorced. Marianne remained in the home and paid all the costs of maintaining the home for the remainder of the year. Assuming the couple does not file jointly, which of the following statements regarding filing status is true?

1. A) No matter the post-separation residence(s) of the children, both spouses must file as married filing separately.
2. B) No matter the post-separation residence(s) of the children, Martin must file as married filing separately but Marianne may qualify to file as head of household.
3. C) No matter the post-separation residence(s) of the children, Marianne must file as married filing separately but Martin may qualify to file as head of household.
4. D) Depending on the post-separation residence(s) of the children, both spouses may qualify to file as head of household.

 

102) For purposes of determining filing status, which of the following is not a requirement for a married taxpayer to be treated as unmarried at the end of the year?

1. A) The taxpayer claims a child as a dependent.
2. B) The taxpayer pays more than half the costs of maintaining his or her home for the entire year and the home is the principal residence for a dependent qualifying child for more than half the year.
3. C) The taxpayer files a tax return separate from the other spouse.
4. D) The spouse does not live in the taxpayer’s home at all during the year.

 

103) For filing status purposes, the taxpayer’s marital status is determined at what point during the year?

1. A) the beginning of the year
2. B) the end of the year
3. C) the middle of the year
4. D) None of the choices are correct.

 

104) In Year 1, Harold Weston’s wife died. Since her death, he has maintained a household for their son, Frank (age 3), his qualifying child. Which is the most advantageous filing status available to Harold in Year 4?

1. A) Married filing jointly.
2. B) Surviving spouse.
3. C) Qualifying widower.
4. D) Head of household.

 

105) Mason and his wife, Madison, have been married for five years. Jaxon, who is 18 years old and unrelated to Mason and Madison, has been living with Mason and Madison for the last two years. In May of Year 1, Mason and Madison divorced. Mason and Jaxon stayed in the home and Madison moved out. During Year 2, Mason provided all of Jaxon’s support, and Jaxon lived in the home for all of Year 2. Jaxon did not earn any income during Year 2. What is Mason’s most favorable filing status for Year 2?

1. A) Single.
2. B) Married filing separately.
3. C) Surviving spouse.
4. D) Head of household.

 

106) Miguel, a widower whose wife died in Year 1, maintains a household for himself and his daughter, who qualifies as his dependent. Miguel did not remarry. What is the most favorable filing status that Miguel qualifies for in Year 3?

1. A) Single.
2. B) Qualifying widower.
3. C) Head of household.
4. D) Married filing separately.

 

107) Jasmine and her husband, Arty, have been married for 25 years. In May of this year, the couple divorced. During the year, Jasmine provided all the support for herself and her 22-year-old child, Dexter, who lived in the same home as Jasmine for the entire year. Dexter is employed full time, earning $29,000 this year. What is Jasmine’s most favorable filing status for the year?

1. A) Single.
2. B) Married filing separately.
3. C) Surviving spouse.
4. D) Head of household.

 

108) Kabuo and Melinda got married on December 15, Year 1. Kabuo’s salary for the year was $54,000, and Melinda’s was $62,000. In addition, Kabuo received $250 of interest income, ($100 of which was from municipal bonds), and Melinda received $10,000 of alimony from a former spouse (pre-2019 divorce decree). If Kabuo and Melinda choose to file jointly, what is their Year 1 gross income?

 

 

 

109) John Maylor is a self-employed plumber of John’s John Service, his sole proprietorship. In the current year, John’s John Service had revenue of $120,000 and $40,000 of business expenses.

John also received $2,000 of interest income from corporate bonds.

What is John’s adjusted gross income, assuming he had no other income or expenses? (ignore any deduction for self-employment tax.)

 

110) The Inouyes filed jointly in 2019. Their AGI is $78,000. They reported $2,000 of qualified business income and $22,000 of itemized deductions. They have two children, one of whom qualifies as their dependent as a qualifying child. The 2019 standard deduction amount for MFJ taxpayers is $24,400. What is the total amount of from AGI deductions they are allowed to claim on their 2019 tax return?

 

111) The Tanakas filed jointly in 2019. Their AGI is $120,000. They reported $10,000 of qualified business income and $26,000 of itemized deductions. They also have two dependent qualifying children. The 2019 standard deduction amount for MFJ taxpayers is $24,400. What is the total amount of from AGI deductions they are allowed to claim on their 2019 tax return?

 

112) The Dashwoods have calculated their taxable income to be $88,000 for 2019, which includes $2,000 of long-term capital gains. Using the appropriate tax rate schedule, calculate the Dashwoods’ income tax liability assuming they are married and file a joint return.

 

113) Tom Suzuki’s tax liability for the year is $2,450. He had $2,050 of federal income taxes withheld from his paycheck during the year by his employer and has $2,000 in tax credits. What are Tom’s taxes due or tax refund for the year?

 

114) Jane and Ed Rochester are married with a 2-year-old child, who lives with them and whom they support financially. In 2019, Ed and Jane realized the following items of income and expense:

 

Item	Amount
Ed’s Salary	$	35,000
Jane’s Salary		70,000
Municipal bond interest income		400
Qualified business income		1,000
Alimony paid (for AGI deduction)		(7,000	)
Real property tax (from AGI deduction)		(10,000	)
Charitable contributions (from AGI)		(15,000	)

 

 

They also qualified for a $2,000 child tax credit. Their employers withheld $5,800 in federal income taxes from their paychecks (in the aggregate). Finally, the 2019 standard deduction amount for MFJ taxpayers is $24,400.

 

What is the couple’s gross income?

 

 

 

115) Jane and Ed Rochester are married with a 2-year-old child, who lives with them and whom they support financially. In 2019, Ed and Jane realized the following items of income and expense:

 

Item	Amount
Ed’s Salary	$	35,000
Jane’s Salary		70,000
Municipal bond interest income		400
Qualified business income		1,000
Alimony paid (for AGI deduction)		(7,000	)
Real property tax (from AGI deduction)		(10,000	)
Charitable contributions (from AGI)		(15,000	)

 

They also qualified for a $2,000 child tax credit. Their employers withheld $5,800 in federal income taxes from their paychecks (in the aggregate). Finally, the 2019 standard deduction amount for MFJ taxpayers is $24,400.

What is the couple’s adjusted gross income?

 

116) Jane and Ed Rochester are married with a 2-year-old child, who lives with them and whom they support financially. In 2019, Ed and Jane realized the following items of income and expense:

 

Item	Amount
Ed’s Salary	$	35,000
Jane’s Salary		70,000
Municipal bond interest income		400
Qualified business income		1,000
Alimony paid (for AGI deduction)		(7,000	)
Real property tax (from AGI deduction)		(10,000	)
Charitable contributions (from AGI)		(15,000	)

 

They also qualified for a $2,000 child tax credit. Their employers withheld $5,800 in federal income taxes from their paychecks (in the aggregate). Finally, the 2019 standard deduction amount for MFJ taxpayers is $24,400.

What is the couple’s taxable income?

 

 

 

117) Jane and Ed Rochester are married with a 2-year-old child, who lives with them and whom they support financially. In 2019, Ed and Jane realized the following items of income and expense:

 

Item	Amount
Ed’s Salary	$	35,000
Jane’s Salary		70,000
Municipal bond interest income		400
Qualified business income		1,000
Alimony paid (for AGI deduction)		(7,000	)
Real property tax (from AGI deduction)		(10,000	)
Charitable contributions (from AGI)		(15,000	)

 

They also qualified for a $2,000 child tax credit. Their employers withheld $5,800 in federal income taxes from their paychecks (in the aggregate). Finally, the 2019 standard deduction amount for MFJ taxpayers is $24,400.

 

What are the couple’s taxes due or tax refund? (Use the tax rate schedules, not tax tables.)

 

118) Greg is single. During 2019, he received $60,000 of salary from his employer. That was his only source of income. He reported $3,000 of for AGI deductions and $9,000 of itemized deductions. The 2019 standard deduction amount for a single taxpayer is $12,200. What is Greg’s taxable income?

 

119) Sam and Tracy have been married for 25 years. They have filed a joint return every year of their marriage. They have two sons, Christopher and Zachary. Christopher is 19 years old and Zachary is 14 years old. Christopher lived in his parents’ home from January through August and he lived in his own apartment from September through December. During the year, Christopher attended college for one month before dropping out. Christopher’s living expenses totaled $12,000 for the year. Of that, Christopher paid $5,000 from income he received while working a part-time job. Sam and Tracy provided the remaining $7,000 of Christopher’s support. Zachary lived at home the entire year and did not earn any income. Whom are Sam and Tracy allowed to claim as dependents?

 

120) Sullivan’s wife, Susan, died four years ago. Sullivan has not remarried and he maintains a home for his dependent child, Sammy. In 2019, Sullivan received $70,000 of salary from his employer and $3,000 of qualified business income from a business investment, and he paid $10,000 of itemized deductions. What is Sullivan’s taxable income for 2019?

 

121) Hannah, who is single, received a qualified dividend of $1,000. Hannah’s marginal ordinary income tax rate is 32 percent. What amount of tax must she pay on the $1,000 dividend?

 

122) Doug and Lisa have determined that their tax liability on their joint return is $3,700. They have made prepayments of $1,000 and also are entitled to a $2,000 child tax credit. What is the amount of their tax refund or taxes due?

 

123) By the end of Year 1, Harold and Jamie Allred had been married for 30 years and have filed a joint return every year of their marriage. Their three sons, Jacob, Larry, and Andi, are ages 13, 16, and 23, respectively, and all live at home and are fully supported by their parents. Andi is employed full time, earning $17,000 in Year 1. Whom can the Allreds claim as dependents?

 

124) In 2019, Brittany, who is single, cares for her father, Raymond. Brittany pays the bills relating to Raymond’s home. She also buys groceries and provides the rest of his support. Raymond has no gross income. Brittany received $45,000 of salary from her employer during the year. Brittany reports $3,000 of itemized deductions. What is Brittany’s taxable income?

 

125) In February of 2018, Lorna and Kirk were married. During 2019, Lorna received $40,000 of compensation from her employer and Kirk received $30,000 of compensation from his employer. The couple together reported $2,000 of itemized deductions. Lorna and Kirk filed separately in 2019. What is Lorna’s taxable income and what is her tax liability? (Use the applicable tax rate schedule and round your answer to the nearest whole number.)