Tax Exam 1

Question 1 of 88

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Bracket creep is

Select one of the following:

  • Caused by inflation

  • more likely when 14 tax brackets exist rather that 2 tax brackets

  • Both A and B

  • Neither A nor B

Question 2 of 88

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The existence of a mass tax allows the tax code to be used by Congress as a tool for carrying out social and economic policy

Select one of the following:

  • True
  • False

Question 3 of 88

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The percentage of the population subject to the income tax is significantly lower after WWII than before WWII

Select one of the following:

  • True
  • False

Question 4 of 88

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which of the following was (were) undertaken during WWII to make the income tax acceptable? check all

Select one or more of the following:

  • Creation of withholding

  • passage of the 16th Amendment

  • Elimination of tax loopholes

  • Appeals to patriotism

  • Creation of the Internal Revenue Code

Question 5 of 88

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A tax credit reduces the tax liability; a tax deduction reduces taxable income

Select one of the following:

  • True
  • False

Question 6 of 88

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A child who is allowable as a dependent on his or her parents' tax return does not receive a personal exemption on his or her own return

Select one of the following:

  • True
  • False

Question 7 of 88

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For 2013, what is the max age at which the kiddie tax will apply?

Select one of the following:

  • 14

  • 17

  • 18

  • under 24 and a full-time student

Question 8 of 88

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Steven, who is 17 years old, earn $4000 working part-time during 2013. he will have to pay tax on this income at your parents tax rate.

Select one of the following:

  • True
  • False

Question 9 of 88

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Congress created the kiddie tax to eliminate the tax benefit arising from parents transferring income-producing income assets to children. Prior to the creation of the kiddie tax, which concept indicates that the investment income be taxed to the child?

Select one of the following:

  • Substance over form

  • Assignment of income

Question 10 of 88

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Which amount of the child's taxable income is taxed at the parent's marginal tax rate?

Select one of the following:

  • earned income

  • net earned income

  • unearned income

  • net unearned income

  • parentally concluded income

Question 11 of 88

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All income realized is taxable unless Congress creates an exclusion. Exclusions are a function of which concept?

Select one of the following:

  • Tax benefit rule

  • Wherewithal to pay

  • Legislative grace

  • Ability to pay

  • All-inclusive income

Question 12 of 88

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Recognition must occur before income is realized

Select one of the following:

  • True
  • False

Question 13 of 88

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Which concept is used by Congress to justify the creation of deferrals?

Select one of the following:

  • Wherewithal to Pay concept

  • pay as you go concept

  • ability to pay concept

Question 14 of 88

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claim of right applies when a payment has been received but not yet earned

Select one of the following:

  • True
  • False

Question 15 of 88

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constructive receipt applies to which accounting method?

Select one of the following:

  • Cash

  • Accrual

  • Both a and B

  • neither a nor b

Question 16 of 88

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

Select one of the following:

  • regressive

  • progressive

  • horizontal

  • proportional

Question 17 of 88

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the self-employment tax is which type of tax?

Select one of the following:

  • income tax

  • Social Security tax

  • excise tax

  • unemployment tax

Question 18 of 88

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tax preferences (exclusions, deductions, and credits) potentially increase horizontal equity

Select one of the following:

  • True
  • False

Question 19 of 88

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according to the IRS definition, which of the following is not a characteristic of a tax?

Select one of the following:

  • The payment to the governmental authority is required by law

  • the payment relates tot he receipt of a specific benefit

  • the payment is required pursuant to the legislative power to tax

Question 20 of 88

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which of the following are included among Adam Smith's criteria for evaluating a

I. Convenience
II. Equality
III. Certainty
IV. Neutrality

Select one of the following:

  • I and II are correct

  • I, II, and III are correct

  • I and IV are correct

  • II and III are correct

  • I, II, III, and IV are correct

Question 21 of 88

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the IRS uses several programs to select returns for audit. the IRS sends notices to taxpayers who have failed to include dividends reported to them on Form 1099-DIV. this is an example of which type of audit program?

Select one of the following:

  • discriminant function system

  • taxpayer compliance measurement program

  • information matching program

  • document perfection program

  • special audit programs

Question 22 of 88

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tax avoidance uses legal methods allowed by the tax law to minimize tax liability

Select one of the following:

  • True
  • False

Question 23 of 88

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overall audit rate is approximately one percent

Select one of the following:

  • True
  • False

Question 24 of 88

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which type of IRS exam is conducted through the mail?

Select one of the following:

  • field examination

  • office examination

  • correspondence examination

  • forensic examination

Question 25 of 88

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which type of IRS exam is conducted through the mail?

Select one of the following:

  • field examination

  • office examination

  • correspondence examination

  • forensic examination

Question 26 of 88

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the statute of limitations is the time period during which taxpayers may correct tax returns or the IRS may challenge information in tax returns. as a general rule, how long is the statue of limitations?

Select one of the following:

  • 1 yr from the time the tax return is due

  • 3 yrs from the time the tax return is due

  • 6 yrs from the time the tax return is due

  • tax returns are open forever

Question 27 of 88

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which of the following is/are deductions FROM AGI? check all

Select one or more of the following:

  • personal exemptions

  • alimony paid

  • moving expenses

  • student loan interest

  • itemized deductions

  • standard deduction

Question 28 of 88

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the vast majority of tax credits phase out as income levels rise

Select one of the following:

  • True
  • False

Question 29 of 88

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which of the following is/are NOT and itemized deduction(s)? check all

Select one or more of the following:

  • home mortgage interest

  • charitable contributions

  • student loan interest

  • state income taxes paid

  • property taxes on a personal residence

  • Alimony Paid

Question 30 of 88

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which of the following is/are an administrative source of the tax law? check all

Select one or more of the following:

  • internal revenue code

  • treasury regulations

  • IRS revenue rulings

  • IRS revenue procedures

  • Private letter rulings

Question 31 of 88

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which of the following tax credits have the potential to be refundable?
(refundable means that if the tax credit available exceeds the tax liability, the excess is paid out to the taxpayer)

Select one or more of the following:

  • child tax credit

  • lifetime learning tax credit

  • american opportunity tax credit

  • child- a dependent-care tax credit

  • earned income tax credit

Question 32 of 88

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the marginal tax rate is the rate of tax that will be paid on the next dollar of income or the rate of tax that will be saved by the next dollar of deduction

Select one of the following:

  • True
  • False

Question 33 of 88

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if the rate of tax increases as income increases, the rate structure is

Select one of the following:

  • marginal

  • regressive

  • effective

  • proportional

  • progressive

Question 34 of 88

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if the taxpayer has income that is excluded from gross income, then the effective tax rte will be lower than the average tax rate

Select one of the following:

  • True
  • False

Question 35 of 88

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which tax rate is used to make decision?

Select one of the following:

  • marginal

  • effective

  • progressive

  • average

  • regressive

Question 36 of 88

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Steven pays $5000 in tax-deductible mortgage interest. Steven's MTR is 25%, average tax rate is 17%, and effective tax rate is 15%. Steven's tax savings from paying the mortgage interest is

Select one of the following:

  • 750

  • 850

  • 1250

  • 5000

Question 37 of 88

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Because it does not take the implicit tax into account, the effective tax rate is understated when the taxpayer has income that is excluded from gross income.

Select one of the following:

  • True
  • False

Question 38 of 88

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The implicit tax rate on a fully tax-favored asset (an asset whose income is excluded from gross income) is zero.

Select one of the following:

  • True
  • False

Question 39 of 88

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An asset with a tax preference will have a pretax return that is lower than an asset that is tax disfavored.

Select one of the following:

  • True
  • False

Question 40 of 88

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the implicit tax rate is

Select one of the following:

  • The total federal income tax divided by the sum of taxable income plus exluded income.

  • The total federal income tax divided by taxable income.

  • Always the same as the marginal tax rate.

  • The rate of tax on the next dollar of income.

  • The forgone return as a result of a tax preference.

Question 41 of 88

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The pretax return on a corporate bond is 3%. The pretax return on a muni bond is 2%. The implicit tax rate on the muni bond is

Select one of the following:

  • 0

  • 66.67%

  • 33.33%

  • 100%

Question 42 of 88

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Jon hired his three-year-old son to work in his engineering consulting firm. As long as Jon fills out all the forms and properly documents the paychecks to his son, he will be able to deduct the expenditure as a business expense.

Select one of the following:

  • True
  • False

Question 43 of 88

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Which concept justifies the progressive rate structure?

Select one of the following:

  • pay as you go

  • ability to pay

  • assignment of income

  • annual accting period

  • admin convenience

Question 44 of 88

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The rules that limit self-dealing through the related party provisions is a result of which concept?

Select one of the following:

  • ability to pay

  • admin conv

  • arms length transaction

  • pay as you go

  • tax benefit rule

Question 45 of 88

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which of the following is/are a conduit entity? check all

Select one or more of the following:

  • sole propiertorship

  • partnership

  • s corp

  • c corp

  • individuals

Question 46 of 88

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The IRS has a penalty for underpayment of estimated taxes. This penalty exists because of which concept?

Select one of the following:

  • ability to pay

  • admin conv

  • substance over form

  • tax benefit rule

  • pay as you go

Question 47 of 88

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The IRS has a penalty for underpayment of estimated taxes. This penalty exists because of which concept?

Select one of the following:

  • ability to pay

  • admin conv

  • substance over form

  • tax benefit rule

  • pay as you go

Question 48 of 88

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Section 61(a) states that gross income is income from whatever source derived. Where else is this language used?

Select one of the following:

  • all inclusive income

  • 16th amendment

  • both a and b

  • neither a nor b

Question 49 of 88

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The purpose of good tax planning is to maximize after-tax income, not necessarily to minimize the tax liability paid.

Select one of the following:

  • True
  • False

Question 50 of 88

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Dann likes to ultrarun. He spends thousands of dollars each year on shoes, gear, entry fees, food and sports drinks, and travel expenses. Because he wins prize money a couple of times, Dann files a Schedule C for his running business in which he reports the income and deducts the expenses, resulting in a substantial net loss that he deducts from his gross income. Which concept would the IRS use to challenge the deductibility of the expenses?

Select one of the following:

  • ability to pay

  • legislative grace

  • business purpose

  • wherewithal to pay

  • capital recovery

Question 51 of 88

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Congress provides a concise definition of taxable income in Section 61.

Select one of the following:

  • True
  • False

Question 52 of 88

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The realization requirement was created by

Select one of the following:

  • the courts

  • the IRS

  • Treasury Department

  • the 16th amendment

  • congress

Question 53 of 88

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The shift from a "class" tax to a "mass" tax was significant because it resulted in

Select one of the following:

  • victory in the civil war

  • the renumbering of the tax code

  • the end points of the tax brackets being indexed for inflation

  • a reduction in the number of tax expenditures

  • Congress being able to use the tax code as a tool for carrying out social and economic policy.

Question 54 of 88

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A progressive tax rate structure means that as income increases, the rate of tax

Select one of the following:

  • increases

  • decreases

Question 55 of 88

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tax expenditures

Select one of the following:

  • are different from tax preferences

  • Are direct spending by the federal government to carryout social and economic objectives.

  • Have decreased since the Tax Reform Act of 1986.

  • indirect spending by the federal government carried out through the tax code.

Question 56 of 88

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Which of following will reduce or eliminate bracket creep?

Select one or more of the following:

  • decreasing the # of tax expend

  • reducing the number of tax brackets

  • Holding standard deduction and exemption amounts constant over time.

  • Increasing the number of tax credits available.

  • Indexing the end points of the tax brackets for inflation.

Question 57 of 88

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the tax benefit of an exclusion or a deduction

Select one of the following:

  • is a function of the tax rate

  • is the same as a tax cr

  • is less when the tax rate is higher than when it is lower

  • is always the same as the pref rate for dividends and capital gains

Question 58 of 88

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Taxpayer has the potential for a $1000 credit and tax rate of 15%. What amount of deduction would provide the same tax benefit as the $1,000 credit?

Select one of the following:

  • 150

  • 1000

  • 6667

  • 3571

  • 8500

Question 59 of 88

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tax expenditures generally increase the complexity of the tax system

Select one of the following:

  • True
  • False

Question 60 of 88

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ability to pay, as currently defined, is implemented using a tax rate structure that is

Select one of the following:

  • horizontal

  • progressive

  • proportional

  • regressive

  • marginal

Question 61 of 88

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WIthholding was implemented during WWII to establish the pay-as-we-go system. This helped to make the tax acceptable and to improved the likelihood of collection.

Select one of the following:

  • True
  • False

Question 62 of 88

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which type of a tax audit is most likely to occur?

Select one of the following:

  • fraud exam

  • office exam

  • field exam

  • correspondence exam

Question 63 of 88

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The citation, §25(e)(3)(A)(i), is read as

Select one of the following:

  • section 25, subsection e, paragraph 3, subparagraph A, clause eye

  • section 25, subsection e, paragraph 3, subparagraph A, clause 1

  • title 25, subtitle e, section 3, subsection A, paragraph 1

Question 64 of 88

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in general, how long is a statute of limitations for an income tax return?

Select one of the following:

  • 2 yrs

  • 3 yrs

  • 6 yrs

  • unlimited

Question 65 of 88

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personal expenses are primarily deductions FROM AGI and created as tax expenditures.

Select one of the following:

  • True
  • False

Question 66 of 88

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which audit method is the primary method used by the IRS to select tax returns for audit?

Select one of the following:

  • discriminant function (DIF)

  • taxpayer compliance measurement function TCMP

  • document matching program

  • document perfection program

Question 67 of 88

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A taxpayer files as single for 2013 with the following information.

Salary 60,000

Interest 1,000

Dividends 3,000

Dependents 0

Municipal bond interest 1,000

Itemized deductions 5,000

IRA Contribution 4,000

Tax withholding 4,000

The taxpayer's taxable income (TI) is

Select one of the following:

  • 65000

  • 64000

  • 60000

  • 55000

  • 53000

  • 51000

  • 50000

  • 49000

  • 46000

Question 68 of 88

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A taxpayer files as single for 2013 with the following information.

Salary 60,000

Interest 1,000

Dividends 3,000

Dependents 0

Municipal bond interest 1,000

Itemized deductions 5,000

IRA Contribution 4,000

Tax withholding 4,000

The taxpayer’s adjusted gross income (AGI) is

Select one of the following:

  • 65000

  • 64000

  • 60000

  • 55000

  • 53000

Question 69 of 88

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the majority of deductions FOR AGI are personal expenses

Select one of the following:

  • True
  • False

Question 70 of 88

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In the citation, §1.312-6(b), the (b) refers to a

Select one of the following:

  • subsection

  • paragraph

  • subparagraph

  • clause

Question 71 of 88

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Steven is a star athlete about to be drafted into the NBA, He is attempting to select an agent. One of the potential agents gives steven's dad a car which he refers to as a gift to show his appreciation for dad setting up a meeting with Steven. Steven's dad argues that the car is excluded from income as a gift by §102. The IRS argues that Steven's dad has compensation for services. Which concept is the IRS using to justify their position?

Select one of the following:

  • ability to pay

  • related parties

  • administrative convenience

  • substance over form

Question 72 of 88

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Section 1378 deal with which type of entity?

Select one of the following:

  • taxable

  • marginal

  • conduit

  • flow into

Question 73 of 88

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Carol owns apartment buildings. The lease agreements require that the payments be made to a partnership in which Carol's two children are the partners. Which concept applies to the treatment of the rental income?

Select one of the following:

  • ability to pay

  • administrative convenience

  • pay as you go

  • assignment of income

  • tax benefit rule

Question 74 of 88

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Austin is considering an investment in either a corporate bond with a pretax return of 5 percent or a municipal bond with a pretax return of 4.1 percent. Assume that the assets possess equal risk. Austin has a marginal tax rate of 25 percent and an average tax rate of 16 percent. What is the implicit tax rate on the municipal bond and the asset that would give Austin the greatest aftertax return?

Select one of the following:

  • 18 percent; muni bond

  • 18 percent; corp bond

  • 21.95 percent; muni bond

  • 21.95 percent; corp bond

Question 75 of 88

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Taxpayers file a joint return. They have taxable income of $223,050 for 2013. The taxpayers’ marginal tax rate is

Select one of the following:

  • 15%

  • 25%

  • 28%

  • 33%

Question 76 of 88

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which concepts justifies the phase-out of the child credit?

Select one of the following:

  • assignment of income

  • pay as you go

  • tax benefit rule

  • related parties

  • ability to pay

Question 77 of 88

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Which item in the tax equation is used to determine phase-outs and limitations (e.g., phase-out of the child credit)?

Select one of the following:

  • gross income

  • adjusted gross income

  • taxable income

  • itemized deductions

Question 78 of 88

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the implicit tax rate

Select one of the following:

  • is the rate of tax paid to the federal government

  • is the same as the average tax rate

  • is the same as the marginal tax rate

  • is the same as the effective tax rate

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

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

Question 79 of 88

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Taxpayer files as single with taxable income of $183,250. Using the tax rate schedule, the tax for 2013 is

Select one of the following:

  • 17891

  • 44603

  • 49919

  • 47514

  • 58,995

Question 80 of 88

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In the kiddie tax calculation, section 1(g) allows for a deduction of $2,000 from gross unearned income in determining net unearned income. Which concept justifies using the $2,000 amount that is used?

Select one of the following:

  • ability to pay

  • assignment of income

  • administrative convenience

  • related party transactions

  • tax benefit rule

Question 81 of 88

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A client owes Doug $2,000 for work that he has performed. On December 31, the client offers to pay Doug $500 of the amount owed. He asks the client to wait until January 2 to make the payment. Which tax concept determines the appropriate tax treatment?

Select one of the following:

  • claim of right

  • constructive receipt

  • wherewithal to pay

  • assignment of income

  • tax benefit rule

Question 82 of 88

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congress wants the income from certain property transactions to be deferred. which concept will they use to justify this decision?

Select one of the following:

  • realization

  • wherewithal to pay

  • ability to pay

  • claim of right

  • constructive receipt

Question 83 of 88

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claim of right applies when a payment has been received but not yet earned.

Select one of the following:

  • True
  • False

Question 84 of 88

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the kiddie tax was created by congress because of which concept?

Select one of the following:

  • assignment of income

  • administrative convenience

  • arms length transaction

  • tax benefit rule

  • ability to pay

Question 85 of 88

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Andy, age 19, earned $10,000 in wages and had taxable interest income of $2,400. He uses the standard deduction and is not allowable as a dependent on his parents' tax return. The amount of Andy's income taxed at his parents' marginal tax rate is

Select one of the following:

  • 0

  • 400

  • 2000

  • 2400

  • 6100

Question 86 of 88

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Barney, age 16, has wages of $4,000, interest from a savings account of $2,000, municipal bond interest of $1,000, and dividends of $3,000. Barney uses the standard deduction and is allowable as a dependent on his parents' return. How much is Barney's taxable income?

Select one of the following:

  • 0

  • 750

  • 1650

  • 2900

  • 3000

  • 3900

  • 4650

  • 5650

  • 10000

Question 87 of 88

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Which of the following items will cause realized income to not equal recognized income? (Check all that apply)

Select one or more of the following:

  • exclusion

  • deduction

  • deferral

  • credit

  • appraised value

Question 88 of 88

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A taxpayer takes a large business deduction for supplies expense on her 2013 tax return. In 2014, the taxpayer receives a rebate check from one of the suppliers. The rebate derives from one of the purchases in 2013. Which concept applies?

Select one of the following:

  • pay as you go

  • substance over form

  • arms length transaction

  • ability to pay

  • tax benefit rule

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Tax Exam 1

brittanygoetz22
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Quiz on Tax Exam 1, created by brittanygoetz22 on 05/03/2014.

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