Bracket creep is
Caused by inflation
more likely when 14 tax brackets exist rather that 2 tax brackets
Both A and B
Neither A nor B
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
The percentage of the population subject to the income tax is significantly lower after WWII than before WWII
which of the following was (were) undertaken during WWII to make the income tax acceptable? check all
Creation of withholding
passage of the 16th Amendment
Elimination of tax loopholes
Appeals to patriotism
Creation of the Internal Revenue Code
A tax credit reduces the tax liability; a tax deduction reduces taxable income
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
For 2013, what is the max age at which the kiddie tax will apply?
14
17
18
under 24 and a full-time student
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.
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?
Substance over form
Assignment of income
Which amount of the child's taxable income is taxed at the parent's marginal tax rate?
earned income
net earned income
unearned income
net unearned income
parentally concluded income
All income realized is taxable unless Congress creates an exclusion. Exclusions are a function of which concept?
Tax benefit rule
Wherewithal to pay
Legislative grace
Ability to pay
All-inclusive income
Recognition must occur before income is realized
Which concept is used by Congress to justify the creation of deferrals?
Wherewithal to Pay concept
pay as you go concept
ability to pay concept
claim of right applies when a payment has been received but not yet earned
constructive receipt applies to which accounting method?
Cash
Accrual
Both a and B
neither a nor b
Adam Smith's concepts of vertical equity is found in a tax rate structure that is
regressive
progressive
horizontal
proportional
the self-employment tax is which type of tax?
income tax
Social Security tax
excise tax
unemployment tax
tax preferences (exclusions, deductions, and credits) potentially increase horizontal equity
according to the IRS definition, which of the following is not a characteristic of a tax?
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
which of the following are included among Adam Smith's criteria for evaluating a
I. Convenience II. Equality III. Certainty IV. Neutrality
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
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?
discriminant function system
taxpayer compliance measurement program
information matching program
document perfection program
special audit programs
tax avoidance uses legal methods allowed by the tax law to minimize tax liability
overall audit rate is approximately one percent
which type of IRS exam is conducted through the mail?
field examination
office examination
correspondence examination
forensic examination
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?
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
which of the following is/are deductions FROM AGI? check all
personal exemptions
alimony paid
moving expenses
student loan interest
itemized deductions
standard deduction
the vast majority of tax credits phase out as income levels rise
which of the following is/are NOT and itemized deduction(s)? check all
home mortgage interest
charitable contributions
state income taxes paid
property taxes on a personal residence
Alimony Paid
which of the following is/are an administrative source of the tax law? check all
internal revenue code
treasury regulations
IRS revenue rulings
IRS revenue procedures
Private letter rulings
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)
child tax credit
lifetime learning tax credit
american opportunity tax credit
child- a dependent-care tax credit
earned income tax credit
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
if the rate of tax increases as income increases, the rate structure is
marginal
effective
if the taxpayer has income that is excluded from gross income, then the effective tax rte will be lower than the average tax rate
which tax rate is used to make decision?
average
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
750
850
1250
5000
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.
The implicit tax rate on a fully tax-favored asset (an asset whose income is excluded from gross income) is zero.
An asset with a tax preference will have a pretax return that is lower than an asset that is tax disfavored.
the implicit tax rate is
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.
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
0
66.67%
33.33%
100%
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.
Which concept justifies the progressive rate structure?
pay as you go
ability to pay
assignment of income
annual accting period
admin convenience
The rules that limit self-dealing through the related party provisions is a result of which concept?
admin conv
arms length transaction
tax benefit rule
which of the following is/are a conduit entity? check all
sole propiertorship
partnership
s corp
c corp
individuals
The IRS has a penalty for underpayment of estimated taxes. This penalty exists because of which concept?
substance over form
Section 61(a) states that gross income is income from whatever source derived. Where else is this language used?
all inclusive income
16th amendment
both a and b
The purpose of good tax planning is to maximize after-tax income, not necessarily to minimize the tax liability paid.
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?
legislative grace
business purpose
wherewithal to pay
capital recovery
Congress provides a concise definition of taxable income in Section 61.
The realization requirement was created by
the courts
the IRS
Treasury Department
the 16th amendment
congress
The shift from a "class" tax to a "mass" tax was significant because it resulted in
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.
A progressive tax rate structure means that as income increases, the rate of tax
increases
decreases
tax expenditures
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.
Which of following will reduce or eliminate bracket creep?
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.
the tax benefit of an exclusion or a deduction
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
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?
150
1000
6667
3571
8500
tax expenditures generally increase the complexity of the tax system
ability to pay, as currently defined, is implemented using a tax rate structure that is
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.
which type of a tax audit is most likely to occur?
fraud exam
office exam
field exam
correspondence exam
The citation, §25(e)(3)(A)(i), is read as
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
in general, how long is a statute of limitations for an income tax return?
2 yrs
3 yrs
6 yrs
unlimited
personal expenses are primarily deductions FROM AGI and created as tax expenditures.
which audit method is the primary method used by the IRS to select tax returns for audit?
discriminant function (DIF)
taxpayer compliance measurement function TCMP
document matching program
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
65000
64000
60000
55000
53000
51000
50000
49000
46000
The taxpayer’s adjusted gross income (AGI) is
the majority of deductions FOR AGI are personal expenses
In the citation, §1.312-6(b), the (b) refers to a
subsection
paragraph
subparagraph
clause
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?
related parties
administrative convenience
Section 1378 deal with which type of entity?
taxable
conduit
flow into
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?
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?
18 percent; muni bond
18 percent; corp bond
21.95 percent; muni bond
21.95 percent; corp bond
Taxpayers file a joint return. They have taxable income of $223,050 for 2013. The taxpayers’ marginal tax rate is
15%
25%
28%
33%
which concepts justifies the phase-out of the child credit?
Which item in the tax equation is used to determine phase-outs and limitations (e.g., phase-out of the child credit)?
gross income
adjusted gross income
taxable income
the implicit tax rate
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
Taxpayer files as single with taxable income of $183,250. Using the tax rate schedule, the tax for 2013 is
17891
44603
49919
47514
58,995
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?
related party transactions
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?
claim of right
constructive receipt
congress wants the income from certain property transactions to be deferred. which concept will they use to justify this decision?
realization
claim of right applies when a payment has been received but not yet earned.
the kiddie tax was created by congress because of which concept?
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
400
2000
2400
6100
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?
1650
2900
3000
3900
4650
5650
10000
Which of the following items will cause realized income to not equal recognized income? (Check all that apply)
exclusion
deduction
deferral
credit
appraised value
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?
