Question 1

In 2016, Deborah became 65 years old. In 2017 she added a swimming pool, and in 2018 she converted the residence to rental property and moved into an assisted living facility. Since 2015, Deborah's ad valorem property taxes have decreased once and increased twice. Explain.

Accepted Answer

The answer of In 2016, Deborah became 65 years old....

Question 2

In late June 2018, Art is audited by the state and a large deficiency is assessed. In November of the same year, his Federal income tax return is audited by the IRS. What has probably happened?

Accepted Answer

The answer of In late June 2018, Art is audited...

Question 3

Briana lives in one state and works in the adjoining state. Both states tax the income she earns from her job. Does Briana have any relief from this apparent double taxation of the same income?

Accepted Answer

The answer of Briana lives in one state and works...

Question 4

Melinda has been referred to you by one of your clients. In the past, she has prepared her own income tax returns, but she has become overwhelmed by the increased complexity of the tax law. Consequently, Melinda wants you to prepare her return for calendar year 2018. In reviewing her 2017 return, you note that she has claimed as a deduction the entire cost of a business building that should have been capitalized and depreciated. What course of action should you follow?

Accepted Answer

The answer of Melinda has been referred to you by...

Question 5

Logan dies with an estate worth $20 million. Under his will, $10 million passes to his wife while $10 million goes to his church. What is Logan's Federal estate tax result?

Accepted Answer

The answer of Logan dies with an estate worth $20...

Question 6

The quote engraved on the IRS building in Washington, DC, at the entrance states:

Accepted Answer

The actual quote engraved on the IRS building in Washington, DC is "Taxes are the price we pay for a civilized society." This quote is often attributed to Justice Oliver Wendell Holmes Jr. and is used to emphasize the importance of taxes in funding public goods and services that are essential to a functioning society.

Question 7

What might cause an individual to owe income taxes in more than one state?

Accepted Answer

The answer of What might cause an individual to owe...

Question 8

Paige is the sole shareholder of Citron Corporation. During the year, Paige leases a building to Citron for a monthly rental of $80,000. If the fair rental value of the building is $60,000, what are the income tax consequences to the parties involved?

Accepted Answer

The answer of Paige is the sole shareholder of Citron...

Question 9

Which of the following taxes is only paid by the employer?

Accepted Answer

FUTA (Federal Unemployment Tax Act) is a tax paid only by the employer to provide unemployment benefits to workers who have lost their jobs. FICA (Federal Insurance Contributions Act) includes both Social Security and Medicare taxes, which are paid by both the employer and employee.

Question 10

The AICPA Statements on Standards for Tax Services are:

Accepted Answer

The AICPA Statements on Standards for Tax Services are enforceable standards for AICPA members who provide tax services. These standards provide guidance on ethical principles, tax return positions, and communication with tax authorities.

Question 11

Tracy has just been audited and the IRS agent has issued an RAR that assesses a large deficiency. Since Tracy disagrees with the result, her next step is to go to court. Do you agree?

Accepted Answer

The answer of Tracy has just been audited and the...

Question 12

The Federal income tax is based on a pay-as-you-go system and has become a "mass tax." Explain this statement.

Accepted Answer

The answer of The Federal income tax is based on...

Question 13

Under what conditions is it permissible, from an ethical standpoint, for a CPA firm to outsource tax return preparation to a third party?

Accepted Answer

The answer of Under what conditions is it permissible, from...

Question 14

"Bracket creep" is avoided by:

Accepted Answer

"Bracket creep" refers to when inflation causes a taxpayer's income to push into a higher tax bracket, resulting in increased taxes without any increase in real income. Adjusting the rate brackets for inflation annually helps prevent this from happening and ensures that taxpayers are not penalized for something outside of their control. The other options, such as sunset provisions or special tax rules for small businesses, are not necessarily related to preventing bracket creep.

Question 15

Virtually all state income tax returns contain checkoff boxes for donations to various causes. On what grounds has this procedure been criticized?

Accepted Answer

The answer of Virtually all state income tax returns contain...

Question 16

Morgan inherits her father's personal residence including all of the furnishings. She plans to add a swimming pool and sauna to the property and rent it as a furnished house. What are some of the ad valorem property tax issues Morgan can anticipate?

Accepted Answer

The answer of Morgan inherits her father's personal residence including...

Question 17

Rick, the sole proprietor of an adult entertainment club, is audited by the IRS. On the third day of the field audit, the regular IRS agent is accompanied by a special agent. Should Rick be concerned by this new development? Explain.

Accepted Answer

The answer of Rick, the sole proprietor of an adult...

Question 18

Tax functions that accounting and finance professionals may assist clients with include all but the following:

Accepted Answer

Accounting and finance professionals should never assist clients with tax evasion, as it is illegal and unethical. The other options, tax compliance, tax planning, and cash management to ensure timely payment of taxes, are common tax functions that professionals may assist clients with.

Question 19

A rationale for the installment method tax rule is:

Accepted Answer

The answer of A rationale for the installment method tax...

Question 20

In 1987, Roy leased real estate to Drab Corporation for 20 years. Drab Corporation made significant capital improvements to the property. In 2006, Drab decides not to renew the lease and vacates the property. At that time, the value of the improvements is $800,000. Roy sells the real estate in 2018 for $1,200,000 of which $900,000 is attributable to the improvements. When is Roy taxed on the improvements made by Drab Corporation?

Accepted Answer

The answer of In 1987, Roy leased real estate to...

Quiz 1: An Introduction to Taxation and Understanding the Federal Tax Law