Question 1

All tax practitioners who prepare tax returns for a fee are subject to which of the following?
I.IRS Circular 230
II.AICPA Code of Professional Conduct
III.Statements on Standards for Tax Services
IV.American Bar Association Code of Professional Conduct

Accepted Answer

The answer of All tax practitioners who prepare tax returns...

Question 2

On December 28,2013,Doris and Dan are considering one last financial decision for 2013,a contribution of $1,000 to the American Diabetes Association.If they make the $1,000 contribution,it will be fully deductible on their 2013 income tax return.Their filing status is married filing jointly.Their 2013 taxable income before this contribution is $150,000.If they make this contribution,what is its after-tax cost?

Accepted Answer

The answer of On December 28,2013,Doris and Dan are considering...

Question 3

Raquel is a recent law school graduate.She is upset by an IRS Revenue Agent's Report on her income tax return that she must pay an additional $2,000 in tax on last year's income.Raquel tells you that she "...will take her case all the way to the Supreme Court." What is the probability Raquel will be able to take her case to the Supreme Court.

Accepted Answer

The answer of Raquel is a recent law school graduate.She...

Question 4

Harriet and Harry are married and have total gross income of $65,000.Their allowable deductions for adjusted gross income total $1,500 and they have $4,400 of allowable itemized deductions.What are Harriet and Harry's taxable income and income tax liability?

Accepted Answer

The answer of Harriet and Harry are married and have...

Question 5

Winfield Corporation recently purchased equipment that qualifies for a new tax incentive.The new incentive allows Winfield to either expense $100,000 of the cost of the equipment or claim a tax credit of 15% of the cost of the equipment.The cost of the equipment is $200,000.If the credit is elected,the first year depreciation will be $34,000.If Winfield chooses to expense $100,000 of the cost,the first year depreciation will be $20,000 on the remaining cost.Winfield's tax rate is either 34% or 39%.Under what conditions should Winfield elect to take the tax credit?
 Explain and show any calculations to support your answer.

Accepted Answer

The answer of Winfield Corporation recently purchased equipment that qualifies...

Question 6

Rosemary is single and works for Big B Corporation.Her only income consists of her Big B salary and interest on a savings account.During the year,she has $400 withheld from her salary for state income taxes and $7,800 for federal income taxes.Her brother provides her with the following calculation of her taxable income and income tax liability:
 $\begin{array}{lr}
\text { Salary } & \$ 36,000 \
\text { Interest income } & 3,100 \
\text { Less: State tax withheld } & (400) \
\text { Equals: Gross income } & \$ 38,700\
 \text {Less: Deductions for adjusted gross income }\
 \text { Standard deduction}&(5,950)\
 \text { Equals: Taxable income}&\$32,750\\
 \text { Income tax liability $ (\$ 33,000 \times 25 \%) $}&\$8,225\
 \text {Less: Federal withholding }&(7,800)\
 \text { Equals: Tax due}&\$425\
\end{array}$ 
Explain the errors that Rosemary 's brother has made in calculating her taxable income and/or her income tax liability.A recalculation is not necessary,but you must adequately explain the errors that were made.

Accepted Answer

The answer of Rosemary is single and works for Big...

Question 7

On January 4,2013,Owen died and left ranch land with a value of $300,000 to his brother,Victor.This transfer was purely donative with no expectation of anything in return.Victor transferred all of this land to his corporation,Circle C Ranch,Inc.Victor is the president and an active employee of the corporation.Victor's salary from the corporation is $40,000 per year.The ranch land is located in Torrent County,Texas.The Torrent Appraisal District appraises the property.
From the above facts name six different types of federal,state,or local taxes that might have to be paid and name the entity that is liable to pay them.

Accepted Answer

The answer of On January 4,2013,Owen died and left ranch...

Question 8

Julia is single and earns a salary of $65,000.Her allowable deductions for adjusted gross income total $1,200 and she has $4,200 of allowable itemized deductions.What is Julia's taxable income and income tax liability?

Accepted Answer

The answer of Julia is single and earns a salary...

Question 9

What type of tax rate structure is indicated in the following example?
 Explain.
 $\begin{array}{cc}
\text { When income equals }&\text { Total tax equals }\
\$ 10,000 & \$ 300 \
\$ 75,000 & \$ 4,500 \
\$ 100,000 & \$ 8,000
\end{array}$

Accepted Answer

The answer of What type of tax rate structure is...

Question 10

Glenna put money in savings accounts in 50 different banks.She knows a bank is not required to report to the IRS any interest it pays her that totals less than $10.Because the banks do not report the payments to the IRS,Glenna does not report the interest received as taxable income.Which of the following is (are)true?
I.Glenna's actions are tax evasion because she intentionally misrepresented facts on a tax return to avoid paying tax.
II.Glenna's actions are tax avoidance because the IRS will never know about the interest income.
III.Glenna's actions are tax evasion because she took steps to conceal the income.

Accepted Answer

Glenna's actions are considered tax evasion because she intentionally misrepresented facts on a tax return to avoid paying tax, which is stated in statement I. Additionally, statement III is also correct because she intentionally took steps to conceal the income by spreading it across multiple banks. However, statement II is not entirely accurate because while the IRS may not initially know about the interest income, they may still discover it through other means, such as an audit or information provided by the banks. Therefore, the best choice is C because only statements I and III are completely accurate.

Question 11

Alice is a plumber and collector of rare stamps.Instead of always receiving cash payments for her work,she occasionally has her customers send their payments to a stamp broker.The broker then makes stamp purchases on Alice's behalf and mails the stamps to her.Alice never reports the value of the stamps received as income on her tax return.
I.Alice's actions are a form of tax evasion.
II.Alice's actions are subject to payment of tax,interest,and penalty if detected by the IRS.

Accepted Answer

Alice is not reporting the stamps received as income, which is a violation of tax laws and considered tax evasion. If detected by the IRS, she would be subject to payment of tax, interest, and penalty on the unreported income. Therefore, both statements I and II are correct.

Question 12

Mo is a single taxpayer reporting $95,000 of gross income.In addition,Mo receives $5,000 of tax-exempt interest.
Required: Compute the following:
a. Mo's taxable income is ___________________.
b. Mo's tax liability is ____________________.
c. Mo's marginal tax rate is ____________________.
d. Mo's average tax rate is ____________________.
e. Mo's effective tax rate is ____________________.

Accepted Answer

The answer of Mo is a single taxpayer reporting $95,000...

Question 13

The Statements on Standards for Tax Services (SSTS)have common concepts running through most of them.Which of the following statements are parts of the SSTSs?
I.The preparer may in good faith rely upon,without verification,information furnished by the client.
II.There is confidentiality of the CPA-client relationship.
III.Taxpayer supplied estimates may be used to prepare returns if it is impractical to obtain exact data and the estimates are reasonable.
IV.The preparer must never disclose to the IRS any facts about the client's tax return information -- unless the client approves disclosure,or the preparer is required to do so by law.

Accepted Answer

Statements I, II, III, and IV accurately reflect concepts found in the Statements on Standards for Tax Services (SSTSs). These include the ability to rely on client-provided information, the confidentiality of the CPA-client relationship, the use of reasonable estimates when exact data is not available, and the conditions under which a preparer can disclose tax return information.

Question 14

Tax evasion usually involves certain elements.Which of the following are elements necessary for tax evasion to occur?
I.Nondisclosure of the relevant facts on the taxpayer's tax return.
II.Underpayment of tax.
III.Avoiding detection by the IRS.
IV.Willfulness on the part of the taxpayer.
V.An affirmative act by the taxpayer to misrepresent.

Accepted Answer

Tax evasion requires an affirmative act by the taxpayer to misrepresent, willfulness on the part of the taxpayer, nondisclosure of the relevant facts on the taxpayer's tax return, and underpayment of tax. Avoiding detection by the IRS may or may not occur in tax evasion. Therefore, statements I, II, IV, and V are correct, making option B the best choice.

Question 15

Betty hires Sam to prepare her federal income tax return.In preparing the return,Sam erroneously decided to exclude consulting fees because he estimated that Betty's expenses should have exceeded the income she received.If the IRS detects Betty's underpayment of tax,what is the likely result?
I.Betty is not subject to the negligence penalty since she relied on a professional tax preparer and reported her income in good faith.
II.Sam is liable for payment of Betty's tax due plus interest and negligence penalty.

Accepted Answer

The answer of Betty hires Sam to prepare her federal...

Question 16

Betty hires Sam to prepare her federal income tax return.In preparing the return,Sam erroneously decided to exclude consulting fees because he estimated that Betty's expenses should have exceeded the income she received.If the IRS detects Betty's underpayment of tax,what is the likely result?
I.Betty is not subject to the negligence penalty since she relied on a professional tax preparer and reported her income in good faith.
II.Betty is liable for payment of the tax due plus interest and a negligence penalty.
III.Sam is liable for payment of Betty's tax due plus interest and negligence penalty.
IV.Sam is liable for payment of Betty's negligence penalty.Betty is liable for the payment of the tax due plus interest.

Accepted Answer

Betty is ultimately responsible for accurately reporting her income, regardless of whether she relied on a tax preparer. Therefore, she is liable for payment of the tax due plus interest and a negligence penalty. Sam may also be liable for payment of a negligence penalty depending on the circumstances, but not for Betty's tax due. Option I is incorrect because reliance on a professional does not necessarily absolve one from penalties for underpayment. Option III is incorrect because Sam is not liable for Betty's tax due, only his own potential negligence penalty. Option IV is partially correct, as Sam may be liable for a negligence penalty, but Betty is still responsible for payment of the tax due plus interest.

Question 17

Betty hires Sam to prepare her federal income tax return.In preparing the return,Sam erroneously decided to exclude consulting fees because he estimated that Betty's expenses should have exceeded the income she received.If the IRS detects Betty's underpayment of tax,what is the likely result?
I.Betty is liable for payment of the tax due plus interest and a negligence penalty.
II.Sam is liable for payment of Betty's negligence penalty.Betty is liable for the payment of the tax due plus interest.

Accepted Answer

Betty is ultimately responsible for the accuracy of her tax return, even if she hired someone else to prepare it. Therefore, she is liable for paying the tax due plus interest and a negligence penalty. Sam may also be subject to penalties for his mistake, but he would not be responsible for paying Betty's penalty.

Question 18

Nora and Nathan work for Cozener Construction Company.Nora is a foreman with an annual salary of $120,000.Nathan is a carpenter who earned total wages of $52,000 during the current year.
a.How much Social Security tax will Nora and Nathan have to pay?
b.According to the definitions in Chapter 1, is the social security tax regressive, proportional, or progressive? Explain.

Accepted Answer

The answer of Nora and Nathan work for Cozener Construction...

Question 19

Barry has prepared the following 2013 income tax estimate for his sister,Sylvia.Sylvia is single,age 32,and has no children.Sylvia is an employee of General Motors and rents an apartment.Her only investment is a savings bank account.
 $\begin{array}{lr}
\text { Salary } & \$ 37,200 \
\text { Bank interest } &{750} \
\text { Taxable income } &{\$ 37,950}\\
 \text {Tax on first $ \$ 36,250 $ }&\$ 4,991.25\
 \text { Tax on next $ \$ 1,700 $}&255.00\
 \text {Income tax liability }&\$ 5,246.25\
 \text {Withheld income tax }&4,800.00 \
 \text {  Balance due}&\$ 446.25 \
\end{array}$ 
Identify the errors,if any,in Barry's income tax estimate.Additional calculations are not required.

Accepted Answer

The answer of Barry has prepared the following 2013 income...

Question 20

Which of the following taxpayers used tax evasion tactics when filing their 2013 tax return?
I.Fern,a cash basis accountant intentionally billed clients for services on December 31,2013,to avoid receiving cash payments from clients until 2014.
II.Samual made a mathematical mistake on a schedule in his tax return that resulted in a $2,000 underpayment of tax.The IRS does not detect the mistake..
III.Beverly accidentally underreported $800 of income she earned providing childcare in her home.
IV.Bo,a cattle rancher,deducted the cost of raising 7 steers that were used by his family and relatives for food during 2013.

Accepted Answer

Bo deducted the cost of raising the steers that he used for personal consumption, which is not a legitimate business expense. This is an example of tax evasion. The other statements involve errors or mistakes, but not intentional evasion.

Quiz 1: Federal Income Taxation - an Overview

All tax practitioners who prepare tax returns for a fee are subject to which of the following? I.IRS Circular 230 II.AICPA Code of Professional Conduct III.Statements on Standards for Tax Services IV.American Bar Association Code of Professional Conduct

Harriet and Harry are married and have total gross income of $65,000.Their allowable deductions for adjusted gross income total $1,500 and they have $4,400 of allowable itemized deductions.What are Harriet and Harry's taxable income and income tax liability?

Julia is single and earns a salary of $65,000.Her allowable deductions for adjusted gross income total $1,200 and she has $4,200 of allowable itemized deductions.What is Julia's taxable income and income tax liability?

What type of tax rate structure is indicated in the following example? Explain. $\begin{array}{cc}\text { When income equals }&\text { Total tax equals }\\\$ 10,000 & \$ 300 \\\$ 75,000 & \$ 4,500 \\\$ 100,000 & \$ 8,000\end{array}$

Mo is a single taxpayer reporting $95,000 of gross income.In addition,Mo receives $5,000 of tax-exempt interest. Required: Compute the following: a. Mo's taxable income is _. b. Mo's tax liability is . c. Mo's marginal tax rate is . d. Mo's average tax rate is . e. Mo's effective tax rate is __.