Problem 1. Which of the following represents the largest percentage of state tax revenue?
- Sales tax
- Individual income tax
- Other
- Property tax
- None of the above
Problem 2. Which of the following federal government actions would make sense if a tax system fails to provide sufficient tax revenue?
- Issue treasury bonds
- Cut funding to various federal projects
- Increase federal spending
- A and B but not C
- None of the above
Problem 3. Which of the following is not a common method that the IRS uses to select returns for audit?
- DIF system.
- Tax Select system.
- Information matching.
- Document perfection.
- None of the above.
Problem 4. 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?
- DIF System.
- Deduction Detective.
- Document perfection.
- Information matching.
- None of the above.
Problem 5. Which of the following audits is the most common and typically less comprehensive?
- Correspondence.
- Random.
- Office.
- Field.
- None of the above.
Problem 6. Which of the following is not required to determine the best timing strategy?
- the taxpayer's after-tax rate of return
- the taxpayer's tax rate this year
- the taxpayer's tax rate in future years
- the taxpayer's tax rate last year
- None of the above
Problem 7. Which of the following is an example of the timing strategy?
- A cash basis taxpayer paying all of its outstanding bills by year end
- A parent employing her child in the family business
- A business paying its owner a $30,000 salary
- A taxpayer investing in a tax preferred investment
- None of the above
Problem 8. Paying "fabricated" expenses in high tax rate years is an example of:
- conversion
- tax evasion
- timing
- income shifting
- None of the above
Problem 9. Which of the following shows the correct relationship among standard deduction amounts for the respective filing statuses?
- Single > Head of Household > Married Filing Jointly
- Married Filing Jointly > Married Filing Separately > Head of Household
- Married Filing Jointly > Head of Household > Single
- Head of Household > Married Filing Separately > Married Filing Jointly
Problem 10. Which of the following types of income are subject to a tax rate not provided for in the tax tables or tax rate schedules?
- Compensation income
- Long-term capital gains
- Qualified dividend income
- A and C
- B and C
Problem 11. Which of the following statements is true?
- Income character determines the tax year in which the income is taxed.
- Income character depends on the taxpayer's filing status.
- Qualified dividend income is taxed at a lower rate than the same amount of ordinary income.
- A taxpayer selling a capital asset at a gain recognizes ordinary income.
Problem 12. Harold receives a life annuity from his qualified pension that pays him $5,000 per year for as long as he lives. Later this year Harold will recover the remainder of his cost of the annuity. Which of the following correctly describes how the annuity payments are taxed after Harold has recovered the cost of the annuity?
- Harold will continue to apply the annuity exclusion ratio to determine the amount of each annuity payment includible in gross income.
- Harold will include the entire amount of each annuity payment in gross income after he recovers the cost of the annuity.
- The entire amount of each annuity payment is excluded from gross income after Harold recovers his cost of the annuity.
- Harold must request that the IRS calculate his exclusion ratio based upon a revised life expectancy.
Problem 13. Which of the following statements about alimony payments is true?
- To qualify as alimony, payments must be made in cash.
- Alimony payments are includible in the gross income of the recipient.
- To qualify as alimony, payments cannot continue after the death of the recipient.
- To qualify as alimony, payments must be made under a written agreement or divorce decree that does not designate the payments as "nonalimony" or child support.
- All of the above
Problem 14. Which of the following costs are NOT deductible as an itemized medical expense?
- The cost of eyeglasses.
- Payments to a hospital.
- Transportation for medical purposes.
- The cost of insurance for long-term care services.
- All of the above are deductible as medical expenses.