1. Sin taxes are:
A. Taxes assessed by religious organizations
B. Taxes assessed on certain illegal acts
C. Taxes assessed to discourage less desirable behavior
D. Taxes assessed to fund a specific purpose
E. None of these
2. To calculate a tax, you need to know:
I. the tax base
II. the taxing agency
III. the tax rate
IV. the purpose of the tax
A. Only I is correct
B. Only IV is correct
C. Only III is correct
D. Items I through IV are correct
E. I and III are correct
3. Which of the following is not an example of a graduated tax rate structure?
A. Progressive tax rate structure
B. Proportional tax rate structure
C. U.S. Federal Income Tax
D. Regressive tax rate structure
E. None of these
4. The difficulty in calculating a tax is typically in the determination of:
A. The correct tax rate
B. Where to file the tax return
C. The tax base
D. The due date for the return
E. None of these
5. Which of the following is not one of the basic tax rate structures?
A. Proportional
B. Equitable
C. Regressive
D. Progressive
E. All of these are different kinds of the basic tax rate structures
6. Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2013, how much federal tax will he owe?
A. $15,000.00
B. $12,375.00
C. $10,928.75
D. $9,503.00
E. None of these
7. Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2013, what is his average tax rate (rounded)?
A. 18.21%
B. 20.00%
C. 15.84%
D. 25.00%
E. None of these
8. Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2013, what is his effective tax rate (rounded)?
A. 23.08%
B. 16.81%
C. 14.62%
D. 25.00%
E. None of these
9. Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2013, what is his current marginal tax rate?
A. 15.00%
B. 25.00%
C. 28.00%
D. 33.00%
E. None of these
10. The city of Granby, Colorado recently enacted a 1.5% surcharge on vacation cabin rentals that will help pay for the city's new elementary school. This surcharge is an example of ________.
A. A sin tax to discourage undesirable behavior
B. A government fine
C. An earmarked tax
D. Both a sin tax to discourage undesirable behavior and an earmarked tax
E. None of these
11. The state of Georgia recently increased its tax on a carton of cigarettes by $2.00. What type of tax is this?
A. A sin tax
B. An excise tax
C. It is not a tax; it is a fine
D. Both a sin tax and an excise tax are correct
E. None of these is correct
12. Which of the following is false?
A. A proportional tax rate structure imposes a constant tax rate while a progressive tax rate structure imposes an increasing marginal rate related to the tax base
B. The average tax rate changes under a proportional tax rate structure, but it is static for a progressive tax rate system
C. An example of a proportional tax is the tax on gasoline
D. An example of a progressive tax is the federal tax on gifts
E. None of these
13. Which of the following is true?
A. A regressive tax rate structure imposes an increasing marginal tax rate as the tax base increases
B. Regressive tax structures are the most common tax rate structure
C. An example of a regressive tax is an excise tax
D. In terms of effective tax rates, a sales tax can be viewed as a regressive tax
E. None of these
14. The ultimate economic burden of a tax is best captured by:
A. The marginal tax rate
B. The effective tax rate
C. The average tax rate
D. The proportional tax rate
E. None of these is correct
15. Which of the following taxes represents the largest portion of U.S. Federal Tax revenues?
A. Employment taxes
B. Corporate income taxes
C. Individual income taxes
D. Estate and gift taxes
E. None of these
16. Which of the following represents the largest percentage of state tax revenue?
A. Sales tax
B. Individual income tax
C. Other
D. Property tax
E. None of these
17. Which of the following is true regarding use taxes?
A. A use tax is relatively easy to enforce compared to a sales tax.
B. Use taxes attempt to eliminate any tax advantage of purchasing goods out of state.
C. Use taxes encourage taxpayers to buy goods out of state to avoid paying sales tax in their home state.
D. A use tax is generally a progressive tax.
E. None of these is true.
18. Which of the following is true regarding real property taxes and personal property taxes?
A. Personal property taxes are assessed on permanent structures and land
B. Real property taxes are assessed on cars and boats
C. All U.S. states currently impose personal property taxes
D. Real property taxes are generally easier to administer than personal property taxes
E. None of these is true
19. Which of the following statements is true?
A. Municipal bond interest is subject to explicit federal tax
B. Municipal bond interest is subject to implicit tax
C. Municipal bonds typically pay a higher interest rate than corporate bonds with similar risk
D. All of these are true
E. None of these is true
20. Geronimo files his tax return as a head of household for year 2013. If his taxable income is $72,000, what is his average tax rate (rounded)?
A. 17.36%
B. 18.24%
C. 19.34%
D. 25.00%
E. None of these
21. Which of the following is not a factor that determines whether a taxpayer is required to file a tax return?
A. Filing status.
B. Taxpayer's gross income.
C. Taxpayer's employment.
D. Taxpayer's age.
E. None of these.
22. If Paula requests an extension to file her tax return, the latest she could file her return without penalty is:
A. September 15th.
B. October 15th.
C. August 15th.
D. November 15th.
E. None of these.
23. If Lindley requests an extension to file her tax return, the latest she could pay her tax due without penalty is:
A. April 15th.
B. October 15th.
C. August 15th.
D. November 15th.
E. None of these.
24. Corporations are required to file a tax return only if their taxable income is greater than:
A. $0.
B. $1,000.
C. $600.
D. $750.
E. None of these. Corporations are always required to file a tax return.
25. This year April 15th falls on a Saturday. Individual tax returns will be due on:
A. April 14th.
B. April 15th.
C. April 16th.
D. April 17th.
E. None of these.
26. Dominic earned $1,500 this year, and his employer withheld $200 of federal income tax from his salary. Assuming that Dominic will have zero tax liability this year, he:
A. is required to file a tax return.
B. is not required to file a tax return but should file a return anyway.
C. is required to file a tax return but should not file because he owes no tax.
D. is not required to file a tax return and should not file a return.
E. None of these.
27. Greg earned $20,500 this year and had $1,500 of federal income taxes withheld from his salary. Assuming that Greg will have a total tax liability of $1,000 (and thus will receive a $500) refund, he:
A. Is required to file a tax return.
B. is not required to file a tax return but should file a return anyway.
C. is required to file a tax return but should not file because he owes no tax.
D. is not required to file a tax return and should not file a return.
E. None of these.
28. Bill filed his 2013 tax return on March 15th, 2014. The statute of limitations for IRS assessment on Bill's 2013 tax return should end:
A. March 15th, 2016.
B. April 15th, 2016.
C. March 15th, 2017.
D. April 15th, 2017.
E. None of these.
29. Henry filed his 2013 tax return on May 15th, 2014. The statute of limitations for IRS assessment on Henry's 2013 tax return should end:
A. May 15th, 2016.
B. April 15th, 2016.
C. May 15th, 2017.
D. April 15th, 2017.
E. None of these.
30. Allen filed his 2013 tax return on May 15th, 2014 and underreported his gross income by 30 percent. Assuming Allen's underreporting is not due to fraud, the statute of limitations for IRS assessment on Allen's 2013 tax return should end:
A. May 15th, 2016.
B. April 15th, 2016.
C. May 15th, 2017.
D. April 15th, 2017.
E. None of these.
31. Andy filed a fraudulent 2013 tax return on May 1, 2014. The statute of limitations for IRS assessment on Andy's 2013 tax return should end:
A. May 1st, 2016.
B. April 15th, 2016.
C. May 1st, 2017.
D. April 15th, 2017.
E. None of these.
32. Martin has never filed a 2013 tax return despite earning approximately $20,000 providing landscaping work in the community. When does the statute of limitations expire for Martin's 2013 tax return?
A. 2016.
B. 2017.
C. 2020.
D. 2021.
E. None of these.
33. Which of the following is not a common method that the IRS uses to select returns for audit?
A. DIF system.
B. Tax Select system.
C. Information matching.
D. Document perfection.
E. None of these.
34. Leslie made a mathematical mistake in computing her tax liability. Which audit program will likely catch Leslie's mistake?
A. DIF System.
B. Mathematical correction.
C. Document perfection.
D. Information matching.
E. None of these.
35. 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?
A. DIF System.
B. Deduction Detective.
C. Document perfection.
D. Information matching.
E. None of these.
36. Ramon's tax return was randomly selected for audit. Which IRS program likely selected Ramon's return for audit?
A. DIF System.
B. National Research Program.
C. Document perfection.
D. Information matching.
E. None of these.
37. Which of the following audits is the most common and typically less comprehensive?
A. Correspondence.
B. Random.
C. Office.
D. Field.
E. None of these.
38. Which of the following audits is the least common, broadest in scope, and typically most complex?
A. Correspondence.
B. Targeted.
C. Office.
D. Field.
E. None of these.
39. Dan received a letter from the IRS that gave him the choice of (1) requesting a conference with an Appeals Officer or (2) agreeing to a proposed tax adjustment. Dan received the:
A. 30-day letter.
B. 90-day letter.
C. Appeals letter.
D. Tax adjustment letter.
E. None of these.
40. Basu received a letter from the IRS that gave him the choice of (1) paying a proposed deficiency or (2) filing a petition with the U.S. Tax Court. Basu received the:
A. 30-day letter.
B. 90-day letter.
C. Appeals letter.
D. Tax adjustment letter.
E. None of these.
41. If Joel earns a 10% after-tax rate of return, $10,000 received in two years is worth how much today (rounded)?
A. $10,000
B. $9,090
C. $8,260
D. $11,000
E. None of these
42. If Lucy earns a 6% after-tax rate of return, $8,000 received in four years is worth how much today?
A. $8,000
B. $7,544
C. $8,989
D. $6,336
E. None of these
43. If Nicolai earns an 8% after-tax rate of return, $20,000 today would be worth how much to Nicolai in 5 years?
A. $20,000
B. $13,620
C. $18,520
D. $21,600
E. None of these
44. If Scott earns a 12% after-tax rate of return, $15,000 today would be worth how much to Scott in 2 years?
A. $15,000
B. $11,955
C. $18,520
D. $18,816
E. None of these
45. If Rudy has a 25% tax rate and a 6% after-tax rate of return, a $30,000 tax deduction in four years will save how much tax in today's dollars (rounded)?
A. $30,000
B. $7,500
C. $28,290
D. $5,940
E. None of these
46. If Julius has a 30% tax rate and a 10% after-tax rate of return, a $40,000 tax deduction in two years will save how much tax in today's dollars (rounded)?
A. $40,000
B. $9,912
C. $33,040
D. $12,000
E. None of these
47. If Thomas has a 40% tax rate and a 6% after-tax rate of return, $50,000 of income in five years will cost him how much tax in today's dollars (rounded)?
A. $50,000
B. $20,000
C. $37,350
D. $14,940
E. None of these
48. If Julius has a 20% tax rate and a 10% after-tax rate of return, $25,000 of income in three years will cost him how much tax in today's dollars (rounded)?
A. $3,755
B. $18,775
C. $5,000
D. $25,000
E. None of these
49. Which of the following increases the benefits of income deferral?
A. increasing tax rates
B. smaller after-tax rate of return
C. larger after-tax rate of return
D. smaller magnitude of transactions
E. None of these
50. Which of the following decreases the benefits of accelerating deductions?
A. decreasing tax rates
B. smaller after-tax rate of return
C. larger after-tax rate of return
D. larger magnitude of transactions
E. None of these
51. Which of the following does not limit the benefits of deferring income?
A. increasing tax rates
B. a taxpayer with severe cash flow needs
C. if continuing an investment would generate a low rate of return
D. if continuing an investment would subject the taxpayer to unnecessary risk
E. None of these
52. The constructive receipt doctrine
A. is particularly restrictive for accrual basis taxpayers
B. causes income to be recognized before it is actually received
C. causes income to be recognized after it is actually received
D. applies equally to income and expenses
E. None of these
53. Rolando's employer pays year-end bonuses each year on December 31. Rolando, a cash basis taxpayer, would prefer to not pay tax on his bonus this year. So, he leaves town on December 31, 2013 and doesn't pick up his check until January 2nd, 2014. When should Rolando report his bonus?
A. 2014
B. 2013
C. Rolando can choose the year to report the income
D. It does not matter
E. None of these
54. If tax rates are decreasing:
A. taxpayers should accelerate income
B. taxpayers should defer deductions
C. taxpayers should defer income
D. taxpayers should defer deductions and accelerate income
E. None of these
55. If tax rates are decreasing:
A. taxpayers should accelerate income
B. taxpayers should defer deductions
C. taxpayers should accelerate deductions
D. taxpayers should defer deductions and accelerate income
E. None of these
56. If tax rates are increasing:
A. taxpayers should accelerate income
B. taxpayers should defer deductions
C. taxpayers should defer income
D. you need more information to make a recommendation
E. None of these
57. Which of the following is not required to determine the best timing strategy?
A. the taxpayer's after-tax rate of return
B. the taxpayer's tax rate this year
C. the taxpayer's tax rate in future years
D. the taxpayer's tax rate last year
E. None of these
58. Which of the following is an example of the timing strategy?
A. A corporation paying its shareholders a $20,000 dividend
B. A parent employing her child in the family business
C. A taxpayer gifting stock to his children
D. A cash-basis business delaying billing its customers until after year end
E. None of these
59. Which of the following is an example of the timing strategy?
A. A cash basis taxpayer paying all outstanding bills by year end
B. A parent employing her child in the family business
C. A business paying its owner a $30,000 salary
D. A taxpayer investing in a tax preferred investment
E. None of these
60. Which of the following does not limit the income shifting strategy?
A. assignment of income doctrine
B. business purpose doctrine
C. substance-over-form doctrine
D. step-transaction doctrine
E. None of these