James E. Smith, William A. Raabe, David M. Maloney
ISBN-10: 1285424514
ISBN-13: 9781285424514
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1. Chapter 1 -
Introduction To Taxation Question TF #1 (1.0 point)
The FICA tax (Medicare component) on wages is progressive since the tax due increases as wages increase.
The FICA tax (Medicare component) on wages is progressive since the tax due increases as wages increase.
a. True
*b. False
2. Chapter 1 -
Introduction To Taxation Question TF #2 (1.0 point)
The Federal estate and gift taxes are examples of progressive taxes.
The Federal estate and gift taxes are examples of progressive taxes.
*a. True
b. False
3. Chapter 1 - Introduction To Taxation Question TF #3
(1.0 point)
The Federal excise tax on cigarettes is an example of a proportional tax.
The Federal excise tax on cigarettes is an example of a proportional tax.
*a. True
b. False
4. Chapter 1 -
Introduction To Taxation Question TF #4 (1.0 point)
Currently, the Federal income tax is less progressive than it ever has been in the past.
Currently, the Federal income tax is less progressive than it ever has been in the past.
a. True
*b. False
5. Chapter 1 -
Introduction To Taxation Question TF #5 (1.0 point)
A Federal excise tax is no longer imposed on admission to theaters.
A Federal excise tax is no longer imposed on admission to theaters.
*a. True
b. False
6. Chapter 1 -
Introduction To Taxation Question TF #6 (1.0 point)
There is a Federal excise tax on hotel occupancy.
There is a Federal excise tax on hotel occupancy.
a. True
*b. False
7. Chapter 1 -
Introduction To Taxation Question TF #7 (1.0 point)
The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the U.S.
The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the U.S.
a. True
*b. False
8. Chapter 1 -
Introduction To Taxation Question TF #8 (1.0 point)
Like the Federal counterpart, the amount of the state excise taxes on gasoline varies from state to state.
Like the Federal counterpart, the amount of the state excise taxes on gasoline varies from state to state.
a. True
*b. False
9. Chapter 1 -
Introduction To Taxation Question TF #9 (1.0 point)
Not all of the states that impose a general sales tax also have a use tax.
Not all of the states that impose a general sales tax also have a use tax.
a. True
*b. False
10. Chapter 1 -
Introduction To Taxation Question TF #10 (1.0 point)
Sales made by mail order are not exempt from the application of a general sales (or use) tax.
Sales made by mail order are not exempt from the application of a general sales (or use) tax.
*a. True
b. False
11. Chapter 1 -
Introduction To Taxation Question TF #11 (1.0 point)
Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.
Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.
*a. True
b. False
12. Chapter 1 -
Introduction To Taxation Question TF #12 (1.0 point)
States impose either a state income tax or a general sales tax, but not both types of taxes.
States impose either a state income tax or a general sales tax, but not both types of taxes.
a. True
*b. False
13. Chapter 1 -
Introduction To Taxation Question TF #13 (1.0 point)
A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no such taxes.
A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no such taxes.
a. True
*b. False
14. Chapter 1 -
Introduction To Taxation Question TF #14 (1.0 point)
The principal objective of the FUTA tax is to provide some measure of retirement security.
The principal objective of the FUTA tax is to provide some measure of retirement security.
a. True
*b. False
15. Chapter 1 -
Introduction To Taxation Question TF #15 (1.0 point)
Currently, the tax base for the Social Security component of the FICA is not limited to a dollar amount.
Currently, the tax base for the Social Security component of the FICA is not limited to a dollar amount.
a. True
*b. False
16. Chapter 1 -
Introduction To Taxation Question TF #16 (1.0 point)
A parent employs his twin daughters, age 17, in his sole proprietorship. The daughters are not subject to FICA coverage.
A parent employs his twin daughters, age 17, in his sole proprietorship. The daughters are not subject to FICA coverage.
*a. True
b. False
17. Chapter 1 -
Introduction To Taxation Question TF #17 (1.0 point)
Unlike FICA, FUTA requires that employers comply with state as well as Federal rules.
Unlike FICA, FUTA requires that employers comply with state as well as Federal rules.
*a. True
b. False
18. Chapter 1 -
Introduction To Taxation Question TF #18 (1.0 point)
On transfers by death, the Federal government relies on an estate tax, while states impose an estate tax, an inheritance tax, both taxes, or neither tax.
On transfers by death, the Federal government relies on an estate tax, while states impose an estate tax, an inheritance tax, both taxes, or neither tax.
*a. True
b. False
19. Chapter 1 -
Introduction To Taxation Question TF #19 (1.0 point)
An inheritance tax is a tax on a decedent’s right to pass property at death.
An inheritance tax is a tax on a decedent’s right to pass property at death.
a. True
*b. False
20. Chapter 1 -
Introduction To Taxation Question TF #20 (1.0 point)
One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from being accumulated within the family unit.
One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from being accumulated within the family unit.
*a. True
b. False
21. Chapter 1 -
Introduction To Taxation Question TF #21 (1.0 point)
Under Clint’s will, all of his property passes to either the Lutheran Church or to his wife. No Federal estate tax will be due on Clint’s death in 2013.
Under Clint’s will, all of his property passes to either the Lutheran Church or to his wife. No Federal estate tax will be due on Clint’s death in 2013.
*a. True
b. False
22. Chapter 1 -
Introduction To Taxation Question TF #22 (1.0 point)
Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same rate.
Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same rate.
*a. True
b. False
23. Chapter 1 -
Introduction To Taxation Question TF #23 (1.0 point)
The annual exclusion, currently $14,000, is available for gift and estate tax purposes.
The annual exclusion, currently $14,000, is available for gift and estate tax purposes.
a. True
*b. False
24. Chapter 1 -
Introduction To Taxation Question TF #24 (1.0 point)
In 2012, José, a widower, sells land (fair market value of $100,000) to his daughter, Linda, for $50,000. José has made a taxable gift of $50,000.
In 2012, José, a widower, sells land (fair market value of $100,000) to his daughter, Linda, for $50,000. José has made a taxable gift of $50,000.
a. True
*b. False
25. Chapter 1 -
Introduction To Taxation Question TF #25 (1.0 point)
Julius, a married taxpayer, makes gifts to each of his six children. A maximum of twelve annual exclusions could be allowed as to these gifts.
Julius, a married taxpayer, makes gifts to each of his six children. A maximum of twelve annual exclusions could be allowed as to these gifts.
*a. True
b. False
26. Chapter 1 -
Introduction To Taxation Question TF #26 (1.0 point)
One of the motivations for making a gift is to save on income taxes.
One of the motivations for making a gift is to save on income taxes.
*a. True
b. False
27. Chapter 1 -
Introduction To Taxation Question TF #27 (1.0 point)
Mona inherits her mother’s personal residence, which she converts to a furnished rent house. These changes should affect the amount of ad valorem property taxes levied on the properties.
Mona inherits her mother’s personal residence, which she converts to a furnished rent house. These changes should affect the amount of ad valorem property taxes levied on the properties.
*a. True
b. False
28. Chapter 1 -
Introduction To Taxation Question TF #28 (1.0 point)
A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty.
A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty.
a. True
*b. False
29. Chapter 1 -
Introduction To Taxation Question TF #29 (1.0 point)
Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same.
Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same.
*a. True
b. False
30. Chapter 1 -
Introduction To Taxation Question TF #30 (1.0 point)
The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use personalty.
The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use personalty.
*a. True
b. False
31. Chapter 1 -
Introduction To Taxation Question TF #31 (1.0 point)
The formula for the Federal income tax on corporations is the same as that applicable to individuals.
The formula for the Federal income tax on corporations is the same as that applicable to individuals.
a. True
*b. False
32. Chapter 1 -
Introduction To Taxation Question TF #32 (1.0 point)
Tomas owns a sole proprietorship, and Lucy is the sole shareholder of a C corporation. In the current year both businesses make a net profit of $60,000. Neither business distributes any funds to the owners in the year. For the current year, Tomas must report $60,000 of income on his individual tax return, but Lucy is not required to report any income from the corporation on her individual tax return.
Tomas owns a sole proprietorship, and Lucy is the sole shareholder of a C corporation. In the current year both businesses make a net profit of $60,000. Neither business distributes any funds to the owners in the year. For the current year, Tomas must report $60,000 of income on his individual tax return, but Lucy is not required to report any income from the corporation on her individual tax return.
*a. True
b. False
33. Chapter 1 -
Introduction To Taxation Question TF #33 (1.0 point)
Carol and Candace are equal partners in Peach Partnership. In the current year, Peach had a net profit of $75,000 ($250,000 gross income – $175,000 operating expenses) and distributed $25,000 to each partner. Peach must pay tax on $75,000 of income.
Carol and Candace are equal partners in Peach Partnership. In the current year, Peach had a net profit of $75,000 ($250,000 gross income – $175,000 operating expenses) and distributed $25,000 to each partner. Peach must pay tax on $75,000 of income.
a. True
*b. False
34. Chapter 1 -
Introduction To Taxation Question TF #34 (1.0 point)
Rajib is the sole shareholder of Robin Corporation, a calendar year S corporation. Robin earned net profit of $350,000 ($520,000 gross income – $170,000 operating expenses) and distributed $80,000 to Rajib. Rajib must report Robin Corporation profit of $350,000 on his Federal income tax return.
Rajib is the sole shareholder of Robin Corporation, a calendar year S corporation. Robin earned net profit of $350,000 ($520,000 gross income – $170,000 operating expenses) and distributed $80,000 to Rajib. Rajib must report Robin Corporation profit of $350,000 on his Federal income tax return.
*a. True
b. False
35. Chapter 1 -
Introduction To Taxation Question TF #35 (1.0 point)
Donald owns a 45% interest in a partnership that earned $130,000 in the current year. He also owns 45% of the stock in a C corporation that earned $130,000 during the year. Donald received $20,000 in distributions from each of the two entities during the year. With respect to this information, Donald must report $78,500 of income on his individual income tax return for the year.
Donald owns a 45% interest in a partnership that earned $130,000 in the current year. He also owns 45% of the stock in a C corporation that earned $130,000 during the year. Donald received $20,000 in distributions from each of the two entities during the year. With respect to this information, Donald must report $78,500 of income on his individual income tax return for the year.
*a. True
b. False
36. Chapter 1 -
Introduction To Taxation Question TF #36 (1.0 point)
Quail Corporation is a C corporation with net income of $125,000 during the current year. If Quail paid dividends of $25,000 to its shareholders, the corporation must pay tax on $100,000 of net income. Shareholders must report the $25,000 of dividends as income.
Quail Corporation is a C corporation with net income of $125,000 during the current year. If Quail paid dividends of $25,000 to its shareholders, the corporation must pay tax on $100,000 of net income. Shareholders must report the $25,000 of dividends as income.
a. True
*b. False
37. Chapter 1 -
Introduction To Taxation Question TF #37 (1.0 point)
Eagle Company, a partnership, had a short-term capital loss of $10,000 during the year. Aaron, who owns 25% of Eagle, will report $2,500 of Eagle’s short-term capital loss on his individual tax return.
Eagle Company, a partnership, had a short-term capital loss of $10,000 during the year. Aaron, who owns 25% of Eagle, will report $2,500 of Eagle’s short-term capital loss on his individual tax return.
*a. True
b. False
38. Chapter 1 -
Introduction To Taxation Question TF #38 (1.0 point)
Don, the sole shareholder of Pastel Corporation (a C corporation), has the corporation pay him a salary of $600,000 in the current year. The Tax Court has held that $200,000 represents unreasonable compensation. Don must report a salary of $400,000 and a dividend of $200,000 on his individual tax return.
Don, the sole shareholder of Pastel Corporation (a C corporation), has the corporation pay him a salary of $600,000 in the current year. The Tax Court has held that $200,000 represents unreasonable compensation. Don must report a salary of $400,000 and a dividend of $200,000 on his individual tax return.
*a. True
b. False
39. Chapter 1 -
Introduction To Taxation Question TF #39 (1.0 point)
Double taxation of corporate income results because dividend distributions are included in a shareholder’s gross income but are not deductible by the corporation.
Double taxation of corporate income results because dividend distributions are included in a shareholder’s gross income but are not deductible by the corporation.
*a. True
b. False
40. Chapter 1 -
Introduction To Taxation Question TF #40 (1.0 point)
Jake, the sole shareholder of Peach Corporation, a C corporation, has the corporation pay him $100,000. For tax purposes, Jake would prefer to have the payment treated as dividend instead of salary.
Jake, the sole shareholder of Peach Corporation, a C corporation, has the corporation pay him $100,000. For tax purposes, Jake would prefer to have the payment treated as dividend instead of salary.
*a. True
b. False
41. Chapter 1 -
Introduction To Taxation Question TF #41 (1.0 point)
When Congress enacts a tax cut that is phased in over a period of years, revenue neutrality is achieved.
When Congress enacts a tax cut that is phased in over a period of years, revenue neutrality is achieved.
a. True
*b. False
42. Chapter 1 -
Introduction To Taxation Question TF #42 (1.0 point)
A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.
A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.
*a. True
b. False
43. Chapter 1 -
Introduction To Taxation Question TF #43 (1.0 point)
The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. These provisions can be justified on both economic and equity grounds.
The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. These provisions can be justified on both economic and equity grounds.
a. True
*b. False
44. Chapter 1 -
Introduction To Taxation Question TF #44 (1.0 point)
Various tax provisions encourage the creation of certain types of retirement plans. Such provisions can be justified on both economic and social grounds.
Various tax provisions encourage the creation of certain types of retirement plans. Such provisions can be justified on both economic and social grounds.
*a. True
b. False
45. Chapter 1 -
Introduction To Taxation Question TF #45 (1.0 point)
To lessen, or eliminate, the effect of multiple taxation, a taxpayer who is subject to both foreign and U.S. income taxes on the same income is allowed either a deduction or a credit for the foreign tax paid.
To lessen, or eliminate, the effect of multiple taxation, a taxpayer who is subject to both foreign and U.S. income taxes on the same income is allowed either a deduction or a credit for the foreign tax paid.
*a. True
b. False
46. Chapter 1 - Introduction To Taxation Question TF
#46 (1.0 point)
To mitigate the effect of the annual accounting period concept, the tax law permits the carryforward to other years of the excess charitable contributions of a particular year.
To mitigate the effect of the annual accounting period concept, the tax law permits the carryforward to other years of the excess charitable contributions of a particular year.
*a. True
b. False
47. Chapter 1 -
Introduction To Taxation Question TF #47 (1.0 point)
Jason’s business warehouse is destroyed by fire. As the insurance proceeds exceed the basis of the property, a gain results. If Jason shortly reinvests the proceeds in a new warehouse, no gain is recognized due to the application of the wherewithal to pay concept.
Jason’s business warehouse is destroyed by fire. As the insurance proceeds exceed the basis of the property, a gain results. If Jason shortly reinvests the proceeds in a new warehouse, no gain is recognized due to the application of the wherewithal to pay concept.
*a. True
b. False
48. Chapter 1 -
Introduction To Taxation Question TF #48 (1.0 point)
As it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize gain in the year the installment sale occurs.
As it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize gain in the year the installment sale occurs.
a. True
*b. False
49. Chapter 1 -
Introduction To Taxation Question TF #49 (1.0 point)
A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles.
A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles.
a. True
*b. False
50. Chapter 1 -
Introduction To Taxation Question TF #50 (1.0 point)
As a matter of administrative convenience, the IRS would prefer to have Congress decrease (rather than increase) the amount of the standard deduction allowed to individual taxpayers.
As a matter of administrative convenience, the IRS would prefer to have Congress decrease (rather than increase) the amount of the standard deduction allowed to individual taxpayers.
a. True
*b. False
51. Chapter 1 -
Introduction To Taxation Question MC #1 (1.0 point)
Federal excise taxes that are no longer imposed include:
Federal excise taxes that are no longer imposed include:
a. Tax on air travel.
b. Tax on wagering.
c. Tax on the manufacture of sporting equipment.
d. Tax on alcohol.
*e. None of the above.
52. Chapter 1 -
Introduction To Taxation Question MC #2 (1.0 point)
Taxes not imposed by the Federal government include:
Taxes not imposed by the Federal government include:
a. Tobacco excise tax.
b. Customs duties (tariffs on imports).
*c. Tax on rent cars.
d. Gas guzzler tax.
e. None of the above.
53. Chapter 1 -
Introduction To Taxation Question MC #3 (1.0 point)
Taxes levied by both states and the Federal government include:
Taxes levied by both states and the Federal government include:
a. General sales tax.
b. Custom duties.
c. Hotel occupancy tax.
d. Franchise tax.
*e. None of the above.
54. Chapter 1 -
Introduction To Taxation Question MC #4 (1.0 point)
Taxes levied by all states include:
Taxes levied by all states include:
*a. Tobacco excise tax.
b. Individual income tax.
c. Inheritance tax.
d. General sales tax.
e. None of the above.
55. Chapter 1 -
Introduction To Taxation Question MC #5 (1.0 point)
A use tax is imposed by:
A use tax is imposed by:
a. The Federal government and all states.
b. The Federal government and a majority of the states.
c. All states and not the Federal government.
*d. Most of the states and not the Federal government.
e. None of the above.
56. Chapter 1 -
Introduction To Taxation Question MC #6 (1.0 point)
A characteristic of FICA is that:
A characteristic of FICA is that:
a. It does not apply when one spouse works for the other spouse.
b. It is imposed only on the employer.
c. It provides a modest source of income in the event of loss of
employment.
d. It is administered by both state and Federal governments.
*e. None of the above.
57. Chapter 1 -
Introduction To Taxation Question MC #7 (1.0 point)
A characteristic of FUTA is that:
A characteristic of FUTA is that:
a. It is imposed on both employer and employee.
b. It is imposed solely on the employee.
*c. Compliance requires following guidelines issued by both state and
Federal regulatory authorities.
d. It is applicable to spouses of employees but not to any children under age 18.
e. None of the above.
58. Chapter 1 -
Introduction To Taxation Question MC #8 (1.0 point)
Burt and Lisa are married and live in a common law state. Burt wants to make gifts to their four children in 2013. What is the maximum amount of the annual exclusion they will be allowed for these gifts?
Burt and Lisa are married and live in a common law state. Burt wants to make gifts to their four children in 2013. What is the maximum amount of the annual exclusion they will be allowed for these gifts?
a. $14,000.
b. $28,000.
c. $56,000.
*d. $112,000.
e. None of the above.
59. Chapter 1 -
Introduction To Taxation Question MC #9 (1.0 point)
Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is:
Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is:
a. To take advantage of the higher unified transfer tax credit available
under the gift tax.
b. To avoid a future decline in value of the property transferred.
*c. To take advantage of the per donee annual exclusion.
d. To shift income to higher bracket donees.
e. None of the above.
60. Chapter 1 -
Introduction To Taxation Question MC #10 (1.0 point)
Which, if any, of the following transactions will increase a taxing jurisdiction’s revenue from the ad valorem tax imposed on real estate?
Which, if any, of the following transactions will increase a taxing jurisdiction’s revenue from the ad valorem tax imposed on real estate?
a. A resident dies and leaves his farm to his church.
b. A large property owner issues a conservation easement as to some of her
land.
*c. A tax holiday issued 10 years ago has expired.
d. A bankrupt motel is acquired by the Red Cross and is to be used to
provide housing for homeless persons.
e. None of the above.
61. Chapter 1 - Introduction To Taxation Question MC
#11 (1.0 point)
Which, if any, of the following transactions will decrease a taxing jurisdiction’s ad valorem tax revenue imposed on real estate?
Which, if any, of the following transactions will decrease a taxing jurisdiction’s ad valorem tax revenue imposed on real estate?
*a. A tax holiday is granted to an out-of-state business that is searching
for a new factory site.
b. An abandoned church is converted to a restaurant.
c. A public school is razed and turned into a city park.
d. A local university sells a dormitory that will be converted for use as
an apartment building.
e. None of the above.
62. Chapter 1 -
Introduction To Taxation Question MC #12 (1.0 point)
Which, if any, of the following is a typical characteristic of an ad valorem tax on personalty?
Which, if any, of the following is a typical characteristic of an ad valorem tax on personalty?
a. Taxpayer compliance is greater for personal use property than for
business use property.
*b. The tax on automobiles sometimes considers the age of the vehicle.
c. Most states impose a tax on intangibles.
d. The tax on intangibles generates considerable revenue since it is
difficult for taxpayers to avoid.
e. None of the above.
63. Chapter 1 -
Introduction To Taxation Question MC #13 (1.0 point)
Indicate which, if any, statement is incorrect. State income taxes:
Indicate which, if any, statement is incorrect. State income taxes:
a. Can piggyback to the Federal version.
*b. Cannot apply to visiting nonresidents.
c. Can decouple from the Federal version.
d. Can provide occasional amnesty programs.
e. None of the above.
64. Chapter 1 -
Introduction To Taxation Question MC #14 (1.0 point)
State income taxes generally can be characterized by:
State income taxes generally can be characterized by:
*a. The same date for filing as the Federal income tax.
b. No provision for withholding procedures.
c. Allowance of a deduction for Federal income taxes paid.
d. Applying only to individuals and not applying to corporations.
e. None of the above.
65. Chapter 1 -
Introduction To Taxation Question MC #15 (1.0 point)
Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in 2013. Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year. The corporation distributed $45,000 to Juanita, and the partnership distributed $45,000 to Carlos. Which of the following statements relating to 2013 is incorrect?
Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in 2013. Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year. The corporation distributed $45,000 to Juanita, and the partnership distributed $45,000 to Carlos. Which of the following statements relating to 2013 is incorrect?
*a. Juanita must report $120,000 of income from the corporation.
b. The corporation must pay corporate tax on $200,000 of income.
c. Carlos must report $120,000 of income from the partnership.
d. The partnership is not subject to a Federal entity-level income tax.
e. None of the above.
66. Chapter 1 -
Introduction To Taxation Question MC #16 (1.0 point)
Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2013. He also owns 60% of the stock in a C corporation that earned $150,000 during the year. The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn. How much income must Bjorn report from these businesses?
Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2013. He also owns 60% of the stock in a C corporation that earned $150,000 during the year. The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn. How much income must Bjorn report from these businesses?
a. $0 income from the S corporation and $30,000 income from the C
corporation.
b. $30,000 income from the S corporation and $30,000 of dividend income
from the C corporation.
c. $90,000 income from the S corporation and $0 income from the C
corporation.
*d. $90,000 income from the S corporation and $30,000 income from the C
corporation.
e. None of the above.
67. Chapter 1 -
Introduction To Taxation Question MC #17 (1.0 point)
Rachel is the sole member of an LLC, and Jordan is the sole shareholder of a C corporation. Both businesses were started in the current year, and each business has a long-term capital gain of $10,000 for the year. Neither business made any distributions during the year. With respect to this information, which of the following statements is correct?
Rachel is the sole member of an LLC, and Jordan is the sole shareholder of a C corporation. Both businesses were started in the current year, and each business has a long-term capital gain of $10,000 for the year. Neither business made any distributions during the year. With respect to this information, which of the following statements is correct?
a. The C corporation receives a preferential tax rate on the LTCG of
$10,000.
b. The LLC must pay corporate tax on taxable income of $10,000.
c. Jordan must report $10,000 of LTCG on his tax return.
*d. Rachel must report $10,000 of LTCG on her tax return.
e. None of the above.
68. Chapter 1 -
Introduction To Taxation Question MC #18 (1.0 point)
Norma formed Hyacinth Enterprises, a proprietorship, in 2013. In its first year, Hyacinth had operating income of $400,000 and operating expenses of $240,000. In addition, Hyacinth had a long-term capital loss of $10,000. Norma, the proprietor of Hyacinth Enterprises, withdrew $75,000 from Hyacinth during the year. Assuming Norma has no other capital gains or losses, how does this information affect her taxable income for 2013?
Norma formed Hyacinth Enterprises, a proprietorship, in 2013. In its first year, Hyacinth had operating income of $400,000 and operating expenses of $240,000. In addition, Hyacinth had a long-term capital loss of $10,000. Norma, the proprietor of Hyacinth Enterprises, withdrew $75,000 from Hyacinth during the year. Assuming Norma has no other capital gains or losses, how does this information affect her taxable income for 2013?
*a. Increases Norma’s taxable income by $157,000 ($160,000 ordinary
business income – $3,000 long-term capital loss).
b. Increases Norma’s taxable income by $150,000 ($160,000 ordinary business
income – $10,000 long-term capital loss).
c. Increases Norma’s taxable income by $75,000.
d. Increases Norma’s taxable income by $160,000.
e. None of the above.
69. Chapter 1 -
Introduction To Taxation Question MC #19 (1.0 point)
Pablo, a sole proprietor, sold stock held as an investment for a $40,000 long-term capital gain. Pablo’s marginal tax rate is 33%. Loon Corporation, a C corporation, sold stock held as an investment for a $40,000 long-term capital gain. Loon’s marginal tax rate is 35%. What tax rates are applicable to these capital gains?
Pablo, a sole proprietor, sold stock held as an investment for a $40,000 long-term capital gain. Pablo’s marginal tax rate is 33%. Loon Corporation, a C corporation, sold stock held as an investment for a $40,000 long-term capital gain. Loon’s marginal tax rate is 35%. What tax rates are applicable to these capital gains?
*a. 15% rate applies to Pablo and 35% rate applies to Loon.
b. 15% rate applies to Loon and 33% rate applies to Pablo.
c. 35% rate applies to Loon and 33% rate applies to Pablo.
d. 15% rate applies to both Pablo and Loon.
e. None of the above.
70. Chapter 1 -
Introduction To Taxation Question MC #20 (1.0 point)
Lucinda is a 60% shareholder in Rhea Corporation, a calendar year S corporation. During the year, Rhea Corporation had gross income of $550,000 and operating expenses of $380,000. In addition, the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000. During the year, Rhea Corporation distributed $50,000 to Lucinda. With respect to this information, which of the following statements is correct?
Lucinda is a 60% shareholder in Rhea Corporation, a calendar year S corporation. During the year, Rhea Corporation had gross income of $550,000 and operating expenses of $380,000. In addition, the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000. During the year, Rhea Corporation distributed $50,000 to Lucinda. With respect to this information, which of the following statements is correct?
a. Rhea Corporation will pay tax on taxable income of $200,000.
b. Lucinda reports ordinary income of $50,000.
c. Lucinda reports ordinary income of $120,000.
*d. Lucinda reports ordinary income of $102,000 and a short-term capital
gain of $18,000.
e. None of the above.
71. Chapter 1 -
Introduction To Taxation Question MC #21 (1.0 point)
Elk, a C corporation, has $370,000 operating income and $290,000 operating expenses during the year. In addition, Elk has a $10,000 long-term capital gain and a $17,000 short-term capital loss. Elk’s taxable income is:
Elk, a C corporation, has $370,000 operating income and $290,000 operating expenses during the year. In addition, Elk has a $10,000 long-term capital gain and a $17,000 short-term capital loss. Elk’s taxable income is:
a. $63,000.
b. $73,000.
*c. $80,000.
d. $90,000.
e. None of the above.
72. Chapter 1 -
Introduction To Taxation Question MC #22 (1.0 point)
Flycatcher Corporation, a C corporation, has two equal individual shareholders, Nancy and Pasqual. In the current year, Flycatcher earned $100,000 net profit and paid a dividend of $10,000 to each shareholder. Regardless of any tax consequences resulting from their interests in Flycatcher, Nancy is in the 33% marginal tax bracket and Pasqual is in the 15% marginal tax bracket. With respect to the current year, which of the following statements is incorrect?
Flycatcher Corporation, a C corporation, has two equal individual shareholders, Nancy and Pasqual. In the current year, Flycatcher earned $100,000 net profit and paid a dividend of $10,000 to each shareholder. Regardless of any tax consequences resulting from their interests in Flycatcher, Nancy is in the 33% marginal tax bracket and Pasqual is in the 15% marginal tax bracket. With respect to the current year, which of the following statements is incorrect?
a. Flycatcher cannot avoid the corporate tax altogether by paying out all
$100,000 of net profit as dividends to the shareholders.
b. Nancy incurs income tax of $1,500 on her dividend income.
*c. Pasqual incurs income tax of $1,500 on his dividend income.
d. Flycatcher pays corporate tax of $22,250.
e. None of the above.
73. Chapter 1 -
Introduction To Taxation Question MC #23 (1.0 point)
Which of the following statements is incorrect about LLCs and the check-the-box Regulations?
Which of the following statements is incorrect about LLCs and the check-the-box Regulations?
*a. If a limited liability company with more than one owner does not make
an election, the entity is taxed as a corporation.
b. All 50 states have passed laws that allow LLCs.
c. An entity with more than one owner and formed as a corporation cannot
elect to be taxed as a partnership.
d. If a limited liability company with one owner does not make an election,
the entity is taxed as a sole proprietorship.
e. A limited liability company with one owner can elect to be taxed as a
corporation.
74. Chapter 1 -
Introduction To Taxation Question MC #24 (1.0 point)
Both economic and social considerations can be used to justify:
Both economic and social considerations can be used to justify:
a. Favorable tax treatment for accident and health plans provided for
employees and financed by employers.
b. Disallowance of any deduction for expenditures deemed to be contrary to
public policy (e.g., fines, penalties, illegal kickbacks, bribes to government
officials).
*c. Various tax credits, deductions, and exclusions that are designed to encourage
taxpayers to obtain additional education.
d. Allowance of a deduction for state and local income taxes paid.
e. None of the above.
75. Chapter 1 -
Introduction To Taxation Question MC #25 (1.0 point)
Social considerations can be used to justify:
Social considerations can be used to justify:
*a. Allowance of a credit for child care expenses.
b. Allowing excess capital losses to be carried over to other years.
c. Allowing accelerated amortization for the cost of installing pollution
control facilities.
d. Allowing a Federal income tax deduction for state and local sales
taxes.
e. None of the above.
76. Chapter 1 -
Introduction To Taxation Question MC #26 (1.0 point)
Allowing a domestic production activities deduction for certain manufacturing income can be justified:
Allowing a domestic production activities deduction for certain manufacturing income can be justified:
a. As mitigating the effect of the annual accounting period concept.
b. As promoting administrative feasibility.
*c. By economic considerations.
d. Based on the wherewithal to pay concept.
e. None of the above.
77. Chapter 1 -
Introduction To Taxation Question MC #27 (1.0 point)
Provisions in the tax law that promote energy conservation and more use of alternative (non-fossil) fuels can be justified by:
Provisions in the tax law that promote energy conservation and more use of alternative (non-fossil) fuels can be justified by:
a. Political considerations.
*b. Economic and social considerations.
c. Promoting administrative feasibility.
d. Encouragement of small business.
e. None of the above.
78. Chapter 1 -
Introduction To Taxation Question MC #28 (1.0 point)
Which, if any, of the following provisions cannot be justified as mitigating the effect of the annual accounting period concept?
Which, if any, of the following provisions cannot be justified as mitigating the effect of the annual accounting period concept?
*a. Nonrecognition of gain allowed for involuntary conversions.
b. Net operating loss carryback and carryover provisions.
c. Carry over of excess charitable contributions.
d. Use of the installment method to recognize gain.
e. Carry over of excess capital losses.
79. Chapter 1 -
Introduction To Taxation Question MC #29 (1.0 point)
Which, if any, of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS)?
Which, if any, of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS)?
a. Penalties are imposed for failure to file a return or pay a tax on time.
b. Prepaid income is taxed in the year received and not in the year earned.
c. Annual adjustments for indexation increases the amount of the standard
deduction allowed.
d. Casualty losses must exceed 10% of AGI to be deductible.
*e. A deduction is allowed for charitable contributions.
80. Chapter 1 -
Introduction To Taxation Question MA #1-15 (16.0 points)
Using the choices provided below, show the justification for each provision of the tax law listed. A tax credit for amounts spent to furnish care for children while the parent is at work.Additional depreciation deduction allowed for the year the asset is acquired.Tax brackets are increased for inflation.A small business corporation can elect to avoid the corporate income tax.A deduction for contributions by an employee to certain retirement plans.A deduction for qualified tuition paid to obtain higher education.A deduction for certain expenses (interest and taxes) incident to home ownership.A Federal deduction for state and local income taxes paid.A deduction for certain income from manufacturing activities.A bribe to the local sheriff, although business related, is not deductible.Contributions to charitable organizations are deductible.A Federal deduction for state and local sales taxes paid.Tax credits available for the purchase of a vehicle that uses alternative (non-fossil) fuels.Tax credits for home improvements that conserve energy.More rapid expensing for tax purposes of the costs of installing pollution control devices.Social considerations Economic considerations Equity considerations Economic considerations Economic considerations Economic considerations Economic considerations Equity considerations Economic considerations Social considerations Social considerations Equity considerations Economic considerations Economic considerations Economic considerations
Using the choices provided below, show the justification for each provision of the tax law listed. A tax credit for amounts spent to furnish care for children while the parent is at work.Additional depreciation deduction allowed for the year the asset is acquired.Tax brackets are increased for inflation.A small business corporation can elect to avoid the corporate income tax.A deduction for contributions by an employee to certain retirement plans.A deduction for qualified tuition paid to obtain higher education.A deduction for certain expenses (interest and taxes) incident to home ownership.A Federal deduction for state and local income taxes paid.A deduction for certain income from manufacturing activities.A bribe to the local sheriff, although business related, is not deductible.Contributions to charitable organizations are deductible.A Federal deduction for state and local sales taxes paid.Tax credits available for the purchase of a vehicle that uses alternative (non-fossil) fuels.Tax credits for home improvements that conserve energy.More rapid expensing for tax purposes of the costs of installing pollution control devices.Social considerations Economic considerations Equity considerations Economic considerations Economic considerations Economic considerations Economic considerations Equity considerations Economic considerations Social considerations Social considerations Equity considerations Economic considerations Economic considerations Economic considerations
[a] 1. A tax credit for amounts spent to
furnish care for children while the parent is at work.
[b] 2. Additional depreciation deduction
allowed for the year the asset is acquired.
[c] 3. Tax brackets are increased for
inflation.
[d] 4. A small business corporation can
elect to avoid the corporate income tax.
[e] 5. A deduction for contributions by an
employee to certain retirement plans.
[f] 6. A deduction for qualified tuition
paid to obtain higher education.
[g] 7. A deduction for certain expenses
(interest and taxes) incident to home ownership.
[h] 8. A Federal deduction for state and
local income taxes paid.
[i] 9. A deduction for certain income from
manufacturing activities.
[j] 10. A bribe to the local sheriff,
although business related, is not deductible.
[k] 11. Contributions to charitable
organizations are deductible.
[l] 12. A Federal deduction for state and
local sales taxes paid.
[m] 13. Tax credits available for the
purchase of a vehicle that uses alternative (non-fossil) fuels.
[n] 14. Tax credits for home improvements
that conserve energy.
[o] 15. More rapid expensing for tax purposes
of the costs of installing pollution control devices.
a. Social considerations
b. Economic considerations
c. Equity considerations
d. Economic considerations
e. Economic considerations
f. Economic considerations
g. Economic considerations
h. Equity considerations
i. Economic considerations
j. Social considerations
k. Social considerations
l. Equity considerations
m. Economic considerations
n. Economic considerations
o. Economic considerations
81. Chapter 1 -
Introduction To Taxation Question PR #1 (1.0 point)
Taylor, a widow, makes cash gifts to her five married children (including their spouses) and to her seven grandchildren. What is the maximum amount Taylor can give for calendar year 2013 without using her unified transfer tax credit?
Taylor, a widow, makes cash gifts to her five married children (including their spouses) and to her seven grandchildren. What is the maximum amount Taylor can give for calendar year 2013 without using her unified transfer tax credit?
Correct Answer:
$221,000. $14,000 (annual exclusion) ´ 17 donees = $238,000.
82. Chapter 1 -
Introduction To Taxation Question PR #2 (1.0 point)
Several years ago, Logan purchased extra grazing land for his ranch at a cost of $240,000. In 2013, the land is condemned by the state for development as a highway maintenance depot. Under the condemnation award, Logan receives $600,000 for the land. Within the same year, he replaces the property with other grazing land. What is Logan’s tax situation if the replacement land cost:
Several years ago, Logan purchased extra grazing land for his ranch at a cost of $240,000. In 2013, the land is condemned by the state for development as a highway maintenance depot. Under the condemnation award, Logan receives $600,000 for the land. Within the same year, he replaces the property with other grazing land. What is Logan’s tax situation if the replacement land cost:
|
a.
|
$210,000?
|
|
b.
|
$360,000?
|
|
c.
|
$630,000?
|
|
d.
|
Why?
|
|
|
|
Correct Answer:
|
a.
|
The full realized gain of $360,000 [$600,000 (condemnation
proceeds) – $240,000 (cost of land)] must be recognized, as only $210,000 was
reinvested. The condemnation proceeds of $600,000 exceed the amount
reinvested by more than $360,000.
|
|
b.
|
As only $360,000 was reinvested in replacement property,
$240,000 ($600,000 – $360,000) of the gain must be recognized.
|
|
c.
|
As the full $600,000 was reinvested, no realized gain need be
recognized.
|
|
d.
|
If some of the gain is not reinvested, consistent with the
wherewithal to pay concept there exists the ability to pay the tax.
|
|
|
|
83. Chapter 1 -
Introduction To Taxation Question PR #3 (1.0 point)
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?
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?
Correct Answer:
The rent charged
by Paige is not “arms length”; as such, Citron Corporation’s rent deduction is
$60,000 (not $80,000). The $20,000 difference is a nondeductible dividend
distribution. For Paige, the change merely requires reclassification. Instead
of $80,000 of rent income, she has $60,000 of rent income and $20,000 of
dividend income.
84. Chapter 1 -
Introduction To Taxation Question PR #4 (1.0 point)
In 1985, Roy leased real estate to Drab Corporation for 20 years. Drab Corporation made significant capital improvements to the property. In 2005, Roy 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 2013 for $1,200,000 of which $900,000 is attributable to the improvements. How and when is Roy taxed on the improvements made by Drab Corporation?
In 1985, Roy leased real estate to Drab Corporation for 20 years. Drab Corporation made significant capital improvements to the property. In 2005, Roy 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 2013 for $1,200,000 of which $900,000 is attributable to the improvements. How and when is Roy taxed on the improvements made by Drab Corporation?
Correct Answer:
Roy is not
subject to taxation on the improvements until he disposes of the property
(i.e., 2013). After a controversial Supreme Court decision years ago, Congress
clarified the tax law to make it more consistent with the wherewithal to pay
concept.
85. Chapter 1 -
Introduction To Taxation Question PR #5 (1.0 point)
During the current year, Skylark Company had operating income of $420,000 and operating expenses of $250,000. In addition, Skylark had a long-term capital loss of $20,000, and a charitable contribution of $5,000. How does Toby, the sole owner of Skylark Company, report this information on his individual income tax return under following assumptions?
During the current year, Skylark Company had operating income of $420,000 and operating expenses of $250,000. In addition, Skylark had a long-term capital loss of $20,000, and a charitable contribution of $5,000. How does Toby, the sole owner of Skylark Company, report this information on his individual income tax return under following assumptions?
|
a.
|
Skylark is an
LLC, and Toby does not withdraw any funds from the company during the year.
|
|
|
|
|
b.
|
Skylark is an
S corporation, and Toby does not withdraw any funds from the company during
the year.
|
|
|
|
|
c.
|
Skylark is a
regular (C) corporation, and Toby does not withdraw any funds from the
company during the year.
|
|
|
|
Correct Answer:
|
a.
|
A single-member LLC is taxed as a proprietorship.
Consequently, Toby reports the $170,000 operating profit, $20,000 long-term
capital loss, and $5,000 charitable contribution on his individual return
(Form 1040). The capital loss limitation applies to the LTCL.
|
|
|
|
|
Income, deductions, gains, and losses of an S corporation flow
through to the shareholders. Separately stated items (e.g., LTCL and
charitable contribution) retain their character at the shareholder
level. Consequently, Toby reports the $170,000 operating profit,
$20,000 long-term capital loss, and $5,000 charitable contribution on his
individual return (Form 1040). The capital loss limitation applies to
the LTCL.
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|||
|
|
|
|
Shareholders of a regular (C) corporation report income from
the corporation to the extent of dividends received. Therefore, Toby
does not report any of Skylark’s operating profit, long-term capital loss, or
charitable contribution on his individual return. [Skylark Company
would report taxable income of $165,000 ($170,000 operating profit – $5,000
charitable contribution) on its corporate return (Form 1120). The net
capital loss of $20,000 is not deductible in the current year; rather, the
loss is carried back three years and forward five years (as STCL).]
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||||
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|
|
86. Chapter 1 -
Introduction To Taxation Question PR #6 (1.0 point)
Amber Company has $100,000 in net income in 2013 before deducting any compensation or other payment to its sole owner, Alfredo. Assume that Alfredo is in the 33% marginal tax bracket. Discuss the tax aspects of each of the following independent arrangements. (Assume that any salaries are reasonable in amount and ignore any employment tax considerations.)
Amber Company has $100,000 in net income in 2013 before deducting any compensation or other payment to its sole owner, Alfredo. Assume that Alfredo is in the 33% marginal tax bracket. Discuss the tax aspects of each of the following independent arrangements. (Assume that any salaries are reasonable in amount and ignore any employment tax considerations.)
|
a.
|
Alfredo
operates Amber Company as a proprietorship.
|
|
|
|
|
b.
|
Alfredo
incorporates Amber Company and pays himself a salary of $100,000 and no
dividend.
|
|
|
|
|
c.
|
Alfredo
incorporates Amber Company and pays himself a $50,000 salary and a dividend
of $42,500 ($50,000 – $7,500 corporate income tax).
|
|
|
|
Correct Answer:
|
a.
|
Alfredo’s tax on $100,000 at 33%
|
$33,000
|
|
|
|
|
|
b.
|
Amber’s tax on $100,000 at corporate rates
|
$22,250
|
|
|
|
|
|
c.
|
Amber’s tax on $50,000 at corporate rates
|
$ 7,500
|
|
|
Alfredo’s tax on $42,500 dividend distributed at 15%
|
6,375
|
|
|
Alfredo’s tax on $50,000 salary at 33%
|
16,500
|
|
|
Total tax
|
$30,375
|
|
|
|
|
87. Chapter 1 -
Introduction To Taxation Question PR #7 (1.0 point)
During the current year, Maroon Company had $125,000 net profit from operations. Belinda, the sole owner of Maroon, is in the 33% marginal tax bracket. Determine the combined tax burden for Maroon and Belinda under the following independent situations. (Ignore any employment taxes.)
During the current year, Maroon Company had $125,000 net profit from operations. Belinda, the sole owner of Maroon, is in the 33% marginal tax bracket. Determine the combined tax burden for Maroon and Belinda under the following independent situations. (Ignore any employment taxes.)
|
a.
|
Maroon Company
is a C corporation and all of its after-tax income is distributed to Belinda.
|
|
|
|
|
b.
|
Maroon Company
is a proprietorship and all of its after-tax income is withdrawn by Belinda.
|
|
|
|
|
c.
|
Maroon Company
is an S corporation and all of its after-tax income is distributed to
Belinda.
|
|
|
|
Correct Answer:
|
a.
|
If Maroon Company is a C corporation, the $125,000 is taxable
at the corporate level (Form 1120), resulting in corporate tax of $32,000
[($50,000 ´
15%) + ($25,000 ´
25%) + ($25,000 ´ 34%) + ($25,000 ´ 39%)] . The after-tax dividend
distribution of $93,000 ($125,000 – $32,000) to Belinda results in tax of
$13,950 ($93,000 ´15%). Total taxes amount to $45,950 ($32,000 +
$13,950).
|
|
|
|
|
b.
|
If Maroon Company is a proprietorship, there is no entity level
Federal income tax. Instead, the income of the proprietorship is
reported on Belinda’s tax return (Form 1040), resulting in tax of $41,250
($125,000 ´
33%). Belinda’s withdrawal of the after-tax income has no income tax
consequences.
|
|
|
|
|
c.
|
Income, deductions, gains, and losses of an S corporation flow
through to the shareholders. Consequently, Belinda reports the $125,000
net profit on her individual return (Form 1040), resulting in tax of $41,250
($125,000 ´
33%). Distributions from S corporations are nontaxable to the
shareholder (to the extent of stock basis).
|
|
|
|
CHAPTER 1
INTRODUCTION TO TAXATION
SOLUTIONS TO PROBLEM MATERIALS
Status:
|
Q/P
|
|||
Question/
|
Learning
|
Present
|
In Prior
|
|
Problem
|
Objective
|
Topic
|
Edition
|
Edition
|
1
|
LO 1, 2,
5
|
Effect of state and local taxes on decision making
|
Unchanged
|
1
|
2
|
LO 1
|
Proportional and progressive
rates contrasted
|
Unchanged
|
2
|
3
|
LO 2
|
Ad valorem tax on realty:
conversion from tax-
|
Unchanged
|
3
|
exempt to residential
status
|
||||
4
|
LO 1, 6
|
Adam Smith and canon of convenience
|
Modified
|
4
|
5
|
LO 2
|
Use taxes
|
Unchanged
|
5
|
6
|
LO 2
|
Excise and general sales taxes
compared
|
Unchanged
|
6
|
7
|
LO 2
|
Federal gift tax and use of annual exclusions
|
Unchanged
|
7
|
8
|
LO 2
|
Conversion of tax-exempt realty to commercial
|
Unchanged
|
8
|
status and effect on
ad valorem property tax
|
||||
9
|
LO 2
|
Ethics problem
|
Unchanged
|
9
|
10
|
LO 2
|
Conversion of tax-exempt realty to commercial
|
Unchanged
|
10
|
status and effect on
ad valorem property tax
|
||||
11
|
LO 2
|
Avoiding sales tax through use
of out-of-state
|
Unchanged
|
11
|
purchase
|
||||
12
|
LO 2
|
Severance
taxes
|
Unchanged
|
12
|
13
|
LO 2
|
Avoiding state or local sales
tax through use
|
New
|
|
of out-of-area purchases
|
||||
14
|
LO 2
|
Ad valorem tax on residential
property:
|
New
|
|
reasons for variation
|
||||
15
|
LO 2
|
Issue recognition
|
Unchanged
|
15
|
16
|
LO 3
|
Income tax formula: individuals
and
|
Unchanged
|
16
|
corporations compared
|
||||
17
|
LO 4, 5
|
Entity choice
|
Unchanged
|
17
|
18
|
LO 4, 5
|
Entity choice
|
Unchanged
|
18
|
19
|
LO 3, 5
|
Tax rate determination
|
Unchanged
|
19
|
20
|
LO 3, 5
|
Tax rate determination
|
Unchanged
|
20
|
21
|
LO 2
|
Ad valorem tax: assessment in terms of revenue
|
Unchanged
|
21
|
22
|
LO 5
|
Production
Ethics: maintaining
inventories
|
New
|
|
23
|
LO 6
|
Ethics:
offshore preparation of tax returns
|
Unchanged
|
22
|
24
|
LO 6
|
Justification for various tax
provisions
|
Modified
|
24
|
25
|
LO 6
|
Justification for various tax provisions
|
Modified
|
25
|
PROBLEMS
1. Some tax
considerations James should investigate include the following:
● State and
local income taxes.
● State and
local sales taxes.
● State and
local property taxes.
Many such taxes could affect any
cost-of-living differential. pp. 1-5, 1-11, and 1-14
2. A tax is proportional if the rate of tax
remains constant for any given income level. The tax is progressive is a higher
rate of tax applies as the tax base increases. pp. 1-2 and 1-3
3. a. The
parsonage probably was not listed on the property tax rolls since it was owned
by a tax-exempt church. Apparently, the taxing authorities are not aware that
ownership has changed.
b. Ethan
should notify the authorities of his purchase. This will force him to pay back
taxes but will eliminate future interest and penalties.
p. 1-11
4.
As to Adam Smith’s canon on economy, the Federal income tax yields a
mixed result. From the standpoint of the IRS, economy is there as collection
costs are nominal (when compared to revenue generated). Economy is not present,
however, if one looks to the compliance effort and costs expended by taxpayers.
Digging Deeper 1
5. Jim probably
will be required to pay the Washington use tax
if, and when, he applies for Washington Washington
6. An excise tax is limited to a
particular transaction (e.g., sale of gasoline), while a general sales tax
covers a multitude of transactions (e.g., sale of all non-food goods).
a. The
following states do not impose a general sales tax: Alaska , Delaware , Montana , New Hampshire , and Oregon
b. There
is no Federal general sales tax.
pp. 1-5 and 1-6
7. 16 (donees) ×
$14,000 (annual exclusion) × 10 years = $2,240,000. p. 1-10 and Example 13
8. Because the
property is no longer being used for religious purposes, the downtown location
should no longer be exempt from ad valorem taxes. Also, the church would have
an income tax problem (unrelated business income) with the lease payment it
receives. p. 1-11
the samples are not related to the book South-Western Federal Taxation 2014: Taxation of Business Entities, 17th Edition ISBN 9781285424514.
ReplyDeleteDo you have the test bank for this book or not ?