1. T has a tax base of $30,000 and pays a tax of $2,500 on the first $25,000 and $750 on the next $5,000. This is an example of what type of tax rate? a. Proportional b. Progressive c. Regressive d. Neutral e. None of the above 2. Which one of the following statements is true? a. Tax credits reduce tax liability at the marginal tax rate. b. Both tax credits and tax deductions are offsets to taxable income. c. Dollar for dollar, tax credits are more valuable than tax deductions. d. The tax impact of an additional dollar of tax base is determined by multiplying by the average tax rate. e. I cant afford to earn more because it will throw me into a higher tax bracket and I will keep less than I do now after taxes. 3. Before adjusted gross income can be computed, what following components must be computed? a. Income b. Taxable income c. Gross income d. Both a. and b. e. Both a. and c. 4. Taxpayers who are in doubt about the particular tax consequences of a contemplated transaction may ask the IRS for a ruling on the tax question involved. Which one of the following statements is not true? a. The IRS may decline to issue a letter ruling. b. Letter rulings apply only to the particular taxpayers with a particular set of facts asking for the ruling. c. During the process of obtaining a ruling, the IRS may recommend changes in a proposed transaction to assist taxpayers in reaching the result they wish. d. Letter rulings are available in digest form to allow other taxpayers to cite them as authority when they match the particular set of facts for which the letter ruling was issued. e. None of the above; all are true. 5. Which one of the following types of Regulations cannot be cited as authoritative? a. Proposed regulations b. Temporary regulations c. Procedural regulations d. Interpretative regulations e. Legislative regulations 6. Which of the following sources of authority would most likely contain a review of Congresss intentions with respect to a particular piece of tax legislation? a. Internal Revenue Code b. Report of the House Ways and Means Committee c. Code of Federal Regulations d. Revenue procedures e. Technical advice memoranda 7. In this years tax return, T Corporation decided to account for certain international transactions in a specific matter. However, the tax treatment is not certain and there is a chance that if audited, the company would not prevail. Which of the following statement is false regarding the corporations requirement to report the transaction for tax purposes (i.e., file Schedule UTP)? a. The corporation need not file if its assets are less than $100 million. b. The corporation need not file if it is an S corporation. c. The corporation need not file if it did not record a reserve for the position in its audited financial statements. d. The corporation need not file if it did not issue audited financial statements. e. More than one of the above is false. 8. Sandy and Dave formed a law partnership, agreeing to split the income 50:50. The partnership had net income of $100,000. Dave withdrew $55,000 throughout the year, and Sandy withdrew $50,000. Dave and Sandy had no other income. Because of the partnership activities, Daves AGI increased by a. $100,000 b. $55,000 c. $50,000 d. $35,000 9. G had income and expenses as follows for the current taxable year (assume the amounts given are correct): Total income $ 32,400 Exclusions (municipal bond interest) 2,000 Deductions for AGI 1,200 Total itemized deductions 9,920 Standard deduction 5,150 Exemption deductions 6,600 What are Gs adjusted gross income and her taxable income, respectively? Assume all amounts are correct. a. $29,200; $12,680 b. $31,200; $14,680 c. $29,200; $17,050 d. $28,000; $12,680 10. M, age 65 and single, has no dependents and an AGI of $50,000 and these expenses: medical expenses of $2,200, personal casualty losses of $5,000, real estate taxes of $2,000, and residence mortgage interest of $1,000. In 2017 the taxpayer should deduct which of the following total amounts from AGI? a. $10,200 b. $14,150 c. $11,350 d. Some other amount 11. After his great performance for the U.S. soccer team in the World Cup, Alex, a U.S. citizen, signed a contract to play with the Italian team, Parma, earning over $500,000 per year. While there, he met the great English star, Harry. Which of the following statements is correct? a. Assuming that Alex lives in Italy during all of the next year, his Italian income (salary and interest from his Italian bank account) would probably be subject to Italian taxes but he would not be required to report any of his Italian income for U.S. income tax purposes since he lived in Italy. b. Assuming that Alex lives in Italy only for a few months during all of next year, his income earned in Italy would effectively be taxed twice, i.e., he would pay taxes to the Italian government and taxes to the U.S. government, unless a treaty provided otherwise. c. Assume Harry, the English star, comes to the U.S. in the next to play in the U.S. professional soccer league. Harry would not be required to file a regular income tax return on income earned in the U.S. if he is considered a resident alien. d. None of the above is correct. 12. G and J are married and have three children: R, S, and C. R, age 19, was the star of the mens volleyball team at State University, where he was a full-time student in the current year. He received a scholarship valued at $8,000. G and J provide his other support of $5,000. S, who was a full-time high school student all year, worked part-time, earning $3,700. G and J spent $4,000 toward Ss support. C was a high school freshman and had no income during the year. How many exemptions may G and J claim on their joint tax return? a. Two b. Three c. Four d. Five 13. F and B were divorced in 1996, their divorce decree gave custody of their child to B, and under a separate written agreement, B surrendered the dependency exemption to F for the current year. F paid child support of $800 in the current year. B provided the other support of $2,000 for their only child. What is Bs filing status and her number of exemptions? a. Head of household and one b. Head of household and two c. Single and one d. Single and two 14. In what situation is a married person generally required to file separately? a. They are separated and planning a divorce. b. Another taxpayer could claim one spouse as a dependent. c. Either spouse is a nonresident alien. d. Use of the separate return tables yields a lower tax than use of the joint return tables. 15. A penalty is assessed against individuals for failure to make adequate estimated tax payments. Which of the following is not true of that penalty? a. The penalty is not assessed if the tax due is less than $1,000. b. The penalty is not assessed if the total prepaymentswithholding, estimated tax payments, and othersare at least 90% of the total tax due for the year. c. The penalty is assessed only with respect to income taxes owed and not self-employment taxes or the alternative minimum tax. d. The penalty is not assessed if the total prepaymentswithholding, estimated tax payments, and othersequal or exceed the prior years tax (unless AGI exceeded $150,000). 16. LMN Partnership is owned equally by R and S, calendar year taxpayers. The partnership reports on a fiscal year ending October 31. During the calendar year 2016, the partnership earned $1,000 a month. During the calendar year 2017, the partnership earned $2,000 a month. During 2016 and 2017, R withdrew $300 a month. On his personal return for 2017, R will report income from the partnership of a. $1,800 b. $3,500 c. $11,000 d. $12,000 17. Dr. Payne Phull is a cash basis taxpayer. Normally, his patients pay his fee on the day they see him in the office. For some customers, his office processes a medical reimbursement claim and bills the insurance company for the visit. In the current year, his records reveal the following: Cash received at time of office visit . $ 70,000 Collections on insurance receivables 88,000 Total accounts receivable, January 1 5,000 Total accounts receivable, December 31 15,000 All of the receivables outstanding at the beginning of the year were collected during the year. What amount should Dr. Phull report as his income this year? a. $70,000 b. $158,000 c. $168,000 d. $173,000 e. Some other amount 18. Fast-Heat, an accrual basis calendar year taxpayer, sells furnaces. With each sale, the corporation also sells a one-, two-, or three-year contract to service the furnace. On November 1 of this year, the corporation sold a one-year contract for $120 and a two-year contract for $240. The taxpayer wants to postpone income for as long as possible. Due to these sales, the corporation will report income for the current year of a. $360 b. $140 c. $260 d. $40 e. Some other amount 19. F has a son, C, who earns a $50,000 salary and has $500 interest income. During 2017 F loaned C $95,000 without interest to purchase a boat. Assume interest imputed at the IRS rate is $15,000. Which of the following statements is true about interest deemed earned by F or the amount of taxable gift remaining after the annual exclusion? a. F has interest income of $15,000. b. F is charged with a taxable gift of $15,000. c. F has no interest income. d. F is charged with a taxable gift of $1,000. e. Both c. and d. 20. R received cash income in the current year from the following investments: bank savings account interest, $43; municipal bond interest, $88; Canadian corporate stock dividend, $112; U.S. public utility stock dividend, $58; and corporate bond interest, $196. All amounts received on stock were paid from current earnings. The amount included in gross income of R is a. $497 b. $439 c. $409 d. $351 21. D purchased all of the stock in SB, Inc., in 2013 for $76,000. On December 31 of the current year, SB, Inc., made a cash distribution of $135,000 to D. Assuming SB, Inc., has current E&P of $15,000 and accumulated E&P of $40,000, the distribution will be treated as a. Taxable dividend of $135,000 b. Taxable dividend of $55,000 and nontaxable return of investment of $80,000 c. Taxable dividend of $55,000, nontaxable return of investment of $76,000, and a capital gain of $4,000 d. Taxable dividend of $55,000 and capital gain of $80,000. 22. A Corp. wants to throw something to its shareholders this year, but is cash poor. The board decides on a two-for-one stock dividend: common on common. The shareholders of record at the time of the dividend a. Realize a taxable dividend equal in amount to the value of their pre-split shares b. Have the value of their holdings doubled, taxation on which is postponed until the shares are sold c. Double their shares, allocating the pre-split basis in the stock equally among the shares d. Have nontaxable return of all their capital 23. B, who is single and 59 years old, purchased a single premium immediate annuity on January 1 of the current year for $12,000 that will pay him $100 every month for life beginning on January 15. Based on actuarial tables published by the IRS, his life expectancy multiple is 25.0. Bs nontaxable return of capital for the current year is a. $0 b. $1,200 c. $480 d. $720 24. The crucial reason for determining whether an item is deductible as an expense under 162 or under 212 is that a. Production-of-income expenses are not deductible. b. 162 business expenses usually are deductions for AGI, while 212 production-of-income expenses usually are miscellaneous itemized deductions. c. 162 business expenses are deductions from AGI, while 212 production-of-income expenses are deductions for AGI. d. It resolves certain ownership questions. 25. S is a cash basis, calendar year taxpayer (she uses the accrual-method for inventory). She operates Cloth R Us. All of the stores profits come from the sale of fabric. During the year she paid the following expenses: 1. $3,000 premium for liability insurance covering her business. The coverage runs from December 1, 2017 through November 30, 2020. 2. 10,000 for cloth, all of which is still on hand at the end of the taxable year. 3. $2,000 for points related to obtaining a loan for the purchase of her personal residence. 4. $1,200 for points related to obtaining a loan on rental property. S may deduct all of the expense incurred in 2016 for which item(s)? a. 1. b. 1. and 2. c. 1., 2. and 3. d. 1., 3. and 4. e. 3. 26. C purchased two cars in 2012, a Corvette for $40,000 and a Buick for $20,000. Both cars were used solely for personal purposes. During the current year, C sold the Corvette to a car collector for $45,000 and the Buick for $17,000. Based on these two transactions he will report: a. A gain of $2,000 b. A gain of $5,000 c. A gain of $5,000 and a loss of $3,000 d. No gain or loss 27. Which of the following statements is true concerning deductions for and from adjusted gross income (AGI)? a. A deduction from AGI has no effect on the taxpayers self-employment tax liability. b. Corporations, like individuals, must classify their deductions as deductions for and from AGI. c. Misclassification of a deduction for AGI has no effect on the taxpayers tax liability, assuming the taxpayer itemizes her or his deductions. d. Misclassification of a deduction for AGI never has an effect on the taxpayers medical expense deduction. 28. On January 1, 2017, H sold stock with a basis of $4,000 to his sister M for $3,500, its fair market value. On July 30, 2017, M sold the same stock for $4,100 to a friend in a bona fide transaction. In 2017, as a result of these transactions, a. Neither H nor M has a recognized gain or loss. b. H has a recognized loss of $500. c. M has a recognized gain of $100. d. M has a recognized gain of $600. 29. An aggressive young attorney is an employee of a small law firm that provides him with an adequate office. He uses the den in his home to prepare legal briefs and review legal documents related to his employment. Assuming the attorney lives near the firms office and he has easy access to the office at all times, which of the following statements most accurately describes the de-ductibility of the home office expenses incurred by the attorney? a. If the den is used exclusively for business purposes, the expenses are deductible. b. If the den is used exclusively for business purposes on a regular basis, the expenses are deductible. c. If the den is used exclusively for business purposes on a regular basis to work for and see clients, the expenses are deductible. d. In this situation the expenses are not deductible. e. The home office deduction was completely eliminated as a result of the Tax Reform Act of 1976. 30. K exclusively uses a portion of his bedroom as a place to manage his few investments. He charts his stocks daily. Costs allowable to the home office are $1,000. Gross income from his investments is $800, while his AGI, including the investment income, is $30,000. The amount K may deduct from his AGI is a. $0 b. $200 for AGI c. $400 for AGI d. $800 from AGI e. $1,000 from AGI 31. J.B., a self-employed taxpayer, acquired a car this year and uses the standard mileage method to compute her deduction for automobile expenses. During the year, J.B. drove 50,000 miles: 40,000 for business and 10,000 for personal purposes. Other expenses related to the car that she has brought to her tax advisors attention include insurance of $400, parking on business calls of $50, and interest on debt incurred to purchase the car of $1,000. What is J.B.s deduction for automobile expenses (assume the mileage rate is .50 cents per mile for all miles? a. $20,050 b. $22,250 c. $23,250 d. $21,160 e. Some other amount 32. R, a museum director, timed a business trip to Egypt to coincide with a trip to the Pyramids organized by her colleges Alumni Association. She spent 14 days on business and seven days sight-seeing at the Pyramids. Air fare was $1,500, and lodging plus 50% of Rs meal costs totaled $75 a day. She can deduct a. $1,000 b. $1,050 c. $2,050 d. $3,050