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EXAM I (CH. 1,2, AND 3)

TEN QUESTIONS FOR EXAM I

QUESTION 1

Taxpayer (TP) is a cash basis taxpayer for tax purposes with a calendar year end. TP is an accrual basis taxpayer for financial statement purposes also with a calendar year end. TP receives $100,000 cash on Dec. 31, 2014 for payment of services to be rendered. As a result:

X a. TP recognizes $100,000 of income for tax purposes, but does not recognize income for financial statement purposes.

b. TP is prohibited from maintaining accounting records differently from tax records resulting in criminal liability under the tax law

c. TP does not recognize $100,000 of income for tax purposes, but does recognize income for financial statement purposes.

d. None of the other choices are correct.

QUESTION 2

For 2014, Taxpayer (TP) wants to recognize a deduction. The deduction involves a statute that has not changed since enacted in 1920. TP is relying on a case called JONES, which is a case decided by the United States Tax Court in 1965 which held in favor of the taxpayer. The JONES case was decided by a United States Tax Court that lies in the 5th Circuit Court of Appeals. At the time the JONES case was decided, its holding was contrary to precedent set by the 5th Circuit Court of Appeals. Which of the following is correct:

a. None of the other choices are correct.

b. The Golsen rule is inapplicable here and is of no concern for TP.

X c. The Golsen rule applies here and weakens the legal justification for the deduction.

X d. The Golsen rule applies here and strengthens the legal justification for the deduction.

QUESTION 3

Lessor is the taxpayer who leases property to lessee for three years from Jan. 1, 2012 through Dec. 31, 2014. Lessee made $100.000 (cost and fair value) of leasehold, real property improvements to Lessor's property on Jan 1, 2013. Leasehold improvements are not made in lieu of rent. Under current law, lessor recognizes the $100,000 as income when :

a. the lessee made the improvements on Jan. 1, 2013.

b. the lease expires on Dec. 31, 2014.

c. none of the other choices are correct.

X d. the lessor sells the property at a future date.

QUESTION 4

Taxpayer (TP) has a deduction for 2014 that is supported and justified by a case decided in 1985. Which of the following statements is correct?

a. The case cannot be used by TP as support for TP's deduction because the case was decided one year before TRA of 1986.

X b. If the case involves a statute that is still valid in 2014, but the IRS nonacquiesced to the case, then TP is legally allowed to use the case as support for TP's deduction but the TP will probably have to go to trial to resolve the deductibility of the deduction.

c. None of the other choices are correct.

d. If the case involves a statute that is still valid in 2014, but the IRS nonacquiesced to the case, then TP is legally prohibited from using the case as support for TP's deduction. Hide Feedback

QUESTION 5

As a result of studying MAYO FOUNDATION FOR MEDICAL EDUCATION AND RESEARCH, et al., Petitioners v. UNITED STATES, we can conclude:

a. that the MAYO case helps to distinguish existing distinctions between interpretive revenue rulings and legislative revenue rulings.

X b. that the MAYO case introduced a different analysis than previously used in distinguishing between interpretive regulations and legislative regulations.

c. None of the other choices are correct.

d. that the MAYO case confuses existing distinctions between interpretive revenue rulings and legislative revenue rulings.

e. that the MAYO case reinforces the use of existing distinctions between interpretive regulations and legislative regulations.

QUESTION 7

The CPAs duty of confidentiality is best described by which of the following:

a. The duty of confidentiality requires the CPA not to divulge knowledge about the client that was obtained while rendering accounting services to a client, even if the CPA is subpoenaed to appear in court in a criminal case or civil case.

b. The duty of confidentiality requires the CPA to take the witness stand in a federal civil tax proceeding, and requires the CPA to be sworn in as a witness, but legally permits the CPA not to testify even if the client wants the CPA to testify.

c. The duty of confidentiality requires the CPA to take the witness stand in a federal civil tax proceeding, and requires the CPA to be sworn in as a witness, but legally permits the CPA not to testify only if the client wants the CPA not to testify.

X d. The duty of confidentiality requires the CPA not to divulge knowledge about the client that was obtained while rendering accounting services to a client, but does not permit the CPA to refuse to answer questions in court upon being sworn in as a witness.

e. None of the other choices are correct.

QUESTION 8

The privilege of a CPA is best described by which of the following:

a. The privilege requires the CPA not to divulge knowledge about the client that was obtained while rendering accounting services to a client, even if the CPA is subpoenaed to appear in court in a criminal case or civil case.

b. The privilege requires the CPA to take the witness stand in a federal civil tax proceeding, and requires the CPA to be sworn in as a witness, but legally permits the CPA not to testify even if the client wants the CPA to testify.

c. The privilege requires the CPA to take the witness stand in a federal civil tax proceeding, and requires the CPA to be sworn in as a witness, but legally permits the CPA not to testify only if the client wants the CPA not to testify.

X d. The privilege requires the CPA not to divulge knowledge about the client that was obtained while rendering accounting services to a client, but does not permit the CPA to refuse to answer questions in court upon being sworn in as a witness.

e. None of the other choices are correct.

QUESTION 9

In determining whether someone can be claimed as a dependent as either a qualifying child or qualifying relative, which one of the following, if any, is correct?

a. The portion of a scholarship attributable to expenses other than books and tuition is included in the gross income test of a qualifying relative, but is excluded from the support test of a qualifying relative.

b. The portion of a scholarship attributable to expenses other than books and tuition is included in the support test of a qualifying relative, but is excluded from the gross income test of a qualifying relative.

c. The portion of a scholarship attributable to expenses other than books and tuition is included in the gross income test of a qualifying child, but is excluded from the support test of a qualifying child.

d. The portion of a scholarship attributable to expenses other than books and tuition is excluded from the gross income test of a qualifying relative, and is excluded from the support test of a qualifying relative.

X e. None of the other choices are correct.

QUESTION 10

Kirby is in the 15% tax bracket and had the following capital asset transactions during 2016:

Long-term gain from the sale of a coin collection	$11,000
Short-term gain from the sale of a land investment	10,000
Short-term gain from the sale of a stock investment	2,000

Kirby's tax consequences from these gains are as follows:

a. (15% $13,000) + (28% $11,000)

X b. (15% $23,000)

c. (0% $10,000) + (15% $13,000)

d. (5% $10,000) + (15% $13,000)

e. None of these choices are correct.