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Chapter 1
1. A tax is an enforced contribution used to finance the functions of government.
a.
True
b.
False
2. Adam Smith identified efficient, certainty, convenience, and economy as the four basic requirements for a good tax
system.
a.
True
b.
False
3. Congress is required to insure that the tax law has the following characteristics: equality, certainty, convenience, and
economy.
a.
True
b.
False
4. Horizontal equity exists when two similarly situated taxpayers are taxed the same.
a.
True
b.
False
5. The marginal tax rate is the rate of tax that will be paid on the next dollar of income or the rate of tax that will be saved
by the next dollar of deduction.
a.
True
b.
False
6. A regressive tax rate structure is defined as a tax in which the average tax rate decreases as the tax base increases.
a.
True
b.
False
7. Employers are required to pay a Federal Unemployment Tax of 6.2% of the first $10,000 in wages to each employee
less a credit of up to 5.4% of state unemployment taxes paid.
a.
True
b.
False
8. A deferral is like an exclusion in that it does not have a current tax effect, but it differs in that an exclusion is never
subject to taxation, whereas a deferral will be subject to tax at some point of time in the future.
a.
True
b.
False
9. An annual loss results from an excess of allowable deductions for a tax year over the reported income.
a.
True
Chapter 1
b.
False
10. Self-employed people are required to make quarterly payments of their estimated tax liability.
a.
True
b.
False
11. The statute of limitations is three years, six years if the taxpayer omits gross income in excess of 25%, and there is no
statute of limitations if the taxpayer willfully defrauds the government.
a.
True
b.
False
12. Gifts to qualified charitable organizations may be deducted as a contribution, but not to exceed 50% of an individual
taxpayer’s adjusted gross income.
a.
True
b.
False
13. Tax avoidance occurs when a taxpayer uses fraudulent methods or deceptive behavior to hide actual tax liability.
a.
True
b.
False
14. All tax practitioners are governed by the AICPA’s Code of Professional Conduct.
a.
True
b.
False
15. A CPA may prepare tax returns using estimates provided by the taxpayer if it is impracticable to obtain exact data and
the estimates are reasonable.
a.
True
b.
False
16. According to the IRS definition, which of the following is not a characteristic of a tax?
a.
The payment to the governmental authority is required by law.
b.
The payment relates to the receipt of a specific benefit.
c.
The payment is required pursuant to the legislative power to tax.
d.
The purpose of requiring the payment is to provide revenue to be used for the public or governmental
purposes.
17. Which of the following payments would not be considered a tax?
a.
An assessment based on the selling price of the vehicle.
Chapter 1
b.
A local assessment for new sewers based on the amount of water used.
c.
A local assessment for schools based on the value of the taxpayer's property.
d.
A surcharge based upon the amount of income tax already calculated.
18. Based on the definition given in Chapter 1 of the text, which of the following is a tax?
I.
A registration fee paid to the state to get a car license plate.
II.
2% special sales tax for funding public education.
III.
A special property tax assessment for installing sidewalks in the taxpayer's
neighborhood.
IV.
An income tax imposed by Chicago on persons living or working within the city limits.
a.
Only statement I is correct.
b.
Only statement III is correct.
c.
Only statement IV is correct.
d.
Statements I and IV are correct.
e.
Statements II and IV are correct.
19. Which of the following payments meets the IRS definition of a tax?
a.
A fee paid on the value of property transferred from one individual to another by gift.
b.
A one-time additional property tax assessment to add a sidewalk to the neighborhood.
c.
A fee paid on the purchase of aerosol producing products to fund ozone research.
d.
A fee for a sticker purchased from a city that must be attached to garbage bags before the city garbage trucks
will pick up the bags.
e.
All of the above meet the definition of a tax.
20. Which of the following payments is a tax?
I.
Artis paid the IRS a penalty of $475 (above his $11,184 income tax balance due)
because he had significantly underpaid his estimated income tax.
II.
Lindsey paid $135 to the State of Indiana to renew her CPA license.
III.
Carrie paid a $3.50 toll to cross the Mississippi River.
IV.
Darnell paid $950 to the County Treasurer's Office for an assessment on his business
equipment.
a.
Only statement IV is correct.
b.
Only statement III is correct.
c.
Statements II and IV are correct.
d.
Statements I, II, and III are correct.
e.
Statements I, II, III, and IV are correct.
21. Which of the following payments meets the IRS definition of a tax?
a.
Sewer fee charged added to a city trash collection bill.
b.
A special assessment paid to the county to pave a street.
c.
A levy on the value of a deceased taxpayer's estate.
d.
Payment of $300 to register an automobile. The $300 consists of a $50 registration fee and $250 based on the
weight of the auto.
Chapter 1
22. Which of the following statement is/are included in Adam Smith’s four requirements for a good tax system?
I.
Changes in the tax law should be made as needed to raise revenue and for proper
administration.
II.
A tax should be imposed in proportion to a taxpayer's ability to pay.
III.
A taxpayer should be required to pay a tax when it is most likely to be convenient for
the taxpayer to make the payment.
IV.
The government must collect taxes equal to it’s expenses.
a.
Statements I and II are correct.
b.
Statements I and IV are correct.
c.
Statements II and III are correct.
d.
Statements II and IV are correct.
e.
Statements III and IV are correct.
23. Which of the following are included among Adam Smith's criteria for evaluating a tax?
I.
Convenience.
II.
Fairness.
III.
Neutrality.
IV.
Economy.
a.
Statements I and II are correct.
b.
Statements I, II, and III are correct.
c.
Statements I and IV are correct.
d.
Statements II and III are correct.
e.
Statements I, II, III, and IV are correct.
24. When planning for an investment that will extend over several years, the ability to predict how the results of the
investment will be taxed is important. This statement is an example of
a.
Certainty.
b.
Transparency
c.
Equality.
d.
Neutrality.
e.
Fairness.
25. Which of Adam Smith's requirements for a good tax system best supports the argument that the federal income tax
rate structure should be progressive?
a.
Certainty.
b.
Convenience.
c.
Equality.
d.
Neutrality.
e.
Sufficiency.
26. Pay-as-you-go withholding is consistent with Adam Smith's criteria of
Chapter 1
a.
Certainty.
b.
Convenience.
c.
Economy.
d.
Fairness.
e.
Transparency.
27. Adam Smith's concept of vertical equity is found in a tax rate structure that is
a.
Regressive.
b.
Proportional.
c.
Horizontal.
d.
Progressive.
e.
Economical.
28. Vertical equity
I.
means that those taxpayers who have the greatest ability to pay the tax should pay the
greatest proportion of the tax.
II.
means that two similarly situated taxpayers are taxed the same.
III.
is reflected in the progressive nature of the federal income tax system.
IV.
exists when Avis, a single individual with 4 dependent children, and Art, a single
individual with no dependents, both pay $2,400 income tax on equal $26,000 annual
salaries.
a.
Statements III and IV are correct.
b.
Statements II and III are correct.
c.
Statements I and III are correct.
d.
Only statement IV is correct.
e.
Statements I, II, III, and IV are correct.
29. Horizontal equity
I.
means that those taxpayers who have the greatest ability to pay the tax should pay the
greatest proportion of the tax.
II.
means that two similarly situated taxpayers are taxed the same.
III.
is reflected in the progressive nature of the federal income tax system.
IV.
exists when Avis, a single individual with 4 dependent children, and Art, a single
individual with no dependents, both pay $2,400 income tax on equal $26,000 annual
salaries.
a.
Statements III and IV are correct.
b.
Statements II and III are correct.
c.
Statements I and III are correct.
d.
Only statement IV is correct.
e.
Statements I, II, III, and IV are correct.
30. If a taxpayer has a choice of receiving income in the current year versus the following year, which of the following tax
rates is important in determining the year in which he should include the income?
Chapter 1
a.
Average.
b.
Effective.
c.
Composite.
d.
Marginal.
31. Jessica is single and has a 2015 taxable income of $199,800. She also received $15,000 of tax-exempt income.
Jessica's marginal tax rate is:
a.
22.8%
b.
23.5%
c.
25.0%
d.
28.0%
e.
33.0%
32. Andrea is single and has a 2015 taxable income of $199,800. She also received $15,000 of tax-exempt income.
Andrea's average tax rate is:
a.
22.8%
b.
23.5%
c.
24.8%
d.
28.5%
e.
33.0%
33. Maria is single and has a 2015 taxable income of $199,800. She also received $15,000 of tax-exempt income. Maria's
effective tax rate is:
a.
22.8%
b.
23.1%
c.
25.3%
d.
28.0%
e.
33.0%
34. Bob and Linda are married and have a 2015 taxable income of $280,000. They also received $20,000 of tax-exempt
income. Their marginal tax rate is:
a.
23.1%
b.
24.8%
c.
28.0%
d.
33.0%
e.
35.0%
35. Frank and Fran are married and have a 2015 taxable income of $280,000. They also received $20,000 of tax-exempt
income. Their average tax rate is:
a.
23.1%
b.
24.3%
Chapter 1
c.
25.3%
d.
33.0%
e.
35.0%
36. Jim and Anna are married and have a 2015 taxable income of $280,000. They also received $20,000 of tax-exempt
income. Their effective tax rate is:
a.
22.7%
b.
22.6%
c.
24.8%
d.
33.0%
e.
35.0%
37. Terry is a worker in the country Pretoria. His salary is $46,000 and his taxable income is $52,000. Pretoria imposes a
Worker Tax as follows:
Employers withhold a tax of 20% of all wages and salaries. If taxable income as reported on the employee's income tax
return is greater than $50,000, an additional 10% tax is withheld on all income. Terry's marginal tax rate is:
a.
0%
b.
10%
c.
20%
d.
30%
38. The mythical country of Januvia imposes a tax based on the number of titanium coins each taxpayer owns at the end
of each year per the following schedule:
Number of titanium coins
Tax
0 – 200
$500 + $5 per titanium coin
201 – 500
$1,000 + $6 per titanium coin
> 500
$4,000 + $7 per titanium coin
Marvin, a resident of Januvia, owns 300 titanium coins at the end of the current year.
I.
Marvin's titanium coins tax is $2,800.
II.
Marvin's marginal tax rate is $6.
III.
Marvin's average tax rate is $9.33.
IV.
Marvin's average tax rate is $6.
a.
Statements II and III are correct.
b.
Statements I, II, and IV are correct.
c.
Statements II and IV are correct.
d.
Statements I, II and III are correct.
e.
Only statement II is correct.
39. Jaun plans to give $5,000 to the American Diabetes Association. Jaun's marginal tax rate is 28%. His average tax rate
is 25%. Jaun's after-tax cost of the contribution is
a.
$1,250
b.
$1,400
Chapter 1
c.
$3,600
d.
$3,750
e.
$5,000
40. Katie pays $10,000 in tax-deductible property taxes. Katie’s marginal tax rate is 25%, average tax rate is 24%, and
effective tax rate is 20%. Katie's tax savings from paying the property tax is:
a.
$1,600
b.
$2,000
c.
$2,400
d.
$2,500
e.
$10,000
41. Lee's 2015 taxable income is $88,000 before considering charitable contributions. Lee is a single individual. She
makes a donation of $10,000 to the American Heart Association in December 2015. By how much did Lee's marginal tax
rate decline simply because of the donation?
a.
0%
b.
10%
c.
3%
d.
5%
e.
8%
42. Shara's 2015 taxable income is $44,000 before considering charitable contributions. Shara is a single individual. She
makes a donation of $5,000 to the American Heart Association in December 2015. By how much did Shara's marginal tax
rate decline simply because of the donation?
a.
0%
b.
7%
c.
3%
d.
5%
e.
10%
43. Sally is a single individual. In 2015, she receives $10,000 of tax-exempt income in addition to her salary and other
investment income of $100,000. Sally's 2015 tax return showed the following information:
Gross income
$100,000
Deductions for adjusted gross income
( 4,000)
Adjusted gross income
$96,000
Itemized deductions
(16,100)
Personal exemption
( 4,000)
Taxable income
$75,900
Total tax
$14,769
Less: Income tax withheld from wages
(14,800)
Balance of tax due
$ 31
Which of the following statements concerning Sally's tax rates is (are) correct?
Chapter 1
I.
Sally's average tax rate is 19.5%.
II.
Sally's average tax rate is 25.0%.
III.
Sally's marginal tax rate is 25%.
IV.
Sally's marginal tax rate is 28%.
a.
Statements I and III are correct.
b.
Statements I and IV are correct.
c.
Statements II and III are correct.
d.
Statements II and IV are correct.
e.
Only statement IV is correct.
44. Jered and Samantha are married. Their 2015 taxable income is $90,000 before considering their mortgage interest
deduction. If the mortgage interest totals $10,000 for 2015, what are the tax savings attributable to their interest
deduction?
a.
$1,500
b.
$2,500
c.
$2,800
d.
$3,300
e.
$10,000
45. Betty is a single individual. In 2015, she receives $5,000 of tax-exempt income in addition to her salary and other
investment income. Betty's 2015 tax return showed the following information:
Gross income
$90,000
Deductions for adjusted gross income
( 4,000)
Adjusted gross income
$86,000
Itemized deductions
(14,600)
Personal exemption
(4,000)
Taxable income
$67,400
Income tax
$12,644
Less: Income tax withheld from wages
(12,600)
Balance of tax due
$44
Which of the following statements concerning Betty's tax rates is (are) correct?
I.
Betty's average tax rate is 18.8%.
II.
Betty's average tax rate is 17.5%.
III.
Betty's effective tax rate is 18.8%.
IV.
Betty's effective tax rate is 17.5%.
a.
Statements I and III are correct.
b.
Statements I and IV are correct.
c.
Statements II and III are correct.
d.
Statements II and IV are correct.
46. Katarina, a single taxpayer, has total income from all sources of $100,000 for 2015. Her taxable income after taking
into consideration $25,000 in deductions and $10,000 in exclusions is $65,000. Katarina’s tax liability is $12,049. What
are Katarina's marginal, average, and effective tax rates?
Chapter 1
a.
28% marginal; 18.5% average; 18.5% effective.
b.
25% marginal; 16.1% average; 16.1% effective.
c.
25% marginal; 16.1% average; 18.5% effective.
d.
25% marginal; 18.5% average; 16.1% effective.
e.
28% marginal; 16.1% average; 18.5% effective.
47. Alan is a single taxpayer with a gross income of $88,000, a taxable income of $66,000, and an income tax liability of
$12,294 for 2015. Josh also has $8,000 of tax-exempt interest income. What are Alan's marginal, average, and effective
tax rates?
a.
25% marginal; 16.6% average; 18.6% effective.
b.
28% marginal; 15.9% average; 21.5% effective.
c.
28% marginal; 16.6% average; 21.5% effective.
d.
25% marginal; 18.6% average; 16.6% effective.
48. A tax provision has been discussed that would add an additional marginal tax rate of 42% to be applied to an
individual's taxable income in excess of $800,000. If this provision were to become law, what overall distributional
impact would it have on our current income tax system?
a.
Proportional.
b.
Regressive.
c.
Progressive.
d.
Disproportional.
e.
None of the above.
49. The Federal income tax is a
a.
revenue neutral tax.
b.
regressive tax.
c.
value-added tax.
d.
progressive tax.
e.
form of sales tax.
50. Employment taxes are
a.
revenue neutral.
b.
regressive .
c.
value-added.
d.
progressive.
e.
proportional.
51. A state sales tax levied on all goods and services sold is an example of a
a.
progressive tax.
b.
regressive tax.
Chapter 1
c.
proportional tax.
d.
value added tax.
52. Indicate which of the following statements concerning the following tax rate structures is/are correct.
When Income
Total Tax
Equals
Equals
Structure #1
10,000
600
100,000
5,000
Structure #2
15,000
900
75,000
4,500
Structure #3
13,000
975
86,000
6,600
I.
Tax Structure #1 is proportional.
II.
Tax Structure #1 is regressive
III.
Tax Structure #2 is progressive.
IV.
Tax Structure #3 is progressive
a.
Only statement I is correct.
b.
Only statement III is correct.
c.
Statements I and II are correct.
d.
Statements II and IV are correct.
e.
Statements I, II, and IV are correct.
53. Indicate which of the following statements concerning the following tax rate structures is/are correct.
When Income
Total Tax
Equals
Equals
Structure #1
10,000
750
100,000
6,000
Structure #2
15,000
900
75,000
4,000
Structure #3
13,000
1,200
86,000
9,600
I.
Tax Structure #1 is regressive.
II.
Tax Structure #1 is proportional
III.
Tax Structure #2 is progressive.
IV.
Tax Structure #3 is progressive
a.
Only statement I is correct.
b.
Only statement III is correct.
c.
Statements I and IV are correct.
d.
Statements II and IV are correct.
Chapter 1
e.
Statements I, II, and IV are correct.
54. Taxpayer A pays tax of $3,300 on taxable income of $10,000 while taxpayer B pays tax of $6,600 on $20,000. The tax
is a
a.
proportional tax.
b.
regressive tax.
c.
progressive tax.
d.
horizontal tax.
55. The mythical country of Traviola imposes a tax based on the number of gold Tokens each taxpayer owns at the end of
each year per the following schedule:
Number of Tokens
Tax
0 – 200
$100 + $5 per Token
201 – 500
$1,000 + $6 per Token
> 500
$4,000 + $7 per Token
Traviola’s Token tax is a
a.
proportional tax.
b.
regressive tax.
c.
progressive tax.
d.
value-added tax.
56. The mythical country of Woodland imposes two taxes:
Worker tax: Employers withhold ten percent of all wages and salaries. If taxable income as reported on the employee's
income tax return is greater than $40,000, an additional 5% tax is levied on all income.
Business tax: All businesses pay a tax on invested capital based on a valuation formula. The tax computed for three
different amounts of invested capital is provided below:
Invested Capital
Tax
$100,000
$12,000
$200,000
$16,000
$300,000
$20,000
According to the definitions in the text:
I.
The worker tax is a regressive tax rate structure.
II.
The business tax is a progressive tax rate structure.
III.
The worker tax is a progressive tax rate structure.
IV.
The business tax is a regressive tax rate structure.
a.
Statements I and III are correct.
b.
Statements II and III are correct.
c.
Only statements III is correct.
d.
Statements I and IV are correct.
e.
Statements III and IV are correct.
57. Oliver pays sales tax of $7.20 on the purchase of a lamp for $120. Michelle paid sales tax of $9 on the purchase of a
similar lamp for $150. Oliver's taxable income for the current year is $40,000. Michelle's taxable income is $55,000.
I.
The structure of the sales tax is regressive if based on taxable income.
II.
The structure of the sales tax is proportional if based on sales price.
III.
The structure of the sales tax is progressive based on taxable income.
IV.
The average sales tax paid on a purchase equals the marginal tax rate for this tax.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Statements III and IV are correct.
d.
Statements II and IV are correct.
e.
Statements I, II, and IV are correct.
58. Greg pays sales tax of $7.20 on the purchase of a lamp for $120. Michelle paid sales tax of $9 on the purchase of a
similar lamp for $150. Greg's taxable income for the current year is $40,000. Michelle's taxable income is $55,000.
I.
The structure of the sales tax is progressive if based on taxable income.
II.
The structure of the sales tax is proportional if based on sales price.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
59. Heidi and Anastasia are residents of the mythical country of Wetland. Heidi pays $1,500 income tax on taxable
income of $6,000. Anastasia pays income tax of $21,000 on taxable income of $72,000. The income tax structure is
I.
Progressive.
II.
Proportional.
III.
Regressive.
IV.
Value-added.
V.
Marginal.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Only statement III is correct.
d.
Only statement V is correct.
e.
Statements II and IV are correct.
60. Elrod is an employee of Gomez Inc. During 2015, Elrod receives a salary of $120,000 from Gomez. What amount
should Gomez withhold from Elrod's salary as payment of Elrod's social security and medicare taxes?
a.
$7,440.00
b.
$7,803.40
c.
$8,422.65
d.
$9,087.00
e.
$9,180.00
61. Marie earns $80,000 as a sales manager for Household Books. How much Social Security and medicare tax does
Marie have to pay for 2015?
a.
$4,960.00
b.
$6,120.00
c.
$6,400.00
d.
$2,240.00
62. Samantha is a self-employed electrician. During 2015, her net self-employment income is $120,000. What is
Samantha's self-employment tax?
a.
$15,570.00
b.
$15,606.80
c.
$16,845.30
d.
$18,174.00
e.
$18,360.00
63. Rayburn is the sole owner of a dance studio. During the current year, his net self-employment income from the dance
studio is $50,000. What is Rayburn 's self-employment tax?
a.
$3,825.00
b.
$5,738.00
c.
$6,200.00
d.
$7,650.00
64. Phyllis is an electrician employed by Bogie Company. Phil is a self-employed electrician. During the current year,
Phyllis's salary is $75,000 and Phil's net self-employment income is $75,000. Which of the following statements about the
Social Security and self-employment taxes paid is/are correct?
I.
Phil's self-employment tax is greater than the Social Security tax paid on Phyllis's
income.
II.
Phil pays more self-employment tax than Phyllis pays in Social Security tax.
III.
Phil and Phyllis pay the same amount of tax.
IV.
Phil's self-employment tax is equal to the Social Security tax paid on Phyllis's income.
a.
Only statement I is correct.
b.
Only statement I is correct.
c.
Only statement IV is correct.
d.
Statements I and III are correct.
e.
Statements II and IV are correct.
65. Sally is an electrician employed by Bogie Company. Sam is a self-employed electrician. During the current year,
Sally's salary is $85,000 and Sam's net self-employment income is $85,000. Which of the following statements about the
Social Security and self-employment taxes paid is/are correct?
I.
Sam's self-employment tax is greater than the Social Security tax paid on Sally's income.
II.
Sam and Sally pay the same amount of tax.
a.
Only statement I is correct.
Chapter 1
b.
Only statement II is correct
c.
Both statements are correct
d.
Neither statement is correct
66. Sally is an electrician employed by Bogie Company. Sam is a self-employed electrician. During the current year,
Sally's salary is $85,000 and Sam's net self-employment income is $85,000. Which of the following statements about the
Social Security and self-employment taxes paid is/are correct?
I.
Sam pays more self-employment tax than Sally pays in Social Security tax.
II.
Sam's self-employment tax is equal to the Social Security tax paid on Sally's income.
a.
Only statement I is correct.
b.
Only statement II correct.
c.
Both statements are correct.
d.
Neither statement is correct.
67. How much additional Social Security tax does Elise pay in 2015 on her $10,000 Christmas bonus? Her total earnings
for the year (before the bonus) are $130,000.
a.
$ 0
b.
$ 145
c.
$ 620
d.
$ 765
68. How much additional Social Security tax does Betty pay in 2015 on her $10,000 Christmas bonus? Her total earnings
for the year (before the bonus) are $100,000.
a.
$145.00
b.
$269.20
c.
$461.20
d.
$641.00
e.
$765.00
69. How much additional Social Security tax does Connie pay in 2015 on her $10,000 Christmas bonus? Her total
earnings for the year (before the bonus) are $42,000.
a.
$ 0
b.
$145.00
c.
$620.00
d.
$765.00
70. Which of the following types of taxes rely solely on "income" as the tax base for determining the amount of tax
liability?
I.
Sales Tax
II.
Property Tax
III.
Gift Tax
Chapter 1
IV.
Social Security Tax
V.
Excise Tax
a.
Statements I, II, III, IV, and V are correct.
b.
Statements I, III, and IV are correct.
c.
Statements II and IV are correct.
d.
Only statement IV is correct.
e.
None of the above types of taxes relies on income for its tax base.
71. A property tax
I.
is levied on the value of property.
II.
is referred to as ad valorem.
III.
on personal property is more common than a tax on real property.
IV.
is based upon assessed value rather than actual transactions.
a.
Only statement I is correct.
b.
Statements II and III are correct.
c.
Statements I, II, and IV are correct.
d.
Statements I, II, III, and IV are correct.
72. When property is transferred, gift and estate taxes are based on the
a.
fair market value of the assets on the date of transfer.
b.
replacement cost of the transferred property.
c.
transferor's original cost of the transferred property.
d.
transferor's adjusted basis of the transferred property.
e.
fair market value less adjusted basis on the date of the transfer.
73. An excise tax
I.
is levied on the value of property.
II.
is levied on the quantity of the product or service.
III.
differs from an sale tax, because a sales tax is imposed on the value of property.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Statements I and II are correct.
d.
Statements II and III are correct.
e.
Statements I, II, and III are correct.
74. Joy receives a used car worth $13,000 from her uncle as a graduation present. As a result of the gift
I.
Joy will have $13,000 of taxable income.
II.
Joy’s uncle’s gift will subject him to the gift tax.
a.
Only statement I is correct.
b.
Only statement II is correct.
Chapter 1
c.
Both statements are correct.
d.
Neither statement is correct.
75. The term "tax law" as used in your textbook includes
I.
Treasury regulations.
II.
College textbooks (i.e. “Concepts in Federal Income Taxes”).
III.
Internal Revenue Code of 1986.
IV.
Tax related decisions of a U.S. Circuit Court of Appeals.
a.
Only statement III is correct.
b.
Statements I, III, and IV are correct.
c.
Statements I and III are correct.
d.
Only statement II is correct.
e.
All four statements are correct
76. Ordinary income is
I.
the common type of income that individuals and businesses earn.
II.
receives no special treatment under tax laws.
III.
the character of the gain from the sales of shares of stock held more than one year
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Statements I and II are correct.
d.
Statements I and III are correct.
e.
Statements I, II, and III are correct.
77. Which of the following are types of IRS examinations?
I.
Information matching program.
II.
Office examination.
III.
Field examination.
IV.
Revenue agent report.
a.
Statements II and III are correct.
b.
Only statement III is correct.
c.
Statements I and IV are correct.
d.
Statements I, II and III are correct.
e.
Only statement II is correct.
78. The return selection program designed to select returns with the highest probability of errors is
a.
The TCMP.
b.
The DIF program.
c.
The special audit program.
d.
The document perfection program.
e.
The information-matching program.
