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Exam 2 an Introduction to Taxation

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Question 1

True/False

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The Internal Revenue Service is the branch of the Treasury Department responsible for administering the federal tax law.

A) True
B) False

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verified

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Question 2

Multiple Choice

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Which of the following individuals is most likely to be audited?

A) Lola has AGI of $35,000 from wages and uses the standard deduction.
B) Marvella has a $145,000 net loss from her unincorporated business (a horse farm) .She also received $950,000 salary as a CEO of a corporation.
C) Melvin is retired and receives Social Security benefits.
D) Jerry is a school teacher with two children earning $55,000 a year.He also receives $200 in interest income on a bank account.

E) A) and B)
F) B) and D)

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Question 3

Multiple Choice

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Vertical equity means that

Which is not a component of tax practice?

A tax bill introduced in the House of Representatives is then

If a taxpayer's total tax liability is $4,000,taxable income is $20,000,and total economic income is $40,000,then the effective tax rate is 20 percent.

S Corporations result in a single level of taxation.

In 2014,an estate is not taxable unless the sum of the taxable estate and taxable gifts made after 1976 exceeds

For gift tax purposes,a $14,000 annual exclusion per donee is permitted.

Jeffery died in 2014 leaving a $16,000,000 gross estate.Six months after his death,the gross assets are valued at $16,100,000.In years prior to 2014 (but after 1976),Jeffery had made taxable gifts of $300,000.Of the $16,000,000 gross estate,estate assets valued at $3 million were transferred to his wife and $100,000 was used to pay administrative and funeral expenses.Jeffery had debts of $200,000,and the remainder of the estate was transferred to his children. a.What is the amount of Jeffery's taxable estate? b.What is the tax base for computing Jeffery's estate? c.What is the amount of estate tax owed if the unified credit is $2,081,800? d.Alternatively,if six months after his death,the gross assets in Jeffery's estate declined in value to $15,000,000,can the administrator of Jeffery's estate elect the alternate valuation date?

Explain how returns are selected for audit.

The Sixteenth Amendment permits the passage of a federal income tax.

When returns are processed,they are scored to determine their potential for yielding additional tax revenues.This program is called

While federal and state income taxes as well as the federal gift and estate taxes are generally progressive in nature,property taxes are proportional.

When a change in the tax law is deemed necessary by Congress,the entire Internal Revenue Code must be revised.

Flow-through entities do not have to file tax returns since they are not taxable entities.

Which of the following taxes is progressive?

In an S corporation,shareholders

During the current tax year,Charlie Corporation generated gross income of $1,800,000 and had ordinary and necessary deductions of $1,300,000,resulting in taxable income of $500,000.If Charlie Corporation paid qualifying dividends of $200,000 to shareholders,all of whom are in the 25% marginal tax bracket,what is the total tax paid on both corporate income and the corporate dividends?

Brad and Angie had the following income and deductions during 2014: Calculate Brad and Angie's tax liability due or refund,assuming that they have 2 personal exemptions.They file a joint tax return.