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ACCT 3221 > Exam 1 Review Questions > Flashcards

Exam 1 Review Questions Flashcards

1
Q

The __________ tax rate, in general, provides a better depiction taxpayer’s tax burden than the __________ tax rate.

A. Effective; average
B. Average; effective
C. Marginal; effective
D. Effective; marginal

A

A. Effective; average

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2
Q

The ________ Amendment to the US Constitution removed all doubt that a federal income tax was allowed under the US Constituion.

A. 9th
B. 18th
C. 21st
D. 16th

A

D. 16th

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3
Q

Which of the following taxes represents the largest portion of US federal tax revenues?

A. employment taxes
B. corporate income taxes
C. individual income taxes
D. estate and gift taxes

A

C. individual income taxes

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4
Q

Employers often withhold federal income taxes directly from workers’ paycheck. Example of which principle in practice?

A. Convenience
B. Certainty
C. Economy
D. Politics

A

Convenience

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5
Q

Which of the following statements is true?

A. municipal bond interest is subject to explicit federal tax
B. Municipal bond interest is subject to implicit tax
C. Municipal bonds typically pay a higher interest rate than corporate bonds
D. all of these statements are true

A

B. municipal bond interest is subject to implicit tax

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6
Q

Corporations are required to file a tax return annually regardless of their taxable income

True or false

A

True

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7
Q

If an unmarried taxpayer is eligible to claim another as a dependent, the taxpayer is automatically eligible for ______________

A

Head of household

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8
Q

If April 15 falls on a Saturday, the due date for individual tax returns will be on Monday, April 17 (not a holiday)

True or False

A

True

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9
Q

Which of the following is considered a tax?

A. tolls
B. parking meter fees
C. annual licensing fees
D. a local surcharge paid on retail sales to fund public schools

A

D. a local surcharge paid on retail sales to fund public schools

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10
Q

An extension to file a tax return does not extend the due date for tax payments

True or false

A

True

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11
Q

The statute of limitations for IRS assessment generally ends __________ years after the date a tax return is filed.

A. Three
B. Six
C. Indefinite
D. Four

A

A. Three years

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12
Q

Sin taxes are:

A. taxes assessed by religious organizations
B. taxes assessed on certain illegal acts
C. taxes assessed to discourage less desirable behavior
D. taxes to fund a specific purpose

A

C. taxes assessed to discourage less desirable behavior

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13
Q

The IRS DIF system checks each tax return for mathematical mistakes and errors

True or false

A

False

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14
Q

Which of the following is not a filing status?

A. head of household
B. surviving spouse
C. Married filing separately
D. unmarried

A

D. unmarried

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15
Q

_________________ are the most common type of IRS audit.

A. Correspondence audit
B. Field audits
C. Office examinations

A

A. Correspondence audit

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16
Q

Revenue rulings and revenue procedures are examples of primary authorities.

True or false

A

True

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17
Q

Which of the following shows the correct relationship among deduction amounts for the respective statuses?

A. single> head of household> married filing jointly
B. Married filing jointly> married filing separately> head of household
C. married filing jointly> head of household> single
D. Head of household> Married filing separately> married filing jointly

A

C. married filing jointly> head of household> single

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18
Q

Under the Statements on Standards for Tax Services, a CPA may recommend a position if it is frivolous and not disclosed

True or false

A

False

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19
Q

If Lindley requests an extension to file her individual tax return, the latest she could pay her tax without penalty:

A. April 15th
B. October 15th
C. August 15th
D. October 1st

A

A. April 15th

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20
Q

Which of the following statements regarding tax credits is true?

A. tax credits reduce taxable income dollar for dollar.
B. Tax credits reduce taxes payable dollar for dollar
C. none of these statements are true
D. tax credits provide a greater benefit the greater the marginal tax rate.

A

B. Tax credits reduce taxes payable dollar for dollar

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21
Q

Under the tax law, taxpayers may be subject to both civil and criminal penalties for underpaying their tax liabilities

True or False

A

True

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22
Q

If Paula requests an extension to file her individual tax return, the latest she could file her return without penalty:

A. September 15th
B. October 15th
C. August 15th
D. November 15th

A

B. October 15th

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23
Q

The difficulty in calculating a tax is typically in the determination of:

A. The correct tax rate
B. Where to file the tax return
C. the tax base
D. the due date of the return

A

C. the tax base

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24
Q

Which of the following courts is the only court that provides for a jury trial?

A. Tax court
B. US court of federal claims
C. US District Court
D. US Circuit Court of Appeals

A

C. US District Court

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25
Q

The goal of tax planning is ___________________.

A. tax reduction
B. tax minimization
C. maximizing after-tax wealth

A

C. maximizing after-tax wealth

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26
Q

In general, tax planners prefer to _______________ deductions.

A. Defer
B. Accelerate
C. It depends

A

B. Accelerate

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27
Q

Qualified dividends are taxed at a/the __________ rate as ordinary income

A. higher
b. lower
c. same

A

b. lower

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28
Q

Which of the following relationships does NOT pass the relationship test for a qualifying child?

A. stepsister’s daughter
B. half-brother
C. cousin
D. stepsister

A

C. cousin

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29
Q

Bill filed his 2024 tax return on March 15th, 2025. The statute of limitations for IRS assessment on Bill’s 2024 return:

A. March 15th, 2027
B. April 15, 2027
C. March 15th, 2028
D. April 15th, 2028

A

D. April 15th, 2028

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30
Q

Tax evasion is a legal activity that forms the basis of the basic tax planning strategies.

True or false

A

False

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31
Q

From AGI deductions are commonly referred to as deductions “______ the line.”

A. below
B. above
C. at
D. around

A

A. below

32
Q

Tax credits reduce taxable income dollar for dollar.

True or False

A

True

33
Q

The __________ of income is a factor in determining the rate at which the income is taxed.

A. placement
B. character
C. amount
D. style

A

B. character
AND
C. amount

34
Q

Which of the following series of inequalities is generally most accurate?

A. Gross income > or = to adjusted gross income > or = taxable income
B. Adjusted gross income > or = to gross income > or = to taxable income
C. Gross income > or = taxable income > or = to adjusted gross income
D. Adjusted gross income > or = to taxable income > or = to gross income

A
35
Q

All of the following are for AGI deduction except:

A. contributions to qualified retirement accounts
B. rental and royalty expenses
C. Business expenses for a self-employed taxpayer
D. charitable contributions

A

D. charitable contributions

36
Q

Which of the following is not an itemized deduction?

A. Real estate taxes
B. Medical expenses
C. Alimony paid
D. Gambling losses

A

C. Alimony paid

37
Q

What kind of deduction is the deduction for qualified business income?

A. A for AGI deduction
B. A from AGI deduction that is not an itemized deduction
C. A from AGI deduction that is an itemized deduction
D. None of the above

A

B. A from AGI deduction that is not an itemized deduction

38
Q

All of the following are tests for determining qualifying child status except the _____________.

A. gross income test
B. residence test
C. support test
D. age test

A

A. gross income test

39
Q

All of the following are tests for determining qualifying relative status except _________.

A. relationship test
B. gross income test
C. support test
D. residence test

A

D. residence test

40
Q

In June of Year 1, Edgar’s wife, Cathy, died, and Edgar did not remarry during the year. Year 1 filing status (no dependents)?

A. married filing joint
B. single
C. surviving spouse
D. head of household

A

A. married filing joint

41
Q

For filing status purposes, the taxpayer’s marital status is determined at what point during the year?

A. beginning of the year
B. end of the year
C. middle of the year
D. every day of the year

A

B. end of the year

42
Q

To calculate the amount realized on the sale of an asset, the proceeds are reduced by which of the following:

A. Tax basis of the property
B. Selling expenses
C. Gain realized
D. Both, tax basis of the property and selling expenses
D. All of the choices are correct

A

B. Selling expenses

43
Q

Curly donated inventory (ordinary income property) to a university. He purchases the inventory seven months ago for $10,000, and on the date of the gift, it had a fair market value of $2000. What is his maximum charitable contribution deduction for this donation if his AGI is $80,000?

A. $40,000
B. $2,000
C. $18,000
D. $10,000 if the university sells the inventory

A
44
Q

Geoff purchased a life annuity for $4800 that will provide him $100 monthly payments for as ling as he lives. Based on IRS tables, Geoff’s life expectancy is 240 months. How much of the first $100 payment will Geoff include in his gross income?

A. $100
B. $80
C. $48
D. $20
E. None of the choices are correct

A

B. $80

45
Q

The exclusion amount for a purchased fixed- term annuity can be calculated by dividing the cost of the annuity by the total number of payments.

True or false

A

True

46
Q

The cash method of accounting requires taxpayers to recognize income when they receive it in the form of cash, property or services.

True or false

A

True

47
Q

Gross income includes all realized income that is recognized during the year.

True or False

A

True

48
Q

Which of the following is a true statement?

A. A taxpayer cannot deduct medical expenses incurred for others unless they are members of his immediate family
B. A taxpayer can deduct medical expenses incurred for a qualified relative even if the relative does not meet the gross income test.
C. Deductible medical expenses typically include botox treatments and other cosmetic procedures incurred to enhance a taxpayer’s
D. Deductible medical expenses do not include long-term care services for disabled spouses and dependents
E. All of the choices are true

A

B. A taxpayer can deduct medical expenses incurred for a qualified relative even if the relative does not meet the gross income test.

49
Q

The deduction for cash charitable contributions for individuals taxpayers in 2024 is limited to twenty-five percent of the taxpayer’s AGI.

True or False

A

False

50
Q

Which of the following is a true statement?

A. The deduction for interest on educational loan is claimed as an itemized deduction
B. The deduction for the employer portion of self employment taxes is subject to a phase-out limitation
C. The deduction for interest on educational loans is subject to phase-out limitation
D. Taxpayers are allowed to deduct reasonable moving expenses if the expenses are not reimburses by their employers
E. All the choices are false

A

C. The deduction for interest on educational loans is subject to phase-out limitation

51
Q

Generally, a portion of each payment from a purchased annuity represents a return of capital.

True or False

A

True

52
Q

Which of the following is not an itemized deduction?

A. deduction for qualified business income
B. medical expenses
C. state income taxes
D. home mortgage interest expense
E. none of the choices is correct

A

A. deduction for qualified business income

53
Q

Filing status determines all except which of the following?

A. The AGI threshold for reduction in certain tax benefits
B. The amount of income used for the qualifying relative gross income test
C. The appropriate tax rate schedule or tax table
D. The applicable standard deduction amount

A

B. The amount of income used for the qualifying relative gross income test

54
Q

James invest $100,000 in a city of Athens bond that pays 8% interest. Alternatively, James could have invested the $100,000 in a bond recently issued by HighTech, Incorporated that pays 10% interest with similar risk as the city of Athens bond. Assume that James’s marginal tax rate is 25%. Which bond should James choose and why?

A. James should be indifferent between the two bonds
B. The HighTech, Incorporated bond because it earns a higher pre-tax rate of return
C. The city of Athens bond because it earns a higher after-tax rate of return
D. The HighTech, Incorporated bond because it earns a higher after-tax rate of return

A

C. The city of Athens bond because it earns a higher after-tax rate of return

55
Q

The gift tax is imposed on the fair market value of items transferred upon death.

True or false

A

false

56
Q

Mitch, a single taxpayer earns $110,000 in taxable income and $10,000 in interest from an investment in city of birmingham bonds. Using the US tax rate schedule for the year 2024. what is his average tax rate (rounded)?

A. 22.00%
B. 13.01%
C. 17.68%
D. 24.00%
E. None of the choices are correct

A

C. 17.68%

57
Q

Jackie’s return was selected for audit because she did not report her salary (from her Form W-2 from her employer) on her tax return. Which IRS program likely identified Jackie’s oversight?

A. DIF system,
B. Document perfection
C. Information matching
D. Mathematical correction

A

C. Information matching

58
Q

In May of year 1, Donny left his wife Juliette. While the couple was apart, they were not legally divorced. Juliette found herself having to financially provide for the couple’s only child (6 years of age) and to oay all the costs of maintaining the household. When Juliette filed her tax return for year 1, she filed a return separate from Donny. What is Juliette’s most favorable filing status for year 1?

A. Married filing separately
B. head of household
C. qualifying surviving spouse
D. single

A

B. head of household

59
Q

What is not considered a primary authority?

A. Supreme Court Cases
B. Tax Law Review Article
C. Regulation
D. Internal Revenue Code
E. None of these choices is correct

A

B. Tax Law Review Article

60
Q

A textbook is an example of a primary authority

true or false

A

False

61
Q

The statements in standards fir Tax Services (SSTS) and Code of Professional Conduct provide professional standards for tax professionals and were issued by which of the following organizations?

A. Congress
B. IRS
C. AICPA
D. US Treasury

A

C. AICPA

62
Q

The estate of Monique Chablis earned $730 of income this year. Is the estate required to file an income tax return?

A. Yes, because the estate’s gross income is more than $600, the estate is required to file an income tax return
B. No, the estate is exempted from filing an income tax return
C. No, because the estate’s gross income is less than $600, the estate is not required to file an income tax return.
D. Yes, the estate has to file am income tax return irrespective of its income

A

A. Yes, because the estate’s gross income is more than $600, the estate is required to file an income tax return

63
Q

Jamarcus, a full-time student, earned $3,100 this year from a summer job. He had no other income this year and will have zero federal income tax liability this year. His employer withheld $341 of federal income tax from his summer pay. Is Jamarcus required to file a tax return? Should Jamarcus file a tax return?

A. He is required to file an income tax return regardless of income and should file a tax return
B. He is required to file an income tax return regardless of income and should file a tax return
C. He is not required to file an income tax return because his gross income of $3100 is well below the gross income threshold for a single taxpayer ($14600 for 2024). He should still file a tax return to receive a refund of the $341 previously withheld

A

C. He is not required to file an income tax return because his gross income of $3100 is well below the gross income threshold for a single taxpayer ($14600 for 2024). He should still file a tax return to receive a refund of the $341 previously withheld

64
Q

Shane has never filed a tax return despite earning excessive sums of money as a gambler. When does the statute of limitations expire for the years in which Shane has not file a tax return?

A. The statute of limitations expires 5 years from the due date of when the tax return should have been filed.
B. The statute of limitations expires 3 years from the due date of when the tax return should have been filed.
C. The statute of limitations does not apply since Shane has not filed a tax return.
D. The statute of limitations remains open indefinitely for years in which the taxpayer fails to file a return.

A

D. The statute of limitations remains open indefinitely for years in which the taxpayer fails to file a return.

65
Q

Latoya filed her tax return on February 10th this year. When will the statute of limitations expire for this tax return?

A. 3 years from April 15th
B. 3 years from February 10th
C. 6 years from February 10th
D. 6 years from April 15th

A

A. 3 years from April 15th

66
Q

Latoya filed her tax return on February 10 this year.

When will the statute of limitations expire for this tax return if Latoya understated her income by 40 percent?

A

6 years from April 15th

67
Q

Latoya filed her tax return on February 10 this year.

How would your answer change if Latoya intentionally failed to report as taxable income any cash payments she received from her clients?

A

Indefinitely

68
Q

Paula could not reach an agreement with the IRS at her appeals conference and has just received a 90-day letter. If she wants to litigate the issue but does not have sufficient cash to pay the proposed deficiency, what is her best court choice?
A. U.S. Supreme Court
B. U.S. Court of Federal Claims
C. U.S. District Court
D. U.S. Tax Court

A

D. U.S. Tax Court

69
Q

Sophia recently won a tax case litigated in the 7th Circuit. She has just heard that the Supreme Court denied the writ of certiorari. Should she be happy or not, and why?

A. Sophia should feel happy as the denial of the writ of certiorari means the 7th Circuit ruling stands.
B. Sophia should feel sad as the Supreme Course has made the 7th Circuit’s ruling void.
C. Sophia should feel happy as the 7th Circuit’s ruling is void.
D. Sophia should feel sad as the 7th Circuit’s ruling is final.

A

A. Sophia should feel happy as the denial of the writ of certiorari means the 7th Circuit ruling stands.

70
Q

Juanita, a Texas resident (5th Circuit), is researching a tax question and finds a 5th Circuit case ruling that is favorable and a 9th Circuit case that is unfavorable. Which circuit case has more “authoritative weight”?

A. 6th Circuit
B. 5th Circuit
C. 9th Circuit
D. 11th Circuit

A

B. 5th Circuit

71
Q

Faith, a resident of Florida (11th Circuit), recently found a circuit court case that is favorable to her research question. Which two circuits would she prefer to have issued the opinion?

A. 9th Circuit or Federal Circuit
B. 6th Circuit or Federal Circuit
C. 5th Circuit or Federal Circuit
D. 11th Circuit or Federal Circuit

A

D. 11th Circuit or Federal Circuit

72
Q

Robert has found a “favorable” authority directly on point for his tax question.

If the authority is a court case, which court would he prefer to have issued the opinion?

A

US Supreme Court

73
Q

Robert has found a “favorable” authority directly on point for his tax question.

Which court would he least prefer to have issued the opinion?

A

US District Courts in other jurisdictions

74
Q

For each of the following citations, identify the type of authority (statutory, administrative, or judicial).

A. Reg. Section 1.111-1(b)
B. Section 469(c)(7)(B)(i)
C. Revenue Rule 82-204, 1982-2 C.B. 192
D. Amdahl Corporation, 108 TC 507 (1997)
E. PLR 9727004
F. Hills v. Comm’r, 50 AFTR2d 82-6070 (11th Circuit., 1982)

A

A. Administrative
B. Statutory
C. Admin
D. Judicial
E. Admin
F. Judicial

75
Q

For each of the following citations, identify the type of authority (statutory, administrative, or judicial).

A. Section 280A(c)(5)
B. Revenue Procedure 2004-34, 2004-1 C.B. 911
C. Lakewood Associates, RIA TC Memo 95-3566.
D. TAM 200427004
E. United States v. Muncy, 2008-2 USTC paragraph 50,449 (Eastern District Arkansas 2008)

A

A. statutory
B. admin
C. judicial
D. admin
E. judicial

ACCT 3221 (11 decks)

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