Income Tax Flashcards
0
Q
Which amendment to the Constitution provides basically legal authority for imposition of federal income tax
A
16th amendment
1
Q
What are the four basic functions of income tax
A
Revenue projection, economic, social, or regulatory
2
Q
What are the three Central branches of government
A
Legislative executive and judicial
3
Q
What does the legislative branch do?
A
Taxation must be based on statutes. Congress enacts federal tax laws
4
Q
What does the executive branch do
A
The president of the United States as chief executive branch delegates his authority for the enforcement of tax laws to the Department of treasury. The treasury in turn, delegates most of its authority in the federal tax area to the internal revenue service.
5
Q
Private rulings
A
Interpretation of an uncertain point of law that arises when a taxpayer requests in and administrative interpretation
6
Q
Revenue rulings
A
IRS interpretation of an uncertain point of based on the stated set of facts that usually involve a problem comment to a number of taxpayers
7
Q
Statutory notice of deficiency
A
Legal notice issued by the commissioner of internal revenue if no agreement is reached between a taxpayer and appeals following an income tax audit
8
Q
Tax court
A
Text payers may not receive a jury trial but have their cases heard without prepayment of an assessed deficiency
9
Q
US District Court
A
A jury trial is available but taxpayer must prepay the assessed deficiency and then sue for refund
10
Q
Supreme Court
A
The “law the land” and can only be changed if the Supreme Court reverses itself or if Congress enacts a statute in contravention to the Supreme Court decision
11
Q
Gross income
A
Anything a taxpayer receives that is economically considered income and is subject to taxation unless there is a provision in the Internal Revenue Code that says otherwise
12
Q
Constructive receipt doctrine
A
Doctrine concerning the issue of women item of income taxed. It deals with techniques that taxpayers me used to attempt to do for taxation of income for later year
13
Q
Economic benefit theory
A
The issue of what items are subject to taxation. It provides that income may be taxed even in the cases when that tax payer does not actually receive it, so long as the taxpayer has current, real, and measurable rights to receive something of value
14
Q
Assignment of income
A
The issue of two items of income our text. The concept of “the fruit and the tree” discussed in the text is a significant illustration of this doctrine. Basically the taxpayer who owns the “tree” the asset that generates the income, is taxable on the “fruit” the income generated by the asset
15
Q
US Court of Federal claims
A
Appeals from decisions for this court or take into the Court of Appeals for the Federal Circuit
16
Q
Kiddie tax
A
A text law that prevents families from shifting large amounts of unearned income to children and making the shift effective for income tax purposes; applies to the night unearned income of children under specific age
17
Q
Below – the – line deductions
A
Deductions taken from adjusted gross income in determining taxable income
18
Q
Phaseout
A
A provision of tax law that gradually takes away a beneficial tax provision as the taxpayers income increases; Reduction in tax benefits including personal and dependency exemptions and deductions do the taxpayers AGI exceeding certain specified limits
19
Q
Above – the – line deductions
A
Deductions taken from gross income in determining adjusted gross income
19
Q
Head of household
A
Filing status allowed for “unmarried couldn’t text Bears meeting specified marital status, household, and qualifying person requirements
19
Q
Taxable income
A
For individuals, adjusted gross income minus itemize deductions and personal exemptions
19
Q
Adjusted gross income (AGI)
A
Gross income minus all allowable above the line deductions
20
Q
Standard deduction
A
Specified amount indexed annually for inflation that may be cleaned in calculating taxable income by taxpayers who do not itemize their deductions
21
Steps in the tax research process
```
One establish facts
Two determine tax issues
three Loki authority
Four determine appropriate conclusion
five communicate results
six follow up
```
22
Tax legislation process
All revenue bills begin with the House of Representatives then House Ways and Means Committee take an amended bill to the house for adoption and then bills adopted by Senate finance committee then forwarded to the Senate for passage; A joint conference develops a compromise version then compromise version is passed by both houses finally the legislation is sent to the president to be signed into law
23
Tax formula for individuals
Income minus exclusions equals gross income minus above the line deductions for AGI equal AGI; then AGI minus itemized deductions or standard deduction minus personal and dependency exemptions equals taxable income
24
Deductions from AGI
Alimony
Trade or business of a self-employed person
Property held for production of encumbrance royalties
Losses on sale or exchange of property
Reimbursed and unreimbursed employee business expenses
Moving expenses
Medical expenses
State and local income and property tax
Interest on primary or secondary residence
Charitable contributions
25
Deductions cut back
Applies when AGI exceeds specified amount adjusted annually for inflation beginning
That's only very high taxpayers
No more than 80% of affected itemized deductions can be lost
That does not apply to medical gambling losses investment interest ductions and casualty theft losses (magic)
26
AGI limits individual itemized deductions
Medical expenses 10% most
Casualty and theft losses 10%
Miscellaneous item my deductions 2% for most
27
Text shifting techniques and stopper laws
Special rules for using standard deductions prevent these planning techniques:
One spouse takes all itemized deductions and filed married filing separately other spouse take standard deduction
Child claimed as a dependent on parents return has unearned income and takes full standard deduction
Special rules on exemption prevents parents from taking dependency exemptions for child while the child files tax return and claims an exemption for him or herself
Kiddie tax restricts parents from shifting income to children who are in a lower tax bracket
28
Special rules for exemption in the standard deduction
Taxpayers not eligible to use the standard deduction:
Person who files married filing separately if spouse itemizes another return
Nonresident aliens
29
When to file
Individuals partnerships by 4th month, 15th
Automatic six-month extension with form 4868
Corporations by 3rd month, 15th day
30
Alimony payments
Must meet tax definition in order to be deductible by the payer.
If they are deductible they are correspondingly includable in gross income of the payee
It is important to understand front loading rules
31
Above the line deductions
Deductions taken from gross income in determining adjusted gross income
32
Accelerated cost recovery system
Applies to depreciable assets placed in service between January 1 1981 and December 31, 1986 for determining the recovery of investment capital for income tax purposes
33
Accumulated earnings tax
A tax imposed on corporation that is formed are used for the purpose of avoiding personal income tax with respect to shareholders by permitting earnings and profits to accumulate instead of being distributed. It is designed to tax only earnings retain be on the reasonable needs of the business
34
ACE adjustment
| Adjusted current earnings
Gross income minus all allowable above the line deductions
35
Acquisition indebtedness
Any indebtedness that is incurred in acquiring constructing or substantially improving a qualified residents that is secured by such residence
36
Activities of daily living ADLs
Personal care activities that include eating toileting transferring bathing dressing and Continence. An individual's ability to perform these activities is relevant in determining whether long-term care expenses are qualified for income tax purposes
37
Adjusted basis
The original basis in the property for income tax purposes minus depreciation plus capital expense
38
Adjusted gross income AGI
Gross income minus all Allowable above the line deductions
39
Aggregate theory
The theory of partnership taxation in which a partnership is considered and An aggregate of individual owners who have bound themselves together with the intention of sharing gains and losses; under this theory the partnership itself has no existence separate and apart from its members
40
Alternative minimum tax AMT
Separate and parallel method of calculating income tax liability. The purpose of this method is to prevent taxpayer from reducing his tax liability below reasonable levels
41
Alternative minimum taxable income AMTI
The amount of the taxpayers income subject to the alternative minimum tax. The taxpayers regular income is starting point then adjustments are made to reflect the special rules
42
American opportunity tax credit
And income tax credit that applies on a per student basis for certain higher education expenses for the first four year of the students post secondary education
43
Amortization
The cost recovery of an intangible asset over the lifetime of that asset for income tax and or bookkeeping income purpose; similar to the depreciation on tangible assets
44
Amount realized
Value of all the property received in exchange for the property transferred in the sale exchange
45
Annuity
A systematic liquidation of a sum of money, including a principal amount and interest element, over either. Of time determined by reference to the life expectancy of one or more individuals were a fixed period of time
46
Assignment of income
A principle that requires a taxpayer who's personal efforts generate income or who is the owner of the property that generates income to include the income on his or her own tax return. The issue under this principle is not what income is taxable or when it is taxable but to whom it is taxable
47
Associated with requirement
A requirement for the deduction of business entertainment expenses involving entertainment that directly proceeds are follows a bona fide business discussion
48
Attribution of stock ownership
Means that stock owned by one individual or entity is considered to be owned by another individual or entity for the purpose of determining how a particular transaction is taxed
49
Bad debt
For income tax purposes for which there is no longer a reasonable expectation of repayment. Such a debt is considered to be worthless and they give rise to a deduction for the creditor
50
Basis
The amount which determines the taxpayers capital investment property for income tax purposes
51
Basis step up
He change in the adjusted basis in the property want to taxpayer acquires the property through the descendants the estate to Fair market value
52
Below the line deductions
Deductions taken from adjusted gross income in determining taxable income
53
Book income
A calculation of income for accounting purposes that is computed somewhat differently than the calculation of income for tax
54
Boot property
Cash or other property that is not property of like kind and that is included in a like kind exchange
55
C corporation
A regular corporation for income tax purposes, as distinguished from an S Corporation
56
Capital asset
Any property the taxpayer cones, whether or not connected with the business activity, with some exceptions such as inventory of copyright depreciable or real property used in the taxpayers trad or business
57
Capital expenditure
An investment property, as distinguished from an expense for maintenance
58
Capital gain property
For purposes of charitable contribution deduction, property that taxpayer has held for more than 12 months as of the day the property is contributed
62
Above – the – line deductions
Deductions taken from gross income in determining adjusted gross income
63
Head of household
Filing status allowed for "unmarried couldn't text Bears meeting specified marital status, household, and qualifying person requirements
64
Taxable income
For individuals, adjusted gross income minus itemize deductions and personal exemptions
65
Adjusted gross income (AGI)
Gross income minus all allowable above the line deductions
66
Standard deduction
Specified amount indexed annually for inflation that may be cleaned in calculating taxable income by taxpayers who do not itemize their deductions
67
Steps in the tax research process
```
One establish facts
Two determine tax issues
three Loki authority
Four determine appropriate conclusion
five communicate results
six follow up
```
68
Above – the – line deductions
Deductions taken from gross income in determining adjusted gross income
69
Head of household
Filing status allowed for "unmarried couldn't text Bears meeting specified marital status, household, and qualifying person requirements
70
Taxable income
For individuals, adjusted gross income minus itemize deductions and personal exemptions
71
Adjusted gross income (AGI)
Gross income minus all allowable above the line deductions
72
Standard deduction
Specified amount indexed annually for inflation that may be cleaned in calculating taxable income by taxpayers who do not itemize their deductions
73
Steps in the tax research process
```
One establish facts
Two determine tax issues
three Loki authority
Four determine appropriate conclusion
five communicate results
six follow up
```
74
Above – the – line deductions
Deductions taken from gross income in determining adjusted gross income
75
Head of household
Filing status allowed for "unmarried couldn't text Bears meeting specified marital status, household, and qualifying person requirements
76
Taxable income
For individuals, adjusted gross income minus itemize deductions and personal exemptions
77
Adjusted gross income (AGI)
Gross income minus all allowable above the line deductions
78
Standard deduction
Specified amount indexed annually for inflation that may be cleaned in calculating taxable income by taxpayers who do not itemize their deductions
79
Steps in the tax research process
```
One establish facts
Two determine tax issues
three Loki authority
Four determine appropriate conclusion
five communicate results
six follow up
```
80
Casualty loss
Damage distraction or loss occurring from a taxpayers property as a result of such unusual or unexpected cause: firestorms shipwrecks etc. are examples of events
81
Centralized management
Type of management that exists in a business entity if the operating authority is concentrated in a man management group legally distinct from the owners, as typically found in corporations, as opposed to sharing of management decisions among owners, typically found in partnerships
82
Charitable remainder annuity trust
A trust designed to permit payment of a fixed amount annually to a noncharitable, income, beneficiary with the remainder going to charity
83
Chronically ill person
For the purpose of tax rules for long term expenses, an individual unable to perform at least two activities of daily living for at least 90 days
84
Close corporation
The corporation that has no shares of it stocks available for purchase by or in the hands of the general public
85
Collectible capital asset
A classification of assets for purposes of determining the tax rate on capital gains and includes works of art, rugs, antiques, stamps or coins, precious metals, and certain alcohol beverage
86
Contingent beneficiary
With respect to life insurance policy, the person who will receive the death proceeds of the policy of the primary beneficiary does not survive the insured
87
Continuity of life
A corporate characteristic meaning the death, disability, incapacity, edition of the new shareholder, or withdrawal of an old shareholder will not cause legal dissolution of the corporate entity
88
What have congress the right to tax?
16th amendment March 1913
89
Which of the following statements concerning a taxpayer who wishes to contest a statutory notice of deficiency assessed against him is correct?
A he may petition for a jury trial in the US Court of Federal claims without prepaying the deficiency
B he may petition the US cortex court to hear his case about prepaying the deficiency but is not entitled to a jury trial
C He may file a petition to have his case heard before a jury in the US District Court without prepaying the deficiency
D he may petition for jury trial on the US Tax Court without prepaying the deficiency
Be the text Cory is the only court that will hear text case without prior payment of the assessed deficiency
90
Which of the following courts me a text pair petition for redemption of an assessed income tax efficiency and receive a jury trial?
A US District Court
B The Court of Appeals for the Federal Circuit
C US Court of Federal claims
D US tax court
A the US District Court is the only court in which a tax payer have a jury trial in a civil tax case
91
```
Which of the following statements correctly describes the function of the federal income tax system? I dot it can be used to reduce inflationary trends. I I dot he can be used to encourage economic activity at the taxpayer level
A I only
B II
c I and II
D neither
```
C both I and I I are correct
92
```
Which of the following statements concerning sources of tax law are correct? I dot the iris is bound to follow a decision of the Tax Court and subsequent cases involving the same issue. II. Hey two thirds majority of both houses of Congress is needed to override the presidents Veto of the tax bill
A I only
B II only
C both
D neither
```
B
93
```
A US Supreme Court interpretation of tax laws the law of the land until which of the following happens? I. Congress and Enacts a new statute tantamount to turn overturning a court decision II. The court overrides its own prior decision
A I only
B II only
C both
D neither
```
C both I and Ii correct
94
All the following statements concerning the private rulings issued by the IRS are correct except
A they are published and made available to the public
B they are issued at the request of an individual taxpayer
C they are binding upon the IRS only for the particular case in point
D they can be used as precedents by taxpayers in general
D
95
Which of the following concert statements concerning treasury actions related to federal income taxation is correct?
A treasury regulations have often been overturned by courts
B went to court hold the treasury regulation invalid, the IRS may not continue to enforce the regulation against other taxpayers until it's rewritten
C unlike treasury regulations, revenue rulings are not binding and IRS officials
D determination letters are not used about unclear points a laws
D
96
All of the following statements concerning income tax compliance are correct except
A if I taxpayer disagrees with the IRS agents conclusions following initial income tax audit, the taxpayer may request a hearing before the IRS appeals organization
B if no agreement is reached with the appeals organization, statutory notice of deficiency is issued by the commissioner of the internal review
C following completion of the appeals process the taxpayers only option is to pay the text deficiency and then file a claim for refund with the US District Court
D no text need to be paid in advance for cases to be litigated in the US court
C
97
All of the following statements concerning The federal income tax system are correct except
A Federal taxation must proceed from a statutory origin
B Congress the next federal income tax law that is now compiled in the Internal Revenue Code
C. The internal revenue code provides for the treasury department to prescribe rules and regulations needed for the enforcement of the code
D any disputes between taxpayers and IRS are ultimately settled by the US Tax Court
D
98
```
Which of the following items would be considered constructively received in the current year by a cash basis taxpayer? I interest earned from reinvestment of insurance policy dividends that are left with an insurance company II. Income from work performed that has been billed but will not be received until the next year
A I only
B II only
C both
D neither
```
A
99
At the time of occurrence, which of the following events will require recognition of $1000 of gross income by the taxpayer?
I taxpayer receives $1000 in cash from his mother for his birthday. II. Creditor cancels the taxpayer debt of $1000
A I only
B II only
C both
D neither
B
100
```
Which of the following statements concerning the doctrine of constructive receipt is correct? I. The taxpayer has constructively received income when it is credited to his account without restrictions. II. It is inapplicable to individual taxpayers who reported to income on cash basis
A I only
B II only
C both
D neither
```
A
101
```
Which of the following is the correct term for income that is subtracted from an individual text payers total income realized during the tax year to determine the taxpayers gross income?
A deduction
B exclusion
C exemption
D tax credit
```
B
102
```
Which of the following statements concerning how the principle of assignment of income operates is correct? I. Income that is generated by the performance of personal services this text to the person who perform the services. II. income generated per property is text to the taxpayer who owns the property
A I only
B II only
c both
D neither
```
C both
103
Johnson makes a $500,000 building available five nights a week at no charge to the local Boy Scout council. Which of the following statements correctly describes how old the use of Johnson's property will be treated for purposes of the charitable contribution deduction?
A Johnson has a charitable just deduction equal to the fair market value the property
B Johnson has no deduction for rent free occupancy
C Johnson has a charitable deduction equal to the value of the rent preoccupancy but limited to 30% of his adjusted gross income
D Johnson has a charitable come deduction equal to the value of the rent preoccupancy but limited to 50% of his adjusted gross income
B
104
Which of the following statements concerning elements of personal income taxes correct?
A The personal exemption amount is a fixed amount not indexed for inflation
B The kitty text applies to earned income of children under specific age
C Single taxpayers receive the highest standard deduction amount
D The range of taxable income over which specific tax brackets will be applied depends on the filing status of the particular taxpayer
D
105
Which of the following is an ordinary and necessary deductible business expense or Bob, life insurance agent?
A The tuition fee for the two CLU courses he's taking towards the CLU designation
B entire amount of his home telephone bill since he often so it's up appointment from home
C premiums for his homeowners insurance
D The cost to communing to his office
A
106
```
And employer maintains a group term life insurance plan for some ploys. Anon key employee, age 60, is provided with 100,000 worth of coverage. Using the uniform premium table I, the cost of $1000 of production per month in his age bracket and $.66. If the employee contributes $200 annually towards the cost of coverage, one amount will be included in the employees person come?
A zero dollars
B $196
C $396
D $792
```
B
107
They Forster has the following selected information concerning her interest expenses investment income for this year:
Interesting come from corporate bonds equal to $5000
Dividend income not eligible for the maximum tax rates On qualifying dividends of $10,000
Interest paid acquire common stock portfolio $18,000
Interesting come from public purpose municipal bonds of $4000
Interest paid to choir the municipal bonds of $2000
Qualified residence interest paid on principal residence of $10,000
Based on the above information the total amount that faith interest deductions for the year would be:
A $15,000
B $25,000
C $28,000
D $29,000
B she has $18,000 of interest expense, however only 15,000 investment income. Therefore this 15,000+10,000 for mortgage interest is a grand total of $25,000.
108
Which of the following statements concerning the deductibility of the bad debt is correct?
A if the father guarantees his daughters bank loan and she defaults, the father is entitled to a business bed that deduction
B under certain circumstances a bad debt deduction may be available even if a legal debt does Not exist
C a deduction for partial worthlessness of a debt is allowed
D A nonbusiness bad that can be deductible only as a short-term capital loss
D
109
Who writes treasury regulations?
Not by treasury, written by IRS and approved by treasury
