Individual Taxation

Question 1

Includes all income from whatever source derived, unless specifically excluded
Must be:
-realized
-recognized

Answer 1

Gross Income

Question 2

Income items which are not inlcuded in gross income, as specified by law—may be taxed under other tax rules, but excluded from income tax

Answer 2

Exclusions

Question 3

Amounts that are subtracted from income to arrive at adjusted gross income or taxable income

Answer 3

Deductions

Question 4

Amounts deducted from gross income to arrive at adjusted gross incomde

Answer 4

“Above the line” deductions

Question 5

Amounts deducted from adjusted gross income to arrive attaxable income

Answer 5

Itemized deductions (“below the line deductions”)

Question 6

Amounts subtractedfrom the computed tax to arrive at taxes payable

Answer 6

credits

Question 7

An employer-sponsored benefit package that offers employees a choice between taking cash and receiving qualified benefits, of which they can pick and choose

Answer 7

“cafeteria plan”

Question 8

Refers to a taxpayer’s annual accounting period (period that the taxpayer uses to compute income in keeping his books)

Answer 8

Taxable year

Question 9

A period of 12 months ending on December 31–must be used if a taxpayer doesn no keep books (ex. most people)

Answer 9

Calander Year

Question 10

A period of 12 months ending on the last day of a month other than december

Answer 10

Fiscal year

Question 11

Annual period always ending on the same day of the week (i.e. last Sundy of a month)

Answer 11

52-53 week year end

Question 12

Accounting method htat recognizes income when first received or constructively received; expensea re deductible when paid

Answer 12

Cash method

Question 13

Method of accounting in which income is recognized when “all events” have occurred that fix the taxpayer’s right to receive the item of income and the amount canbe determined with reasonable accuracy and same for expenses

Answer 13

Accrual method

Question 14

Accounting method that applies to gains (NOT losses) from the disposition of prperty whereat least one payment is to be receiveda fter the eyar of hte sale; CANNOT be used for property held for sale in the ordinary course of business or for sales of securities traded on established markets

Answer 14

Installment method

Question 15

In an installment payment, the selling price reducedby the seller’s liabilities that raassumed by the buyer, to the extent not in excess of the seller’s basis in theproperty

Answer 15

Contract price

Question 16

Accounting method that can be used for contracts thatare not completed within the year they are started–taxpayer may elect nto to recognize income/costs from a contract for a tax year if less than 10% of the estimated total contract costs have been incurred as of the end of hte year

Answer 16

Percentage of completion method

Question 17

Rule that requires that all costs incurred (both direct and indirect) in manufacturing or constructing real or personal property, or in purchasing or holding property for sale, must be capitalized as part of the cost of the property–*Do not apply to “small retailers or wholesalers” who acquire personal property for reseale if hte retailer’s average annual gross receipts for 3 preceding years do not exceed $10 mil

Answer 17

Uniform capitalizaiton rules (UNICAP)

Question 18

A bad debt that is incurred in the trade or business of hte lender–is deductible against ordinary income and deductions are allowed for partial worthless

Answer 18

Business baddebt

Question 19

A bad debt not incurred in trade or business that can only be deducted if it is totally worthless (not partially) and is treated as a short-term capital loss

Answer 19

Non-business bad debt

Question 20

Generally considered a business loss, but may occur even if an idnividual is not engaged in a separate trade or business (i.e. due to a personal casualty loss)
–may be carried back 2 years and carried forward 20 years to offset taxable income in those years

Answer 20

Net Operating Loss (NOL)

Question 21

An incorporated service business with more than 10% of its stock owned by shareholder-employees

Answer 21

Personal service corporation

Question 22

Any activity that involves the conduct of a trade or business in which the taxpayer does “not materially participate”, any rental activity, and any limited partnership interest

Answer 22

Passive activity–losses from these activities may only be deducted against income from other passive activities, with the remainder being carried forward indefinitely

Question 23

A special rule permits losses from passive activities of this type to offset up to $25,000 of income that is NOT from passive activities if the individual actively participates in this activity

Answer 23

Rental real estate –$25,000 reduced by 50% of AGI in excess of 100,000

Question 24

Includes all property other than land, intangible assets, and property the taxpayer lects t odepreciate under a method not expressed in terms of years (i.e. units of production)

Answer 24

Recovery property

Question 25

A depreciation method that provides for straight-line depreciation over hte property’s ADS class life, and MUST be used for:

• foreign use property
• property used 50% or more for personal use
• For purposes of computing earnings and profits

Answer 25

Alternative Depreciation system (ADS)

Question 26

Depreciation method used for personal property in the year acquired and disposed of

Answer 26

Half-year convention

Question 27

Additional depreciation equal to 50% of the adjusted basis of qualified property that is avalable for qualifying property acquired after December 31 2007 and PLACED IN SERVICE before Jan 1, 2013

Answer 27

Bonus (additional first-year) depreciation

Question 28

Property eligible for Bonusdepreciation that includes MACRS proeprty with a recovery period of 20 years or less (most tangible personal property), off-the shelf computer softward and qualified leasehold property

Answer 28

Qualified property

Question 29

Allos a taxpayer (other than a trust or estate) to annually elect to treat the cost of qualifying depreciable property as an expense rather than a capital expenditure

Answer 29

Sec. 179 expense election

Question 30

Consists of qualified leasehold improvements, qualified restaurant property, and qualifeid retail improvement property

Answer 30

Qualified real property—may use Sec. 179 expense election

Question 31

Allows for most acquired intangible assets to be amortized over a 15-year period, beginning with the month it’s acquired–and includes any qualifiying intangible asset which is acquired by thetaxpayer, and held in connection with the conduct of a trade or business

Answer 31

Sec. 197 intangibles

Question 32

A retirement plan for self-employed individuals that limits maximum contribution and dudections to the lesser of $50,000 or 100% of earned income

Answer 32

H.R.-10 or Keogh Plan

Question 33

Deductions that reduced adjusted gross income; “below the line” deductions

Answer 33

itemized deductions–will elect these only if total itemized deductiosnexceed applicable tandard deduction that is available to the taxpayer

Question 34

Interest paid or acrued on acquisition indebtedness or home equity indebtedness secured by a security interest perfected under local law on the taxpayer’s principal residence or a second residence owned by the taxpayer

Answer 34

Qualified residence interest

Question 35

Interest on loans secured by the residence used to acquire, construct, or substnatilly improve hte loan–deductible up to $1M

Answer 35

Acquisition indebtedness

Question 36

Interest of loans secured by the residence (other than acquisition indebtedness) regardless of how the loan proceeds are spent–deductible up to $100k

Answer 36

Home equity indebtedness

Question 37

Interst paid or accrued on indebtedness properly allocable to property held for investment—deductible up to amount of investment income

Answer 37

Investment interest

Question 38

An agreement that may be used in determining qualifying relative if no one person furnishes more than 50% of the support–if one person furnishes more than 10% of the support, and gets all other supporters to sign a written agreeement that they will not also claim the deduction, will be able to claim the deduction

Answer 38

Multiple support agreement

Question 39

A refundable tax credit for low-income workers

Answer 39

Earned income credit

Question 40

The 3 courts that a taxpayer may begin tax litigation

Answer 40

1) US Tax court
2) US district courts
3) US court of Federal claims

Question 41

A court of national jurisdiction that hears only tax cases; composed of 19 judges who are specialists in the tax area
Major advantage: taxes do not need to be paid before hearing, but jury trial not available

Answer 41

Tax court

Question 42

A policy adopted by the IRS for regular Tax Court deicsions that it loses in which the IRS will follow the decision in future situations, involving similar facts and issues

Answer 42

Acquiescience policy

Question 43

A policy adopted by the IRS for regular Tax Court decisions when it loses in which the IRS does not expect to follow the decisiona nd can be excpected to litigate in sutations involving simialr facts and issues

Answer 43

Nonacquiescence policy

Question 44

Rule that states that the Tax Court will follow the law of he circuit to which a case is appealable

Answer 44

Golsen Rule

Question 45

A taxpayer may make a claim in this court if the disputed amount is less than $50,000

Answer 45

Small Tax Case Division

Question 46

An indepndent court in each state that hears all types of cases and is the only court in which a jury trial is available; but, taxpayers have to first pay the disputed amount

Answer 46

US district court

Question 47

A court of national jurisdiction in which a jury trial is not available and taxpayers must first pay tax and then file suit for refund

Answer 47

US Court of Federal Claims

Question 48

Lower court decisions are appealable to this court

Answer 48

Circuit Court of appeals

Question 49

Where appeals made to decisions made by Appelate Courts appeal to

Answer 49

US Supreme Court

Question 50

A penalty of 20% if the underpayment of tax is attributable to at least one:

1) negligence or disregard of rules
2) substantial understatement of income tax
3) substantial valuation overstatement
4) substantial overstatement of pension liabilities
5) substantial gift or estate tax valuation understatement

Answer 50

Accuracy related penalty

Question 51

A tax penalty that applies to any careless, reckless, or intentional disregard of rules or regulations and any failure to make a reasonable attempt to comply with the provisions of hte tax law

Answer 51

Negligence penalty

Question 52

A penalty that pplies if hte understatement exceeds the greater of:

1) 10% of taxes due
2) $5,000

Answer 52

Substantial understatement of income tax penalty

Question 53

Penalty that may be imposed if the value of property stated on the return is 150% or more of the amount correct

Answer 53

Substantial valuation misstatement penalty

Question 54

Tax penalty that applies if the amount of stated pension liabilities is 200% or more of hte amount determined to be correct; not applicalbe if underpayment is <$1,000

Answer 54

Substantial overstatement of pension liabilities penalty

Question 55

Penalty that applies if the value of property on a gift or estate return is 50% or less of the amount correct

Answer 55

Gift or estate tax valuation misstatement penalty

Question 56

Penalty that results if taxpayer failts to disclose a listed transaction wit a significatn tax avloidance purpose of 30% penalty (20% if there was disclosure)

Answer 56

Tax shelter penalty

Question 57

A penalty of 75% of the portion of underpayment attributate to fraud

Answer 57

Cival fraud penalty