Tax Final Flashcards
1
Q
Largest collections each year come from what type of tax?
A
Personal Income Tax
2
Q
What types of taxes were common prior to the revolutionary war?
A
Taxes on goods such as Sugar, Molasses, and other goods. These taxes are called excise taxes and are incurred with the purchase of a product.
3
Q
Who do letter rulings apply to?
A
Private letter rulings. is a written statement issued to a taxpayer that interprets and applies tax law to the taxpayer’s represented set of facts. Written in response to a request submitted by the taxpayer. Cannot be relied upon as precedent by other taxpayers or by IRS personnel. Applies to taxpayer who submitted the request only.
4
Q
Which tax court has a jury trail?
A
U.S. District Court
5
Q
Which courts can you appeal from?
A
The US Tax Court, The Us Court of Federal Claims, US District Court
6
Q
What is the first primary source of tax law?
A
Internal Revenue Code
7
Q
What kind of source is the Internal Revenue Code
A
Statutory Source
8
Q
What is the second primary source of tax laws?
A
Administrative sources.
9
Q
What are some types of administrative sources of tax law?
A
Regulations (proposed, temporary, final), revenue rulings, revenue procedures, private letter rulings. Determination letters and technical advice memorandums.
10
Q
What is the third primary source of tax law?
A
Judicial Sources
11
Q
Is payment of tax required for the U.S tax court
A
No
12
Q
T/F The small tax court division handles deficiencies under 25,000 at the taxpayers request, but there are no appeal rights
A
False, there are no appeal rights but the deficiencies handled are under 50,000 rather than 25,000.
13
Q
T/F The U.S Court of Federal Claims sits only in Washington DC
A
True.
14
Q
T/F Tax deficiencies do not have to be paid in order to proceed in U.S Court of Federal Claims
A
False, must be paid in order to proceed
15
Q
Where does the US Court of Federal Claims appeal to?
A
Appeals to US Court of Appeals for the Federal Circuit.
16
Q
T/F Tax deficiencies must be paid to proceed in US District Court
A
True.
17
Q
T/F The US Tax Court is the only forum which allows a jury trial.
A
False, the US District Court is the only court which allows trail by jury.
18
Q
T/F The District Court is not bound by decisions of its Appeals Court and the US Supreme Court.
A
False the US District Court is bound by decisions of its Appeals Court and the US Supreme Court.
19
Q
T/F There are 10 Circuit Courts, located throughout the United States.
A
False there are 12 circuit courts located throughout the united states.
20
Q
T/F The US Court of Appeals Handles appeals from Tax Court and District Courts.
A
True
21
Q
T/F Decisions of the US Supreme Court are binding on taxpayers and the IRS
A
True.
22
Q
What is the statute of limitations for assessment of deficiency?
A
The statute of limitations can vary from 3 years from due date of return or filing date, to 6 years if there is a material omission (25 percent of income), or no statute of limitations at all if fraud is present.
23
Q
What is the tax penalty for failure to file.?
A
The failure to fail penalty accrues on a monthly basis at the rate of 5 percent per month up to 25 percent.
24
Q
What is the tax penalty for failure to pay?
A
Failure to pay penalty accrues at a rate of .5 percent per month up to 25 percent.
25
T/F When both penalties apply at the same time (failure to pay and failure to file, the failure to file is reduced by the failure to pay.
True.
26
What is the standard deductions for a single taxpayer?
6300
27
What is the Standard Deduction for Married Filing Jointly
12600
28
What is the standard deduction for qualifying widdower
12600
29
What is the standard deduction for head of household
9300
30
What is the standard deduction for married filing separately?
6300
31
What is the Additional Standard Deduction for Single and Head of Household?
1550
32
What is the Additional Standard deduction for everyone else
1250
33
T/F Two additional standard deductions exist if you are 65 or older and blind?
True
34
T/F Kiddie Tax Applies to Children under the age of 19 with a living parent or under the age of 25 and a full time student?
Age of 19 is correct but a full time student must be under the age of 24.
35
T/F Unearned income in excess of 2500 is taxed at the parents tax rate?
False, Unearened income above 211 is taxed at the parents' tax rate.
36
T/F Earned income and any other unearned income is taxable at the child's tax rate
True. Apply standard deduction for dependent. Greated of 1050 plus 350 limited to 1050
37
T/F The exclusion ration determines the portion of each payment included from taxation and is calculated at the starting date of the annuity.
False. Calculated at the starting date of the annuity, but the exclusion ratio determines the portion excluded form taxation.
38
Exclusion Ratio=
Investment in the contract/expected total return
39
Inclusion Ratio=
1-inclusion ratio
40
Jeff Pays 15,000 for an annuity that will pay 2,000 a year, starting this year. If the annuity is for a term of 10 years. What is the exclusion ration
15000/20000=.75
41
If Jeff's annuity term is for life, what is the tax consequence of the annuity.
For the first 10 years, the exclusion ratio applies, but after ten years the annuity payments will be 100 percent taxable.
42
If Jeff's annuity term is for life and he fails to live 10 years, what happens then?
Jeff will be entitled to a deduction from his adjusted gross income if he fails to live 10 years after the start date of the annuity. If Jeff lives only 8 years, he will qualify for a 3,000 deduction.
43
T/F If the meals and lodging are furnished by the company for the convenience of the employee, the benefits are not taxable
False, meals are not taxable only if the meals are furnished by the employer for the employee at the convenience of the employer. Lodging is tax free benefit only if it is a condition of employment.
44
T/FThe cost of the first 75,000 of group term life insurance is not taxable to the employee
False, the cost of the first 50,000 of coverage is not taxable to the employee, but the cost of excess coverage is taxable.
45
T/F Athletic facilities are not taxable as long as they are on the employee's premises.
True
46
What is the limit for Educational Assistance Programs
5250 per year.
47
T/F Flexible spending accounts and dependent care spending accounts are permitted to a 5,000 maximum contribution per year.
True
48
What is the qualified employees dicount
Service -20 percent Products- Profit.
49
What are some broad classes of employee benefits
No additional cost services, qualified employee discounts, working condition fringe benefits, de minimis fringe benefits, qualified moving expense reimbursements.
50
T/F Up to 85 Percent of an individual's Social Security benefits may be taxable.
True, depending on the individuals modified AGI.
51
What is the 1st and 2nd hurdle for married filing jointly for SS benefits?
1st hurdle is 32,000. 2nd hurdle is 44,000.
52
What are the two hurdles for all other taxpayers except MFS
25,00 and 34,000
53
Deductions for AGI Include
Deductions from losses on sale or exchange of property, deductions from rental and royalty property, one half self employment tax paid, 100% of health insurance premiums paid by a self-employed individual., contributions to pension, profit sharing, annuity plans, iras, penalty on premature withdrawals from savings accounts or deposits, interest on student loans, health savings accounts, trade or business expenses, alimony payments, moving expenses.
54
T/F Alimony Paid is a deduction from AGI
Alimony paid is a deduction for AGI. It includes payment for support and payments in cash that do not extend beyond death of payee.
55
T/F Alimony received is earned income
True
56
T/F Alimony can be in the form of a property settlement
False, no deductions are available for property transferred among spouses.
57
T/F Moving expenses is a deduction for AGI
True
58
T/F Moving expense deduction includes the cost of moving household goods, packing boxes, traveling to the new location using mileage rate per mile and lodging while on route, and meal cost
False, includes everything but meals.
59
Type Personal Usage R < 15
Income Exclude. Rent expenses not deductible. Mortgage interest and taxes still deductible
60
Rental. R is greater than or equal to 15.
Include. Apportion personal and rental. Rental is passive. Personal investor allows up to 25k against OI (Phaseout 100-150). Rest would be passive
61
Mixed
Include. Apportion personal and rental. Rental expenses deductible to extent of income CF unused loss.
62
Hobby-
An activity not entered into for profit
63
Hobby Presumptive Rule-
If an activity shows profit 3 out of 5 years (2 out of 7 years for horses), it is presumed that taxpayer has profit motive
64
T/F Taxpayers can only deduct expenses to extent of income from activity
True
65
Expenses hobby deductions
Subject to 2% rule
66
What is the order in which hobby expenses are deductible?
1) Those expenses that are otherwise deductible including mortgage interest, property taxes, and casualty losses.
2. Other nondepreciation expenses.
3. Depreciation
67
Loss on Worthless Securities are deductible....
In the year in which the securities become completely worthless. Artificial sale date is the last day of the year in which the securities became worthless. Always 12/31 for Calendar year taxpayers
68
T/F Credits are dollar-for-dollar reductions of calculated tax
True
69
What are the two types of credits
Refundable credits- credit may eliminate all tax and provide additional payments to taxpayer. Negative income tax.Nonrefundable credits may only reduce tax to zero. Any credit amount in excess of total tax is lost.
70
What is the intent behind the earned income credit?
The earned income credit is intended to motivate lower-income taxpayers to earn income.
71
What does the earned income credit do?
This generous refundable credit provides a tax refund to many people who have not paid in any federal income taxes through withholding or otherwise.
72
What is the limit for the Adoption Expense Credit?
13,460
73
At what point does the adoption credit phaseout
Between 201,920-241.920
74
What is an eligible child for the adoption expense credit?
Either a child less than 18 years of age or physically or mentally handicapped.
75
How much is the child tax credit?
1,000 for each dependent child under age of 17.
76
What is the phaseout for Child Tax Credit
Credit is phased out by 50 dollars for each 1,000 of AGI above: 110k for joint filers, 55k for married filing single, and 75k for single.
77
What is the child & dependent care credit for?
Credit of 20 percent of the following paid for the care of the following: dependent under age of 13, or handicapped dpenedent or spouse.
78
What are the limits of the child and dependent care credit?
1) The lesser of actual costs or 3,000 for one qualified individual, and 6,000 for two qualified individuals, and.
2) The earned income of the lower earning spouse.
79
American Opportunity vs Lifetime Learning Credit
AOC 2,000 at 100 percfent and 2,000 at 25 percent. LLC 10,000 for 20 percent. AOC first four years. LLC only postsecondary education. No felony drug for AOC.
80
Inherited Property Basis Rules
The basis of inherited property is the FMV at the date of death or the alternate valuation date, if properly elected by executor. Holding period is always longterm.
81
Basis rules property received as a gift
General rule- the carryover basis- the donee's basis in the gifted property is the same as the donor's basis in the gifted property.
82
What are some exceptions to the general rule for gifted property
Loss properrty usees the double basis rule. If SP is greater than donor's basis, then the donee's basis= donor's basis. If the salesprice is less than the FMV then the donee's basis= FMV at date of gift. If donor's basis is greater than sales price then the donee's basis= sales price.
83
What is the second exception to the general rule for gifted property?
Appreciated Property with gift tax paid. Donor's basis + Net appreciation in the gift/ taxable gift x gift tax paid.
84
T/F the holding period for gifted property is always the donor's holding period.
False, the holding period may start at the date of gift if the gift is at a loss.
85
What convention does personalty property use and what is the exception?
Uses mid year convention exception is if greater than 40 percent is placed into service in the last quarter, then use mid quarter.
86
What convention does real estate use?
Mid month convention
87
T/F Section 1790 allows businesses to expense up to 750,000 of business tangible property placed in service during the year.
False, 500,000
88
T/F Expense limitation is reduced by amount of section 179 property placed into service during year that exceeds 2,000,000.
True
89
T/F A taxpayer cannot create a loss using section 179.
True, but excess of limitation over taxable income may be carried over to subsequent years. Amount carried over still reduces basis currently.
90
Long term holding period
Held for more than one year.
91
T/F Under Section 1245 gains are ordinary income to the extent of depreciation allowed on the property
True
92
T/F Under Section 1245 gains above the original purchase price are treated as ordinary income.
False. Treated as Section 1231 gain.
93
T/F Under Section 1245 if the property is sold at a loss, the loss is an ordinary loss
True.
94
How are the 1st section 1250 gains treated?
1st Gains are ordinary income to the extent of accelerated depreciation taken.
95
How are the 2nd gains treated under Section 1250?
2nd Gains to the extent of straight-line depreciation taken are unrecaptured Section 1250 depreciation taxed at 25
96
How are the 3rd gains treated under Section 1250?
3rd any additional gain is taxed at capital gains rates. If the property is sold at loss, the loss is an ordinary loss.
97
What is the personal residence gain exclusion and who does it apply to.
Single taxpayers may exclude 250,000 of gain from the sale pf a principal residence. Married taxpayers filing jointly may exclude 500,000 of gain if the following requirements are met: ether spouse meets the 2 year ownership requirement and both spouses meet the 2 year use requirement.
98
What are the requirements for personal residence gain exclusion
Own and use home as principal residence for two out of the last five year and have no used the exclusion within the prior two years.
99
What are some other situations in which the personal residence gain exclusion is applicable?
Change in employment, change in health, and unforeseen circumstances (fairly broad). Pro rate exclusion for number of months requirements met.
100
What is Section 1031
An exchange of like-kind property. Gains and losses are deferred.
101
What type of property does 1031 apply to?
Applies to property held for either productive use in trade or business or as an investment
102
What types of property does not qualify for Section 1031
Personal use, inventory, stocks, bonds, notes, interest in parterships, certificates of trust or beneficial interests.
103
T/f When like-kind exchange treatment is available, it is mandatory.
True
104
Real estate like kind exchanges
Land for building, land for land, building for building, etc. U.S. realty may not be exchanged for foreign realty. Foreign realty may be exchanged for foreign realty.
105
Tangible property like kind exchanges
Within the same general business asset or product class. Desk for desk, copier for copier, not copier for desk. Livestock of one sex may not be exchanged fo rlivestock of a different sex.
106
What are the tax consequences of receiving boot in a section 1031 exchange?
When boot is received, recognize gain to the extent of boot received, same basis.
107
What are the tax consequences of paying boot in a 1031 exchange?
No gain, increase basis by boot paid.
108
T/F Losses realized in like-kind exhanges are recognized.
False, not recognized.
109
What does Section 1035 apply to?
Deferral of gain available for exchanges of: life policy for life policy, annuity fo annuity, life policy for annuity. Gain must be recognized for exchange of annuity for life policy.
110
What are the three types of income.
Active, passive, and portfolio.
111
At Risk Rules
Losses can only be deducted to the extent of property/money that is at risk.
112
T/F Passive losses can only offset passive gains.
True.
113
Passive activity:
No material participation. Rental activities- even with material participation.
114
What is an exception to passive activity for real estate.
Real estate dealers are not considered a passive activity.
115
How much of a tax deduction is available for actively managed property.
Taxpayers can deduct up to 25,000 in ordinary income subject to phase-out of 1 dollar for every 2 AGI exceeds 100,000
116
Material participation
Greater than 500 hours per year, or greater than 100 hours and the most of any participation.
117
How are suspended losses treated.
If suspended losses are from at risk activity, they are not deductible until the at risk amount is positive from additions or income. If losses are suspended under passive activity rules, the losses are deductible under disposition.
118
AMT=
Regular Taxable income +- adjustments + preferences Less AMT exemptions
119
What are some examples of AMT adjustements
Accelerated depreciation for real and personal property that is allowable for regular tax purposes. The standard deduction if itemized deductions are not used. Personal and dependency exemptions. Taxes.. Miscellaneous itemized deductions. Incentive stock option bargain element.
120
What are some examples of AMT preferences?
Percentage depletion. Intangible drilling costs. Interest on private activity bonds.
