Reference no: EM131786214

Assignment

Question 1
Which of the following statements is true with regard to the reimbursement of employee business expenses?
Reimbursements of ordinary and necessary expenses may be subject to Federal income tax withholding.
Excess reimbursements of ordinary and necessary expenses are never subject to withholding.
Reimbursements received by an employee under a plan which contains a requirement to return excess amounts are automatically excluded from the definition of wages subject to withholding.
Provided that reimbursements are received by an employee under a plan which requires the employee to substantiate the expenses to his employer, the amounts are automatically excluded from the definition of wages subject to withholding, without regard to whether the employee actually substantiates the expenditures.
All statements are true.

Question 2
Which of the following statements about the FICA tax is not true?
The FICA tax is composed of two parts, Social Security and Medicare.
Self-employed individuals may elect to pay either FICA taxes or self-employment taxes.
FICA taxes are paid by both the employees and their employers.
The income amount subject to FICA tax has increased significantly over the years.
Wages subject to FICA tax that are received by a self-employed individual reduce the individual's maximum self-employment tax base.

Question 3
At which of the following IRS locations are tax returns processed?
Regional offices
Campus Processing sites
District offices
National Office
None are correct.

Question 4
Both spouses are responsible, jointly and individually, for paying the full amount of any tax, interest, or penalties due on a joint return.
This does not apply to spouses who have divorced after the return was filed.
Spouses are responsible jointly but not individually.
Spouses are responsible individually but not jointly.
Innocent spouses may be relieved of the liability for tax, interest, and penalties.
None of the above.

Question 5
Which of the following is not a possible result of an audit by the IRS?
Payment of a refund to the taxpayer
Payment of a deficiency by the taxpayer
An appeal
No change in the liability
All are possible results.

Question 6
Which of the following statements best describes the purpose of the Taxpayer Bill of Rights?
To provide the Internal Revenue Service with additional enforcement powers
To grant to taxpayers the right to choose the time and method of payment of delinquent taxes
To inform taxpayers of their rights in dealing with the Internal Revenue Service
To inform taxpayers of the methods for properly completing their income tax returns
None are correct.

Question 7
Which of the following taxpayers will benefit most in terms of dollars saved as a result of tax planning to reduce taxes?
An individual taxpayer who has a marginal tax rate of 28 percent
An individual taxpayer who has an average tax rate of 28 percent
An individual taxpayer who has a marginal tax rate of 15 percent
The taxpayers in a. and b. will benefit equally
None are correct.

Question 8
Which of the following statements with respect to the depreciation of real property under MACRS is correct?
Real property is depreciated using a half-year convention.
Only one-half year of depreciation is allowed in the year of acquisition of real property, regardless of the actual date the property is placed in service.
Assuming the property is not disposed of during the year, the depreciation deduction for the second year of use of the real property will be greater than the depreciation deduction in the first year.
In some cases, where a significant amount of property is acquired during the last quarter of the taxpayer's tax year, the taxpayer may be required to use a mid-quarter convention in calculating depreciation on real property.
None of the statements are correct.

Question 9
On January 1, current tax year, Roxburgia Company places a commercial storage building in service. The costs allocated to construction of the building total $300,000 and land is accounted for separately. Which of the following is a true statement with respect to the depreciation of the building?
The period over which the building must be depreciated is shorter than the period over which a residential building must be depreciated.
Since the building was placed in service on the first day of the year, the depreciation expense for each year the building is used, except for the year of disposition, will be the same amount.
Since the land is accounted for separately, the amount of depreciation expense for the building cannot be determined from the information given.
The depreciation expense for Year 2 would be the same regardless of whether the building is placed in service on January 1, current tax year or February 1, current tax year.
All statements are correct.

Question 10
On December 31, current tax year, Henry, a sole proprietor, sold for $65,000 a machine that was used in his business. The machine has been purchased three years ago for $50,000, and when it was sold it had an adjusted basis of $30,000. For the current tax year, how should this gain be treated?
Ordinary income of $35,000
Section 1231 gain of $35,000
Section 1231 gain of $20,000 and ordinary income of $15,000
Section 1231 gain of $15,000 and ordinary income of $20,000
None are correct.

Question 11
Ben purchased an apartment building on January 1, thirteen years ago, for $200,000. The building has been depreciated over the appropriate recovery period using the straight-line method. On December 31, current tax year, the building sold for $220,000, when the accumulated depreciation was $62,500. Ben is in the highest tax bracket; on his current tax return, he should report:
Section 1231 gain of $20,000 and ordinary income of $62,500
Section 1231 gain of $62,500 and ordinary income of $20,000
Ordinary income of $82,500
Section 1231 gain of $20,000 and "unrecaptured depreciation" taxed at 25% of $62,500
None are correct.

Question 12
Under MACRS the same method of depreciation (accelerated or straight-line) must be used for all property in a given class placed in service during that year.
True
False

Question 13
If a taxpayer is relieved of a liability on the disposition of property, the amount of the liability should be included in the amount realized on the sale or other disposition.
True
False

Question 14
If a husband and wife both work, they must divide their withholding allowances equally on their W-4 Forms.
True
False

Question 15
Employees with self-employment income who also have W-2 income may be able to avoid making estimated tax payments by filing a new Form W-4 and increasing the amount of their withholding.
True
False

Question 16
Reimbursements of moving expenses are always subject to withholding.
True
False

Question 17
In determining an employee's FICA tax to be withheld, the maximum amount of wages subject to FICA must be reduced by the taxpayer's self-employment earnings.
True
False

Question 18
When taxpayers overpay FICA taxes, the excess taxes may be claimed as a credit against their tax liability.
True
False

Question 19
Which of the following is not a preparer penalty?
Tax preparers may be assessed a penalty for failing to give the taxpayer the preparer's work papers.
The preparers may be assessed a penalty for failing to keep a copy of the prepared return.
Tax preparers may be assessed a penalty for endorsing or cashing a refund check issued to a taxpayer.
Tax preparers may be assessed a penalty for failing to sign a tax return.

Question 20
Tax penalties are considered to be additional taxes and are not deductible by taxpayers.
True
False

Question 21
Tax practitioners can be assessed a penalty for promoting an abusive tax shelter.
True
False

Question 22
Interest paid on an underpayment of taxes (other than an underpayment of estimated taxes) is not subject to the consumer interest limitation.
True
False

Question 23
Maintenance costs for capital assets are deducted in the year the amount is paid or incurred.
True
False

Question 24
Unless the taxpayer has been issued an administrative summons, the Internal Revenue Service cannot require the taxpayer to attend an audit interview.
True
False

Question 25
The IRS will automatically grant a request for a change in tax years, provided the proper form is filed in a timely manner.
True
False

Question 26
If land declines in value, it may be depreciated for tax purposes.
True
False

Question 27
If property is received from a decedent, the taxpayer who receives the property has the same basis in the property as the decedent.
True
False

Question 28
Assuming a taxpayer has no other gains or losses for the year, a loss from the theft of a Section 1231 asset is treated as a capital loss.
True
False

Question 29
In a like-kind exchange, relief from a liability is treated as boot.
True
False

Question 30
The depreciation recapture provisions are designed to prevent taxpayers from converting capital gains into ordinary income.
True
False

Question 31
Sales of property at a gain may be restricted under the related party rules of the Internal Revenue Code.
True
False

Question 32
Vernon is a cash basis taxpayer with a calendar tax year. On November 1, current tax year, Vernon entered into a lease to rent a building for use in his business at $4,000 a month. On that day Vernon paid six month's rent on the building, a total of $24,000 ($4,000 x 6 months). How much may Vernon deduct for rent expense on his current tax return? (Do not put a comma, do not put a decimal point, and do not put a dollar sign. The computer must match your response to obtain full credit.)

Question 33
In January current tax year, Keyaki Construction Company exchanged an old truck, which cost $54,000 and had accumulated depreciation of $18,000, for a new truck having a fair market value of $65,000. In connection with the exchange, Keyaki paid $35,000 in cash. What is the tax basis of the new truck? (Do not put a comma, do not put a decimal point, and do not put a dollar sign. The computer must match your response to obtain full credit.)

Question 34
A taxpayer purchases a rental house on August 22, of the current tax year, for a cost of $174,000. Of this amount $100,000 is considered to be allocable to the cost of the home with the remaining $74,000 allocable to the cost of the land. What is this taxpayer's maximum depreciation deduction for the current tax year using MACRS? (Do not put a comma, do not put a decimal point, and do not put a dollar sign. The computer must match your response to obtain full credit.)

Question 35
Which of the following employees would NOT be exempt from the FICA and Medicare taxes on wages paid for household work?
The taxpayer's 20-year-old sister
The taxpayer's wife
The taxpayer's 16-year-old daughter
The 14-year-old babysitter from down the street

Question 36
Gordon is 60 years old and Mary is 55 years old. They are married with three dependent children over age 17, and Gordon has one job. Assuming that Mary is unemployed, how many allowances should Gordon claim on his Form W-4, assuming no extra allowances for deductions or adjustments?

Question 37
Kate is an accrual basis, calendar-year taxpayer. On November 1, current tax year, Kate leased out a building for $4,000 a month. On that day Kate received six months rental income on the building, a total of $24,000 ($4,000 x 6 months). How much income must Kate include on her current tax return as a result of this transaction? (Do not put a comma, do not put a decimal point, and do not put a dollar sign. The computer must match your response to obtain full credit.)

Question 38
John purchases residential rental property on October 31, current tax year for a cost of $290,000. Of this amount, $140,000 is allocable to the cost of the home and the remaining $150,000 is allocable to the cost of the land. What is John's maximum depreciation deduction for the current tax year? (Do not put a comma, do not put a decimal point, and do not put a dollar sign. Round to the nearest dollar. The computer must match your response to obtain full credit.)

Question 39
Bennett purchased a tract of land for $20,000 three years ago when he heard that a new highway was going to be constructed through the property and the land would soon be worth $200,000. The highway project was abandoned in the current tax year and the value of the land fell to $15,000. Bennett can claim a loss in the current tax year in the amount of ______. (Do not put a comma, do not put a decimal point, and do not put a dollar sign. The computer must match your response to obtain full credit.)

Question 40
Joseph exchanged land (tax basis of $36,000), that he had held for four years as an investment, for similar land valued at $40,000 which was owned by Adrian. In connection with this transaction, Adrian assumed Joseph's $12,000 mortgage. As a result of this transaction Joseph should report a long-term capital gain of _______. (Do not put a comma, do not put a decimal point, and do not put a dollar sign. The computer must match your response to obtain full credit.)

Question 41
Stewart, age 44, sells his personal residence of four years on June 14, current tax year for $185,000. The expenses of sale are $15,000 and he has paid for capital improvements of $3,000. Stewart's basis in the residence is $ 100,000. On February 2, the following year, Stewart purchases and occupies a new residence at a cost of $200,000. Calculate the gain realized on the sale of Stewart's residence. (Do not put a comma, do not put a decimal point, and do not put a dollar sign. The computer must match your response to obtain full credit.)

Question 42
Emily is a self-employed attorney during the current tax year. Assuming that Emily earns $20,000 from her practice, calculate the total amount of her self-employment tax liability for the current tax year. (Do not put a comma, do not put a decimal point, and do not put a dollar sign. Round to the nearest dollar. The computer must match your response to obtain full credit.)

Question 43
Scott purchases a small business from Lew on July 1, current tax year. He paid the following amounts for the business: Land = $100,000; Commercial building = $200,000; Furniture and equipment = $80,000; Going concern value = $50,000; Workforce in place = $25,000; Total = $455,000. How much of the $455,000 purchase price is for Section 197 intangible assets? (Do not put a comma, do not put a decimal point, and do not put a dollar sign. The computer must match your response to obtain full credit.)

Question 44
Kendall is considering the purchase of a home. He has saved $20,000 for a down payment on a home and will finance the remainder of the purchase price with a home mortgage loan. Kendall currently rents an apartment for $900 per month and does not anticipate an increase in his monthly income. He wants to make sure that the monthly payment on his new home does not exceed $900, after-tax. Kendall has a marginal tax rate of 28 percent and an average tax rate of 22 percent. Assuming the monthly mortgage payment (before-tax) will be equal to one percent of the initial mortgage balance and the entire amount of each monthly payment will be deductible home mortgage interest, what is the maximum amount that Kendall can spend on a new home? (Do not put a comma, do not put a decimal point, and do not put a dollar sign. The computer must match your response to obtain full credit.)

Question 45
Michelle is single with no dependents and earns $23,000 this year. Michelle claims sixteen allowances on her Form W-4 for the current tax year. Which of the following is correct concerning her Form W-4?
Michelle may not under certain circumstances claim sixteen allowances.
Michelle's employer will require her to verify her right to claim sixteen allowances.
Michelle's employer will disregard her Form W-4 and withhold as single with no allowances
Michelle's employer will submit a copy of her W-4 to the IRS if directed to do so by written notice.
None of the above is correct.

Question 46
For the current tax year, a self-employed truck driver has gross earnings of $43,000 from his business. His business related expenses total is $5,620. During the current tax year, he received $2,500 in interest income and dividends of $500. He also sold investment property and recognized a $1,500 gain. What is the amount of his self-employment tax (Social Security and Medicare taxes) liability for the current tax year? (Do not put a comma, do not put a decimal point, and do not put a dollar sign. Round to the nearest dollar. The computer must match your response to obtain full credit.)