ACCT 3151 Taxation

1. ThepropertytaxonarenthouseownedbyMr.Janeyincreased by$1,200thisyear.Mr.Janeyincreasedthemonthlyrentchargedtohistenant,Ms.Lacey,by$45.Whobearstheincidence ofthepropertytaxincrease? A.Mr. Janey B. Ms.Lacey C. BothMr.JaneyandMs.Lacey

D.Neither

Mr.JaneynorMs.Lacey

2.Whichofthefollowing

statementsregardingtaxsystemsisfalse? A.Asinglepercentagethatappliestotheentiretaxbaseisdescribedasaflatrate. B. When designing a tax,governments try to identify tax bases that tax payers can easily avoid or conceal. C.A tax base is an item,occurrence,transaction,oractivitywithrespecttowhichataxislevied. D.Withregardtotaxsystems,thetermrevenuereferstothetotaltaxcollectedbythegovernment.

3.ThecityofSpringvaleimposesanetincometaxonbusinesses

operatingwithinitsjurisdiction.Thetaxequals 1%ofincomeupto$100,000 and1.5%ofincomeinexcessof$100,000.TheSpringvaleBarandGrillgenerated $782,000netincomethisyear.Computeitscityincometax.A.$10,230

B. $11,230

C. $11,730

D.Noneoftheabove

4. Whichofthefollowingstatementsregardingthepoliticalprocessofcreatingtaxlawisfalse? A. Thepoliticalprocesscontributestothedynamicnatureofthetaxlaw. B. Specialinterestgroupshavelittleeffectonthetaxlegislativeprocess.

C. Whentaxpayersdeviceanewtacticforreducing

theirtaxburdens,governmentsrespondbyenactinganewruletorenderthetacticineffective.

D.Changesinpolitical

philosophyoftenreflectshiftsinthepublicattitudeabouttheproperroleoftaxesin society.

5.Thepersonwhopaysataxdirectly

tothegovernmentalwaysbearstheeconomicincidenceofthetax.

(TRUE/FALSE)

6.Lastyear,governmentGlevieda35%taxonindividualincome,andMr.Slatepaid$35,000taxonhis $100,000income.Thisyear,thegovernmentincreasedthetaxrateto40%.Whichofthefollowingstatementsis false?

A.Basedonastaticforecast,governmentGshouldcollect$5,000additional

taxfromMr.Slatethisyear. B. IfMr.Slatetookasecondjobtomaintain hisafter-taxdisposableincome,hisbehaviorillustratesasubstitutioneffectoftherateincrease. C. IfMr.Slatetookasecondjobtomaintain hisafter-taxdisposableincome,governmentGshouldcollectmore than $5,000additionaltaxfromhimthisyear. D.IfMr.Slatesoldanincome-generatinginvestmentandusedthemoneyforpersonalconsumption,hisbehavior illustratesasubstitutioneffectoftherateincrease.

7.JurisdictionMimposesanindividual

incometaxbasedonthefollowingschedule. Whichofthefollowingstatementsistrue?

A.Theschedule

providesnoinformationastowhetherJurisdictionM'staxishorizontallyequitable. B. JurisdictionM'staxisverticallyequitable. C. JurisdictionM'staxisverticallyequitableonlyforindividualswith$50,000orlesstaxableincome. D. BothA.andB.aretrue.

8.Whichofthefollowingstatementsaboutaregressive

taxratestructureisfalse? A.Aregressiveratestructurecannotresultinverticalequity. B. Regressiveratesdecreaseasthetaxbaseincreases.

C.Aregressive

ratestructureplacesaproportionallyheaviertaxburdenontaxpayerswithsmallertaxbasesthanpersons withgreatertaxbases. D.Noneoftheaboveisfalse.

9.VervetCountyleviesarealproperty

taxbasedonthefollowingschedule. Whichofthefollowingstatementsisfalse? A.IfMr.Clemownsrealproperty valuedat$112,500,hisaveragetaxrateis3%. B. IfMs.Barkerownsrealpropertyvaluedat$455,650,heraveragetaxrateis2.1%. C. IfMs.Lumleyownsrealpropertyvaluedat$750,000,hermarginaltaxrateis1%.D. Noneoftheaboveisfalse.

10.ThecityofBernerecently

enacteda10%taxonthepriceofasubwayticket.Consequently,Mrs.Lanenow walkstoworkinstead oftakingthesubway.Herbehaviorillustratesthesubstitutioneffectofataxincrease. (TRUE/FALSE)

11.Thepresentvalueofadollaravailable

inafutureperiodincreases asthediscountrateincreases.

(TRUE/FALSE)

12.Thebefore-taxcashflowandafter-tax

cashflowfromanontaxable transactionareequal.

(TRUE/FALSE)

13.Abusiness

strategythatreducesthetaxcostofatransactionalwaysincreasestheNPVofthetransaction.

(TRUE/FALSE)

14.Thearm'slengthtransactionpresumption

A. Assumesthateachpartyisdealinginitsowneconomicself-interest. B. Cannotbesatisfiedinaprivatemarkettransaction. C. Requiresdirectnegotiationbetweenpartiestoensureanarm'slengthprice.

D.Appliestobothrelatedpartyandunrelated

partytransactions.

15.Whichofthefollowingstatementaboutprivatemarkettransactionsisfalse?

A.Bothparties

haveflexibility indeterminingthelegalandfinancial characteristicsofthetransaction. B. Thepartiesnegotiatedirectlywitheachother. C. Thepartiesaredealingatarm'slength. D. Thepartiesmustengageinunilateralinsteadofbilateraltaxplanning. 16.HilexInc.liquidatesitsinvestmentinGeneralElectriccorporatebondsandreinveststheproceedsinCityof

Miamimunicipalbonds.Thistaxplanningstrategymaybetakingadvantageofthe:

A.Character

variable

B. Entityvariable

C. Timeperiodvariable

D.Jurisdictionvariable

17.Whichofthefollowingstatementsistrue?

A. MaryGillyowns100%ofthestockofGillyInc.BothMaryandGillyInc.aretaxpayers underfederallaw. B. Thesameratescheduleappliestobothindividualandcorporatetaxpayers. C. Thetaxprovisionsgoverningthecomputationofindividualbusinessincomeareseparateanddistinctfromthe taxprovisionsgoverningthecomputationofcorporatebusinessincome. D.StatementsA.andC.aretrue. 18.Mrs.Bern'smarginal taxrateis33%,andhergrandsonJeff'smarginaltaxrateis10%.Whichofthefollowing statementisfalse?

A.Thefamilycouldsave23centsoftaxforeverydollarofdeduction

shiftedfromJefftoMrs.Bern.B. Thefamilycouldsave23centsoftaxforeverydollarofincomeshifted fromMrs.BerntoJeff. C. AnyincomeshiftfromMrs.BerntoJeffisconstrainedbytheassignmentofincomedoctrine. D. Noneoftheaboveisfalse.

19.Whichofthefollowingstatementsabouttaxdeferralistrue?

A.Thevalueoftaxdeferral

increasesasthetaxpayer'sdiscountrateforcomputingNPVdecreases. B. Taxdeferralisnotaneffectiveplanningstrategyifthetaxpayer'smarginaltaxrateisstableovertime.

C. Thegreaterthelengthoftimethatthepaymentofataxisdeferred,

thelessthetaxcostsinNPVterms. D.BothA.andC.aretrue.

20.Whichofthefollowingstatementsaboutordinaryincomeandcapitalgainisfalse?

A.Everyitemofincome

ischaracterizedaseitherordinaryincomeorcapitalgainforfederaltaxpurposes. B. Ordinaryincomeistaxedattheregularindividualorcorporatetaxrates. C. Individualsandcorporationspaytaxontheircapitalgainsatapreferential rate. D.Noneoftheaboveisfalse.

21.TaxplanningstrategiestoenhanceNPVmustreflectallfourtaxplanning

maxims. (TRUE/FALSE)

22.Whenperformingsteponeofthetaxresearchprocess:

A. Theresearchergenerallycanassumethattheclient'sinitialsummaryofthetransactionisfactuallyaccurateandcomplete. B. Theresearchermusttakeintoaccounttheleveloftheclient'staxknowledge. C. Theclient'smotivationinundertakingthetransactionisgenerallyirrelevant. D.Theresearchershouldpresumethattheclienthassomeknowledgeofthetaxlaw.

23.Whichofthefollowing

isnotoneofthethreesourcesofauthoritythatcomprisethefederaltaxlaw?A.Statutory authority

B. Secondaryauthority

C. Administrativeauthority

D. Judicialauthority

24. Whichofthefollowingisprimaryauthorityonwhichtobaseresearchconclusions?

A.Thistextbook

B. Aneditorialexplanationinacommercialtaxservice

C.ATreasuryregulation

D.Atreatisewrittenbyataxattorney

andpublishedinalegaljournal

25.Whichofthefollowing

isnotapropercitation toaTreasury regulation? A.Reg.Sec.1.61-1(a) B. Reg.1.61-1(a)C. Reg.§1.611(a)

D. Treasury

Regulation61-1(a) 26. Whichofthefollowingprimaryauthoritiesisleastlikelytoprovideadetailed descriptionoffactstowhicha researchercancomparehisorherclient'sfactpattern?

A. Internal

RevenueCodesection

B. Treasuryregulation

C. Revenueruling

D.TaxCourtdecision

27.Acorporationcan'thaveanincreaseindeferredtaxassetsandanincreaseindeferredtaxliabilitiesinthesame year. (TRUE/FALSE) 28.Ifanaccrualbasistaxpayerprepaysinterestexpense,thepaymentresultsinanunfavorabletemporarybook/ taxdifference

(TRUE/FALSE)

29.Whichofthefollowing

businessexpensesalwaysresultsinadifference betweentaxableincomeandbookincome?

A.Rentexpense

B. Interestexpense

C. Cliententertainment

D.Salaryexpense

30.SouthlawnInc.'staxableincomeiscomputedasfollows. Usinga34%rate,compute Southlawn'staxexpenseperbooksandtaxpayable.

A. Taxexpenseperbooks$643,824;taxpayable$579,564

B. Taxexpenseperbooks$579,564;taxpayable$643,824

C. Taxexpenseperbooks$817,904;taxpayable$579,564

D.Noneoftheabove

31. GH&Fisacalendar year,accrualbasistaxpayer.InOctober2012,GH&Freceivedan$18,000cashpayment fromatenantwholeasesspaceinacommercial officebuildingthatGH&Fowns.Thepaymentwasrentforthe 18-monthperiodbeginningonNovember1,2012.Asaresultofthepayment,

GH&Fshouldreport:

A.$2,000bookincomeandtaxableincome

B. $2,000bookincomeand$18,000taxableincome

C. $18,000bookincomeandtaxableincome

D.Noneoftheabove

32. Ifanaccrualbasistaxpayerreceivesaprepayment ofrentincome,thereceiptresultsinanunfavorable temporarybook/taxdifference. (TRUE/FALSE)