10 Feb dgainistaxedat15percent,

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) 33. This year, GarfieldInc.generated a$25,000netoperating loss.Whichofthefollowingstatementsisfalse? A.IfGarfieldcancarrytheentireNOLbacktodeductagainstprioryeartaxableincome,theNOLwillhaveno deferredtaxconsequences. B. IfGarfieldcan’tuseanyoftheNOLasacarrybackdeduction,theNOLwillresultinadeferred taxliability.C. GarfieldcanelecttogiveupthecarrybackoftheNOL. D.IfGarfieldcan’tuseanyoftheNOLasacarryback deduction,itcancarrytheNOLforwardfor20years. 34.PooleCompanymadea$100,000 cashexpenditurethisyear.Whichofthefollowingstatementsisfalse? A.Poolemustcapitalize theexpenditureifitcreatesanewassetthatthecompany canuseforthenextfouryears. B. Poolemustcapitalizetheexpenditureifitextendstheestimatedusefullifeofanexistingassetbythreeyears. C. Poolemustcapitalizetheexpenditureifitresultsinalong-term economicbenefittothecompany. D. Noneoftheaboveisfalse. 35.KassimCompanypurchasedanassetbypaying$35,000cashandgivingthesellerits3-yearnotefor $240,000.Whichofthefollowingstatementsistrue? A. Kassim’sbook basis and tax basis in the asset is $275,000. B. Kassim’sbookbasis is$275,000,butitstaxbasisis$35,000. C. Kassim’sbook basis and tax basis in the asset is $35,000. D.IfKassimisacashbasistaxpayer, itsinitialtaxbasisintheassetiszero. 36.AbasicpremiseoffederalincometaxlawisthatanexpenseisdeductibleunlesstheInternalRevenueCodespecificallyprohibitsthededuction. 37.CosmoInc.paid$15,000 plus$825salestaxplusa$200delivery chargeforanewbusiness asset.Cosmo’staxbasisintheassetis$15,200, anditcandeductthesalestax.(TRUE/FALSE) 38. CosmoInc.purchasedanassetcosting$67,500bypaying$13,500cashatdateofpurchaseandgivingthesellera5-yearinterest-bearingnoteforthe$54,000balance.Cosmo’staxbasisintheassetis$13,500. (TRUE/FALSE) 39.ColbyCompany performedprofessionalservicesforM&EInc.Inexchangefortheservices,M&EgaveColbya12-monthleaseoncommercialofficespace.M&Ecouldhavecharged$4,350monthlyrentforthespace ontheopenmarket.ComputeColby’staxbasisinthelease. A.Theleaseisanintangible assetandthereforehasazerobasistoColby.B. TheleasehasazerobasisbecauseColbyobtainedtheleaseatnocost.C. $52,200. D.Noneoftheabove 40. Broadus.,acalendar yeartaxpayer,purchasedatotalof$128,300 tangiblepersonaltyin2012.Broadus’ taxableincomewithoutregardtoaSection179deductionwas$92,600.Whichofthefollowingstatementsis true? A.Broaduscanelecttoexpenseonly$92,600ofthecostofthepersonalty. B. Broaduscanelecttoexpensethe$128,300costofthepersonaltybutcandeductonly$92,600oftheexpense. C. Broaduscanelecttoexpenseonly$35,700ofthecostofthepersonalty. D.Broaduscanelecttoexpensethe$168,300costofthepersonaltybutcandeductonly$35,700oftheexpense. 41.Whichofthefollowingcapitalizedcostisnotamortizablefortaxpurposes? A. Purchasecostofapartnershipinterest B. Purchase cost of business goodwill C. Leaseholdcost D.Purchase costofapatent 42.PowellInc.wasincorporatedandbeganoperationsonOctober1andadopted acalendaryearfortaxpurposes. Powellpaid$4,200totheattorneywhohandledthecorporateformation.Whichofthefollowingstatementsis true? A.IfPowellcapitalizedthe$4,200paymentforfinancial statementpurposes,itmustalsocapitalizeitfortaxpurposes. B. Powellcandeductthe$4,200paymentonitsfirsttaxreturn. C. Fortaxpurposes,Powellmustcapitalizethe$4,200organizationalcostandamortizeitover15years.D.Noneoftheaboveistrue. 43.LenociInc.paid$310,000 forequipmentthreeyearsago.Thisyear,itsoldtheequipmentfor$200,000. Throughdateofsale,accumulatedbookdepreciationwas$93,840andaccumulatedtaxdepreciationwas $147,327.Whichofthefollowingstatementsistrue? A.Thesaleresultsina$53,487favorabletemporarybook/taxdifference. B. Thesaleresultsina$53,487unfavorabletemporarybook/taxdifference. C. Thesaleresultsina$53,487unfavorablepermanentbook/taxdifference. D.Noneoftheaboveistrue. 44.O&V soldanassetwitha$78,300 adjustedtaxbasisfor$100,000.Thepurchaserpaid$30,000incashand assumedO&V’s $70,000mortgageontheasset.ComputeO&V’snetcashflowfromthesaleassuming a35%taxrate. A. $22,405 B. $13,095 C. $14,105 D.Noneoftheabove 45.Thisyear,MsLucassoldinvestmentlandfor$125,000cashplusthepurchaser’sassumptionofa$50,000mortgageontheland.Ms.Lucas’taxbasisinthelandwas$93,000.Ifanyrecognizedgainistaxedat15percent, computetheafter-taxcashflowfromthesale. A.$62,300 B. $69,700 C. $112,700 D.$162,700 46.Mr.Quicksoldmarketablesecuritieswitha$112,900 taxbasistohis100%ownedcorporationfor$95,000 cash.Whichofthefollowingstatementsistrue? A.IfMr.QuickcanofferevidencethattheFMVofthesecuritiesis$95,000,hecanrecognizehis$17,900 realizedloss. B. IfMr.Quickandhiscorporationnegotiatedthetermsofthesaleatarm’slength,Mr.Quickcanrecognizehis $17,900realized loss. C. Thecorporation’staxbasisinthesecuritiesis$112,900. D.Noneoftheaboveistrue. 47.Whichofthefollowing isacapitalasset?A.Supplies usedinabusiness B. Business inventory C. Landusedinabusiness D.Noneoftheabove 48. RizziCorporationsoldacapital assetwitha$692,000 bookandtaxbasisfor$650,000cash.ThiswasRizzi’s onlyassetsaleduringtheyear.Thesaleresultsin: A.$42,000unfavorablepermanentbook/taxdifference B. $42,000unfavorabletemporarybook/taxdifference C. $42,000favorablepermanentbook/taxdifference D.Nobook/tax difference 49. Mr.and Mrs.Sykes operate a very profitablesmallbusiness. Thisyear,theSykesrecognizeda$100,000 gain onsaleofatradenametheyhadcreatedandcopyrightedforuseintheirbusinessin1994.Whichofthefollowing statementsistrue? A. The$100,000gainiscapitalgaineligibleforapreferentialtaxrate. B. The$100,000gainiscapitalgainagainstwhichtheSykescandeductanycapitallossesrecognizedthisyear.C. The$100,000 gainisordinarybusinessincome. D. Statementsa.andb.aretrue. 50.NorbettInc.generated $15,230,000ordinarytaxableincomeandrealizeda$238,000 netcapitallossonthe saleofmarketablesecuritiesthisyear.Whichofthefollowingstatementsisfalse? A.Norbett’s netincomeperbooksincludesthe$238,000netcapitalloss. B. Norbett’s taxableincomeis$15,230,000. C. The$238,000netcapitallossisafavorable book/taxdifference. D.The$238,000netcapitallossisatemporary book/taxdifference.

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