A taxpayer must pay tax before litigating, unless the case is brought in:
U.S. Tax Court.
U.S. District Court.
U.S. Court of Federal Claims.
None of the above
2. (TCO F) A business bad debt is deductible for tax purposes as a(n):
ordinary business deduction.
short-term capital loss.
long-term capital loss.
miscellaneous itemized deduction.
3. (TCO I) Under the cash method of tax accounting, tax deductions are generally taken when:
payment is made.
the liability arises.
there is net income to absorb the expense.
None of the above
4. (TCO A) Which of the following constitutes tax evasion?
Arranging your affairs to keep your tax liability as low as possible under the tax law
Failing to disclose a tax liability from a completed transaction
Trying to minimize your tax liability
5. (TCO C) Which of the following items is not subject to federal income tax?
Interest on municipal bonds
$5,000 birthday gift from a family member
Discharge of debt through bankruptcy
Life insurance proceeds
All of the above
6. (TCO B) Sam owes Bob $8,000. Bob cancels (forgives) the debt. The cancellation is not a gift, and Sam is bankrupt. Which of the following statements is correct concerning the impact of this transaction?
Both Bob and Sam recognize $8,000 of taxable income.
Bob recognizes $8,000 of taxable income.
Sam recognizes $8,000 of taxable income.
Neither Bob nor Sam has any taxable income from this transaction.
7. (TCO I) David, a cash basis taxpayer, owns two rental properties. Based on the following information, compute the amount that he must include in his 2011 gross rental income.
Property #1, security deposit on one-year lease received 2/1/11
All of deposit returned at lease end: $1,000
Property #1, payment received 2/1/11 for last month of lease(1/12): $900
Property #1, rental income received in 2011 2/11-12/11: $8,000
Property #2, rental income received in 2011 1/11-12/11: $9,600
Property #2, security deposit received 1/1/11 to be used for last month’s rent: $800
Property #2, rent 1/12 received 12/28/11: $800 (Points : 5)
8. (TCO F) Section 197’s intangible assets, such as patents and trademarks, are amortized for tax purposes over:
9. (TCO E) Explain the assignment of income doctrine (AID) and the fruit of the tree doctrine. What role does the AID play in our federal income tax system, and what could be done to avoid or reduce income taxes if the AID did not exist?
10. (TCO G) Answer the following questions concerning the sources of tax law.
a. What role does the Internal Revenue Service play in interpreting, and providing guidance on, the tax law? What types of tax law guidance are published by the IRS?
b. What roles do the U.S. Constitution and U.S. Congress play in creating the tax law? Briefly explain how a tax bill becomes a tax law.
c. Describe the components of the common body of tax law (CBOTL).