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1. Doug and Laura are married and under 65 years of age. During 2014, they furnish more than half of the support of their 19-year old daughter, June who lives with them. June earns $15,000 from a part- time job, most of which goes to pay her personal expenses. They also have a 22 year old daughter July who is at the University of Delaware where she is a full time student. July earned 8,000 on an internship at KPMG. l How many personal and dependency exemptions should Doug and Laura claim in 2014?

  1. Two.
  2. Three.
  3. Four.
  4. Five.
  5. None of the above

2) Matthew received a notice of an IRS correspondence audit from his 2014 tax year in May 2016. Matthew has taxable income of $150,000 and has filed all of his returns timely. In June of 2016, at the completion of the audit, the IRS disallows $2,000 in charitable deductions. Matthew ask you how many other years can the IRS audit. Not including the 2015 tax year or 2014, how many other tax years can the IRS audit of Matthew?s tax filings:

a) One b) Two c) Three d) Five e) six

3) John is 27 but holds no job. His parents have provided some investment for him so he has substantial investment income. It is November of 2015, he arrives at your office asking for help in preparing his tax filings for 2014. He filed no extension but he did send in $6,000 in tax payments during 2014. You prepare his return and he has total taxes of $24,000 and owes $18,000. Besides interest, the penalty he will be assessed with the filing of his return is:

a) zero
b) $450
c) $4,500 d) $6,000 e) $13,500


4) During the course of an IRS audit, a deduction for entertainment was disallowed. You had taken the company lawyer to a play with your spouses. The reasoning for the disallowance was most likely

  1. a)  Step transaction doctrine
  2. b)  Economic substance doctrine
  3. c)  Business purpose doctrine
  4. d)  Substance over form doctrine
  5. e)  Conversion doctrine

5) Grace?s husband died in December 2013. She maintains a household in which she lives with her 12 year old daughter. She has claimed her daughter as her dependent since 2002. What is Grace?s filing status for 2013 and 2014?

  1. Married Filing Jointly/Head of Household
  2. Surviving Spouse/Head of Household
  3. Married Filing Jointly/Surviving Spouse
  4. Surviving Spouse/Surviving Spouse
  5. None of the above

6) You believe that you will be in the same tax brackets this year and next. With respect to income and then deductions you should try to do what before year en:

a) Accelerate income, defer deductions
b) Accelerate income, accelerate deduction c) Defer income, accelerate deductions
d) Defer income, defer deductions
e) Doesn?t matter

7) A mother of three arrives at your office. Her husband of ten years has left her, moved to Istanbul. But she is still legally married at the end of the year. She has a great job and makes approximately $300,000 salary at JP Morgan. You advise her that she should file:

a) Single
b) Married filing separately c) Joint
d) Head of household


8) Chuck, a single taxpayer has an annual salary of $87,000 plus $20,000 in interest income from City of Wilmington GO bonds. Using US 2015 tax rate tables, if he earns an additional $10,000 in taxable income, his marginal tax rate is:

a) 25%
b) 26.87% c) 28%
d) 28.87%

9) Suzy received notice of a correspondence audit regarding her charitable deductions. She has a salary of $75,000. However she received an inheritance of $40,000 which she contributed to a local charity. The audit was probably resulting from the IRS application of which Computer program:

a) Document perfection program b) Information matching
c) Business purpose program
d) Discrimination function system

10) From the AICPA summary on standards for tax services, which one of the following statement is not part of the standard?

a) You can use an estimate if unpractical to obtain exact data
b) You should notify IRS if you become aware of fraudulent activity concerning a filed return
c) You make a reasonable effort to answer all information questions on the tax return
d) You can take a position adverse to IRS if you have a good faith belief of being sustained if challenge

11) Contributing money to an IRA is an example of which type of strategy:

a) Exclusion b) Conversion c) Capital
d) Deferral


12) Which of the following regarding personal and dependency exemption is false:

a) A couple filing jointly may claim two exemptions

b) To qualify as a dependent of another, an individual must be a resident of the United States

c) An individual who qualifies as a dependent of another taxpayer, may not claim a personal exemption

d) An individual cannot qualify as a dependent of another as aqualfitying relative if their gross income exceeds the annual exemption amount

13) Which of the following is not considered ordinary income:

  1. a)  Salary income
  2. b)  Pension income
  3. c)  Dividend income
  4. d)  Interest income
  5. e)  Long term gains net of short term losses on sales of stocks

14) Emily and Tom have one daughter, Agnes who is 16. They have taken in Agnes?s friend Carrie since February of this tax year. Carrie is 18. They intend to adopt Carrie but have not as of year-end. They provide all of the support for both girls. Agnes has a part time job earning $4,200. Carrie has part time job earning $1,800. Emily and Tom allow the girls to use their earnings for pleasure. Which of the following statements is true regarding the dependency exemptions and the reasoning:

  1. a)  One exemption for their daughter Agnes and no exemption for Carrie
  2. b)  One exemption for Agnes as a qualifying child and one exemption for Carrie as qualifying child.
  3. c)  One exemption for Agnes as a qualifying child and one exemption for Carrie as qualifying relative
  4. d)  One exemption for Carrie as a qualifying child but no exemption for Agnes because her income exceeds the annual exemption amount

15) Lydia and John filed jointly in 2014. They divorced in 2015. The IRS audits their 2014 tax return and determined that John?s self-employment income was understated by $20,000. Lydia had no knowledge of this understatement until the audit. After adjusting their return for the $20,000, John?s taxable income was $53,000, Lydia $376,000. Who is responsible for the additional tax, interest and penalties?

  1. a)  Lydia
  2. b)  John
  3. c)  Both Lydia and John
  4. d)  neither


Explain the answer please.

 

1. Doug and Laura are married and under 65 years of age. During 2014, they furnish more

 

than half of the support of their 19-year old daughter, June who lives with them....

 


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