Federal Tax Exam 1 UPDATED Exam
Questions and CORRECT Answers
1-Taxes influence business decisions such as where a business should locate or how a business
should be structured. - CORRECT ANSWER - True
2-Tax policy rarely plays an important part in presidential campaigns. - CORRECT
ANSWER - False
3- Margaret recently received a parking ticket. This is a common example of a local tax. -
CORRECT ANSWER - False
4-Corporations are required to file a tax return annually regardless of their taxable income -
CORRECT ANSWER - True
5-The tax return filing requirements for individual taxpayers only depend on the taxpayer's filing
status. - CORRECT ANSWER - False
6-If April 15th falls on a Saturday, the due date for individual tax returns will be on Monday,
April 17th (assuming it is not a holiday). - CORRECT ANSWER - True
7-If an individual taxpayer is unable to file a tax return by its original due date, the taxpayer can
request an automatic nine-month extension to file the return. - CORRECT ANSWER - False
8-An extension to file a tax return does not extend the due date for tax payments - CORRECT
ANSWER - True
9-For fraudulent tax returns, the statute of limitations for IRS assessment is 10 years. -
CORRECT ANSWER - False
,10-Joel reported a high amount of charitable contributions as a deduction on his individual tax
return relative to taxpayers with similar income levels. The information matching program is the
IRS program most likely to identify Joel's tax return for audit - CORRECT ANSWER - False
11-The only from AGI deductions are the standard deduction and itemized deductions -
CORRECT ANSWER - False-The deduction for qualified business income is a from AGI
deduction that is not an itemized deduction.
12- From AGI deductions are commonly referred to as deductions "below the line." - CORRECT
ANSWER - True
13-For AGI deductions are commonly referred to as deductions "above the line." - CORRECT
ANSWER - True
14-Itemized deductions and the standard deduction are deductions from AGI but the deduction
for qualified business income is a deduction for AGI. - CORRECT ANSWER - False
15-The standard deduction amount varies by filing status. - CORRECT ANSWER - True
16- Excluded income will never be subject to the federal income tax - CORRECT ANSWER -
True
17-A taxpayer who borrows money will include that amount borrowed in their gross income
under the all-inclusive definition of income. - CORRECT ANSWER - False- Does not
generate economic benefit
18-Barter clubs are an effective means of avoiding realization for tax purposes - CORRECT
ANSWER - False
19-When a carpenter provides $100 of services in exchange for $100 of groceries, the carpenter
has realized $100 of income - CORRECT ANSWER - True
, 20-Recognized income may be in the form of cash or property received (but not services
received). - CORRECT ANSWER - False
21-Jake sold his car for $2,400 in cash this year. He will realize a taxable gain of $1,000 if he
purchased the car for $1,400 - CORRECT ANSWER - True
22- When an asset is sold, the taxpayer calculates the gain or loss on the sale of the asset by
subtracting the tax basis of the asset from the proceeds of the sale - CORRECT ANSWER -
True
23- Jim received a $500 refund of state income taxes this year. Jim will not need to include the
$500 in his gross income this year if he did not deduct state income taxes last year - CORRECT
ANSWER - True
24- Community property laws dictate that income earned by one spouse is treated as though it
were earned equally by both spouses - CORRECT ANSWER - True
25- A portion of each payment received from a purchased annuity contract represents income -
CORRECT ANSWER - True
26- The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest
rate - CORRECT ANSWER - False
27-Rental income generated by a partnership is reported by the partners as dividend income on
their own individual tax returns. - CORRECT ANSWER - False
28-The receipt of prizes and awards is generally taxable - CORRECT ANSWER - True
29-Gambling winnings are included in gross income only to the extent that the winnings exceed
gambling losses incurred during the same period - CORRECT ANSWER - False
Questions and CORRECT Answers
1-Taxes influence business decisions such as where a business should locate or how a business
should be structured. - CORRECT ANSWER - True
2-Tax policy rarely plays an important part in presidential campaigns. - CORRECT
ANSWER - False
3- Margaret recently received a parking ticket. This is a common example of a local tax. -
CORRECT ANSWER - False
4-Corporations are required to file a tax return annually regardless of their taxable income -
CORRECT ANSWER - True
5-The tax return filing requirements for individual taxpayers only depend on the taxpayer's filing
status. - CORRECT ANSWER - False
6-If April 15th falls on a Saturday, the due date for individual tax returns will be on Monday,
April 17th (assuming it is not a holiday). - CORRECT ANSWER - True
7-If an individual taxpayer is unable to file a tax return by its original due date, the taxpayer can
request an automatic nine-month extension to file the return. - CORRECT ANSWER - False
8-An extension to file a tax return does not extend the due date for tax payments - CORRECT
ANSWER - True
9-For fraudulent tax returns, the statute of limitations for IRS assessment is 10 years. -
CORRECT ANSWER - False
,10-Joel reported a high amount of charitable contributions as a deduction on his individual tax
return relative to taxpayers with similar income levels. The information matching program is the
IRS program most likely to identify Joel's tax return for audit - CORRECT ANSWER - False
11-The only from AGI deductions are the standard deduction and itemized deductions -
CORRECT ANSWER - False-The deduction for qualified business income is a from AGI
deduction that is not an itemized deduction.
12- From AGI deductions are commonly referred to as deductions "below the line." - CORRECT
ANSWER - True
13-For AGI deductions are commonly referred to as deductions "above the line." - CORRECT
ANSWER - True
14-Itemized deductions and the standard deduction are deductions from AGI but the deduction
for qualified business income is a deduction for AGI. - CORRECT ANSWER - False
15-The standard deduction amount varies by filing status. - CORRECT ANSWER - True
16- Excluded income will never be subject to the federal income tax - CORRECT ANSWER -
True
17-A taxpayer who borrows money will include that amount borrowed in their gross income
under the all-inclusive definition of income. - CORRECT ANSWER - False- Does not
generate economic benefit
18-Barter clubs are an effective means of avoiding realization for tax purposes - CORRECT
ANSWER - False
19-When a carpenter provides $100 of services in exchange for $100 of groceries, the carpenter
has realized $100 of income - CORRECT ANSWER - True
, 20-Recognized income may be in the form of cash or property received (but not services
received). - CORRECT ANSWER - False
21-Jake sold his car for $2,400 in cash this year. He will realize a taxable gain of $1,000 if he
purchased the car for $1,400 - CORRECT ANSWER - True
22- When an asset is sold, the taxpayer calculates the gain or loss on the sale of the asset by
subtracting the tax basis of the asset from the proceeds of the sale - CORRECT ANSWER -
True
23- Jim received a $500 refund of state income taxes this year. Jim will not need to include the
$500 in his gross income this year if he did not deduct state income taxes last year - CORRECT
ANSWER - True
24- Community property laws dictate that income earned by one spouse is treated as though it
were earned equally by both spouses - CORRECT ANSWER - True
25- A portion of each payment received from a purchased annuity contract represents income -
CORRECT ANSWER - True
26- The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest
rate - CORRECT ANSWER - False
27-Rental income generated by a partnership is reported by the partners as dividend income on
their own individual tax returns. - CORRECT ANSWER - False
28-The receipt of prizes and awards is generally taxable - CORRECT ANSWER - True
29-Gambling winnings are included in gross income only to the extent that the winnings exceed
gambling losses incurred during the same period - CORRECT ANSWER - False
