Individual Taxation Exam 1 with answers || || || || ||
(Adam Smith's) 4 Cannons of taxation - CORRECT ANSWERS ✔✔Equality -
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taxes should be paid in proportion to income
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Convenience - tax is easily assessed and collected || || || || || || ||
Certainty - when, where, how a tax will be levied, consequences of actions are
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known. (politics = uncertainty)
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Economy - nominal collection costs and minimal compliance costs (Us has
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high costs) ||
1861
1894
1913 - CORRECT ANSWERS ✔✔1st Income Tax
|| || || || || ||
1st Individual Income tax
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16th amendment - ability to tax achieved & ratified
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Abandoned Spouse Rule - CORRECT ANSWERS ✔✔Married individual files
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as head of household if...
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1) TP cannot file MFJ
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2) TP maintains home for dependent children
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3) TP's spouse didn't live in TP's home for last 6 months
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,Accounting Theory of Income (Realization) - CORRECT ANSWERS ✔✔tax
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consequences are measured when income is realized: sale, exchanged or other || || || || || || || || || ||
disposition of property.
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Accrual Method - CORRECT ANSWERS ✔✔TP elects this method if want.
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Income is recognized when: || || || ||
1) All events test: all events have occurred which fix a right to the income
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(property: title passes to buyer. services: services performed).
|| || || || || || ||
AND
2) Reasonable Accuracy Test: the amount can be determined with reasonable
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accuracy
After passing Qualifying Relative or Qualifying Child test, must pass BOTH...
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1 Joint return test
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2 citizenship/residency test - CORRECT ANSWERS ✔✔1) If QC or QR is
|| || || || || || || || || || || ||
married, TP cannot claim exemption || || || ||
2) QC or QR must be US Citizen, US resident or a resident of Canada or
|| || || || || || || || || || || || || || || ||
Mexico (exception: adopted children)
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**No mechanism to prevent improperly claiming dependants
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Alimony - CORRECT ANSWERS ✔✔included in gross income of recipient,
|| || || || || || || || || ||
deducted by the payer of alimony || || || || ||
1)cash/cash equivalent ||
2)divorce agreement must not indicate that payment is a property distribution
|| || || || || || || || || ||
3)spouses live apart || ||
, 4)payments cease on death of payee || || || || ||
*If doesn't meet all 4 requirements, considered property distribution(non-
|| || || || || || || ||
taxable event) ||
ASSIGNMENT OF INCOME - CORRECT ANSWERS ✔✔... || || || || || ||
Audits - CORRECT ANSWERS ✔✔1% of tax returns audited
|| || || || || || || ||
over 10 mil. (income) 30% audited
|| || || || ||
->earned income credit is abused and therefore audited
|| || || || || || ||
more likely with high or rising income, self-employed, prior deficiencies,
|| || || || || || || || || ||
whistle blower, inconsistencies
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Cash Method - CORRECT ANSWERS ✔✔Income is recognized when
|| || || || || || || || ||
taxpayer actually or constructively receives income (cash, property services)
|| || || || || || || ||
-actual receipt: income recognized when TP ACTUALLY receives cash,
|| || || || || || || || ||
property, services ||
-constructive receipt: Amount is readily available to TP AND || || || || || || || || ||
TP's actual receipt is not subject to substantial limitations or restrictions.
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company car/phone - CORRECT ANSWERS ✔✔should be included for extent
|| || || || || || || || ||
used for personal use
|| || || ||
conclusion of audit - CORRECT ANSWERS ✔✔1 no change || || || || || || || ||
2 refund
||
(Adam Smith's) 4 Cannons of taxation - CORRECT ANSWERS ✔✔Equality -
|| || || || || || || || || || ||
taxes should be paid in proportion to income
|| || || || || || ||
Convenience - tax is easily assessed and collected || || || || || || ||
Certainty - when, where, how a tax will be levied, consequences of actions are
|| || || || || || || || || || || || ||
known. (politics = uncertainty)
|| || || ||
Economy - nominal collection costs and minimal compliance costs (Us has
|| || || || || || || || || || ||
high costs) ||
1861
1894
1913 - CORRECT ANSWERS ✔✔1st Income Tax
|| || || || || ||
1st Individual Income tax
|| || ||
16th amendment - ability to tax achieved & ratified
|| || || || || || || ||
Abandoned Spouse Rule - CORRECT ANSWERS ✔✔Married individual files
|| || || || || || || || ||
as head of household if...
|| || || ||
1) TP cannot file MFJ
|| || || ||
2) TP maintains home for dependent children
|| || || || || ||
3) TP's spouse didn't live in TP's home for last 6 months
|| || || || || || || || || || ||
,Accounting Theory of Income (Realization) - CORRECT ANSWERS ✔✔tax
|| || || || || || || || ||
consequences are measured when income is realized: sale, exchanged or other || || || || || || || || || ||
disposition of property.
|| || ||
Accrual Method - CORRECT ANSWERS ✔✔TP elects this method if want.
|| || || || || || || || || || ||
Income is recognized when: || || || ||
1) All events test: all events have occurred which fix a right to the income
|| || || || || || || || || || || || || || ||
(property: title passes to buyer. services: services performed).
|| || || || || || ||
AND
2) Reasonable Accuracy Test: the amount can be determined with reasonable
|| || || || || || || || || || ||
accuracy
After passing Qualifying Relative or Qualifying Child test, must pass BOTH...
|| || || || || || || || || ||
1 Joint return test
|| || ||
2 citizenship/residency test - CORRECT ANSWERS ✔✔1) If QC or QR is
|| || || || || || || || || || || ||
married, TP cannot claim exemption || || || ||
2) QC or QR must be US Citizen, US resident or a resident of Canada or
|| || || || || || || || || || || || || || || ||
Mexico (exception: adopted children)
|| || ||
**No mechanism to prevent improperly claiming dependants
|| || || || || ||
Alimony - CORRECT ANSWERS ✔✔included in gross income of recipient,
|| || || || || || || || || ||
deducted by the payer of alimony || || || || ||
1)cash/cash equivalent ||
2)divorce agreement must not indicate that payment is a property distribution
|| || || || || || || || || ||
3)spouses live apart || ||
, 4)payments cease on death of payee || || || || ||
*If doesn't meet all 4 requirements, considered property distribution(non-
|| || || || || || || ||
taxable event) ||
ASSIGNMENT OF INCOME - CORRECT ANSWERS ✔✔... || || || || || ||
Audits - CORRECT ANSWERS ✔✔1% of tax returns audited
|| || || || || || || ||
over 10 mil. (income) 30% audited
|| || || || ||
->earned income credit is abused and therefore audited
|| || || || || || ||
more likely with high or rising income, self-employed, prior deficiencies,
|| || || || || || || || || ||
whistle blower, inconsistencies
|| ||
Cash Method - CORRECT ANSWERS ✔✔Income is recognized when
|| || || || || || || || ||
taxpayer actually or constructively receives income (cash, property services)
|| || || || || || || ||
-actual receipt: income recognized when TP ACTUALLY receives cash,
|| || || || || || || || ||
property, services ||
-constructive receipt: Amount is readily available to TP AND || || || || || || || || ||
TP's actual receipt is not subject to substantial limitations or restrictions.
|| || || || || || || || || ||
company car/phone - CORRECT ANSWERS ✔✔should be included for extent
|| || || || || || || || ||
used for personal use
|| || || ||
conclusion of audit - CORRECT ANSWERS ✔✔1 no change || || || || || || || ||
2 refund
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