ACCT 429 Final Exam Guide
ACCT
429 Final Exam Guide
1. (TCOs
2, 3, and 5) As we know, Congress devised a very broad definition of income and
codified this definition in Section 61 of the Internal Revenue Code. Explain
the Code’s definition of income and how it
is generally applied to taxpayers. In particular, explain how the Code’s definition of income is different than other potential definitions of income, such as the economic concept of income, and use an example to illustrate the difference between the two systems. Explain how the Code approaches whether or not particular items should be included in income and how a taxpayer’s taxable income is generally determined under the Code. (Points : 25)
is generally applied to taxpayers. In particular, explain how the Code’s definition of income is different than other potential definitions of income, such as the economic concept of income, and use an example to illustrate the difference between the two systems. Explain how the Code approaches whether or not particular items should be included in income and how a taxpayer’s taxable income is generally determined under the Code. (Points : 25)
2. (TCOs
2, 4, and 5) We spent quite a bit of time this term learning about deductions.
One of the important distinctions between various types of deductions that we
examined was the distinction between
“for AGI” and “from AGI” deductions. Explain how the names for these two types of deductions developed, as well as the fundamental differences between the two types of deductions and the general types of
deductions that fall within each category. In particular, focus on the different tax consequences that each might have, any applicable limitations, and the significance of being classified as a from AGI deduction instead of for AGI. (Points : 25)
“for AGI” and “from AGI” deductions. Explain how the names for these two types of deductions developed, as well as the fundamental differences between the two types of deductions and the general types of
deductions that fall within each category. In particular, focus on the different tax consequences that each might have, any applicable limitations, and the significance of being classified as a from AGI deduction instead of for AGI. (Points : 25)
3. (TCOs
2, 5, 6, and 7) As a tax practitioner, you often get people asking questions
concerning the tax effect of property transactions. This year is no exception.
You’ve had individual clients ask you the following questions this year:
I. I
inherited property from my grandfather, and I received a gift of property from
another family member. How do I determine the basis in each piece of property?
II. I
bought a piece of property that is used in a trade or business. Are there any
tax deductions associated with this purchase of property? If so, how do I
determine the amount of those deductions?
Answer
each of these questions, explaining the applicable rules and possibilities of
each. (Points : 50)
4. (TCOs
2, 3, and 4) One of your corporate clients has approached you about whether or
not its employees are required to include certain benefits provided by the
corporation in their
income. In particular, the corporation has inquired whether the following benefits provided by the corporation to employees would be included in an employee’s taxable income:
income. In particular, the corporation has inquired whether the following benefits provided by the corporation to employees would be included in an employee’s taxable income:
5. (TCOs
1, 2, 8, 9, and 10) One of your best individual clients is thinking about
starting up a new business, and he is seeking your advice on which business
form he should select. In particular, he’s trying to decide whether to operate
the business as a partnership or a C corporation. Explain to him the
significant tax and nontax issues that will arise from choosing each of these
entities compared to the other, including how
income will be treated by the entity, the overall tax burden, and the effect of distributions of property or earnings from the entity to your client. (Note: Do not spend time addressing other types of business entities. Credit will only be given for discussion of the two business entities at issue.) (Points : 50)
income will be treated by the entity, the overall tax burden, and the effect of distributions of property or earnings from the entity to your client. (Note: Do not spend time addressing other types of business entities. Credit will only be given for discussion of the two business entities at issue.) (Points : 50)
6. (TCO
2, 3, 6, 8, 9, and 10) You are chief counsel to the chairman of the Joint
Committee on Taxation, the body primarily responsible for identifying taxation
issues and their consequences as Congress seeks to implement a comprehensive
and coherent tax
policy. Currently, the United States is in a bit of an economic slump. Corporate earnings reports are relatively weak; the stock market is about 25% off of its five-year highs, and tax revenues are down. Largely as a result of the last issue, the government finds itself operating under an annual deficit, and the national debt hovers around $7,000,000,000. Interest rates, however, remain at historic lows. The president has suggested a multiple-pronged attack
to revitalize the economy. First, he has proposed going to a flat tax rather than the current progressive tax system. (No recommendation regarding what that flat tax rate should be has been made, although the president has indicated he would not be likely to accept any figure above 15%.) As part of this plan, however, the president has proposed eliminating many of the current individual income tax deductions, including
policy. Currently, the United States is in a bit of an economic slump. Corporate earnings reports are relatively weak; the stock market is about 25% off of its five-year highs, and tax revenues are down. Largely as a result of the last issue, the government finds itself operating under an annual deficit, and the national debt hovers around $7,000,000,000. Interest rates, however, remain at historic lows. The president has suggested a multiple-pronged attack
to revitalize the economy. First, he has proposed going to a flat tax rather than the current progressive tax system. (No recommendation regarding what that flat tax rate should be has been made, although the president has indicated he would not be likely to accept any figure above 15%.) As part of this plan, however, the president has proposed eliminating many of the current individual income tax deductions, including
(I) the
home mortgage interest deduction and
(II) the
property tax deduction. He has also proposed eliminating the deduction for
dependents. Furthermore, he has proposed eliminating the child care and earned
income credits to help make up for any potential shortfalls in revenue.
7. (TCO
1, 2, 3, 4, 8, and 10) As a newly minted CPA, you obtain your first significant
position as a tax professional: senior tax accountant for one of the offices of
a regional accounting firm. Of course, the firm runs a notice of your hiring in
the local newspaper. A few days later, the editor of the newspaper calls you
and asks if you might be interested in writing a monthly column for the
newspaper on tax issues. Figuring that it would be a good way to get your name
out in the community as an expert in the field (and a little free advertising
to boot!),
you tell him that you would be more than happy to do so. “Great! ” he says. “By the way, I have already blocked out space for this column in the next edition of the paper. Is there any way that you can get me your article by the end of the day today?” After you commit to doing so, he also proceeds to tell you that you will not be paid for these articles. “I figure that
it is just a sort of public service that you could offer to the community. I am sure you understand.” (And so it begins…. Get used to a lot of this.) You spend the next 10 minutes thinking about what you could discuss in your first article. You would like to shake people up a little bit, and perhaps challenge their opinions about some issues of tax law. That way, you could perhaps build up some interest in your column, which, as you know, will be difficult to achieve under the best of circumstances! (After all, who wants to read newspaper articles about taxes?)
you tell him that you would be more than happy to do so. “Great! ” he says. “By the way, I have already blocked out space for this column in the next edition of the paper. Is there any way that you can get me your article by the end of the day today?” After you commit to doing so, he also proceeds to tell you that you will not be paid for these articles. “I figure that
it is just a sort of public service that you could offer to the community. I am sure you understand.” (And so it begins…. Get used to a lot of this.) You spend the next 10 minutes thinking about what you could discuss in your first article. You would like to shake people up a little bit, and perhaps challenge their opinions about some issues of tax law. That way, you could perhaps build up some interest in your column, which, as you know, will be difficult to achieve under the best of circumstances! (After all, who wants to read newspaper articles about taxes?)
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