Topic 1 - Introduction to Taxation

There was a time when there was no income tax. The taxing process graduated slowly to what it is now. At one point there was a question of the constitutionality of taxation. Taxes are a necessity. How else can a nation survive and prosper? This topic is your introduction to taxation. In it you will find the very basic tax principles that are the forerunner to your tax preparation career.

Print this page, work on the questions and then submit test by mailing the answer sheet or by completing quiz online.

Instructions to submit quiz online successfully: Step-by-Step check list

Answer Sheet            Quiz Online

You will need IRS 1040EZ Instructions, History of U.S. Taxes and Publication 552 to complete this topic.

1. A qualifying taxpayer who bought a home in 2009 can claim a credit of up to _____ on either their 2008 or 2009 return.

A. $8,000.
B. $2,500.
C. $1,000.
D. $500.

2. If you have earned income from work, you may be able to take the Making Work Pay Credit. This credit

A. Can be more than $400 if you are single.
B. Can be more than $800 if you are married.
C. Is 6.2% of your earned income, but cannot be more than $400 if you are single.
D. Is 6.2% of your earned income that is less than $100,000.

3. Your filing status is single is on December 31, 2009

A. You never were married.
B. You were legally separated, according to your state law, under a decree of divorce or separate maintenance.
C. You were widowed before January 1, 2009, and did not remarry in 2009.
D. Any of the above

4. Once you file a joint return, you cannot choose to file separate returns for that year after the due date of the return.

True False

5. If your spouse is an nonresident alien, he or she

A. Cannot file a U.S. tax return.
B. Must have either a SSN or an ITIN.
C. Must become a resident alien before she or he can file a return.
D. Be living with you in the United States and file with you jointly.

6. An ITIN entitles you to social security benefits and allows your to work legally under U.S. law.

True False

7. Your employer must provide or send Form W-2 to you no later than February 1, 2010. If you do not get a Form W-2, you

A. File your tax return without it.
B. Call the IRS and ask them for a copy for a $57 fee.
C. Still have to report your earnings of your tax return.
D. Ask your employer for one and if he refuses, file a complaint with the IRS.

8. When you receive interest income as a nominee, it means that

A. You are responsible to report this income in your tax return.
B. The IRS has name you the owner of such income.
C. The income is in your name, but it actually belongs to someone else.
D. You can choose whomever you want as the owner of this income.

9. For 2009, report on your tax return unemployment compensation that you receive that is

A. Less than $2,400.
B. More than $2,400.
C. Up to $2,400.
D. Due to contributions to a government unemployment compensation program.

10. You and your spouse (both over age 65) are filing a joint return for 2009, and you both receive social security benefits during the year. In January 2010, you received a Form SSA-1099 showing net benefits of $9,700 in box 5 for 2009 tax year.  Your spouse received a Form SSA-1099 showing net benefits of $1,400 in box 5. You also received unemployment compensation of 1,800 and taxable interest income of $450.  You did not have any tax-exempt interest income. How much of your social security benefits are taxable for tax year 2009?

A. $0.
B. $11,100.
C. $9,700.
D. $1,400.

11. If you take the EIC even though you are not eligible and it is determined that your error is due to reckless or intentional disregard of the EIC rules, you will

A. Be allowed to claim the credit as long as you are eligible this year.
B. Not be allowed to take the credit for 10 year even if you are otherwise eligible this year.
C. Not be allowed to take the credit for 2 years even if you are otherwise eligible to do so.
D. Be eligible to claim the credit as long as you file Form 8862.

12. You must file Form 8862 if your EIC for a year after 1996 was reduced or disallowed for any reason other than a math or clerical error. Do not file Form 8862

A. For 2 years after the most recent tax year for which there was a final determination that your EIC claim was due to reckless or intentional disregard of the EIC rules.
B. If the only reason your EIC was reduced or disallowed in the earlier year was because it was determined that a child listed on Schedule EIC was not your qualifying child.
C. For 10 year after the most recent tax year for which there was a final determination that your EIC clam was due to fraud.
D. Any of the above.

13. In 2009, you were 24, single, and living at home with your parents. You worked and were not a student. You earned $7,500. Your parents cannot claim you as a dependent. When you file your return, you   

A. Can claim the Earned Income Credit because although you are not 25 yet, no one can claim you as a dependent.
B. Can claim the Earned Income Credit because you earned less than $12,880 and it does not matter that you are not at least age 25.
C. Live with your parents so you don't qualify for the Earned Income Credit because your parents will already have claimed a credit. 
D. Cannot claim the Earned Income Credit because you are not at least age 25.

14. In 1862, Congress enacted the nation's first income tax law

A. In order for the government to give bonuses to its employees.
B. In order for the government to have more spending money for leisure activities.
C. In order to support the campaigns of political parties.
D. In order to support the Civil War effort.

15. The Act of 1862 established the office of Commissioner of Internal Revenue. The Commissioner was given the power to

A. Assess taxes.
B. To enforce the tax laws through seizure of property and income and through prosecution.
C. Levy and collect taxes.
D. All of the above.

16. The powers and authority of the office of Commissioner of Internal Revenue remain very much the same today.

True False

17. In 1913, the 16th Amendment to the Constitution made the income tax a permanent fixture in the U.S. tax system. The amendment gave Congress legal authority to tax income and resulted in a revenue law that taxed incomes of both individuals and corporations.

True False

18. On October 22, 1986, President Reagan signed into law the Tax Reform Act of 1986. The act called for an increase in individual taxation over a five-year period.

True False

19. The Revenue Reconciliation Act of 1990 was signed into law on November 5, 1990. The emphasis of the 1990 act was increased taxes on the wealthy.

True False

20. On August 10, 1993, President Clinton signed the Revenue Reconciliation Act of 1993 into law. The act's main purpose was to

A. Decrease taxation on corporations.
B. Increase taxation of small business.
C. Reduce taxes of individuals.
D. Reduce the federal deficit.