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Advanced Individual Income Tax Test No. 3. Test No. _______
Summer, 2012. The University of North Carolina at Charlotte.
Name_____________________________________________ Row In Class__________
INSTRUCTIONS: You may use your Code Book, (but not your textbook) during the test. You may also use up
to 10 pages of notes-front and back, or 20 pages printed on one side only. A question may cover material from
more than one chapter. Avoid all appearances of impropriety. If you see any sign of impropriety, please prepare
an anonymous note and slide it under the instructor's office door.
This test contains 30 Multiple-choice questions. Test score is100 Points, less 3 for each incorrect answer.
1. Use a soft-lead pencil
2. Enter name in appropriate space above. Write clearly.
3. Enter above the row number for your seat in class.
On the Opscan Sheet
4. Enter name (last name first) in the area for NAME.
6. Enter test number (found in upper right hand corner of this page) in the special codes area.
7. Blacken the area in the circle containing the appropriate letter for each question.

1. Which of the following statements regarding income tax withholding is incorrect?
a. Withholding tables are designed so that employee withholding approximates the tax liability.
b. Employees can claim exemption and avoid withholding.
c. The withholding tables vary based on filing status.
d. Employees cannot claim an allowance for a child unless they are entitled to claim the child as a
dependent.
2. Beth is 53 years old. Beths employer pays the premiums for group-term life insurance coverage of $90,000.
The cost of Beths coverage to the company is $500. The plan providing this coverage is nondiscriminatory.
Beth is not a key employee. How much gross income does Beth report?
a. $0 b. $130.10 c. $500.00 d. $314.00 e. $110.40

3. Corporation X is a calendar year accrual basis taxpayer, that was short on cash in December, 2011.
The corporation accrued a year-end bonus of $20,000 to the sales manager who owns no stock in the corporation.
The Bonuses were paid in February, 2012. The individual had been paid a base salary of $120,000 in 2011.
How are the compensation deductions and compensation income reported?
Compensation Deduction Compensation Income
2011 2012 2011 2012
a $100,000 $20,000 $100,000 $20,000
b $120,000 $0 $100,000 $20,000
c $120,000 $0 $120,000 $0
d $100,000 $20,000 $120,000 $0

4. Bill is the manager at Campus Acres Apartments. He is provided the use of an apartment, free of charge. He is
required to live at the apartment as a condition of employment. The fair rental value of this apartment was $800
per month ($9,600 per year). Bill estimates that living elsewhere would have cost at least $900 per month
($10,800 per year). Bill must report gross income of:
a. $0 b. $9,600. c. $10,800 d. Other

5. Big Bank owns several condos in Charlotte that are used by out-of-state employees who come to Charlotte for
training or temporary work assignments. John, who was recently transferred permanently to Charlotte, accepted
Big Banks offer to sell one of the condos to John. The bank had paid $200,000 for the condo, which had a current
appraised value of $300,000. John bought the condo from Big Bank for $220,000.
What is Johns basis in the condo, after purchasing it from the Bank?
a. $0 b. $200,000. c. $220,000 d. $300,000


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6. You are given the following information about a nonstatutory stock option plan.

Non-Qualified Stock Option Shares Cost/share FMV/share
Jan. 2, 2008 Sarah received an option to buy 1,000 shares of stock 1,000 $100 $100

(The option price or strike price is $100 per share,)


Option can be exercised on or after January 2, 2010.

Jan. 2, 2010 Sarah buys 1,000 shares at a cost of $100 per share. 1,000 $100 $160

If Sarah leaves the company before January 2, 2012,


she must sell it back to the company at $100 per share.

Jan. 2, 2012 All restrictions lapse on January 1, 2012.

$200
Jan. 2, 2015 She sells all of the stock for $400 per share. 1,000

$400
No Section 83(b) election is made. How much income will she recognize prior to the year of sale?
a. $0 b. $50,000 c. $60,000 d. $100,000 e. $300,000

7. Repeat question above. No Section 83(b) election is made.
What amount of gain will be reported when the stock is sold in 2014?
a. $0 b. $50,000 c. $ 80,000 d. $120,000 e. $200,000

8. Repeat question above. An election under Section 83(b) is made.
How much income will she recognize prior to the year in which the stock is ultimately sold?
a. -0- b. $10,000 c. $50,000 d. $60,000 e. $200,000

9. Repeat question above. Assume the option is an incentive option.
How much income or gain is recognized in year of sale?
a. $400,000 b. $300,000 c. $200,000 d. $100,000 e. Other

10. Nelda is a single parent who earns a salary of $50,000 per year at Big Corporation. She also has these
benefits: (1) corporate payment for child care expenses and (2) corporate payment of qualifying education costs.
She applied for and received reimbursement of $6,000 for dependent care expenses for her 10 year old son.
She applied for and received reimbursement of $6,200 for her costs of attending night classes at UNC Charlotte.
What is her gross income for the year?
a. $50,000 b. $51,000 c. $51,950 d. $50,250 e. Other

11. Susan earns a salary of $40,000 per year. The employer provides hospitalization insurance for employees, but
not dental insurance. Under the companys qualified cafeteria plan, Susan was entitled to choose up to $4,000 of
fringe benefits not otherwise covered by the employer. She chose to receive a $1,000 dental insurance policy and
an allowance of $3,000 child and dependent care. What is her adjusted gross income?
a. $40,000 b. $41,000 c. $43,000 d. $54,000

12. Bonnie's employer provides her with an annual dinner club membership costing $6,000.
How much income does she report as a result of this fringe benefit?
a. $0. b. $1,000. c. $5,000. d. $6,000.

13. Which of the following is not an example of a nontaxable fringe benefit?
a. Monthly employer provided transit benefit of $100.
b. Group-term life insurance policy providing $100,000 of coverage
c. Employer provided parking of $100 per month.
d. Qualified employee discounts.




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14. Which of the following describes a defined benefit plan?
a. Provides fixed income to the plan participants based on a formula
b. Distribution amounts determined by employee and employer contributions
c. Allows executives to defer income for a period of years
d. Retirement account set up by an individual

15. Which of the following describes a defined contribution plan?
a. Provides guaranteed income on retirement to plan participants.
b. Employers and employees generally may contribute to the plan.
c. Generally set up to defer income for executives and highly compensated employees, but not for other
employees.
d. Retirement account set up to provide an individual a fixed amount of income on retirement.

16. Amanda has a Traditional Individual Retirement Account. All of her contributions to the account have been
tax deductible. Amanda received a $10,000 distribution this year to buy furniture. She has not retired. She is 50
years of age. Assuming her marginal tax rate is 35%, what is the total amount of tax and penalty she will owe?
a. $0. b. $1,000. c. $3,500. d. $4,500. e. $3,850

17. Robert retired in 2010 at age 69. He reached age 69 on March 1, 2010.
When must Riley receive his distribution from his 401(k) plan to avoid minimum distribution penalties?
a. April 1, 2010 b. April 1, 2011 c. April 1, 2012 d. April 1, 2013

18. Amy is single and a part-time college student. Her adjusted gross income was $12,000 in 2011. During the
year, Amy contributed $2,500 to an IRA. What is the maximum saver's credit she may claim for the year?
a. $750 b. $1,000 c. $1,500 d. $0 e. Other

19. Which of the following statements regarding traditional IRAs is true?
a. Once a taxpayer reaches age 55 years of age she is allowed to contribute an additional $1,000 a year.
b. A taxpayer may contribute to a traditional IRA in March of 2012 but deduct the contribution on the tax
return for 2011.
c. Taxpayers who participate in an employer-sponsored retirement plan are allowed to contribute to a
traditional IRA regardless of their AGI.
d. Taxpayers with high income are not allowed to contribute to traditional IRAs.

20. Jim had a serious illness during the year. To pay for his medical expenses (which were claimed as itemized
deductions on his tax return), he received a $10,000 distribution from his traditional IRA. All contributions to the
IRA have been deductible contributions. Jim is 45 years old. His marginal ordinary income tax rate is 15%.
What amount of taxes and/or early distribution penalties will Jim pay on this distribution?
a. $1,500 income tax; $1,000 early distribution penalty
b. $0 income tax; $0 early distribution penalty
c. $0 income tax; $1,000 early distribution penalty
d. $1,500 income tax; $0 early distribution penalty

21. Wanda is a 19 year-old full-time student. She earned $3,000 during the year and was not eligible to participate
in an employer-sponsored retirement plan. How much tax-deductible contribution can she make to an IRA?
a. $0. b. $1,000. c. $2,000. d. $3,000. e. $5,000.

22. John and Joan are 33 years of age, married and file a joint return. Each earns a salary of $50,000 (total
$100,000). Both are covered by a retirement plan at work. They each contribute $5,000 (total $10,000) to an IRA.
What is their total (combined) deduction for contributions to the IRAs on a joint return for 2012?
a. $1,000 b. $5,000. c. $6,000 d. $7,500 e. $10,000



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23. Jan and Joe (both age 30) are married and file a joint return. Each earns a salary of $91,000. (Total is
$182,000.) Both Jan and Joe are active participants in their company's qualified pension plan and previously have
never established an Individual Retirement Account.
What is the maximum combined amount they can contribute to Roth IRAs for 2012?
a. $ - 0 - b. $ 1,000 c. $2,000 d. $3,000 e. $10,000

24. What type of IRA is preferred when an individual expects to be in an income tax bracket in retirement years
that is higher than the tax bracket during the individuals working years?
a. Regular IRA b. Roth IRA c. Either

25. In 2011, Mary Jane, age 45, needed some cash (to buy clothes) so she received a $15,000 distribution from her
Roth IRA. At the time of the distribution, the balance in the Roth IRA was $200,000. Mary Jane established the
Roth IRA 10 years ago. Over the years, she has contributed $20,000 to her account.
What amount of the distribution is taxable and subject to early distribution penalty?
a. $0 b. $5,000 c. $30,000 d. $50,000

26. In 2011, Wanda retired at the age of 65. The current balance in her traditional IRA was $200,000. Over the
years, Wanda has made $40,000 of nondeductible contributions and $60,000 of deductible contributions to the
account. Wanda receives a $50,000 distribution from the IRA.
What amount of the distribution is included in income?
a. $0 b. $35,000 c. $40,000 d. $45,000 e. $50,000

27. Bob is 60 years of age in 2012. He opened a Roth IRA in 2008, and contributed $5,000 per year to the Roth
IRA on January 2 of each of these four years: 2008, 2009, 2010 and 2011 (total $20,000). In 2012, the balance
(including earnings) is $30,000. In 2012, Bob withdraws $22,000 from the Roth IRA and uses the funds to
purchase a new auto. What amount of the distribution is included in income for 2012?
a. $2,000 b. $3,000 c. $5,000 d. $20,000 e. $50,000

28. Mary is a MACC graduate with her own unincorporated CPA firm. She has two employees, paying one
$50,000 per year, and the other $40,000 per year. Her income statement for 2011 is as follows.
Professional fees $300,000
Salaries $80,000
Rent and other operating expenses $75,000
Net income before pension contributions and S.E tax. $145,000
Assume she has a Simplified Employee Pension plan and she makes the maximum contribution.
What is the total amount that should she contribute to IRAs owned by employees?
a. $0 b. $20,000 c. $25,000 d. $8,000 e. $22,500

29. Bill is a MACC graduate with her own unincorporated CPA firm.
He operates his firm without hiring any employees. His income statement for 2011 is as follows.
Professional fees $300,000
Salaries $180,000
Rent and other operating expenses $70,000
Net income before pension contributions and S.E tax. $50,000
Assume he has a Simplified Employee Pension plan and she makes the maximum contribution.
What is the total amount that should he deduct for his contribution to the SEP IRA?
a. $0 b. $20,000 c. $9,294 d. $8,751 e. $10,000

30. Kathy is 60 years of age and self-employed. During the year she reported $400,000 of revenues and $100,000
of expenses relating to her self-employment activities. If Kathy has no other retirement accounts in her name,
what is the maximum amount she can contribute this year to a simplified employee pension (SEP) IRA?
a. $49,000 b. $51,500 c. $55,410 d. $73,880