U.S. Income Tax System: Overview and FAQs

Types of assets and income in U.S. income tax system

How many types of assets are there in the U.S. income tax system?

Question 1 options:

a. 1

b. 2

c. 3

d. 4

Which of the following imposed the first constitutional federal income tax?

Question 2 options:

a) The Revenue Act of 1861 

b) The Revenue Act of 1916 

c) The Revenue Act of 1913 

Question 3 options:

a. 2

b. 3

c.  5

d. 7

Which of the following taxes generates the largest percentage of gross collections for the Internal Revenue Service (IRS)? 

Question 4 options:

a) Corporate income tax
b) Individual income tax
c) Estate tax
d) Employment tax

James lost his tax case in a jury trial in the U.S. District Court. Which one of the following statements is correct?

Question 5 options:

a) He can appeal to the U.S. Supreme Court.
b) He can appeal to the U.S. Tax court.
c) He can appeal to the U.S. Court of Appeals in his circuit.
d) He has no appeal because he lost in the jury trial.

Faith has been audited by the IRS and has received an assessment of $25,000. After an IRS appeals conference, she is still not pleased with the assessment. She is especially displeased considering her deduction was not allowed for medical travel expenses related to her weekly visitation to her dependent minor child at a school for those with psychiatric disorders in another city. She would like to contest the assessment. What is her best choice of court in which to successfully appeal the IRS's determination?

Question 6 options:

a) The U.S. Court of Federal Claims
b) The U.S. Tax Court
c) The U.S. Tax Court — Small Cases
d) The U.S. District Court

What tax act reduced the top income tax bracket to 50%? 

Question 7 options:

a) ERTA 1981
b) TRA 1986 
c) EGTRRA 2001 

For income tax purposes, from which court is there no appeal?

Question 8 options:

a) The court of appeals
b) A district court
c) The U.S. Tax Court
d) The Supreme Court

Which of the following is not a method of accounting used for federal income tax purposes?

Question 9 options:

a) The cash method
b) The accrual method 
c) The portfolio method 
d) The hybrid method

How many types of income are in the U.S. income tax system? 

Question 10 options:

a) 2
b) 3
c) 5
d) 8 

Which of the following are sources of substantial authority available for tax research?

• Internal Revenue Code
• Congressional Committee Reports (Blue Book)
• Treasury Regulations
• Private Letter Rulings

Question 11 options:

a) I and II
b) I, II, and III
c)  I, II, and IV
d)  I, II, III, and IV 

Which of the following is the highest legal authority in income tax?

Question 12 options:

a) IRS publications
b) IRS technical advice memorandums
c) Supreme Court decisions
d) IRS revenue rulings

In what year was the Social Security Act created? 

Question 13 options:

a) 1776
b) 1853
c) 1935
d) 1980 

Connor failed to pay $8,000 of income tax due with his return, which was timely filed on April 15th. He waited for 2 months after April 15th to pay the tax. How much will his penalties be?

Question 14 options:

a) $0
b) $80
c)  $800
d) $2,000

Kevin files a fraudulent income tax return and has a $20,000 income tax deficiency because of it. What is the amount of his penalty?

Question 15 options:

a)  $5,000
b) $10,000
c) $15,000
d) $20,000

Which of the following is true regarding tax audits, procedures, and appeals?

Question 16 options:

a) Letter rulings are private and are not available to the public.
b) In order to appeal in a district court, the taxpayer must pay the deficiency and then sue the IRS as the defendant.
c) A taxpayer can always request a jury trial.
d) The dollar limit for the small cases division is $20,000.

John was audited by the IRS and has received an assessment notice of $75,000. He believes he has an excellent but complex tax argument and does not have the money to pay the assessment. What is his best choice of court in which to successfully appeal the IRS's determination?

Question 17 options:

a) The U.S. Court of Federal Claims
b) The U.S. Tax Court
c) The U.S. Tax Court — Small Cases
d) A U.S. District Court

The IRS collects over three billion dollars each year. What is the largest source of collections

Question 18 options:

a) Business income tax
b) Individual and estate and trust income tax
c)  Employment tax

d) Estate and gift tax'

What were the earliest taxes created by Congress in the U.S. called? 

Question 19 options:

a) Estate taxes 
b) Direct taxes 
c) Income taxes 
d) Customs duties 

How many distinct federal tax systems are in the U.S.? 

Question 20 options:

a)  3
b) 4
c) 5
d) 6