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Annette Nellen

What's Your Tax System IQ?

Take the quiz and find out how much you really know.

March 13, 2008
by Annette Nellen, CPA/Esq.

While tax season tests our technical tax knowledge daily, here is an opportunity to take a break and test your knowledge about our federal tax system.

Answers to this quiz can be found at the bottom of this article.

Questions

  1. IRS tax revenue collections for fiscal year 2006 were approximately $______ trillion.
  2. The individual income tax was the largest portion of these tax collections, representing ___% of the total.
  3. For 2005, _____ million individual tax returns were filed showing combined taxable income of $_____ trillion.
    1. 108; 2.8
    2. 124; 3.5
    3. 134; 5.1
    4. 149; 6.8
  4. For 2005, ___% of individual returns claimed itemized deductions.
  5. For 2005, ____% of individual returns reported AGI of $1 million or more.
  6. For the 2004 tax return year, identify the following entity data as belonging to (i) corporations (non-S), (ii) S corporations, (iii) partnerships, and (iv) non-farm sole proprietorships:
    1. 2,039,631 businesses; $18.0 trillion of total receipts
    2. 2,546,877 businesses; $3.0 trillion of total receipts
    3. 3,518,334 businesses; $4.7 trillion of total receipts
    4. 20,590,691 businesses; $1.1 trillion of total receipts
  7. For the 2005 tax return year, LLCs represented ___% of partnership returns filed.
  8. Gas guzzler excise tax collections for fiscal year 2006 were:
    1. $1 million
    2. $50 million
    3. $120 million
    4. $200 million
    5. $300 million
  9. In fiscal year 2006, which category of Form 1040s had the highest IRS audit rate?
    1. Non-business returns with total positive income (TPI) under $25,000
    2. Non-business returns with TPI of $100,000 or more
    3. Non-farm business returns with total gross receipts (TGR) under $25,000
    4. Non-farm business returns with TGR of $100,000 or more
    5. Farm business returns with TGR of $100,000 or more
  10. Which category of tax return had the higher examination rate for fiscal year 2006?
    1. Individuals (Form 1040)
    2. Large corporations with assets of $250 million or more
    3. Estates of $5 million or more
  11. For fiscal year 2002 through 2004, corporations with assets of $250 million or more were more likely to be audited by the IRS if they were in which of the following industry sectors?
    1. Financial services
    2. Communications, technology and media
    3. Retail
    4. Heavy manufacturing
    5. Natural resources
  12. The largest federal "tax expenditure"* for fiscal year 2007 as estimated by the Joint Committee on Taxation was:
    1. Mortgage interest deduction
    2. Earned income tax credit (EITC)
    3. Reduced tax rate on dividends and long-term capital gains
    4. Tax credit for children under age 17
    5. Exclusion for employer-provided health care benefits
    6. Exclusion for employer pension contributions
      * Federal budget law defines "tax expenditures" as "revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability." Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2007-2011 (PDF), JCS-3-07 (9/07), p. 2.
  13. For 2006, the percentage of the tax expenditure for mortgage interest deduction attributed to individuals with $100,000 or more of income was: (income for this purpose includes some non-taxable income)
    1. 22%
    2. 34%
    3. 47%
    4. 64%
    5. 73%
  14. For tax year 2005, how many taxpayers received assistance from the IRS via telephone?
    1. 35 million
    2. 42 million
    3. 57 million
    4. 63 million
  15. For tax year 2005, how many returns were prepared at Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites?
    1. 1.2 million
    2. 1.9 million
    3. 2.3 million
    4. 3.2 million

Answers

  1. Per the IRS, gross collections for fiscal 2006 were $2,518,680,230,000.
  2. Per the IRS, individual income tax collections for fiscal 2006 were $1,236,259,371,000 (49%). Corporate income taxes represented 15.1 percent of IRS collections, employment taxes 32.4 percent, excise taxes 2.3 percent and estate and gift taxes 1.1 percent.
  3. C. Per the IRS (PDF) (p. 5), 134.4 million individual returns were filed in the 2005 tax year (2.2 million more than for 2004). These returns reported a total of $5.1 trillion of taxable income (10% increase from 2004).
  4. Per the IRS (PDF) (p. 8), 35.5 percent of individual returns claimed itemized deductions.
  5. Per the IRS (PDF) (p. 11), 0.23 percent of 2005 returns reported AGI of $1 million or more. The breakdown:

    AGI

    % of total returns

    Under $10,000

    18.9

    $10,000 to $19,999

    16.9

    $20,000 to $29,999

    13.8

    $30,000 to $49,999

    18.3

    $50,000 to $99,999

    21.4

    $100,000 to $199,999

    8.0

    $200,000 to $499,999

    2.0

    $500,000 - $999,999

    0.4

    $1,000,000 and greater

    0.2

  6. Per IRS (PDF) data (pgs. 286, 289), A — (i) corporations; B — (iii) partnerships; C — (ii) S corporations; and D — (iv) non-farm sole proprietorships.
  7. 53 percent. Per IRS (PDF) data (p. 75), LLCs have represented the greatest percentage of partnership returns filed since 2002. Prior to 2002, general partnerships were predominant.
  8. D. Per IRS data, $201,649,000 of gas guzzler excise tax (IRC §4064) was collected in fiscal year 2006, up from $79.7 million in 2002.
  9. D. Per IRS data, 3.9 percent of Form 1040 business returns with TGR of $100,000 were examined. The percent examined for the other categories was 1.5 percent for nonbusiness returns with TPI under $25,000, 1.3 percent for non-business returns with TPI of $100,000 or more, 3.8 percent for non-farm business returns with TGR under $25,000, and 0.6 percent for farm business returns with TGR of $100,000 or more.
  10. B. Per IRS data, 35.2 percent of large corporate returns with assets of $250 million or more were examined in fiscal year 2006. For these returns, the average recommended additional tax per return from a field audit was $6,151,813 and 11 percent of field audits resulted in no change. The percentage of returns examined in fiscal year 2006 was 1.0 percent for individuals, 23.4 percent for estates of $5 million or more, and 0.4 percent for partnerships and S corporations.
  11. D and E. Per Transactional Records Access Clearinghouse (TRAC) data, large corporations in natural resources, construction, heavy manufacturing and transportation industries faced a 100 percent audit rate while large corporations in the financial services sector had a 15 percent audit rate, communications, technology and media a 64 percent audit rate, and retail, food, health care and pharmaceuticals businesses an 81 percent audit rate.
  12. C. Per Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2007-2011 (PDF), JCS-3-07 (9/07). The estimated "cost" of each of the listed items for 2007:
    • Reduced tax rate on dividends and long-term capital gains $127.1 billion
    • Exclusion for employer pension contributions $108.6 billion
    • Exclusion for employer-provided health care benefits $105.7
    • Mortgage interest deduction $73.7 billion
    • Tax credit for children under age 17 $45.0 billion
    • Earned income tax credit $44.7 billion
  13. E. Per Joint Committee on Taxation, JCS-3-07 (PDF) (p. 43); 10.4 percent of the benefit was attributable to individuals in the $50,000 to $75,000 income class and 12.8 percent to those in the $75,000 to $100,000 income class.
  14. C. Per IRS data, 56,993,000 individuals received telephone support from the IRS, including recorded information.
  15. C. Per IRS data, 2,268,000 returns were prepared at VITA and TCE sites, up from 2,111,000 for tax year 2004.
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Annette Nellen,, CPA, Esq., is a tax professor and Director of the MST Program at San José State University and an Irvine Fellow at the New America Foundation. Nellen is an active member of the tax sections of the ABA and AICPA. She has several reports on federal and state tax reform and a blog.