GAC Tax Planning & Compliance 2

Question 1

A government agency discovers it over-withheld federal income taxes from employees during the prior fiscal year. What is the proper corrective action?

Accepted Answer

Issue corrected W-2c forms and refund excess withholding through payroll

Answer

Over-withholding requires corrected W-2c forms and repayment of excess amounts to employees, with corresponding amended filings.

Question 2

Which provision allows governmental entities to exclude interest income on state and local bonds from federal gross income?

Accepted Answer

IRC Section 103

Answer

IRC Section 103 excludes interest on state and local government bonds from the gross income of bondholders for federal tax purposes.

Question 3

A county government enters into a lease-purchase agreement for equipment. For tax purposes, this arrangement is most likely classified as:

Accepted Answer

A tax-exempt financing arrangement under IRC Section 103

Answer

Government lease-purchase agreements typically qualify as tax-exempt financing, with interest paid by the government exempt from federal income tax.

Question 4

Under IRS rules, what is the deadline for a governmental employer to deposit payroll taxes withheld from employees if they are a monthly depositor?

Accepted Answer

By the 15th of the following month

Answer

Monthly depositors must remit payroll taxes by the 15th of the month following the month in which wages were paid.

Question 5

A state government sells land it has held for 20 years at a gain. How is this gain treated for federal tax purposes?

Accepted Answer

Excluded from federal taxation under the governmental immunity doctrine codified in IRC Section 115

Answer

IRC Section 115 excludes income derived from the exercise of essential governmental functions, including gains on property sales, from federal taxation.

(GAC) Governmental Accounting Certification Practice Test

(GAC) Governmental Accounting Certification Practice Test

GAC Tax Planning & Compliance 2