Deck 1: An Introduction to Taxation and Understanding the Federal Tax Law

Question 1

Currently, the Federal income tax is less progressive than it ever has been in the past.

Answer 1

False

Question 2

There is a Federal excise tax on hotel occupancy.

Answer 2

False

Question 3

The ratification of the Sixteenth Amendment to the U.S. Constitution was necessary to validate the Federal income tax on corporations.

Answer 3

False

Question 4

The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use personalty.

Question 5

A Federal excise tax is no longer imposed on admission to theaters.

Question 6

Because the law is complicated, most individual taxpayers are not able to complete their Federal income tax returns without outside assistance.

Question 7

Like the Federal counterpart, the amount of the state excise taxes on gasoline varies from state to state.

Question 8

The Federal estate and gift taxes are examples of progressive taxes.

Question 9

A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty.

Question 10

Mona inherits her mother's personal residence, which she converts to a furnished rent house.
These changes should affect the amount of ad valorem property taxes levied on the properties.

Question 11

The Federal income tax on individuals generates more revenue than the Federal income tax on corporations.

Question 12

The Federal excise tax on cigarettes is an example of a proportional tax.

Question 13

Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same.

Question 14

Before the Sixteenth Amendment to the Constitution was ratified, there was no valid Federal income tax on individuals.

Question 15

The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the U.S.

Question 16

Sales made by mail order are not exempt from the application of a general sales (or use) tax.

Question 17

The FICA tax (Medicare component) on wages is progressive since the tax due increases as wages increase.

Question 18

The first income tax on individuals (after the ratification of the Sixteenth Amendment to the Constitution) levied tax rates from a low of 2% to a high of 6%.

Question 19

The pay­as­you­go feature of the Federal income tax on individuals conforms to Adam Smith's canon of certainty.

Question 20

Not all of the states that impose a general sales tax also have a use tax.

Question 21

When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax purposes.

Question 22

The formula for the Federal income tax on corporations is the same as that applicable to individuals.

Question 23

A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no such taxes.

Question 24

For Federal income tax purposes, there never has been a general amnesty period.

Question 25

A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis.

Question 26

One of the motivations for making a gift is to save on income taxes.

Question 27

States impose either a state income tax or a general sales tax, but not both types of taxes.

Question 28

On transfers by death, the Federal government relies on an estate tax, while states impose an estate tax, an inheritance tax, both taxes, or neither tax.

Question 29

In 2014, José, a widower, sells land (fair market value of $100,000) to his daughter, Linda, for $50,000. José has not made a taxable gift.

Question 30

The annual exclusion, currently $14,000, is available for gift and estate tax purposes.

Question 31

One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from being accumulated within the family unit.

Question 32

Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same rate.

Question 33

Some states use their state income tax return as a means of collecting unpaid sales and use taxes.

Question 34

Under Clint's will, all of his property passes to either the Lutheran Church or to his wife. No Federal estate tax will be due on Clint's death in 2014.

Question 35

Julius, a married taxpayer, makes gifts to each of his six children. A maximum of twelve annual exclusions could be allowed as to these gifts.

Question 36

For state income tax purposes, a majority of states allow a deduction for Federal income taxes.

Question 37

An inheritance tax is a tax on a decedent's right to pass property at death.

Question 38

Under state amnesty programs, all delinquent and unpaid income taxes are forgiven.

Question 39

Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.

Question 40

No state has offered an income tax amnesty program more than once.

Question 41

If more IRS audits are producing a greater number of no change results, this indicates increased compliance on the part of taxpayers.

Question 42

In an office audit, the audit by the IRS takes place at the office of the taxpayer.

Question 43

A parent employs his twin daughters, age 17, in his sole proprietorship. The daughters are not subject to FICA coverage.

Question 44

Unlike FICA, FUTA requires that employers comply with state as well as Federal rules.

Question 45

If a taxpayer files early (i.e., before the due date of the return), the statute of limitations on assessments begins on the date the return is filed.

Question 46

The value added tax (VAT) has not had wide acceptance in the international community.

Question 47

If an income tax return is not filed by a taxpayer, there is no statute of limitations on assessments of tax by the IRS.

Question 48

A calendar year taxpayer files his 2013 Federal income tax return on March 5, 2014. The return reflects an overpayment of $6,000, and the taxpayer requests a refund of this amount. The refund is paid on May 16, 2014. The refund need not include interest.

Question 49

For individual taxpayers, the interest rate for income tax refunds (overpayments) is the same as that applicable to assessments (underpayments).

Question 50

The principal objective of the FUTA tax is to provide some measure of retirement security.

Question 51

The amount of a taxpayer's itemized deductions will increase the chance of being audited by the IRS.

Question 52

For omissions from gross income in excess of 25% of that reported, there is no statute of limitations on additional income tax assessments by the IRS.

Question 53

When interest is charged on a deficiency, any part of a month counts as a full month.

Question 54

If a "special agent" becomes involved in the audit of a return, this indicates that the IRS suspects that fraud is involved.

Question 55

A major advantage of a flat tax type of income tax is its simplicity.

Question 56

The IRS is required to redetermine the interest rate on underpayments and overpayments once a year.

Question 57

The IRS agent auditing the return will issue an RAR even if the taxpayer owes no additional taxes.

Question 58

During any month in which both the failure to file penalty and the failure to pay penalty apply, the failure to file penalty is increased by the amount of the failure to pay penalty.

Question 59

If fraud is involved, there is no time limit on the assessment of a deficiency by the IRS.

Question 60

Currently, the tax base for the Social Security component of the FICA is not limited to a dollar amount.

Question 61

The objective of pay-as-you-go (paygo) is to achieve revenue neutrality.

Question 62

The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. These provisions can be justified on both economic and equity grounds.

Question 63

Various tax provisions encourage the creation of certain types of retirement plans. Such provisions can be justified on both economic and social grounds.

Question 64

As it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize gain in the year the installment sale occurs.

Question 65

A CPA firm in California sends many of its less complex tax returns to be prepared by a group of accountants in India. If certain procedures are followed, this outsourcing of tax return preparation is proper.

Question 66

Even though a client refuses to correct an error on a past return, it may be possible for a practitioner to continue to prepare returns for the client.

Question 67

Upon audit by the IRS, Faith is assessed a deficiency of $40,000 of which $25,000 is attributable to negligence. The 20% negligence penalty will apply to $25,000.

Question 68

In preparing an income tax return, the use of a client's estimates is not permitted.

Question 69

In preparing a tax return, all questions on the return must be answered.

Question 70

To mitigate the effect of the annual accounting period concept, the tax law permits the carryforward to other years of the excess charitable contributions of a particular year.

Question 71

If the tax deficiency is attributable to fraud, the negligence penalty will not be imposed.

Question 72

The civil fraud penalty can entail large fines and possible incarceration.

Question 73

To lessen, or eliminate, the effect of multiple taxation, a taxpayer who is subject to both foreign and U.S. income taxes on the same income is allowed either a deduction or a credit for the foreign tax paid.

Question 74

Jason's business warehouse is destroyed by fire. As the insurance proceeds exceed the basis of the property, a gain results. If Jason shortly reinvests the proceeds in a new warehouse, no gain is recognized due to the application of the wherewithal to pay concept.

Question 75

A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.

Question 76

A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles.

Question 77

Stealth taxes have the effect of generating additional taxes from all taxpayers.

Question 78

When Congress enacts a tax cut that is phased in over a period of years, revenue neutrality is achieved.

Question 79

As a matter of administrative convenience, the IRS would prefer to have Congress decrease (rather than increase) the amount of the standard deduction allowed to individual taxpayers.

Question 80

For the negligence penalty to apply, the underpayment must be caused by intentional disregard of rules and regulations without intent to defraud.