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

Question 1

Mona inherits her mother's personal residence,which she converts to a furnished rent house.These changes should not affect the amount of ad valorem property taxes levied on the properties.

Answer 1

False

Question 2

Unlike the Federal counterpart,the state excise taxes on gasoline do vary from state to state.

Answer 2

True

Question 3

Federal excise tax is no longer imposed on wagering.

Answer 3

False

Question 4

Because they are politically unpopular,many cities are reducing or eliminating their hotel occupancy and car rental surcharges.

Question 5

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

Question 6

As long as the property tax rates are not changed,the ad valorem taxes imposed on realty will remain the same.

Question 7

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

Question 8

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

Question 9

Sales made by mail order are exempt from the application of a general sales (or use)tax.

Question 10

The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith's canon of equality.

Question 11

The retail sales of tobacco products are subject to both Federal and state excise taxes.

Question 12

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

Question 13

Some states impose a general sales tax while other states have a use tax.

Question 14

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

Question 15

Although the law is complicated,most individual taxpayers are able to complete their Federal income tax returns without outside assistance.

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

Currently,the tax base for the Medicare component of the FICA is limited to a dollar amount.

Question 23

A safe and easy way for a taxpayer to avoid local and state sales taxes is to have the purchase sent to an address in another state that levies no such taxes.

Question 24

Some states have offered income tax amnesty programs on more than one occasion.

Question 25

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

Question 26

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 2009.

Question 27

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 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

In 2010,José,a widower,sells land (fair market value of $100,000)to his daughter,Linda,for $50,000.José has made a taxable gift of $37,000.

Question 34

An inheritance tax is a tax on an heir's right to receive property from a decedent.

Question 35

On transfers by death,the Federal government relies on an estate tax,while states use only an inheritance tax.

Question 36

A state income tax cannot be imposed on nonresident taxpayers who earn income within the state or on an itinerant basis.

Question 37

The annual exclusion,currently $13,000,is available for both gift and estate tax purposes.

Question 38

Canceling a scheduled sales tax holiday has proven to be an easy way to generate more state and local revenue.

Question 39

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

Question 40

Under the Tax Relief Reconciliation Act of 2001,only the Federal estate tax is scheduled to be repealed.

Question 41

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

Question 42

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 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

The IRS agent auditing the return will not issue an RAR if the taxpayer owes no additional taxes.

Question 50

The amount of a taxpayer's itemized deductions will not increase the chance of being audited by the IRS.

Question 51

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 all of the $40,000.

Question 52

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

Question 53

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

Question 54

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

Question 55

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

Question 56

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 57

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

Question 58

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

Question 59

A calendar year taxpayer files his 2009 Federal income tax return on March 3,2010.The return reflects an overpayment of $5,200,and the taxpayer requests a refund of this amount.The refund is paid on June 18,2010.The refund must include interest.

Question 60

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

Question 61

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

Question 62

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

Question 63

Which,if any,of the following taxes are proportional (rather than progressive)?

A)Federal corporate income tax.
B)Federal gift tax.
C)Federal estate tax.
D)Federal employment taxes (i.e. ,FICA,FUTA).
E)All of the above.

Question 64

Which,if any,is not one of Adam Smith's canons of taxation?

A)Economy.
B)Certainty.
C)Equality.
D)Convenience.
E)Simplicity.

Question 65

Stealth taxes have the effect of generating additional taxes from lower income taxpayers.

Question 66

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 social grounds.

Question 67

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 took place.

Question 68

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 69

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

Question 70

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 71

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

Question 72

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

Question 73

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 inconsistent with generally accepted accounting principles.

Question 74

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

Question 75

In cases of doubt,courts have held that tax relief provisions should be broadly construed in favor of taxpayers.

Question 76

Which,if any,of the following statements best describes the history of the Federal income tax?

A)It existed during the Civil War.
B)The Federal income tax on corporations was held by the U.S.Supreme Court to be contrary to the U.S.Constitution.
C)The Federal income tax on individuals was held by the U.S.Supreme Court to be allowable under the U.S.Constitution.
D)Both the Federal income tax on individuals and on corporations was held by the U.S.Supreme Court to be contrary to the U.S.Constitution.
E)None of the above.

Question 77

In 2004,Congress enacted a provision to allow a deduction for state and local sales taxes.Such a provision can be justified on equity grounds.

Question 78

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 79

On occasion,Congress has to enact legislation that clarifies the tax law in order to change a result reached by the U.S.Supreme Court.

Question 80

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.