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

Question 1

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

Answer 1

True

Question 2

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.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

The states that impose a general sales tax also have a use tax.

Question 13

Like the Federal counterpart,the amount of the state excise taxes on gasoline do not vary from state to state.

Question 14

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

Question 15

The tax on hotel occupancy is subject to both Federal and state excise taxes.

Question 16

Federal excise tax is no longer imposed on cosmetics.

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

In 2011,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 22

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

Question 23

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 24

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

Question 25

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 26

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

Question 27

Under a state inheritance tax,two heirs,a cousin and a son of the deceased,would be taxed at the same rate.

Question 28

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 2011.

Question 29

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

Question 30

The annual exclusion,currently $13,000,is available for gift but not estate tax purposes.

Question 31

The formula for the Federal income tax on corporations is not the same as that applicable to individuals.

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

The value added tax (VAT)has had wide acceptance in the international community.

Question 42

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

Question 43

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

Question 44

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 45

A calendar year taxpayer files his 2010 Federal income tax return on March 3,2011.The return reflects an overpayment of $6,000,and the taxpayer requests a refund of this amount.The refund is paid on May 18,2011.The refund must include interest.

Question 46

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

Question 47

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

Question 48

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

Question 49

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

Question 50

A major disadvantage of a flat tax type of income tax is its complexity.

Question 51

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 52

A parent employs his twin daughters,age 19,in his sole proprietorship.The daughters are not subject to FICA coverage.

Question 53

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 54

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

Question 55

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

Question 56

In a field audit,the audit by the IRS takes place at the office of the IRS.

Question 57

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

Question 58

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

Question 59

For individual taxpayers,the interest rate for income tax refunds (overpayments)is not the same as that applicable to assessments (underpayments).

Question 60

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

Question 61

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 62

Congress has enacted a provision to allow a deduction for state and local sales taxes.Such a provision can be justified on social grounds.

Question 63

To mitigate the effect of the annual accounting period concept,the tax law permits the carryback and carryforward to other years of the net operating loss of a particular year.

Question 64

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 65

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

Question 66

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 67

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

Question 68

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

Question 69

For the negligence penalty to apply,the underpayment must be caused by intentional disregard of rules and regulations with intent to defraud.

Question 70

In preparing an income tax return,the use of a client's estimates is permitted.

Question 71

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 72

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

Question 73

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 74

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 75

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

Question 76

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 77

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

Question 78

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

Question 79

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 only $25,000.

Question 80

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