Question 1

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.

Accepted Answer

This statement is false. The IRS does not have a preference for increasing or decreasing the standard deduction. Their job is to administer the tax code as it is written by Congress.

Question 2

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.

Accepted Answer

This statement is true. The annual accounting period concept requires taxpayers to report their income and expenses for a specific period of time, typically one year. However, if a taxpayer makes excess charitable contributions in a particular year, the tax law allows them to carry forward the excess to future years and claim a deduction in those years. This helps to mitigate the effect of the annual accounting period concept and provides taxpayers with some flexibility in managing their tax liabilities.

Question 3

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.

Accepted Answer

This is true, as stated in the text, 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 to eliminate or lessen the effect of multiple taxation.

Question 4

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.

Accepted Answer

The question states that $25,000 is attributable to negligence, therefore the 20% negligence penalty would only apply to that portion of the deficiency.

Question 5

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.

Accepted Answer

The answer of The tax law provides various tax credits,deductions,and...

Question 6

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.

Accepted Answer

The answer of As it is consistent with the wherewithal...

Question 7

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.

Accepted Answer

As long as certain procedures are followed, outsourcing of tax return preparation to accountants in India or other countries is allowed by the IRS. These procedures include obtaining consent from the client, ensuring data security and confidentiality, and maintaining quality control over the outsourced work.

Question 8

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.

Accepted Answer

Generally Accepted Accounting Principles (GAAP) allow for the recognition of revenue when it is earned, not necessarily when it is received. This principle is in contrast to the described provision that requires tax on prepaid income to be paid in the year received.

Question 9

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.

Accepted Answer

This statement is correct. According to the wherewithal to pay concept in tax law, if the proceeds from the insurance policy on a destroyed property are reinvested in a similar property or used to pay off the mortgage, the gain should not be recognized for tax purposes. Therefore, if Jason reinvests the insurance proceeds in a new warehouse shortly after the fire, no gain will be recognized on the insurance proceeds.

Question 10

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

Accepted Answer

The answer of For the negligence penalty to apply,the underpayment...

Question 11

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

Accepted Answer

Revenue neutrality refers to the concept where changes in tax policy do not affect the overall revenue generated by the government. Therefore, if Congress enacts a tax cut that is phased in over a period of years, it will not achieve revenue neutrality as it will result in a decrease in government revenue over time.

Question 12

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

Accepted Answer

Not all questions on a tax return may apply to every taxpayer. Only relevant questions should be answered, and if a question is not applicable, it can be left blank or filled with "N/A" or "0". Answering incorrectly or leaving out information can result in penalties or errors on the return.

Question 13

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

Accepted Answer

Tax provisions that encourage the creation of retirement plans can have economic benefits by promoting savings and investment, as well as social benefits by supporting individuals in their later years and reducing the burden on government programs.

Question 14

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

Accepted Answer

The civil fraud penalty typically involves monetary fines and does not include incarceration, which is a consequence associated with criminal fraud, not civil fraud.

Question 15

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

Accepted Answer

The objective of pay-as-you-go (paygo) is to achieve revenue neutrality, which means that the revenue collected from current participants is enough to cover the benefits paid out to current retirees. Therefore, paygo aims to keep the system financially stable without relying on external funding or accumulating debt.

Question 16

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

Accepted Answer

Stealth taxes often target specific groups or behaviors, rather than generating additional taxes from all taxpayers. They can be structured in ways that may not affect everyone equally.

Question 17

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

Accepted Answer

Estimates provided by the client can be used in preparing an income tax return, but the tax preparer must exercise due diligence to ensure that the estimates are reasonable and supported by appropriate documentation.

Question 18

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

Accepted Answer

A sunset provision means the tax cut will expire or end after a certain period of time, making it temporary.

Question 19

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

Accepted Answer

According to the tax laws, if a tax deficiency is due to fraud, then the IRS can impose a civil fraud penalty on top of the taxes owed. In such cases, the negligence penalty is not imposed. Therefore, the statement is true.

Question 20

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.

Accepted Answer

While it may be concerning that a client refuses to correct an error on a past return, it is not necessarily a reason to discontinue preparing their returns in the future. However, the practitioner should still make sure to accurately report all information and follow ethical guidelines.

Quiz 1: An Introduction to Taxation and Understanding the Federal Law