Question 1

Under what conditions is it permissible, from an ethical standpoint, for a CPA firm to outsource tax return preparation to a third party?

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Question 2

How do the net operating loss provisions in the tax law mitigate the effect of the annual accounting concept?

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Question 3

In connection with facilitating the function of the IRS in the administration of the tax laws, comment on the utility of the following:

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Question 4

Two months after the burglary of his personal residence, Eric is audited by the IRS.Among the items taken in the burglary was a shoe box containing approximately $50,000 in cash.Eric is the owner and operator of a cash-and-carry liquor store.Eric wonders why he was audited.Can you help explain?

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Question 5

In early July 2012, Gavin is audited by the IRS and a large deficiency is assessed.In October of the same year, his income tax return for the state is audited.What has probably happened?

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Question 6

State and local governments are sometimes forced to find ways to generate additional revenue. Comment on the pros and cons of the following procedures:

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Question 7

The tax law allows an income tax deduction for state and local income taxes.Explain why.

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Question 8

Briana lives in one state and works in the adjoining state.Both states tax the income she earns from her job.Does Briana have any relief from this apparent double taxation of the same income?

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Question 9

Brayden files his Federal income tax return by April 15, but does not pay the tax.Although he expects to pay interest on the large amount of tax he still owes, he feels that the timely filing has avoided any penalties.Is Brayden's assumption correct?

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Question 10

The tax law allows, under certain conditions, deferral of gain recognition for involuntary conversions.

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Question 11

The tax law contains various provisions that encourage home ownership.

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Question 12

Compare civil fraud with criminal fraud with regard to the following:

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Question 13

Your client, Connie, won $12,000 in a football office pool. She sees no reason to include it in her income for several reasons. First, the amount won will not be reported to the IRS. Second, as an average income employee, she is unlikely to be audited by the IRS. Third, she feels that she has probably lost this much in other past office pools. How do you respond?

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Question 14

Can a taxpayer start the 3-year statute of limitations on additional assessments by the IRS by filing his income tax return early (i.e., before the due date)? Can the period be shortened by filing late (i.e., after the due date)?

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Question 15

Congress reacts to judicial decisions that interpret the tax law in different ways.When it approves of a decision, Congress may act to amend the Code to incorporate the holding.When it disapproves, Congress may amend the Code to nullify its effect.Give an example of each one of these congressional reactions.

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Question 16

Melinda has been referred to you by one of your clients.In the past, she has prepared her own income tax returns, but she has become overwhelmed by the increased complexity of the tax law.Consequently, Melinda wants you to prepare her return for calendar year 2012.In reviewing her 2011 return, you note that she has claimed as a deduction the entire cost of a business building that should have been capitalized and depreciated.What course of action should you follow?

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Question 17

Tracy has just been audited and the IRS agent has issued an RAR that assesses a large deficiency.Since Tracy disagrees with the result, her next step is to go to court.Do you agree?

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Question 18

In terms of revenue neutrality, comment on a tax cut enacted by Congress that:

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Question 19

The tax law contains various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education.On what grounds can these provisions be justified?

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