Question 1

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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The answer of Two months after the burglary of his...

Question 2

Morgan inherits her father's personal residence including all of the furnishings.She plans to add a swimming pool and sauna to the property and rent it as a furnished house.What are some of the ad valorem property tax problems Morgan can anticipate?

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The answer of Morgan inherits her father's personal residence including...

Question 3

Paige is the sole shareholder of Citron Corporation.During the year,Paige leases a building to Citron for a monthly rental of $80,000.If the fair rental value of the building is $60,000,what are the income tax consequences to the parties involved?

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Question 4

In early July 2011,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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The answer of In early July 2011,Gavin is audited by...

Question 5

The Federal income tax is based on a pay-as-you-go system and has become a "mass tax." Explain this statement.

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Question 6

In terms of Adam Smith's canons of taxation,how does the Federal income tax fare as far as economy is concerned?

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Question 7

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 8

Tom,a calendar year taxpayer,filed his 2006 Federal income tax return on April 3,2007.In 2011,the IRS audits this return and assesses an income tax deficiency against Tom.On the grounds that the statute of limitations has run,Tom disputes the assessment.Is Tom correct? Why?

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The answer of Tom,a calendar year taxpayer,filed his 2006 Federal...

Question 9

In 1985,Roy leased real estate to Drab Corporation for 20 years.Drab Corporation made significant capital improvements to the property.In 2005,Roy decides not to renew the lease and vacates the property.At that time,the value of the improvements is $800,000.Roy sells the real estate in 2011 for $1,200,000 of which $900,000 is attributable to the improvements.How and when is Roy taxed on the improvements made by Drab Corporation?

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The answer of In 1985,Roy leased real estate to Drab...

Question 10

Due to the population change,the Goose Creek School District has decided to close one of its high schools.Since it has no further need of the property,the school is listed for sale.The two bids it receives are as follows:
  The United Methodist Church would use the property to establish a sectarian middle school.Planet,a well-known car dealership,would revamp the property and operate it as a branch location.
If you were a member of the School District board,what factors would you consider in evaluating the two bids?

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The answer of Due to the population change,the Goose Creek...

Question 11

Virtually all state income tax returns contain checkoff boxes for donations to various causes.On what grounds has this procedure been criticized?

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Question 12

With regard to state income taxes,explain what is meant by the "jock tax"?

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Question 13

Several years ago,Ted purchased extra grazing land for his ranch at a cost of $40,000.In 2011,the land is condemned by the state for development as a highway maintenance depot.Under the condemnation award,Ted receives $100,000 for the land.Within the same year,he replaces the property with other grazing land.What is Ted's tax situation if the replacement land cost:

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Question 14

Comment on the following items relating to IRS audit situations:

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Question 15

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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The answer of Tracy has just been audited and the...

Question 16

In 2009,Deborah became 65 years old.In 2010 she added a swimming pool,and in 2011 she converted the residence to rental property and moved into an assisted living facility.Since 2008,Deborah's ad valorem property taxes have decreased once and increased twice.Explain.

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The answer of In 2009,Deborah became 65 years old.In 2010...

Question 17

A lack of compliance in the payment of use taxes can be eased by several means.In this regard,comment on the following:

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Question 18

Timothy recently converted a warehouse into apartment lofts,which he is renting to single professionals.In making the conversion,he emphasized improvements that were portable in nature.Thus,the sprinkler system,heating and cooling units,and room dividers are all removable from the building.In terms of ad valorem property taxes,what was Timothy trying to accomplish?

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Question 19

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 20

What are the pros and cons of the following state and local tax provisions?

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