Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

Which of the following is a characteristic of the audit process?

Accepted Answer

A)  Most taxpayer audits involve "special" agents. 
B)  Self-employed taxpayers are less likely to be selected for audit than employed taxpayers. 
C)  Less important issues are handled by means of a correspondence audit. 
D)  If a taxpayer disagrees with the IRS auditor's finding, the only resort is to the courts. 
E)  None of the above. 
A)  Most taxpayer audits involve "special" agents. 
B)  Self-employed taxpayers are less likely to be selected for audit than employed taxpayers. 
C)  Less important issues are handled by means of a correspondence audit. 
D)  If a taxpayer disagrees with the IRS auditor's finding, the only resort is to the courts. 
E)  None of the above. C

Question 4

A characteristic of FICA is that:

Accepted Answer

A)  It does not apply when one spouse works for the other spouse. 
B)  It is imposed only on the employer. 
C)  It provides a modest source of income in the event of loss of employment. 
D)  It is administered by both state and Federal governments. 
E)  None of the above. 
A)  It does not apply when one spouse works for the other spouse. 
B)  It is imposed only on the employer. 
C)  It provides a modest source of income in the event of loss of employment. 
D)  It is administered by both state and Federal governments. 
E)  None of the above.

Question 5

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all.
-Revenue neutrality

Accepted Answer

A) Deferral of gains from involuntary conversions 
B) Carryback and carryforward of net operating losses 
C) "No change" is one possible result 
D) State income tax applied to visiting nonresident 
E) IRS special agent
F)Undoing the "piggyback" result
G)Ideal budget goal as to new tax legislation
H)Every state that has a general sales tax has one
I)Imposed by all states and the Federal government
J)Imposed by some states but not the Federal government
K)Imposed only by the Federal government
L)No correct match provided 
A) Deferral of gains from involuntary conversions 
B) Carryback and carryforward of net operating losses 
C) "No change" is one possible result 
D) State income tax applied to visiting nonresident 
E) IRS special agent
F)Undoing the "piggyback" result
G)Ideal budget goal as to new tax legislation
H)Every state that has a general sales tax has one
I)Imposed by all states and the Federal government
J)Imposed by some states but not the Federal government
K)Imposed only by the Federal government
L)No correct match provided

Question 6

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?

Accepted Answer

Although Eric's audit by the IRS could b

Question 7

Rick, the sole proprietor of an adult entertainment club, is audited by the IRS. On the third day of the field audit, the regular IRS agent is accompanied by a special agent. Should Rick be concerned by this new development? Explain.

Accepted Answer

Yes, he should. Special agents rarely ap

Question 8

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

A) True 
 B)False

Question 9

Match the statements that relate to each other. Note: Some choices may be used more than once.
-No return and statute limitations

Accepted Answer

A) 3 years from date return is filed 
B) 3 years from due date of return 
C) 20% of underpayment 
D) 5% per month (25% limit) 
E) 0.5% per month (25% limit)
F)Conducted at IRS office
G)Conducted at taxpayer's office
H)6 years
I)45-day grace period allowed to IRS
J)No statute of limitations (period remains open)
K)75% of underpayment
L)No correct match provided 
A) 3 years from date return is filed 
B) 3 years from due date of return 
C) 20% of underpayment 
D) 5% per month (25% limit) 
E) 0.5% per month (25% limit)
F)Conducted at IRS office
G)Conducted at taxpayer's office
H)6 years
I)45-day grace period allowed to IRS
J)No statute of limitations (period remains open)
K)75% of underpayment
L)No correct match provided

Question 10

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?

Accepted Answer

Although Brayden has avoided t

Question 11

If an income tax return is not filed by a taxpayer, there is no statute of limitations on assessments of tax by the IRS.

Accepted Answer

A) True 
 B)False

Question 12

Match the statements that relate to each other. Note: Some choices may be used more than once.
-Office audit

Accepted Answer

A) 3 years from date return is filed 
B) 3 years from due date of return 
C) 20% of underpayment 
D) 5% per month (25% limit) 
E) 0.5% per month (25% limit)
F)Conducted at IRS office
G)Conducted at taxpayer's office
H)6 years
I)45-day grace period allowed to IRS
J)No statute of limitations (period remains open)
K)75% of underpayment
L)No correct match provided 
A) 3 years from date return is filed 
B) 3 years from due date of return 
C) 20% of underpayment 
D) 5% per month (25% limit) 
E) 0.5% per month (25% limit)
F)Conducted at IRS office
G)Conducted at taxpayer's office
H)6 years
I)45-day grace period allowed to IRS
J)No statute of limitations (period remains open)
K)75% of underpayment
L)No correct match provided

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Match the statements that relate to each other. Note: Some choices may be used more than once.
-Failure to pay penalty

Accepted Answer

A) 3 years from date return is filed 
B) 3 years from due date of return 
C) 20% of underpayment 
D) 5% per month (25% limit) 
E) 0.5% per month (25% limit)
F)Conducted at IRS office
G)Conducted at taxpayer's office
H)6 years
I)45-day grace period allowed to IRS
J)No statute of limitations (period remains open)
K)75% of underpayment
L)No correct match provided 
A) 3 years from date return is filed 
B) 3 years from due date of return 
C) 20% of underpayment 
D) 5% per month (25% limit) 
E) 0.5% per month (25% limit)
F)Conducted at IRS office
G)Conducted at taxpayer's office
H)6 years
I)45-day grace period allowed to IRS
J)No statute of limitations (period remains open)
K)75% of underpayment
L)No correct match provided

Question 15

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

A) True 
 B)False

Question 16

A VAT (value added tax):

Accepted Answer

A)  Is regressive in its effect. 
B)  Has not proved popular outside of the U.S. 
C)  Is not a tax on consumption. 
D)  Is used exclusively by third world (less developed) countries. 
E)  None of the above. 
A)  Is regressive in its effect. 
B)  Has not proved popular outside of the U.S. 
C)  Is not a tax on consumption. 
D)  Is used exclusively by third world (less developed) countries. 
E)  None of the above.

Question 17

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all.
-Tax on transfers at death (inheritance type)

Accepted Answer

A) Deferral of gains from involuntary conversions 
B) Carryback and carryforward of net operating losses 
C) "No change" is one possible result 
D) State income tax applied to visiting nonresident 
E) IRS special agent
F)Undoing the "piggyback" result
G)Ideal budget goal as to new tax legislation
H)Every state that has a general sales tax has one
I)Imposed by all states and the Federal government
J)Imposed by some states but not the Federal government
K)Imposed only by the Federal government
L)No correct match provided 
A) Deferral of gains from involuntary conversions 
B) Carryback and carryforward of net operating losses 
C) "No change" is one possible result 
D) State income tax applied to visiting nonresident 
E) IRS special agent
F)Undoing the "piggyback" result
G)Ideal budget goal as to new tax legislation
H)Every state that has a general sales tax has one
I)Imposed by all states and the Federal government
J)Imposed by some states but not the Federal government
K)Imposed only by the Federal government
L)No correct match provided

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

There is a Federal excise tax on hotel occupancy.

Accepted Answer

A) True 
 B)False

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

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

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

Which of the following is a characteristic of the audit process?

A characteristic of FICA is that:

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -Revenue neutrality

Rick, the sole proprietor of an adult entertainment club, is audited by the IRS. On the third day of the field audit, the regular IRS agent is accompanied by a special agent. Should Rick be concerned by this new development? Explain.

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.

Match the statements that relate to each other. Note: Some choices may be used more than once. -No return and statute limitations

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?

If an income tax return is not filed by a taxpayer, there is no statute of limitations on assessments of tax by the IRS.

Match the statements that relate to each other. Note: Some choices may be used more than once. -Office audit

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

Match the statements that relate to each other. Note: Some choices may be used more than once. -Failure to pay penalty

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.

A VAT (value added tax):

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -Tax on transfers at death (inheritance type)

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

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

There is a Federal excise tax on hotel occupancy.

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, 1231, and Recapture Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters