Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

On occasion, Congress has to enact legislation that clarifies the tax law in order to change a result reached by the U.S. Supreme Court.

Accepted Answer

A) True 
 B)False

Question 3

Match the statements that relate to each other. Note: Some choices may be used more than once.
-More than 25% gross income omission and statute of 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 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

For individual taxpayers, the interest rate for income tax refunds (overpayments) is the same as that applicable to assessments (underpayments).

Accepted Answer

A) True 
 B)False

Question 7

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?

Accepted Answer

Social and economic considerat

Question 8

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

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

Although states have a right to levy an

Question 11

Using the choices provided below, show the justification for each provision of the tax law listed.
-Additional depreciation deduction allowed for the year the asset is acquired.

Accepted Answer

A) Economic considerations 
B) Social considerations 
C) Equity considerations 
A) Economic considerations 
B) Social considerations 
C) Equity considerations

Question 12

Using the choices provided below, show the justification for each provision of the tax law listed.
-More rapid expensing for tax purposes of the costs of installing pollution control devices.

Accepted Answer

A) Economic considerations 
B) Social considerations 
C) Equity considerations 
A) Economic considerations 
B) Social considerations 
C) Equity considerations

Question 13

Using the choices provided below, show the justification for each provision of the tax law listed.
-A bribe to the local sheriff, although business related, is not deductible.

Accepted Answer

A) Economic considerations 
B) Social considerations 
C) Equity considerations 
A) Economic considerations 
B) Social considerations 
C) Equity considerations

Question 14

What is the difference between an inheritance tax and an estate tax? Who imposes these taxes?

Accepted Answer

An inheritance tax is a tax on the right

Question 15

In 1985, Roy leased real estate to Drab Corporation for 20 years. Drab Corporation made significant capital improvements to the property. In 2005, Drab 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 2014 for $1,200,000 of which $900,000 is attributable to the improvements. When is Roy taxed on the improvements made by Drab Corporation?

Accepted Answer

Roy is not subject to taxation on the im

Question 16

Which, if any, of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate?

Accepted Answer

A)  A resident dies and leaves his farm to his church. 
B)  A large property owner issues a conservation easement as to some of her land. 
C)  A tax holiday issued 10 years ago has expired. 
D)  A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons. 
E)  None of the above. 
A)  A resident dies and leaves his farm to his church. 
B)  A large property owner issues a conservation easement as to some of her land. 
C)  A tax holiday issued 10 years ago has expired. 
D)  A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons. 
E)  None of the above.

Question 17

Taxes levied by both states and the Federal government include:

Accepted Answer

A)  General sales tax. 
B)  Custom duties. 
C)  Hotel occupancy tax. 
D)  Franchise tax. 
E)  None of the above. 
A)  General sales tax. 
B)  Custom duties. 
C)  Hotel occupancy tax. 
D)  Franchise tax. 
E)  None of the above.

Question 18

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 2014.

Accepted Answer

A) True 
 B)False

Question 19

What are the pros and cons of the following state and local tax provisions?
a. An ad valorem property tax holiday made available to a manufacturing plant that is relocating.
b. Hotel occupancy tax and a rental car surcharge.
c. A back-to-school sales tax holiday.

Accepted Answer

a. Such a holiday is designed to attract

Question 20

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

Accepted Answer

A) True 
 B)False

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

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

On occasion, Congress has to enact legislation that clarifies the tax law in order to change a result reached by the U.S. Supreme Court.

Match the statements that relate to each other. Note: Some choices may be used more than once. -More than 25% gross income omission and statute of limitations

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

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

For individual taxpayers, the interest rate for income tax refunds (overpayments) is the same as that applicable to assessments (underpayments).

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?

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.

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

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

Using the choices provided below, show the justification for each provision of the tax law listed. -Additional depreciation deduction allowed for the year the asset is acquired.

Using the choices provided below, show the justification for each provision of the tax law listed. -More rapid expensing for tax purposes of the costs of installing pollution control devices.

Using the choices provided below, show the justification for each provision of the tax law listed. -A bribe to the local sheriff, although business related, is not deductible.

What is the difference between an inheritance tax and an estate tax? Who imposes these taxes?

Which, if any, of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate?

Taxes levied by both states and the Federal government include:

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 2014.

What are the pros and cons of the following state and local tax provisions? a. An ad valorem property tax holiday made available to a manufacturing plant that is relocating. b. Hotel occupancy tax and a rental car surcharge. c. A back-to-school sales tax holiday.

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

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

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