Exam 1: An Introduction to Taxation

A proportional tax rate is one where the rate of the tax is the same for all taxpayers, regardless of income levels.

The unified transfer tax system

Latashia reports $100,000 of gross income on her 2015 tax return, filed April 15, 2016. She omits $30,000 of income, but the error was not fraudulent. When does the statute of limitations for examining her tax return expire?

Which of the following is not a taxpaying entity?

Generally, the statute of limitations is three years from the later of the date the tax return is filed or the due date.

Describe the nondeductible penalties imposed upon taxpayers for failure to comply.

Gifts made during a taxpayer's lifetime may affect the amount of estate tax paid by the taxpayer's estate.

All of the following are classified as flow-through entities for tax purposes except

Dividends paid from most U.S. corporations are taxed at the same rate as the recipients' salaries and wages.

Rocky and Charlie form RC Partnership as equal partners. Rocky contributes $100,000 into RC while Charlie contributes real estate with a cost and fair market value of $100,000. During the current year, RC earned net income of $600,000. The partnership distributes $200,000 to each partner. The amount that Rocky should report on his individual tax return is

Which of the following individuals is most likely to be audited?

Flow-through entities do not have to file tax returns since they are not taxable entities.

While federal and state income taxes as well as the federal gift and estate taxes are generally progressive in nature, property taxes are proportional.

Anne, who is single, has taxable income for the current year of $38,000 while total economic income is $43,000 resulting in a total tax of $5,356. Anne's average tax rate and effective tax rate are, respectively,

During the current tax year, Charlie Corporation generated gross income of $1,800,000 and had ordinary and necessary deductions of $1,300,000, resulting in taxable income of $500,000. If Charlie Corporation paid qualifying dividends of $200,000 to shareholders, all of whom are in the 25% marginal tax bracket, what is the total tax paid on both corporate income and the corporate dividends?

Thomas dies in the current year and has a gross estate valued at $3,000,000. During his lifetime (but after 1976) Thomas had made taxable gifts of $400,000. The estate incurs funeral and administrative expenses of $100,000 and also pays off Thomas' debts which amount to $300,000. Thomas bequeaths $500,000 to his wife. What is the amount of Thomas' tax base, the amount on which the estate tax is computed?

Which of the following serves as the highest authority for tax research, planning, and compliance activities?

A progressive tax rate structure is one where the rate of tax increases as the tax base increases.

Leonard established a trust for the benefit of his son. The principal amount of the trust is $400,000. The trust is projected to earn approximately 5% per year. In the current year, the trust earned $20,000. Expenses of $4,000 were incurred. Assume that $14,000 is distributed to Leonard's son. a. How much income is taxed to the trust? b. How much income is taxed to Leonard's son?

Explain how returns are selected for audit.