Exam 1: Introduction to Taxation

A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles.

Indicate which,if any,statement is incorrect.State income taxes:

Mona inherits her mother's personal residence,which she converts to a furnished rent house.These changes should affect the amount of ad valorem property taxes levied on the properties.

The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use personalty.

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 2013 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?

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

The principal objective of the FUTA tax is to provide some measure of retirement security.

State income taxes generally can be characterized by:

Jason's business warehouse is destroyed by fire.As the insurance proceeds exceed the basis of the property,a gain results.If Jason shortly reinvests the proceeds in a new warehouse,no gain is recognized due to the application of the wherewithal to pay concept.

As it is consistent with the wherewithal to pay concept,the tax law requires a seller to recognize gain in the year the installment sale occurs.

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 2013.

The tax law contains various provisions that encourage home ownership. a. On what basis can this objective be justified? b. Are there any negative considerations? Explain

A characteristic of FICA is that:

Rachel is the sole member of an LLC,and Jordan is the sole shareholder of a C corporation.Both businesses were started in the current year,and each business has a long-term capital gain of $10,000 for the year.Neither business made any distributions during the year.With respect to this information,which of the following statements is correct?

Not all of the states that impose a general sales tax also have a use tax.

What is a limited liability company? What favorable nontax and tax attributes does the LLC entity form offer taxpayers?

Provisions in the tax law that promote energy conservation and more use of alternative (non-fossil)fuels can be justified by:

Various tax provisions encourage the creation of certain types of retirement plans.Such provisions can be justified on both economic and social grounds.

A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no such taxes.

Which,if any,of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS)?