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

In 2016, Deborah became 65 years old. In 2017 she added a swimming pool, and in 2018 she converted the residence to rental property and moved into an assisted living facility. Since 2015, Deborah's ad valorem property taxes have decreased once and increased twice. Explain.

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

Two years ago, State Y enacted a new income tax credit for college prep materials. The credit is available to individuals and is equal to 40 percent of the cost of the items. The credit may not exceed $50 in any year. The State Y Director of Finance has discovered this year that the amount of credit claimed is far higher than expected. Which principle of good tax policy might not have been considered in designing this tax which caused the original cost estimate to be too low?

Like the Federal counterpart, the amount of the state excise taxes on gasoline varies from state to state.

Jane is the tax director for Tangent Software Corporation. She is unsure whether Tangent is required to charge sales tax when software is provided to customers in State X via the "cloud." This indicates that the sales tax does not meet the principle of:

Some states use their state income tax return as a means of collecting unpaid sales and use taxes.

Sally's neighbor often brags that his employer often pays him in cash "off the books" to save him taxes. Sally is tired of hearing this and contacts the IRS to report the neighbor. If this tip results in taxes collected by the IRS, Sally will likely receive an award of a portion of the tax and penalties collected.

The IRS is required to redetermine the interest rate on underpayments and overpayments once a year.

A rationale for the installment method tax rule is:

The quote engraved on the IRS building in Washington, DC, at the entrance states:

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.

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

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.

Taxes not imposed by the Federal government include:

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

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?

Under state amnesty programs, all delinquent and unpaid income taxes are forgiven.

Taxes levied by both states and the Federal government include:

Because the law is complicated, most individual taxpayers are not able to complete their Federal income tax returns without outside assistance.

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