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

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.

A VAT value added tax):

If a taxpayer files early i.e., before the due date of the return), the statute of limitations on assessments begins on the date the return is filed.

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

A major advantage of a flat tax type of income tax is its simplicity.

In terms of probability, which of the following taxpayers would be least likely to be audited by the IRS?

When Congress enacts a tax cut that is phased in over a period of years, revenue neutrality is achieved.

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

Julius, a married taxpayer, makes gifts to each of his six children. A maximum of twelve annual exclusions could be allowed as to these gifts.

Which of the following statements about a value added tax VAT) is false?

The Federal estate and gift taxes are examples of progressive taxes.

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 ratification of the Sixteenth Amendment to the U.S. Constitution was necessary to validate the Federal income tax on corporations.

"Bracket creep" is avoided by:

In 2018, José, a widower, sells land fair market value of $100,000) to his daughter, Linda, for $50,000. José has not made a taxable gift.

The Federal excise tax on cigarettes is an example of a proportional tax.

Paige is the sole shareholder of Citron Corporation. During the year, Paige leases a building to Citron for a monthly rental of $80,000. If the fair rental value of the building is $60,000, what are the income tax consequences to the parties involved?

The FICA tax Medicare component) on wages is progressive since the tax due increases as wages increase.

A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis.

Virtually all state income tax returns contain checkoff boxes for donations to various causes. On what grounds has this procedure been criticized?