Question 1

The AICPA Statements on Standards for Tax Services are:

Accepted Answer

A)  Enforceable. 
B)  Educational. 
C)  Out of date. 
D)  Do not exist. 
A)  Enforceable. 
B)  Educational. 
C)  Out of date. 
D)  Do not exist.

Question 2

Using the following choices, 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 
D) Both a. and b. 
A) Economic considerations 
B) Social considerations 
C) Equity considerations 
D) Both a. and b.

Question 3

Match the statements that relate to each other. Note: Some choices may be used more than once.
-Failure to pay penalty

Accepted Answer

A) Three years from date return is filed 
B) Three 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)Six 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) Three years from date return is filed 
B) Three 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)Six 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 major advantage of a flat tax type of income tax is its simplicity.

Accepted Answer

A) True 
 B)False

Question 5

In 2017, Deborah became 65 years old. In 2018 she added a swimming pool and in 2019 she converted the residence to rental property and moved into an assisted living facility. Since 2016, Deborah's ad valorem property taxes have decreased once and increased twice. Explain.

Accepted Answer

The decrease probably came in 2017 when

Question 6

Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same rate.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  Many countries use a VAT. 
B)  The United States has imposed a VAT since 1913. 
C)  A VAT has been proposed in the United States to replace part of the income tax. 
D)  A VAT operates similarly to a sales tax. 
A)  Many countries use a VAT. 
B)  The United States has imposed a VAT since 1913. 
C)  A VAT has been proposed in the United States to replace part of the income tax. 
D)  A VAT operates similarly to a sales tax.

Question 8

The Federal income tax is based on a pay-as-you-go system and has become a "mass tax." Explain this statement.

Accepted Answer

The pay-as-you-go system is present in t

Question 9

For omissions from gross income in excess of 25% of that reported, there is no statute of limitations on additional income tax assessments by the IRS.

Accepted Answer

A) True 
 B)False

Question 10

An inheritance tax is a tax on a decedent's right to pass property at death.

Accepted Answer

A) True 
 B)False

Question 11

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all.
-Income tax amnesty

Accepted Answer

A) Deferral of gains from involuntary conversions 
B) Carryforward of net operating losses 
C) "No change" is a possible result 
D) State income tax applied to a visiting nonresident 
E) IRS special agent
F)Undoing the "piggyback" result
G)Ideal budget goal as to new tax legislation
H)Every state that has a general sales tax has one
I)Imposed by all states and the Federal government
J)Imposed by some states but not the Federal government
K)Imposed only by the Federal government
L)No correct match provided 
A) Deferral of gains from involuntary conversions 
B) Carryforward of net operating losses 
C) "No change" is a possible result 
D) State income tax applied to a visiting nonresident 
E) IRS special agent
F)Undoing the "piggyback" result
G)Ideal budget goal as to new tax legislation
H)Every state that has a general sales tax has one
I)Imposed by all states and the Federal government
J)Imposed by some states but not the Federal government
K)Imposed only by the Federal government
L)No correct match provided

Question 12

A use tax is imposed by:

Accepted Answer

A)  The Federal government and all states. 
B)  The Federal government and a majority of the states. 
C)  All states but not the Federal government. 
D)  Most of the states but not the Federal government. 
E)  None of these. 
A)  The Federal government and all states. 
B)  The Federal government and a majority of the states. 
C)  All states but not the Federal government. 
D)  Most of the states but not the Federal government. 
E)  None of these.

Question 13

Taxes not imposed by the Federal government include:

Accepted Answer

A)  Tobacco excise tax. 
B)  Customs duties (tariffs on imports). 
C)  Tax on rental cars. 
D)  Gas guzzler tax. 
E)  None of these. 
A)  Tobacco excise tax. 
B)  Customs duties (tariffs on imports). 
C)  Tax on rental cars. 
D)  Gas guzzler tax. 
E)  None of these.

Question 14

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 15

Match the statements that relate to each other. Note: Some choices may be used more than once.
-Early filing and statute of limitations (deficiency situations)

Accepted Answer

A) Three years from date return is filed 
B) Three 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)Six 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) Three years from date return is filed 
B) Three 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)Six 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 16

A characteristic of FICA is that:

Accepted Answer

A)  It does not apply when one spouse works for the other spouse. 
B)  It is imposed only on the employer. 
C)  It provides a modest source of income in the event of loss of employment. 
D)  It is administered by both state and Federal governments. 
E)  None of these. 
A)  It does not apply when one spouse works for the other spouse. 
B)  It is imposed only on the employer. 
C)  It provides a modest source of income in the event of loss of employment. 
D)  It is administered by both state and Federal governments. 
E)  None of these.

Question 17

In 1988, Roy leased real estate to Drab Corporation for 20 years. Drab Corporation made significant capital improvements to the property. In 2007, Drab decided not to renew the lease and vacated the property. At that time, the value of the improvements was $800,000. Roy sells the real estate in 2019 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 18

Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same.

Accepted Answer

A) True 
 B)False

Question 19

Jason's business warehouse is destroyed by fire. Because 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.

Accepted Answer

A) True 
 B)False

Question 20

A parent employs his twin daughters, age 17, in his sole proprietorship. The daughters are not subject to FICA
coverage.

Accepted Answer

A) True 
 B)False

Exam 1: Understanding and Working With the Federal Tax Law

The AICPA Statements on Standards for Tax Services are:

Using the following choices, 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.

Match the statements that relate to each other. Note: Some choices may be used more than once. -Failure to pay penalty

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

In 2017, Deborah became 65 years old. In 2018 she added a swimming pool and in 2019 she converted the residence to rental property and moved into an assisted living facility. Since 2016, Deborah's ad valorem property taxes have decreased once and increased twice. Explain.

Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same rate.

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

The Federal income tax is based on a pay-as-you-go system and has become a "mass tax." Explain this statement.

For omissions from gross income in excess of 25% of that reported, there is no statute of limitations on additional income tax assessments by the IRS.

An inheritance tax is a tax on a decedent's right to pass property at death.

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -Income tax amnesty

A use tax is imposed by:

Taxes not imposed by the Federal government include:

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. -Early filing and statute of limitations (deficiency situations)

A characteristic of FICA is that:

Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same.

Jason's business warehouse is destroyed by fire. Because 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.

A parent employs his twin daughters, age 17, in his sole proprietorship. The daughters are not subject to FICA coverage.

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, Section 1231, and Recapture Provisions

Taxing Business Income

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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