Question 1

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

Accepted Answer

A)  Taxpayer owns and operates a check-cashing service. 
B)  Taxpayer is an employed electrician. 
C)  Taxpayer just received a $3 million personal injury award as a result of a lawsuit. 
D)  Taxpayer just won a $1 million slot machine jackpot at a Las Vegas casino. 
E)  Taxpayer has been audited several times before. 
A)  Taxpayer owns and operates a check-cashing service. 
B)  Taxpayer is an employed electrician. 
C)  Taxpayer just received a $3 million personal injury award as a result of a lawsuit. 
D)  Taxpayer just won a $1 million slot machine jackpot at a Las Vegas casino. 
E)  Taxpayer has been audited several times before.

Question 2

The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the United States.

Accepted Answer

A) True 
 B)False

Question 3

Using the following choices, show the justification for each provision of the tax law listed.
-A Federal deduction for state and local income taxes paid.

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 4

Without obtaining an extension, Pam files her income tax return 55 days after the due date. With her return, she pays an additional tax of $60,000. Disregarding any interest element, what is Pam's penalty for failure to pay and to file?

Accepted Answer

$6,000. Disregarding the interest elemen

Question 5

Using the following choices, show the justification for each provision of the tax law listed.
-A small business corporation can elect to avoid the corporate income tax.

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 6

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all.
-Import taxes (customs duties)

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 7

Bracket creep will not exist if there is only a single (flat) tax rate for the income tax.

Accepted Answer

A) True 
 B)False

Question 8

Under what conditions is it permissible, from an ethical standpoint, for a CPA firm to outsource tax return preparation to a third party?

Accepted Answer

First, the clients' confidenti

Question 9

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

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 10

The tax law allows an income tax deduction (or a credit) for foreign income taxes. Explain why.

Accepted Answer

The deduction (or a credit) fo

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from being accumulated within a family unit.

Accepted Answer

A) True 
 B)False

Question 14

Which, if any, of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate?

Accepted Answer

A)  A resident dies and leaves his farm to his church. 
B)  A large property owner issues a conservation easement as to some of her land. 
C)  A tax holiday issued 10 years ago has expired. 
D)  A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons. 
E)  None of these. 
A)  A resident dies and leaves his farm to his church. 
B)  A large property owner issues a conservation easement as to some of her land. 
C)  A tax holiday issued 10 years ago has expired. 
D)  A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons. 
E)  None of these.

Question 15

If fraud is involved, there is no time limit on the assessment of a deficiency by the IRS.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)  Penalties are imposed for failure to file a return or pay a tax on time. 
B)  Prepaid income is taxed in the year received, not in the year earned. 
C)  Annual adjustments for indexation increases the amount of the standard deduction allowed. 
D)  Personal casualty losses in Federally declared disaster areas must exceed 10% of AGI to be deductible. 
E)  A deduction is allowed for charitable contributions. 
A)  Penalties are imposed for failure to file a return or pay a tax on time. 
B)  Prepaid income is taxed in the year received, not in the year earned. 
C)  Annual adjustments for indexation increases the amount of the standard deduction allowed. 
D)  Personal casualty losses in Federally declared disaster areas must exceed 10% of AGI to be deductible. 
E)  A deduction is allowed for charitable contributions.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

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 19

Using the following choices, show the justification for each provision of the tax law listed.
-A deduction for contributions by an employee to certain retirement plans.

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 20

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.

Accepted Answer

A) True 
 B)False

Exam 1: Understanding and Working With the Federal Tax Law

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

The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the United States.

Using the following choices, show the justification for each provision of the tax law listed. -A Federal deduction for state and local income taxes paid.

Without obtaining an extension, Pam files her income tax return 55 days after the due date. With her return, she pays an additional tax of $60,000. Disregarding any interest element, what is Pam's penalty for failure to pay and to file?

Using the following choices, show the justification for each provision of the tax law listed. -A small business corporation can elect to avoid the corporate income tax.

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -Import taxes (customs duties)

Bracket creep will not exist if there is only a single (flat) tax rate for the income tax.

Under what conditions is it permissible, from an ethical standpoint, for a CPA firm to outsource tax return preparation to a third party?

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

The tax law allows an income tax deduction (or a credit) for foreign income taxes. Explain why.

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

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

One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from being accumulated within a family unit.

Which, if any, of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate?

If fraud is involved, there is no time limit on the assessment of a deficiency by the IRS.

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

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

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

Using the following choices, show the justification for each provision of the tax law listed. -A deduction for contributions by an employee to certain retirement plans.

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.

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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