Question 1

The formula for the Federal income tax on corporations is the same as that applicable to individuals.

Accepted Answer

A) True 
 B)False

Question 2

In terms of revenue neutrality, comment on a tax cut enacted by Congress that:
a. Contains revenue offsets.
b. Includes a sunset provision.

Accepted Answer

a. Ideally, to achieve revenue neutralit

Question 3

Paige is the sole shareholder of Citron Corporation. During the year, she 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?

Accepted Answer

The rent charged by Paige is not "arms l

Question 4

Which, if any, of the following is a typical characteristic of an ad valorem tax on personalty?

Accepted Answer

A)  Taxpayer compliance is greater for personal use property than for business use property. 
B)  The tax on automobiles sometimes considers the age of the vehicle. 
C)  Most states impose a tax on intangibles. 
D)  The tax on intangibles generates considerable revenue since it is difficult for taxpayers to avoid. 
E)  None of these. 
A)  Taxpayer compliance is greater for personal use property than for business use property. 
B)  The tax on automobiles sometimes considers the age of the vehicle. 
C)  Most states impose a tax on intangibles. 
D)  The tax on intangibles generates considerable revenue since it is difficult for taxpayers to avoid. 
E)  None of these.

Question 5

An office audit by the IRS takes place at the office of the taxpayer.

Accepted Answer

A) True 
 B)False

Question 6

Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is:

Accepted Answer

A)  To take advantage of the higher unified transfer tax credit available under the gift tax. 
B)  To avoid a future decline in value of the property transferred. 
C)  To take advantage of the per donee annual exclusion. 
D)  To shift income to higher bracket donees. 
E)  None of these. 
A)  To take advantage of the higher unified transfer tax credit available under the gift tax. 
B)  To avoid a future decline in value of the property transferred. 
C)  To take advantage of the per donee annual exclusion. 
D)  To shift income to higher bracket donees. 
E)  None of these.

Question 7

Match the statements that relate to each other. Note: Some choices may be used more than once.
-Criminal fraud 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 8

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all.
-Discriminant Index Function (DIF)

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 9

A CPA firm in California sends many of its less complex tax returns to be prepared by a group of accountants in
India. If certain procedures are followed, this outsourcing of tax return preparation is proper.

Accepted Answer

A) True 
 B)False

Question 10

There is a Federal excise tax on hotel occupancy.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Your client, Connie, won $12,000 in a football office pool. She sees no reason to include it in her income for several reasons. First, the amount won will not be reported to the IRS. Second, as an average income employee, she is unlikely to be audited by the IRS. Third, she feels that she has probably lost this much in other past office pools. How do you respond?

Accepted Answer

As a practitioner, you cannot play the a

Question 13

State and local governments are sometimes forced to find ways to generate additional revenue. Comment on the pros and cons of the following procedures:
a. Decouple what would be part of the piggyback format of the state income tax.
b. Tax amnesty provisions.
c. Internet shaming.

Accepted Answer

a. The decoupling process is easily acco

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

David files his tax return 45 days after the due date. Along with the return, David remits a check for $40,000. which is the balance of the tax owed. Disregarding the interest element, David's total failure to file and to pay penalties are:

Accepted Answer

A)  $400. 
B)  $3,600. 
C)  $4,000. 
D)  $4,400. 
E)  None of these. 
A)  $400. 
B)  $3,600. 
C)  $4,000. 
D)  $4,400. 
E)  None of these.

Question 16

Match the statements that relate to each other. Note: Some choices may be used more than once.
-Failure to file 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 17

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

Accepted Answer

A) True 
 B)False

Question 18

Which, if any, of the following provisions cannot be justified as mitigating the effect of the annual accounting period concept?

Accepted Answer

A)  Nonrecognition of gain allowed for involuntary conversions. 
B)  Net operating loss carryover provisions. 
C)  Carryover of excess charitable contributions. 
D)  Use of the installment method to recognize gain. 
E)  Carryover of excess capital losses. 
A)  Nonrecognition of gain allowed for involuntary conversions. 
B)  Net operating loss carryover provisions. 
C)  Carryover of excess charitable contributions. 
D)  Use of the installment method to recognize gain. 
E)  Carryover of excess capital losses.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 1: Understanding and Working With the Federal Tax Law

The formula for the Federal income tax on corporations is the same as that applicable to individuals.

In terms of revenue neutrality, comment on a tax cut enacted by Congress that: a. Contains revenue offsets. b. Includes a sunset provision.

Paige is the sole shareholder of Citron Corporation. During the year, she 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?

Which, if any, of the following is a typical characteristic of an ad valorem tax on personalty?

An office audit by the IRS takes place at the office of the taxpayer.

Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is:

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

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -Discriminant Index Function (DIF)

A CPA firm in California sends many of its less complex tax returns to be prepared by a group of accountants in India. If certain procedures are followed, this outsourcing of tax return preparation is proper.

There is a Federal excise tax on hotel occupancy.

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

State and local governments are sometimes forced to find ways to generate additional revenue. Comment on the pros and cons of the following procedures: a. Decouple what would be part of the piggyback format of the state income tax. b. Tax amnesty provisions. c. Internet shaming.

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

David files his tax return 45 days after the due date. Along with the return, David remits a check for $40,000. which is the balance of the tax owed. Disregarding the interest element, David's total failure to file and to pay penalties are:

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

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

Which, if any, of the following provisions cannot be justified as mitigating the effect of the annual accounting period concept?

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

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

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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