Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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:

Accepted Answer

A)  Equity. 
B)  Certainty. 
C)  Neutrality. 
D)  Economic growth and efficiency. 
A)  Equity. 
B)  Certainty. 
C)  Neutrality. 
D)  Economic growth and efficiency.

Question 3

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.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) 3 years from date return is filed 
B) 3 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)6 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) 3 years from date return is filed 
B) 3 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)6 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 5

What is a severance tax? How productive can it be in terms of generating revenue?

Accepted Answer

A severance tax is one imposed when natu

Question 6

Using the choices provided below, 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 7

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 8

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

Accepted Answer

A) 3 years from date return is filed 
B) 3 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)6 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) 3 years from date return is filed 
B) 3 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)6 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 9

Morgan inherits her father's personal residence including all of the furnishings. She plans to add a swimming pool and sauna to the property and rent it as a furnished house. What are some of the ad valorem property tax issues Morgan can anticipate?

Accepted Answer

The real estate taxes probably will incr

Question 10

On his 2018 income tax return, Andrew omitted income and overstated deductions to the extent that his income tax was understated by $500,000. Disregarding any interest element, what is Andrew's penalty if the understatement was due to:
a. Negligence.
b. Civil fraud.
c. Criminal fraud.

Accepted Answer

a. $100,000 (20% × $500,000).

Question 11

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

Accepted Answer

A) Deferral of gains from involuntary conversions 
B) Carryforward of net operating losses 
C) "No change" is one possible result 
D) State income tax applied to 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 one possible result 
D) State income tax applied to 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

In preparing an income tax return, the use of a client's estimates is not permitted.

Accepted Answer

A) True 
 B)False

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

The amount of a taxpayer's itemized deductions will increase the chance of being audited by the IRS.

Accepted Answer

A) True 
 B)False

Question 15

To mitigate the effect of the annual accounting period concept, the tax law permits the carryforward to other years of the excess charitable contributions of a particular year.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Tax functions that accounting and finance professionals may assist clients with include all but the following:

Accepted Answer

A)  Tax compliance. 
B)  Tax planning. 
C)  Cash management to ensure timely payment of taxes. 
D)  Tax evasion. 
A)  Tax compliance. 
B)  Tax planning. 
C)  Cash management to ensure timely payment of taxes. 
D)  Tax evasion.

Question 18

Two months after the burglary of his personal residence, Eric is audited by the IRS. Among the items taken in the burglary was a shoe box containing approximately $50,000 in cash. Eric is the owner and operator of a cash-and- carry liquor store. Eric wonders why he was audited. Can you help explain?

Accepted Answer

Although Eric's audit by the IRS could b

Question 19

When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax purposes.

Accepted Answer

A) True 
 B)False

Question 20

Jason's business warehouse is destroyed by fire. As 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

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

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

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:

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.

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

What is a severance tax? How productive can it be in terms of generating revenue?

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

A characteristic of FICA is that:

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

Morgan inherits her father's personal residence including all of the furnishings. She plans to add a swimming pool and sauna to the property and rent it as a furnished house. What are some of the ad valorem property tax issues Morgan can anticipate?

On his 2018 income tax return, Andrew omitted income and overstated deductions to the extent that his income tax was understated by $500,000. Disregarding any interest element, what is Andrew's penalty if the understatement was due to: a. Negligence. b. Civil fraud. c. Criminal fraud.

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

In preparing an income tax return, the use of a client's estimates is not permitted.

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.

The amount of a taxpayer's itemized deductions will increase the chance of being audited by the IRS.

To mitigate the effect of the annual accounting period concept, the tax law permits the carryforward to other years of the excess charitable contributions of a particular year.

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.

Tax functions that accounting and finance professionals may assist clients with include all but the following:

When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax purposes.

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

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

Filters