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

Using the choices provided below, show the justification for each provision of the tax law listed.
-Contributions to charitable organizations are deductible.

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

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

Accepted Answer

A) True 
 B)False

Question 4

In an office audit, the audit by the IRS takes place at the office of the taxpayer.

Accepted Answer

A) True 
 B)False

Question 5

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

The answer of Without obtaining an extension, Pam files her...

Question 6

Mona inherits her mother's personal residence, which she converts to a furnished rental house. These changes should affect the amount of ad valorem property taxes levied on the properties.

Accepted Answer

A) True 
 B)False

Question 7

Two years ago, State Y enacted a new income tax credit for college prep materials. The credit is available to individuals and is equal to 40 percent of the cost of the items. The credit may not exceed $50 in any year. The State Y Director of Finance has discovered this year that the amount of credit claimed is far higher than expected. Which principle of good tax policy might not have been considered in designing this tax which caused the original cost estimate to be too low?

Accepted Answer

A)  Equity. 
B)  Simplicity. 
C)  Economy in collection. 
D)  Minimum tax gap. 
A)  Equity. 
B)  Simplicity. 
C)  Economy in collection. 
D)  Minimum tax gap.

Question 8

A landlord leases property upon which the tenant makes improvements. The improvements are significant and are not made in lieu of rent. At the end of the lease, the value of the improvements are not income to the landlord. This rule is an example of:

Accepted Answer

A)  A clear reflection of income result. 
B)  The tax benefit rule. 
C)  The arm's length concept. 
D)  The wherewithal to pay concept. 
E)  None of these. 
A)  A clear reflection of income result. 
B)  The tax benefit rule. 
C)  The arm's length concept. 
D)  The wherewithal to pay concept. 
E)  None of these.

Question 9

Using the choices provided below, show the justification for each provision of the tax law listed.
-Tax credits available for the purchase of a vehicle that uses alternative (non-fossil) fuels.

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 10

"Bracket creep" is avoided by:

Accepted Answer

A)  Use of sunset provisions. 
B)  Providing special tax rules for small businesses. 
C)  The statute of limitations. 
D)  Adjusting the rate brackets for inflation annually 
A)  Use of sunset provisions. 
B)  Providing special tax rules for small businesses. 
C)  The statute of limitations. 
D)  Adjusting the rate brackets for inflation annually

Question 11

The first income tax on individuals (after the ratification of the Sixteenth Amendment to the Constitution) levied tax rates from a low of 2% to a high of 6%.

Accepted Answer

A) True 
 B)False

Question 12

The majority of IRS audits are handled by correspondence.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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

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 15

Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.

Accepted Answer

A) True 
 B)False

Question 16

The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use personalty.

Accepted Answer

A) True 
 B)False

Question 17

Using the choices provided below, 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 18

Several years ago, Logan purchased extra grazing land for his ranch at a cost of $240,000. In 2018, the land is condemned by the state for development as a highway maintenance depot. Under the condemnation award, Logan receives $600,000 for the land. Within the same year, he replaces the property with other grazing land. What is Logan's tax situation if the replacement land cost:
a. $210,000?
b. $360,000?
c. $630,000?

Accepted Answer

a. The full realized gain of $360,000 [$

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

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

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

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

Using the choices provided below, show the justification for each provision of the tax law listed. -Contributions to charitable organizations are deductible.

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

In an office audit, the audit by the IRS takes place at the office of the taxpayer.

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?

Mona inherits her mother's personal residence, which she converts to a furnished rental house. These changes should affect the amount of ad valorem property taxes levied on the properties.

A landlord leases property upon which the tenant makes improvements. The improvements are significant and are not made in lieu of rent. At the end of the lease, the value of the improvements are not income to the landlord. This rule is an example of:

Using the choices provided below, show the justification for each provision of the tax law listed. -Tax credits available for the purchase of a vehicle that uses alternative (non-fossil) fuels.

"Bracket creep" is avoided by:

The first income tax on individuals (after the ratification of the Sixteenth Amendment to the Constitution) levied tax rates from a low of 2% to a high of 6%.

The majority of IRS audits are handled by correspondence.

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

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

Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.

The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use personalty.

Using the choices provided below, 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.

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

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

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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