Question 1

Taxes levied by both states and the Federal government include:

Accepted Answer

A)  General sales tax. 
B)  Custom duties. 
C)  Hotel occupancy tax. 
D)  Franchise tax. 
E)  None of these. 
A)  General sales tax. 
B)  Custom duties. 
C)  Hotel occupancy tax. 
D)  Franchise tax. 
E)  None of these.

Question 2

Rick, the sole proprietor of an adult entertainment club, is audited by the IRS. On the third day of the field audit, the regular IRS agent is accompanied by a special agent. Should Rick be concerned by this new development? Explain.

Accepted Answer

Yes, he should. Special agents rarely ap

Question 3

Julius, a married taxpayer, makes gifts to each of his six children. A maximum of twelve annual exclusions could be allowed as to these gifts.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is a characteristic of the audit process?

Accepted Answer

A)  Most taxpayer audits involve "special" agents. 
B)  Self-employed taxpayers are less likely to be selected for audit than employed taxpayers. 
C)  Less important issues are handled by means of a correspondence audit. 
D)  If a taxpayer disagrees with the IRS auditor's finding, the only resort is to the courts. 
E)  None of these. 
A)  Most taxpayer audits involve "special" agents. 
B)  Self-employed taxpayers are less likely to be selected for audit than employed taxpayers. 
C)  Less important issues are handled by means of a correspondence audit. 
D)  If a taxpayer disagrees with the IRS auditor's finding, the only resort is to the courts. 
E)  None of these.

Question 5

Can a taxpayer start the 3-year statute of limitations on additional assessments by the IRS by filing his income tax return early (i.e., before the due date)? Can the period be shortened by filing late (i.e., after the due date)?

Accepted Answer

The answer is no in both cases

Question 6

A characteristic of FUTA is that:

Accepted Answer

A)  It is imposed on both employer and employee. 
B)  It is imposed solely on the employee. 
C)  Compliance requires following guidelines issued by both state and Federal regulatory authorities. 
D)  It is applicable to spouses of employees but not to any children under age 18. 
E)  None of these. 
A)  It is imposed on both employer and employee. 
B)  It is imposed solely on the employee. 
C)  Compliance requires following guidelines issued by both state and Federal regulatory authorities. 
D)  It is applicable to spouses of employees but not to any children under age 18. 
E)  None of these.

Question 7

The IRS is required to redetermine the interest rate on underpayments and overpayments once a year.

Accepted Answer

A) True 
 B)False

Question 8

A lack of compliance in the payment of use taxes can be resolved by several means. In this regard, comment on the f
a. Registration of automobiles.
b. Reporting of Internet purchases on state income tax returns.

Accepted Answer

a. As reflected in Example 5, re-registr

Question 9

Brayden files his Federal income tax return by April 15, but does not pay the tax. Although he expects to pay interest on the large amount of tax he still owes, he feels that the timely filing has avoided any penalties. Is Brayden's assumption correct?

Accepted Answer

Although Brayden has avoided t

Question 10

What might cause an individual to owe income taxes in more than one state?

Accepted Answer

Working in more than

Question 11

Logan dies with an estate worth $20 million. Under his will, $10 million passes to his wife while $10 million goes to his church. What is Logan's Federal estate tax result?

Accepted Answer

None. After a marital deductio

Question 12

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 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 13

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all.
-Tax on transfers at death (inheritance type)

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 14

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 15

Which of the following taxes is only paid by the employer?

Accepted Answer

A)  FICA 
B)  FUTA 
C)  Social Security tax 
D)  Medicare tax 
A)  FICA 
B)  FUTA 
C)  Social Security tax 
D)  Medicare tax

Question 16

Ultimately, most taxes are paid by individuals. Explain what this means in terms of income and payroll taxes paid by a corporation.

Accepted Answer

A corporation pays many types of taxes,

Question 17

Which, if any, is not one of Adam Smith's canons (principles) of taxation?

Accepted Answer

A)  Economy in collection 
B)  Certainty 
C)  Convenience of payment 
D)  Simplicity 
E)  Equality 
A)  Economy in collection 
B)  Certainty 
C)  Convenience of payment 
D)  Simplicity 
E)  Equality

Question 18

If the tax deficiency is attributable to fraud, the negligence penalty will not be imposed.

Accepted Answer

A) True 
 B)False

Question 19

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 20

As a matter of administrative convenience, the IRS would prefer to have Congress decrease (rather than increase) the amount of the standard deduction allowed to individual taxpayers.

Accepted Answer

A) True 
 B)False

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

Taxes levied by both states and the Federal government include:

Rick, the sole proprietor of an adult entertainment club, is audited by the IRS. On the third day of the field audit, the regular IRS agent is accompanied by a special agent. Should Rick be concerned by this new development? Explain.

Julius, a married taxpayer, makes gifts to each of his six children. A maximum of twelve annual exclusions could be allowed as to these gifts.

Which of the following is a characteristic of the audit process?

Can a taxpayer start the 3-year statute of limitations on additional assessments by the IRS by filing his income tax return early (i.e., before the due date)? Can the period be shortened by filing late (i.e., after the due date)?

A characteristic of FUTA is that:

The IRS is required to redetermine the interest rate on underpayments and overpayments once a year.

A lack of compliance in the payment of use taxes can be resolved by several means. In this regard, comment on the f a. Registration of automobiles. b. Reporting of Internet purchases on state income tax returns.

Brayden files his Federal income tax return by April 15, but does not pay the tax. Although he expects to pay interest on the large amount of tax he still owes, he feels that the timely filing has avoided any penalties. Is Brayden's assumption correct?

What might cause an individual to owe income taxes in more than one state?

Logan dies with an estate worth $20 million. Under his will, $10 million passes to his wife while $10 million goes to his church. What is Logan's Federal estate tax result?

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)

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -Tax on transfers at death (inheritance type)

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

Which of the following taxes is only paid by the employer?

Ultimately, most taxes are paid by individuals. Explain what this means in terms of income and payroll taxes paid by a corporation.

Which, if any, is not one of Adam Smith's canons (principles) of taxation?

If the tax deficiency is attributable to fraud, the negligence penalty will not be imposed.

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

As a matter of administrative convenience, the IRS would prefer to have Congress decrease (rather than increase) the amount of the standard deduction allowed to individual taxpayers.

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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