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

Which,if any,of the following taxes are proportional (rather than progressive)?

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

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.

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

Match the statements that relate to each other.Note: Some choices may be used more than once. 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 -Contributions to charitable organizations are deductible.

In 1985,Roy leased real estate to Drab Corporation for 20 years.Drab Corporation made significant capital improvements to the property.In 2005,Drab decides not to renew the lease and vacates the property.At that time,the value of the improvements is $800,000.Roy sells the real estate in 2015 for $1,200,000 of which $900,000 is attributable to the improvements.When is Roy taxed on the improvements made by Drab Corporation?

Match the statements that relate to each other.Note: Some choices may be used more than once. 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 deduction for certain expenses (interest and taxes) incident to home ownership.

Match the statements that relate to each other.Note: Some choices may be used more than once. 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 deduction for contributions by an employee to certain retirement plans.

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)?

Characteristics of the "Fair Tax" (i.e. ,national sales tax) include which,if any,of the following:

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

Match the statements that relate to each other.Note: Some choices may be used more than once. 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 -Tax credits for home improvements that conserve energy.

In preparing a tax return,all questions on the return must be answered.

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

Even though a client refuses to correct an error on a past return,it may be possible for a practitioner to continue to prepare returns for the client.

When interest is charged on a deficiency,any part of a month counts as a full month.

For omissions from gross income in excess of 25% of that reported,there is no statute of limitations on additional income tax assessments by the IRS.

The objective of pay-as-you-go (paygo) is to achieve revenue neutrality.

The principal objective of the FUTA tax is to provide some measure of retirement security.

Unlike FICA,FUTA requires that employers comply with state as well as Federal rules.