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

What are the pros and cons of the following state and local tax provisions? a.An ad valorem property tax holiday made available to a manufacturing plant that is relocating. b.Hotel occupancy tax and a rental car surcharge. c.A back-to-school sales tax holiday.

The tax law contains various tax credits,deductions,and exclusions that are designed to encourage taxpayers to obtain additional education.On what grounds can these provisions be justified?

Under Clint's will,all of his property passes to either the Lutheran Church or to his wife.No Federal estate tax will be due on Clint's death in 2015.

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

The Federal estate and gift taxes are examples of progressive taxes.

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.

Before the Sixteenth Amendment to the Constitution was ratified,there was no valid Federal income tax on individuals.

If fraud is involved,there is no time limit on the assessment of a deficiency by the IRS.

Regarding proper ethical guidelines,which (if any) of the following is correct?

Briana lives in one state and works in the adjoining state.Both states tax the income she earns from her job.Does Briana have any relief from this apparent double taxation of the same income?

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

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

Not all of the states that impose a general sales tax also have a use tax.

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 -More than 25% gross income omission and statute of limitations

The FICA tax (Medicare component) on wages is progressive since the tax due increases as wages increase.

Match the statements that relate to each other.Note: Some choices may be used more than once or not at all. a.Deferral of gains from involuntary conversions b.Carryback and 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 -Excise tax on tobacco

Match the statements that relate to each other.Note: Some choices may be used more than once or not at all. a.Deferral of gains from involuntary conversions b.Carryback and 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 -Tax on transfers at death (inheritance type)

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

Match the statements that relate to each other.Note: Some choices may be used more than once or not at all. a.Deferral of gains from involuntary conversions b.Carryback and 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 -Tax fraud suspected

Both economic and social considerations can be used to justify: