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

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)?

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

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?

If a "special agent" becomes involved in the audit of a return,this indicates that the IRS suspects that fraud is involved.

Using the choices provided below, show the justification for each provision of the tax law listed. a.Economic considerations b.Social considerations c.Equity considerations -Contributions to charitable organizations are deductible.

The annual exclusion,currently $14,000,is available for gift and estate tax purposes.

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.

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

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?

Currently,the Federal income tax is less progressive than it ever has been in the past.

Which,if any,of the following is a typical characteristic of an ad valorem tax on personalty?

A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.

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 -Office audit

During any month in which both the failure to file penalty and the failure to pay penalty apply,the failure to file penalty is increased by the amount of the failure to pay penalty.

The tax law contains various provisions that encourage home ownership. a.On what basis can this objective be justified? b.Are there any negative considerations? Explain.

One of the motivations for making a gift is to save on income taxes.

Using the choices provided below, show the justification for each provision of the tax law listed. a.Economic considerations b.Social considerations c.Equity considerations -More rapid expensing for tax purposes of the costs of installing pollution control devices.

A characteristic of FUTA is that:

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

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