Question 1

In preparing an income tax return, the use of a client's estimates is not permitted.

Accepted Answer

A) True 
 B)False

Question 2

Congress reacts to judicial decisions that interpret the tax law in different ways.When it approves of a decision, Congress may act to amend the Code to incorporate the holding.When it disapproves, Congress may amend the Code to nullify its effect.Give an example of each one of these congressional reactions.

Accepted Answer

Congress approved of the judicial conclu

Question 3

Some states use their state income tax return as a means of collecting unpaid sales and use taxes.

Accepted Answer

A) True 
 B)False

Question 4

State and local governments are sometimes forced to find ways to generate additional revenue. Comment on the pros and cons of the following procedures:

Accepted Answer

The answer of State and local governments are sometimes forced...

Question 5

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

Accepted Answer

A) The use of client estimates in preparing a return is not acceptable. 
B) Under no circumstances should a question on a tax return be left unanswered. 
C) If a client has made a mistake in a prior year's return and refuses to correct it, you should withdraw from the engagement. 
D) If the exact amount of a deduction is not certain so as to increase the appearance of greater certainty. 
E) None of the above. 
A) The use of client estimates in preparing a return is not acceptable. 
B) Under no circumstances should a question on a tax return be left unanswered. 
C) If a client has made a mistake in a prior year's return and refuses to correct it, you should withdraw from the engagement. 
D) If the exact amount of a deduction is not certain so as to increase the appearance of greater certainty. 
E) None of the above.

Question 6

Without obtaining an extension, Olivia files her income tax return 65 days after the due date.With her return, she pays an additional tax of $50,000.Disregarding any interest element, what is Olivia's penalty for failure to pay and to file?

Accepted Answer

$7,500.Disregarding

Question 7

Which, if any, of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate?

Accepted Answer

A) A resident dies and leaves his farm to his church. 
B) A large property owner issues a conservation easement as to some of her land. 
C) A tax holiday issued 10 years ago has expired. 
D) A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons. 
E) None of the above. 
A) A resident dies and leaves his farm to his church. 
B) A large property owner issues a conservation easement as to some of her land. 
C) A tax holiday issued 10 years ago has expired. 
D) A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons. 
E) None of the above.

Question 8

How do the net operating loss provisions in the tax law mitigate the effect of the annual accounting concept?

Accepted Answer

Without the allowance of carryback and/o

Question 9

Which, if any, of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS)?

Accepted Answer

A) Penalties are imposed for failure to file a return or pay a tax on time. 
B) Prepaid income is taxed in the year received and not in the year earned. 
C) Annual adjustments for indexation increases the amount of the standard deduction allowed. 
D) Casualty losses must exceed 10% of AGI to be deductible. 
E) A deduction is allowed for charitable contributions. 
A) Penalties are imposed for failure to file a return or pay a tax on time. 
B) Prepaid income is taxed in the year received and not in the year earned. 
C) Annual adjustments for indexation increases the amount of the standard deduction allowed. 
D) Casualty losses must exceed 10% of AGI to be deductible. 
E) A deduction is allowed for charitable contributions.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

There is no Federal excise tax on hotel occupancy.

Accepted Answer

A) True 
 B)False

Question 12

If more IRS audits are producing a greater number of no change results, this indicates increased compliance on the part of taxpayers.

Accepted Answer

A) True 
 B)False

Question 13

Paige is the sole shareholder of Citron Corporation.During the year, Paige leases a building to Citron for a monthly rental of $80,000.If the fair rental value of the building is $60,000, what are the income tax consequences to the parties involved?

Accepted Answer

The rent charged by Paige is not "arms l

Question 14

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

Accepted Answer

A) Abolition of the Federal individual (but not the corporate) income tax. 
B) Abolition of all Federal income taxes but retention of payroll taxes (including the self-employment tax). 
C) Abolition of all Federal income taxes and payroll taxes but retention of the Federal estate and gift taxes. 
D) Abolition of all Federal income and payroll taxes as well as the Federal estate and gift taxes. 
E) None of the above. 
A) Abolition of the Federal individual (but not the corporate) income tax. 
B) Abolition of all Federal income taxes but retention of payroll taxes (including the self-employment tax). 
C) Abolition of all Federal income taxes and payroll taxes but retention of the Federal estate and gift taxes. 
D) Abolition of all Federal income and payroll taxes as well as the Federal estate and gift taxes. 
E) None of the above.

Question 15

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?

Accepted Answer

Although Eric's audit by the IRS could b

Question 16

Various tax provisions encourage the creation of certain types of retirement plans.Such provisions can be justified on both economic and equity grounds.

Accepted Answer

A) True 
 B)False

Question 17

Both economic and social considerations can be used to justify:

Accepted Answer

A) Favorable tax treatment for accident and health plans provided for employees and financed by employers. 
B) Disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g., fines, penalties, illegal kickbacks, bribes to government officials). 
C) Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. 
D) Allowance of a deduction for state and local income taxes paid. 
E) None of the above. 
A) Favorable tax treatment for accident and health plans provided for employees and financed by employers. 
B) Disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g., fines, penalties, illegal kickbacks, bribes to government officials). 
C) Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. 
D) Allowance of a deduction for state and local income taxes paid. 
E) None of the above.

Question 18

Morgan inherits her father's personal residence including all of the furnishings. She plans to add a swimming pool and sauna to the property and rent it as a furnished house. What are some of the ad valorem property tax problems Morgan can anticipate?

Accepted Answer

The real estate taxes probably will incr

Question 19

Burt and Lisa are married and live in a common law state.Burt wants to make gifts to their five children in 2012.What is the maximum amount of the annual exclusion they will be allowed for these gifts?

Accepted Answer

A) $130,000. 
B) $65,000. 
C) $26,000. 
D) $13,000. 
E) None of the above. 
A) $130,000. 
B) $65,000. 
C) $26,000. 
D) $13,000. 
E) None of the above.

Question 20

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

Accepted Answer

A) True 
 B)False

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

In preparing an income tax return, the use of a client's estimates is not permitted.

Some states use their state income tax return as a means of collecting unpaid sales and use taxes.

State and local governments are sometimes forced to find ways to generate additional revenue. Comment on the pros and cons of the following procedures:

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

Without obtaining an extension, Olivia files her income tax return 65 days after the due date.With her return, she pays an additional tax of $50,000.Disregarding any interest element, what is Olivia's penalty for failure to pay and to file?

Which, if any, of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate?

How do the net operating loss provisions in the tax law mitigate the effect of the annual accounting concept?

Which, if any, of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS)?

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

There is no Federal excise tax on hotel occupancy.

If more IRS audits are producing a greater number of no change results, this indicates increased compliance on the part of taxpayers.

Paige is the sole shareholder of Citron Corporation.During the year, Paige leases a building to Citron for a monthly rental of $80,000.If the fair rental value of the building is $60,000, what are the income tax consequences to the parties involved?

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

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?

Various tax provisions encourage the creation of certain types of retirement plans.Such provisions can be justified on both economic and equity grounds.

Both economic and social considerations can be used to justify:

Morgan inherits her father's personal residence including all of the furnishings. She plans to add a swimming pool and sauna to the property and rent it as a furnished house. What are some of the ad valorem property tax problems Morgan can anticipate?

Burt and Lisa are married and live in a common law state.Burt wants to make gifts to their five children in 2012.What is the maximum amount of the annual exclusion they will be allowed for these gifts?

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

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-Part 1

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

Property Transactions: Capital Gains and Losses, 1231, Recapture Provisions

Alternative Minimum Tax

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

Income Taxation of Trusts and Estates

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