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

The tax law provides various tax credits,deductions,and exclusions that are designed to encourage taxpayers to obtain additional education.These provisions can be justified on both economic and social grounds.

The value added tax (VAT)has had wide acceptance in the international community.

Under a state inheritance tax,two heirs,a cousin and a son of the deceased,would be taxed at the same rate.

A VAT (value added tax):

Your client,Connie,won $12,000 in a football office pool.She sees no reason to include it in her income for several reasons.First,the amount won will not be reported to the IRS.Second,as an average income employee,she is unlikely to be audited by the IRS.Third,she feels that she has probably lost this much in other past office pools.How do you respond?

Unlike the Federal counterpart,the amount of the state excise taxes on gasoline varies from state to state.

When Congress enacts a tax cut that is phased in over a period of years,revenue neutrality is achieved.

Taxes levied by both states and the Federal government include:

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

In 2010,Deborah became 65 years old.In 2011 she added a swimming pool,and in 2012 she converted the residence to rental property and moved into an assisted living facility.Since 2009,Deborah's ad valorem property taxes have decreased once and increased twice.Explain.

For Federal income tax purposes,there never has been a general amnesty period.

A CPA firm in California sends many of its less complex tax returns to be prepared by a group of accountants in India.If certain procedures are followed,this outsourcing of tax return preparation is proper.

The Federal income tax on individuals generates more revenue than the Federal income tax on corporations.

In terms of Adam Smith's canons of taxation,how does the Federal income tax fare as far as equality is concerned?

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

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

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

A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is inconsistent with generally accepted accounting principles.

Indicate which,if any,statement is incorrect.State income taxes:

Mona inherits her mother's personal residence,which she converts to a furnished rent house.These changes should not affect the amount of ad valorem property taxes levied on the properties.