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

In early July 2012,Gavin is audited by the IRS and a large deficiency is assessed.In October of the same year,his income tax return for the state is audited.What has probably happened?

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 2012.

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.

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

Social considerations can be used to justify:

The first income tax on individuals (after the ratification of the Sixteenth Amendment to the Constitution)levied tax rates from a low of 2% to a high of 6%.

A state income tax can be imposed on nonresident taxpayers who earn income within the state or on an itinerant basis.

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.

Stealth taxes have the effect of generating additional taxes from all taxpayers.

The tax law allows an income tax deduction for state and local income taxes.Explain why.

On his 2012 income tax return,Logan omitted income and overstated deductions to the extent that his income tax was understated by $400,000.Disregarding any interest element,what is Logan's penalty if the understatement was due to:

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?

Compare civil fraud with criminal fraud with regard to the following:

A landlord leases property upon which the tenant makes improvements.The improvements are significant and are not made in lieu of rent.At the end of the lease,the value of the improvements are not income to the landlord.This rule is an example of:

In terms of revenue neutrality,comment on a tax cut enacted by Congress that:

Provisions in the tax law that promote energy conservation and more use of alternative (non-fossil)fuels can be justified by:

The annual exclusion,currently $13,000,is available for gift but not estate tax purposes.

Property can be transferred within the family group by gift or at death.One motivation for preferring the gift approach is:

A characteristic of FUTA is that:

The IRS agent auditing the return will not issue an RAR if the taxpayer owes no additional taxes.