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

A parent employs his twin daughters,age 17,in his sole proprietorship.The daughters are not subject to FICA coverage.

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

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 -Late filing and statute limitations (deficiency situations)

In cases of doubt,courts have held that tax relief provisions should be broadly construed in favor of taxpayers.

The formula for the Federal income tax on corporations is the same as that applicable to individuals.

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

With regard to state income taxes,explain what is meant by the "jock tax"?

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 d.​Both a. and b. -A deduction for qualified tuition paid to obtain higher education.

States impose either a state income tax or a general sales tax,but not both types of taxes.

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

On transfers by death,the Federal government relies on an estate tax,while states impose an estate tax,an inheritance tax,both taxes,or neither tax.

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 -Jock tax

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 -Mitigation of the annual accounting period concept

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 -Fraud and statute of limitations

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 value added tax (VAT) has not had wide acceptance in the international community.

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 economy is concerned?

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 -Failure to pay penalty

The principal objective of the FUTA tax is to provide some measure of retirement security.