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

For the negligence penalty to apply,the underpayment must be caused by intentional disregard of rules and regulations without intent to defraud.

The IRS is required to redetermine the interest rate on underpayments and overpayments once a year.

If an income tax return is not filed by a taxpayer,there is no statute of limitations on assessments of tax by the IRS.

Burt and Lisa are married and live in a common law state.Burt wants to make gifts to their five children in 2010.What is the maximum amount of the annual exclusion they will be allowed for these gifts?

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

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.

Which of the following is a characteristic of the audit process?

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

In spite of legislative changes which phase out the estate tax,considerable motivation continues to exist for making lifetime gifts.Explain this motivation in the light of the following:

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

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

Under the Tax Relief Reconciliation Act of 2001,only the Federal estate tax is scheduled to be repealed.

For the tax year 2010,Travis reported gross income of $500,000 on his timely filed Federal income tax return.

On transfers by death,the Federal government relies on an estate tax,while states use only an inheritance tax.

The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the U.S.

A characteristic of FICA is that:

Stealth taxes have the effect of generating additional taxes from lower income taxpayers.

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

In an office audit,the audit by the IRS takes place at the taxpayer's office.