Question 1

A proportional tax rate is one where the rate of the tax is the same for all taxpayers, regardless of income levels.

Accepted Answer

A) True 
 B)False

Question 2

The unified transfer tax system

Accepted Answer

A)  imposes a single tax upon transfers of property during an individual's lifetime only. 
B)  imposes a single tax upon transfers of property during an individual's life and at death. 
C)  imposes a single tax upon transfers of property only at an individual's death. 
D)  none of above.

Question 3

Latashia reports $100,000 of gross income on her 2015 tax return, filed April 15, 2016. She omits $30,000 of income, but the error was not fraudulent. When does the statute of limitations for examining her tax return expire?

Accepted Answer

A)  April 15, 2018 
B)  April 15, 2019 
C)  April 15, 2022 
D)  It never expires.

Question 4

Which of the following is not a taxpaying entity?

Accepted Answer

A)  C Corporation 
B)  Partnership 
C)  Individual 
D)  All of the above are taxpayers.

Question 5

Generally, the statute of limitations is three years from the later of the date the tax return is filed or the due date.

Accepted Answer

A) True 
 B)False

Question 6

Describe the nondeductible penalties imposed upon taxpayers for failure to comply.

Accepted Answer

The answer of Describe the nondeductible penalties imposed upon taxpayers...

Question 7

Gifts made during a taxpayer's lifetime may affect the amount of estate tax paid by the taxpayer's estate.

Accepted Answer

A) True 
 B)False

Question 8

All of the following are classified as flow-through entities for tax purposes except

Accepted Answer

A)  partnerships. 
B)  C corporations. 
C)  S corporations. 
D)  limited liability companies.

Question 9

Dividends paid from most U.S. corporations are taxed at the same rate as the recipients' salaries and wages.

Accepted Answer

A) True 
 B)False

Question 10

Rocky and Charlie form RC Partnership as equal partners. Rocky contributes $100,000 into RC while Charlie contributes real estate with a cost and fair market value of $100,000. During the current year, RC earned net income of $600,000. The partnership distributes $200,000 to each partner. The amount that Rocky should report on his individual tax return is

Accepted Answer

A)  $0. 
B)  $100,000. 
C)  $200,000. 
D)  $300,000.

Question 11

Which of the following individuals is most likely to be audited?

Accepted Answer

A)  Lola has AGI of $35,000 from wages and uses the standard deduction. 
B)  Marvella has a $145,000 net loss from her unincorporated business (a horse farm). She also received $950,000 salary as a CEO of a corporation. 
C)  Melvin is retired and receives Social Security benefits. 
D)  Jerry is a school teacher with two children earning $55,000 a year. He also receives $200 in interest income on a bank account.

Question 12

Flow-through entities do not have to file tax returns since they are not taxable entities.

Accepted Answer

A) True 
 B)False

Question 13

While federal and state income taxes as well as the federal gift and estate taxes are generally progressive in nature, property taxes are proportional.

Accepted Answer

A) True 
 B)False

Question 14

Anne, who is single, has taxable income for the current year of $38,000 while total economic income is $43,000 resulting in a total tax of $5,356. Anne's average tax rate and effective tax rate are, respectively,

Accepted Answer

A)  14.09% and 12.46%. 
B)  12.46% and 14.09%. 
C)  14.09% and 25%. 
D)  12.46% and 25%.

Question 15

During the current tax year, Charlie Corporation generated gross income of $1,800,000 and had ordinary and necessary deductions of $1,300,000, resulting in taxable income of $500,000. If Charlie Corporation paid qualifying dividends of $200,000 to shareholders, all of whom are in the 25% marginal tax bracket, what is the total tax paid on both corporate income and the corporate dividends?

Accepted Answer

The answer of During the current tax year, Charlie Corporation...

Question 16

Thomas dies in the current year and has a gross estate valued at $3,000,000. During his lifetime (but after 1976) Thomas had made taxable gifts of $400,000. The estate incurs funeral and administrative expenses of $100,000 and also pays off Thomas' debts which amount to $300,000. Thomas bequeaths $500,000 to his wife. What is the amount of Thomas' tax base, the amount on which the estate tax is computed?

Accepted Answer

A)  $2,100,000 
B)  $2,500,000 
C)  $2,600,000 
D)  $3,400,000

Question 17

Which of the following serves as the highest authority for tax research, planning, and compliance activities?

Accepted Answer

A)  Internal Revenue Code 
B)  Income Tax Regulations 
C)  Revenue Rulings 
D)  Revenue Procedures

Question 18

A progressive tax rate structure is one where the rate of tax increases as the tax base increases.

Accepted Answer

A) True 
 B)False

Question 19

Leonard established a trust for the benefit of his son. The principal amount of the trust is $400,000. The trust is projected to earn approximately 5% per year. In the current year, the trust earned $20,000. Expenses of $4,000 were incurred. Assume that $14,000 is distributed to Leonard's son.
a. How much income is taxed to the trust?
b. How much income is taxed to Leonard's son?

Accepted Answer

The answer of Leonard established a trust for the benefit...

Question 20

Explain how returns are selected for audit.

Accepted Answer

The answer of Explain how returns are selected for audit....

Exam 1: An Introduction to Taxation

A proportional tax rate is one where the rate of the tax is the same for all taxpayers, regardless of income levels.

The unified transfer tax system

Latashia reports $100,000 of gross income on her 2015 tax return, filed April 15, 2016. She omits $30,000 of income, but the error was not fraudulent. When does the statute of limitations for examining her tax return expire?

Which of the following is not a taxpaying entity?

Generally, the statute of limitations is three years from the later of the date the tax return is filed or the due date.

Describe the nondeductible penalties imposed upon taxpayers for failure to comply.

Gifts made during a taxpayer's lifetime may affect the amount of estate tax paid by the taxpayer's estate.

All of the following are classified as flow-through entities for tax purposes except

Dividends paid from most U.S. corporations are taxed at the same rate as the recipients' salaries and wages.

Which of the following individuals is most likely to be audited?

Flow-through entities do not have to file tax returns since they are not taxable entities.

While federal and state income taxes as well as the federal gift and estate taxes are generally progressive in nature, property taxes are proportional.

Anne, who is single, has taxable income for the current year of $38,000 while total economic income is $43,000 resulting in a total tax of $5,356. Anne's average tax rate and effective tax rate are, respectively,

Which of the following serves as the highest authority for tax research, planning, and compliance activities?

A progressive tax rate structure is one where the rate of tax increases as the tax base increases.

Explain how returns are selected for audit.