Question 1

Because it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize a gain in the year the installment sale occurs.

Accepted Answer

A) True 
 B)False

Question 2

Regarding proper ethical accounting guidelines, which, if any, of the following is correct?

Accepted Answer

A)  The use of client estimates in preparing a return may be acceptable. 
B)  Under no circumstances should a question on a tax return be left unanswered. 
C)  If a client has made a mistake in a prior year's return and refuses to correct it, the accountant should withdraw from the engagement. 
D)  If the exact amount of a deduction is not certain so as to increase the appearance of greater certainty. 
E)  None of these.

Question 3

If a taxpayer files early (i.e., before the due date of the return), the statute of limitations on assessments begins on the date the return is filed.

Accepted Answer

A) True 
 B)False

Question 4

Currently, the Federal corporate income tax is less progressive than the individual income tax.

Accepted Answer

A) True 
 B)False

Question 5

The tax law contains various provisions that encourage home ownership.
a. On what basis can this objective be justified?
b. Are there any negative considerations? Explain.

Accepted Answer

The answer of The tax law contains various provisions that...

Question 6

The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith's canon (principle) of certainty.

Accepted Answer

A) True 
 B)False

Question 7

For the tax year 2018, Noah reported gross income of $300,000 on his timely filed Federal income tax return.
a. Presuming that the general rule applies, when does the statute of limitations on assessments normally expire?
b. Suppose that Noah inadvertently omitted gross income of $76,000. When does the statute of limitations on assessments expire?
c. Suppose the omission was deliberate, not inadvertent. When does the statute of limitations on assessments expire?

Accepted Answer

The answer of For the tax year 2018, Noah reported...

Question 8

Using the following choices, show the justification for each provision of the tax law listed.
-Tax credits for home improvements that conserve energy.

Accepted Answer

A) Economic considerations 
B) Social considerations 
C) Equity considerations 
D) Both a. and b.

Question 9

In preparing a tax return, all questions on the return must be answered.

Accepted Answer

A) True 
 B)False

Question 10

In late June 2019, Art is audited by the state and a large deficiency is assessed. In November of the same year, his
Federal income tax return is audited by the IRS. What has probably happened?

Accepted Answer

The answer of In late June 2019, Art is audited...

Question 11

Some states use their state income tax return as a means of collecting unpaid sales and use taxes.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  Abolition of the Federal individual (but not the corporate) income tax. 
B)  Abolition of all Federal income taxes but retention of payroll taxes (including the self-employment tax). 
C)  Abolition of all Federal income taxes and payroll taxes but retention of the Federal estate and gift taxes. 
D)  Abolition of all Federal income and payroll taxes as well as the Federal estate and gift taxes. 
E)  None of these.

Question 13

Morgan inherits her father's personal residence including all of the furnishings. She plans to add a swimming pool and sauna to the property and rent it as a furnished house. What are some of the ad valorem property tax issues Morgan can anticipate?

Accepted Answer

The answer of Morgan inherits her father's personal residence including...

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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%.

Accepted Answer

A) True 
 B)False

Question 16

Upon audit by the IRS, Faith is assessed a deficiency of $40,000 of which $25,000 is attributable to negligence. The
20% negligence penalty will apply to $25,000.

Accepted Answer

A) True 
 B)False

Question 17

Tax functions that accounting and finance professionals may assist clients with include all but the following:

Accepted Answer

A)  Tax compliance. 
B)  Tax planning. 
C)  Cash management to ensure timely payment of taxes. 
D)  Tax evasion.

Question 18

Briana lives in one state and works in the adjoining state. Both states tax the income she earns from her job. Does
Briana have any relief from this apparent double taxation of the same income?

Accepted Answer

The answer of Briana lives in one state and works...

Question 19

Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.

Accepted Answer

A) True 
 B)False

Question 20

Two years ago, State Y enacted a new income tax credit for college prep materials. The credit is available to individuals and is equal to 40% of the cost of the items. The credit may not exceed $50 in any year. State Y's director of finance has discovered this year that the amount of credit claimed is far higher than expected. Which principle of good tax policy might not have been considered in designing this tax that caused the original cost estimate to be too low?

Accepted Answer

A)  Equity. 
B)  Simplicity. 
C)  Economy in collection. 
D)  Minimum tax gap.

Exam 1: Understanding and Working With the Federal Tax Law

Because it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize a gain in the year the installment sale occurs.

Regarding proper ethical accounting guidelines, which, if any, of the following is correct?

If a taxpayer files early (i.e., before the due date of the return), the statute of limitations on assessments begins on the date the return is filed.

Currently, the Federal corporate income tax is less progressive than the individual income tax.

The tax law contains various provisions that encourage home ownership. a. On what basis can this objective be justified? b. Are there any negative considerations? Explain.

The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith's canon (principle) of certainty.

Using the following choices, show the justification for each provision of the tax law listed. -Tax credits for home improvements that conserve energy.

In preparing a tax return, all questions on the return must be answered.

In late June 2019, Art is audited by the state and a large deficiency is assessed. In November of the same year, his Federal income tax return is audited by the IRS. What has probably happened?

Some states use their state income tax return as a means of collecting unpaid sales and use taxes.

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

Morgan inherits her father's personal residence including all of the furnishings. She plans to add a swimming pool and sauna to the property and rent it as a furnished house. What are some of the ad valorem property tax issues Morgan can anticipate?

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

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%.

Upon audit by the IRS, Faith is assessed a deficiency of $40,000 of which $25,000 is attributable to negligence. The 20% negligence penalty will apply to $25,000.

Tax functions that accounting and finance professionals may assist clients with include all but the following:

Briana lives in one state and works in the adjoining state. Both states tax the income she earns from her job. Does Briana have any relief from this apparent double taxation of the same income?

Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.