Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Virtually all state income tax returns contain checkoff boxes for donations to various causes.On what grounds has this procedure been criticized?

Accepted Answer

The answer of Virtually all state income tax returns contain...

Question 3

Burt and Lisa are married and live in a common law state.Burt wants to make gifts to their four children in 2019. What is the maximum amount of the annual exclusion they will be allowed for these gifts?

Accepted Answer

A) $15,000. 
B) $30,000. 
C) $60,000. 
D) $120,000. 
E) None of these.

Question 4

The annual exclusion, currently $15,000, is available for gift and estate tax purposes.

Accepted Answer

A) True 
 B)False

Question 5

A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles.

Accepted Answer

A) True 
 B)False

Question 6

What is the difference between an inheritance tax and an estate tax? Who imposes these taxes?

Accepted Answer

The answer of What is the difference between an inheritance...

Question 7

An excise tax is often used to try to influence behavior.

Accepted Answer

A) True 
 B)False

Question 8

A characteristic of FICA is that:

Accepted Answer

A) It does not apply when one spouse works for the other spouse. 
B) It is imposed only on the employer. 
C) It provides a modest source of income in the event of loss of employment. 
D) It is administered by both state and Federal governments. 
E) None of these.

Question 9

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 interest on student loans.

Accepted Answer

The answer of Using the choices provided below, show the...

Question 10

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:

Accepted Answer

A) A clear reflection of income result. 
B) The tax benefit rule. 
C) The arm's length concept. 
D) The wherewithal to pay concept. 
E) None of these.

Question 11

In 1988, Roy leased real estate to Drab Corporation for 20 years.Drab Corporation made significant capital improvements to the property.In 2007, Drab decided not to renew the lease and vacated the property.At that time, the value of the improvements was $800,000.Roy sells the real estate in 2019 for $1,200,000 of which $900,000 is attributable to the improvements.When is Roy taxed on the improvements made by Drab Corporation?

Accepted Answer

The answer of In 1988, Roy leased real estate to...

Question 12

Taxes not imposed by the Federal government include:

Accepted Answer

A) Tobacco excise tax. 
B) Customs duties (tariffs on imports). 
C) Tax on rental cars. 
D) Gas guzzler tax. 
E) None of these.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) Penalties are imposed for failure to file a return or pay a tax on time. 
B) Prepaid income is taxed in the year received, not in the year earned. 
C) Annual adjustments for indexation increases the amount of the standard deduction allowed. 
D) Personal casualty losses in Federally declared disaster areas must exceed 10% of AGI to be deductible. 
E) A deduction is allowed for charitable contributions.

Question 15

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 Federal deduction for state and local income taxes paid.

Accepted Answer

The answer of Using the choices provided below, show the...

Question 16

In terms of revenue neutrality, comment on a tax cut enacted by Congress that:
a.Contains revenue offsets.
b.Includes a sunset provision.

Accepted Answer

The answer of In terms of revenue neutrality, comment on...

Question 17

Social considerations can be used to justify:

Accepted Answer

A) Allowance of a credit for child care expenses. 
B) Allowing excess capital losses to be carried over to other years. 
C) Allowing accelerated amortization for the cost of installing pollution control facilities. 
D) Allowing a Federal income tax deduction for state and local sales taxes. 
E) None of these.

Question 18

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 Federal deduction for state and local sales taxes paid.

Accepted Answer

The answer of Using the choices provided below, show the...

Question 19

In the current year, Azul Corporation, a calendar year C corporation, received a dividend of $30,000 from Naranja Corporation.Azul owns 25% of the Naranja Corporation stock.Assuming it is not subject to the taxable income limitation, Azul's dividends received deduction is $19,500.

Accepted Answer

A) True 
 B)False

Question 20

The United States (either Federal, state, or local) does not impose:

Accepted Answer

A) Franchise taxes. 
B) Severance taxes. 
C) Occupational fees. 
D) Custom duties. 
E) Export duties.

Exam 1: Introduction to Taxation

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

Virtually all state income tax returns contain checkoff boxes for donations to various causes.On what grounds has this procedure been criticized?

Burt and Lisa are married and live in a common law state.Burt wants to make gifts to their four children in 2019. What is the maximum amount of the annual exclusion they will be allowed for these gifts?

The annual exclusion, currently $15,000, is available for gift and estate tax purposes.

A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles.

What is the difference between an inheritance tax and an estate tax? Who imposes these taxes?

An excise tax is often used to try to influence behavior.

A characteristic of FICA is that:

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 interest on student loans.

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:

Taxes not imposed by the Federal government include:

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

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

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 Federal deduction for state and local income taxes paid.

In terms of revenue neutrality, comment on a tax cut enacted by Congress that: a.Contains revenue offsets. b.Includes a sunset provision.

Social considerations can be used to justify:

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 Federal deduction for state and local sales taxes paid.

In the current year, Azul Corporation, a calendar year C corporation, received a dividend of $30,000 from Naranja Corporation.Azul owns 25% of the Naranja Corporation stock.Assuming it is not subject to the taxable income limitation, Azul's dividends received deduction is $19,500.

The United States (either Federal, state, or local) does not impose: