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

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Question 51

Multiple Choice

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Taxes levied by all states include:

A) Tobacco excise tax.
B) Individual income tax.
C) Inheritance tax.
D) General sales tax.
E) None of these.

F) C) and E)
G) None of the above

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Question 52

True/False

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An inheritance tax is a tax on a decedent's right to pass property at death.

A) True
B) False

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Question 53

Multiple Choice

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A characteristic of FICA is that:

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 -"Pay-as-you-go" (paygo)

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 -A Federal deduction for state and local income taxes paid.

In terms of Adam Smith's canons of taxation,how does the Federal income tax fare as far as economy is concerned?

Due to the population change,the Goose Creek School District has decided to close one of its high schools.Since it has no further need of the property,the school is listed for sale.The two bids it receives are as follows: United Methodist Church $1,700,000 Planet Motors 1,600,000 The United Methodist Church would use the property to establish a sectarian middle school.Planet,a well-known car dealership,would revamp the property and operate it as a branch location. If you were a member of the School District board,what factors would you consider in evaluating the two bids?

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 -A tax credit for amounts spent to furnish care for children while the parent is at work.

To mitigate the effect of the annual accounting period concept,the tax law permits the carryforward to other years of the excess charitable contributions of a particular year.

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

Stealth taxes have the effect of generating additional taxes from all taxpayers.

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

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.

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 -Revenue Agent's Report (RAR)

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

Federal excise taxes that are no longer imposed include:

A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis.

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