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

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Question 81

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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 problems Morgan can anticipate?

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The real estate taxes probably will incr...

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Question 82

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State and local governments are sometimes forced to find ways to generate additional revenue.Comment on the pros and cons of the following procedures: a.Decouple what would be part of the piggyback format of the state income tax. b.Tax amnesty provisions. c.Internet shaming.

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a.The decoupling process is easily accom...

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Question 83

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Taxes levied by both states and the Federal government include:

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 -Criminal fraud penalty

Rick,the sole proprietor of an adult entertainment club,is audited by the IRS.On the third day of the field audit,the regular IRS agent is accompanied by a special agent.Should Rick be concerned by this new development? Explain.

In connection with facilitating the function of the IRS in the administration of the tax laws,comment on the utility of the following: a.An increase in the amount of the standard deduction. b.Dollar and percentage limitations on the deduction of personal casualty losses. c.Availability of interest and penalties for taxpayer noncompliance.

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.

Under Clint's will,all of his property passes to either the Lutheran Church or to his wife.No Federal estate tax will be due on Clint's death in 2016.

A characteristic of the fraud penalties is:

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.

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%.

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?

Brayden files his Federal income tax return by April 15,but does not pay the tax.Although he expects to pay interest on the large amount of tax he still owes,he feels that the timely filing has avoided any penalties.Is Brayden's assumption correct?

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 -Additional depreciation deduction allowed for the year the asset is acquired.

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 -Discriminant Index Function (DIF)

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

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 -Income tax amnesty

A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no such taxes.

A calendar year taxpayer files his 2015 Federal income tax return on March 4,2016.The return reflects an overpayment of $6,000,and the taxpayer requests a refund of this amount.The refund is paid on May 16,2016.The refund need not include interest.

What is a severance tax? How productive can it be in terms of generating revenue?