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

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Question 91

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

A) True
B) False

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Question 92

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Jason's business warehouse is destroyed by fire. As the insurance proceeds exceed the basis of the property, a gain results. If Jason shortly reinvests the proceeds in a new warehouse, no gain is recognized due to the application of the wherewithal to pay concept.

A) True
B) False

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Question 93

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States impose either a state income tax or a general sales tax, but not both types of taxes.

The tax law allows, under certain conditions, deferral of gain recognition for involuntary conversions. a.What is the justification for this relief measure? b.What happens if the proceeds are not entirely reinvested?

If fraud is involved, there is no time limit on the assessment of a deficiency by the IRS.

The objective of pay-as-you-go (paygo) is to improve administrative feasibility.

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 -Fraud and statute of limitations

There is a Federal excise tax on hotel occupancy.

David files his tax return 45 days after the due date. Along with the return, David remits a check for $40,000 which is the balance of the tax owed. Disregarding the interest element, David's total failure to file and to pay penalties are:​

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 small business corporation can elect to avoid the corporate income tax.

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 -Early filing and statute of limitations (deficiency situations)

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

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.

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 -Office audit

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 qualified tuition paid to obtain higher education.

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

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

For the negligence penalty to apply, the underpayment must be caused by intentional disregard of rules and regulations without intent to defraud.

Allowing a domestic production activities deduction for certain manufacturing income can be justified:

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