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

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Question 51

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In connection with facilitating the function of the IRS in the administration of the tax laws,comment on the utility of the following:

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Question 52

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Can a taxpayer start the 3-year statute of limitations on additional assessments by the IRS by filing his income tax return early (i.e. ,before the due date)? Can the period be shortened by filing late (i.e. ,after the due date)?

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The answer is no in both cases...

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Question 53

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Federal excise tax is no longer imposed on wagering.

The tax law contains various provisions that encourage home ownership.

When a state decouples from a Federal tax provision,it means that this provision will not apply for state income 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 inconsistent with generally accepted accounting principles.

In terms of revenue neutrality,comment on the following:

Timothy recently converted a warehouse into apartment lofts,which he is renting to single professionals.In making the conversion,he emphasized improvements that were portable in nature.Thus,the sprinkler system,heating and cooling units,and room dividers are all removable from the building.In terms of ad valorem property taxes,what was Timothy trying to accomplish?

Mona inherits her mother's personal residence,which she converts to a furnished rent house.These changes should not affect the amount of ad valorem property taxes levied on the properties.

Which,if any,of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate?

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?

Under state amnesty programs,all delinquent and unpaid income taxes are forgiven.

Comment on the following items relating to IRS audit situations:

The FICA tax (Medicare component)on wages is progressive since the tax due increases as wages increase.

As long as the property tax rates are not changed,the ad valorem taxes imposed on realty will remain the same.

Without obtaining an extension,Brandi files her income tax return 65 days after the due date.With her return,she pays an additional tax of $50,000.Disregarding any interest element,what is Brandi's penalty for failure to pay and to file?

The Federal income tax is based on a pay-as-you-go system and has become a "mass tax." Explain this statement.

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.

Even though a client refuses to correct an error on a past return,it may be possible for a practitioner to continue to prepare returns for the client.

Currently,the Federal income tax is more progressive than it ever has been in the past.