Question 1

In 2016, Deborah became 65 years old. In 2017 she added a swimming pool, and in 2018 she converted the residence to rental property and moved into an assisted living facility. Since 2015, Deborah's ad valorem property taxes have decreased once and increased twice. Explain.

Accepted Answer

The decrease probably came in 2016 when ...

Question 2

Which, if any, of the following taxes are proportional (rather than progressive) ?

Accepted Answer

A)   State general sales tax
B)   Federal individual income tax
C)   Federal estate tax
D)   Federal gift tax
E)   All of theseF) B) and E)
G) A) and E)

Question 3

Using the choices provided below, show the justification for each provision of the tax law listed.
-A Federal deduction for state and local income taxes paid.

Accepted Answer

A)  Economic considerations
B)  Social considerations
C)  Equity considerations
D)  Both a. and b.E) A) and B)
F) A) and C)

Question 4

Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)   A tax holiday is granted to an out-of-state business that is searching for a new factory site.
B)   An abandoned church is converted to a restaurant.
C)   A public school is razed and turned into a city park.
D)   A local university sells a dormitory that will be converted for use as an apartment building.
E)   None of these.F) B) and E)
G) B) and C)

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

Burt and Lisa are married and live in a common law state. Burt wants to make gifts to their four children in 2018. 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.F) A) and B)
G) A) and E)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

For omissions from gross income in excess of 25% of that reported, there is no statute of limitations on additional income tax assessments by the IRS.

Accepted Answer

A) True 
 B)False

Question 10

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all.
-Excise tax on tobacco

Accepted Answer

A)  Deferral of gains from involuntary conversions
B)  Carryforward of net operating losses
C)  "No change" is one possible result
D)  State income tax applied to visiting nonresident
E)  IRS special agentF) Undoing the "piggyback" resultG) Ideal budget goal as to new tax legislationH) Every state that has a general sales tax has oneI) Imposed by all states and the Federal governmentJ) Imposed by some states but not the Federal governmentK) Imposed only by the Federal governmentL) No correct match providedM) E) and J)
N) F) and H)

Question 11

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all.
-Employee temporarily working in another state for two months

Accepted Answer

A)  Deferral of gains from involuntary conversions
B)  Carryforward of net operating losses
C)  "No change" is one possible result
D)  State income tax applied to visiting nonresident
E)  IRS special agentF) Undoing the "piggyback" resultG) Ideal budget goal as to new tax legislationH) Every state that has a general sales tax has oneI) Imposed by all states and the Federal governmentJ) Imposed by some states but not the Federal governmentK) Imposed only by the Federal governmentL) No correct match providedM) D) and K)
N) D) and E)

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Match the statements that relate to each other. Note: Some choices may be used more than once.
-Failure to pay penalty

Accepted Answer

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 officeG) Conducted at taxpayer's officeH) 6 yearsI) 45-day grace period allowed to IRSJ) No statute of limitations (period remains open) K) 75% of underpaymentL) No correct match providedM) A) and J)
N) B) and J)

Question 14

Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same rate.

Accepted Answer

A) True 
 B)False

Question 15

The tax law allows an income tax deduction (or a credit) for foreign income taxes. Explain why.

Accepted Answer

The deduction (or a credit) fo...

Question 16

The IRS agent auditing the return will issue an RAR even if the taxpayer owes no additional taxes.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Using the choices provided below, show the justification for each provision of the tax law listed.
-Tax brackets are increased for inflation.

Accepted Answer

A)  Economic considerations
B)  Social considerations
C)  Equity considerations
D)  Both a. and b.E) C) and D)
F) B) and D)

Question 19

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.

Accepted Answer

a. The decoupling process is easily acco...

Question 20

When Congress enacts a tax cut that is phased in over a period of years, revenue neutrality is achieved.

Accepted Answer

A) True 
 B)False

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

When Congress enacts a tax cut that is phased in over a period of years, revenue neutrality is achieved.

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Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same.

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

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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.

Correct Answerverifieda. The decoupling process is easily acco...View AnswerShow Answer

Using the choices provided below, show the justification for each provision of the tax law listed. -Tax brackets are increased for inflation.

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The IRS agent auditing the return will issue an RAR even if the taxpayer owes no additional taxes.

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

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Using the choices provided below, show the justification for each provision of the tax law listed. -A Federal deduction for state and local income taxes paid.

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

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

In 2016, Deborah became 65 years old. In 2017 she added a swimming pool, and in 2018 she converted the residence to rental property and moved into an assisted living facility. Since 2015, Deborah's ad valorem property taxes have decreased once and increased twice. Explain.

Correct AnswerverifiedThe decrease probably came in 2016 when ...View AnswerShow Answer

The tax law allows an income tax deduction (or a credit) for foreign income taxes. Explain why.

Correct AnswerverifiedThe deduction (or a credit) fo...View AnswerShow Answer

Match the statements that relate to each other. Note: Some choices may be used more than once. -Failure to pay penalty

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For omissions from gross income in excess of 25% of that reported, there is no statute of limitations on additional income tax assessments by the IRS.

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Which, if any, of the following taxes are proportional (rather than progressive) ?

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Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same rate.

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Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -Excise tax on tobacco

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Burt and Lisa are married and live in a common law state. Burt wants to make gifts to their four children in 2018. What is the maximum amount of the annual exclusion they will be allowed for these gifts?

Correct AnswerverifiedShow Answer

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -Employee temporarily working in another state for two months

Correct AnswerverifiedShow Answer

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a. The decoupling process is easily acco...
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The decrease probably came in 2016 when ...
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The deduction (or a credit) fo...
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