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

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Question 51

Multiple Choice

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The proposed flat tax:

A) Would eliminate the income tax.
B) Would simplify the income tax.
C) Would tax the increment in value as goods move through the production and manufacturing stages to the marketplace.
D) Is a tax on consumption.
E) None of the above.

F) B) and C)
G) A) and C)

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Question 52

True/False

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A major disadvantage of a flat tax type of income tax is its complexity.

A) True
B) False

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Question 53

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For individual taxpayers, the interest rate for income tax refunds (overpayments) is not the same as that applicable to assessments (underpayments).

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?

Melinda has been referred to you by one of your clients.In the past, she has prepared her own income tax returns, but she has become overwhelmed by the increased complexity of the tax law.Consequently, Melinda wants you to prepare her return for calendar year 2012.In reviewing her 2011 return, you note that she has claimed as a deduction the entire cost of a business building that should have been capitalized and depreciated.What course of action should you follow?

In 2012, José, a widower, sells land (fair market value of $100,000) to his daughter, Linda, for $50,000.José has made a taxable gift of $50,000.

The principal objective of the FUTA tax is to provide some measure of retirement security.

With regard to state income taxes, explain what is meant by the "jock tax"?

Without obtaining an extension, Olivia 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 Olivia's penalty for failure to pay and to file?

How do the net operating loss provisions in the tax law mitigate the effect of the annual accounting concept?

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

The civil fraud penalty can entail large fines and possible incarceration.

Tracy has just been audited and the IRS agent has issued an RAR that assesses a large deficiency.Since Tracy disagrees with the result, her next step is to go to court.Do you agree?

The Federal income tax on individuals generates more revenue than the Federal income tax on corporations.

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

If property tax rates are not changed, the amount of ad valorem taxes imposed on realty will remain the same.

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

The ratification of the Sixteenth Amendment to the U.S.Constitution was necessary to validate the Federal income tax on corporations.

Scott files his tax return 65 days after the due date.Along with the return, Scott remits a check for $50,000 which is the balance of the tax owed.Disregarding the interest element, Scott's total failure to file and to pay penalties are:

In 2010, Deborah became 65 years old.In 2011 she added a swimming pool, and in 2012 she converted the residence to rental property and moved into an assisted living facility.Since 2009, Deborah's ad valorem property taxes have decreased once and increased twice.Explain.