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

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Question 41

Multiple Choice

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Taxes levied by all states include:

A) Liquor excise tax.
B) Individual income tax.
C) Inheritance tax.
D) General sales tax.
E) None of the above.

F) A) and E)
G) A) and D)

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Question 42

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

A) True
B) False

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Question 43

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In 2004,Congress enacted a provision to allow a deduction for state and local sales taxes.Such a provision can be justified on equity grounds.

Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.

Unlike FICA,FUTA requires that employers comply with state as well as Federal rules.

The Federal estate and gift taxes are examples of progressive taxes.

Property can be transferred within the family group by gift or at death.One motivation for preferring the gift approach is:

For individual taxpayers,the interest rate for income tax refunds (overpayments)is the same as that applicable to assessments (underpayments).

State income taxes generally can be characterized by:

In 1980,Jonathan leased real estate to Jay Corporation for 20 years.Jay Corporation made significant capital improvements to the property.In 2000,Jay decides not to renew the lease and vacates the property.At that time,the value of the improvements is $900,000.Jonathan sells the real estate in 2010 for $1,300,000 of which $1,000,000 is attributable to the improvements.How and when is Jonathan taxed on the improvements made by Jay Corporation?

The Tax Relief Reconciliation Act of 2001 made certain changes in the estate and gift taxes.

Which,if any,of the following provisions cannot be justified as mitigating the effect of the annual accounting period concept?

If a taxpayer files late (i.e. ,after the due date of the return),the statute of limitations on assessments begins on the date the return is filed.

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

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

In preparing an income tax return,the use of a client's estimates is not permitted.

Linda,a widow,makes cash gifts to her six married children (including their spouses)and to her ten grandchildren.

A use tax is imposed by:

If the tax deficiency is attributable to fraud,the negligence penalty will not be imposed.

Your client,Connie,won $12,000 in a football office pool.She sees no reason to include it in her income for several reasons.First,the amount won will not be reported to the IRS.Second,as an average income employee,she is unlikely to be audited by the IRS.Third,she feels that she has probably lost this much in other past office pools.How do you respond?