Question 1

The objective of pay-as-you-go (paygo) is to achieve revenue neutrality.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)   State general sales tax.
B)   Federal corporate income tax.
C)   Federal estate tax.
D)   Federal gift tax.
E)   All of the above.F) B) and D)
G) C) and E)

Question 3

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

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) F) and G)
N) D) and L)

Question 4

A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no such taxes.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)  Deferral of gains from involuntary conversions
B)  Carryback and 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 I)
N) F) and H)

Question 6

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

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

Taxes not imposed by the Federal government include:

Accepted Answer

A)   Tobacco excise tax.
B)   Customs duties (tariffs on imports) .
C)   Tax on rent cars.
D)   Gas guzzler tax.
E)   None of the above.F) A) and C)
G) C) and E)

Question 9

The proposed flat tax:

Accepted Answer

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) A) and E)
G) A) and B)

Question 10

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all.
-Import taxes (customs duties)

Accepted Answer

A)  Deferral of gains from involuntary conversions
B)  Carryback and 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) B) and K)
N) A) and E)

Question 11

Some states use their state income tax return as a means of collecting unpaid sales and use taxes.

Accepted Answer

A) True 
 B)False

Question 12

Which, if any, of the following is a typical characteristic of an ad valorem tax on personalty?

Accepted Answer

A)   Taxpayer compliance is greater for personal use property than for business use property.
B)   The tax on automobiles sometimes considers the age of the vehicle.
C)   Most states impose a tax on intangibles.
D)   The tax on intangibles generates considerable revenue since it is difficult for taxpayers to avoid.
E)   None of the above.F) A) and B)
G) A) and C)

Question 13

Match the statements that relate to each other. Note: Some choices may be used more than once.
-Criminal fraud 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) D) and E)
N) A) and B)

Question 14

Paige is the sole shareholder of Citron Corporation. During the year, Paige leases a building to Citron for a monthly rental of $80,000. If the fair rental value of the building is $60,000, what are the income tax consequences to the parties involved?

Accepted Answer

The rent charged by Paige is not "arms l...

Question 15

Upon audit by the IRS, Faith is assessed a deficiency of $40,000 of which $25,000 is attributable to negligence. The 20% negligence penalty will apply to $25,000.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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?

Accepted Answer

Tracy might save herself time and expens...

Question 18

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

Accepted Answer

A)  Deferral of gains from involuntary conversions
B)  Carryback and 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) B) and L)
N) D) and K)

Question 19

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

Accepted Answer

A)   To take advantage of the higher unified transfer tax credit available under the gift tax.
B)   To avoid a future decline in value of the property transferred.
C)   To take advantage of the per donee annual exclusion.
D)   To shift income to higher bracket donees.
E)   None of the above.F) B) and C)
G) A) and D)

Question 20

Both economic and social considerations can be used to justify:

Accepted Answer

A)   Favorable tax treatment for accident and health plans provided for employees and financed by employers.
B)   Disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g., fines, penalties, illegal kickbacks, bribes to government officials) .
C)   Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education.
D)   Allowance of a deduction for state and local income taxes paid.
E)   None of the above.F) B) and D)
G) C) and D)

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

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

Correct AnswerverifiedShow Answer

Upon audit by the IRS, Faith is assessed a deficiency of $40,000 of which $25,000 is attributable to negligence. The 20% negligence penalty will apply to $25,000.

Correct AnswerverifiedShow Answer

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -Import taxes (customs duties)

Correct AnswerverifiedShow Answer

Paige is the sole shareholder of Citron Corporation. During the year, Paige leases a building to Citron for a monthly rental of $80,000. If the fair rental value of the building is $60,000, what are the income tax consequences to the parties involved?

Correct AnswerverifiedThe rent charged by Paige is not "arms l...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Both economic and social considerations can be used to justify:

Correct AnswerverifiedShow Answer

The proposed flat tax:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The objective of pay-as-you-go (paygo) is to achieve revenue neutrality.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no such taxes.

Correct AnswerverifiedShow Answer

Which, if any, of the following is a typical characteristic of an ad valorem tax on personalty?

Correct AnswerverifiedShow Answer

Taxes not imposed by the Federal government include:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedTracy might save herself time and expens...View AnswerShow Answer

Some states use their state income tax return as a means of collecting unpaid sales and use taxes.

Correct AnswerverifiedShow Answer

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The rent charged by Paige is not "arms l...
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Tracy might save herself time and expens...
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Correct Answer
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