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

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Question 101

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Which,if any,of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS) ?

A) Penalties are imposed for failure to file a return or pay a tax on time.
B) Prepaid income is taxed in the year received and not in the year earned.
C) Annual adjustments for indexation increases the amount of the standard deduction allowed.
D) Casualty losses must exceed 10% of AGI to be deductible.
E) A deduction is allowed for charitable contributions.

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

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Question 102

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

A) True
B) False

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Question 103

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

The first income tax on individuals (after the ratification of the Sixteenth Amendment to the Constitution) levied tax rates from a low of 2% to a high of 6%.

Like the Federal counterpart,the amount of the state excise taxes on gasoline varies from state to state.

A characteristic of FUTA is that:

State income taxes generally can be characterized by:

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

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

On transfers by death,the Federal government relies on an estate tax,while states impose an estate tax,an inheritance tax,both taxes,or neither tax.

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 2015.In reviewing her 2014 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?

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

Match the statements that relate to each other.Note: Some choices may be used more than once. 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 office g.Conducted at taxpayer's office h.6 years i.45-day grace period allowed to IRS j.No statute of limitations (period remains open) k.75% of underpayment l.No correct match provided -A bribe to the local sheriff,although business related,is not deductible.

The Federal excise tax on cigarettes is an example of a proportional tax.