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

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Question 21

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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 -No return and statute limitations

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Question 22

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Regarding proper ethical guidelines,which (if any) of the following is correct?

A) The use of client estimates in preparing a return may be acceptable.
B) Under no circumstances should a question on a tax return be left unanswered.
C) If a client has made a mistake in a prior year's return and refuses to correct it, you should withdraw from the engagement.
D) If the exact amount of a deduction is not certain so as to increase the appearance of greater certainty.
E) None of these.

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

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Question 23

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

Currently,the tax base for the Social Security component of the FICA is not limited to a dollar amount.

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

On his 2017 income tax return,Andrew omitted income and overstated deductions to the extent that his income tax was understated by $500,000.Disregarding any interest element,what is Andrew's penalty if the understatement was due to: a.Negligence. b.Civil fraud. c.Criminal fraud.

What is a severance tax? How productive can it be in terms of generating revenue?

Taxes not imposed by the Federal government include:

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

To mitigate the effect of the annual accounting period concept,the tax law permits the carryforward to other years of the excess charitable contributions of a particular year.

There is a Federal excise tax on hotel occupancy.

A landlord leases property upon which the tenant makes improvements.The improvements are significant and are not made in lieu of rent.At the end of the lease,the value of the improvements are not income to the landlord.This rule is an example of:

In 2017,José,a widower,sells land (fair market value of $100,000) to his daughter,Linda,for $50,000.José has not made a taxable gift.

For Federal income tax purposes,there never has been a general amnesty period.

A characteristic of the fraud penalties is:

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 -Early filing and statute of limitations (deficiency situations)

Indicate which,if any,statement is incorrect.State income taxes:

As it is consistent with the wherewithal to pay concept,the tax law requires a seller to recognize gain in the year the installment sale occurs.

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. 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 agent f.Undoing the "piggyback" result g.Ideal budget goal as to new tax legislation h.Every state that has a general sales tax has one i.Imposed by all states and the Federal government j.Imposed by some states but not the Federal government k.Imposed only by the Federal government l.No correct match provided -Discriminant Index Function (DIF)

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