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

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Question 31

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For the tax year 2014, Noah reported gross income of $300,000 on his timely filed Federal income tax return. a. Presuming the general rule applies, when does the statute of limitations on assessments normally expire? b. Suppose Noah inadvertently omitted gross income of $76,000. When does the statute of limitations on assessments expire? c. Suppose the omission was deliberate and not inadvertent. When does the statute of limitations on assessments expire?

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a. Three years from April 15, 2015.
a. I...

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Question 32

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Congress reacts to judicial decisions that interpret the tax law in different ways. When it approves of a decision, Congress may act to amend the Code to incorporate the holding. When it disapproves, Congress may amend the Code to nullify its effect. Give an example of each one of these congressional reactions.

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Congress approved of the judicial conclu...

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Question 33

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The Federal income tax is based on a pay­as­you­go system and has become a "mass tax." Explain this statement.

When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax purposes.

Currently, the Federal income tax is less progressive than it ever has been in the past.

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?

A parent employs his twin daughters, age 17, in his sole proprietorship. The daughters are not subject to FICA coverage.

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

A characteristic of the fraud penalties is:

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

The tax law contains various provisions that encourage home ownership. a. On what basis can this objective be justified? b. Are there any negative considerations? Explain.

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 2014. In reviewing her 2013 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?

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

Burt and Lisa are married and live in a common law state. Burt wants to make gifts to their four children in 2014. What is the maximum amount of the annual exclusion they will be allowed for these gifts?

For omissions from gross income in excess of 25% of that reported, there is no statute of limitations on additional income tax assessments by the IRS.

Julius, a married taxpayer, makes gifts to each of his six children. A maximum of twelve annual exclusions could be allowed as to these gifts.

A calendar year taxpayer files his 2013 Federal income tax return on March 5, 2014. The return reflects an overpayment of $6,000, and the taxpayer requests a refund of this amount. The refund is paid on May 16, 2014. The refund need not include interest.

Mona inherits her mother's personal residence, which she converts to a furnished rent house. These changes should affect the amount of ad valorem property taxes levied on the properties.

Under what conditions is it permissible, from an ethical standpoint, for a CPA firm to outsource tax return preparation to a third party?