Question 1

Using the following choices, show the justification for each provision of the tax law listed.
a. Economic considerations 
b. Social considerations
c. Equity considerations 
d. Both a. and b.
-Revenue Agent's Report (RAR)

Accepted Answer

A)  Deferral of gains from involuntary conversions
B)  Carryforward of net operating losses
C)  "No change" is a possible result
D)  State income tax applied to a 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 G)
N) G) and J)

Question 2

The majority of IRS audits are handled by correspondence.

Accepted Answer

A) True 
 B)False

Question 3

When interest is charged on a deficiency, any part of a month counts as a full month.

Accepted Answer

A) True 
 B)False

Question 4

Jason's business warehouse is destroyed by fire.Because 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 5

Currently, the Federal corporate income tax is less progressive than the individual income tax.

Accepted Answer

A) True 
 B)False

Question 6

Provisions in the tax law that promote energy conservation and more use of alternative (nonfossil)  fuels can be justified by:

Accepted Answer

A)  Political considerations.
B)  Economic and social considerations.
C)  Promoting administrative feasibility.
D)  Encouragement of small business.
E)  None of these.F) B) and C)
G) A) and D)

Question 7

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

Accepted Answer

A)  Nonrecognition of gain allowed for involuntary conversions.
B)  Net operating loss carryover provisions.
C)  Carryover of excess charitable contributions.
D)  Use of the installment method to recognize gain.
E)  Carryover of excess capital losses.F) B) and D)
G) B) and E)

Question 8

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

Accepted Answer

A)  Three years from date return is filed
B)  Three 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) Six yearsI) 45-day grace period allowed to IRSJ) No statute of limitations (period remains open) K) 75% of underpaymentL) No correct match providedM) E) and I)
N) F) and G)

Question 9

An excise tax is often used to try to influence behavior.

Accepted Answer

A) True 
 B)False

Question 10

States impose either a state income tax or a general sales tax, but not both types of taxes.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from being accumulated within a family unit.

Accepted Answer

A) True 
 B)False

Question 13

Match the statements that relate to each other.Note: Some choices may be used more than once.
-Fraud and statute of limitations

Accepted Answer

A)  Three years from date return is filed
B)  Three 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) Six yearsI) 45-day grace period allowed to IRSJ) No statute of limitations (period remains open) K) 75% of underpaymentL) No correct match providedM) J) and K)
N) C) and L)

Question 14

Under state amnesty programs, all delinquent and unpaid income taxes are forgiven.

Accepted Answer

A) True 
 B)False

Question 15

The IRS is required to redetermine the interest rate on underpayments and overpayments once a year.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements about a value added tax (VAT)  is false?

Accepted Answer

A)  Many countries use a VAT.
B)  The United States has imposed a VAT since 1913.
C)  A VAT has been proposed in the United States to replace part of the income tax.
D)  A VAT operates similarly to a sales tax.E) C) and D)
F) B) and D)

Question 20

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

Accepted Answer

A) True 
 B)False

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

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

Correct AnswerverifiedShow Answer

Under state amnesty programs, all delinquent and unpaid income taxes are forgiven.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Using the following choices, show the justification for each provision of the tax law listed. a. Economic considerations b. Social considerations c. Equity considerations d. Both a. and b. -Revenue Agent's Report (RAR)

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

States impose either a state income tax or a general sales tax, but not both types of taxes.

Correct AnswerverifiedShow Answer

Provisions in the tax law that promote energy conservation and more use of alternative (nonfossil) fuels can be justified by:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The majority of IRS audits are handled by correspondence.

Correct AnswerverifiedShow Answer

Match the statements that relate to each other.Note: Some choices may be used more than once. -Fraud and statute of limitations

Correct AnswerverifiedShow Answer

The IRS is required to redetermine the interest rate on underpayments and overpayments once a year.

Correct AnswerverifiedShow Answer

Currently, the Federal corporate income tax is less progressive than the individual income tax.

Correct AnswerverifiedShow Answer

Jason's business warehouse is destroyed by fire.Because 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

One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from being accumulated within a family unit.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An excise tax is often used to try to influence behavior.

Correct AnswerverifiedShow Answer

When interest is charged on a deficiency, any part of a month counts as a full month.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements about a value added tax (VAT) is false?

Correct AnswerverifiedShow Answer

Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same.

Correct AnswerverifiedShow Answer

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