Question 1

Rick, the sole proprietor of an adult entertainment club, is audited by the IRS. On the third day of the field audit, the regular IRS agent is accompanied by a special agent. Should Rick be concerned by this new development? Explain.

Accepted Answer

Yes, he should. Special agents rarely ap...

Question 2

Which of the following taxes is only paid by the employer?

Accepted Answer

A)   FICA
B)   FUTA
C)   Social Security tax
D)   Medicare taxE) B) and D)
F) A) and B)

Question 3

Ultimately, most taxes are paid by individuals. Explain what this means in terms of income and payroll taxes paid by a corporation.

Accepted Answer

A corporation pays many types of taxes, ...

Question 4

Taxes levied by both states and the Federal government include:

Accepted Answer

A)   General sales tax.
B)   Custom duties.
C)   Hotel occupancy tax.
D)   Franchise tax.
E)   None of these.F) All of the above
G) A) and B)

Question 5

Which of the following is a characteristic of the audit process?

Accepted Answer

A)   Most taxpayer audits involve "special" agents.
B)   Self-employed taxpayers are less likely to be selected for audit than employed taxpayers.
C)   Less important issues are handled by means of a correspondence audit.
D)   If a taxpayer disagrees with the IRS auditor's finding, the only resort is to the courts.
E)   None of these.F) B) and D)
G) B) and C)

Question 6

As a matter of administrative convenience, the IRS would prefer to have Congress decrease (rather than increase) the amount of the standard deduction allowed to individual taxpayers.

Accepted Answer

A) True 
 B)False

Question 7

The Federal income tax is based on a pay-as-you-go system and has become a "mass tax." Explain this statement.

Accepted Answer

The pay-as-you-go system is present in t...

Question 8

A characteristic of FUTA is that:

Accepted Answer

A)   It is imposed on both employer and employee.
B)   It is imposed solely on the employee.
C)   Compliance requires following guidelines issued by both state and Federal regulatory authorities.
D)   It is applicable to spouses of employees but not to any children under age 18.
E)   None of these.F) B) and D)
G) C) and D)

Question 9

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all.
-Discriminant Index Function (DIF)

Accepted Answer

A)  Deferral of gains from involuntary conversions
B)  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) A) and D)
N) C) and D)

Question 10

What might cause an individual to owe income taxes in more than one state?

Accepted Answer

Working in more than...

Question 11

Which, if any, is not one of Adam Smith's canons (principles)  of taxation?

Accepted Answer

A)   Economy in collection
B)   Certainty
C)   Convenience of payment
D)   Simplicity
E)   EqualityF) D) and E)
G) A) and C)

Question 12

Brayden files his Federal income tax return by April 15, but does not pay the tax. Although he expects to pay interest on the large amount of tax he still owes, he feels that the timely filing has avoided any penalties. Is Brayden's assumption correct?

Accepted Answer

Although Brayden has avoided t...

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all.
-Tax on transfers at death (inheritance type)

Accepted Answer

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

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

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

Accepted Answer

A) True 
 B)False

Question 17

Logan dies with an estate worth $20 million. Under his will, $10 million passes to his wife while $10 million goes to his church. What is Logan's Federal estate tax result?

Accepted Answer

None. After a marital deductio...

Question 18

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

Accepted Answer

First, the clients' confidenti...

Question 19

Can a taxpayer start the 3-year statute of limitations on additional assessments by the IRS by filing his income tax return early (i.e., before the due date)? Can the period be shortened by filing late (i.e., after the due date)?

Accepted Answer

The answer is no in both cases...

Question 20

A lack of compliance in the payment of use taxes can be resolved by several means. In this regard, comment on the f
a. Registration of automobiles.
b. Reporting of Internet purchases on state income tax returns.

Accepted Answer

a. As reflected in Example 5, re-registr...

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

As a matter of administrative convenience, the IRS would prefer to have Congress decrease (rather than increase) the amount of the standard deduction allowed to individual taxpayers.

Correct AnswerverifiedShow Answer

Which of the following taxes is only paid by the employer?

Correct AnswerverifiedShow Answer

Taxes levied by both states and the Federal government include:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedFirst, the clients' confidenti...View AnswerShow Answer

What might cause an individual to owe income taxes in more than one state?

Correct AnswerverifiedWorking in more than...View AnswerShow Answer

Logan dies with an estate worth $20 million. Under his will, $10 million passes to his wife while $10 million goes to his church. What is Logan's Federal estate tax result?

Correct AnswerverifiedNone. After a marital deductio...View AnswerShow Answer

A lack of compliance in the payment of use taxes can be resolved by several means. In this regard, comment on the f a. Registration of automobiles. b. Reporting of Internet purchases on state income tax returns.

Correct Answerverifieda. As reflected in Example 5, re-registr...View AnswerShow Answer

The Federal income tax is based on a pay-as-you-go system and has become a "mass tax." Explain this statement.

Correct AnswerverifiedThe pay-as-you-go system is present in t...View AnswerShow Answer

Which, if any, is not one of Adam Smith's canons (principles) of taxation?

Correct AnswerverifiedShow Answer

Ultimately, most taxes are paid by individuals. Explain what this means in terms of income and payroll taxes paid by a corporation.

Correct AnswerverifiedA corporation pays many types of taxes, ...View AnswerShow Answer

Can a taxpayer start the 3-year statute of limitations on additional assessments by the IRS by filing his income tax return early (i.e., before the due date)? Can the period be shortened by filing late (i.e., after the due date)?

Correct AnswerverifiedThe answer is no in both cases...View AnswerShow Answer

Rick, the sole proprietor of an adult entertainment club, is audited by the IRS. On the third day of the field audit, the regular IRS agent is accompanied by a special agent. Should Rick be concerned by this new development? Explain.

Correct AnswerverifiedYes, he should. Special agents rarely ap...View AnswerShow Answer

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -Tax on transfers at death (inheritance type)

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

A characteristic of FUTA is that:

Correct AnswerverifiedShow Answer

Brayden files his Federal income tax return by April 15, but does not pay the tax. Although he expects to pay interest on the large amount of tax he still owes, he feels that the timely filing has avoided any penalties. Is Brayden's assumption correct?

Correct AnswerverifiedAlthough Brayden has avoided t...View AnswerShow Answer

Which of the following is a characteristic of the audit process?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -Discriminant Index Function (DIF)

Correct AnswerverifiedShow Answer

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First, the clients' confidenti...
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Working in more than...
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None. After a marital deductio...
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a. As reflected in Example 5, re-registr...
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The pay-as-you-go system is present in t...
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A corporation pays many types of taxes, ...
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The answer is no in both cases...
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Yes, he should. Special agents rarely ap...
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Although Brayden has avoided t...
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