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

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Question 31

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State and local governments are sometimes forced to find ways to generate additional revenue.Comment on the pros and cons of the following procedures: a.Decouple what would be part of the piggyback format of the state income tax. b.Tax amnesty provisions. c.Internet shaming.

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a.The decoupling process is easily accom...

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Question 32

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

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Question 33

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In terms of probability,which of the following taxpayers would be least likely to be audited by the IRS?

Allowing a domestic production activities deduction for certain manufacturing income can be justified:

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 -Income tax amnesty

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

Burt and Lisa are married and live in a common law state.Burt wants to make gifts to their four children in 2015.What is the maximum amount of the annual exclusion they will be allowed for these gifts?

Social considerations can be used to justify:

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 -Criminal fraud penalty

To lessen,or eliminate,the effect of multiple taxation,a taxpayer who is subject to both foreign and U.S.income taxes on the same income is allowed either a deduction or a credit for the foreign tax paid.

Under the usual state inheritance tax,two heirs,a cousin and a son of the deceased,would not be taxed at the same rate.

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 -Tax credits available for the purchase of a vehicle that uses alternative (non-fossil) fuels.

The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use personalty.

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)

In late June 2015,Art is audited by the state and a large deficiency is assessed.In November of the same year,his Federal income tax return is audited by the IRS.What has probably happened?

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

Tracy has just been audited and the IRS agent has issued an RAR that assesses a large deficiency.Since Tracy disagrees with the result,her next step is to go to court.Do you agree?

Jason's business warehouse is destroyed by fire.As 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.

On occasion,Congress has to enact legislation that clarifies the tax law in order to change a result reached by the U.S.Supreme Court.

In connection with facilitating the function of the IRS in the administration of the tax laws,comment on the utility of the following: a.An increase in the amount of the standard deduction. b.Dollar and percentage limitations on the deduction of personal casualty losses. c.Availability of interest and penalties for taxpayer noncompliance.