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

Question 1

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

Answer 1

True

Question 2

Sales made by mail order are not exempt from the application of a general sales (or use) tax.

Answer 2

True

Question 3

Not all of the states that impose a general sales tax also have a use tax.

Answer 3

False

Question 4

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

Question 5

The FICA tax (Medicare component) on wages is progressive since the tax due increases as wages increase.

Question 6

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

Question 7

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

Question 8

A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty.

Question 9

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

Question 10

The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the United States.

Question 11

Before the Sixteenth Amendment to the Constitution was ratified, there was no valid Federal income tax on individuals.

Question 12

The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith's canon (principle) of certainty.

Question 13

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

Question 14

There is a Federal excise tax on hotel occupancy.

Question 15

The Federal income tax on individuals generates more revenue than the Federal income tax on corporations.

Question 16

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

Question 17

The first income tax on individuals (after the ratification of the Sixteenth Amendment to the Constitution) levied tax rates from a low of 2% to a high of 6%.

Question 18

The Federal estate and gift taxes are examples of progressive taxes.

Question 19

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

Question 20

Because the law is complicated, most individual taxpayers are not able to complete their Federal income tax returns without outside assistance.

Question 21

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

Question 22

A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no such taxes.

Question 23

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

Question 24

The annual exclusion, currently $15,000, is available for gift and estate tax purposes.

Question 25

Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.

Question 26

A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis.

Question 27

An inheritance tax is a tax on a decedent's right to pass property at death.

Question 28

For state income tax purposes, a majority of states allow a deduction for Federal income taxes.

Question 29

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.

Question 30

One of the motivations for making a gift is to save on income taxes.

Question 31

The formula for the Federal income tax on corporations is the same as that applicable to individuals.

Question 32

In 2019, 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.

Question 33

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

Question 34

No state may offer an income tax amnesty program more than once.

Question 35

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

Question 36

Some states use their state income tax return as a means of collecting unpaid sales and use taxes.

Question 37

Under Clint's will, all of his property passes to either the Lutheran Church or to his wife.No Federal estate tax will be due on Clint's death in 2019.

Question 38

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

Question 39

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.

Question 40

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.

Question 41

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

Question 42

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.

Question 43

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

Question 44

If an income tax return is not filed by a taxpayer, there is no statute of limitations on assessments of tax by the IRS.

Question 45

The IRS agent auditing the return will issue an RAR even if the taxpayer owes no additional taxes.

Question 46

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

Question 47

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

Question 48

An office audit by the IRS takes place at the office of the taxpayer.

Question 49

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

Question 50

If more IRS audits are producing a higher number of no change results, this indicates increased compliance on the part of taxpayers.

Question 51

If fraud is involved, there is no time limit on the assessment of a deficiency by the IRS.

Question 52

A major advantage of a flat tax type of income tax is its simplicity.

Question 53

The value added tax (VAT) has not had wide acceptance in the international community.

Question 54

A calendar year taxpayer files his 2018 Federal income tax return on March 4, 2019.The return reflects an overpayment of $6,000, and the taxpayer requests a refund of this amount.The refund is paid on May 16, 2019.The refund need not include interest.

Question 55

During any month in which both the failure to file penalty and the failure to pay penalty apply, the failure to file penalty is increased by the amount of the failure to pay penalty.

Question 56

The principal objective of the FUTA tax is to provide some measure of retirement security.

Question 57

Unlike FICA, FUTA requires that employers comply with state as well as Federal rules.

Question 58

If a special agent becomes involved in the audit of a return, this indicates that the IRS suspects that fraud is involved.

Question 59

The amount of a taxpayer's itemized deductions will increase the chance of being audited by the IRS.

Question 60

If a taxpayer files early (i.e., before the due date of the return), the statute of limitations on assessments begins on the date the return is filed.

Question 61

In preparing an income tax return, the use of a client's estimates is not permitted.

Question 62

Stealth taxes have the effect of generating additional taxes from all taxpayers.

Question 63

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.

Question 64

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

Question 65

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.

Question 66

A CPA firm in California sends many of its less complex tax returns to be prepared by a group of accountants in
India.If certain procedures are followed, this outsourcing of tax return preparation is proper.

Question 67

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.

Question 68

Even though a client refuses to correct an error on a past return, it may be possible for a practitioner to continue to prepare returns for the client.

Question 69

In preparing a tax return, all questions on the return must be answered.

Question 70

For the negligence penalty to apply, the underpayment must be caused by intentional disregard of rules and regulations without intent to defraud.

Question 71

The objective of pay-as-you-go (paygo) is to improve administrative feasibility.

Question 72

A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles.

Question 73

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.

Question 74

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

Question 75

The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education.These provisions can be justified on both economic and equity grounds.

Question 76

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

Question 77

A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.

Question 78

Various tax provisions encourage the creation of certain types of retirement plans.Such provisions can be justified on both economic and social grounds.

Question 79

When Congress enacts a tax cut that is phased in over a period of years, revenue neutrality is achieved.

Question 80

Upon audit by the IRS, Faith is assessed a deficiency of $40,000 of which $25,000 is attributable to negligence.The 20% negligence penalty will apply to $25,000.