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Exam 1: Understanding and Working With the Federal Tax Law

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Question 101

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For the tax year 2018, Noah reported gross income of $300,000 on his timely filed Federal income tax return. a. Presuming that the general rule applies, when does the statute of limitations on assessments normally expire? b. Suppose that Noah inadvertently omitted gross income of $76,000. When does the statute of limitations on assessments expire? c. Suppose the omission was deliberate, not inadvertent. When does the statute of limitations on assessments expire?

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a. Three years from April 16, 2019 (Apri...

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Question 102

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Tax functions that accounting and finance professionals may assist clients with include all but the following:

A) Tax compliance.
B) Tax planning.
C) Cash management to ensure timely payment of taxes.
D) Tax evasion.

E) B) and C)
F) A) and D)

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Question 103

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

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.

In late June 2019, 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?

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.

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

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

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 issues Morgan can anticipate?

Using the following choices, show the justification for each provision of the tax law listed. -Tax credits for home improvements that conserve energy.

Two years ago, State Y enacted a new income tax credit for college prep materials. The credit is available to individuals and is equal to 40% of the cost of the items. The credit may not exceed $50 in any year. State Y's director of finance has discovered this year that the amount of credit claimed is far higher than expected. Which principle of good tax policy might not have been considered in designing this tax that caused the original cost estimate to be too low?

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

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.

Characteristics of the "fair tax" (i.e., national sales tax) include which, if any, of the following:

Regarding proper ethical accounting guidelines, which, if any, of the following is correct?

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

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%.

Briana lives in one state and works in the adjoining state. Both states tax the income she earns from her job. Does Briana have any relief from this apparent double taxation of the same income?

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.

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