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

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Question 101

Multiple Choice

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A use tax is imposed by:

A) The Federal government and all states.
B) The Federal government and a majority of the states.
C) All states and not the Federal government.
D) Most of the states and not the Federal government.
E) None of these.

F) A) and E)
G) A) and B)

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Question 102

True/False

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"Bracket creep" will not exist if there is only a single (flat) tax rate for the income tax.

A) True
B) False

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Question 103

Multiple Choice

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Using the choices provided below, show the justification for each provision of the tax law listed. -A deduction for interest on student loans.

Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is:

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -Use tax

Paige is the sole shareholder of Citron Corporation. During the year, Paige leases a building to Citron for a monthly rental of $80,000. If the fair rental value of the building is $60,000, what are the income tax consequences to the parties involved?

Melinda has been referred to you by one of your clients. In the past, she has prepared her own income tax returns, but she has become overwhelmed by the increased complexity of the tax law. Consequently, Melinda wants you to prepare her return for calendar year 2018. In reviewing her 2017 return, you note that she has claimed as a deduction the entire cost of a business building that should have been capitalized and depreciated. What course of action should you follow?

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

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.

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

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.

Virtually all state income tax returns contain checkoff boxes for donations to various causes. On what grounds has this procedure been criticized?

Your client, Connie, won $12,000 in a football office pool. She sees no reason to include it in her income for several reasons. First, the amount won will not be reported to the IRS. Second, as an average income employee, she is unlikely to be audited by the IRS. Third, she feels that she has probably lost this much in other past office pools. How do you respond?

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

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

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

The AICPA Statements on Standards for Tax Services are:

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

Match the statements that relate to each other. Note: Some choices may be used more than once. -Late filing and statute limitations (deficiency situations)

How do the net operating loss provisions in the tax law mitigate the effect of the annual accounting concept?