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

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Question 71

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What are the pros and cons of the following state and local tax provisions? a.An ad valorem property tax holiday made available to a manufacturing plant that is relocating. b.Hotel occupancy tax and a rental car surcharge. c.A back-to-school sales tax holiday.

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Question 72

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

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B) False

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Question 73

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

Using the choices provided below, show the justification for each provision of the tax law listed. a.Economic considerations b.Social considerations c.Equity considerations d.​Both a. and b. -A bribe to the local sheriff, although business related, is not deductible.

Taylor, a widow, makes cash gifts to her five married children (including their spouses) and to her seven grandchildren. What is the maximum amount Taylor can give for calendar year 2017 without using her unified transfer tax credit?

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 -Use tax

Which, if any, of the following provisions cannot be justified as mitigating the effect of the annual accounting period concept?

In late June 2017, 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?

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

The proposed flat tax:

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

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

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.

With regard to state income taxes, explain what is meant by the "jock tax"?

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

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

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

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

What is a severance tax? How productive can it be in terms of generating revenue?

The U.S. (either Federal, state, or local) does not impose: