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

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Question 61

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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.

A) True
B) False

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Question 62

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

A) True
B) False

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Question 63

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

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 deduction for contributions by an employee to certain retirement plans.

Under what conditions is it permissible,from an ethical standpoint,for a CPA firm to outsource tax return preparation to a third party?

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

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

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.

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

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 -Failure to file penalty

Due to the population change,the Goose Creek School District has decided to close one of its high schools.Since it has no further need of the property,the school is listed for sale.The two bids it receives are as follows: The United Methodist Church would use the property to establish a sectarian middle school.Planet,a well-known car dealership,would revamp the property and operate it as a branch location. If you were a member of the School District board,what factors would you consider in evaluating the two bids?

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.

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.

Logan dies with an estate worth $20 million.Under his will,$10 million passes to his wife while $10 million goes to his church.What is Logan's Federal estate tax result?

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

David files his tax return 45 days after the due date.Along with the return,David remits a check for $40,000 which is the balance of the tax owed.Disregarding the interest element,David's total failure to file and to pay penalties are:​

Which,if any,is not one of Adam Smith's canons (principles) of taxation?

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

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

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