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

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Question 51

Multiple Choice

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Taxes levied by both states and the Federal government include:

A) General sales tax.
B) Custom duties.
C) Hotel occupancy tax.
D) Franchise tax.
E) None of the above.

F) All of the above
G) C) and D)

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Question 52

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

A) True
B) False

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Question 53

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The tax law contains various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. On what grounds can these provisions be justified?

Match the statements that relate to each other. Note: Some choices may be used more than once. -More than 25% gross income omission and statute of limitations

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

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

Using the choices provided below, show the justification for each provision of the tax law listed. -Additional depreciation deduction allowed for the year the asset is acquired.

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

Which, if any, of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate?

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.

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.

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.

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

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.

What is the difference between an inheritance tax and an estate tax? Who imposes these taxes?

In 1985, Roy leased real estate to Drab Corporation for 20 years. Drab Corporation made significant capital improvements to the property. In 2005, Drab decides not to renew the lease and vacates the property. At that time, the value of the improvements is $800,000. Roy sells the real estate in 2014 for $1,200,000 of which $900,000 is attributable to the improvements. When is Roy taxed on the improvements made by Drab Corporation?

Using the choices provided below, show the justification for each provision of the tax law listed. -More rapid expensing for tax purposes of the costs of installing pollution control devices.

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 2014.

Using the choices provided below, show the justification for each provision of the tax law listed. -A bribe to the local sheriff, although business related, is not deductible.