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

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Question 61

Multiple Choice

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In terms of probability, which of the following taxpayers would be least likely to be audited by the IRS?

A) Taxpayer owns and operates a check-cashing service.
B) Taxpayer is an employed electrician.
C) Taxpayer just received a $3 million personal injury award as a result of a lawsuit.
D) Taxpayer just won a $1 million slot machine jackpot at a Las Vegas casino.
E) Taxpayer has been audited several times before.

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

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Question 62

True/False

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

A) True
B) False

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Question 63

Multiple Choice

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Using the choices provided below, show the justification for each provision of the tax law listed. -Tax credits available for the purchase of a vehicle that uses alternative (non-fossil) fuels.

"Bracket creep" is avoided by:

The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use personalty.

Several years ago, Logan purchased extra grazing land for his ranch at a cost of $240,000. In 2018, the land is condemned by the state for development as a highway maintenance depot. Under the condemnation award, Logan receives $600,000 for the land. Within the same year, he replaces the property with other grazing land. What is Logan's tax situation if the replacement land cost: a. $210,000? b. $360,000? c. $630,000?

Using the choices provided below, show the justification for each provision of the tax law listed. -Contributions to charitable organizations are deductible.

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

The Federal excise tax on cigarettes is an example of a proportional tax.

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

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 percent of the cost of the items. The credit may not exceed $50 in any year. The State Y 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 which caused the original cost estimate to be too low?

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%.

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

In an office audit, the audit by the IRS takes place at the office of the taxpayer.

If an income tax return is not filed by a taxpayer, there is no statute of limitations on assessments of tax by the IRS.

A landlord leases property upon which the tenant makes improvements. The improvements are significant and are not made in lieu of rent. At the end of the lease, the value of the improvements are not income to the landlord. This rule is an example of:

Without obtaining an extension, Pam files her income tax return 55 days after the due date. With her return, she pays an additional tax of $60,000. Disregarding any interest element, what is Pam's penalty for failure to pay and to file?

Mona inherits her mother's personal residence, which she converts to a furnished rental house. These changes should affect the amount of ad valorem property taxes levied on the properties.

The majority of IRS audits are handled by correspondence.

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.