Individual income taxes

1. To lessen or eliminate the effect of multiple taxation, a taxpayer who is subject to both foreign and U.S. income taxes on the same income is allowed either a deduction or a credit for the foreign tax paid. a. True b. False

true

1. To mitigate the effect of the annual accounting period concept, the tax law permits the carryforward of excess charitable contributions of a particular year to other years. a. True b. False

true

1. 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

true

1. Ultimately, most taxes are paid by individuals. a. True b. False

true

1. 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 2019. a. True b. False

true

1. Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same rate. a. True b. False

true

1. Unlike FICA, FUTA requires that employers comply with state as well as Federal rules. a. True b. False

true

1. Upon audit by the IRS, Faith is assessed a deficiency of $40,000 of which $25,000 is attributable to negligence. The 20% negligence penalty will apply to $25,000. a. True b. False

true

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

true

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

true

1. Which, if any, of the following taxes are proportional (rather than progressive)? a. State general sales tax b. Federal individual income tax c. Federal estate tax d. Federal gift tax e. All of these

a

1. A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles. a. True b. False

false

1. 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. a. True b. False

false

1. An inheritance tax is a tax on a decedent's right to pass property at death. a. True b. False

false

1. An office audit by the IRS takes place at the office of the taxpayer. a. True b. False

false

1. As a matter of administrative convenience, the IRS would prefer to have Congress decrease (rather than increase) the amount of the standard deduction allowed to individual taxpayers. a. True b. False

false

1. Because it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize a gain in the year the installment sale occurs. a. True b. False

false

1. Before the Sixteenth Amendment to the Constitution was ratified, there was no valid Federal income tax on individuals. a. True b. False

false

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

false

1. During any month in which both the failure to file penalty and the failure to pay penalty apply, the failure to file penalty is increased by the amount of the failure to pay penalty. a. True b. False

false

1. For omissions from gross income in excess of 25% of that reported, there is no statute of limitations on additional income tax assessments by the IRS. a. True b. False

false

1. For state income tax purposes, a majority of states allow a deduction for Federal income taxes. a. True b. False

false

1. 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

false

1. If more IRS audits are producing a higher number of no change results, this indicates increased compliance on the part of taxpayers. a. True b. False

false

1. In 2019, José, a widower, sells land (fair market value of $100,000) to his daughter, Linda, for $50,000. José has not made a taxable gift. a. True

false

1. In cases of doubt, courts have held that tax relief provisions should be broadly construed in favor of taxpayers. a. True b. False

false

1. In preparing a tax return, all questions on the return must be answered. a. True b. False

false

1. In preparing an income tax return, the use of a client's estimates is not permitted. a. True b. False

false

1. Like the Federal counterpart, the amount of the state excise taxes on gasoline varies from state to state. a. True b. False

false

1. No state may offer an income tax amnesty program more than once. a. True b. False

false

1. Not all of the states that impose a general sales tax also have a use tax. a. True b. False

false

1. States impose either a state income tax or a general sales tax, but not both types of taxes. a. True b. False

false

1. Stealth taxes have the effect of generating additional taxes from all taxpayers. a. True b. False

false

1. The FICA tax (Medicare component) on wages is progressive since the tax due increases as wages increase. a. True b. False

false

1. The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the United States. a. True b. False

false

1. The IRS is required to redetermine the interest rate on underpayments and overpayments once a year. a. True b. False

false

1. The annual exclusion, currently $15,000, is available for gift and estate tax purposes. a. True b. False

false

1. The civil fraud penalty can entail large fines and possible incarceration. a. True b. False

false

1. The formula for the Federal income tax on corporations is the same as that applicable to individuals. a. True b. False

false

1. The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith's canon (principle) of certainty. a. True b. False

false

1. The principal objective of the FUTA tax is to provide some measure of retirement security. a. True b. False

false

1. The ratification of the Sixteenth Amendment to the U.S. Constitution was necessary to validate the Federal income tax on corporations. a. True b. False

false

1. The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. These provisions can be justified on both economic and equity grounds. a. True b. False

false

1. The value added tax (VAT) has not had wide acceptance in the international community. a. True b. False

false

1. There is a Federal excise tax on hotel occupancy. a. True b. False

false

1. Under state amnesty programs, all delinquent and unpaid income taxes are forgiven. a. True b. False

false

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

false

1. When interest is charged on a deficiency, any part of a month counts as a full month. a. True b. False

false

1. 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. True b. False

true

1. The majority of IRS audits are handled by correspondence. a. True b. False

true

1. The objective of pay-as-you-go (paygo) is to improve administrative feasibility. a. True b. False

true

Failure to pay penalty formula

0.5 %x check amount x months of violation

Rita files her income tax return 35 days after the due date of the return without obtaining an extension from the IRS. Along with the return, she remits a check for $40,000, which is the balance of the tax she owes. Note: Assume 30 days in a month. Disregarding the interest element, enter Rita's failure to file penalty and failure to pay penalty. Failure to pay penalty $______ Failure to file penalty $_______

400,3600

Failure to File Penalty

5 %x check amount x months of violation

On a Federal income tax return filed five years ago, Andy inadvertently omitted a large amount (more than 25%) of gross income. a. Respond to Andy as he is seeking your advice as to whether the IRS is barred from assessing additional income tax in the event he is audited. Because a ____?___ statute of limitations applies to a substantial omission of gross income, the IRS _____?___assess additional income tax in the event Andy is audited. 2 year, 6 year, can , cannot b. Assume you were the person who prepared the return. Should you make a disclosure to the IRS regarding the omission on Andy's prior tax return? ___?__, absent Andy's consent, you should not make the disclosure yourself. yes, no c. Andy has asked you to prepare his current year's return. Regarding what to do, identify each of the following as either "Yes" or "No". 1. Prepare the return using the information Andy gives you since it is the client's decision to make the disclosure. 2. Withdraw from the engagement if Andy did not make the disclosure and the omission has a carryover effect to the current year. 3. Disclose the omission and then, making the carryover effect correction, file the current year's return.

6 year, no,no,yes,no

1. A VAT (value added tax): a. Is regressive in its effect. b. Has not proved popular outside of the United States. c. Is not a tax on consumption. d. Is used exclusively by third world (less developed) countries. e. None of these.

a

1. A rationale for the installment sale method tax rule is: a. Ability to pay. b. Equity and fairness. c. Simplicity. d. Revenue neutrality.

a

1. Regarding proper ethical accounting guidelines, which, if any, of the following is correct? a. The use of client estimates in preparing a return may be acceptable. b. Under no circumstances should a question on a tax return be left unanswered. c. If a client has made a mistake in a prior year's return and refuses to correct it, the accountant should withdraw from the engagement. d. If the exact amount of a deduction is not certain (e.g., around mid-$600s), it should be recorded as an odd amount (i.e., $649) so as to increase the appearance of greater certainty. e. None of these.

a

1. Social considerations can be used to justify: a. Allowance of a credit for child care expenses. b. Allowing excess capital losses to be carried over to other years. c. Allowing accelerated amortization for the cost of installing pollution control facilities. d. Allowing a Federal income tax deduction for state and local sales taxes. e. None of these.

a

1. State income taxes generally can be characterized by: a. The same date for filing as the Federal income tax. b. No provision for withholding procedures. c. Allowance of a deduction for Federal income taxes paid. d. Applying only to individuals but not to corporations. e. None of these.

a

1. Taxes levied by all states include: a. Tobacco excise tax. b. Individual income tax. c. Inheritance tax. d. General sales tax. e. None of these.

a

1. The AICPA Statements on Standards for Tax Services are: a. Enforceable. b. Educational. c. Out of date. d. Do not exist.

a

1. Which, if any, of the following provisions cannot be justified as mitigating the effect of the annual accounting period concept? a. Nonrecognition of gain allowed for involuntary conversions. b. Net operating loss carryover provisions. c. Carryover of excess charitable contributions. d. Use of the installment method to recognize gain. e. Carryover of excess capital losses.

a

1. Which, if any, of the following transactions will decrease a taxing jurisdiction's ad valorem tax revenue imposed on real estate? a. A tax holiday is granted to an out-of-state business that is searching for a new factory site. b. An abandoned church is converted to a restaurant. c. A public school is razed and turned into a city park. d. A local university sells a dormitory that will be converted for use as an apartment building. e. None of these.

a

1. Jane is the tax director for Tangent Software Corporation. She is unsure whether Tangent is required to charge sales tax when software is provided to customers in State X via the "cloud." This indicates that the sales tax does not meet the principle of: a. Equity. b. Certainty. c. Neutrality. d. Economic growth and efficiency.

b

1. Provisions in the tax law that promote energy conservation and more use of alternative (nonfossil) fuels can be justified by: a. Political considerations. b. Economic and social considerations. c. Promoting administrative feasibility. d. Encouragement of small business. e. None of these.

b

1. The quote engraved on the IRS building in Washington, DC, at the entrance states: a. Nothing is certain, except death and taxes. b. Taxes are what we pay for civilized society. c. Everyone welcome. d. Taxes are the most difficult thing in the world to understand. e. None of these.

b

1. A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty. a. True b. False

false

1. A characteristic of the fraud penalties is: a. When negligence and civil fraud apply to a deficiency, the negligence penalty predominates. b. When criminal fraud can result in a fine and a prison sentence. c. When the criminal fraud penalty is 75% of the deficiency attributable to the fraud. d. When the IRS has the same burden of proof in the case of criminal fraud as with civil fraud. e. None of these.

b

1. 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.

b

1. Indicate which, if any, statement is incorrect. State income taxes: a. Can piggyback to the Federal version. b. Cannot apply to visiting nonresidents. c. Can decouple from the Federal version. d. Can provide occasional amnesty programs. e. None of these.

b

1. Which of the following statements about a value added tax (VAT) is false? a. Many countries use a VAT. b. The United States has imposed a VAT since 1913. c. A VAT has been proposed in the United States to replace part of the income tax. d. A VAT operates similarly to a sales tax.

b

1. Which of the following taxes is paid only by the employer? a. FICA b. FUTA c. Social Security tax d. Medicare tax

b

1. Which, if any, of the following is a typical characteristic of an ad valorem tax on personalty? a. Taxpayer compliance is greater for personal use property than for business use property. b. The tax on automobiles sometimes considers the age of the vehicle. c. Most states impose a tax on intangibles. d. The tax on intangibles generates considerable revenue since it is difficult for taxpayers to avoid. e. None of these.

b

1. Which, if any, of the following statements best describes the history of the Federal income tax? a. It did not exist during the Civil War. b. The Federal income tax on corporations was held by the U.S. Supreme Court to be allowable under the U.S. Constitution. c. The Federal income tax on individuals was held by the U.S. Supreme Court to be allowable under the U.S. Constitution. d. Both the Federal income tax on individuals and on corporations was held by the U.S. Supreme Court to be contrary to the U.S. Constitution. e. None of these.

b

Complete the statement below that distinguish between an estate tax and an inheritance tax. If the tax is imposed on the ____?______ , it is classified as an estate tax. If it taxes the ______?________ , it is termed an inheritance tax. a.right to receive property from a decedent b. right to pass property at death b. Do some states impose both? Yes, both taxes may be imposed. Which, if either, does the Federal government impose? An estate tax

b,a

Regarding the statute of limitations on additional assessments of tax by the IRS, select the applicable date in each of the following situations. Note: Assume a calendar year individual with no fraud or substantial omissions involved. + The income tax return for 2019 was filed on February 19, 2020. The three-year statute of limitations ____?______ . + The income tax return for 2019 was filed on June 25, 2020. The statute of limitations will begin to run on ______?___ . + The income tax return for 2019 was prepared on April 4, 2020, but was never filed. Through some misunderstanding between the preparer and the taxpayer, each expected the other to file the return. The statute of limitations _____?____ . +The income tax return for 2019 was never filed because the taxpayer thought no additional tax was due. The statute of limitations _____?____ . a.will begin to run b.will begin to run on April 15, 2020 c.will not begin to run d.June 25, 2020

b,d,c,c

1. Which of the following is a characteristic of the audit process? a. Most taxpayer audits involve "special" agents. b. Self-employed taxpayers are less likely to be selected for audit than employed taxpayers. c. Less important issues are handled by means of a correspondence audit. d. If a taxpayer disagrees with the IRS auditor's finding, the only resort is to the courts. e. None of these.

c

1. Which, if any, of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate? a. A resident dies and leaves his farm to his church. b. A large property owner issues a conservation easement as to some of her land. c. A tax holiday issued 10 years ago has expired. d. A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons. e. None of these.

c

1. A characteristic of FUTA is that: a. It is imposed on both employer and employee. b. It is imposed solely on the employee. c. Compliance requires following guidelines issued by both state and Federal regulatory authorities. d. It is applicable to spouses of employees but not to any children under age 18. e. None of these.

c

1. Allowing a tax credit for certain solar energy property can be justified: a. As helping small businesses. b. As promoting administrative feasibility. c. As promoting a government policy to use alternative energy sources. d. Based on the wherewithal to pay concept. e. None of these.

c

1. Both economic and social considerations can be used to justify: a. Favorable tax treatment for accident and health plans provided for employees and financed by employers. b. Disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g., fines, penalties, illegal kickbacks, bribes to government officials). c. Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. d. Allowance of a deduction for state and local income taxes paid. e. None of these.

c

1. 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: a. $400. b. $3,600. c. $4,000. d. $4,400. e. None of these.

c

1. Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is: a. To take advantage of the higher unified transfer tax credit available under the gift tax. b. To avoid a future decline in value of the property transferred. c. To take advantage of the per donee annual exclusion. d. To shift income to higher bracket donees. e. None of these.

c

1. Taxes not imposed by the Federal government include: a. Tobacco excise tax. b. Customs duties (tariffs on imports). c. Tax on rental cars. d. Gas guzzler tax. e. None of these.

c

1. 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: a. A clear reflection of income result. b. The tax benefit rule. c. The arm's length concept. d. The wherewithal to pay concept. e. None of these.

d

1. 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 but not the Federal government. d. Most of the states but not the Federal government. e. None of these.

d

1. Before proposing that the state's sales tax be expanded to include food, a legislator should ask whether: a. The state tax agency will allow this expansion. b. A majority of his constituents agree. c. Grocery stores will be able to collect the tax. d. The state's constitution allows for this tax.

d

1. Bracket creep" is avoided by: a. Using sunset provisions. b. Providing special tax rules for small businesses. c. The statute of limitations. d. Adjusting the rate brackets for inflation annually.

d

1. Burt and Lisa are married and live in a common law state. Burt wants to make gifts to their four children in 2019. What is the maximum amount of the annual exclusion they will be allowed for these gifts? a. $15,000. b. $30,000. c. $60,000. d. $120,000. e. None of these. recall: # of donees X annual exclusion X number of donors

d

1. Characteristics of the "fair tax" (i.e., national sales tax) include which, if any, of the following: a. Abolition of the Federal individual (but not the corporate) income tax. b. Abolition of all Federal income taxes but retention of payroll taxes (including the self-employment tax). c. Abolition of all Federal income taxes and payroll taxes but retention of the Federal estate and gift taxes. d. Abolition of all Federal income and payroll taxes as well as the Federal estate and gift taxes. e. None of these.

d

1. Tax functions that accounting and finance professionals may assist clients with include all but the following: a. Tax compliance. b. Tax planning. c. Cash management to ensure timely payment of taxes. d. Tax evasion.

d

1. The proposed flat tax: a. Would increase the number of deductions available to individuals b. Would not require individuals to file returns. c. Would tax the increment in value as goods move through the production and manufacturing stages to the marketplace. d. Is a type of consumption tax. e. None of these.

d

1. 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% of the cost of the items. The credit may not exceed $50 in any year. State Y's 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 that caused the original cost estimate to be too low? a. Equity. b. Simplicity. c. Economy in collection. d. Minimum tax gap.

d

1. Which, if any, is not one of Adam Smith's canons (principles) of taxation? a. Economy in collection b. Certainty c. Convenience of payment d. Simplicity e. Equality

d

1. Which, if any, of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS)? a. Penalties are imposed for failure to file a return or pay a tax on time. b. Prepaid income is taxed in the year received, not in the year earned. c. Annual adjustments for indexation increases the amount of the standard deduction allowed. d. Personal casualty losses in Federally declared disaster areas must exceed 10% of AGI to be deductible. e. A deduction is allowed for charitable contributions.

e

1. A characteristic of FICA is that: a. It does not apply when one spouse works for the other spouse. b. It is imposed only on the employer. c. It provides a modest source of income in the event of loss of employment. d. It is administered by both state and Federal governments. e. None of these.

e

1. Federal excise taxes that are no longer imposed include: a. Tax on air travel. b. Tax on wagering. c. Tax on the manufacture of sporting equipment. d. Tax on alcohol. e. None of these.

e

1. Taxes levied by both states and the Federal government include: a. General sales tax. b. Customs duties. c. Hotel occupancy tax. d. Franchise tax. e. None of these.

e

1. The United States (either Federal, state, or local) does not impose: a. Franchise taxes. b. Severance taxes. c. Occupational fees. d. Custom duties. e. Export duties.

e

Answer the following questions regarding excise and sales taxes. What is the difference between an excise tax and a general sales tax? An ___a.___ is limited to a particular transaction, whereas a _____b.____ covers a multitude of transactions. c. Do all states impose a general sales tax? ______ d. Does the Federal government impose a general sales tax? _______

excise tax,general sales tax,no,no

Mike Barr was an outstanding football player in college and expects to be drafted by the NFL in the first few rounds. Mike has let it be known that he would prefer to sign with a club located in Florida, Texas, or Washington. Mike sees no reason why he should have to pay state income tax on his player's salary. Clarify Mike's reasoning by indicating which of the following are "True" or "False". a. As a professional athlete, Mike is subject to only Federal income taxes. So, it doesn't matter where the team that drafts Mike is located. b. If Mike is drafted by a team in one of the listed states, he will have to pay income tax (in the listed state where he was drafted) on the income he earns when he plays out-of-state games. c. If Mike is drafted by a team in one of the listed states, he will not pay state income tax on any income earned within that state. d. If Mike is drafted by a team in one of the listed states, any income earned out of state (that is, when he plays an away game) is subject to state and local income tax imposed by the out-of-state jurisdiction.

false,false,true,true

For each of the following, select either "True" or "False" regarding tax policy. a. Revenue neutrality. • Taxpayers who earn the same amount of income pay the same amount of tax. ___?____ • Every new tax law that lowers taxes must include a revenue offset that makes up for the loss. (For every dollar lost, a new dollar is gained.) ___?____ b. Sunset provision. • Reinstates the law as it existed prior to the tax cut. ___?____ • Maintains the law in place until Congress has an opportunity to review it and determine whether it should remain in effect. _____?_____ c. Indexation. • The IRS makes annual adjustments to certain key tax components to take into account inflation, as required by law. ____?____ • Some of the more important components that are adjusted include the tax brackets and the standard deduction amounts. -___?___

false,true,true,false,true,true

Contrast FICA and FUTA regarding the following questions. a. Complete the statement below regarding the purpose of the tax. ___?___offers some measure of retirement security. ___?___ provides a modest source of income in the event of loss of employment. b. Upon whom is the tax imposed? _?____ is imposed on both the employer and employee, while __?__ is imposed only on the employer. c. Which governmental body administers the tax? __?__ is administered by the Federal government. __?___, however, is handled by both the Federal and state governments. d. Which taxes are reduced based on a merit rating system?Only __?___

fica,futa,fica,futa,fica,futa,futa

In March 2020, Jim asks you to prepare his Federal income tax returns for tax years 2017, 2018, and 2019. In discussing this matter with him, you discover that he also has not filed for tax year 2016. When you mention this fact, Jim tells you that the statute of limitations precludes the IRS from taking any action as to this year. a. Is Jim correct about the application of the statute of limitations? _____. There is no statute of limitations if a return is not filed. yes or no b. If Jim refuses to file for 2016, should you prepare returns for 2017 through 2019? Although you __?___recommend that the return be filed you should not undertake the engagement for 2016 through 2018 if you ____?___ correctly reflect the tax liability due to the omission for 2016. can only, only, can, cannot

no,can only,cannot

Select either "Regressive", "Progressive" or "Neither" to distinguish the items below. a.Federal gift tax b.Federal excise tax on cigarattes c.Federal individual income tax d.Federal estate tax

progressive,regressive,progressive,progressive

A tax is regressive if the rate of tax _______ for any given income level. The tax is progressive if a higher rate of tax applies as the tax base ________ . increase or remains constant

remains constant,increases

Choose from the dropdown list the probable justification for each of the following aspects of the tax law. Be sure to use concepts and terminology covered in this chapter. a. A tax credit is allowed for amounts spent to furnish care for minor children while the parent works.Economic/Social considerations b. Deductions for interest on home mortgage and property taxes on a personal residence.Economic/Social considerations c. The income-splitting benefits of filing a joint return.Equity and Political considerations d. Fines and penalties are not deductible.Social considerations e. Net operating losses of a current year can be carried forward to profitable years.Equity considerations f. A taxpayer who sells property on an installment basis can recognize gain on the sale over the period the payments are received.Wherewithal to pay concept g. The exclusion from Federal tax of certain interest income from state and local bonds.Political considerations h. Prepaid income is taxed to the recipient in the year received and not in the year earned.Wherewithal to pay concept

review

1. 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. a. True b. False

true

1. A calendar year taxpayer files his 2018 Federal income tax return on March 4, 2019. The return reflects an overpayment of $6,000, and the taxpayer requests a refund of this amount. The refund is paid on May 16, 2019. The refund need not include interest. a. True b. False

true

1. A major advantage of a flat tax type of income tax is its simplicity. a. True b. False

true

1. A parent employs his twin daughters, age 17, in his sole proprietorship. The daughters are not subject to FICA coverage. a. True b. False

true

1. A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis. a. True b. False

true

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

true

1. An excise tax is often used to try to influence behavior. a. True b. False

true

1. Because the law is complicated, most individual taxpayers are not able to complete their Federal income tax returns without outside assistance. a. True b. False

true

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

true

1. Currently, the Federal corporate income tax is less progressive than the individual income tax. a. True b. False

true

1. Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same. a. True b. False

true

1. Even though a client refuses to correct an error on a past return, it may be possible for a practitioner to continue to prepare returns for the client. a. True b. False

true

1. For Federal income tax purposes, there never has been a general amnesty period. a. True b. False

true

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

true

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

true

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

true

1. If a tax deficiency is attributable to fraud, the negligence penalty will not be imposed. a. True b. False

true

1. 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. True b. False

true

1. If fraud is involved, there is no time limit on the assessment of a deficiency by the IRS. a. True b. False

true

1. Jason's business warehouse is destroyed by fire. Because 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. a. True b. False

true

1. Julius, a married taxpayer, makes gifts to each of his six children. A maximum of twelve annual exclusions could be allowed as to these gifts. a. True b. False

true

1. 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. a. True b. False

true

1. 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. a. True b. False

true

1. On transfers by death, the Federal government relies on an estate tax, while states impose an estate tax, an inheritance tax, both taxes, or neither tax. a. True b. False

true

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

true

1. One of the motivations for making a gift is to save on income taxes. a. True b. False

true

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

true

1. Sally's neighbor often brags that his employer often pays him in cash "off the books" to save him taxes. Sally is tired of hearing this and contacts the IRS to report the neighbor. If this tip results in taxes collected by the IRS, Sally will likely receive an award of a portion of the tax and penalties collected. a. True b. False

true

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

true

1. The Federal estate and gift taxes are examples of progressive taxes. a. True b. False

true

1. The Federal excise tax on cigarettes is an example of a proportional tax. a. True b. False

true

1. The Federal income tax on individuals generates more revenue than the Federal income tax on corporations. a. True b. False

true

1. The IRS agent auditing the return will issue an RAR even if the taxpayer owes no additional taxes. a. True b. False

true

1. The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use personalty. a. True b. False

true

1. The amount of a taxpayer's itemized deductions will increase the chance of being audited by the IRS. a. True b. False

true

Marvin is the executor and sole heir of his aunt's estate. The estate includes her furnished home, which Marvin is considering converting to rental property to generate additional cash flow. For each item below, select either "Yes" or "No" to identify those which could be a tax problem for Marvin. a.Any rent Marvin receives from the property is taxed as income. b.Besides the real estate taxes, personal property taxes could be imposed on the furnishings. c.Marvin can expect an increase in the ad valorem property taxes levied by the local taxing authorities due to the commercial use of the property. d.Since the property was inherited, Marvin may not convert it to rental property.

yes,yes,yes,no