chapter 1 & 2 acct 311
Which of the following is true? A regressive tax rate structure imposes an increasing marginal tax rate as the tax base increases Regressive tax structures are the most common tax rate structure An example of a regressive tax is an excise tax In terms of effective tax rates, a sales tax can be viewed as a regressive tax None of these
In terms of effective tax rates, a sales tax can be viewed as a regressive tax
Which of the following taxes represents the largest portion of U.S. Federal Tax revenues?
Individual income tax
Which of the following federal government actions would make sense if a tax system fails to provide sufficient tax revenue?
Issue treasury bonds and cut funding to various federal projects but not increase federal spending
Jackson has the choice to invest in city of Mitchell bonds or Sundial, Inc. corporate bonds that pay 10% interest. Jackson is a single taxpayer who earns $55,000 annually. Assume that the city of Mitchell bonds and the Sundial, Inc. bonds have similar risk. What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial, Inc. bonds for year 2016?
Jackson's marginal tax rate is 25%, so his after-tax rate of return on the Sundial, Inc. bonds would be 7.5%. Therefore, the city of Mitchell must pay 7.5% to make Jackson indifferent between the two bonds.
Which of the following has the highest authoritative weight?
Legislative Regulation
Henry filed his 2016 tax return on May 15th, 2017. The statute of limitations for IRS assessment on Henry's 2016 tax return should end:
May 15, 2020
Which of the following statements is true? Municipal bond interest is subject to explicit federal tax Municipal bond interest is subject to implicit tax Municipal bonds typically pay a higher interest rate than corporate bonds with similar risk All of these statements are true None of these statements is true
Municipal bond interest is subject to implicit tax
The substitution effect: -Predicts that taxpayers will work harder to pay for consumer products when tax rates increase -Is one of the effects considered in static forecasting -Results in the government collecting more aggregate tax revenue than under the income effect -Is typically more descriptive for taxpayers with lower disposable income
NONE of these
Ramon's tax return was randomly selected for audit. Which IRS program likely selected Ramon's return for audit?
National Research Program
For which of the following tax violations is a civil penalty not imposed on taxpayers? failure to file a tax return. failure to pay tax owed. fraud. failure to make estimated tax payments. None of the above.
None of the above
Which of the following is a false statement? A taxpayer filing a fraudulent tax return: is potentially subject to criminal penalties. is potentially subject to civil penalties. is potentially subject to fines and a prison sentence. will have an unlimited statute of limitations for the fraudulent tax return. None of the above.
None of the above
Allen filed his 2016 tax return on May 15th, 2017 and underreported his gross income by 30 percent. Assuming Allen's underreporting is not due to fraud, the statute of limitations for IRS assessment on Allen's 2016 tax return should end: May 15th, 2019. April 15th, 2019. May 15th, 2020. April 15th, 2020. None of the above.
None of the above.
Andy filed a fraudulent 2016 tax return on May 1, 2017. The statute of limitations for IRS assessment on Andy's 2016 tax return should end: May 1st, 2019. April 15th, 2019. May 1st, 2020. April 15th, 2020. None of the above.
None of the above.
Corporations are required to file a tax return only if their taxable income is greater than: $0. $1,000. $600. $750. None of the above. Corporations are always required to file a tax return.
None of the above.
Martin has never filed a 2016 tax return despite earning approximately $20,000 providing landscaping work in the community. In what tax year, will the statute of limitations expire for Martin's 2016 tax return? 2019. 2020. 2023. 2024. None of the above.
None of the above.
Which of the following is not a common tool used in conducting tax research? citator. annotated tax service. topical tax service. keyword search. None of the above.
None of the above.
Which of the following is not a source of a tax practitioner's professional responsibilities? AICPA Code of Professional Conduct. Statements on Standards for Tax Services. Circular 230. State Board of Accountancy statutes. None of the above.
None of the above.
Which of the following does not limit the benefits of deferring income?
None of the choices are correct.
Which of the following does not limit the income shifting strategy?
None of the choices are correct.
Manny, a single taxpayer, earns $65,000 per year in taxable income and an additional $12,000 per year in city of Boston bonds. What is Manny's current marginal tax rate for year 2016? (Use tax rate schedule)
None of these
Margaret was issued a $150 speeding ticket. This is:
Not a tax because it is considered a fine intended to punish illegal behavior
If Paula requests an extension to file her individual tax return, the latest she could file her return without a failure-to-file penalty is:
Oct. 15
Which of the following is not considered a secondary authority?
Private Letter Ruling
Which of the following has the lowest authoritative weight?
Private letter ruling
Which of the following represents the largest percentage of average state tax revenue?
Property tax
Which of the following is not an example of a graduated tax rate structure?
Proportional tax rate structure
Which of the following is true regarding real property taxes and personal property taxes?
Real property taxes are generally easier to administer than personal property taxes
The effective tax rate expresses the taxpayer's total tax as a percentage of the taxpayer's taxable and nontaxable income.
True
The effective tax rate, in general, provides a better depiction of a taxpayer's tax burden than the average tax rate.
True
The main difficulty in calculating an income tax is determining the correct amount of the tax base.
True
The present value concept becomes more important as interest rates increase.
True
The tax base for the federal income tax is taxable income.
True
The time value of money suggests that $1 in one year from now is worth less than $1 today.
True
Under the tax law, taxpayers may be subject to both civil and criminal penalties for underpaying their tax liability (e.g., due to fraud).
True
Virtually every transaction involves the taxpayer and two other parties that have an interest in the tax ramifications of the transaction.
True
When considering cash inflows, higher present values are preferred.
True
While sales taxes are quite common, currently the U.S. federal government does not impose a sales tax.
True
Which of the following would not be a failure of the horizontal equity concept?
Two taxpayers pay different amounts of estate tax because one taxpayer's estate is worth significantly more.
Lavonda discovered that the U.S. Circuit Court of Appeals for the Federal Circuit has recently issued a favorable opinion with respect to an issue that she is going to litigate with the IRS. Lavonda should choose which of the following trial courts to hear her case?
US Court of Federal Claims only
Which of the following courts is the only court that provides for a jury trial?
US District Court
Which of the following is true regarding use taxes?
Use taxes attempt to eliminate any tax advantage of purchasing goods out of state.
Eliminating the current system of withholding income taxes directly from employee paychecks would:
Violate the convenience criterion of federal taxation
Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%. If Curtis invested in the Initech, Inc. bonds, what would be his after-tax rate of return from this investment?
[(1 - 0.28) × (250,000 × .09)]/250,000 = .0648
Geronimo files his tax return as a head of household for year 2016. If his taxable income is $72,000, what is his average tax rate (rounded)? (Use tax rate schedule)
[6,897.50 + ((72,000 - 50,400) × .25)]/72,000 = 17.11% (17.08%)
The constructive receipt doctrine:
causes income to be recognized before it is actually received.
Edie would like to better understand a new code section enacted four weeks ago. Which of the following authorities will help Edie understand the newly enacted code section?
committee reports
Investors must consider complicit taxes as well as explicit taxes in order to make correct investment choices.
false
Paying dividends to shareholders is one effective way of shifting income from a corporation to its shareholders.
false
The assignment of income doctrine is a natural limitation to the timing strategy
false
The timing strategy becomes more attractive as tax rates decrease.
false
The value of a tax deduction is higher for a taxpayer with a lower tax rate.
false
A taxpayer can avoid a substantial understatement of tax penalty:
if the position has a reasonable basis and is disclosed on the tax return.
A tax practitioner can avoid IRS penalty relating to a tax return position:
if there is substantial authority to support the position.
A taxpayer can avoid a substantial understatement of tax penalty:
if there is substantial authority to support the position.
Which of the following may limit the conversion strategy?
implicit taxes
Dominic earned $1,500 this year, and his employer withheld $200 of federal income tax from his salary. Dominic is single and 30 years old. Assuming that Dominic will have zero tax liability this year, he:
is not required to file a tax return but should file a return anyway.
Greg earned $20,500 this year and had $1,500 of federal income taxes withheld from his salary. Greg is single and 30 years old. Assuming that Greg will have a total tax liability of $1,000 (and thus will receive a $500) refund, he:
is required to file a tax return.
Jason's employer pays year-end bonuses each year on December 31. Jason, a cash basis taxpayer, would prefer to not pay tax on his bonus this year (and actually would prefer his daughter to pay tax on the bonus). So, he leaves town on December 31, 2016 and has his daughter, Julie, pick up his check on January 2, 2017. Who reports the income and when?
jason in 2016
The regulation with the lowest authoritative weight is the:
proposed regulation
The income shifting and timing strategies are examples of:
tax avoidance
Jaime recently found a "favorable" trial level court opinion directly on point for her tax question. Which trial level court would she prefer to have issued the opinion?
tax court
A taxpayer earning income in "cash" and not reporting it as taxable income is an example of:
tax evasion
Paying "fabricated" expenses in high tax rate years is an example of:
tax evasion
If tax rates are decreasing:
taxpayers should accelerate deductions.
If tax rates are decreasing:
taxpayers should defer income.
Which of the following is needed to implement the income shifting strategy?
taxpayers with varying tax rates.
Which of the following is not required to determine the best timing strategy?
the taxpayer's tax rate last year.
Which of the following tax planning strategies is based on the present value of money?
timing
An investment's time horizon does not affect after-tax rates of return on investments taxed annually.
true
If tax rates will be lower next year, taxpayers should accelerate their deductions regardless of their after-tax rate of return.
true
The business purpose, step-transaction, and substance-over-form doctrines may limit the income shifting strategy.
true
The conversion strategy capitalizes on the fact that tax rates vary across different activities.
true
The income shifting strategy requires taxpayers with varying tax rates.
true
The timing strategy becomes more attractive as interest rates (i.e., rates of return) increase.
true
The timing strategy becomes more attractive if a taxpayer is able to accelerate deductions by two or more years (versus one year).
true
The timing strategy is particularly effective for cash basis taxpayers.
true
If tax rates are increasing
you need more information to make a recommendation.
Assuming a positive interest rate, the present value of money suggests:
$1 today > $1 in one year.
If Joel earns a 10% after-tax rate of return, $10,000 received in two years is worth how much today? Use Exhibit 3.1. (Round present and future value amounts to 3 places)
$10,000 × .826 (Discount Factor, 2 years, 10%) = $8,260.
Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2016, how much federal tax will he owe?
$10,771.25 = 5,183.75 + .25(60,000 - 37,650)
If Scott earns a 12% after-tax rate of return, $15,000 today would be worth how much to Scott in 2 years? (Round present and future value amounts to 3 places)
$15,000 × (1.12)2 = $18,816 or $15,000 × 1.25440 = $18,816.
If Nicolai earns an 8% after-tax rate of return, $20,000 today would be worth how much to Nicolai in 5 years? (Round present and future value amounts to 3 places)
$20,000 × (1.08)5 = $29,387 or $20,000 × 1.46933 = $29,387
Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. How much money would Leonardo and Theresa save if they file jointly instead of separately for year 2016? (Use tax rate schedule)
$24,164.00 both separate - $24,042.50 jointly = $121.50.
If Julius has a 20% tax rate and a 10% after-tax rate of return, $25,000 of income in three years will cost him how much tax in today's dollars? Use Exhibit 3.1. (Round present and future value amounts to 3 places)
$25,000 × .20 (tax rate) × .751 (Discount Factor, 10%, 3 years) = $3,755.
If Rudy has a 25% tax rate and a 6% after-tax rate of return, a $30,000 tax deduction in four years will save how much tax in today's dollars? Use Exhibit 3.1. (Round present and future value amounts to 3 places)
$30,000 × .25 (tax rate) × .792 (Discount Factor, 6%, 4 years) = $5,940.
If Julius has a 30% tax rate and a 10% after-tax rate of return, a $40,000 tax deduction in two years will save how much tax in today's dollars? Use Exhibit 3.1. (Round present and future value amounts to 3 places)
$40,000 × .30 (tax rate) × .826 (Discount Factor, 10%, 2 years) = $9,912
If Thomas has a 40% tax rate and a 6% after-tax rate of return, $50,000 of income in five years will cost him how much tax in today's dollars? Use Exhibit 3.1. (Round present and future value amounts to 3 places)
$50,000 × .40 (tax rate) × .747 (Discount Factor, 6%, 5 years) = $14,940.
Manny, a single taxpayer, earns $65,000 per year in taxable income and an additional $12,000 per year in city of Boston bonds. If Manny earns an additional $35,000 in taxable income in year 2016, what is his marginal tax rate (rounded) on this income? (Use tax rate schedule)
(21,036.75 - 12,021.25)/(100,000 - 65,000) = 25.76%
Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Leonardo earned an additional $30,000 of taxable income this year, what would be the marginal tax rate (rounded) on the extra income for year 2016? (Use tax rate schedule)
(24,292.75 - 15,892.75)/(110,000 - 80,000) = 28%
Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%. How much explicit tax would Curtis incur on interest earned on the Initech, Inc. bond?
(250,000 × .09) × 0.28 = $6,300
Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Leonardo instead had $30,000 of additional tax deductions for year 2016, his marginal tax rate (rounded) on the deductions would be: (Use tax rate schedule)
(8,271.25 - 15,892.75)/(50,000 - 80,000) = 25.41%
Which of the following is more likely to receive IRS scrutiny under the assignment of income doctrine?
A parent employing her child in the family business.
The state of Georgia recently increased its tax on a carton of cigarettes by $2.00. What type of tax is this?
A sin tax and An excise tax are correct
Congress recently approved a new, bigger budget for the IRS. What taxation concept evaluates the cost of administering our tax law?
Economy
Which of the following is not one of the basic tax rate structures?
Equitable
A 1% charge imposed by a local government on football tickets sold is not considered a tax if all proceeds are earmarked to fund local schools.
False
A flat tax is an example of a graduated tax system.
False
A sales tax is a common example of a progressive tax rate structure.
False
A taxpayer's average tax rate is the most appropriate tax rate to use in tax planning.
False
Because the U.S. District Court hears a broader set of cases, decisions by the U.S. District Court may be considered to have more authoritative weight than the U.S. Court of Federal Claims.
False
Closed facts are especially conducive to tax planning.
False
Common examples of sin taxes include the taxes imposed on airline tickets and gasoline.
False
Dynamic forecasting does not take into consideration taxpayers' responses to a tax change when estimating tax revenues.
False
Estimated tax payments are one way the federal income tax system addresses the "certainty" criterion in evaluating tax systems.
False
Excise taxes are typically levied on the value of a good purchased.
False
For fraudulent tax returns, the statute of limitations for IRS assessment is ten years.
False
Future value can be computed as Future Value = Present Value/(1 + r)n.
False
George recently paid $50 to renew his driver's license. The $50 payment is considered a tax
False
If a taxpayer is due a refund, she does not have to file a tax return.
False
If a taxpayer loses a case at the Circuit Court level, he is granted an automatic appeal hearing with the Supreme Court.
False
If an individual taxpayer is unable to file a tax return by its original due date, the taxpayer can request an automatic 9-month extension to file the return.
False
In researching a tax issue, Eric finds that the U.S. Circuit Court of Appeals for the Federal Circuit previously has ruled in favor of his tax position, whereas the 11th Circuit (Eric's circuit) previously has ruled against his tax position. If Eric is contemplating litigating his tax position with the IRS, he should prefer to have his case first tried by the U.S. Tax Court.
False
Joel reported a high amount of charitable contributions as a deduction on his individual tax return relative to taxpayers with similar income levels. The information matching program is the IRS program most likely to identify Joel's tax return for audit.
False
Nontax factors do not play an important role in tax planning.
False
Office examinations are the most common type of IRS audit.
False
One benefit of a sin tax (e.g., a tax on cigarettes) is that it should increase the demand for the products being taxed.
False
Proposed and Temporary Regulations have the same authoritative weight.
False
Regressive tax rate structures are typically considered to be vertically equitable.
False
Relative to explicit taxes, implicit taxes are much easier to estimate.
False
Secondary authorities are official sources of the tax law with a lesser "weight" than primary authorities.
False
Tax policy rarely plays an important part in presidential campaigns
False
Taxes influence many types of business decisions but generally do not influence personal decisions.
False
The "90-day" letter gives the taxpayer the opportunity to pay a proposed IRS tax adjustment or file a petition in the U.S. District Court to contest the adjustment and hear the case.
False
The 9th Amendment to the U.S. Constitution removed all doubt that a federal income tax was allowed under the U.S. Constitution.
False
The IRS DIF system checks each tax return for mathematical mistakes and errors.
False
The Senate Ways and Means Committee is in charge of drafting tax bills in the U.S. Senate.
False
The statute of limitations for IRS assessment generally ends four years after the date a tax return is filed.
False
The tax return filing requirements for individual taxpayers only depend on the taxpayer's filing status.
False
The three basic types of IRS examinations are computer exams, office exams, and business exams.
False
The timing strategy is based on the idea that the location of where the income is taxed affects the tax costs of the income.
False
The two components of the tax calculation are the tax rate and the taxpayer's status.
False
Under the Statement on Standards for Tax Services, a CPA may recommend a tax return position if the position is frivolous and the position is not disclosed on the tax return.
False
Which of the following is a tax? I. A 1% special sales tax for funding local road construction. II. A fee paid to the state for a license to practice as an attorney. III. An income tax imposed by Philadelphia on persons working within the city limits. IV. A special property assessment for installing a new water system in the taxpayer's neighborhood.
I & III
Circular 230 was issued by:
IRS
Jackson has the choice to invest in city of Mitchell bonds or Sundial, Inc. corporate bonds that pay 10% interest. Jackson is a single taxpayer who earns $55,000 annually. Assume that the city of Mitchell bonds and the Sundial, Inc. bonds have similar risk.
Implicit tax on City of Mitchell bonds: 10% - 7.8% = 2.2%, Explicit tax on Sundial, Inc. bonds: 10% × .25 = 2.5%. Invest in city of Mitchell bonds because their implicit tax is less than the explicit tax on Sundial, Inc. bonds.
Assume that Larry's marginal tax rate is 25%. If corporate bonds pay 10% interest, what interest rate would a municipal bond have to offer for Larry to be indifferent between the two bonds?
10% × (1 − .25) = 7.5%
If Susie earns $750,000 in taxable income, how much tax will she pay as a single taxpayer for year 2016? (Use tax rate schedule
120,529.75 + .396(750,000 - 415,050) = 253,169.95
Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2016, what is his effective tax rate (rounded)?
16.57% = $10,771.25/(60,000 + 5,000)
Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2016, what is his average tax rate (rounded)?
17.95% = 10,771.25/60,000
Princess, who resides in the 2nd Circuit, recently found a circuit court case that is favorable to her income tax research question. Which of the following circuits would she prefer to have issued the opinion?
2nd circuit or the federal court
Dan received a letter from the IRS that gave him the choice of (1) requesting a conference with an Appeals Officer or (2) agreeing to a proposed tax adjustment. Dan received the:
30-Day letter
Assume that Lavonia's marginal tax rate is 20%. If a city of Tampa bond pays 5% interest, what interest rate would a corporate bond have to offer for Lavonia to be indifferent between the two bonds?
5%/(1 − .20) = 6.25%
Assume that Javier is indifferent between investing in a city of El Paso bond that pays 5% interest and a corporate bond that pays 6.25% interest. What is Javier's marginal tax rate?
6.25% × (1 − mtr) = 5%; mtr = 1 − (5%/6.25%) = 20%
If Lucy earns a 6% after-tax rate of return, $8,000 received in four years is worth how much today? Use Exhibit 3.1. (Round present and future value amounts to 3 places)
$8,000 × .792 (Discount Factor, 4 years, 6%) = $6,336.
If Tom invests $60,000 in a taxable corporate bond that provides a 5 percent before-tax return, how much will Tom's investment be worth in either 8 or 20 years from now when the bond matures? Assume Tom's marginal tax rate is 35 percent.
ATRR = .0325 (.05 × (1 − .35)); $60,000 × (1.0325)8 = $77,495; $60,000 × (1.0325)20 = $113,750.
Which of the following principles encourages a vertically equitable tax system?
Ability to pay principle
Margaret recently received a parking ticket. This is a common example of a local tax.
False
The estate tax is assessed based on the fair market values of transfers made during a taxpayer's life.
False
The goal of tax planning is tax minimization
False
The income and substitution effects are two opposing effects that one could consider in static forecasting.
False
The largest federal tax, in terms of revenue collected, is the social security tax.
False
Which of the following audits is the least common, broadest in scope, and typically most complex?
Field
Which of the following committees typically initiates tax legislation?
House ways and Means committee
To calculate a tax, you need to know: I. the tax base II. the taxing agency III. the tax rate IV. the purpose of the tax
I & III
Effective tax planning requires all of these considerations except:
all of the choices are required considerations.
Which of the following types of tax services are arranged by code section?
annotated tax service
Which is not a basic tax planning strategy?
arms-length transaction.
A taxpayer instructing her son to collect rent checks for the taxpayer's property and to report this as taxable income on the son's tax return violates which doctrine?
assignment of income doctrine.
Taxes influence which of the following decisions?
business, personal, political, and investment
Generally, code sections are arranged (grouped together):
by topic
If the President vetoes tax legislation, Congress:
can override the President's veto with a 2/3rd positive vote in the House and Senate.
Jeremy has a new client. He has identified a research question that relates to a transaction that the client completed several months ago. This type of research question will primarily involve:
closed facts
Investing in municipal bonds to avoid paying tax on interest earned and to earn a higher after-tax yield is an example of:
conversion
Which types of penalties are only imposed after normal due process including a trial?
criminal penalties
If tax rates will be higher next year, taxpayers should accelerate their deductions regardless of their after-tax rate of return.
false
If tax rates will be higher next year, taxpayers should defer their income to next year regardless of their after-tax rate of return.
false
In general, tax planners prefer to defer income. This is an example of the conversion strategy.
false
Tax evasion is a legal activity that forms the basis of the basic tax planning strategies.
false
The constructive receipt doctrine is a natural limitation for the conversion strategy.
false
The downside of tax avoidance includes the potential of stiff monetary penalties and imprisonment.
false
When considering cash outflows, higher present values are preferred.
false
According to Statement on Standards for Tax Services No. 1, a tax practitioner can recommend a tax return position:
if the position complies with the standards imposed by the applicable tax authority.
A tax practitioner can avoid IRS penalty relating to a tax return position:
if the position has a reasonable basis and is disclosed on the tax return.
Which of the following increases the benefits of income deferral?
larger after-tax rate of return.
The goal of tax planning generally is to:
maximize after-tax wealth.
In a planning context,
open facts are preferred to closed facts.
A common income shifting strategy is to:
shift deductions from low tax rate taxpayers to high tax rate taxpayers.
Which of the following decreases the benefits of accelerating deductions?
smaller after-tax rate of return.
A taxpayer paying his 10-year-old daughter $50,000 a year for consulting likely violates which doctrine?
substance-over-form doctrine.
Implicit taxes may reduce the benefits of the conversion strategy.
true
One limitation of the timing strategy is the difficulties in accelerating a tax deduction without accelerating the actual cash outflow that generates the tax deduction.
true
Tax avoidance is a legal activity that forms the basis of the basic tax planning strategies.
true
Tax savings generated from deductions are considered cash inflows.
true
The business purpose, step-transaction, and substance-over-form doctrines may limit the conversion strategy.
true
The constructive receipt doctrine is more of an issue for cash basis taxpayers.
true
The concept of present value is an important part of the timing strategy.
True
In a regressive tax rate system, the marginal tax rate will often be greater than the average tax rate.
False
The concept of tax sufficiency: Suggests the need for tax forecasting Suggests that a government should estimate how taxpayers will respond to changes in the current tax structure Suggests that a government should consider the income and substitution effects when changing tax rates All of these
All of these
Which of the following audits is the most common and typically less comprehensive?
Correspondence.
Which of the following has the highest authoritative weight?
Revenue Ruling
If Susie earns $750,000 in taxable income and files as head of household for year 2016, what is Susie's average tax rate (rounded)? (Use tax rate schedule)
[$125,936 + .396($750,000 - $441,000)]/750,000 = 33.11%
Carey was researching a tax issue and located what appears to be a favorable IRS regulation. He knows that regulations serve different purposes and are issued in different forms. Which purpose and which form of regulation would provide Carey the most confidence that he has found an authority that carries a lot of weight for the long term? How could Carey check the status of this regulation?
Regulations are the Treasury Department's official interpretation of the Internal Revenue Code and have the highest authoritative weight. Regulations are issued in three different forms: proposed, temporary, and final. Final regulations are regulations that have been issued in final form, and thus, until revoked, they represent the Treasury's interpretation of the Code. Temporary regulations, as the name suggests, have a limited life (three years for regulations issued after November 20, 1988). Nonetheless, during their "life," they carry the same authoritative weight as final regulations. Finally, proposed regulations are, as the name suggests, "proposed," and thus do not carry the same authoritative weight as temporary or final regulations. In addition to being issued in three different forms, regulations also serve three basic purposes: interpretative, procedural, and legislative. Most regulations are issued as interpretative or procedural regulations. As the names suggest, interpretative regulations represent the Treasury's interpretation of the Code. Procedural Regulations explain Treasury Department procedures as they relate to administering the Code. Legislative regulations, the rarest type, are issued when Congress specifically directs the Treasury Department to create regulations to address an issue in an area of law. In these instances, the Treasury is actually writing the law instead of interpreting the Code. Because Legislative Regulations actually represent tax law instead of an interpretation of tax law, Legislative Regulations generally have been viewed to have more authoritative weight than Interpretative and Procedural Regulations. However, in Mayo Foundation for Medical Education & Research v. U.S., 131 S.Ct. 704 (2011), the Supreme Court held (subject to specific conditions) that all Treasury regulations warrant deference. Checking the status of regulations is a bit complicated. Most tax services alert researchers if a regulation has not been updated for certain changes in the Code. If this is the case, the researcher should evaluate whether the changes in the Code make the regulation obsolete.
Sin taxes are:
Taxes assessed to discourage less desirable behavior
Earmarked taxes are:
Taxes assessed to fund a specific purpose
Which of the following is not a factor that determines whether a taxpayer is required to file a tax return?
Taxpayer's employment
Kim has decided to litigate a tax issue with the IRS. Describe the trial level courts that Kim may use to litigate the case.
There are three trial level courts that hear federal tax cases; The U.S. Tax Court, The U.S. District Court, and the U.S. Court of Federal Claims. The U.S. District Court is the only court that provides for a jury trial; the U.S. Tax Court is the only court that allows tax cases to be heard before the taxpayer pays the disputed liability and the only court with a small claims division (hearing claims involving disputed liabilities of $50,000 or less); the U.S. Tax Court judges are tax experts, whereas the U.S. District Court and U.S. Court of Federal Claims judges are generalists. Both the U.S. Tax Court and local U.S. District Court cases appeal to the specific Circuit Court based on the taxpayer's residence. In contrast, all U.S. Court of Federal Claims cases appeal to the U.S. Circuit Court of Appeals for the Federal Circuit.
Which of the following is true regarding tax-advantaged assets?
They are often subject to implicit taxes
Which judicial doctrine means that a court will rule consistently with its previous rulings and the rulings of higher courts with appellate jurisdiction?
Stare decisis.
Al believes that SUVs have negative social and environmental effects because of their increased carbon monoxide emissions. He proposes eliminating sales taxes on smaller automobiles in favor of higher sales taxes levied on SUVs. Al performs some calculations and comes to the conclusion that based on the current number of SUVs owned in the U.S. exactly the same amount of total sales tax will be collected under his reformed system. Which of the following concepts explains why Al's idea may not work?
Substitution effect
Rowanda could not settle her tax dispute with the IRS at the appeals conference. If she wants to litigate the issue but does not have sufficient funds to pay the proposed tax deficiency, Rowanda should litigate in the:
Tax Court
Lavonda discovered that the 5th Circuit (where Lavonda resides) has recently issued a favorable opinion with respect to an issue that she is going to litigate with the IRS. Lavonda should choose which of the following trial courts to hear her case?
Tax Court or District Court
Which of the following is not a common method that the IRS uses to select returns for audit?
Tax Select System
Which of the following is not considered a primary authority?
Tax Service
The difficulty in calculating a tax is typically in the determination of:
Tax base
Josephine is considering taking a 6-month rotation in Paris for her job. Which type of authority may be especially helpful in determining the tax consequences of Josephine's job in Paris?
Tax treaty
Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%. What is Curtis's after-tax rate of return on the city of Athens bond?
The after-tax rate of return is the same as the pre-tax rate because the interest from municipal bonds is tax exempt.
Which of the following is false? A proportional tax rate structure imposes a constant tax rate while a progressive tax rate structure imposes an increasing marginal rate related to the tax base The average tax rate changes under a proportional tax rate structure, but it is static for a progressive tax rate system An example of a proportional tax is the tax on gasoline An example of a progressive tax is the federal tax on gifts None of these
The average tax rate changes under a proportional tax rate structure, but it is static for a progressive tax rate system
The ultimate economic burden of a tax is best captured by:
The effective tax rate
Which of the following is considered a tax?
A local surcharge paid on retail sales to fund public schools
Self-employment taxes are charged on self-employment income in addition to any federal income tax.
True
Taxes influence business decisions such as where a business should locate or how a business should be structured.
True
Temporary Regulations have more authoritative weight than revenue rulings.
True
For the 2016 tax returns, indicate when the statute of limitation expires and why. a. Phoenix filed his tax return on February 28, 2017. b. Jill and Randy filed their tax return on August 16, 2017. c. Although required to file, Catherine chose not to file a tax return this year because she was expecting a tax refund and could not pull together all the information needed to file the return. d. Jerry filed his tax return on May 22, 2017 but has accidentally underreported his taxable income by 30%.
(a) April 15, 2020. The statute of limitations expires three years from the later of the original due date of the return or the date the return was filed. (b) August 16, 2020. The statute of limitations expires three years from the later of the original due date of the return or the date the return was filed. (c) Because Catherine failed to file a tax return, the statute of limitation will not lapse for her 2016 tax return. (d) May 22, 2023. Because Jerry underreported his gross income by 30%, the statute of limitations is extended to six years.
For the 2016 tax returns, indicate when the statute of limitation expires and why. a. Simon filed his tax return on April 10, 2017. b. Billy and Barbara filed their tax returns late on December 1, 2017. c. Pearson earns a living through various illegal activities. He filed his tax return on March 14, 2017 but did not report his illegal income on his tax return. d. Luther filed his tax return on July 17, 2017 but has accidentally underreported his taxable gross income by 20%.
(a) April 15, 2020. The statute of limitations expires three years from the later of the original due date of the return or the date the return was filed. (b) December 1, 2020. The statute of limitations expires three years from the later of the original due date of the return or the date the return was filed. (c) Because Pearson filed a fraudulent tax return, the statute of limitation will not lapse for his 2016 tax return. (d) July 17, 2020. Because Luther accidentally underreported his income by only 20%, the statute of limitations will expire three years from the date the return is filed (i.e., the statute of limitation is not extended to six years).
For the following taxpayers indicate whether the taxpayer should file a tax return and why. a. Robert earned $50,000 this year as a staff accountant. His estimated tax liability is $4,500, and he expects to receive a $500 tax refund. b. Amy earned $4,000 this year working part-time. She will have no federal tax liability and has not made any federal tax payments. c. Ty earned $2,500 this summer and had $200 of federal taxes withheld from his paycheck. He will have no federal tax liability this year. d. Startup Corporation had a $50,000 loss this year. e. The Walker Family Trust earned $500 of gross income this year.
(a) Because his gross income exceeds the applicable gross income threshold, Robert is required to file a tax return. (b) Amy is not required to file a tax return because her income is below the applicable gross income threshold. (c) Ty is not required to file a tax return because his gross income is below the applicable gross income threshold. However, he should file a tax return to receive a refund of the $200 of taxes withheld. (d) Startup Corporation is required to file a tax return as all corporations are required to file an annual tax return regardless of their profitability. (e) Because the trust's income is below the applicable threshold, the Walker Family Trust is not required to file a tax return this year.
For the following tax returns, identify which of the three audit types will most likely be utilized. a. The IRS selected Don's return for audit because of his high itemized deductions. The IRS would like documentation of these deductions. b. Large Public Corporation is a very large publicly traded corporation. It is involved in many complex transactions that have significant tax ramifications. c. George and Barbara operate a small business out of their home. The IRS has identified a couple of issues that may relate to their business. d. The IRS selected Bill and Hillary's tax return for review because of some of their investment sales. They would like a better understanding of the transactions and parties involved.
(a) Correspondence exam (b) Field exam (c) Office exam (d) Correspondence exam and possibly an office exam.
For the following tax returns, identify the method the IRS likely used to select the return for audit. a. Dan made a mistake in adding his income on his tax return. b. Juanita failed to report her salary from her 2nd job on her tax return. c. Michael and Venita deducted a relatively large amount of travel expenses on their tax return for their business. The travel expense is large relative to other taxpayers in similar businesses with similar levels of income. d. Paul and Melissa recently went through a very nasty divorce. One of the issues was Paul's less than forthright accounting of his income in determining the appropriate level of alimony.
(a) Document perfection (b) Information matching (c) DIF system (d) Spousal tip.
For the following taxpayers, please recommend the most advantageous trial level court(s) to litigate a tax issue with the IRS. a. Joe is litigating a tax issue with the IRS that is considered a question of fact (i.e., the answers depends on the facts of the case). There is not a lot of authority on point for this case but Joe has a very appealing story to justify his position that is likely to be viewed sympathetically by his peers. b. The Circuit Court of Appeals for the Federal Circuit recently issued an opinion that is very favorable to the issue that Jesse plans to litigate with the IRS. c. The Circuit Court of Appeals for the Federal Circuit recently issued an opinion that is not favorable to the issue that Hank plans to litigate with the IRS. d. The 7th Circuit (where Elizabeth resides) recently issued an opinion that is very favorable to the issue that Elizabeth plans to litigate with the IRS.
(a) U.S. District Court because it is the only court that offers a jury trial. (b) The U.S. Court of Federal Claims because its appellate court is the Circuit Court of Appeals for the Federal Circuit. (c) The U.S. Tax Court or the U.S. District Court because they will not appeal to the Circuit Court of Appeals for the Federal Circuit. (d) The U.S. Tax Court or the U.S. District Court because they will appeal to the 7th Circuit.
Rolando's employer pays year-end bonuses each year on December 31. Rolando, a cash basis taxpayer, would prefer to not pay tax on his bonus this year. So, he leaves town on December 31, 2016 and doesn't pick up his check until January 2, 2017. When should Rolando report his bonus?
2016
Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. What is Leonardo and Theresa's effective tax rate for year 2016 (rounded)? (Use tax rate schedule)
24,042.50/(80,000 + 50,000 + 15,000) = 16.58% (None of these)
Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Leonardo and his wife file married filing jointly in 2016, what would be their average tax rate (rounded)? (Use tax rate schedule)
24,042.50/130,000 = 18.49%
Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2016, what is his current marginal tax rate? (Use tax rate schedule)
25%
Assume that John's marginal tax rate is 40%. If a city of Austin bond pays 6% interest, what interest rate would a corporate bond have to offer for John to be indifferent between the two bonds?
6%/(1 − .40) = 10%
Assume that Lucas' marginal tax rate is 30% and his tax rate on dividends is 15%. If a dividend-paying stock (with no growth potential) pays an 8% dividend yield, what interest rate would a municipal bond have to offer for Lucas to be indifferent between the two investments from a cash-flow perspective?
8% × (1 − .15) = 6.8%
Assume that Bill's marginal tax rate is 30%. If corporate bonds pay 8% interest, what interest rate would a municipal bond have to offer for Bill to be indifferent between the two bonds?
8% × (1 − .30) = 5.6% (none)
Assume that Marsha is indifferent between investing in a city of Destin bond that pays 6% interest and a corporate bond that pays 8% interest. What is Marsha's marginal tax rate?
8% × (1 − mtr) = 6%; mtr = 1 − (6%/8%) = 25%
Basu received a letter from the IRS that gave him the choice of (1) paying a proposed deficiency or (2) filing a petition with the U.S. Tax Court. Basu received the:
90-Day letter
Which of the following is an example of the timing strategy?
A cash basis taxpayer paying all outstanding bills by year end.
Which of the following is an example of the timing strategy?
A cash-basis business delaying billing its customers until after year end.
Which of the following is an example of the income shifting strategy?
A corporation paying its owner a $20,000 salary.
Which of the following is an example of the conversion strategy?
A high tax rate taxpayer investing in tax exempt municipal bonds.
The IRS has recently completed its audit of Lorene's corporation. As a tax novice, she has very little understanding regarding the audit process and what happens next. Describe the post-audit process for Lorene and identify her options.
After the examination, the IRS agent provides a list of proposed adjustments (if any) to the taxpayer for review. If the taxpayer agrees to the proposed changes, the taxpayer signs an agreement form (Form 870) and pays the additional tax owed (or receives the proposed refund). If the taxpayer disputes the proposed changes, the taxpayer will receive a "30-day letter" which instructs the taxpayer that he or she has 30 days to either (1) request a conference with an Appeals Officer, who is independent and resides in a separate IRS division from the examining agent or (2) agree to the proposed adjustment. An appeals officer would consider the merits of the unresolved issues as well as the "hazards of litigation" - that is, the probability that the IRS will lose if the case is brought to court and the resulting costs of a taxpayer-favorable ruling. If the taxpayer chooses the appeals conference and reaches an agreement with the IRS there, the taxpayer can then sign the Form 870. If the taxpayer and IRS still do not agree on the proposed adjustment at the appeals conference, or the taxpayer chooses not to request an appeals conference, the IRS will then send the taxpayer a "90-day letter." The 90-day letter (also known as a statutory notice of deficiency) explains that the taxpayer has 90 days to either (1) pay the proposed deficiency or (2) file a petition in the U.S. Tax Court to hear the case. If the taxpayer would like to litigate the case but would prefer that the case be heard in the local U.S. District Court or the U.S. Court of Federal Claims, the taxpayer must pay the tax deficiency first and then sue the IRS for refund in the court.
Assume that Juanita is indifferent between investing in a corporate bond that pays 10.2% interest and a stock with no growth potential that pays a 6% dividend yield. Assume that the tax rate on dividends is 15%. What is Juanita's marginal tax rate?
After-tax yield of dividend-paying stock is 6% × (1 − .15) = 5.1%; The after-tax yield of the bond must be 5.1%. Therefore, 5.1% = 10.2% × (1 − mtr) and mtr = 50%
Assume that Jose is indifferent between investing in a corporate bond that pays 10% interest and a stock with no growth potential that pays an 8% dividend yield. Assume that the tax rate on dividends is 15%. What is Jose's marginal tax rate?
After-tax yield of dividend-paying stock is 8% × (1 − .15) = 6.8%; The after-tax yield of the bond must be 6.8%. Therefore, 6.8% = 10% × (1 − mtr) and mtr = 32%
Assume that Shavonne's marginal tax rate is 50% and her tax rate on dividends is 15%. If a corporate bond pays 10.2% interest, what dividend yield would a dividend-paying stock (with no growth potential) have to offer for Shavonne to be indifferent between the two investments from a cash-flow perspective?
After-tax yield of the corporate bond is 10.2% × (1 − .50) = 5.1%; The after tax yield of the dividend paying stock must be 5.1%. Therefore, 5.1% = Yield × (1 − .15) and Yield = 6%
Assume that Will's marginal tax rate is 32% and his tax rate on dividends is 15%. If a dividend-paying stock (with no growth potential) pays a dividend yield of 8%, what interest rate must the corporate bond offer for Will to be indifferent between the two investments from a cash-flow perspective?
After-tax yield of the dividend-paying stock is 8% × (1 − .15) = 6.8%; The after-tax yield of the corporate bond must be 6.8%. Therefore, 6.8% = Yield × (1 − .32) and Yield = 10%
The city of Granby, Colorado recently enacted a 1.5% surcharge on vacation cabin rentals that will help pay for the city's new elementary school. This surcharge is an example of ________.
An earmarked tax
If Lindley requests an extension to file her individual tax return, the latest she could pay her tax due without penalty is:
Apr 15
Bill filed his 2016 tax return on March 15th, 2017. The statute of limitations for IRS assessment on Bill's 2016 tax return should end:
Apr 15, 2020
This year April 15th falls on a Saturday. Individual tax returns will be due on:
Apr 17
A client has recently learned of a proposed tax bill that would increase the tax rates on investment gains by 5 percent. The President does not support this increase. Please describe for your client the process by which new tax legislation is created and how the President's disapproval may influence the enactment of the bill.
As required by the U.S. Constitution (Article 1, Section 7), "All bills for raising revenue shall originate in the House of Representatives." The Senate may propose tax legislation, but the first to formally consider a bill will be the House, typically within its Ways and Means Committee. After the committee debates the proposed legislation and drafts a bill, the bill is sent to the House of Representatives for debate and ultimately a vote (either yea or nay without modification). If the bill is approved, it becomes an "Act" and is sent to the Senate, which refers the Act to the Senate Finance Committee. Not to be outdone by the House, the Senate Finance Committee typically amends the Act during its deliberations. After the revised Act passes the Senate Finance Committee, the Act is sent to the Senate for debate and vote. Unlike the process in the House of Representatives, Senators may modify the proposed legislation during their debate. If the Senate passes the Act, both the House and Senate versions of the legislation are sent to the Joint Conference Committee, which consists of members of the House Ways and Means Committee and the Senate Finance Committee. During the Joint Conference Committee deliberations, committee members debate the two versions of the proposed legislation. Possible outcomes for any specific provision in the proposed legislation include adoption of the Senate version, House version, or some compromise version of the two acts. Likewise, it is possible that the Joint Conference Committee will simply choose to eliminate specific provisions from the proposed legislation or fail to reach a compromise on the proposed legislation, thereby terminating the legislation. After the Joint Conference Committee approves the Act, the revised legislation is sent to the House and Senate for vote. If approved by both the House and Senate, the Act is sent to the President for his or her signature. If the President signs the act, it becomes law and is incorporated into the Internal Revenue Code of 1986 (i.e., Title 26 of the United States Code, which contains all codified laws of the U.S.). If the President vetoes the legislation, Congress may override the veto with a 2/3rd positive vote in both the House of Representatives and Senate. Given the President's disapproval of the proposed tax increase and supermajority required to override a Presidential veto, the legislation most likely will not be enacted.
Campbell was researching a tax issue and found a favorable Tax Court opinion and an IRC Code Section that appears to answer the question. Is she finished with the research process? If so, why? If not, what must she do?
Campbell is not finished. Once the tax researcher has identified relevant authorities, she must make sure that the authorities are still valid and up to date. For court cases, a citator can be used to review the history of the case to find out, for example, whether it was subsequently appealed and overturned or and to identify subsequent cases that cite the case. Favorable citations strengthen a case, while unfavorable citations weaken the case. Citators can also be used to check the status of revenue rulings, revenue procedures, and other IRS pronouncements. Checking the status of the code is fairly simple: just locate the current version.
Employers often withhold federal income taxes directly from worker's paychecks. This is an example of which principle in practice?
Convenience
Tyrone claimed a large amount of charitable contributions as a tax deduction relative to taxpayers with similar levels of income. If Tyrone's tax return is chosen for audit because of his large charitable contributions, which audit program likely identified Tyrone's tax return for audit?
DIF System
Assume that Keisha's marginal tax rate is 40% and her tax rate on dividends is 15%. If a city of Atlanta bond pays 7.65% interest, what dividend yield would a dividend-paying stock (with no growth potential) have to offer for Keisha to be indifferent between the two investments from a cash-flow perspective?
Div. Yield × (1 − .15) = 7.65%; Div. Yield = 7.65%/(1 − .15) = 9%
Leslie made a mathematical mistake in computing her tax liability. Which audit program will likely catch Leslie's mistake?
Document perfection
Mel recently received a 30-day letter from the IRS. Although his tax return being audited has several potential large issues (potential tax consequences of $70,000 − $80,000), the IRS agent auditing his return only identified one item that will require a modest adjustment of $10,000. Mel feels strongly that the $10,000 adjustment would not hold up in court and was surprised that the IRS agent did not identify some of the other potential larger issues. What are Mel's choices with respect to the 30-day letter and what factors should influence his decisions?
The "30-day letter" instructs the taxpayer that he or she has 30 days to either (1) request a conference with an Appeals Officer, who is independent and resides in a separate IRS division from the examining agent or (2) agree to the proposed adjustment. An appeals officer would consider the merits of the unresolved issues as well as the "hazards of litigation" - that is, the probability that the IRS will lose if the case is brought to court and the resulting costs of a taxpayer-favorable ruling. Thus, the appeals officer has a bit more latitude to settle cases than examining agents. Because the appeals division is independent, it may be possible for the taxpayer to receive a more favorable resolution as the appeals officer is less emotionally invested in the audit. On the downside, the appeals officer may raise new issues, and thus, increase the taxpayer's tax exposure. In addition, the longer the dispute continues without resolution, the more interest will accrue on the assessment. In Mel's case, the potential risk of the appeals officer raising additional questions probably outweighs the potential benefits of appeal. Thus, it may be better for him to forego the appeals conference and either agree to the proposed adjustment or litigate the case.
The "30-day" letter gives the taxpayer the opportunity to request an appeals conference or agree to a proposed IRS adjustment on the taxpayer's income tax return.
True
The Internal Revenue Code and tax treaties are examples of statutory authorities.
True
Chris and Chuck were recently debating whether the Internal Revenue Code is "logical." Chris offers that she has briefly reviewed the Code and could hardly understand its organizational structure, if there is one. Please describe the basic organization of the code and how understanding its organization may be especially beneficial to the tax researcher.
The Internal Revenue Code is segregated into subtitles, chapters, subchapters, parts, subparts, and sections. All existing and any new tax laws are placed in the Code within a specific subtitle, chapter, subchapter, part, subpart, and section of the Code. When referencing a tax law, the researcher generally refers to the law simply by its code section. Code sections are numbered from 1 to 9833, with gaps in the section numbers to allow new code sections to be added to the appropriate parts of the Code as needed. Each code section is further segregated into subsections, paragraphs, subparagraphs, and clauses to allow more specific reference or citation. One must understand the organization of a code section (i.e., into subsections, paragraphs, subparagraphs, and clauses) to be able to cite the respective law correctly (e.g., IRC Sec. 162(b)(2)). Many provisions in the Code apply only to specific parts of the Code. If one does not understand what laws are encompassed in the chapter, it would be very difficult to interpret the code section and determine its applicability to a research question. Finally, the Code has been arranged such that, in general, similar code sections are grouped together. Understanding this organization allows the researcher to be much more efficient in locating relevant code sections.
Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%. How much implicit tax would Curtis pay on the city of Athens bond?
The implicit tax equals the difference in pre-tax income earned from a similar (same risk) bond. In this case: (250,000 × .09) - (250,000 × .07) = $5,000.
If Jim invested $100,000 in an annual-dividend paying stock today with a 7 percent return, what investment time period will give Jim the greatest after-tax return?
Time horizon doesn't affect after-tax rate of return on investments taxed annually.
The Internal Revenue Code of 1986 is the name of the current income tax code of the United States of America.
True
Tina has a very complex tax return and it looks like she will not be able to file her tax return by its due date. When is her tax return due? What are Tina's options for paying her tax due and filing her tax return this year? What are the consequences if Tina does not file or pay her tax timely? Be specific.
Tina's tax return is due April 15th. Tina may request an automatic 6-month extension to file her tax return (i.e., until October 15th). Extensions allow the taxpayer to delay filing a tax return but do not extend the due date for tax payments. If a taxpayer fails to pay the entire balance of tax owed by the original due date of the tax return, the IRS charges the taxpayer interest on the underpayment from the due date of the return until the taxpayer pays the tax. The interest rate charged depends on taxpayer type (e.g., individual vs. corporation) and varies quarterly with the federal short-term interest rate. The interest rate for tax underpayments for individuals equals the federal short-term rate plus three percentage points. Penalties are also imposed when a taxpayer fails to file a tax return. Also, there is no statute of limitations if Tina fails to file her return.
A common example of an employment related tax is the Medicare tax.
True
A taxpayer can avoid an underpayment penalty if there is substantial authority that supports her tax return position.
True
An acquiescence indicates that the IRS lost a court case and that it has decided to follow the court's ruling in the future
True
An extension to file a tax return does not extend the due date for tax payments.
True
As required by the Constitution, all tax bills are supposed to originate in the House of Representatives.
True
Assuming an after-tax rate of return of 10%, John should prefer to pay an expense of $85 today instead of an expense of $100 in one year. Use Exhibit 3.1.
True
Corporations are required to file a tax return annually regardless of their taxable income.
True
Horizontal equity is defined in terms of taxpayers in similar situations whereas vertical equity is defined in terms of taxpayers in different situations.
True
If April 15th falls on a Saturday, the due date for individual tax returns will be on Monday, April 17th.
True
If a taxpayer has little cash and a very technical tax case that she feels very strongly that the tax rules are "on her side," she should prefer to have her case tried in the U.S. Tax Court
True
If the IRS assesses additional tax on a tax return upon audit, a taxpayer may be subject to interest and penalties on the underpayment.
True
Implicit taxes are indirect taxes on tax-favored assets.
True
In a proportional (flat) tax rate system, the marginal tax rate will always equal the average tax rate.
True
In addition to raising revenues, specific U.S. taxes may have other objectives (e.g., economic or social objectives).
True
In considering the "economy" criterion in evaluating tax systems, one must consider this criterion from both the taxpayer and the government's perspective.
True
In general, a CPA will satisfy his professional responsibilities under the Statement on Standards for Tax Services when recommending a tax return position if he complies with the standards imposed by the applicable tax authority.
True
In general, tax planners prefer to accelerate deductions.
True
In researching a question of fact, the researcher should focus her efforts on identifying authorities with fact patterns similar to her client's facts.
True
In terms of effective tax rates, the sales tax can be viewed as a regressive tax.
True
Of the two basic types of tax services, beginning tax researchers often prefer topical tax services.
True
One key characteristic of a tax is that it is a required payment to a governmental agency.
True
Property taxes may be imposed on both real and personal property
True
Revenue rulings and revenue procedures are examples of primary authorities.
True
