Tax Acct Chp. 1

What is the difference between excise tax, sales tax and use tax? __ ______tax is restricted to a particular transaction while _ _____ tax covers a multitude of transactions. _ ___ tax is an ad valorem tax on the use, consumption, or storage of tangible property purchased outside the state but used in the state.

An excise, a sales, A use

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

False

The principal objective of the FUTA tax is to provide some measure of retirement security.

False

The value added tax (VAT) has not had wide acceptance in the international community.

False

There is a Federal excise tax on hotel occupancy.

False

Select the tax that matches each of the following descriptions regarding the nature and purpose of the tax. • A tax is based on the right to do business in the state. • A tax is based on the importation of certain foreign goods. • A tax is applicable to trades or businesses, serving as a license. • A tax is based on the notion of a state's interest in its natural resources. • A tax is imposed on the export of certain commodities.

Franchise taxes Customs duties Occupational fees Severance taxes Export duties

A mother sells a valuable collection of antiques to her daughter for $1,000. Select from the dropdown list the judicial concept the IRS might invoke to question this transaction.

The arm's length concept

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

True

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.

True

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.

True

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

True

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

True

The Federal income tax on individuals generates more revenue than the Federal income tax on corporations.

True

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

True

Ultimately, most taxes are paid by individuals.

True

Mia owns a warehouse that has a cost basis of $80,000. The city condemns the warehouse to make room for a new fire station. It pays Mia $400,000 for the property, its agreed-to fair market value. Shortly after the condemnation, Mia purchases another warehouse as a replacement. If amount is zero, enter "0". a. What is her recognized gain if the new property cost is $280,000? b. What is her recognized gain if the new property cost is $444,000? c. What is her recognized gain if the new property cost is $80,000? d. What, if any, is the justification for deferring the recognition of gain on the involuntary conversion? The involuntary conversion provision is justified under the ___ and the notion that the taxpayer's economic position ___ changed.

a. $120,000 b. $0 c. $320,000 d. wherewithal to pay concept, has not

Indicate whether the following statements are "True" or "False" regarding the trends of the Federal income tax. a. The need for revenues to finance the war effort during World War II converted the income tax into a mass tax. b. In 1943, Congress passed the Current Tax Payment Act, which provided for the first pay-as-you-go tax system. c. One trend that has caused considerable concern is the decreasing complexity of the Federal income tax laws.

a. True b. True c. False

The Morgan family lives in Massachusetts. They moor their sailboat in Rhode Island. Complete the statement below which might be a plausible reason for this? The Morgan's are trying to avoid __ _______ ___ __ __________.

ad valorem tax on personalty

Many state income tax returns contain checkoff boxes that allow taxpayers to make donations to a multitude of local charitable causes. On what grounds has this procedure been criticized? The checkoff boxes add complexity to the return and mislead taxpayers into presuming that taxpayers ___ paying for the donation.

are not

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

b. Ability to pay.

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

b. Allowance of a credit for child care expenses.

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

c. Tax evasion.

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

c. Tobacco excise tax.

Complete the following statements regarding the formula for Federal gift tax. Federal gift tax usually ____ ___ apply to the full amount of the gift. Prior taxable gifts ____ __ _____ in arriving at the tax base to which the unified transfer tax rate is applied. Because the gift tax __ cumulative, a credit __ allowed against the gift taxes paid (or deemed paid) on prior taxable gifts included in the tax base. Because Congress did not intend for the gift tax to apply to smaller transfers, it provided for an annual exclusion which is $__,___for 2018.

does not, must be added, is, is, $15,000

Complete the following statement regarding the history of income taxes. As a result of the United States' participation in World War II, the income tax was considerably ________, covering a much ______ portion of the population. Hence, it can be described as a ____ tax.

expanded, larger, mass

The wherewithal to pay concept recognizes the ___of taxing a transaction when the taxpayer lacks the means with which to pay the tax. It is particularly suited to situations in which the taxpayer's economic position ___changed significantly as a result of the transaction.

inequity, has not

In May 2018, Hernando, a resident of California, has his 2016 Federal income tax return audited by the IRS. An assessment of additional tax is made because he had inadvertently omitted some rental income. In October 2018, California audits his state return for the same year. Complete the following statement regarding the coincidence. What happened here likely __ ___ a coincidence. ___ ___ probably notified the state of California regarding Hernando's omission of income.

is not, The IRS

Some tax rules can be justified on multiple grounds (e.g., economic and social). Keeping in mind this connection, select either "Yes" or "No" to indicate possible justifications for the rules governing the following items. a. Pension plans. •Private retirement plans are not encouraged since they compete with the Social Security system. •When an employer makes a contribution for an employee to a qualified pension or profit sharing plan, that contribution and any income it generates are not taxed to the employee until the funds are distributed. b. Education. •The various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education can be justified on both social and economic grounds. •The education tax incentives cannot be justified on both social and economic grounds since they benefit only the individual. c. Home ownership. •Providing renters with a Federal income tax benefit for the rent they pay encourages home ownership. •Allowing homeowners to deduct interest on their home mortgages encourages home ownership.

a. No, Yes b. Yes, No c. No, Yes

ndicate whether the following are examples of a "Progressive" or a "Proportional" tax. a. FICA tax b. Federal income tax c. FUTA tax d. Federal gift tax e. Federal estate tax

a. Proportional b. Progressive c. Proportional d. Progressive e. Progressive

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

b. The same date for filing as the Federal income tax.

In terms of probability, which of the following taxpayers would be least likely to be audited by the IRS? a. Taxpayer just received a $3 million personal injury award as a result of a lawsuit. b. Taxpayer has been audited several times before. c. Taxpayer is an employed electrician. d. Taxpayer owns and operates a check-cashing service. e. Taxpayer just won a $1 million slot machine jackpot at a Las Vegas casino.

c. Taxpayer is an employed electrician.

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

c. The wherewithal to pay concept.

Regarding proper ethical guidelines, which (if any) of the following is correct? a. If a client has made a mistake in a prior year's return and refuses to correct it, you should withdraw from the engagement. b. Under no circumstances should a question on a tax return be left unanswered. c. 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. d. The use of client estimates in preparing a return may be acceptable. e. None of these choices are correct.

d. The use of client estimates in preparing a return may be acceptable.

Elijah and Anastasia are husband and wife who have five married children and nine minor grandchildren. For 2018, what is the maximum amount they can give to their family (including the sons- and daughters-in-law) without using any of their unified transfer tax credit?

$570,000

Elijah and Anastasia are husband and wife who have three married children and fourteen minor grandchildren. For 2018, what is the maximum amount they can give to their family (including the sons- and daughters-in-law) without using any of their unified transfer tax credit?

$600,000

Adonías and Cierra are husband and wife and have five married children and nine minor grandchildren. In addition, Cierra has two sisters. For tax year 2018, what is the maximum amount they can give to the family (including sons- and daughters-in-law and the two sisters) without using any of their unified transfer tax credit?

$630,000 (5 married children + 5 spouses + 9 grandchildren + 2 sisters) x $15,000 (annual exclusion for 2018) x 2 donors (Adonías and Cierra, gift splitting) = $630,000

Mia owns a warehouse that has a cost basis of $190,000. The city condemns the warehouse to make room for a new fire station. It pays Mia $950,000 for the property, its agreed-to fair market value. Shortly after the condemnation, Mia purchases another warehouse as a replacement. If amount is zero, enter "0". a. What is her recognized gain if the new property cost is $665,000? b. What is her recognized gain if the new property cost is $1,045,000? c. What is her recognized gain if the new property cost is $190,000? d. What, if any, is the justification for deferring the recognition of gain on the involuntary conversion? The involuntary conversion provision is justified under the ___ and the notion that the taxpayer's economic position ___ changed.

a. $285,000 b. $0 c. $760,000 d. wherewithal to pay concept, has not

Answer the following regarding the gift tax exclusion. a. Patel is single and gives each of his six grandchildren $30,000 this year (2018). Patel's gift tax exclusion is ___. b. Assume Patel is married and elects to gift-splitting with his wife. Patel's gift tax exclusion is ___

a. $90,000 b. $180,000

Answer the following questions regarding the value added tax (VAT). a. What is the popularity of the value added tax (VAT)? Over ___countries impose a value added tax (VAT). b. What is the nature of the tax? A value added tax (VAT) is a tax on ___ c. What effect can a VAT have on government spending? It can ___ government spending.

a. 140 b. consumption c. lead to more

Answer the following questions regarding excise and sales taxes. a. What is the difference between an excise tax and a general sales tax? __ ______ ___ is limited to a particular transaction, while _ _______ _____ ___ covers a multitude of transactions. b. Do all states impose a general sales tax? c. Does the Federal government impose a general sales tax?

a. An excise tax, a general sales tax b. No c. No

Regarding the statute of limitations on additional assessments of tax by the IRS, select the applicable date in each of the following situations. a. The income tax return for 2017 was filed on April 12, 2018. The three-year statute of limitations will begin to run on ___. b. The income tax return for 2017 was filed on October 7, 2018. The statute of limitations will begin to run on ___. c. The income tax return for 2017 was prepared on April 1, 2018, 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 ___. d. The income tax return for 2017 was never filed because the taxpayer thought no additional tax was due. The statute of limitations ___.

a. April 17, 2018 b. October 7, 2018 c. will not begin to run d. will not begin to run

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

a. Economic/Social considerations b. Economic/Social considerations c. Equity and Political considerations d. Social considerations e. Equity considerations f. Wherewithal to pay concept g. Political considerations h. Wherewithal to pay concept

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. b. Upon whom is the tax imposed? c. Which governmental body administers the tax? d. Which taxes are reduced based on a merit rating system?

a. FICA, FUTA b. FICA is imposed on both the employer and employee, while FUTA is imposed only on the employer. c. FICA is administered by the Federal government. FUTA, however, is handled by both the Federal and state governments. d. Only FUTA

Indicate whether the following statements are "True" or "False" regarding the "Statements on Standards for Tax Services" dealing with CPAs engaged in tax practice. a. Although these pronouncements are part of the AICPA's Code of Professional Conduct, they are not enforceable. b. Any tax position taken should be supported by a good-faith belief that they have a realistic possibility of being sustained, if challenged. c. A practitioner can never use a client's estimates. d. Every effort should be made to answer questions appearing on tax returns.

a. False b. True c. False d. True

Indicate whether the following statements are "True" or "False" regarding the statute of limitations. a. Under the general rule, the IRS may assess an additional tax liability against a taxpayer within five years of the filing of the income tax return. b. A statute of limitations is a provision in the law that offers a party a defense against a suit brought by another party after the expiration of a specified period of time. c. If a taxpayer omits an amount of gross income in excess of 25 percent of the gross income reported on the return, the statute of limitations is increased to six years. d. A claim for refund generally must be filed within three years from the date the return was filed or within two years from the date the tax was paid, whichever is later.

a. False b. True c. True d. 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. Pay-as-you-go. •Another way of describing revenue neutrality. •Requires employers to withhold for taxes a specified portion of an employee's wages. •Requires the IRS to pay refunds to taxpayers within 12 months of a filed tax return. c. 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. d. Indexation. •The IRS makes annual adjustments to certain key tax components to take into account inflation. •Some of the more important components that are adjusted include the tax brackets and the standard deduction amounts.

a. False, True b. True, True, False c. True, False d. True, True

Serena operates a gift shop. To reduce costs of credit card transactions, she offers customers a discount if they pay in cash. For the holiday rush, she hires some short-term workers, but pays them cash and does not add them to the payroll. a. Indicated whether the following statements are "True" or "False" regarding the tax issues for Serena. She will not have to record the cash transactions. She will owe FICA and FUTA on the short-term workers' wages. Her workers will be classified as casual laborers or independent contractors. She will be required to issue W-2 wage forms to the workers. b. Serena's chances of being audited are ____. This is because she is ___, and appears to operate on ___ basis.

a. False, True, False, True b. high, self-employed, a cash

As to those states that impose an income tax, complete the following: a. Differentiate a "piggyback" approach and "decoupling". For state income tax purposes, "piggyback" means applying a rate to the _______ ______ ___ _________. By "decoupling," a state decides ___ __ allow a particular Federal provision (e.g., exclusion, deduction, credit) for state income tax purposes. b. Using IRS audit results as part of a state tax audit. States _____ use IRS audit results to identify errors that might also exist on the taxpayer's state tax return. c. Credit for taxes paid to other states. Most states _____ their residents some form of tax credit for income taxes paid to other states.

a. Federal income tax liaility, not to b. often c. allow

In March 2018, Jim asks you to prepare his Federal income tax returns for tax years 2015, 2016, and 2017. In discussing this matter with him, you discover that he also has not filed for tax year 2014. 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? b. If Jim refuses to file for 2014, should you prepare returns for 2015 through 2017? Select "Yes" or "No", whichever is applicable. Only after you inform the IRS of the error. Because the error may prevent the current year's tax liability from being determined.

a. No. There is no statute of limitations if a return is not filed. b. No, Yes

Identify the appropriate tax based on the definitions provided. a. A transaction tax that is based on the notion that the state has an interest in its natural resources. b. A tax that is imposed on the right to pass property at death. c. A tax levied on the right to transfer property during a taxpayer's lifetime. d. A tax on the right to receive property from a decedent.

a. Severance tax b. Estate tax c. Gift tax d. Inheritance tax

Indicate whether the following items are examples of "Economic", "Social", "Equity", or "Political" considerations regarding tax laws. a. A contribution made by an employer to a qualified pension or profit sharing plan for an employee may receive special treatment. b. A tax credit is allowed for amounts spent to furnish care for certain minor or disabled dependents to enable the taxpayer to seek or maintain gainful employment. c. Because double taxation results when the same income is subject to both foreign and U.S. income taxes, the tax law permits the taxpayer to choose between a credit or a deduction for the foreign taxes paid. d. To stimulate the manufacturing industry, Congress enacted a domestic production activities deduction. e. The installment method of recognizing gain on the sale of property allows a taxpayer to spread tax consequences over the payout period.

a. Social b. Social c. Equity d. Economic e. Equity

Answer the following questions regarding the pay-as-you-go procedure. a. How does the pay-as-you-go procedure apply to wage earners? b. How does the pay-as-you-go procedure apply to persons who have income from sources other than wages?

a. The tax law requires employers to withhold a specified dollar amount from wages paid to the employee to cover income taxes. b. The tax law requires the taxpayer to make quarterly payments to the IRS for estimated taxes.

Select a response for each of the following questions. a. What is the purpose of the unified transfer tax credit? b. Is the same amount available for both the Federal gift tax and the estate tax? c. Does the use of the credit for a gift affect the amount of credit available for the estate tax?

a. To eliminate the tax on modest gifts and estates. b. Yes c. Yes

Jake (age 72) and Jessica (age 28) were recently married. To avoid any transfer taxes, Jake has promised to leave Jessica all of his wealth when he dies. Indicate whether the following statements are "True" or "False" regarding the operation of the Federal gift and estate taxes. a. The marital deduction allows interspousal transfers (whether by gift or at death) free of any tax (either gift or estate). b. The marital deduction only allows interspousal transfers free of any tax if given as a gift during the donor's lifetime. c. The marital deduction is equal to the annual exclusion of $15,000 per year.

a. True b. False c. False

Indicate whether the following statements are "True" or "False" regarding the history of the Federal income tax. a. The Federal Union and the Confederate States of America used the income tax to raise funds to finance the Civil War. b. The U.S. Supreme Court found the federal corporate income tax to be unconstitutional because it was treated as an excise tax. c. The ratification of the Sixteenth Amendment to the U.S. Constitution in 1913 sanctioned both the Federal individual and corporate income taxes.

a. True b. False c. True

Indicate whether the following statements are "True" or "False" regarding the influence of the Federal courts on tax law. a. Some court decisions have been of such consequence that Congress has incorporated them into statutory tax law. b. A leading tax concept developed by the courts deals with the interpretation of statutory tax provisions that operate to benefit taxpayers. c. The courts have established the rule that the relief provisions are to be broadly construed if there is any doubt about their application.

a. True b. True c. False

Indicate whether the following statements are "True" or "False" regarding IRS audit procedures. a. Only a small number of tax returns are audited. b. The IRS utilizes mathematical formulas and statistical sampling techniques to select tax returns that are most likely to contain errors. c. If an individual's itemized deductions are in excess of norms established for various income levels, the probability of an audit is decreased. d. The tax law permits the IRS to pay rewards to persons who provide information that leads to the detection and punishment of those who violate the tax laws.

a. True b. True c. False d. True

Indicate whether the following statements are "True" or "False" regarding characteristics of ad valorem taxes on realty. a. Some jurisdictions extend immunity from tax for a specified period of time (a tax holiday) to new or relocated businesses. b. Some states partially exempt the homestead, or personal residence, portion of property from taxation. c. Lower taxes may apply to a residence owned by a taxpayer aged 65 or younger. d. Property owned by the Federal government is exempt from this tax.

a. True b. True c. False d. True

Indicate whether the following statements are "True" or "False" regarding whether the breadth and number of Federal excise taxes is increasing or decreasing. a. Federal excise taxes had declined insignificantly as to the number of transactions covered. b. Federal excise taxes on items such as tobacco products, fuel and gasoline sales, and air travel have increased. c. Some Federal excise taxes try to influence social behavior.

a. True b. True c. True

The Benson CPA firm is considering utilizing an offshore service provider to prepare many of its tax returns. Select either "Yes" or "No" to indicate whether the following are ethical considerations that should be taken into account regarding offshore preparation. a. Notify the client, preferably in writing, of the outsourcing. b. Outsourcing tax return preparation is not compatible with accounting ethical guidelines. c. Outsourcing tax return preparation violates Federal law. d. Verifying the accuracy of the work done. e. Maintaining client confidentiality.

a. Yes b. No c. No d. Yes e. Yes

Sophia lives several blocks from her parents in the same residential subdivision. Sophia is surprised to learn that her ad valorem property taxes for the year were raised, while those of her parents were lowered. Select either "Yes" or "No" to identify possible explanation(s) for the difference. a. Sophia made capital improvements to her property. b. Her parents converted their property to income-producing property (e.g., a rental house). c. Lower taxes may apply to a residence owned by older taxpayers (i.e. aged 65 or older).

a. Yes b. No c. Yes

Indicate whether the following are the canons of taxation identified by Adam Smith. Select "Yes" or "No", whichever is applicable. a. Equity b. Neutrality c. Convenience d. Certainty e. Economy

a. Yes b. No c. Yes d. Yes e. Yes

Indicate whether the following are examples of an excise tax (Federal or state). Select "Yes" or "No", whichever is applicable. a. Tax on alcohol b. Tax on air travel c. Sales tax d. Tax on tobacco products e. Hotel occupancy tax

a. Yes b. Yes c. No d. Yes e. Yes

In the following independent situations, select either "Yes" or "No" to indicate whether the taxpayer's tax position is likely to change. a. John started renting out a spare room in his home. b. Theresa quit her job as a staff accountant and has established her own practice as a CPA. c. Paul's employer transferred him from its California office to an office in Florida.

a. Yes b. Yes c. Yes

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.

a. Yes b. Yes c. Yes d. No

Select either "Yes" or "No" to indicate whether each of the following are penalties imposed upon the preparers of Federal tax returns who violate proscribed acts and procedures. a. Penalty for any willful attempt to understate taxes. b. Penalty for failing to furnish the taxpayer with a copy of the return. c. Penalty for failing to keep copies of returns or maintain a client list. d. Penalty for endorsing a taxpayer's refund check.

a. Yes b. Yes c. Yes d. Yes

With regard to the IRS audit process, complete the following statements: a. The audit is resolved by mail. Referred to as ___ audit, this type of audit ___. b. The audit is conducted at the office of the IRS. Unlike ___ which involves an examination of numerous items reported on the return, ___ is restricted in scope. c. A "no change" RAR results. An RAR (or ___) that results in a "no change" means ___. d. A special agent joins the audit team. A special agent joins the audit team when ___.

a. a correspondence, covers a minor issue b. a field audit, an office audit c. Revenue Agent's Report, that the audit resulted in no additional taxes being due d. taxpayer fraud is suspected

a. Complete the paragraph below that outlines the purpose served by a statute of limitations and how is it relevant in the case of tax controversies. A statute of limitations is a provision in the law that offers a party a defense against a suit brought by another party _____ the expiration of a specified period of time. Therefore, the purpose of a statute of limitations is to ___ stale claims. b. Select either "Yes" or "No" to identify which Federal tax areas that have statutes of limitations. Refund claims by taxpayers Collection of unpaid taxes Additional assessments by the IRS

a. after, preclude parties from prosecuting b. yes, yes, yes

Both a value added tax (VAT) and a national sales tax have been criticized as being regressive in their effect. a. Complete the statement below regarding these taxes. Both the national sales tax and the VAT are taxes on ___that would ___ low-income taxpayers. b. How could this shortcoming be remedied? The regressive effect might be partly remedied by ___ on purchases by ___ taxpayers.

a. consumption, burden b. granting a credit or rebate, low-income

Complete the following statements regarding the Medicare component of FICA. a. Is any dollar limitation imposed on the Medicare tax? Unlike the Social Security portion of FICA, there __ __ dollar limit on the imposition of the Medicare tax. b. Upon whom is the 0.9% additional tax imposed? The 0.9% Medicare addition applies to taxpayers with ___ in excess of $___,___(for single filers) or $___,___(married filing jointly).

a. is no b. earned income such as wages, $200,000, $250,000

Complete the following regarding proportional and progressive taxes. a. A tax is proportional 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 _________. b. Select either "Proportional", "Progressive" or "Neither" to distinguish the items below.

a. remains constant, increases b. Social Security tax - Proportional Federal gift tax -Progressive Federal excise tax on cigarettes - Proportional Federal corporate income tax - Proportional

Answer the following questions regarding estate tax and an inheritance tax. a. 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. b. Do some states impose both? Which, if either, does the Federal government impose?

a. right to pass property at death, right to receive property from a decedent b. Yes, both taxes may be imposed, An estate tax

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. Andy, because a ________ statute of limitations applies to a substantial omission of gross income, the IRS ___ assess additional income tax in the event you are audited. b. 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? 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.

a. six-year, can b. No, absent Andy's consent, you should not make the disclosure yourself. c. 1 No c. 2 Yes c. 3 No

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. a. The income tax return for 2017 was filed on February 19, 2018. The three-year statute of limitations ____ b. The income tax return for 2017 was filed on June 25, 2018. The statute of limitations will begin to run on ___ c. The income tax return for 2017 was prepared on April 4, 2018, 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 ___ d. The income tax return for 2017 was never filed because the taxpayer thought no additional tax was due. The statute of limitations ___

a. will begin to run on April 17, 2018. b. June 25, 2018 c. will not begin to run d. will not begin to run

After his first business trip to a major city, Herman is alarmed when he reviews his credit card receipts. Both the hotel bill and the car rental charge are in excess of the price he was quoted. Complete the paragraph below to outline what Herman needs to understand about these excess amounts. It appears that Herman was charged a hotel occupancy tax and the rental car tax. These are two examples of __ ______ tax because the taxes are _______ __ _ __________ ___________ __ _______.

an excise, limited to a particular transaction or service

One of the tax advantages of hiring family members to work in your business is that FICA taxes are avoided. Complete the statement below. This statement is _____ because ___employed in the family's/parent's ___business are exempted from FICA tax.

false, only children under 18, unincorporated

Complete the paragraph below regarding the statement, "The Sixteenth Amendment to the U.S. Constitution was passed to overturn a Supreme Court decision that had invalidated the Federal income tax." The statement is ___. The Federal income tax on corporations ___a problem as it ___ previously been sanctioned by the Supreme Court. What had been declared unconstitutional was the tax on ___ as it applied to the income from property.

is only partly correct, was not, had, individuals

When enacting tax legislation, a deficit-conscious Congress often has been guided by the concept of ___. The concept means that every new tax law that lowers taxes must include a revenue ___ that makes up for the loss. Revenue ___does not mean that any one taxpayer's tax liability will remain the same.

revenue neutrality, offset, neautrality