Acct 420; Chp 1 practice

Which, if any, of the following transactions will decrease a taxing jurisdiction's ad valorem tax revenue imposed on real estate? a. A tax holiday is granted to an out-of-state business that is searching for a new factory site. b. An abandoned church is converted to a restaurant. c. A public school is razed and turned into a city park. d. A local university sells a dormitory that will be converted for use as an apartment building.

a. A tax holiday is granted to an out-of-state business that is searching for a new factory site.

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

a. Ability to pay.

Social considerations can be used to justify: a. Allowance of a credit for child care expenses. b. Allowing excess capital losses to be carried over to other years. c. Allowing accelerated amortization for the cost of installing pollution control facilities. d. Allowing a Federal income tax deduction for state and local sales taxes.

a. Allowance of a credit for child care expenses.

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 c. Out of date.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

a. Enforceable.

A VAT (value added tax): a. Is regressive in its effect. b. Has not proved popular outside of the United States. c. Is not a tax on consumption. d. Is used exclusively by third world (less developed) countries

a. Is regressive in its effect.

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

a. Nonrecognition of gain allowed for involuntary conversions.

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

a. State general sales tax

State income taxes generally can be characterized by: a. The same date for filing as the Federal income tax. b. No provision for withholding procedures. c. Allowance of a deduction for Federal income taxes paid. d. Applying only to individuals but not to corporations.

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

Regarding proper ethical accounting guidelines, which, if any, of the following is correct? a. The use of client estimates in preparing a return may be acceptable. b. Under no circumstances should a question on a tax return be left unanswered. c. If a client has made a mistake in a prior year's return and refuses to correct it, the accountant should withdraw from the engagement. d. If the exact amount of a deduction is not certain (e.g., around mid-$600s), it should be recorded as an odd amount (i.e., $649) so as to increase the appearance of greater certainty.

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

Taxes levied by all states include: a. Tobacco excise tax. b. Individual income tax. c. Inheritance tax. d. General sales tax

a. Tobacco excise tax.

Indicate which, if any, statement is incorrect. State income taxes: a. Can piggyback to the Federal version. b. Cannot apply to visiting nonresidents. c. Can decouple from the Federal version. d. Can provide occasional amnesty programs

b. Cannot apply to visiting nonresidents.

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

b. Certainty.

Provisions in the tax law that promote energy conservation and more use of alternative (nonfossil) fuels can be justified by: a. Political considerations. b. Economic and social considerations. c. Promoting administrative feasibility. d. Encouragement of small business.

b. Economic and social considerations.

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

b. FUTA

The quote engraved on the IRS building in Washington, DC, at the entrance states: a. Nothing is certain, except death and taxes. b. Taxes are what we pay for civilized society. c. Everyone welcome. d. Taxes are the most difficult thing in the world to understand.

b. Taxes are what we pay for civilized society.

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

b. Taxpayer is an employed electrician.

Which, if any, of the following statements best describes the history of the Federal income tax? a. It did not exist during the Civil War. b. The Federal income tax on corporations was held by the U.S. Supreme Court to be allowable under the U.S. Constitution. c. The Federal income tax on individuals was held by the U.S. Supreme Court to be allowable under the U.S. Constitution. d. Both the Federal income tax on individuals and on corporations was held by the U.S. Supreme Court to be contrary to the U.S. Constitution.

b. The Federal income tax on corporations was held by the U.S. Supreme Court to be allowable under the U.S. Constitution.

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

b. The United States has imposed a VAT since 1913.

Which, if any, of the following is a typical characteristic of an ad valorem tax on personalty? a. Taxpayer compliance is greater for personal use property than for business use property. b. The tax on automobiles sometimes considers the age of the vehicle. c. Most states impose a tax on intangibles. d. The tax on intangibles generates considerable revenue since it is difficult for taxpayers to avoid.

b. The tax on automobiles sometimes considers the age of the vehicle.

A characteristic of the fraud penalties is: a. When negligence and civil fraud apply to a deficiency, the negligence penalty predominates. b. When criminal fraud can result in a fine and a prison sentence. c. When the criminal fraud penalty is 75% of the deficiency attributable to the fraud. d. When the IRS has the same burden of proof in the case of criminal fraud as with civil fraud.

b. When criminal fraud can result in a fine and a prison sentence.

David files his tax return 45 days after the due date. Along with the return, David remits a check for $40,000. which is the balance of the tax owed. Disregarding the interest element, David's total failure to file and to pay penalties are: a. $400. b. $3,600. c. $4,000. d. $4,400.

c. $4,000.

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

c. A tax holiday issued 10 years ago has expired.

Allowing a tax credit for certain solar energy property can be justified: a. As helping small businesses. b. As promoting administrative feasibility. c. As promoting a government policy to use alternative energy sources. d. Based on the wherewithal to pay concept.

c. As promoting a government policy to use alternative energy sources.

A characteristic of FUTA is that: a. It is imposed on both employer and employee. b. It is imposed solely on the employee. c. Compliance requires following guidelines issued by both state and Federal regulatory authorities. d. It is applicable to spouses of employees but not to any children under age 18.

c. Compliance requires following guidelines issued by both state and Federal regulatory authorities.

Which of the following is a characteristic of the audit process? a. Most taxpayer audits involve "special" agents. b. Self-employed taxpayers are less likely to be selected for audit than employed taxpayers. c. Less important issues are handled by means of a correspondence audit. d. If a taxpayer disagrees with the IRS auditor's finding, the only resort is to the courts.

c. Less important issues are handled by means of a correspondence audit.

Taxes not imposed by the Federal government include: a. Tobacco excise tax. b. Customs duties (tariffs on imports). c. Tax on rental cars. d. Gas guzzler tax

c. Tax on rental cars.

Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is: a. To take advantage of the higher unified transfer tax credit available under the gift tax. b. To avoid a future decline in value of the property transferred. c. To take advantage of the per donee annual exclusion. d. To shift income to higher bracket donees.

c. To take advantage of the per donee annual exclusion.

Both economic and social considerations can be used to justify: a. Favorable tax treatment for accident and health plans provided for employees and financed by employers. b. Disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g., fines, penalties, illegal kickbacks, bribes to government officials). c. Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. d. Allowance of a deduction for state and local income taxes paid.

c. Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education.

Gabriele and Lisa are married and live in a common law state. They want to make gifts to their four children in 2021. What is the maximum amount of the annual exclusion they will be allowed for these gifts? a. $15,000. b. $30,000. c. $60,000. d. $120,000

d. $120,000

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

d. A deduction is allowed for charitable contributions.

Characteristics of the "fair tax" (i.e., national sales tax) include which, if any, of the following: a. Abolition of the Federal individual (but not the corporate) income tax. b. Abolition of all Federal income taxes but retention of payroll taxes (including the self-employment tax). c. Abolition of all Federal income taxes and payroll taxes but retention of the Federal estate and gift taxes. d. Abolition of all Federal income and payroll taxes as well as the Federal estate and gift taxes

d. Abolition of all Federal income and payroll taxes as well as the Federal estate and gift taxes

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

d. Adjusting the rate brackets for inflation annually.

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

d. Export duties

The proposed flat tax: a. Would increase the number of deductions available to individuals b. Would not require individuals to file returns. c. Would tax the increment in value as goods move through the production and manufacturing stages to the marketplace. d. Is a type of consumption tax.

d. Is a type of consumption tax.

Two years ago, State Y enacted a new income tax credit for college prep materials. The credit is available to individuals and is equal to 40% of the cost of the items. The credit may not exceed $50 in any year. State Y's director of finance has discovered this year that the amount of credit claimed is far higher than expected. Which principle of good tax policy might not have been considered in designing this tax that caused the original cost estimate to be too low? a. Equity. b. Simplicity. c. Economy in collection. d. Minimum tax gap

d. Minimum tax gap

A use tax is imposed by: a. The Federal government and all states. b. The Federal government and a majority of the states. c. All states but not the Federal government. d. Most of the states but not the Federal government.

d. Most of the states but not the Federal government.

A characteristic of FICA tax is that: a. It does not apply when one spouse works for the other spouse. b. It is imposed only on the employer. c. It provides a modest source of income in the event of loss of employment. d. None of these

d. None of these

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

d. None of these.

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

d. None of these.

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

d. Simplicity

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

d. Tax evasion

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

d. The state's constitution allows for this tax.

A landlord leases property upon which the tenant makes improvements. The improvements are significant and are not made in lieu of rent. At the end of the lease, the value of the improvements are not income to the landlord. This rule is an example of: a. A clear reflection of income result. b. The tax benefit rule. c. The arm's length concept. d. The wherewithal to pay concept.

d. The wherewithal to pay concept.