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

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Question 71

True/False

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

A) True
B) False

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Question 72

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

A) True
B) False

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Question 73

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

Two months after the burglary of his personal residence,Eric is audited by the IRS.Among the items taken in the burglary was a shoe box containing approximately $50,000 in cash.Eric is the owner and operator of a cash-and-carry liquor store.Eric wonders why he was audited.Can you help explain?

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

Match the statements that relate to each other.Note: Some choices may be used more than once. a.3 years from date return is filed b.3 years from due date of return c.20% of underpayment d.5% per month (25% limit) e.0.5% per month (25% limit) f.Conducted at IRS office g.Conducted at taxpayer's office h.6 years i.45-day grace period allowed to IRS j.No statute of limitations (period remains open) k.75% of underpayment l.No correct match provided -Late filing and statute limitations (deficiency situations)

The proposed flat tax:

Which,if any,of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate?

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

The civil fraud penalty can entail large fines and possible incarceration.

The ratification of the Sixteenth Amendment to the U.S.Constitution was necessary to validate the Federal income tax on corporations.

A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no such taxes.

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

Match the statements that relate to each other.Note: Some choices may be used more than once. a.3 years from date return is filed b.3 years from due date of return c.20% of underpayment d.5% per month (25% limit) e.0.5% per month (25% limit) f.Conducted at IRS office g.Conducted at taxpayer's office h.6 years i.45-day grace period allowed to IRS j.No statute of limitations (period remains open) k.75% of underpayment l.No correct match provided -Field audit

The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the U.S.

What is a severance tax? How productive can it be in terms of generating revenue?

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

Which,if any,of the following statements best describes the history of the Federal income tax?

Taylor,a widow,makes cash gifts to her five married children (including their spouses) and to her seven grandchildren.What is the maximum amount Taylor can give for calendar year 2015 without using her unified transfer tax credit?

On his 2015 income tax return,Andrew omitted income and overstated deductions to the extent that his income tax was understated by $500,000.Disregarding any interest element,what is Andrew's penalty if the understatement was due to: a.Negligence. b.Civil fraud. c.Criminal fraud.