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Exam 1: Introduction to Taxation

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Question 1

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Jake, the sole shareholder of Peach Corporation, a C corporation, has the corporation pay him $100,000.For income tax purposes, Jake would prefer to have the payment treated as dividend instead of salary.

A) True
B) False

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Question 2

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Provisions in the tax law that promote energy conservation and more use of alternative (non-fossil) fuels can be justified by:

A) Political considerations.
B) Economic and social considerations.
C) Promoting administrative feasibility.
D) Encouragement of small business.
E) None of these.

F) B) and D)
G) D) and E)

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Question 3

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

Taxes levied by all states include:

State income taxes generally can be characterized by:

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

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

For Federal income tax purposes, there never has been a general amnesty period.

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

Rachel is the sole member of an LLC, and Jordan is the sole shareholder of a C corporation.Both businesses were started in the current year, and each business has a long-term capital gain of $10,000 for the year.Neither business made any distributions during the year.With respect to this information, which of the following statements is correct?

There is a Federal excise tax on hotel occupancy.

Like the Federal counterpart, the amount of the state excise taxes on gasoline varies from state to state.

In 2015, Deborah became 65 years old.In 2016 she added a swimming pool, and in 2017 she converted the residence to rental property and moved into an assisted living facility.Since 2014, Deborah's ad valorem property taxes have decreased once and increased twice.Explain.

The annual exclusion, currently $14,000, is available for gift and estate tax purposes.

Thrush Corporation files Form 1120, which reports taxable income of $200,000 in the current year.The corporation's tax is $56,250.

Elk, a C corporation, has $370,000 operating income and $290,000 operating expenses during the current year.In addition, Elk has a $10,000 long-term capital gain and a $17,000 short-term capital loss.Elk's taxable income is:

Due to the population change, the Goose Creek School District has decided to close one of its high schools.Since it has no further need of the property, the school is listed for sale.The two bids it receives are as follows: $\begin{array} { l r } \text { United Methodist Church } & \$ 1,700,000 \\\text { Planet Motors } & 1,600,000\end{array}$ The United Methodist Church would use the property to establish a sectarian middle school.Planet, a well-known car dealership, would revamp the property and operate it as a branch location. If you were a member of the School District board, what factors would you consider in evaluating the two bids?

Lucinda is a 60% shareholder in Rhea Corporation, a calendar year S corporation.During the current year, Rhea Corporation had gross income of $550,000 and operating expenses of $380,000.In addition, the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000.During the year, Rhea Corporation distributed $50,000 to Lucinda.With respect to this information, which of the following statements is correct?

Double taxation of corporate income results because dividend distributions are included in a shareholder's gross income but are not deductible by the corporation.

A use tax is imposed by: