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

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Question 21

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If the tax deficiency is attributable to fraud,the negligence penalty will not be imposed.

A) True
B) False

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Question 22

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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.
E) None of the above.

F) B) and D)
G) C) and D)

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Question 23

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

When Congress enacts a tax cut that is phased in over a period of years,revenue neutrality is achieved.

A CPA firm in California sends many of its less complex tax returns to be prepared by a group of accountants in India.If certain procedures are followed,this outsourcing of tax return preparation is proper.

The tax law provides various tax credits,deductions,and exclusions that are designed to encourage taxpayers to obtain additional education.These provisions can be justified on both economic and social grounds.

A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is inconsistent with generally accepted accounting principles.

A VAT (value added tax) :

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

In terms of Adam Smith's canons of taxation,how does the Federal income tax fare as far as equality is concerned?

The objective of pay-as-you-go (paygo)is to achieve revenue neutrality.

The Federal excise tax on cigarettes is an example of a proportional tax.

Which,if any,is not one of Adam Smith's canons of taxation?

In 2010,Deborah became 65 years old.In 2011 she added a swimming pool,and in 2012 she converted the residence to rental property and moved into an assisted living facility.Since 2009,Deborah's ad valorem property taxes have decreased once and increased twice.Explain.

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

Mona inherits her mother's personal residence,which she converts to a furnished rent house.These changes should not affect the amount of ad valorem property taxes levied on the properties.

Taxes levied by both states and the Federal government include:

Under a state inheritance tax,two heirs,a cousin and a son of the deceased,would be taxed at the same rate.

Your client,Connie,won $12,000 in a football office pool.She sees no reason to include it in her income for several reasons.First,the amount won will not be reported to the IRS.Second,as an average income employee,she is unlikely to be audited by the IRS.Third,she feels that she has probably lost this much in other past office pools.How do you respond?

The value added tax (VAT)has had wide acceptance in the international community.