1.<\/p>\n
The ratification of the Sixteenth Amendment to the U.S.
\n Constitution was necessary to validate the Federal income tax on
\n corporations.<\/p>\n
True False<\/p>\n
2.<\/p>\n
Before the Sixteenth Amendment to the Constitution was ratified,
\n there was no valid Federal income tax on individuals.<\/p>\n
True False<\/p>\n
3.<\/p>\n
The first income tax on individuals (after the ratification of
\n the Sixteenth Amendment to the Constitution) levied tax rates from a low of
\n 2% to a high of 6%.<\/p>\n
True False<\/p>\n
4.<\/p>\n
The Federal income tax on individuals generates more revenue
\n than the Federal income tax on corporations.<\/p>\n
True False<\/p>\n
5.<\/p>\n
The pay-as-you-go feature of the Federal income tax on
\n individuals conforms to Adam Smith\u00e2\u0080\u0099s canon of certainty.<\/p>\n
True False<\/p>\n
6.<\/p>\n
Because the law is complicated, most individual taxpayers are
\n not able to complete their Federal income tax returns without outside
\n Helpance.<\/p>\n
True False<\/p>\n
7.<\/p>\n
The FICA tax (Medicare component) on wages is progressive since the tax due
\n increases as wages increase.<\/p>\n
True False<\/p>\n
8.<\/p>\n
The Federal estate and gift taxes are examples of progressive taxes.<\/p>\n
True False<\/p>\n
9.<\/p>\n
The Federal excise tax on cigarettes is an example of a proportional tax.<\/p>\n
True False<\/p>\n
10.<\/p>\n
Currently, the Federal income tax is less progressive than it ever has been in the past.<\/p>\n
True False<\/p>\n
11.<\/p>\n
Mona inherits her mother\u00e2\u0080\u0099s personal residence, which she
\n converts to a furnished rent house. These changes should affect the amount of
\n ad valorem property taxes levied on
\n the properties.<\/p>\n
True False<\/p>\n
12.<\/p>\n
A fixture will be
\n subject to the ad valorem tax on personalty rather than the ad valorem tax on realty.<\/p>\n
True False<\/p>\n
13.<\/p>\n
Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may
\n not remain the same.<\/p>\n
True False<\/p>\n
14.<\/p>\n
The ad valorem tax on
\n personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use
\n personalty.<\/p>\n
True False<\/p>\n
15.<\/p>\n
A Federal excise tax is no longer imposed on admission to
\n theaters.<\/p>\n
True False<\/p>\n
16.<\/p>\n
There is a Federal excise tax on hotel occupancy.<\/p>\n
True False<\/p>\n
17.<\/p>\n
The Federal gas-guzzler tax applies only to automobiles
\n manufactured overseas and imported into the U.S.<\/p>\n
True False<\/p>\n
18.<\/p>\n
Like the Federal counterpart, the amount of the state excise
\n taxes on gasoline varies from state to state.<\/p>\n
True False<\/p>\n
19.<\/p>\n
Not all of the states that impose a general sales tax also have
\n a use tax.<\/p>\n
True False<\/p>\n
20.<\/p>\n
Sales made by mail order are not exempt from the application of
\n a general sales (or use) tax.<\/p>\n
True False<\/p>\n
21.<\/p>\n
Two persons who live in the same state but in different counties
\n may not be subject to the same general sales tax rate.<\/p>\n
True False<\/p>\n
22.<\/p>\n
States impose either a state income tax or a general sales tax, but not both types of taxes.<\/p>\n
True False<\/p>\n
23.<\/p>\n
A safe and easy way for a taxpayer to avoid local and state
\n sales taxes is to make the purchase in a state that levies no such
\n taxes.<\/p>\n
True False<\/p>\n
24.<\/p>\n
On transfers by death, the Federal government relies on an
\n estate tax, while states impose an estate tax, an inheritance tax, both taxes,
\n or neither tax.<\/p>\n
True False<\/p>\n
25.<\/p>\n
An inheritance tax is a tax on a decedent\u00e2\u0080\u0099s right to pass
\n property at death.<\/p>\n
True False<\/p>\n
26.<\/p>\n
One of the major reasons for the enactment of the Federal estate
\n tax was to prevent large amounts of wealth from being accumulated within the
\n family unit.<\/p>\n
True False<\/p>\n
27.<\/p>\n
Under Clint\u00e2\u0080\u0099s will, all of his property passes to either the
\n Lutheran Church or to his wife. No Federal estate tax will be due on Clint\u00e2\u0080\u0099s
\n death in 2013.<\/p>\n
True False<\/p>\n
28.<\/p>\n
Under the usual state inheritance tax, two heirs, a cousin and a
\n son of the deceased, would not be taxed at the same rate.<\/p>\n
True False<\/p>\n
29.<\/p>\n
The annual exclusion, currently $14,000, is available for gift
\n and estate tax purposes.<\/p>\n
True False<\/p>\n
30.<\/p>\n
In 2012, Jos\u00c3\u00a9, a widower, sells land (fair market value of
\n $100,000) to his daughter, Linda, for $50,000. Jos\u00c3\u00a9 has made a taxable gift
\n of $50,000.<\/p>\n
True False<\/p>\n
31.<\/p>\n
Julius, a married taxpayer, makes gifts to each of his six
\n children. A maximum of twelve annual exclusions could be allowed as to these
\n gifts.<\/p>\n
True False<\/p>\n
32.<\/p>\n
One of the motivations for making a gift is to save on income
\n taxes.<\/p>\n
True False<\/p>\n
33.<\/p>\n
The formula for the Federal income tax on corporations is the
\n same as that applicable to individuals.<\/p>\n
True False<\/p>\n
34.<\/p>\n
A state income tax can
\n be imposed on nonresident taxpayers
\n who earn income within the state or on an itinerant basis.<\/p>\n
True False<\/p>\n
35.<\/p>\n
For state income tax purposes, a majority of states allow a deduction
\n for Federal income taxes.<\/p>\n
True False<\/p>\n
36.<\/p>\n
Some states use their state income tax return as a means of
\n collecting unpaid sales and use taxes.<\/p>\n
True False<\/p>\n
37.<\/p>\n
No state has offered an income tax amnesty program more than
\n once.<\/p>\n
True False<\/p>\n
38.<\/p>\n
For Federal income tax purposes, there never has been a general
\n amnesty period.<\/p>\n
True False<\/p>\n
39.<\/p>\n
Under state amnesty programs, all delinquent and unpaid income
\n taxes are forgiven.<\/p>\n
True False<\/p>\n
40.<\/p>\n
When a state decouples from a Federal tax provision, it means
\n that this provision will not apply
\n for state income tax purposes.<\/p>\n
True False<\/p>\n
41.<\/p>\n
The principal objective of the FUTA tax is to provide some
\n measure of retirement security.<\/p>\n
True False<\/p>\n
42.<\/p>\n
Currently, the tax base for the Social Security component of the
\n FICA is not limited to a dollar
\n amount.<\/p>\n
True False<\/p>\n
43.<\/p>\n
A parent employs his twin daughters, age 17, in his sole
\n proprietorship. The daughters are not
\n subject to FICA coverage.<\/p>\n
True False<\/p>\n
44.<\/p>\n
Unlike FICA, FUTA requires that employers comply with state as
\n well as Federal rules.<\/p>\n
True False<\/p>\n
45.<\/p>\n
A major advantage of a flat tax type of income tax is its
\n simplicity.<\/p>\n
True False<\/p>\n
46.<\/p>\n
The value added tax (VAT) has
\n not had wide acceptance in the international community.<\/p>\n
True False<\/p>\n
47.<\/p>\n
If more IRS audits are producing a greater number of no change results, this indicates
\n increased compliance on the part of taxpayers.<\/p>\n
True False<\/p>\n
48.<\/p>\n
The amount of a taxpayer\u00e2\u0080\u0099s itemized deductions willincrease the chance of being
\n audited by the IRS.<\/p>\n
True False<\/p>\n
49.<\/p>\n
In an office audit, the audit by the IRS takes place at the
\n office of the taxpayer.<\/p>\n
True False<\/p>\n
50.<\/p>\n
The IRS agent auditing the return willissue an RAR even if the taxpayer owes no additional
\n taxes.<\/p>\n
True False<\/p>\n
51.<\/p>\n
If a \u00e2\u0080\u009cspecial agent\u00e2\u0080\u009d becomes involved in the audit of a return,
\n this indicates that the IRS suspects that fraud is involved.<\/p>\n
True False<\/p>\n
52.<\/p>\n
If a taxpayer files early (i.e., before the due date of the
\n return), the statute of limitations on assessments begins on the date the
\n return is filed.<\/p>\n
True False<\/p>\n
53.<\/p>\n
For omissions from gross income in excess of 25% of that
\n reported, there is no statute of limitations on additional income tax
\n assessments by the IRS.<\/p>\n
True False<\/p>\n
54.<\/p>\n
If an income tax return is not
\n filed by a taxpayer, there is no statute of limitations on assessments of tax
\n by the IRS.<\/p>\n
True False<\/p>\n
55.<\/p>\n
If fraud is involved, there is no time limit on the assessment
\n of a deficiency by the IRS.<\/p>\n
True False<\/p>\n
56.<\/p>\n
The IRS is required to redetermine the interest rate on
\n underpayments and overpayments once a year.<\/p>\n
True False<\/p>\n
57.<\/p>\n
A calendar year taxpayer files his 2012 Federal income tax
\n return on March 5, 2013. The return reflects an overpayment of $6,000, and
\n the taxpayer requests a refund of this amount. The refund is paid on May 17,
\n 2013. The refund need not include interest.<\/p>\n
True False<\/p>\n
58.<\/p>\n
For individual taxpayers, the interest rate for income tax
\n refunds (overpayments) isthe same
\n as that applicable to assessments (underpayments).<\/p>\n
True False<\/p>\n
59.<\/p>\n
During any month in which both the failure to file penalty and
\n the failure to pay penalty apply, the failure to file penalty is increased by the amount of the failure
\n to pay penalty.<\/p>\n
True False<\/p>\n
60.<\/p>\n
When interest is charged on a deficiency, any part of a month
\n counts as a full month.<\/p>\n
True False<\/p>\n
61.<\/p>\n
For the negligence penalty to apply, the underpayment must be
\n caused by intentional disregard of rules and regulations without intent to
\n defraud.<\/p>\n
True False<\/p>\n
62.<\/p>\n
Upon audit by the IRS, Faith is assessed a deficiency of $40,000
\n of which $25,000 is attributable to negligence. The 20% negligence penalty
\n will apply to $25,000.<\/p>\n
True False<\/p>\n
63.<\/p>\n
If the tax deficiency is attributable to fraud, the negligence
\n penalty will not be imposed.<\/p>\n
True False<\/p>\n
64.<\/p>\n
The civil fraud
\n penalty can entail large fines and possible incarceration.<\/p>\n
True False<\/p>\n
65.<\/p>\n
Even though a client refuses to correct an error on a past
\n return, it may be possible for a practitioner to continue to prepare returns
\n for the client.<\/p>\n
True False<\/p>\n
66.<\/p>\n
In preparing an income tax return, the use of a client\u00e2\u0080\u0099s
\n estimates is notpermitted.<\/p>\n
True False<\/p>\n
67.<\/p>\n
In preparing a tax return, all questions on the return must be
\n answered.<\/p>\n
True False<\/p>\n
68.<\/p>\n
A CPA firm in California sends many of its less complex tax
\n returns to be prepared by a group of accountants in India. If certain
\n procedures are followed, this outsourcing of tax return preparation is
\n proper.<\/p>\n
True False<\/p>\n
69.<\/p>\n
The objective of pay-as-you-go
\n (paygo) is to achieve revenue neutrality.<\/p>\n
True False<\/p>\n
70.<\/p>\n
When Congress enacts a tax cut that is phased in over a period
\n of years, revenue neutrality is achieved.<\/p>\n
True False<\/p>\n
71.<\/p>\n
A tax cut enacted by Congress that contains a sunset provision will make the tax cut
\n temporary.<\/p>\n
True False<\/p>\n
72.<\/p>\n
The tax law provides various tax credits, deductions, and
\n exclusions that are designed to encourage taxpayers to obtain additional
\n education. These provisions can be justified on both economic and equity
\n grounds.<\/p>\n
True False<\/p>\n
73.<\/p>\n
Various tax provisions encourage the creation of certain types
\n of retirement plans. Such provisions can be justified on both economic and
\n social grounds.<\/p>\n
True False<\/p>\n
74.<\/p>\n
To lessen, or eliminate, the effect of multiple taxation, a
\n taxpayer who is subject to both foreign and U.S. income taxes on the same
\n income is allowed either a deduction or a credit for the foreign tax
\n paid.<\/p>\n
True False<\/p>\n
75.<\/p>\n
To mitigate the effect of the annual accounting period concept,
\n the tax law permits the carryforward to other years of the excess charitable
\n contributions of a particular year.<\/p>\n
True False<\/p>\n
76.<\/p>\n
Jason\u00e2\u0080\u0099s business warehouse is destroyed by fire. As the
\n insurance proceeds exceed the basis of the property, a gain results. If Jason
\n shortly reinvests the proceeds in a new warehouse, no gain is recognized due
\n to the application of the wherewithal to pay concept.<\/p>\n
True False<\/p>\n
77.<\/p>\n
As it is consistent with the wherewithal to pay concept, the tax
\n law requires a seller to recognize gain in the year the installment sale
\n occurs.<\/p>\n
True False<\/p>\n
78.<\/p>\n
Stealth taxes have the effect of generating additional taxes
\n from all taxpayers.<\/p>\n
True False<\/p>\n
79.<\/p>\n
A provision in the law that compels accrual basis taxpayers to
\n pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting
\n principles.<\/p>\n
True False<\/p>\n
80.<\/p>\n
As a matter of administrative convenience, the IRS would prefer
\n to have Congress decrease (rather than increase) the amount of the standard
\n deduction allowed to individual taxpayers.<\/p>\n
True False<\/p>\n
81.<\/p>\n
In cases of doubt, courts have held that tax relief provisions
\n should be broadly construed in favor of taxpayers.<\/p>\n
True False<\/p>\n
82.<\/p>\n
On occasion, Congress has to enact legislation that clarifies
\n the tax law in order to change a result reached by the U.S. Supreme
\n Court.<\/p>\n
True False<\/p>\n
83.<\/p>\n
Which, if any, of the following statements best describes the
\n history of the Federal income tax?<\/p>\n
A.<\/p>\n
It did not exist
\n during the Civil War.<\/p>\n
B.<\/p>\n
The Federal income
\n tax on corporations was held by the U.S. Supreme Court to be allowable
\n under the U.S. Constitution.<\/p>\n
C.<\/p>\n
The Federal income
\n tax on individuals was held by the U.S. Supreme Court to be allowable under
\n the U.S. Constitution.<\/p>\n
D.<\/p>\n
Both the Federal
\n income tax on individuals and on corporations was held by the U.S. Supreme
\n Court to be contrary to the U.S. Constitution.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
84.<\/p>\n
Which, if any, is notone
\n of Adam Smith\u00e2\u0080\u0099s canons of taxation?<\/p>\n
A.<\/p>\n
Economy.<\/p>\n
B.<\/p>\n
Certainty.<\/p>\n
C.<\/p>\n
Convenience.<\/p>\n
D.<\/p>\n
Simplicity.<\/p>\n
E.<\/p>\n
Equality.<\/p>\n
85.<\/p>\n
Which, if any, of the following taxes are proportional (rather than progressive)?<\/p>\n
A.<\/p>\n
State general
\n sales tax.<\/p>\n
B.<\/p>\n
Federal corporate
\n income tax.<\/p>\n
C.<\/p>\n
Federal estate
\n tax.<\/p>\n
D.<\/p>\n
Federal gift
\n tax.<\/p>\n
E.<\/p>\n
All of the above.<\/p>\n
86.<\/p>\n
Which, if any, of the following transactions will increase a taxing jurisdiction\u00e2\u0080\u0099s
\n revenue from the ad valorem tax
\n imposed on real estate?<\/p>\n
A.<\/p>\n
A resident dies
\n and leaves his farm to his church.<\/p>\n
B.<\/p>\n
A large property
\n owner issues a conservation easement as to some of her land.<\/p>\n
C.<\/p>\n
A tax holiday
\n issued 10 years ago has expired.<\/p>\n
D.<\/p>\n
A bankrupt motel
\n is acquired by the Red Cross and is to be used to provide housing for
\n homeless persons.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
87.<\/p>\n
Which, if any, of the following transactions will decrease a taxing jurisdiction\u00e2\u0080\u0099s ad valorem tax revenue imposed on real
\n estate?<\/p>\n
A.<\/p>\n
A tax holiday is
\n granted to an out-of-state business that is searching for a new factory
\n site.<\/p>\n
B.<\/p>\n
An abandoned
\n church is converted to a restaurant.<\/p>\n
C.<\/p>\n
A public school is
\n razed and turned into a city park.<\/p>\n
D.<\/p>\n
A local university
\n sells a dormitory that will be converted for use as an apartment building.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
88.<\/p>\n
Which, if any, of the following is a typical characteristic of
\n an ad valorem tax on
\n personalty?<\/p>\n
A.<\/p>\n
Taxpayer compliance
\n is greater for personal use property than for business use property.<\/p>\n
B.<\/p>\n
The tax on
\n automobiles sometimes considers the age of the vehicle.<\/p>\n
C.<\/p>\n
Most states impose
\n a tax on intangibles.<\/p>\n
D.<\/p>\n
The tax on
\n intangibles generates considerable revenue since it is difficult for
\n taxpayers to avoid.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
89.<\/p>\n
Federal excise taxes that are no longer imposed include:<\/p>\n
A.<\/p>\n
Tax on air travel.<\/p>\n
B.<\/p>\n
Tax on wagering.<\/p>\n
C.<\/p>\n
Tax on the
\n manufacture of sporting equipment.<\/p>\n
D.<\/p>\n
Tax on alcohol.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
90.<\/p>\n
Taxes not imposed by
\n the Federal government include:<\/p>\n
A.<\/p>\n
Tobacco excise
\n tax.<\/p>\n
B.<\/p>\n
Customs duties
\n (tariffs on imports).<\/p>\n
C.<\/p>\n
Tax on rent cars.<\/p>\n
D.<\/p>\n
Gas guzzler tax.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
91.<\/p>\n
Taxes levied by both
\n states and the Federal government include:<\/p>\n
A.<\/p>\n
General sales tax.<\/p>\n
B.<\/p>\n
Custom duties.<\/p>\n
C.<\/p>\n
Hotel occupancy
\n tax.<\/p>\n
D.<\/p>\n
Franchise tax.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
92.<\/p>\n
Taxes levied by all
\n states include:<\/p>\n
A.<\/p>\n
Tobacco excise tax.<\/p>\n
B.<\/p>\n
Individual income
\n tax.<\/p>\n
C.<\/p>\n
Inheritance tax.<\/p>\n
D.<\/p>\n
General sales tax.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
93.<\/p>\n
A use tax is imposed by:<\/p>\n
A.<\/p>\n
The Federal
\n government and all states.<\/p>\n
B.<\/p>\n
The Federal
\n government and a majority of the states.<\/p>\n
C.<\/p>\n
All states and not
\n the Federal government.<\/p>\n
D.<\/p>\n
Most of the states
\n and not the Federal government.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
94.<\/p>\n
Burt and Lisa are married and live in a common law state. Burt
\n wants to make gifts to their four children in 2013. What is the maximum
\n amount of the annual exclusion they will be allowed for these gifts?<\/p>\n
A.<\/p>\n
$14,000.<\/p>\n
B.<\/p>\n
$28,000.<\/p>\n
C.<\/p>\n
$56,000.<\/p>\n
D.<\/p>\n
$112,000.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
95.<\/p>\n
Property can be transferred within the family group by gift or
\n at death. One motivation for preferring the gift approach is:<\/p>\n
A.<\/p>\n
To take advantage
\n of the higher unified transfer tax credit available under the gift tax.<\/p>\n
B.<\/p>\n
To avoid a future
\n decline in value of the property transferred.<\/p>\n
C.<\/p>\n
To take advantage
\n of the per donee annual exclusion.<\/p>\n
D.<\/p>\n
To shift income to
\n higher bracket donees.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
96.<\/p>\n
Indicate which, if any, statement is incorrect. State income taxes:<\/p>\n
A.<\/p>\n
Can piggyback to
\n the Federal version.<\/p>\n
B.<\/p>\n
Cannot apply to
\n visiting nonresidents.<\/p>\n
C.<\/p>\n
Can decouple from
\n the Federal version.<\/p>\n
D.<\/p>\n
Can provide
\n occasional amnesty programs.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
97.<\/p>\n
State income taxes generally
\n can be characterized by:<\/p>\n
A.<\/p>\n
The same date for
\n filing as the Federal income tax.<\/p>\n
B.<\/p>\n
No provision for
\n withholding procedures.<\/p>\n
C.<\/p>\n
Allowance of a
\n deduction for Federal income taxes paid.<\/p>\n
D.<\/p>\n
Applying only to
\n individuals and not applying to corporations.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
98.<\/p>\n
A characteristic of FICA is that:<\/p>\n
A.<\/p>\n
It does not apply
\n when one spouse works for the other spouse.<\/p>\n
B.<\/p>\n
It is imposed only
\n on the employer.<\/p>\n
C.<\/p>\n
It provides a
\n modest source of income in the event of loss of employment.<\/p>\n
D.<\/p>\n
It is administered
\n by both state and Federal governments.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
99.<\/p>\n
A characteristic of FUTA is that:<\/p>\n
A.<\/p>\n
It is imposed on
\n both employer and employee.<\/p>\n
B.<\/p>\n
It is imposed
\n solely on the employee.<\/p>\n
C.<\/p>\n
Compliance
\n requires following guidelines issued by both state and Federal regulatory authorities.<\/p>\n
D.<\/p>\n
It is applicable
\n to spouses of employees but not
\n to any children under age 18.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
100.<\/p>\n
The U.S. (either Federal, state, or local) does not impose:<\/p>\n
A.<\/p>\n
Franchise taxes.<\/p>\n
B.<\/p>\n
Severance taxes.<\/p>\n
C.<\/p>\n
Occupational fees.<\/p>\n
D.<\/p>\n
Custom duties.<\/p>\n
E.<\/p>\n
Export
\n duties.<\/p>\n
101.<\/p>\n
The proposed flat tax:<\/p>\n
A.<\/p>\n
Would eliminate
\n the income tax.<\/p>\n
B.<\/p>\n
Would simplify the
\n income tax.<\/p>\n
C.<\/p>\n
Would tax the
\n increment in value as goods move through the production and manufacturing
\n stages to the marketplace.<\/p>\n
D.<\/p>\n
Is a tax on
\n consumption.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
102.<\/p>\n
A VAT (value added tax):<\/p>\n
A.<\/p>\n
Is regressive in
\n its effect.<\/p>\n
B.<\/p>\n
Has not proved
\n popular outside of the U.S.<\/p>\n
C.<\/p>\n
Is not a tax on consumption.<\/p>\n
D.<\/p>\n
Is used
\n exclusively by third world (less developed) countries.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
103.<\/p>\n
Characteristics of the \u00e2\u0080\u009cFair Tax\u00e2\u0080\u009d (i.e., national sales tax)
\n include which, if any, of the following:<\/p>\n
A.<\/p>\n
Abolition of the
\n Federal individual (but not the corporate) income tax.<\/p>\n
B.<\/p>\n
Abolition of all
\n Federal income taxes but retention of payroll taxes (including the
\n self-employment tax).<\/p>\n
C.<\/p>\n
Abolition of all
\n Federal income taxes and payroll taxes but retention of the Federal estate
\n and gift taxes.<\/p>\n
D.<\/p>\n
Abolition of all
\n Federal income and payroll taxes as well as the Federal estate and gift
\n taxes.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
104.<\/p>\n
In terms of probability, which of the following taxpayers would
\n be least likely to be audited by
\n the IRS?<\/p>\n
A.<\/p>\n
Taxpayer owns and
\n operates a check-cashing service.<\/p>\n
B.<\/p>\n
Taxpayer is an
\n employed electrician.<\/p>\n
C.<\/p>\n
Taxpayer just
\n received a $3 million personal injury award as a result of a lawsuit.<\/p>\n
D.<\/p>\n
Taxpayer just won
\n a $1 million slot machine jackpot at a Las Vegas casino.<\/p>\n
E.<\/p>\n
Taxpayer has been
\n audited several times before.<\/p>\n
105.<\/p>\n
Which of the following isa
\n characteristic of the audit process?<\/p>\n
A.<\/p>\n
Most taxpayer
\n audits involve \u00e2\u0080\u009cspecial\u00e2\u0080\u009d agents.<\/p>\n
B.<\/p>\n
Self-employed
\n taxpayers are less likely to be selected for audit than employed taxpayers.<\/p>\n
C.<\/p>\n
Less important
\n issues are handled by means of a correspondence audit.<\/p>\n
D.<\/p>\n
If a taxpayer
\n disagrees with the IRS auditor\u00e2\u0080\u0099s finding, the only resort is to the courts.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
106.<\/p>\n
David files his tax return 45 days after the due date. Along
\n with the return, David remits a check for $40,000 which is the balance of the
\n tax owed. Disregarding the interest element, David\u00e2\u0080\u0099s total failure to file
\n and to pay penalties are:<\/p>\n
A.<\/p>\n
$400.<\/p>\n
B.<\/p>\n
$3,600.<\/p>\n
C.<\/p>\n
$4,000.<\/p>\n
D.<\/p>\n
$4,400.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
107.<\/p>\n
A characteristic of the fraud penalties is:<\/p>\n
A.<\/p>\n
When negligence
\n and civil fraud apply to a deficiency, the negligence penalty predominates.<\/p>\n
B.<\/p>\n
Criminal fraud can
\n result in a fine and a prison sentence.<\/p>\n
C.<\/p>\n
The criminal fraud
\n penalty is 75% of the deficiency attributable to the fraud.<\/p>\n
D.<\/p>\n
The IRS has the
\n same burden of proof in the case of criminal fraud than with civil fraud.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
108.<\/p>\n
Regarding proper ethical guidelines, which (if any) of the
\n following is correct?<\/p>\n
A.<\/p>\n
The use of client
\n estimates in preparing a return may be acceptable.<\/p>\n
B.<\/p>\n
Under no
\n circumstances should a question on a tax return be left unanswered.<\/p>\n
C.<\/p>\n
If a client has made
\n a mistake in a prior year\u00e2\u0080\u0099s return and refuses to correct it, you should
\n withdraw from the engagement.<\/p>\n
D.<\/p>\n
If the exact
\n amount of a deduction is not certain (e.g., around mid-$600s) , it shouldbe recorded as an odd amount
\n (i.e., $649) so as to increase the appearance of greater certainty.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
109.<\/p>\n
Both economic and social considerations can be used to
\n justify:<\/p>\n
A.<\/p>\n
Favorable tax
\n treatment for accident and health plans provided for employees and financed
\n by employers.<\/p>\n
B.<\/p>\n
Disallowance of
\n any deduction for expenditures deemed to be contrary to public policy
\n (e.g., fines, penalties, illegal kickbacks, bribes to government
\n officials).<\/p>\n
C.<\/p>\n
Various tax
\n credits, deductions, and exclusions that are designed to encourage taxpayers
\n to obtain additional education.<\/p>\n
D.<\/p>\n
Allowance of a
\n deduction for state and local income taxes paid.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
110.<\/p>\n
Social considerations can be used to justify:<\/p>\n
A.<\/p>\n
Allowance of a
\n credit for child care expenses.<\/p>\n
B.<\/p>\n
Allowing excess
\n capital losses to be carried over to other years.<\/p>\n
C.<\/p>\n
Allowing
\n accelerated amortization for the cost of installing pollution control
\n facilities.<\/p>\n
D.<\/p>\n
Allowing a Federal
\n income tax deduction for state and local sales taxes.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
111.<\/p>\n
Allowing a domestic production activities deduction for certain
\n manufacturing income can be justified:<\/p>\n
A.<\/p>\n
As mitigating the
\n effect of the annual accounting period concept.<\/p>\n
B.<\/p>\n
As promoting
\n administrative feasibility.<\/p>\n
C.<\/p>\n
By economic
\n considerations.<\/p>\n
D.<\/p>\n
Based on the
\n wherewithal to pay concept.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
112.<\/p>\n
Provisions in the tax law that promote energy conservation and
\n more use of alternative (non-fossil) fuels can be justified by:<\/p>\n
A.<\/p>\n
Political considerations.<\/p>\n
B.<\/p>\n
Economic and
\n social considerations.<\/p>\n
C.<\/p>\n
Promoting
\n administrative feasibility.<\/p>\n
D.<\/p>\n
Encouragement of
\n small business.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
113.<\/p>\n
Which, if any, of the following provisions cannot be justified as mitigating the effect of the annual
\n accounting period concept?<\/p>\n
A.<\/p>\n
Nonrecognition of
\n gain allowed for involuntary conversions.<\/p>\n
B.<\/p>\n
Net operating loss
\n carryback and carryover provisions.<\/p>\n
C.<\/p>\n
Carry over of
\n excess charitable contributions.<\/p>\n
D.<\/p>\n
Use of the
\n installment method to recognize gain.<\/p>\n
E.<\/p>\n
Carry over of
\n excess capital losses.<\/p>\n
114.<\/p>\n
Which, if any, of the following provisions of the tax law cannot be justified as promoting
\n administrative feasibility (simplifying the task of the IRS)?<\/p>\n
A.<\/p>\n
Penalties are
\n imposed for failure to file a return or pay a tax on time.<\/p>\n
B.<\/p>\n
Prepaid income is
\n taxed in the year received and not in the year earned.<\/p>\n
C.<\/p>\n
Annual adjustments
\n for indexation increases the amount of the standard deduction allowed.<\/p>\n
D.<\/p>\n
Casualty losses
\n must exceed 10% of AGI to be deductible.<\/p>\n
E.<\/p>\n
A deduction is
\n allowed for charitable contributions.<\/p>\n
115.<\/p>\n
A landlord leases property upon which the tenant makes
\n improvements. The improvements are significant and are not made in lieu of
\n rent. At the end of the lease, the value of the improvements are not income
\n to the landlord. This rule is an example of:<\/p>\n
A.<\/p>\n
A clear reflection
\n of income result.<\/p>\n
B.<\/p>\n
The tax benefit
\n rule.<\/p>\n
C.<\/p>\n
The arm\u00e2\u0080\u0099s length
\n concept.<\/p>\n
D.<\/p>\n
The wherewithal to
\n pay concept.<\/p>\n
E.<\/p>\n
None of the above.<\/p>\n
116.<\/p>\n
Taylor, a widow, makes cash gifts to her five married children
\n (including their spouses) and to her seven grandchildren. What is the
\n maximum amount Taylor can give for calendar year 2013 without using her
\n unified transfer tax credit?<\/p>\n
117.<\/p>\n
For the tax year 2013, Noah reported gross income of $300,000 on
\n his timely filed Federal income tax return.<\/p>\n
a.<\/p>\n
Presuming the
\n general rule applies, when does the statute of limitations on assessments
\n normally expire?<\/p>\n
b.<\/p>\n
Suppose Noah
\n inadvertently omitted gross income of $76,000. When does the statute of
\n limitations on assessments expire?<\/p>\n
c.<\/p>\n
Suppose the
\n omission was deliberate and not inadvertent. When does the statute of
\n limitations on assessments expire?<\/p>\n
118.<\/p>\n
Without obtaining an extension, Pam files her income tax return
\n 55 days after the due date. With her return, she pays an additional tax of
\n $60,000. Disregarding any interest element, what is Pam\u00e2\u0080\u0099s penalty for failure
\n to pay and to file?<\/p>\n
119.<\/p>\n
On his 2013 income tax return, Andrew omitted income and
\n overstated deductions to the extent that his income tax was understated by
\n $500,000. Disregarding any interest element, what is Andrew\u00e2\u0080\u0099s penalty if the
\n understatement was due to:<\/p>\n
a.<\/p>\n
Negligence.<\/p>\n
b.<\/p>\n
Civil fraud.<\/p>\n
c.<\/p>\n
Criminal fraud.<\/p>\n
120.<\/p>\n
Several years ago, Logan purchased extra grazing land for his
\n ranch at a cost of $240,000. In 2013, the land is condemned by the state for
\n development as a highway maintenance depot. Under the condemnation award,
\n Logan receives $600,000 for the land. Within the same year, he replaces the
\n property with other grazing land. What is Logan\u00e2\u0080\u0099s tax situation if the
\n replacement land cost:<\/p>\n
a.<\/p>\n
$210,000?<\/p>\n
b.<\/p>\n
$360,000?<\/p>\n
c.<\/p>\n
$630,000?<\/p>\n
d.<\/p>\n
Why?<\/p>\n
121.<\/p>\n
Paige is the sole shareholder of Citron Corporation. During the
\n year, Paige leases a building to Citron for a monthly rental of $80,000. If
\n the fair rental value of the building is $60,000, what are the income tax
\n consequences to the parties involved?<\/p>\n
122.<\/p>\n
In 1985, Roy leased real estate to Drab Corporation for 20
\n years. Drab Corporation made significant capital improvements to the
\n property. In 2005, Roy decides not to renew the lease and vacates the
\n property. At that time, the value of the improvements is $800,000. Roy sells
\n the real estate in 2013 for $1,200,000 of which $900,000 is attributable to
\n the improvements. How and when is Roy taxed on the improvements made by Drab
\n Corporation?<\/p>\n
123.<\/p>\n
The Federal income tax is based on a pay-as-you-go system and
\n has become a \u00e2\u0080\u009cmass tax.\u00e2\u0080\u009d Explain this statement.<\/p>\n
124.<\/p>\n
In terms of Adam Smith\u00e2\u0080\u0099s canons of taxation, how does the
\n Federal income tax fare as far as economy
\n is concerned?<\/p>\n
125.<\/p>\n
Due to the population change, the Goose Creek School District
\n has decided to close one of its high schools. Since it has no further need of
\n the property, the school is listed for sale. The two bids it receives are as
\n follows:<\/p>\n
United Methodist
\n Church<\/p>\n
$1,700,000<\/p>\n
Planet Motors<\/p>\n
1,600,000<\/p>\n
The United
\n Methodist Church would use the property to establish a sectarian middle
\n school. Planet, a well-known car dealership, would revamp the property and
\n operate it as a branch location.<\/p>\n
If you were a
\n member of the School District board, what factors would you consider in
\n evaluating the two bids?<\/p>\n
126.<\/p>\n
Morgan inherits her father\u00e2\u0080\u0099s personal residence including all of
\n the furnishings. She plans to add a swimming pool and sauna to the
\n property and rent it as a furnished house. What are some of the ad valorem property tax problems
\n Morgan can anticipate?<\/p>\n
127.<\/p>\n
In 2011, Deborah became 65 years old. In 2012 she added a
\n swimming pool, and in 2013 she converted the residence to rental property and
\n moved into an Helped living facility. Since 2010, Deborah\u00e2\u0080\u0099s ad valorem
\n property taxes have decreased once and increased twice. Explain.<\/p>\n
128.<\/p>\n
A lack of compliance in the payment of use taxes can be resolved
\n by several means. In this regard, comment on the following:<\/p>\n
a.<\/p>\n
Registration of
\n automobiles.<\/p>\n
b.<\/p>\n
Reporting of
\n Internet purchases on state income tax returns.<\/p>\n
129.<\/p>\n
What are the pros and cons of the following state and local tax
\n provisions?<\/p>\n
a.<\/p>\n
An ad valorem property tax holiday made
\n available to a manufacturing plant that is relocating.<\/p>\n
b.<\/p>\n
Hotel occupancy
\n tax and a rental car surcharge.<\/p>\n
c.<\/p>\n
A back-to-school
\n sales tax holiday.<\/p>\n
130.<\/p>\n
What is a severance tax? How productive can it be in terms of
\n generating revenue?<\/p>\n
131.<\/p>\n
What is the difference between an inheritance tax and an estate
\n tax? Who imposes these taxes?<\/p>\n
132.<\/p>\n
Logan dies with an estate worth $20 million. Under his will, $10
\n million passes to his wife while $10 million goes to his church. What is
\n Logan\u00e2\u0080\u0099s Federal estate tax result?<\/p>\n
133.<\/p>\n
With regard to state income taxes, explain what is meant by the
\n \u00e2\u0080\u009cjock tax\u00e2\u0080\u009d?<\/p>\n
134.<\/p>\n
Virtually all state income tax returns contain checkoff boxes
\n for donations to various causes. On what grounds has this procedure been
\n criticized?<\/p>\n
135.<\/p>\n
State and local governments are sometimes forced to find ways to
\n generate additional revenue. Comment on the pros and cons of the
\n following procedures:<\/p>\n
a.<\/p>\n
Decouple what
\n would be part of the piggyback format of the state income tax.<\/p>\n
b.<\/p>\n
Tax amnesty
\n provisions.<\/p>\n
c.<\/p>\n
Internet shaming.<\/p>\n
136.<\/p>\n
Briana lives in one state and works in the adjoining state. Both
\n states tax the income she earns from her job. Does Briana have any relief
\n from this apparent double taxation of the same income?<\/p>\n
137.<\/p>\n
In late June 2013, Art is audited by the state and a large
\n deficiency is assessed. In November of the same year, his Federal income tax
\n return is audited by the IRS. What has probably happened?<\/p>\n
138.<\/p>\n
Two months after the burglary of his personal residence, Eric is
\n audited by the IRS. Among the items taken in the burglary was a shoe box
\n containing approximately $50,000 in cash. Eric is the owner and operator of a
\n cash-and-carry liquor store. Eric wonders why he was audited. Can you help
\n explain?<\/p>\n","protected":false},"excerpt":{"rendered":"
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