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

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Question 41

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For state income tax purposes,a majority of states allow a deduction for Federal income taxes.

A) True
B) False

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Question 42

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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.
E) None of the above.

F) A) and B)
G) A) and C)

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Question 43

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

The principal objective of the FUTA tax is to provide some measure of retirement security.

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

The tax law allows,under certain conditions,deferral of gain recognition for involuntary conversions.

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

If a taxpayer files early (i.e.,before the due date of the return),the statute of limitations on assessments begins on the date the return is due.

In preparing a tax return,all questions on the return must be answered.

Congress reacts to judicial decisions that interpret the tax law in different ways.When it approves of a decision,Congress may act to amend the Code to incorporate the holding.When it disapproves,Congress may amend the Code to nullify its effect.Give an example of each one of these congressional reactions.

A use tax is imposed by:

Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.

For individual taxpayers,the interest rate for income tax refunds (overpayments)is not the same as that applicable to assessments (underpayments).

If property tax rates are not changed,the amount of ad valorem taxes imposed on realty will remain the same.

The Federal income tax is based on a pay-as-you-go system and has become a "mass tax." Explain this statement.

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

Property can be transferred within the family group by gift or at death.One motivation for preferring the gift approach is:

For the tax year 2012,Andrew reported gross income of $200,000 on his timely filed Federal income tax return.

Under state amnesty programs,all delinquent and unpaid income taxes are forgiven.

No state has offered an income tax amnesty program more than once.