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

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Question 71

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The proposed flat tax:

A) Would eliminate the income tax.
B) Would simplify the income tax.
C) Would tax the increment in value as goods move through the production and manufacturing stages to the marketplace.
D) Is a tax on consumption.
E) None of the above.

F) A) and E)
G) A) and B)

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Question 72

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In early July 2012,Gavin is audited by the IRS and a large deficiency is assessed.In October of the same year,his income tax return for the state is audited.What has probably happened?

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The state has been n...

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Question 73

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

One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from being accumulated within the family unit.

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.

In cases of doubt,courts have held that tax relief provisions should be narrowly construed in favor of taxpayers.

Virtually all state income tax returns contain checkoff boxes for donations to various causes.On what grounds has this procedure been criticized?

On transfers by death,the Federal government relies on an estate tax,while states impose an estate tax,an inheritance tax,both taxes,or neither tax.

Scott files his tax return 65 days after the due date.Along with the return,Scott remits a check for $50,000 which is the balance of the tax owed.Disregarding the interest element,Scott's total failure to file and to pay penalties are:

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

The IRS agent auditing the return will not issue an RAR if the taxpayer owes no additional taxes.

A characteristic of FICA is that:

The Federal estate and gift taxes are examples of progressive taxes.

The FICA tax (Medicare component)on wages is progressive since the tax due increases as wages increase.

During any month in which both the failure to file penalty and the failure to pay penalty apply,the failure to file penalty is reduced by the amount of the failure to pay penalty.

To mitigate the effect of the annual accounting period concept,the tax law permits the carryforward to other years of the excess capital losses of a particular year.

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

In terms of revenue neutrality,comment on a tax cut enacted by Congress that:

Both economic and social considerations can be used to justify:

Burt and Lisa are married and live in a common law state.Burt wants to make gifts to their five children in 2012.What is the maximum amount of the annual exclusion they will be allowed for these gifts?