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

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Question 61

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Several years ago,Lucas purchased extra grazing land for his ranch at a cost of $120,000.In 2012,the land is condemned by the state for development as a highway maintenance depot.Under the condemnation award,Lucas receives $300,000 for the land.Within the same year,he replaces the property with other grazing land.What is Lucas's tax situation if the replacement land cost:

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Question 62

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The amount of a taxpayer's itemized deductions will increase the chance of being audited by the IRS.

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Question 63

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If fraud is involved,there is no time limit on the assessment of a deficiency by the IRS.

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?

Without obtaining an extension,Olivia files her income tax return 65 days after the due date.With her return,she pays an additional tax of $50,000.Disregarding any interest element,what is Olivia's penalty for failure to pay and to file?

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

Which,if any,of the following transactions will decrease a taxing jurisdiction's ad valorem tax revenue imposed on real estate?

States impose either a state income tax or a general sales tax,but not both types of taxes.

One of the motivations for making a gift is to save on income taxes.

Currently,the tax base for the Medicare component of the FICA is not limited to a dollar amount.

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

Because the law is complicated,most individual taxpayers are not able to complete their Federal income tax returns without outside assistance.

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

Which,if any,of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate?

There is no Federal excise tax on hotel occupancy.

A Federal excise tax is still imposed on admission to theaters.

How do the net operating loss provisions in the tax law mitigate the effect of the annual accounting concept?

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

Melinda has been referred to you by one of your clients.In the past,she has prepared her own income tax returns,but she has become overwhelmed by the increased complexity of the tax law.Consequently,Melinda wants you to prepare her return for calendar year 2012.In reviewing her 2011 return,you note that she has claimed as a deduction the entire cost of a business building that should have been capitalized and depreciated.What course of action should you follow?

State and local governments are sometimes forced to find ways to generate additional revenue.Comment on the pros and cons of the following procedures: