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

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Question 61

Multiple Choice

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Which, if any, of the following taxes are proportional (rather than progressive) ?

A) State general sales tax
B) Federal corporate income tax
C) Federal estate tax
D) Federal gift tax
E) All of these

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

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Question 62

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

A) True
B) False

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Question 63

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

Match the statements that relate to each other. Note: Some choices may be used more than once. a.3 years from date return is filed b.3 years from due date of return c.20% of underpayment d.5% per month (25% limit) e.0.5% per month (25% limit) f.Conducted at IRS office g.Conducted at taxpayer's office h.6 years i.45-day grace period allowed to IRS j.No statute of limitations (period remains open) k.75% of underpayment l.No correct match provided -Field audit

A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis.

If a "special agent" becomes involved in the audit of a return, this indicates that the IRS suspects that fraud is involved.

State income taxes generally can be characterized by:

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

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

If more IRS audits are producing a greater number of no change results, this indicates increased compliance on the part of taxpayers.

Under what conditions is it permissible, from an ethical standpoint, for a CPA firm to outsource tax return preparation to a third party?

The IRS is required to redetermine the interest rate on underpayments and overpayments once a year.

The ratification of the Sixteenth Amendment to the U.S. Constitution was necessary to validate the Federal income tax on corporations.

If an income tax return is not filed by a taxpayer, there is no statute of limitations on assessments of tax by the IRS.

An inheritance tax is a tax on a decedent's right to pass property at death.

Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same.

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

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 consistent with generally accepted accounting principles.

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

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