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

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Question 1

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A calendar year taxpayer files his 2010 Federal income tax return on March 3,2011.The return reflects an overpayment of $6,000,and the taxpayer requests a refund of this amount.The refund is paid on May 18,2011.The refund must include interest.

A) True
B) False

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Question 2

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

A) True
B) False

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Paige is the sole shareholder of Citron Corporation.During the year,Paige leases a building to Citron for a monthly rental of $80,000.If the fair rental value of the building is $60,000,what are the income tax consequences to the parties involved?

Compare civil fraud with criminal fraud with regard to the following:

Unlike FICA,FUTA requires that employers comply with state as well as Federal rules.

In early July 2011,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?

Sales made by mail order are not exempt from the application of a general sales (or use)tax.

A safe and easy way for a taxpayer to avoid local and state sales taxes is to have the purchase sent to an address in another state that levies no such taxes.

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

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.

A VAT (value added tax) :

Due to the population change,the Goose Creek School District has decided to close one of its high schools.Since it has no further need of the property,the school is listed for sale.The two bids it receives are as follows: The United Methodist Church would use the property to establish a sectarian middle school.Planet,a well-known car dealership,would revamp the property and operate it as a branch location. If you were a member of the School District board,what factors would you consider in evaluating the two bids?

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

The value added tax (VAT)has had wide acceptance in the international community.

Timothy recently converted a warehouse into apartment lofts,which he is renting to single professionals.In making the conversion,he emphasized improvements that were portable in nature.Thus,the sprinkler system,heating and cooling units,and room dividers are all removable from the building.In terms of ad valorem property taxes,what was Timothy trying to accomplish?

When interest is charged on a deficiency,any part of a month counts as a full month.

In preparing an income tax return,the use of a client's estimates is permitted.

Julius,a married taxpayer,makes gifts to each of his six children.A maximum of six annual exclusions could be allowed as to these gifts.

In terms of probability,which of the following taxpayers would be least likely to be audited by the IRS?

A use tax is imposed by: