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

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Question 31

Multiple Choice

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Taxes levied by all states include:

A) Tobacco excise tax.
B) Individual income tax.
C) Inheritance tax.
D) General sales tax.
E) None of the above.

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

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Question 32

True/False

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The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the U.S.

A) True
B) False

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Question 33

Multiple Choice

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Social considerations can be used to justify:

A CPA firm in California sends many of its less complex tax returns to be prepared by a group of accountants in India.If certain procedures are followed,this outsourcing of tax return preparation is proper.

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?

When a state decouples from a Federal tax provision,it means that this provision will not apply for state income tax purposes.

In an office audit,the audit by the IRS takes place at the office of the IRS.

A major disadvantage of a flat tax type of income tax is its complexity.

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 inconsistent with generally accepted accounting principles.

The Federal income tax on individuals generates more revenue than the Federal income tax on corporations.

A calendar year taxpayer files his 2011 Federal income tax return on March 5,2012.The return reflects an overpayment of $6,000,and the taxpayer requests a refund of this amount.The refund is paid on May 18,2012.The refund need not include interest.

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

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

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:

Under a state inheritance tax,two heirs,a cousin and a son of the deceased,would be taxed at the same rate.

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

Noah dies in 2012 with an estate worth $12 million.Under his will,$6 million passes to his wife while $6 million goes to his church.What is Noah's Federal estate tax result?

Which,if any,of the following is a typical characteristic of an ad valorem tax on personalty?

Currently,the Federal income tax is more progressive than it ever has been in the past.

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