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

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Question 1

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

A) True
B) False

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Question 2

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Tracy has just been audited and the IRS agent has issued an RAR that assesses a large deficiency.Since Tracy disagrees with the result,her next step is to go to court.Do you agree?

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Tracy might save herself time and expens...

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Question 3

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

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

With regard to state income taxes,explain what is meant by the "jock tax"?

Your client,Connie,won $12,000 in a football office pool.She sees no reason to include it in her income for several reasons.First,the amount won will not be reported to the IRS.Second,as an average income employee,she is unlikely to be audited by the IRS.Third,she feels that she has probably lost this much in other past office pools.How do you respond?

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

Using the choices provided below, show the justification for each provision of the tax law listed. a.Economic considerations b.Social considerations c.Equity considerations -A bribe to the local sheriff,although business related,is not deductible.

Congress reacts to judicial decisions that interpret the tax law in different ways.When it approves of a decision,Congress may act to amend the Code to incorporate the holding.When it disapproves,Congress may amend the Code to nullify its effect.Give an example of each one of these congressional reactions.

The tax law provides various tax credits,deductions,and exclusions that are designed to encourage taxpayers to obtain additional education.These provisions can be justified on both economic and equity grounds.

On occasion,Congress has to enact legislation that clarifies the tax law in order to change a result reached by the U.S.Supreme Court.

A major advantage of a flat tax type of income tax is its simplicity.

Indicate which,if any,statement is incorrect.State income taxes:

Without obtaining an extension,Pam files her income tax return 55 days after the due date.With her return,she pays an additional tax of $60,000.Disregarding any interest element,what is Pam's penalty for failure to pay and to file?

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

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

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

Using the choices provided below, show the justification for each provision of the tax law listed. a.Economic considerations b.Social considerations c.Equity considerations -Tax brackets are increased for inflation.

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

Match the statements that relate to each other.Note: Some choices may be used more than once or not at all. a.Deferral of gains from involuntary conversions b.Carryback and carryforward of net operating losses c."No change" is one possible result d.State income tax applied to visiting nonresident e.IRS special agent f.Undoing the "piggyback" result g.Ideal budget goal as to new tax legislation h.Every state that has a general sales tax has one i.Imposed by all states and the Federal government j.Imposed by some states but not the Federal government k.Imposed only by the Federal government l.No correct match provided -Wherewithal to pay concept