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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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Two months after the burglary of his personal residence,Eric is audited by the IRS.Among the items taken in the burglary was a shoe box containing approximately $50,000 in cash.Eric is the owner and operator of a cash-and-carry liquor store.Eric wonders why he was audited.Can you help explain?

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Although Eric's audit by the IRS could b...

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Question 2

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

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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 -Tax fraud suspected

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 -Office audit

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

Which,if any,of the following statements best describes the history of the Federal income tax?

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 -Negligence penalty

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.

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

Social considerations can be used to justify:

A calendar year taxpayer files his 2016 Federal income tax return on March 4,2017.The return reflects an overpayment of $6,000,and the taxpayer requests a refund of this amount.The refund is paid on May 16,2017.The refund need not include interest.

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

A characteristic of FICA is that:

Under Clint's will,all of his property passes to either the Lutheran Church or to his wife.No Federal estate tax will be due on Clint's death in 2017.

The U.S.(either Federal,state,or local) does not impose:

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 d.​Both a. and b. -A bribe to the local sheriff,although business related,is not deductible.

The tax law allows an income tax deduction (or a credit) for foreign income taxes.Explain why.

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 -Criminal fraud penalty

Taylor,a widow,makes cash gifts to her five married children (including their spouses) and to her seven grandchildren.What is the maximum amount Taylor can give for calendar year 2017 without using her unified transfer tax credit?

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