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

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Question 91

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Using the choices provided below, show the justification for each provision of the tax law listed. -A Federal deduction for state and local income taxes paid.

A) Economic considerations
B) Social considerations
C) Equity considerations

D) B) and C)
E) A) and B)

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Question 92

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On his 2014 income tax return, Andrew omitted income and overstated deductions to the extent that his income tax was understated by $500,000. Disregarding any interest element, what is Andrew's penalty if the understatement was due to: a. Negligence. b. Civil fraud. c. Criminal fraud.

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a. $100,000 (20% × $500,000).
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Question 93

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

Federal excise taxes that are no longer imposed include:

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

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

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.

In 2012, Deborah became 65 years old. In 2013 she added a swimming pool, and in 2014 she converted the residence to rental property and moved into an assisted living facility. Since 2011, Deborah's ad valorem property taxes have decreased once and increased twice. Explain.

To mitigate the effect of the annual accounting period concept, the tax law permits the carryforward to other years of the excess charitable contributions of a particular year.

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -RAR

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

States impose either a state income tax or a general sales tax, but not both types of taxes.

Virtually all state income tax returns contain checkoff boxes for donations to various causes. On what grounds has this procedure been criticized?

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

The formula for the Federal income tax on corporations is the same as that applicable to individuals.

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

Provisions in the tax law that promote energy conservation and more use of alternative (non-fossil) fuels can be justified by:

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

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: United Methodist Church $1,700,000 Planet Motors 1,600,000 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?

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