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

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Question 51

Multiple Choice

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Tax functions that accounting and finance professionals may assist clients with include all but the following:

A) Tax compliance.
B) Tax planning.
C) Cash management to ensure timely payment of taxes.
D) Tax evasion.

E) All of the above
F) C) and D)

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Question 52

Multiple Choice

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A characteristic of FICA is that:

A) It does not apply when one spouse works for the other spouse.
B) It is imposed only on the employer.
C) It provides a modest source of income in the event of loss of employment.
D) It is administered by both state and Federal governments.
E) None of these.

F) B) and C)
G) D) and E)

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Question 53

Multiple Choice

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Jane is the tax director for Tangent Software Corporation. She is unsure whether Tangent is required to charge sales tax when software is provided to customers in State X via the "cloud." This indicates that the sales tax does not meet the principle of:

In preparing an income tax return, the use of a client's estimates is not permitted.

Jason's business warehouse is destroyed by fire. As the insurance proceeds exceed the basis of the property, a gain results. If Jason shortly reinvests the proceeds in a new warehouse, no gain is recognized due to the application of the wherewithal to pay concept.

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

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.

Match the statements that relate to each other. Note: Some choices may be used more than once. -Negligence penalty

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

Match the statements that relate to each other. Note: Some choices may be used more than once. -Failure to file penalty

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.

Morgan inherits her father's personal residence including all of the furnishings. She plans to add a swimming pool and sauna to the property and rent it as a furnished house. What are some of the ad valorem property tax issues Morgan can anticipate?

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.

If a taxpayer files early (i.e., before the due date of the return), the statute of limitations on assessments begins on the date the return is filed.

What is a severance tax? How productive can it be in terms of generating revenue?

On his 2018 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.

Using the choices provided below, show the justification for each provision of the tax law listed. -A deduction for contributions by an employee to certain retirement plans.

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

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?

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