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

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Question 51

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Ava,an estate planner,is advising her wealthier clients to make any large gifts to family members before 2013.Why?

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Under existing law,the exemption equival...

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Question 52

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

A) A resident dies and leaves his farm to his church.
B) A large property owner issues a conservation easement as to some of her land.
C) A tax holiday issued 10 years ago has expired.
D) A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons.
E) None of the above.

F) B) and E)
G) A) and B)

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Question 53

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Can a taxpayer start the 3-year statute of limitations on additional assessments by the IRS by filing his income tax return early (i.e.,before the due date)? Can the period be shortened by filing late (i.e.,after the due date)?

Compare civil fraud with criminal fraud with regard to the following:

Stealth taxes have the effect of generating additional taxes from all taxpayers.

Upon audit by the IRS,Faith is assessed a deficiency of $40,000 of which $25,000 is attributable to negligence.The 20% negligence penalty will apply to $40,000.

Which,if any,of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS) ?

A characteristic of FUTA is that:

If a "special agent" becomes involved in the audit of a return,this indicates that the IRS suspects that fraud is involved.

Which,if any,is not one of Adam Smith's canons of taxation?

The states that impose a general sales tax also have a use tax.

In connection with facilitating the function of the IRS in the administration of the tax laws,comment on the utility of the following:

A landlord leases property upon which the tenant makes improvements.The improvements are significant and are not made in lieu of rent.At the end of the lease,the value of the improvements are not income to the landlord.This rule is an example of:

Mona inherits her mother's personal residence,which she converts to a furnished rent house.These changes should not affect the amount of ad valorem property taxes levied on the properties.

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

Timothy recently converted a warehouse into apartment lofts,which he is renting to single professionals.In making the conversion,he emphasized improvements that were portable in nature.Thus,the sprinkler system,heating and cooling units,and room dividers are all removable from the building.In terms of ad valorem property taxes,what was Timothy trying to accomplish?

Which,if any,of the following taxes are proportional (rather than progressive) ?

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

The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith's canon of certainty.

To lessen,or eliminate,the effect of multiple taxation,a taxpayer who is subject to both foreign and U.S.income taxes on the same income is allowed either a deduction or a credit for the foreign tax paid.