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

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Question 21

True/False

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The first income tax on individuals (after the ratification of the Sixteenth Amendment to the Constitution) levied tax rates from a low of 2% to a high of 6%.

A) True
B) False

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Question 22

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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) Penalties are imposed for failure to file a return or pay a tax on time.
B) Prepaid income is taxed in the year received and not in the year earned.
C) Annual adjustments for indexation increases the amount of the standard deduction allowed.
D) Casualty losses must exceed 10% of AGI to be deductible.
E) A deduction is allowed for charitable contributions.

F) A) and B)
G) B) and C)

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Question 23

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

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.

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

The Federal estate and gift taxes are examples of progressive taxes.

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 lack of compliance in the payment of use taxes can be resolved by several means.In this regard, comment on the following:

One of the motivations for making a gift is to save on income taxes.

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

If more IRS audits are producing a greater number of no change results, this indicates increased compliance on the part of taxpayers.

Both economic and social considerations can be used to justify:

For Federal income tax purposes, there never has been a general amnesty period.

The annual exclusion, currently $13,000, is available for gift but not estate tax purposes.

A characteristic of the fraud penalties is:

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

A Federal excise tax is still imposed on admission to theaters.

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

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

A safe and easy way for a taxpayer to avoid local and state sales taxes is to have the purchase sent to an address in another state that levies no such taxes.