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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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What are the pros and cons of the following state and local tax provisions? a.An ad valorem property tax holiday made available to a manufacturing plant that is relocating. b.Hotel occupancy tax and a rental car surcharge. c.A back-to-school sales tax holiday.

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Question 52

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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 deduction for certain expenses (interest and taxes) incident to home ownership.

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Question 53

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Even if property tax rates are not changed,the amount of ad valorem taxes imposed on realty may not remain the same.

The tax law contains various provisions that encourage home ownership. a.On what basis can this objective be justified? b.Are there any negative considerations? Explain.

In 1986,Roy leased real estate to Drab Corporation for 20 years.Drab Corporation made significant capital improvements to the property.In 2006,Drab decides not to renew the lease and vacates the property.At that time,the value of the improvements is $800,000.Roy sells the real estate in 2017 for $1,200,000 of which $900,000 is attributable to the improvements.When is Roy taxed on the improvements made by Drab Corporation?

A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles.

Even though a client refuses to correct an error on a past return,it may be possible for a practitioner to continue to prepare returns for the client.

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

Taxes levied by all states include:

In terms of revenue neutrality,comment on a tax cut enacted by Congress that: a.contains revenue offsets. b.includes a sunset provision.

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 -Decoupling

Julius,a married taxpayer,makes gifts to each of his six children.A maximum of twelve annual exclusions could be allowed as to these gifts.

In preparing a tax return,all questions on the return must be answered.

A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.

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. -More rapid expensing for tax purposes of the costs of installing pollution control devices.

No state has offered an income tax amnesty program more than once.

Allowing a domestic production activities deduction for certain manufacturing income can be justified:

Property can be transferred within the family group by gift or at death.One motivation for preferring the gift approach is:

The proposed flat tax:

If the tax deficiency is attributable to fraud,the negligence penalty will not be imposed.