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

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Question 31

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In cases of doubt,courts have held that tax relief provisions should be broadly construed in favor of taxpayers.

A) True
B) False

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Question 32

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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.

A) True
B) False

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Question 33

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If fraud is involved,there is no time limit on the assessment of a deficiency by the IRS.

For omissions from gross income in excess of 25% of that reported,there is no statute of limitations on additional income tax assessments by the IRS.

As it is consistent with the wherewithal to pay concept,the tax law requires a seller to recognize gain in the year the installment sale took place.

The annual exclusion,currently $13,000,is available for both gift and estate tax purposes.

The civil fraud penalty can entail large fines and possible incarceration.

The IRS agent auditing the return will not issue an RAR if the taxpayer owes no additional taxes.

On his 2009 income tax return,Brad omitted income and overstated deductions to the extent that his income tax was understated by $200,000.Disregarding any interest element,what is Brad's penalty if the understatement was due to:

The ad valorem tax on personal use personality is more often avoided by taxpayers than the ad valorem tax on personality devoted to business use.

What are the pros and cons of the following state and local tax provisions?

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

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.

In 2010,José,a widower,sells land (fair market value of $100,000)to his daughter,Linda,for $50,000.José has made a taxable gift of $37,000.

Under a state inheritance tax,two heirs,a cousin and a son of the deceased,would not be taxed at the same rate.

The U.S.(either Federal,state,or local) does not impose:

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

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?

A characteristic of FUTA is that:

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