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

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Question 31

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

A) True
B) False

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Question 32

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

A) True
B) False

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Question 33

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

Which of the following is a characteristic of the audit process?

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

Taxes not imposed by the Federal government include:

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.

For state income tax purposes, a majority of states allow a deduction for Federal income taxes.

Briana lives in one state and works in the adjoining state. Both states tax the income she earns from her job. Does Briana have any relief from this apparent double taxation of the same income?

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?

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. -Tax credits for home improvements that conserve energy.

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

On occasion, Congress has to enact legislation that clarifies the tax law in order to change a result reached by the U.S. Supreme Court.

The Federal income tax is based on a pay-as-you-go system and has become a "mass tax." Explain this statement.

The Federal income tax on individuals generates more revenue than the Federal income tax on corporations.

Brayden files his Federal income tax return by April 15, but does not pay the tax. Although he expects to pay interest on the large amount of tax he still owes, he feels that the timely filing has avoided any penalties. Is Brayden's assumption correct?

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:

In 2015, Deborah became 65 years old. In 2016 she added a swimming pool, and in 2017 she converted the residence to rental property and moved into an assisted living facility. Since 2014, Deborah's ad valorem property taxes have decreased once and increased twice. Explain.

The tax law contains various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. On what grounds can these provisions be justified?

Rick, the sole proprietor of an adult entertainment club, is audited by the IRS. On the third day of the field audit, the regular IRS agent is accompanied by a special agent. Should Rick be concerned by this new development? Explain.