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

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Question 91

True/False

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A CPA firm in California sends many of its less complex tax returns to be prepared by a group of accountants in India.If certain procedures are followed,this outsourcing of tax return preparation is proper.

A) True
B) False

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Question 92

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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 -Wherewithal to pay concept

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Question 93

Multiple Choice

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A characteristic of the fraud penalties is:

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 $25,000.

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:

Match the statements that relate to each other.Note: Some choices may be used more than once. a.3 years from date return is filed b.3 years from due date of return c.20% of underpayment d.5% per month (25% limit) e.0.5% per month (25% limit) f.Conducted at IRS office g.Conducted at taxpayer's office h.6 years i.45-day grace period allowed to IRS j.No statute of limitations (period remains open) k.75% of underpayment l.No correct match provided -Fraud and statute of limitations

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 -Jock tax

A major advantage of a flat tax type of income tax is its simplicity.

Match the statements that relate to each other.Note: Some choices may be used more than once. a.3 years from date return is filed b.3 years from due date of return c.20% of underpayment d.5% per month (25% limit) e.0.5% per month (25% limit) f.Conducted at IRS office g.Conducted at taxpayer's office h.6 years i.45-day grace period allowed to IRS j.No statute of limitations (period remains open) k.75% of underpayment l.No correct match provided -Failure to pay penalty

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

The annual exclusion,currently $14,000,is available for gift and estate tax purposes.

The amount of a taxpayer's itemized deductions will increase the chance of being audited by the IRS.

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

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

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

In 2015,José,a widower,sells land (fair market value of $100,000) to his daughter,Linda,for $50,000.José has not made a taxable gift.

The tax law allows,under certain conditions,deferral of gain recognition for involuntary conversions. a.What is the justification for this relief measure? b.What happens if the proceeds are not entirely reinvested?

Taxes not imposed by the Federal government include:

Under state amnesty programs,all delinquent and unpaid income taxes are forgiven.

A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty.