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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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When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax purposes.

A) True
B) False

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Question 32

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Under what conditions is it permissible, from an ethical standpoint, for a CPA firm to outsource tax return preparation to a third party?

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First, the clients' confidenti...

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Question 33

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Using the choices provided below, show the justification for each provision of the tax law listed.Note: In some cases, more than one answer is appropriate. A deduction for qualified tuition paid to obtain a higher education.

The objective of pay-as-you-go (paygo) is to achieve revenue neutrality.

The ratification of the Sixteenth Amendment to the U.S.Constitution was necessary to validate the Federal income tax on corporations.

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

Melinda has been referred to you by one of your clients.In the past, she has prepared her own income tax returns, but she has become overwhelmed by the increased complexity of the tax law.Consequently, Melinda wants you to prepare her return for calendar year 2012.In reviewing her 2011 return, you note that she has claimed as a deduction the entire cost of a business building that should have been capitalized and depreciated.What course of action should you follow?

On transfers by death, the Federal government relies on an estate tax, while states impose an estate tax, an inheritance tax, both taxes, or neither tax.

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%.

As a matter of administrative convenience, the IRS would prefer to have Congress increase (rather than decrease) the amount of the standard deduction allowed to individual taxpayers.

Under a state inheritance tax, two heirs, a cousin and a son of the deceased, would be taxed at the same rate.

The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith's canon of certainty.

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

Tracy has just been audited and the IRS agent has issued an RAR that assesses a large deficiency.Since Tracy disagrees with the result, her next step is to go to court.Do you agree?

Currently, the Federal income tax is more progressive than it ever has been in the past.

In terms of revenue neutrality, comment on a tax cut enacted by Congress that:

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

Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.

As it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize gain in the years the proceeds from the installment sale are collected.

Social considerations can be used to justify: