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

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Question 1

True/False

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A major disadvantage of a flat tax type of income tax is its complexity.

A) True
B) False

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False

Question 2

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

A) True
B) False

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Question 3

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

With regard to state income taxes, explain what is meant by the "jock tax"?

The tax law contains various provisions that encourage home ownership.

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.

A state income tax can be imposed on nonresident taxpayers who earn income within the state or on an itinerant basis.

The annual exclusion, currently $13,000, is available for gift but not estate tax purposes.

Your client, Connie, won $12,000 in a football office pool. She sees no reason to include it in her income for several reasons. First, the amount won will not be reported to the IRS. Second, as an average income employee, she is unlikely to be audited by the IRS. Third, she feels that she has probably lost this much in other past office pools. How do you respond?

Taxes levied by both states and the Federal government include:

A parent employs his twin daughters, age 18, in his sole proprietorship.The daughters are not subject to FICA coverage.

When Congress enacts a tax cut that is phased in over a period of years, revenue neutrality is achieved.

Under Clint's will, all of his property passes to either the Lutheran Church or to his wife.No Federal estate tax will be due on Clint's death in 2012.

Which, if any, of the following is a typical characteristic of an ad valorem tax on personalty?

Due to the population change, the Goose Creek School District has decided to close one of its high schools.Since it has no further need of the property, the school is listed for sale.The two bids it receives are as follows: The United Methodist Church would use the property to establish a sectarian middle school.Planet, a well-known car dealership, would revamp the property and operate it as a branch location. If you were a member of the School District board, what factors would you consider in evaluating the two bids?

If property tax rates are not changed, the amount of ad valorem taxes imposed on realty will remain the same.

The Federal estate and gift taxes are examples of progressive taxes.

Which, if any, of the following provisions cannot be justified as mitigating the effect of the annual accounting period concept?

A Federal excise tax is still imposed on admission to theaters.

Compare civil fraud with criminal fraud with regard to the following: