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Exam 1: Introduction to Taxation

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Question 1

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In terms of revenue neutrality, comment on a tax cut enacted by Congress that: a.contains revenue offsets. b.includes a sunset provision.

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Question 2

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

A) Taxpayer compliance is greater for personal use property than for business use property.
B) The tax on automobiles sometimes considers the age of the vehicle.
C) Most states impose a tax on intangibles.
D) The tax on intangibles generates considerable revenue since it is difficult for taxpayers to avoid.
E) None of these.

F) C) and D)
G) A) and B)

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Question 3

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The FICA tax (Medicare component) on wages is progressive since the tax due increases as wages increase.

Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same.

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

Using the choices provided below, show the justification for each provision of the tax law listed. -A deduction for qualified tuition paid to obtain higher education.

Amber Company has $100,000 in net income in the current year before deducting any compensation or other payment to its sole owner, Alfredo. Assume that Alfredo is in the 33% marginal tax bracket. Discuss the tax aspects of each of the following independent situations. (Assume that any salaries are reasonable in amount and ignore any employment tax considerations.) a.Alfredo operates Amber Company as a proprietorship. b.Alfredo incorporates Amber Company and pays himself no salary and no dividend. c.​Alfredo incorporates Amber Company and pays himself a $50,000 salary and a dividend of $42,500 ($50,000 - $7,500 corporate income tax).

Rajib is the sole shareholder of Robin Corporation, a calendar year S corporation. Robin earned net profit of $350,000 ($520,000 gross income - $170,000 operating expenses) and distributed $80,000 to Rajib. Rajib must report Robin Corporation profit of $350,000 on his Federal income tax return.

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:

Taxes levied by both states and the Federal government include:

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.

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 occurs.

Rachel is the sole member of an LLC, and Jordan is the sole shareholder of a C corporation. Both businesses were started in the current year, and each business has a long-term capital gain of $10,000 for the year. Neither business made any distributions during the year. With respect to this information, which of the following statements is correct?

Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in 2016. Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year. The corporation distributed $45,000 to Juanita, and the partnership distributed $45,000 to Carlos. Which of the following statements relating to 2016 is incorrect?

Burt and Lisa are married and live in a common law state. Burt wants to make gifts to their four children in 2016. What is the maximum amount of the annual exclusion they will be allowed for these gifts?

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

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?

Sales made by mail order are not exempt from the application of a general sales (or use) tax.

Using the choices provided below, show the justification for each provision of the tax law listed. -A small business corporation can elect to avoid the corporate income tax.

Carol and Candace are equal partners in Peach Partnership. In the current year, Peach had a net profit of $75,000 ($250,000 gross income - $175,000 operating expenses) and distributed $25,000 to each partner. Peach must pay tax on $75,000 of income.