Question 1

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

Accepted Answer

A)   Most taxpayer audits involve "special" agents.
B)   Self-employed taxpayers are less likely to be selected for audit than employed taxpayers.
C)   Less important issues are handled by means of a correspondence audit.
D)   If a taxpayer disagrees with the IRS auditor's finding, the only resort is to the courts.
E)   None of the above.F) A) and B)
G) B) and C) C

Question 2

The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. These provisions can be justified on both economic and equity grounds.

Accepted Answer

A) True 
 B)False

Question 3

Match the statements that relate to each other. Note: Some choices may be used more than once.
-No return and statute limitations

Accepted Answer

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 officeG) Conducted at taxpayer's officeH) 6 yearsI) 45-day grace period allowed to IRSJ) No statute of limitations (period remains open) K) 75% of underpaymentL) No correct match providedM) D) and F)
N) A) and L)

Question 4

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all.
-Tax on transfers at death (inheritance type)

Accepted Answer

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 agentF) Undoing the "piggyback" resultG) Ideal budget goal as to new tax legislationH) Every state that has a general sales tax has oneI) Imposed by all states and the Federal governmentJ) Imposed by some states but not the Federal governmentK) Imposed only by the Federal governmentL) No correct match providedM) A) and B)
N) C) and F)

Question 5

A characteristic of FICA is that:

Accepted Answer

A)   It does not apply when one spouse works for the other spouse.
B)   It is imposed only on the employer.
C)   It provides a modest source of income in the event of loss of employment.
D)   It is administered by both state and Federal governments.
E)   None of the above.F) B) and E)
G) A) and B)

Question 6

An inheritance tax is a tax on a decedent's right to pass property at death.

Accepted Answer

A) True 
 B)False

Question 7

A VAT (value added tax) :

Accepted Answer

A)   Is regressive in its effect.
B)   Has not proved popular outside of the U.S.
C)   Is not a tax on consumption.
D)   Is used exclusively by third world (less developed)  countries.
E)   None of the above.F) B) and C)
G) A) and C)

Question 8

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

Accepted Answer

A) True 
 B)False  True

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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.

Accepted Answer

Yes, he should. Special agents rarely ap...

Question 11

Match the statements that relate to each other. Note: Some choices may be used more than once.
-Office audit

Accepted Answer

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 officeG) Conducted at taxpayer's officeH) 6 yearsI) 45-day grace period allowed to IRSJ) No statute of limitations (period remains open) K) 75% of underpaymentL) No correct match providedM) C) and E)
N) B) and I)

Question 12

If an income tax return is not filed by a taxpayer, there is no statute of limitations on assessments of tax by the IRS.

Accepted Answer

A) True 
 B)False

Question 13

Two months after the burglary of his personal residence, Eric is audited by the IRS. Among the items taken in the burglary was a shoe box containing approximately $50,000 in cash. Eric is the owner and operator of a cash-and- carry liquor store. Eric wonders why he was audited. Can you help explain?

Accepted Answer

Although Eric's audit by the IRS could b...

Question 14

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all.
-Revenue neutrality

Accepted Answer

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 agentF) Undoing the "piggyback" resultG) Ideal budget goal as to new tax legislationH) Every state that has a general sales tax has oneI) Imposed by all states and the Federal governmentJ) Imposed by some states but not the Federal governmentK) Imposed only by the Federal governmentL) No correct match providedM) A) and D)
N) B) and H)

Question 15

The value added tax (VAT) has not had wide acceptance in the international community.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False  True

Question 17

There is a Federal excise tax on hotel occupancy.

Accepted Answer

A) True 
 B)False

Question 18

Stealth taxes have the effect of generating additional taxes from all taxpayers.

Accepted Answer

A) True 
 B)False

Question 19

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?

Accepted Answer

Although Brayden has avoided t...

Question 20

Match the statements that relate to each other. Note: Some choices may be used more than once.
-Failure to pay penalty

Accepted Answer

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 officeG) Conducted at taxpayer's officeH) 6 yearsI) 45-day grace period allowed to IRSJ) No statute of limitations (period remains open) K) 75% of underpaymentL) No correct match providedM) H) and L)
N) D) and K)

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

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

Correct AnswerverifiedC

The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. These provisions can be justified on both economic and equity grounds.

Correct AnswerverifiedShow Answer

Match the statements that relate to each other. Note: Some choices may be used more than once. -No return and statute limitations

Correct AnswerverifiedShow Answer

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -Tax on transfers at death (inheritance type)

Correct AnswerverifiedShow Answer

A characteristic of FICA is that:

Correct AnswerverifiedShow Answer

An inheritance tax is a tax on a decedent's right to pass property at death.

Correct AnswerverifiedShow Answer

A VAT (value added tax) :

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedTrue

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedYes, he should. Special agents rarely ap...View AnswerShow Answer

Match the statements that relate to each other. Note: Some choices may be used more than once. -Office audit

Correct AnswerverifiedShow Answer

If an income tax return is not filed by a taxpayer, there is no statute of limitations on assessments of tax by the IRS.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedAlthough Eric's audit by the IRS could b...View AnswerShow Answer

Match the statements that relate to each other. Note: Some choices may be used more than once or not at all. -Revenue neutrality

Correct AnswerverifiedShow Answer

The value added tax (VAT) has not had wide acceptance in the international community.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedTrue

There is a Federal excise tax on hotel occupancy.

Correct AnswerverifiedShow Answer

Stealth taxes have the effect of generating additional taxes from all taxpayers.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedAlthough Brayden has avoided t...View AnswerShow Answer

Match the statements that relate to each other. Note: Some choices may be used more than once. -Failure to pay penalty

Correct AnswerverifiedShow Answer

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True

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Yes, he should. Special agents rarely ap...
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Although Eric's audit by the IRS could b...
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True

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Although Brayden has avoided t...
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