ITA Chapter 1 Questions Analysis – Flashcards

Which, if any, of the following statements best describes the history of the Federal income tax? a. It did not exist during the Civil War. b. The Federal income tax on corporations was held by the U.S. Supreme Court to be allowable under the U.S. Constitution. c. The Federal income tax on individuals was held by the U.S. Supreme Court to be allowable under the U.S. Constitution. d. Both the Federal income tax on individuals and on corporations was held by the U.S. Supreme Court to be contrary to the U.S. Constitution. e. None of these.

Which, if any, of the following taxes are proportional (rather than progressive)? a. State general sales tax b. Federal corporate income tax c. Federal estate tax d. Federal gift tax e. All of these

Which, if any, is not one of Adam Smith's canons of taxation? a. Economy b. Certainty c. Convenience d. Simplicity e. Equality

86. Which, if any, of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate? a. A resident dies and leaves his farm to his church. b. A large property owner issues a conservation easement as to some of her land. c. A tax holiday issued 10 years ago has expired. d. A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons. e. None of these.

Which, if any, of the following transactions will decrease a taxing jurisdiction's ad valorem tax revenue imposed on real estate? a. A tax holiday is granted to an out-of-state business that is searching for a new factory site. b. An abandoned church is converted to a restaurant. c. A public school is razed and turned into a city park. d. A local university sells a dormitory that will be converted for use as an apartment building. e. None of these.

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.

. Federal excise taxes that are no longer imposed include: a. Tax on air travel. b. Tax on wagering. c. Tax on the manufacture of sporting equipment. d. Tax on alcohol. e. None of these.

Taxes not imposed by the Federal government include: a. Tobacco excise tax. b. Customs duties (tariffs on imports). c. Tax on rent cars. d. Gas guzzler tax. e. None of these.

Taxes levied by both states and the Federal government include: a. General sales tax. b. Custom duties. c. Hotel occupancy tax. d. Franchise tax. e. None of these.

Taxes levied by all states include: a. Tobacco excise tax. b. Individual income tax. c. Inheritance tax. d. General sales tax. e. None of these.

A use tax is imposed by: a. The Federal government and all states. b. The Federal government and a majority of the states. c. All states and not the Federal government. d. Most of the states and not the Federal government. e. None of these.

Burt and Lisa are married and live in a common law state. Burt wants to make gifts to their four children in 2015. What is the maximum amount of the annual exclusion they will be allowed for these gifts? a. $14,000. b. $28,000. c. $56,000. d. $112,000.

Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is: a. To take advantage of the higher unified transfer tax credit available under the gift tax. b. To avoid a future decline in value of the property transferred. c. To take advantage of the per donee annual exclusion. d. To shift income to higher bracket donees. e. None of these.

Indicate which, if any, statement is incorrect. State income taxes: a. Can piggyback to the Federal version. b. Cannot apply to visiting nonresidents. c. Can decouple from the Federal version. d. Can provide occasional amnesty programs. e. None of these.

State income taxes generally can be characterized by: a. The same date for filing as the Federal income tax. b. No provision for withholding procedures. c. Allowance of a deduction for Federal income taxes paid. d. Applying only to individuals and not applying to corporations. e. None of these.

A characteristic of FICA is that: 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 these.

A characteristic of FUTA is that: a. It is imposed on both employer and employee. b. It is imposed solely on the employee. c. Compliance requires following guidelines issued by both state and Federal regulatory authorities. d. It is applicable to spouses of employees but not to any children under age 18. e. None of these.

The U.S. (either Federal, state, or local) does not impose: a. Franchise taxes. b. Severance taxes. c. Occupational fees. d. Custom duties. e. Export duties.

The proposed flat tax: a. Would eliminate the income tax. b. Would simplify the income tax. c. Would tax the increment in value as goods move through the production and manufacturing stages to the marketplace. d. Is a tax on consumption. e. None of these.

A VAT (value added tax): 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 these.

In terms of probability, which of the following taxpayers would be least likely to be audited by the IRS? a. Taxpayer owns and operates a check-cashing service. b. Taxpayer is an employed electrician. c. Taxpayer just received a $3 million personal injury award as a result of a lawsuit. d. Taxpayer just won a $1 million slot machine jackpot at a Las Vegas casino. e. Taxpayer has been audited several times before.

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

A characteristic of the fraud penalties is: a. When negligence and civil fraud apply to a deficiency, the negligence penalty predominates. b. Criminal fraud can result in a fine and a prison sentence. c. The criminal fraud penalty is 75% of the deficiency attributable to the fraud. d. The IRS has the same burden of proof in the case of criminal fraud than with civil fraud. e. None of these.

Regarding proper ethical guidelines, which (if any) of the following is correct? a. The use of client estimates in preparing a return may be acceptable. b. Under no circumstances should a question on a tax return be left unanswered. c. If a client has made a mistake in a prior year's return and refuses to correct it, you should withdraw from the engagement. d. If the exact amount of a deduction is not certain (e.g., around mid-$600s), it should be recorded as an odd amount (i.e., $649) so as to increase the appearance of greater certainty. e. None of these.

Both economic and social considerations can be used to justify: a. Favorable tax treatment for accident and health plans provided for employees and financed by employers. b. Disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g., fines, penalties, illegal kickbacks, bribes to government officials). c. Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. d. Allowance of a deduction for state and local income taxes paid. e. None of these.

Social considerations can be used to justify: a. Allowance of a credit for child care expenses. b. Allowing excess capital losses to be carried over to other years. c. Allowing accelerated amortization for the cost of installing pollution control facilities. d. Allowing a Federal income tax deduction for state and local sales taxes. e. None of these.

Allowing a domestic production activities deduction for certain manufacturing income can be justified: a. As mitigating the effect of the annual accounting period concept. b. As promoting administrative feasibility. c. By economic considerations. d. Based on the wherewithal to pay concept. e. None of these.

Provisions in the tax law that promote energy conservation and more use of alternative (non-fossil) fuels can be justified by: a. Political considerations. b. Economic and social considerations. c. Promoting administrative feasibility. d. Encouragement of small business. e. None of these.

Which, if any, of the following provisions cannot be justified as mitigating the effect of the annual accounting period concept? a. Nonrecognition of gain allowed for involuntary conversions. b. Net operating loss carryback and carryover provisions. c. Carry over of excess charitable contributions. d. Use of the installment method to recognize gain. e. Carry over of excess capital losses.

Which, if any, of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS)? a. Penalties are imposed for failure to file a return or pay a tax on time. b. Prepaid income is taxed in the year received and not in the year earned. c. Annual adjustments for indexation increases the amount of the standard deduction allowed. d. Casualty losses must exceed 10% of AGI to be deductible. e. A deduction is allowed for charitable contributions.

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: a. A clear reflection of income result. b. The tax benefit rule. c. The arm's length concept. d. The wherewithal to pay concept. e. None of these.