Strayer UniversityACC 307 2014 37th Test Bank

1. The ratification of the Sixteenth Amendment to the U.S. Constitution
was necessary to validate the Federal income tax on corporations.
a. True
*b. False
2. Before the Sixteenth Amendment to the Constitution was ratified, the
re was no valid Federal income tax on individuals.
a. True
*b. False
3. The first income tax on individuals (after the ratification of the S
ixteenth Amendment to the Constitution) levied tax rates from a low of
2% to a high of 6%.
*a. True
b. False
4. The Federal income tax on individuals generates more revenue than th
e Federal income tax on corporations.
*a. True
b. False
5. The pay-as-you-go feature of the Federal income tax on individuals c
onforms to Adam Smith’s canon of certainty.
a. True
*b. False
6. Because the law is complicated, most individual taxpayers are not ab
le to complete their Federal income tax returns without outside assista
nce.
*a. True
b. False
7. The FICA tax (Medicare component) on wages is progressive since the
tax due increases as wages increase.
a. True
*b. False
8. The Federal estate and gift taxes are examples of progressive taxes.
*a. True
b. False
9. The Federal excise tax on cigarettes is an example of a proportional
tax.
*a. True
b. False
10. Currently, the Federal income tax is less progressive than it ever
has been in the past.
a. True
*b. False
11. Mona inherits her mother’s personal residence, which she converts t
o a furnished rent house. These changes should affect the amount of ad
valorem property taxes levied on the properties.
*a. True
b. False
12. A fixture will be subject to the ad valorem tax on personalty rathe
r than the ad valorem tax on realty.
a. True
*b. False
13. Even if property tax rates are not changed, the amount of ad valore
m taxes imposed on realty may not remain the same.
*a. True
b. False
14. 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
15. A Federal excise tax is no longer imposed on admission to theaters.
*a. True
b. False
16. There is a Federal excise tax on hotel occupancy.
a. True
*b. False
17. The Federal gas-guzzler tax applies only to automobiles manufacture
d overseas and imported into the U.S.
a. True
*b. False
18. Like the Federal counterpart, the amount of the state excise taxes
on gasoline varies from state to state.
a. True
*b. False
19. Not all of the states that impose a general sales tax also have a u
se tax.
a. True
*b. False
20. Sales made by mail order are not exempt from the application of a g
eneral sales (or use) tax.
*a. True
b. False
21. Two persons who live in the same state but in different counties ma
y not be subject to the same general sales tax rate.
*a. True
b. False
22. States impose either a state income tax or a general sales tax, but
not both types of taxes.
a. True
*b. False
23. A safe and easy way for a taxpayer to avoid local and state sales t
axes is to make the purchase in a state that levies no such taxes.
a. True
*b. False
24. On transfers by death, the Federal government relies on an estate t
ax, while states impose an estate tax, an inheritance tax, both taxes,
or neither tax.
*a. True
b. False
25. An inheritance tax is a tax on a decedent’s right to pass property
at death.
a. True
*b. False
26. One of the major reasons for the enactment of the Federal estate ta
x was to prevent large amounts of wealth from being accumulated within
the family unit.
*a. True
b. False
27. Under Clint’s will, all of his property passes to either the Luther
an Church or to his wife. No Federal estate tax will be due on Clint’s
death in 2013.
*a. True
b. False
28. Under the usual state inheritance tax, two heirs, a cousin and a so
n of the deceased, would not be taxed at the same rate.
*a. True
b. False
29. The annual exclusion, currently $14,000, is available for gift and
estate tax purposes.
a. True
*b. False
30. In 2012, José, a widower, sells land (fair market value of $100,00
0) to his daughter, Linda, for $50,000. José has made a taxable gift of
$50,000.
a. True
*b. False
31. Julius, a married taxpayer, makes gifts to each of his six children.
A maximum of twelve annual exclusions could be allowed as to these gif
ts.
*a. True
b. False
32. One of the motivations for making a gift is to save on income taxes.
*a. True
b. False
33. The formula for the Federal income tax on corporations is the same
as that applicable to individuals.
a. True
*b. False
34. A state income tax can be imposed on nonresident taxpayers who earn
income within the state or on an itinerant basis.
*a. True
b. False
35. For state income tax purposes, a majority of states allow a deducti
on for Federal income taxes.
a. True
*b. False
36. Some states use their state income tax return as a means of collect
ing unpaid sales and use taxes.
*a. True
b. False
37. No state has offered an income tax amnesty program more than once.
a. True
*b. False
38. For Federal income tax purposes, there never has been a general amn
esty period.
*a. True
b. False
39. Under state amnesty programs, all delinquent and unpaid income taxe
s are forgiven.
a. True
*b. False
40. 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
41. The principal objective of the FUTA tax is to provide some measure
of retirement security.
a. True
*b. False
42. Currently, the tax base for the Social Security component of the FI
CA is not limited to a dollar amount.
a. True
*b. False
43. A parent employs his twin daughters, age 17, in his sole proprietor
ship. The daughters are not subject to FICA coverage.
*a. True
b. False
44. Unlike FICA, FUTA requires that employers comply with state as well
as Federal rules.
*a. True
b. False
45. A major advantage of a flat tax type of income tax is its simplicit
y.
*a. True
b. False
46. The value added tax (VAT) has not had wide acceptance in the intern
ational community.
a. True
*b. False
47. If more IRS audits are producing a greater number of no change resu
lts, this indicates increased compliance on the part of taxpayers.
a. True
*b. False
48. The amount of a taxpayer’s itemized deductions will increase the ch
ance of being audited by the IRS.
*a. True
b. False
49. In an office audit, the audit by the IRS takes place at the office
of the taxpayer.
a. True
*b. False
50. The IRS agent auditing the return will issue an RAR even if the tax
payer owes no additional taxes.
*a. True
b. False
51. If a “special agent” becomes involved in the audit of a return, thi
s indicates that the IRS suspects that fraud is involved.
*a. True
b. False
52. If a taxpayer files early (i.e., before the due date of the return),
the statute of limitations on assessments begins on the date the retur
n is filed.
a. True
*b. False
53. For omissions from gross income in excess of 25% of that reported,
there is no statute of limitations on additional income tax assessments
by the IRS.
a. True
*b. False
54. If an income tax return is not filed by a taxpayer, there is no sta
tute of limitations on assessments of tax by the IRS.
*a. True
b. False
55. If fraud is involved, there is no time limit on the assessment of a
deficiency by the IRS.
*a. True
b. False
56. The IRS is required to redetermine the interest rate on underpaymen
ts and overpayments once a year.
a. True
*b. False
57. A calendar year taxpayer files his 2012 Federal income tax return o
n March 5, 2013. The return reflects an overpayment of $6,000, and the
taxpayer requests a refund of this amount. The refund is paid on May 17,
2013. The refund need not include interest.
*a. True
b. False
58. For individual taxpayers, the interest rate for income tax refunds
(overpayments) is the same as that applicable to assessments (underpaym
ents).
*a. True
b. False
59. During any month in which both the failure to file penalty and the
failure to pay penalty apply, the failure to file penalty is increased
by the amount of the failure to pay penalty.
a. True
*b. False
60. When interest is charged on a deficiency, any part of a month count
s as a full month.
a. True
*b. False
61. For the negligence penalty to apply, the underpayment must be cause
d by intentional disregard of rules and regulations without intent to d
efraud.
*a. True
b. False
62. Upon audit by the IRS, Faith is assessed a deficiency of $40,000 of
which $25,000 is attributable to negligence. The 20% negligence penalty
will apply to $25,000.
*a. True
b. False
63. If the tax deficiency is attributable to fraud, the negligence pena
lty will not be imposed.
*a. True
b. False
64. The civil fraud penalty can entail large fines and possible incarce
ration.
a. True
*b. False
65. Even though a client refuses to correct an error on a past return,
it may be possible for a practitioner to continue to prepare returns fo
r the client.
*a. True
b. False
66. In preparing an income tax return, the use of a client’s estimates
is not permitted.
a. True
*b. False
67. In preparing a tax return, all questions on the return must be answ
ered.
a. True
*b. False
68. A CPA firm in California sends many of its less complex tax returns
to be prepared by a group of accountants in India. If certain procedure
s are followed, this outsourcing of tax return preparation is proper.
*a. True
b. False
69. The objective of pay-as-you-go (paygo) is to achieve revenue neutra
lity.
*a. True
b. False
70. When Congress enacts a tax cut that is phased in over a period of y
ears, revenue neutrality is achieved.
a. True
*b. False
71. A tax cut enacted by Congress that contains a sunset provision will
make the tax cut temporary.
*a. True
b. False
72. The tax law provides various tax credits, deductions, and exclusion
s that are designed to encourage taxpayers to obtain additional educati
on. These provisions can be justified on both economic and equity groun
ds.
a. True
*b. False
73. Various tax provisions encourage the creation of certain types of r
etirement plans. Such provisions can be justified on both economic and
social grounds.
*a. True
b. False
74. To lessen, or eliminate, the effect of multiple taxation, a taxpaye
r who is subject to both foreign and U.S. income taxes on the same inco
me is allowed either a deduction or a credit for the foreign tax paid.
*a. True
b. False
75. To mitigate the effect of the annual accounting period concept, the
tax law permits the carryforward to other years of the excess charitabl
e contributions of a particular year.
*a. True
b. False
76. Jason’s business warehouse is destroyed by fire. As the insurance p
roceeds exceed the basis of the property, a gain results. If Jason shor
tly reinvests the proceeds in a new warehouse, no gain is recognized du
e to the application of the wherewithal to pay concept.
*a. True
b. False
77. As it is consistent with the wherewithal to pay concept, the tax la
w requires a seller to recognize gain in the year the installment sale
occurs.
a. True
*b. False
78. Stealth taxes have the effect of generating additional taxes from a
ll taxpayers.
a. True
*b. False
79. A provision in the law that compels accrual basis taxpayers to pay
a tax on prepaid income in the year received and not when earned is con
sistent with generally accepted accounting principles.
a. True
*b. False
80. As a matter of administrative convenience, the IRS would prefer to
have Congress decrease (rather than increase) the amount of the standar
d deduction allowed to individual taxpayers.
a. True
*b. False
81. In cases of doubt, courts have held that tax relief provisions shou
ld be broadly construed in favor of taxpayers.
a. True
*b. False
82. On occasion, Congress has to enact legislation that clarifies the t
ax law in order to change a result reached by the U.S. Supreme Court.
*a. True
b. False
83. Which, if any, of the following statements best describes the histo
ry 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. S
upreme Court to be allowable under the U.S. Constitution.
c. The Federal income tax on individuals was held by the U.S. Sup
reme 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. Con
stitution.
e. None of the above.
84. Which, if any, is not one of Adam Smith’s canons of taxation?
a. Economy.
b. Certainty.
c. Convenience.
*d. Simplicity.
e. Equality.
85. 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 the above.
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 so
me 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 use
d to provide housing for homeless persons.
e. None of the above.
87. Which, if any, of the following transactions will decrease a taxing juri
sdiction’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 fo
r use as an apartment building.
e. None of the above.
88. Which, if any, of the following is a typical characteristic of an a
d 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 veh
icle.
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 the above.
89. 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 the above.
90. 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 the above.
91. 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 the above.
92. Taxes levied by all states include:
*a. Tobacco excise tax.
b. Individual income tax.
c. Inheritance tax.
d. General sales tax.
e. None of the above.
93. 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 the above.
94. Burt and Lisa are married and live in a common law state. Burt want
s to make gifts to their four children in 2013. What is the maximum amo
unt of the annual exclusion they will be allowed for these gifts?
a. $14,000.
b. $28,000.
c. $56,000.
*d. $112,000.
e. None of the above.
95. Property can be transferred within the family group by gift or at d
eath. One motivation for preferring the gift approach is:
a. To take advantage of the higher unified transfer tax credit av
ailable 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 the above.
96. 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 the above.
97. 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 the above.
98. 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 the above.
99. 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 childr
en under age 18.
e. None of the above.
100. 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.