Question
101.101

The U.S. (either Federal, state, or local) does not impose:

a.Franchise taxes.

b.Severance taxes.

c.Occupational fees.

d. Export duties.

e.Customs duties.

102.102

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 the above.

103.

THE F103

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 the above.

104.104

Characteristics of the “Fair Tax” (i.e., national sales tax) include which, if any, of the following:

a.Abolition of the Federal individual (but not the corporate) income tax.

b.Abolition of all Federal income taxes but retention of payroll taxes (including the self-employment tax).

c. Abolition of all Federal income taxes and payroll taxes but retention of the Federal estate and gift taxes.

d. Abolition of all Federal income and payroll taxes as well as the Federal estate and gift taxes.

e.None of the above.

105.105

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.

106.106

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 the above.

107.107

Scott files his tax return 65 days after the due date. Along with the return, Scott remits a check for $50,000 which is the balance of the tax owed. Disregarding the interest element, Scott’s total failure to file and to pay penalties are:

a.$750.

b.$6,000.

c. $7,500.

d.$8,250.

e.None of the above.

108.108

A characteristic of the fraud penalties is:

a.Civil fraud can result in a fine and a prison sentence.

b. When negligence and civil fraud apply to a deficiency, the civil fraud penalty predominates.

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 the above.

109.109

Regarding proper ethical guidelines, which (if any) of the following is correct?

a.The use of client estimates in preparing a return is not 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 notbe recorded as an odd amount (i.e., $649) so as to increase theappearance of greater certainty.

e.None of the above.

110.110

Both economic and social considerations can be used to justify:

a. Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education.

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.Favorable tax treatment for accident and health plans provided for employees and financed by employers.

d.Allowance of a deduction for state and local income taxes paid.

e.None of the above.

111.111

Social considerations can be used to justify:

a.Allowing a Federal income tax deduction for state and local sales taxes.

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. Allowance of a credit for child care expenses.

e.None of the above.

112.112

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 the above.

113.113

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 the above.

114. 114

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.

115.115

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.

116. 116

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 the above.