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Exam 1: Introduction to Taxation

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Question 21

True/False

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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

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Question 22

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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.

F) A) and D)
G) C) and E)

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Question 23

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Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same rate.

The Federal excise tax on cigarettes is an example of a proportional tax.

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:

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

The principal objective of the FUTA tax is to provide some measure of retirement security.

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

A parent employs his twin daughters, age 17, in his sole proprietorship.The daughters are not subject to FICA coverage.

The formula for the Federal income tax on corporations is the same as that applicable to individuals.

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.

Bjorn owns a 60% interest in an S corporation that earned $150,000 in the current year.He also owns 60% of the stock in a C corporation that earned $150,000 during the year.The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn.How much income must Bjorn report from these businesses?

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.

On occasion, Congress has to enact legislation that clarifies the tax law in order to change a result reached by the U.S.Supreme Court.

Eagle Company, a partnership, had a short-term capital loss of $10,000 during the current year.Aaron, who owns 25% of Eagle, will report $2,500 of Eagle's short-term capital loss on his individual tax return.

Not all of the states that impose a general sales tax also have a use tax.

One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from being accumulated within the family unit.

Taxes levied by both states and the Federal government include:

In 1986, Roy leased real estate to Drab Corporation for 20 years.Drab Corporation made significant capital improvements to the property.In 2006, Drab decides not to renew the lease and vacates the property.At that time, the value of the improvements is $800,000.Roy sells the real estate in 2017 for $1,200,000 of which $900,000 is attributable to the improvements.When is Roy taxed on the improvements made by Drab Corporation?

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