Bus-A 328 – Introduction To Taxation | Complete Exam Questions With Verified Answers - Updated Edition

BUS-A 328 – INTRODUCTION TO TAXATION | COMPLETE EXAM
QUESTIONS WITH VERIFIED ANSWERS - UPDATED EDITION




BUS-A 328: INTRODUCTION TO TAXATION




1. Q: What is a tax?
CORRECT ANSWER A payment imposed by a governmental authority to raise
revenue, not a payment for a specific good or service.


2. Q: What are Adam Smith’s four canons of taxation?
CORRECT ANSWER Equity, Certainty, Convenience, and Economy.


3. Q: What is a progressive tax rate structure?
CORRECT ANSWER The tax rate increases as the tax base increases (e.g.,
Federal income tax).


4. Q: What is a proportional (flat) tax rate structure?
CORRECT ANSWER The tax rate remains constant regardless of the tax base
(e.g., sales tax, flat corporate tax rate of 21%).


5. Q: What is a regressive tax rate structure?
CORRECT ANSWER The tax rate decreases as the tax base increases (e.g., FICA
payroll tax due to the Social Security wage base cap, or sales tax when viewed
as a % of total income).

,6. Q: What is the Federal tax formula for individuals?
CORRECT ANSWER Gross Income - Deductions for AGI = AGI -
Standard/Itemized Deductions = Taxable Income × Tax Rate = Gross Tax -
Credits - Prepayments = Tax Due (or Refund).


7. Q: What is the general statute of limitations for the IRS to assess additional
tax?
CORRECT ANSWER 3 years from the later of the date the return was filed or
the due date of the return.


8. Q: When does the 6-year statute of limitations apply?
CORRECT ANSWER If the taxpayer omits gross income exceeding 25% of the
gross income reported on the return.


9. Q: When is the statute of limitations unlimited?
CORRECT ANSWER If a fraudulent return is filed, or if no return is filed at all.


10. Q: What is the statute of limitations for a taxpayer to file a claim for a
refund?
CORRECT ANSWER 3 years from the date the return was filed or 2 years from
the date the tax was paid, whichever is later.


11. Q: What are the three sources of federal tax law?
CORRECT ANSWER Statutory (Internal Revenue Code), Administrative
(Treasury Regulations, Revenue Rulings, Revenue Procedures), and Judicial
(Court decisions).


12. Q: Which tax authority carries the most weight?

,CORRECT ANSWER The Internal Revenue Code (Statutory authority enacted by
Congress).


13. Q: What are Treasury Regulations?
CORRECT ANSWER The official interpretation and application of the Code by
the Treasury Department. They carry the force and effect of law.


14. Q: What is a Revenue Ruling?
CORRECT ANSWER An official interpretation by the IRS of how the Code
applies to a specific set of facts. It has less authority than a Regulation.


15. Q: What is a Revenue Procedure?
CORRECT ANSWER A published IRS statement of the steps to be followed in
processing a type of tax return or transaction (e.g., how to request a change in
accounting method).


16. Q: Can a taxpayer rely on a Revenue Ruling to avoid penalties?
CORRECT ANSWER Yes, if the taxpayer's facts are identical to those in the
ruling.


17. Q: What are the four trial courts where a tax case can be initiated?
CORRECT ANSWER US Tax Court, US District Court, US Court of Federal Claims,
and (for small cases) the Small Tax Case Division of the Tax Court.


18. Q: What is the advantage of the US Tax Court?
CORRECT ANSWER The taxpayer does not have to pay the disputed tax before
filing a petition (it is a "pre-payment" forum).


19. Q: What is the "Golsen rule"?

, CORRECT ANSWER The Tax Court will generally follow the decisions of the
Court of Appeals to which the Tax Court decision is appealable, even if it
conflicts with the Tax Court's prior decisions.


20. Q: What is the "substantial authority" standard?
CORRECT ANSWER A standard for avoiding the accuracy-related penalty; it
requires a 40% likelihood that the taxpayer's position will be upheld on the
merits.


Module 2: Gross Income & Exclusions
21. Q: What is the broad definition of Gross Income per IRC §61?
CORRECT ANSWER All income from whatever source derived, unless
specifically excluded by law.


22. Q: What is the "cash method" of accounting for individuals?
CORRECT ANSWER Income is recognized when actually or constructively
received in cash or cash equivalents. Deductions are taken when paid.


23. Q: What is the "constructive receipt" doctrine?
CORRECT ANSWER Income is taxed when it is made unconditionally available
to the taxpayer, even if the taxpayer chooses not to take possession of it.


24. Q: What is the "claim of right" doctrine?
CORRECT ANSWER If a taxpayer receives income under a claim of right
(without a restriction on its use), it is included in gross income, even if it might
have to be repaid later.


25. Q: What is the "return of capital" principle?