TAX 4001 CHAPTERS 1-5 EXAM QUESTIONS &
ANSWERS
payment required by a government that is unrelated to any specific benefit or service
received from the government - Answer -tax
the tax rate that applies to the next additional increment of a taxpayer's taxable income
(highest tax rate) - Answer -marginal tax rate
the taxpayer's average level of taxation on each dollar of taxable income - Answer -
average tax rate
the taxpayer's average rate of taxation on each dollar of total income (both taxable and
nontaxable) - Answer -effective tax rate
imposes a constant tax rate throughout the tax base (e.g. corporation, sales, real
estate) - Answer -proportional tax rate (flat tax)
imposes an increasing marginal tax rate as the tax base increases (e.g. individual
income tax rate) - Answer -progressive tax rate
imposes a decreasing marginal tax rate as the tax base increases - Answer -regressive
tax rate
What type of tax is implemented when buying a product out of the state you live in and
have it shipped to you? - Answer -use tax
Indirect taxes that result from a tax advantage the government grants to certain
transactions - Answer -implicit taxes
What is the tax return due date for individuals? C corporations? Partnerships and S
corporations? - Answer -April 15 ; April 15 ; March 15
What are the statute of limitations for a tax return? - Answer -3 years after the later of
the actual filing date and the original due date or 6 years if income underreported by
more than 25%
What are 3 types of audits? - Answer -- correspondence exams (by mail)
- office exams (in the local IRS office)
- field exams (in taxpayer's place of business)
What are primary authorities for tax law sources? Secondary authoities? - Answer -
statutory sources, judicial sources, and administrative sources ; tax services and tax
articles
, The ______________________ provides Congress the ability to tax income directly,
from whatever source derived, without apportionment across the states - Answer -16th
Amendment
Where can you appeal a tax return? - Answer -in the appellate court in your district
What is the tax legislation process? - Answer -1. propose tax bill
2. approved by House of Reps
3. approved by US Senate
4. revised act
5. senate approved revised act
6. joint conference act - House of Reps
7. joint conference act - US Senate
8. joint conference act - US President
9. President signs the act or vetoes the act
Less authoritative weight, but they provide a much more detailed interpretation of the
Code - Answer -revenue rulings
Explain in great detail IRS practice and procedures in administering tax law - Answer -
revenue procedures
Less authoritative but more specific than revenue rulings and regulations (e.g., applied
to a specific taxpayer) - Answer -letter rulings
events have not occurred, which allows for planning and structuring of a transaction -
Answer -open facts
a completed transaction. Opinion based on the transaction; no planning - Answer -
closed facts
A taxpayer and tax practitioner will not be subject to an underpayment penalty if: -
Answer -There is substantial authority that supports the tax return position or there is a
reasonable basis for the position, and it is disclosed on the taxpayer's tax return
What are the three main tax planning strategies? - Answer -timing, income shifting, and
conversion
The time that income is taxed or an expense is deducted affects the
__________________ of the taxes paid on income or the tax savings on deductions. -
Answer -present value
What are the two basic tax related timing strategies? - Answer -accelerating deductions
and deferring income
ANSWERS
payment required by a government that is unrelated to any specific benefit or service
received from the government - Answer -tax
the tax rate that applies to the next additional increment of a taxpayer's taxable income
(highest tax rate) - Answer -marginal tax rate
the taxpayer's average level of taxation on each dollar of taxable income - Answer -
average tax rate
the taxpayer's average rate of taxation on each dollar of total income (both taxable and
nontaxable) - Answer -effective tax rate
imposes a constant tax rate throughout the tax base (e.g. corporation, sales, real
estate) - Answer -proportional tax rate (flat tax)
imposes an increasing marginal tax rate as the tax base increases (e.g. individual
income tax rate) - Answer -progressive tax rate
imposes a decreasing marginal tax rate as the tax base increases - Answer -regressive
tax rate
What type of tax is implemented when buying a product out of the state you live in and
have it shipped to you? - Answer -use tax
Indirect taxes that result from a tax advantage the government grants to certain
transactions - Answer -implicit taxes
What is the tax return due date for individuals? C corporations? Partnerships and S
corporations? - Answer -April 15 ; April 15 ; March 15
What are the statute of limitations for a tax return? - Answer -3 years after the later of
the actual filing date and the original due date or 6 years if income underreported by
more than 25%
What are 3 types of audits? - Answer -- correspondence exams (by mail)
- office exams (in the local IRS office)
- field exams (in taxpayer's place of business)
What are primary authorities for tax law sources? Secondary authoities? - Answer -
statutory sources, judicial sources, and administrative sources ; tax services and tax
articles
, The ______________________ provides Congress the ability to tax income directly,
from whatever source derived, without apportionment across the states - Answer -16th
Amendment
Where can you appeal a tax return? - Answer -in the appellate court in your district
What is the tax legislation process? - Answer -1. propose tax bill
2. approved by House of Reps
3. approved by US Senate
4. revised act
5. senate approved revised act
6. joint conference act - House of Reps
7. joint conference act - US Senate
8. joint conference act - US President
9. President signs the act or vetoes the act
Less authoritative weight, but they provide a much more detailed interpretation of the
Code - Answer -revenue rulings
Explain in great detail IRS practice and procedures in administering tax law - Answer -
revenue procedures
Less authoritative but more specific than revenue rulings and regulations (e.g., applied
to a specific taxpayer) - Answer -letter rulings
events have not occurred, which allows for planning and structuring of a transaction -
Answer -open facts
a completed transaction. Opinion based on the transaction; no planning - Answer -
closed facts
A taxpayer and tax practitioner will not be subject to an underpayment penalty if: -
Answer -There is substantial authority that supports the tax return position or there is a
reasonable basis for the position, and it is disclosed on the taxpayer's tax return
What are the three main tax planning strategies? - Answer -timing, income shifting, and
conversion
The time that income is taxed or an expense is deducted affects the
__________________ of the taxes paid on income or the tax savings on deductions. -
Answer -present value
What are the two basic tax related timing strategies? - Answer -accelerating deductions
and deferring income
