Tax Exam Chapters 1-7 & 9 Questions and Answers
Individual income taxes comprise what percentage of Federal Budget Receipts in 2013?
- Answer47%
/.Corporation income taxes comprise what percentage of Federal Budget Receipts in
2013? - Answer12%
/.Social insurance taxes and contributions comprise what percentage of Federal Budget
Receipts in 2013? - Answer33%
/.Excise taxes comprise what percentage of Federal Budget Receipts in 2013? -
Answer3%
/.Other categories comprise what percentage of Federal Budget Receipts in 2013? -
Answer5%
/.When was the New Federal individual income tax enacted? - Answer1894
/.When was the First Federal corporate income tax enacted? - Answer1909
/.When was the 16th Amendment ratified? And what did it change? - Answer1913-
Ratification sanctioned both Federal individual and corporate income taxes
/.Name the 4 Canons of Taxation identified by Adam Smith - AnswerEquality,
Convenience, Certainty, and Economy
/.The AICPA suggests that the tax system should consist of 6 criterions. What are they?
- AnswerSimple, neutral in terms of its effect on business, clear and readily
understandable, structured to minimize noncompliance, should enable the IRS to
predict the amount and timing of revenue, and should not reduce economic growth and
efficiency
/.Tax base - AnswerAmount to which tax rate is applied
/.Tax rates - AnswerApplied to the tax base to determine tax liability- may be
proportional or progressive
/.Incidence of tax - AnswerDegree to which the tax burden is shared by taxpayers
/.Major types of taxes - AnswerProperty taxes, transaction taxes, death taxes, gift taxes,
income taxes, employment taxes, and other US taxes
,/.Property taxes - AnswerBased on the value of the asset (Tax on wealth or capital).
Generally imposed on realty or personalty. Exclusive jurisdiction of states and their local
political subdivisions
/.Excise taxes - AnswerTax on a specific item (Ex: taxes on gasoline, tobacco, liquor)
/.General sales and use taxes - AnswerTax on items purchased or used within a state
or locality
/.Severance taxes - AnswerTax on natural resources extracted
/.Death Taxes - AnswerTax on the right to transfer property or to receive property upon
the death of the owner
/.Estate Tax - AnswerImposed on right to pass property at death (Type of death tax)
/.Inheritance Tax - AnswerImposed on right to receive property from a decedent (Type
of death tax)
/.Federal Gift Tax - AnswerTax on the right to transfer assets during a person's lifetime
/.Federal gift tax applies only to what? - AnswerTo transfers that are not supported by
full and adequate consideration
/.Taxable Gift Equation - AnswerFMV of gift less annual exclusion less marital deduction
(if applicable)
/.Amount of annual exclusion for Federal gift tax - Answer$14,000 per donee (2013)-
Amount is adjusted for inflation
/.Income taxes - Answerimposed at the federal, most state, and some local levels of
government
/.What is the federal income tax base? - AnswerTaxable income= Income less allowable
exclusions and deductions
/.How do most jurisdictions attempt to assure tax collection? - AnswerBy requiring pay
as you go procedures such as withholding requirements for employees and estimated
tax prepayments for all taxpayers
/.FICA Taxes - AnswerPaid by both an employee and employer. Social security rate is
6.2% on a max of $113,700 of wages. The Medicare rate is 1.45% on all wages
,/.Employment taxes- Additional amount introduced in 2013 - AnswerAn additional 0.9%
tax is imposed on earned income above $200,000(S) or $250,000(MFJ)- Employer does
not have to match
/.Employment taxes- Additional amount introduced in 2013 for investment income -
Answer3.8% tax Imposed on investment income (e.g., taxable interest, dividends, and
capital gains). Applies when modified AGI exceeds $200,000 (single filers) or $250,000
(MFJ)
/.Self-Employment Tax - AnswerSole proprietors and independent contractors may also
be subject to Social Security Taxes. Rates are twice that applicable to an employee
(12.4% for SS, 2.9% Medicare)- Up to net-income of 113,700. Additional .9% also
applies.
/.FUTA (Unemployment) Taxes - AnswerProvides funds for state unemployment
benefits. 6% on first $7000 wages for each employee (2013). Administered jointly by
states and Fed. Govt. Tax is paid by employer (Credit allowed up to 5.4% for FUTA paid
to the state)
/.Federal custom duties - AnswerTariffs on certain imported goods
/.Franchise Taxes - AnswerLevied on the right to do business in the state
/.Occupational Fees - AnswerApplicable to various trades or businesses (Ex. Liquor
store license, taxicab permit, fee to practice a profession)
/.Flat Tax - Answer(Proposed) Would replace the current graduated income tax with a
single rate
/.Value Added Tax (VAT) - Answer(Proposed) Taxes the increment in value as goods
move through production & manufacturing stages to the market. Paid by the producer
and reflected in the sales price of goods
/.National Sales Tax - Answer(Proposed) Levied on the final sale of goods and services.
/.IRS - AnswerResponsible for enforcing the Federal Tax Laws
/.How are audits selected? - AnswerOnly a small percentage of returns filed are audited
using mathematical formulas and statistical sampling. The IRS selects a cross section
of returns which are subject to various degrees of inspection. Results highlight areas of
taxpayers noncompliance and enable the IRS to use its auditors more productively.
/.What are the types of Audits? - AnswerCorrespondence
Office Audit (Usually restricted in scope and conducted in facilities of IRS)
Field Audit: Involves examination of numerous items reported on the return and is
conducted on premises of taxpayer or taxpayer's representative
, /.What is an RAR? - AnswerRevenue Agent's Report. Summarizes the findings of an
Audit and can result in a refund, deficiency, or no change
/.What if audit results in an assessment of additional tax? - AnswerTaxpayer may
attempt to negotiate a settlement through the Appeals Division of the IRS
/.What if a satisfactory settlement is not reached on administrative appeal? - AnswerThe
taxpayer can litigate in court (Tax court, Federal District Court, or Court of Federal
claims)
/.Is litigation recommended? - AnswerOnly as a last resort because of the costs
involved and the uncertainty of the outcome
/.Statute of limitations - AnswerOffers a defense against a suit after the expiration of a
specified period of time
/.What is the purpose of the Statute of limitations? - AnswerTo preclude parties from
prosecuting stale claims
/.For Federal income tax purposes, the two categories involved relate to the statute of
limitations applicable to...? - AnswerThe assessment of additional tax deficiencies by
the IRS and Claims for refunds by taxpayers
/.Deficiency assessment by IRS- Statute of limitations- General - AnswerGenerally 3
years from the later of the due date or the filing date of the return
/.Deficiency assessment by IRS- Statute of limitations- Material (25%+ omissions of GI)
- Answer6 years
/.Deficiency assessment by IRS- Statute of limitations- No return filed or fraudulent
returns - AnswerNo time limit
/.For a refund claim by taxpayer- Statute of limitations - AnswerGenerally 3 years from
date return filed or 2 years from date tax paid, whichever is later
/.When do interest start accruing on deficiencies? - Answerstarting from the due date of
the return and interest is paid on refunds if not received within 45 days of when the
return was filed (Current rate is 3% Jan-Mar)
/.Penalties for failure to file - AnswerPenalty is 5% per month up to a max of 25% on the
amount of tax shown as due on the return (Any fraction of a month counts as a full
month)
/.Penalties for Failure to Pay - AnswerPenalty is 0.5% per month up to a max of 25%
Individual income taxes comprise what percentage of Federal Budget Receipts in 2013?
- Answer47%
/.Corporation income taxes comprise what percentage of Federal Budget Receipts in
2013? - Answer12%
/.Social insurance taxes and contributions comprise what percentage of Federal Budget
Receipts in 2013? - Answer33%
/.Excise taxes comprise what percentage of Federal Budget Receipts in 2013? -
Answer3%
/.Other categories comprise what percentage of Federal Budget Receipts in 2013? -
Answer5%
/.When was the New Federal individual income tax enacted? - Answer1894
/.When was the First Federal corporate income tax enacted? - Answer1909
/.When was the 16th Amendment ratified? And what did it change? - Answer1913-
Ratification sanctioned both Federal individual and corporate income taxes
/.Name the 4 Canons of Taxation identified by Adam Smith - AnswerEquality,
Convenience, Certainty, and Economy
/.The AICPA suggests that the tax system should consist of 6 criterions. What are they?
- AnswerSimple, neutral in terms of its effect on business, clear and readily
understandable, structured to minimize noncompliance, should enable the IRS to
predict the amount and timing of revenue, and should not reduce economic growth and
efficiency
/.Tax base - AnswerAmount to which tax rate is applied
/.Tax rates - AnswerApplied to the tax base to determine tax liability- may be
proportional or progressive
/.Incidence of tax - AnswerDegree to which the tax burden is shared by taxpayers
/.Major types of taxes - AnswerProperty taxes, transaction taxes, death taxes, gift taxes,
income taxes, employment taxes, and other US taxes
,/.Property taxes - AnswerBased on the value of the asset (Tax on wealth or capital).
Generally imposed on realty or personalty. Exclusive jurisdiction of states and their local
political subdivisions
/.Excise taxes - AnswerTax on a specific item (Ex: taxes on gasoline, tobacco, liquor)
/.General sales and use taxes - AnswerTax on items purchased or used within a state
or locality
/.Severance taxes - AnswerTax on natural resources extracted
/.Death Taxes - AnswerTax on the right to transfer property or to receive property upon
the death of the owner
/.Estate Tax - AnswerImposed on right to pass property at death (Type of death tax)
/.Inheritance Tax - AnswerImposed on right to receive property from a decedent (Type
of death tax)
/.Federal Gift Tax - AnswerTax on the right to transfer assets during a person's lifetime
/.Federal gift tax applies only to what? - AnswerTo transfers that are not supported by
full and adequate consideration
/.Taxable Gift Equation - AnswerFMV of gift less annual exclusion less marital deduction
(if applicable)
/.Amount of annual exclusion for Federal gift tax - Answer$14,000 per donee (2013)-
Amount is adjusted for inflation
/.Income taxes - Answerimposed at the federal, most state, and some local levels of
government
/.What is the federal income tax base? - AnswerTaxable income= Income less allowable
exclusions and deductions
/.How do most jurisdictions attempt to assure tax collection? - AnswerBy requiring pay
as you go procedures such as withholding requirements for employees and estimated
tax prepayments for all taxpayers
/.FICA Taxes - AnswerPaid by both an employee and employer. Social security rate is
6.2% on a max of $113,700 of wages. The Medicare rate is 1.45% on all wages
,/.Employment taxes- Additional amount introduced in 2013 - AnswerAn additional 0.9%
tax is imposed on earned income above $200,000(S) or $250,000(MFJ)- Employer does
not have to match
/.Employment taxes- Additional amount introduced in 2013 for investment income -
Answer3.8% tax Imposed on investment income (e.g., taxable interest, dividends, and
capital gains). Applies when modified AGI exceeds $200,000 (single filers) or $250,000
(MFJ)
/.Self-Employment Tax - AnswerSole proprietors and independent contractors may also
be subject to Social Security Taxes. Rates are twice that applicable to an employee
(12.4% for SS, 2.9% Medicare)- Up to net-income of 113,700. Additional .9% also
applies.
/.FUTA (Unemployment) Taxes - AnswerProvides funds for state unemployment
benefits. 6% on first $7000 wages for each employee (2013). Administered jointly by
states and Fed. Govt. Tax is paid by employer (Credit allowed up to 5.4% for FUTA paid
to the state)
/.Federal custom duties - AnswerTariffs on certain imported goods
/.Franchise Taxes - AnswerLevied on the right to do business in the state
/.Occupational Fees - AnswerApplicable to various trades or businesses (Ex. Liquor
store license, taxicab permit, fee to practice a profession)
/.Flat Tax - Answer(Proposed) Would replace the current graduated income tax with a
single rate
/.Value Added Tax (VAT) - Answer(Proposed) Taxes the increment in value as goods
move through production & manufacturing stages to the market. Paid by the producer
and reflected in the sales price of goods
/.National Sales Tax - Answer(Proposed) Levied on the final sale of goods and services.
/.IRS - AnswerResponsible for enforcing the Federal Tax Laws
/.How are audits selected? - AnswerOnly a small percentage of returns filed are audited
using mathematical formulas and statistical sampling. The IRS selects a cross section
of returns which are subject to various degrees of inspection. Results highlight areas of
taxpayers noncompliance and enable the IRS to use its auditors more productively.
/.What are the types of Audits? - AnswerCorrespondence
Office Audit (Usually restricted in scope and conducted in facilities of IRS)
Field Audit: Involves examination of numerous items reported on the return and is
conducted on premises of taxpayer or taxpayer's representative
, /.What is an RAR? - AnswerRevenue Agent's Report. Summarizes the findings of an
Audit and can result in a refund, deficiency, or no change
/.What if audit results in an assessment of additional tax? - AnswerTaxpayer may
attempt to negotiate a settlement through the Appeals Division of the IRS
/.What if a satisfactory settlement is not reached on administrative appeal? - AnswerThe
taxpayer can litigate in court (Tax court, Federal District Court, or Court of Federal
claims)
/.Is litigation recommended? - AnswerOnly as a last resort because of the costs
involved and the uncertainty of the outcome
/.Statute of limitations - AnswerOffers a defense against a suit after the expiration of a
specified period of time
/.What is the purpose of the Statute of limitations? - AnswerTo preclude parties from
prosecuting stale claims
/.For Federal income tax purposes, the two categories involved relate to the statute of
limitations applicable to...? - AnswerThe assessment of additional tax deficiencies by
the IRS and Claims for refunds by taxpayers
/.Deficiency assessment by IRS- Statute of limitations- General - AnswerGenerally 3
years from the later of the due date or the filing date of the return
/.Deficiency assessment by IRS- Statute of limitations- Material (25%+ omissions of GI)
- Answer6 years
/.Deficiency assessment by IRS- Statute of limitations- No return filed or fraudulent
returns - AnswerNo time limit
/.For a refund claim by taxpayer- Statute of limitations - AnswerGenerally 3 years from
date return filed or 2 years from date tax paid, whichever is later
/.When do interest start accruing on deficiencies? - Answerstarting from the due date of
the return and interest is paid on refunds if not received within 45 days of when the
return was filed (Current rate is 3% Jan-Mar)
/.Penalties for failure to file - AnswerPenalty is 5% per month up to a max of 25% on the
amount of tax shown as due on the return (Any fraction of a month counts as a full
month)
/.Penalties for Failure to Pay - AnswerPenalty is 0.5% per month up to a max of 25%
