Federal Taxation II Exam 1 Questions &
Answers 100% Correct!!
The Federal tax law is the vehicle for accomplishing many objectives of the nation such
as: - ANSWERS-Raising revenue: the major objective of the tax system but not the sole
objective
-Economic Considerations
-Social Considerations
-Equity (Fairness) Considerations
-Political Considerations
Economic Considerations for taxation may include - ANSWERS-Control the economy
(favorable depreciation deductions for purchase of business property)
-Encourage certain activities
-Encourage certain industries (special tax treatment for agriculture activities,
development of natural resources, railroad and banking industries)
-Encourage small business (example: ordinary loss deduction on stock in small
business)
Social Considerations for taxation may include - ANSWERS-Tax-free medical coverage
provided by employers to encourage health insurance
-Tax benefits to encourage additional education and to encourage adoption
-Deduction of contributions made to qualified charities, to encourage funding of socially
desirable programs by private individuals and companies
-Disallowed deductions for expenditures against public policy (example: illegal bribes
and kickbacks
Measure of equity is whether a tax is - ANSWERS-Progressive (e.g., federal income tax
on individuals)
-Regressive (e.g., gasoline excise tax)
Equity considerations may include - ANSWERS-Alleviating the effect of multiple taxation
-Wherewithal to pay concept
-Annual accounting periods
-Coping with inflation
What are equity considerations that help alleviate the effects of multiple taxation? -
ANSWERS-Deduction for state and local taxes
-Credit or deduction for certain foreign taxes
,-Deduction for dividends received by corporate shareholders from certain domestic
corporations
Wherewithal to pay concept - ANSWERSincome should be recognized and a tax paid
on the income when the taxpayer has the resources to pay the tax
-Defers taxation when a taxpayer's economic position has not changed significantly, for
example, for a gain realized from an exchange of assets where cash is not transacted,
the tax liability is deferred
Equity Considerations that are talked about in annual accounting periods? - ANSWERS-
In some cases (example: start-up businesses), a revenue-generating cycle may be
greater than 12 months which is the maximum tax reporting period. To accommodate
this, net operating loss rules allow losses from one year to be used in another year. this
minimizes the adverse impact of arbitrary reporting periods
How is taxation adjusted in coping with inflation? - ANSWERS-Inflation adjustments are
made through an indexation procedure
-If earnings increase solely by cost-of-living amount, taxes will not be imposed at higher
rates on the increase
Political considerations in taxation - ANSWERS-Special interest legislation
-Response to public opinion (political expediency)
-State and local government influences
How does the IRS act as a Protector of the Revenue? - ANSWERS-IRS works to get
Congress to "close loopholes"
-Laws passed by Congress enables IRS to make adjustments based on the substance
of a transaction
-If the taxpayer's method of accounting does not clearly reflect income, Congress allows
the IRS to make adjustments to the method of accounting
What is the judicial influence on statutory provisions? - ANSWERS-Some court
decisions highlight undesirable aspects of present law, which has led Congress to
incorporate them in the Internal Revenue Code (example: tax benefit rule)
The primary sources of tax law include information from - ANSWERSall three branches
of government:
-Legislative (or statutory)
-Executive
-Judicial
Working with the tax law involves three basic steps: - ANSWERS-Familiarity with the
sources of the law
-Application of research techniques
,-Effective use of planning procedures
Three statutory sources of tax law - ANSWERS-Constitution
-Internal Revenue Code
-Tax Treaties
Code § 2(a)(1)(A) - ANSWERS§ = Abbreviation for "Section"
2 = Section number
(a) = Subsection designation
(1) = Paragraph designation
(A) = Subparagraph designation
Administrative Sources of Tax Law - ANSWERS-Treasury department regulations
-Revenue rulings
-Revenue procedures
-Notices
-Various other administrative pronouncements
Treasury Department Regulations - ANSWERS-Issued by US Treasury Department
-Provide general interpretations and guidance in applying the Code
Treasury department regulations can be issued in what three forms? - ANSWERS-
Proposed: a preview of final regulations
-Temporary: Issued when guidance needed quickly- same authoritative value as final
regulations
-Final: Force and effect of law
Revenue Rulings - ANSWERS-Officially issued by the National Office of IRS
-Provide specific interpretations and guidance in applying the Code
-Less legal force than Regulations
-Issued in weekly Internal Revenue Bulletins
Revenue Procedures - ANSWERS-Concerned with the internal procedures of IRS
-Issued in weekly Internal Revenue Bulletins
Notices - ANSWERS-Transitional guidance while IRS works on permanent guidance
-Issued when immediate guidance is needed
-Covid-19 pandemic: Notice 2022-2023 automatically extended the due date for filing
Federal income tax returns and making Federal income tax payments to July 15, 2020
-Interest and penalties for late payments were suspended during this time frame
, Letter Rulings - ANSWERS-Offer guidance to taxpayer on how a transaction will be
taxed before proceeding with it
-Issued for a fee upon a taxpayer's request
-Describe how the IRS will treat a proposed transaction
-Apply only to the taxpayer who asks for and obtains the ruling
-Post-1984 letter rulings may be substantial authority for purposes of the accuracy-
related penalty
-Limited to restricted, pre-announced areas of taxation
Treasury decisions - ANSWERS-Issued by the Treasury Department
-To promulgate new or amend existing Regulations
-To announce the position of the Government on selected court decisions
-To publish in the Internal Revenue Bulletin
Technical Advice Memoranda (TAMs) - ANSWERS-Released weekly by the National
Office o the IRS
-Similar to letter rulings in that they give the IRS's determination of an issue
-Deals with completed transactions
-Issued in response to questions raised by taxpayers or IRS field personnel
Determination Letters - ANSWERS-Issued by Area Director at taxpayer's request
-Usually involve completed transactions
-Not published (made known only to party making the request)
Appellate courts - ANSWERSUS supreme court
US court of appeals (regional)
US court of appeals (federal)
Trial Courts (courts of original jurisdiction) - ANSWERSUS Tax Court
US District Court
US Court of Federal Claims
Five federal courts have jurisdiction over tax disputes between IRS and taxpayers: -
ANSWERS-US Tax Court
-US District Court
-US Court of Federal Claims
-US Court of Appeals
-US Supreme Court
Taxpayer has a choice of three trial courts - ANSWERS-US Tax Court- small cases
division only hears cases involving amounts of $50,000 or less
-US District Court
-US Court of Federal Claims
Difference between various trial courts are by - ANSWERS-Number of courts
Answers 100% Correct!!
The Federal tax law is the vehicle for accomplishing many objectives of the nation such
as: - ANSWERS-Raising revenue: the major objective of the tax system but not the sole
objective
-Economic Considerations
-Social Considerations
-Equity (Fairness) Considerations
-Political Considerations
Economic Considerations for taxation may include - ANSWERS-Control the economy
(favorable depreciation deductions for purchase of business property)
-Encourage certain activities
-Encourage certain industries (special tax treatment for agriculture activities,
development of natural resources, railroad and banking industries)
-Encourage small business (example: ordinary loss deduction on stock in small
business)
Social Considerations for taxation may include - ANSWERS-Tax-free medical coverage
provided by employers to encourage health insurance
-Tax benefits to encourage additional education and to encourage adoption
-Deduction of contributions made to qualified charities, to encourage funding of socially
desirable programs by private individuals and companies
-Disallowed deductions for expenditures against public policy (example: illegal bribes
and kickbacks
Measure of equity is whether a tax is - ANSWERS-Progressive (e.g., federal income tax
on individuals)
-Regressive (e.g., gasoline excise tax)
Equity considerations may include - ANSWERS-Alleviating the effect of multiple taxation
-Wherewithal to pay concept
-Annual accounting periods
-Coping with inflation
What are equity considerations that help alleviate the effects of multiple taxation? -
ANSWERS-Deduction for state and local taxes
-Credit or deduction for certain foreign taxes
,-Deduction for dividends received by corporate shareholders from certain domestic
corporations
Wherewithal to pay concept - ANSWERSincome should be recognized and a tax paid
on the income when the taxpayer has the resources to pay the tax
-Defers taxation when a taxpayer's economic position has not changed significantly, for
example, for a gain realized from an exchange of assets where cash is not transacted,
the tax liability is deferred
Equity Considerations that are talked about in annual accounting periods? - ANSWERS-
In some cases (example: start-up businesses), a revenue-generating cycle may be
greater than 12 months which is the maximum tax reporting period. To accommodate
this, net operating loss rules allow losses from one year to be used in another year. this
minimizes the adverse impact of arbitrary reporting periods
How is taxation adjusted in coping with inflation? - ANSWERS-Inflation adjustments are
made through an indexation procedure
-If earnings increase solely by cost-of-living amount, taxes will not be imposed at higher
rates on the increase
Political considerations in taxation - ANSWERS-Special interest legislation
-Response to public opinion (political expediency)
-State and local government influences
How does the IRS act as a Protector of the Revenue? - ANSWERS-IRS works to get
Congress to "close loopholes"
-Laws passed by Congress enables IRS to make adjustments based on the substance
of a transaction
-If the taxpayer's method of accounting does not clearly reflect income, Congress allows
the IRS to make adjustments to the method of accounting
What is the judicial influence on statutory provisions? - ANSWERS-Some court
decisions highlight undesirable aspects of present law, which has led Congress to
incorporate them in the Internal Revenue Code (example: tax benefit rule)
The primary sources of tax law include information from - ANSWERSall three branches
of government:
-Legislative (or statutory)
-Executive
-Judicial
Working with the tax law involves three basic steps: - ANSWERS-Familiarity with the
sources of the law
-Application of research techniques
,-Effective use of planning procedures
Three statutory sources of tax law - ANSWERS-Constitution
-Internal Revenue Code
-Tax Treaties
Code § 2(a)(1)(A) - ANSWERS§ = Abbreviation for "Section"
2 = Section number
(a) = Subsection designation
(1) = Paragraph designation
(A) = Subparagraph designation
Administrative Sources of Tax Law - ANSWERS-Treasury department regulations
-Revenue rulings
-Revenue procedures
-Notices
-Various other administrative pronouncements
Treasury Department Regulations - ANSWERS-Issued by US Treasury Department
-Provide general interpretations and guidance in applying the Code
Treasury department regulations can be issued in what three forms? - ANSWERS-
Proposed: a preview of final regulations
-Temporary: Issued when guidance needed quickly- same authoritative value as final
regulations
-Final: Force and effect of law
Revenue Rulings - ANSWERS-Officially issued by the National Office of IRS
-Provide specific interpretations and guidance in applying the Code
-Less legal force than Regulations
-Issued in weekly Internal Revenue Bulletins
Revenue Procedures - ANSWERS-Concerned with the internal procedures of IRS
-Issued in weekly Internal Revenue Bulletins
Notices - ANSWERS-Transitional guidance while IRS works on permanent guidance
-Issued when immediate guidance is needed
-Covid-19 pandemic: Notice 2022-2023 automatically extended the due date for filing
Federal income tax returns and making Federal income tax payments to July 15, 2020
-Interest and penalties for late payments were suspended during this time frame
, Letter Rulings - ANSWERS-Offer guidance to taxpayer on how a transaction will be
taxed before proceeding with it
-Issued for a fee upon a taxpayer's request
-Describe how the IRS will treat a proposed transaction
-Apply only to the taxpayer who asks for and obtains the ruling
-Post-1984 letter rulings may be substantial authority for purposes of the accuracy-
related penalty
-Limited to restricted, pre-announced areas of taxation
Treasury decisions - ANSWERS-Issued by the Treasury Department
-To promulgate new or amend existing Regulations
-To announce the position of the Government on selected court decisions
-To publish in the Internal Revenue Bulletin
Technical Advice Memoranda (TAMs) - ANSWERS-Released weekly by the National
Office o the IRS
-Similar to letter rulings in that they give the IRS's determination of an issue
-Deals with completed transactions
-Issued in response to questions raised by taxpayers or IRS field personnel
Determination Letters - ANSWERS-Issued by Area Director at taxpayer's request
-Usually involve completed transactions
-Not published (made known only to party making the request)
Appellate courts - ANSWERSUS supreme court
US court of appeals (regional)
US court of appeals (federal)
Trial Courts (courts of original jurisdiction) - ANSWERSUS Tax Court
US District Court
US Court of Federal Claims
Five federal courts have jurisdiction over tax disputes between IRS and taxpayers: -
ANSWERS-US Tax Court
-US District Court
-US Court of Federal Claims
-US Court of Appeals
-US Supreme Court
Taxpayer has a choice of three trial courts - ANSWERS-US Tax Court- small cases
division only hears cases involving amounts of $50,000 or less
-US District Court
-US Court of Federal Claims
Difference between various trial courts are by - ANSWERS-Number of courts
