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Exam 1: Introduction to Taxation

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Question 21

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When Congress enacts a tax cut that is phased in over a period of years, revenue neutrality is achieved.

A) True
B) False

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Question 22

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In 1985, Roy leased real estate to Drab Corporation for 20 years. Drab Corporation made significant capital improvements to the property. In 2005, 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 2016 for $1,200,000 of which $900,000 is attributable to the improvements. When is Roy taxed on the improvements made by Drab Corporation?

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Roy is not subject to taxation on the im...

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Question 23

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Taylor, a widow, makes cash gifts to her five married children (including their spouses) and to her seven grandchildren. What is the maximum amount Taylor can give for calendar year 2016 without using her unified transfer tax credit?

As a matter of administrative convenience, the IRS would prefer to have Congress decrease (rather than increase) the amount of the standard deduction allowed to individual taxpayers.

Using the choices provided below, show the justification for each provision of the tax law listed. -Tax credits for home improvements that conserve energy.

Using the choices provided below, show the justification for each provision of the tax law listed. -A Federal deduction for state and local income taxes paid.

Both economic and social considerations can be used to justify:

Using the choices provided below, show the justification for each provision of the tax law listed. -Additional depreciation deduction allowed for the year the asset is acquired.

A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles.

State and local governments are sometimes forced to find ways to generate additional revenue. Comment on the pros and cons of the following procedures: a.Decouple what would be part of the piggyback format of the state income tax. b.Tax amnesty provisions. c.Internet shaming.

Allowing a domestic production activities deduction for certain manufacturing income can be justified:

Don, the sole shareholder of Pastel Corporation (a C corporation), has the corporation pay him a salary of $600,000 in the current year. The Tax Court has held that $200,000 represents unreasonable compensation. Don must report a salary of $400,000 and a dividend of $200,000 on his individual tax return.

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

Paige is the sole shareholder of Citron Corporation. During the year, Paige leases a building to Citron for a monthly rental of $80,000. If the fair rental value of the building is $60,000, what are the income tax consequences to the parties involved?

Using the choices provided below, show the justification for each provision of the tax law listed. -A bribe to the local sheriff, although business related, is not deductible.

During the current year, Skylark Company had operating income of $420,000 and operating expenses of $250,000. In addition, Skylark had a long-term capital loss of $20,000, and a charitable contribution of $5,000. How does Toby, the sole owner of Skylark Company, report this information on his individual income tax return under following assumptions? a.Skylark is an LLC, and Toby does not withdraw any funds from the company during the year. b.​Skylark is an S corporation, and Toby does not withdraw any funds from the company during the year. c.​Skylark is a regular (C) corporation, and Toby does not withdraw any funds from the company during the year.

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

Various tax provisions encourage the creation of certain types of retirement plans. Such provisions can be justified on both economic and social grounds.

A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty.

Quail Corporation is a C corporation with net income of $125,000 during the current year. If Quail paid dividends of $25,000 to its shareholders, the corporation must pay tax on $100,000 of net income. Shareholders must report the $25,000 of dividends as income.