Final Exam

Question 1

What is the file memo’s purpose

Answer 1

1. Organize facts 2. Facilitate a review of the research activities. 3. Allow for subsequent examination of the research

Question 2

Evaluate the sources of law

Answer 2

1. Regulations seldom are held to be invalid by a court. 2. Revenue Rulings and Revenue Procedures are frequently modified or held invalid by the court. 3. Decisions of courts that are higher in judicial hierachy should received additional precedential weight

Question 3

How should older court decisions be weighted

Answer 3

Older court decisions should be assigned a geometrically declining degree of importance

Question 4

Which are better Credits or deductions?

Answer 4

Deductions

Question 5

What is the formula for Tax liability

Answer 5

Tax base x rate

Question 6

What is a progressive tax rate

Answer 6

a tax rate that increases as the tax base grows larger

Question 7

What is a proportional tax rate

Answer 7

Flat tax rate that remains the same

Question 8

What is a regressive tax rate

Answer 8

A tax rate that decreases as the tax base increases

Question 9

What is a statutory tax trap?

Answer 9

Via Section 482 gives the IRS the ability to reallocate both income and deductions among certain related taxpayers to reflect true income

Question 10

What is the kiddie tax

Answer 10

Tax created in 1986 to keep parents from sheltering income by putting accounts in the name of their lower taxed children

Question 11

What is the judicial tax trap

Answer 11

When the IRS applies substance over form to telescope or collapse several transactions into one

Question 12

What is marginal tax rate?

Answer 12

Tax rate on the income before the subsequent increase

Question 13

What is the average tax rate?

Answer 13

Total income divided by total tax

Question 14

What the ways a tax payer can avoid recognition of income?

Answer 14

1. avoiding the accumulation of gross income 2. use of debt 3. take advantage of many exclusions that the law permits

Question 15

What is the true tax rule?

Answer 15

Section 482 allows IRS to reallocate income and deductions to reflect true taxable income

Question 16

Who is responsible for administering and enforcing the internal revenue laws of the US

Answer 16

Department of Treasury

Question 17

Who is the chief officer of IRS

Answer 17

Commissioner

Question 18

How is the IRS Commissioner appointed

Answer 18

President for 5 year term that can be renewed

Question 19

Who may represent a tax payer

Answer 19

CPA, attorney, enrolled actuary, enrolled agent

Question 20

How does the IRS select returns to audit?

Answer 20

Returns that will generate additional revenues for the Treasury

Question 21

How much time does a tax payer have to pay if a mathematical or clerical error is discovered

Answer 21

10 day letter; 21 days to pay

Question 22

What is the discriminant function formula?

Answer 22

a formula that assigns numeric weight to certain return items, generating a composite score for the return.

Question 23

What is the audit process

Answer 23

1 preliminary review of return 2. mathematical clerical error program 3. unallowable items program

Question 24

What is a correspondence examination?

Answer 24

When IRS questions one or two items on a return and mails a letter to a taxpayer requesting information

Question 25

What are the three ways an examination can be schedule?

Answer 25

Correspondence, Office or Field

Question 26

What is a RAR?

Answer 26

A written Revenue agent's report given to taxpayer explaining the proposed adjustments and balance due or overpayment

Question 27

What is the supremacy clause?

Answer 27

Federal constitution holds that federal laws have superiority over state laws

Question 28

How is the code organized?

Answer 28

Title, subtitle, chapter, subchapter, part, section, subsection, paragraph, subparagraph, clause

Question 29

What is Public Law 86-272?

Answer 29

Prevents income taxation of interstate commerce if a company's only business within the state is the solicitation of orders for sales of tangible personal property

Question 30

What are administrative sources of law?

Answer 30

Regulations, rulings, revenue procedures, and other opinions that are used by the Treasury Department or the Internal Revenue Service.

Question 31

What is an AOD?

Answer 31

A memorandum prepared when the Internal Revenue Service (IRS) loses a case in a court that recommends the action, if any, that the IRS should take in response to the adverse decision.

Question 32

Do temporary regs carry the full force of the law?

Answer 32

Yes

Question 33

What is due process?

Answer 33

Found in the Fourteenth Amendment to the U.S. Constitution, the clause (among other things) limits the territorial scope of a state’s taxing authority, particularly in regard to interstate commerce

Question 34

What is the Commerce clause?

Answer 34

The clause of the U.S. Constitution indicating that Congress has the power to regulate commerce with foreign nations, among states, and with Native American tribes. It grants powers to Congress and places constraints on the states’ ability to tax interstate trade.

Question 35

What is the MTC?

Answer 35

Created in 1967 by the Multistate Tax Compact. The MTC adopted the Uniform Division of Income for Tax Purposes Act (UDITPA) as part of its Articles, issued Regulations interpreting the UDITPA and continues to issue apportionment rules. As of early 2008, there are forty-seven states participants in MTC

Question 36

What does nexus mean?

Answer 36

sufficient business connection with a locality that gives taxing authority to the locality over the business

Question 37

What is the territorial model?

Answer 37

A structure of international taxation under which the profits of a business are taxed by the country in which the business is earned.

Question 38

What is the worldwide model?

Answer 38

A tax system in which a country imposes tax on residents based on their worldwide income, regardless of its source.

Question 39

What is a 30 day letter?

Answer 39

A notice from the Internal Revenue Service formally notifying the taxpayer of the results of an examination of the return and requesting that the taxpayer agree to the proposed modifications to the tax liability. A taxpayer’s failure to respond to the letter triggers the statutory notice of a tax deficiency, that is, the ninety-day letter demanding the payment of the tax or a petition to the tax court.

Question 40

What is a 90 day letter?

Answer 40

A statutory notice from the Internal Revenue Service (IRS) that the taxpayer has failed to pay an assessed tax. An issuance of such a letter usually indicates that the taxpayer has exhausted all of his or her appeal rights within the IRS and that the next forum for review will be a trial-level court. Strictly, the taxpayer has ninety days to petition the Tax Court to be relieved of the deficiency assessment. If no such petition is filed, the IRS is empowered to collect the assessed tax

Question 41

What is the tax calculation formula?

Answer 41

Tax Calculation Formula (Revenues - Expenses = Tax Base X Tax Rate = Tax liabilities - Credits = Tax Due.)