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Exam 1: Introduction to Taxation

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Question 1

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Using the choices provided below, show the justification for each provision of the tax law listed. a.Economic considerations b.Social considerations c.Equity considerations d.Both a.and b. -More rapid expensing for tax purposes of the costs of installing pollution control devices.

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Question 2

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Property can be transferred within the family group by gift or at death.One motivation for preferring the gift approach is:

A) To take advantage of the higher unified transfer tax credit available under the gift tax.
B) To avoid a future decline in value of the property transferred.
C) To take advantage of the per donee annual exclusion.
D) To shift income to higher bracket donees.
E) None of these.

F) All of the above
G) A) and D)

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Question 3

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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.

Using the choices provided below, show the justification for each provision of the tax law listed. a.Economic considerations b.Social considerations c.Equity considerations d.Both a.and b. -Tax credits for home improvements that conserve energy.

Two years ago, State Y enacted a new income tax credit for college prep materials.The credit is available to individuals and is equal to 40% of the cost of the items.The credit may not exceed $50 in any year.State Y's director of finance has discovered this year that the amount of credit claimed is far higher than expected.Which principle of good tax policy might not have been considered in designing this tax that caused the original cost estimate to be too low?

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 2019 without using her unified transfer tax credit?

The objective of pay-as-you-go (paygo) is to improve administrative feasibility.

Morgan inherits her father's personal residence including all of the furnishings.She plans to add a swimming pool and sauna to the property and rent it as a furnished house.What are some of the ad valorem property tax issues Morgan can anticipate?

Under Clint's will, all of his property passes to either the Lutheran Church or to his wife.No Federal estate tax will be due on Clint's death in 2019.

Currently, the tax base for the Social Security component of the FICA is not limited to a dollar amount.

In 2019, José, a widower, sells land (fair market value of $100,000) to his daughter, Linda, for $50,000.José has not made a taxable gift.

The tax law contains various provisions that encourage home ownership. a.On what basis can this objective be justified? b.Are there any negative considerations? Explain.

A major advantage of a flat tax type of income tax is its simplicity.

Under state amnesty programs, all delinquent and unpaid income taxes are forgiven.

The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education.These provisions can be justified on both economic and equity grounds.

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

Due to population change, Goose Creek School District has decided to close one of its high schools.Since it has no further need of the property, the school is listed for sale.The two bids it receives are as follows: The United Methodist Church would use the property to establish a sectarian middle school.Planet, a well-known car dealership, would revamp the property and operate it as a branch location. If you were a member of the School District board, what factors would you consider in evaluating the two bids?

Logan dies with an estate worth $20 million.Under his will, $10 million passes to his wife and $10 million goes to his church.What is Logan's Federal estate tax result?

Julius, a married taxpayer, makes gifts to each of his six children.A maximum of twelve annual exclusions could be allowed as to these gifts.

In 2017, Deborah became 65 years old.In 2018 she added a swimming pool and in 2019 she converted the residence to rental property and moved into an assisted living facility.Since 2016, Deborah's ad valorem property taxes have decreased once and increased twice.Explain.