Leah Pasternak Federal Taxation ACC307 Chapter 1: An Introduction to Taxation and Understanding the Federal Tax Law Homework

k Submission 2. Some of the tax problems Marvin may confront is that the appraised value may typically increase when he converts the home to an income-producing property. He may also lose the Homestead exemption, if applicable, due to the property being converted to rental use. He will also have to pay different income taxes on the revenue he earns from the rental property, possibly forcing him into a higher tax bracket. 5. The pay-as-you-go procedure is applied to wage earners as a specific portion of their income earned is withheld by their employer. Income that is earned from sources other than wages may be required to make quarterly tax payments to the IRS. 6. When comparing the Federal income tax to Adam Smiths canon on convenience the system is not very convenient. Administrative costs can be very high. 16. Eileen has not successfully avoided the sales tax for Wyoming. What she is required to do is pay a use tax which is a required tax for anything purchased outside of your state but used in your state, in Eileens case, an automobile. 27 a. Yes the question is relevant because a use tax is determined from such an inquiry. 27 b. I would tell her no, that all questions need to be answered on her return. 42 a. It is dependent on the amount of gross income he failed to claim 5 years ago. If the amount of income omitted is in excess of 25% of the total gross income reported on the return, the IRS may have the ability to assess an additional tax liability as long as the assessed amount is done within 6 years of the filing, if the amount is less than 25% then the IRS has passed its 3 year time frame for assessing any additional liability. 42 b. No my advice would not differ. 42 c. I would prepare his return but I would make sure that I had him file the appropriate tax liability if needed. 49 a. Favors energy crisis aversion. 49 b. Less reliance on foreign oil. 49 c. The wherewithal to pay concept justifies the inequity of taxing someone who cannot pay for the tax at that time. 49 d. Fostering technological progress. 49 e. Stimulates domestic manufacturing leading to job growth. 49 f. Shifting financial burden from the public (government) sector to the private sector. 49 g. Benefits small businesses. 51 a. Encourages taxpayers to provide care for dependents while they work. 51 b. Discourages certain activities that are contrary to public policies. 51 c. Provides equality in paying taxes, relief from paying too much at one time.

51 d. Allowed to spread tax consequences over period of time. 51 e. To work with inflation and attempts to equalize . Bracket creep. 51 f. Prevents multiple taxation. 51 g. Helps mitigate the effect of limiting a loss deduction. Helps utilize a loss or deduction that otherwise may have been lost. 52. The Arms Length Concept would be applied. 53 a. he does not recognize income as a result of the improvements. 53 b. No, part a has not always been the rule. 53 c. The original rule was not consistent with the wherewithal to pay concept.