Multiple Choice Questions

1. Special agents in the IRS Criminal Investigation Division are not involved in which of the following cases?

a. Cases involving legal sources income.

Legal sources of income can be deliberately underreported.

b. Cases involving all violations of tax laws.

c. Cases involving money laundering.

d. Special agents in the IRS Criminal Investigation Division are involved in all of the preceding cases.

Correct.

2. The income tax of most states is a flat rate tax; on what is it based?

a. The net income from the federal income tax return.

b. The AGI from the federal tax return.

Correct.

c. The taxable income from the federal tax return.

d. None of these.

3. To what are use taxes somewhat similar?

a. Intangible taxes.

b. Franchise taxes.

c. Sales taxes.

Correct. Use tax is assessed by the state in which an asset is used. For example, when an asset is acquired in Kentucky for use in Illinois, the purchaser may be exempt from paying sales tax in Kentucky and, if so, will have to pay use tax in Illinois. Typically, sales and use tax rates are similar.

d. None of these.

4. What is the most likely illegal scheme to evade estate taxes?

a. Underreporting assets.

b. Underreporting income.

c. Undervaluing assets.

Correct. Other taxes, such as the estate and gift tax, present fewer opportunities for tax evasion. Because the estate and gift tax is assessed on the value of property transferred, the principal manner in which these taxes can be evaded is by undervaluing gifted or bequeathed property.

d. Undervaluing income.

5. Ad valorem taxes may apply to which of the following?

a. Real estate.

b. Business inventories.

c. Business automobiles.

d. All of these.

Correct. Ad valorem taxes are based on the value of the asset.