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COMPREHENSIVE Tax questions

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Question;1.;The ratification of the Sixteenth Amendment to the U.S.;Constitution was necessary to validate the Federal income tax on;corporations.;True False;2.;Before the Sixteenth Amendment to the Constitution was ratified;there was no valid Federal income tax on individuals.;True False;3.;The first income tax on individuals (after the ratification of;the Sixteenth Amendment to the Constitution) levied tax rates from a low of;2% to a high of 6%.;True False;4.;The Federal income tax on individuals generates more revenue;than the Federal income tax on corporations.;True False;5.;The pay-as-you-go feature of the Federal income tax on;individuals conforms to Adam Smith?s canon of certainty.;True False;6.;Because the law is complicated, most individual taxpayers are;not able to complete their Federal income tax returns without outside;assistance.;True False;7.;The FICA tax (Medicare component) on wages is progressive since the tax due;increases as wages increase.;True False;8.;The Federal estate and gift taxes are examples of progressive taxes.;True False;9.;The Federal excise tax on cigarettes is an example of a proportional tax.;True False;10.;Currently, the Federal income tax is less progressive than it ever has been in the past.;True False;11.;Mona inherits her mother?s personal residence, which she;converts to a furnished rent house. These changes should affect the amount of;ad valorem property taxes levied on;the properties.;True False;12.;A fixture will be;subject to the ad valorem tax on personalty rather than the ad valorem tax on realty.;True False;13.;Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may;not remain the same.;True False;14.;The ad valorem tax on;personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use;personalty.;True False;15.;A Federal excise tax is no longer imposed on admission to;theaters.;True False;16.;There is a Federal excise tax on hotel occupancy.;True False;17.;The Federal gas-guzzler tax applies only to automobiles;manufactured overseas and imported into the U.S.;True False;18.;Like the Federal counterpart, the amount of the state excise;taxes on gasoline varies from state to state.;True False;19.;Not all of the states that impose a general sales tax also have;a use tax.;True False;20.;Sales made by mail order are not exempt from the application of;a general sales (or use) tax.;True False;21.;Two persons who live in the same state but in different counties;may not be subject to the same general sales tax rate.;True False;22.;States impose either a state income tax or a general sales tax, but not both types of taxes.;True False;23.;A safe and easy way for a taxpayer to avoid local and state;sales taxes is to make the purchase in a state that levies no such;taxes.;True False;24.;On transfers by death, the Federal government relies on an;estate tax, while states impose an estate tax, an inheritance tax, both taxes;or neither tax.;True False;25.;An inheritance tax is a tax on a decedent?s right to pass;property at death.;True False;26.;One of the major reasons for the enactment of the Federal estate;tax was to prevent large amounts of wealth from being accumulated within the;family unit.;True False;27.;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 2013.;True False;28.;Under the usual state inheritance tax, two heirs, a cousin and a;son of the deceased, would not be taxed at the same rate.;True False;29.;The annual exclusion, currently $14,000, is available for gift;and estate tax purposes.;True False;30.;In 2012, Jos?, a widower, sells land (fair market value of;$100,000) to his daughter, Linda, for $50,000. Jos? has made a taxable gift;of $50,000.;True False;31.;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.;True False;32.;One of the motivations for making a gift is to save on income;taxes.;True False;33.;The formula for the Federal income tax on corporations is the;same as that applicable to individuals.;True False;34.;A state income tax can;be imposed on nonresident taxpayers;who earn income within the state or on an itinerant basis.;True False;35.;For state income tax purposes, a majority of states allow a deduction;for Federal income taxes.;True False;36.;Some states use their state income tax return as a means of;collecting unpaid sales and use taxes.;True False;37.;No state has offered an income tax amnesty program more than;once.;True False;38.;For Federal income tax purposes, there never has been a general;amnesty period.;True False;39.;Under state amnesty programs, all delinquent and unpaid income;taxes are forgiven.;True False;40.;When a state decouples from a Federal tax provision, it means;that this provision will not apply;for state income tax purposes.;True False;41.;The principal objective of the FUTA tax is to provide some;measure of retirement security.;True False;42.;Currently, the tax base for the Social Security component of the;FICA is not limited to a dollar;amount.;True False;43.;A parent employs his twin daughters, age 17, in his sole;proprietorship. The daughters are not;subject to FICA coverage.;True False;44.;Unlike FICA, FUTA requires that employers comply with state as;well as Federal rules.;True False;45.;A major advantage of a flat tax type of income tax is its;simplicity.;True False;46.;The value added tax (VAT) has;not had wide acceptance in the international community.;True False;47.;If more IRS audits are producing a greater number of no change results, this indicates;increased compliance on the part of taxpayers.;True False;48.;The amount of a taxpayer?s itemized deductions willincrease the chance of being;audited by the IRS.;True False;49.;In an office audit, the audit by the IRS takes place at the;office of the taxpayer.;True False;50.;The IRS agent auditing the return willissue an RAR even if the taxpayer owes no additional;taxes.;True False;51.;If a ?special agent? becomes involved in the audit of a return;this indicates that the IRS suspects that fraud is involved.;True False;52.;If a taxpayer files early (i.e., before the due date of the;return), the statute of limitations on assessments begins on the date the;return is filed.;True False;53.;For omissions from gross income in excess of 25% of that;reported, there is no statute of limitations on additional income tax;assessments by the IRS.;True False;54.;If an income tax return is not;filed by a taxpayer, there is no statute of limitations on assessments of tax;by the IRS.;True False;55.;If fraud is involved, there is no time limit on the assessment;of a deficiency by the IRS.;True False;56.;The IRS is required to redetermine the interest rate on;underpayments and overpayments once a year.;True False;57.;A calendar year taxpayer files his 2012 Federal income tax;return on March 5, 2013. The return reflects an overpayment of $6,000, and;the taxpayer requests a refund of this amount. The refund is paid on May 17;2013. The refund need not include interest.;True False;58.;For individual taxpayers, the interest rate for income tax;refunds (overpayments) isthe same;as that applicable to assessments (underpayments).;True False;59.;During any month in which both the failure to file penalty and;the failure to pay penalty apply, the failure to file penalty is increased by the amount of the failure;to pay penalty.;True False;60.;When interest is charged on a deficiency, any part of a month;counts as a full month.;True False;61.;For the negligence penalty to apply, the underpayment must be;caused by intentional disregard of rules and regulations without intent to;defraud.;True False;62.;Upon audit by the IRS, Faith is assessed a deficiency of $40,000;of which $25,000 is attributable to negligence. The 20% negligence penalty;will apply to $25,000.;True False;63.;If the tax deficiency is attributable to fraud, the negligence;penalty will not be imposed.;True False;64.;The civil fraud;penalty can entail large fines and possible incarceration.;True False;65.;Even though a client refuses to correct an error on a past;return, it may be possible for a practitioner to continue to prepare returns;for the client.;True False;66.;In preparing an income tax return, the use of a client?s;estimates is notpermitted.;True False;67.;In preparing a tax return, all questions on the return must be;answered.;True False;68.;A CPA firm in California sends many of its less complex tax;returns to be prepared by a group of accountants in India. If certain;procedures are followed, this outsourcing of tax return preparation is;proper.;True False;69.;The objective of pay-as-you-go;(paygo) is to achieve revenue neutrality.;True False;70.;When Congress enacts a tax cut that is phased in over a period;of years, revenue neutrality is achieved.;True False;71.;A tax cut enacted by Congress that contains a sunset provision will make the tax cut;temporary.;True False;72.;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.;True False;73.;Various tax provisions encourage the creation of certain types;of retirement plans. Such provisions can be justified on both economic and;social grounds.;True False;74.;To lessen, or eliminate, the effect of multiple taxation, a;taxpayer who is subject to both foreign and U.S. income taxes on the same;income is allowed either a deduction or a credit for the foreign tax;paid.;True False;75.;To mitigate the effect of the annual accounting period concept;the tax law permits the carryforward to other years of the excess charitable;contributions of a particular year.;True False;76.;Jason?s business warehouse is destroyed by fire. As the;insurance proceeds exceed the basis of the property, a gain results. If Jason;shortly reinvests the proceeds in a new warehouse, no gain is recognized due;to the application of the wherewithal to pay concept.;True False;77.;As it is consistent with the wherewithal to pay concept, the tax;law requires a seller to recognize gain in the year the installment sale;occurs.;True False;78.;Stealth taxes have the effect of generating additional taxes;from all taxpayers.;True False;79.;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.;True False;80.;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.;True False;81.;In cases of doubt, courts have held that tax relief provisions;should be broadly construed in favor of taxpayers.;True False;82.;On occasion, Congress has to enact legislation that clarifies;the tax law in order to change a result reached by the U.S. Supreme;Court.;True False;83.;Which, if any, of the following statements best describes the;history of the Federal income tax?;A.;It did not exist;during the Civil War.;B.;The Federal income;tax on corporations was held by the U.S. Supreme Court to be allowable;under the U.S. Constitution.;C.;The Federal income;tax on individuals was held by the U.S. Supreme Court to be allowable under;the U.S. Constitution.;D.;Both the Federal;income tax on individuals and on corporations was held by the U.S. Supreme;Court to be contrary to the U.S. Constitution.;E.;None of the above.;84.;Which, if any, is notone;of Adam Smith?s canons of taxation?;A.;Economy.;B.;Certainty.;C.;Convenience.;D.;Simplicity.;E.;Equality.;85.;Which, if any, of the following taxes are proportional (rather than progressive)?;A.;State general;sales tax.;B.;Federal corporate;income tax.;C.;Federal estate;tax.;D.;Federal gift;tax.;E.;All of the above.;86.;Which, if any, of the following transactions will increase a taxing jurisdiction?s;revenue from the ad valorem tax;imposed on real estate?;A.;A resident dies;and leaves his farm to his church.;B.;A large property;owner issues a conservation easement as to some of her land.;C.;A tax holiday;issued 10 years ago has expired.;D.;A bankrupt motel;is acquired by the Red Cross and is to be used to provide housing for;homeless persons.;E.;None of the above.;87.;Which, if any, of the following transactions will decrease a taxing jurisdiction?s ad valorem tax revenue imposed on real;estate?;A.;A tax holiday is;granted to an out-of-state business that is searching for a new factory;site.;B.;An abandoned;church is converted to a restaurant.;C.;A public school is;razed and turned into a city park.;D.;A local university;sells a dormitory that will be converted for use as an apartment building.;E.;None of the above.;88.;Which, if any, of the following is a typical characteristic of;an ad valorem tax on;personalty?;A.;Taxpayer compliance;is greater for personal use property than for business use property.;B.;The tax on;automobiles sometimes considers the age of the vehicle.;C.;Most states impose;a tax on intangibles.;D.;The tax on;intangibles generates considerable revenue since it is difficult for;taxpayers to avoid.;E.;None of the above.;89.;Federal excise taxes that are no longer imposed include;A.;Tax on air travel.;B.;Tax on wagering.;C.;Tax on the;manufacture of sporting equipment.;D.;Tax on alcohol.;E.;None of the above.;90.;Taxes not imposed by;the Federal government include;A.;Tobacco excise;tax.;B.;Customs duties;(tariffs on imports).;C.;Tax on rent cars.;D.;Gas guzzler tax.;E.;None of the above.;91.;Taxes levied by both;states and the Federal government include;A.;General sales tax.;B.;Custom duties.;C.;Hotel occupancy;tax.;D.;Franchise tax.;E.;None of the above.;92.;Taxes levied by all;states include;A.;Tobacco excise tax.;B.;Individual income;tax.;C.;Inheritance tax.;D.;General sales tax.;E.;None of the above.;93.;A use tax is imposed by;A.;The Federal;government and all states.;B.;The Federal;government and a majority of the states.;C.;All states and not;the Federal government.;D.;Most of the states;and not the Federal government.;E.;None of the above.;94.;Burt and Lisa are married and live in a common law state. Burt;wants to make gifts to their four children in 2013. What is the maximum;amount of the annual exclusion they will be allowed for these gifts?;A.;$14,000.;B.;$28,000.;C.;$56,000.;D.;$112,000.;E.;None of the above.;95.;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 the above.;96.;Indicate which, if any, statement is incorrect. State income taxes;A.;Can piggyback to;the Federal version.;B.;Cannot apply to;visiting nonresidents.;C.;Can decouple from;the Federal version.;D.;Can provide;occasional amnesty programs.;E.;None of the above.;97.;State income taxes generally;can be characterized by;A.;The same date for;filing as the Federal income tax.;B.;No provision for;withholding procedures.;C.;Allowance of a;deduction for Federal income taxes paid.;D.;Applying only to;individuals and not applying to corporations.;E.;None of the above.;98.;A characteristic of FICA is that;A.;It does not apply;when one spouse works for the other spouse.;B.;It is imposed only;on the employer.;C.;It provides a;modest source of income in the event of loss of employment.;D.;It is administered;by both state and Federal governments.;E.;None of the above.;99.;A characteristic of FUTA is that;A.;It is imposed on;both employer and employee.;B.;It is imposed;solely on the employee.;C.;Compliance;requires following guidelines issued by both state and Federal regulatory authorities.;D.;It is applicable;to spouses of employees but not;to any children under age 18.;E.;None of the above.;100.;The U.S. (either Federal, state, or local) does not impose;A.;Franchise taxes.;B.;Severance taxes.;C.;Occupational fees.;D.;Custom duties.;E.;Export;duties.;101.;The proposed flat tax;A.;Would eliminate;the income tax.;B.;Would simplify the;income tax.;C.;Would tax the;increment in value as goods move through the production and manufacturing;stages to the marketplace.;D.;Is a tax on;consumption.;E.;None of the above.;102.;A VAT (value added tax);A.;Is regressive in;its effect.;B.;Has not proved;popular outside of the U.S.;C.;Is not a tax on consumption.;D.;Is used;exclusively by third world (less developed) countries.;E.;None of the above.;103.;Characteristics of the ?Fair Tax? (i.e., national sales tax);include which, if any, of the following;A.;Abolition of the;Federal individual (but not the corporate) income tax.;B.;Abolition of all;Federal income taxes but retention of payroll taxes (including the;self-employment tax).;C.;Abolition of all;Federal income taxes and payroll taxes but retention of the Federal estate;and gift taxes.;D.;Abolition of all;Federal income and payroll taxes as well as the Federal estate and gift;taxes.;E.;None of the above.;104.;In terms of probability, which of the following taxpayers would;be least likely to be audited by;the IRS?;A.;Taxpayer owns and;operates a check-cashing service.;B.;Taxpayer is an;employed electrician.;C.;Taxpayer just;received a $3 million personal injury award as a result of a lawsuit.;D.;Taxpayer just won;a $1 million slot machine jackpot at a Las Vegas casino.;E.;Taxpayer has been;audited several times before.;105.;Which of the following isa;characteristic of the audit process?;A.;Most taxpayer;audits involve ?special? agents.;B.;Self-employed;taxpayers are less likely to be selected for audit than employed taxpayers.;C.;Less important;issues are handled by means of a correspondence audit.;D.;If a taxpayer;disagrees with the IRS auditor?s finding, the only resort is to the courts.;E.;None of the above.;106.;David files his tax return 45 days after the due date. Along;with the return, David remits a check for $40,000 which is the balance of the;tax owed. Disregarding the interest element, David?s total failure to file;and to pay penalties are;A.;$400.;B.;$3,600.;C.;$4,000.;D.;$4,400.;E.;None of the above.;107.;A characteristic of the fraud penalties is;A.;When negligence;and civil fraud apply to a deficiency, the negligence penalty predominates.;B.;Criminal fraud can;result in a fine and a prison sentence.;C.;The criminal fraud;penalty is 75% of the deficiency attributable to the fraud.;D.;The IRS has the;same burden of proof in the case of criminal fraud than with civil fraud.;E.;None of the above.;108.;Regarding proper ethical guidelines, which (if any) of the;following is correct?;A.;The use of client;estimates in preparing a return may be acceptable.;B.;Under no;circumstances should a question on a tax return be left unanswered.;C.;If a client has made;a mistake in a prior year?s return and refuses to correct it, you should;withdraw from the engagement.;D.;If the exact;amount of a deduction is not certain (e.g., around mid-$600s), it shouldbe recorded as an odd amount;(i.e., $649) so as to increase the appearance of greater certainty.;E.;None of the above.;109.;Both economic and social considerations can be used to;justify;A.;Favorable tax;treatment for accident and health plans provided for employees and financed;by employers.;B.;Disallowance of;any deduction for expenditures deemed to be contrary to public policy;(e.g., fines, penalties, illegal kickbacks, bribes to government;officials).;C.;Various tax;credits, deductions, and exclusions that are designed to encourage taxpayers;to obtain additional education.;D.;Allowance of a;deduction for state and local income taxes paid.;E.;None of the above.;110.;Social considerations can be used to justify;A.;Allowance of a;credit for child care expenses.;B.;Allowing excess;capital losses to be carried over to other years.;C.;Allowing;accelerated amortization for the cost of installing pollution control;facilities.;D.;Allowing a Federal;income tax deduction for state and local sales taxes.;E.;None of the above.;111.;Allowing a domestic production activities deduction for certain;manufacturing income can be justified;A.;As mitigating the;effect of the annual accounting period concept.;B.;As promoting;administrative feasibility.;C.;By economic;considerations.;D.;Based on the;wherewithal to pay concept.;E.;None of the above.;112.;Provisions in the tax law that promote energy conservation and;more use of alternative (non-fossil) fuels can be justified by;A.;Political considerations.;B.;Economic and;social considerations.;C.;Promoting;administrative feasibility.;D.;Encouragement of;small business.;E.;None of the above.;113.;Which, if any, of the following provisions cannot be justified as mitigating the effect of the annual;accounting period concept?;A.;Nonrecognition of;gain allowed for involuntary conversions.;B.;Net operating loss;carryback and carryover provisions.;C.;Carry over of;excess charitable contributions.;D.;Use of the;installment method to recognize gain.;E.;Carry over of;excess capital losses.;114.;Which, if any, of the following provisions of the tax law cannot be justified as promoting;administrative feasibility (simplifying the task of the IRS)?;A.;Penalties are;imposed for failure to file a return or pay a tax on time.;B.;Prepaid income is;taxed in the year received and not in the year earned.;C.;Annual adjustments;for indexation increases the amount of the standard deduction allowed.;D.;Casualty losses;must exceed 10% of AGI to be deductible.;E.;A deduction is;allowed for charitable contributions.;115.;A landlord leases property upon which the tenant makes;improvements. The improvements are significant and are not made in lieu of;rent. At the end of the lease, the value of the improvements are not income;to the landlord. This rule is an example of;A.;A clear reflection;of income result.;B.;The tax benefit;rule.;C.;The arm?s length;concept.;D.;The wherewithal to;pay concept.;E.;None of the above.;116.;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 2013 without using her;unified transfer tax credit?;117.;For the tax year 2013, Noah reported gross income of $300,000 on;his timely filed Federal income tax return.;a.;Presuming the;general rule applies, when does the statute of limitations on assessments;normally expire?;b.;Suppose Noah;inadvertently omitted gross income of $76,000. When does the statute of;limitations on assessments expire?;c.;Suppose the;omission was deliberate and not inadvertent. When does the statute of;limitations on assessments expire?;118.;Without obtaining an extension, Pam files her income tax return;55 days after the due date. With her return, she pays an additional tax of;$60,000. Disregarding any interest element, what is Pam?s penalty for failure;to pay and to file?;119.;On his 2013 income tax return, Andrew omitted income and;overstated deductions to the extent that his income tax was understated by;$500,000. Disregarding any interest element, what is Andrew?s penalty if the;understatement was due to;a.;Negligence.;b.;Civil fraud.;c.;Criminal fraud.;120.;Several years ago, Logan purchased extra grazing land for his;ranch at a cost of $240,000. In 2013, the land is condemned by the state for;development as a highway maintenance depot. Under the condemnation award;Logan receives $600,000 for the land. Within the same year, he replaces the;property with other grazing land. What is Logan?s tax situation if the;replacement land cost;a.;$210,000?;b.;$360,000?;c.;$630,000?;d.;Why?;121.;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?;122.;In 1985, Roy leased real estate to Drab Corporation for 20;years. Drab Corporation made significant capital improvements to the;property. In 2005, Roy 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 2013 for $1,200,000 of which $900,000 is attributable to;the improvements. How and when is Roy taxed on the improvements made by Drab;Corporation?;123.;The Federal income tax is based on a pay-as-you-go system and;has become a ?mass tax.? Explain this statement.;124.;In terms of Adam Smith?s canons of taxation, how does the;Federal income tax fare as far as economy;is concerned?;125.;Due to the population change, the 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;United Methodist;Church;$1,700,000;Planet Motors;1,600,000;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?;126.;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 problems;Morgan can anticipate?;127.;In 2011, Deborah became 65 years old. In 2012 she added a;swimming pool, and in 2013 she converted the residence to rental property and;moved into an assisted living facility. Since 2010, Deborah?s ad valorem;property taxes have decreased once and increased twice. Explain.;128.;A lack of compliance in the payment of use taxes can be resolved;by several means. In this regard, comment on the following;a.;Registration of;automobiles.;b.;Reporting of;Internet purchases on state income tax returns.;129.;What are the pros and cons of the following state and local tax;provisions?;a.;An ad valorem property tax holiday made;available to a manufacturing plant that is relocating.;b.;Hotel occupancy;tax and a rental car surcharge.;c.;A back-to-school;sales tax holiday.;130.;What is a severance tax? How productive can it be in terms of;generating revenue?;131.;What is the difference between an inheritance tax and an estate;tax? Who imposes these taxes?;132.;Logan dies with an estate worth $20 million. Under his will, $10;million passes to his wife while $10 million goes to his church. What is;Logan?s Federal estate tax result?;133.;With regard to state income taxes, explain what is meant by the;?jock tax??;134.;Virtually all state income tax returns contain checkoff boxes;for donations to various causes. On what grounds has this procedure been;criticized?;135.;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.;136.;Briana lives in one state and works in the adjoining state. Both;states tax the income she earns from her job. Does Briana have any relief;from this apparent double taxation of the same income?;137.;In late June 2013, Art is audited by the state and a large;deficiency is assessed. In November of the same year, his Federal income tax;return is audited by the IRS. What has probably happened?;138.;Two months after the burglary of his personal residence, Eric is;audited by the IRS. Among the items taken in the burglary was a shoe box;containing approximately $50,000 in cash. Eric is the owner and operator of a;cash-and-carry liquor store. Eric wonders why he was audited. Can you help;explain?

 

Paper#42076 | Written in 18-Jul-2015

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