,TESTBANK FOR Pearson's Federal Taxation 2026
Individuals 39th Edition Mitchell Franklin
TESTBANK
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
,Pearson's Federal Taxation 2026: Individuals, 39e (Franklin)
Chapter I1: An Introduction to Taxation
LO1: History of Taxation in the United States
1) The federal income tax is the dominant form of taxation by the federal government.
Answer: TRUE
Explanation: The federal income tax provides more revenues than any other tax.
Page Ref.: I:1-2
Objective: 1
2) The Sixteenth Amendment to the U.S. Constitution permits the passage of a federal income tax law.
Answer: TRUE
Explanation: The Sixteenth Amendment amended the Constitution to permit the imposition of an income
tax.
Page Ref.: I:1-2
Objective: 1
3) When a change in the tax law is deemed necessary by Congress, the entire Internal Revenue Code must
be revised.
Answer: FALSE
Explanation: The federal income tax law is changed on an incremental basis.
Page Ref.: I:1-3
Objective: 1
4) The largest source of federal revenues is the corporate income tax.
Answer: FALSE
Explanation: The largest source is the individual income tax.
Page Ref.: I:1-3
Objective: 1
5) Until about 100 years ago, attempts to impose a federal income tax were ruled unconstitutional. The
amendment to the U.S. Constitution allowing the imposition of a federal income tax is the
A) Second Amendment.
B) Thirteenth Amendment.
C) Sixteenth Amendment.
D) Nineteenth Amendment.
Answer: C
Explanation: The Sixteenth Amendment, ratified in 1913, gave Congress the power to impose a federal
income tax.
Page Ref.: I:1-2
Objective: 1
1
Copyright © 2026 Pearson Education, Inc.
,6) The largest source of revenues for the federal government comes from
A) individual income taxes.
B) corporate income taxes.
C) Social Security and Medicare taxes (FICA).
D) estate and gift taxes.
Answer: A
Explanation: The individual income tax has provided the largest source of revenues for many years.
Page Ref.: I:1-3
Objective: 1
LO2: Types of Tax Rate Structures
1) A progressive tax rate structure is one where the rate of tax increases as the tax base increases.
Answer: TRUE
Explanation: Under a progressive tax system, the rate increases as the tax base increases.
Page Ref.: I:1-4
Objective: 2
2) The terms "progressive tax" and "flat tax" are synonymous.
Answer: FALSE
Explanation: A proportional, not progressive, tax and flat tax are synonymous.
Page Ref.: I:1-4
Objective: 2
3) A proportional tax rate is one where the rate of the tax is the same for all taxpayers, regardless of
income levels.
Answer: TRUE
Explanation: A proportional tax is essentially a flat tax.
Page Ref.: I:1-4
Objective: 2
4) Regressive tax rates decrease as the tax base increases.
Answer: TRUE
Explanation: Regressive rates increase as the base decreases.
Page Ref.: I:1-5
Objective: 2
5) The marginal tax rate is useful in tax planning because it measures the tax effect of a proposed
transaction.
Answer: TRUE
Explanation: The marginal rate applies to the planned addition to income or reduction to income.
Page Ref.: I:1-5
Objective: 2
2
Copyright © 2026 Pearson Education, Inc.
,6) A taxpayer's average tax rate is the tax rate applied to an incremental amount of taxable income that is
added to the tax base.
Answer: FALSE
Explanation: The marginal tax rate is the tax rate applied to an incremental amount of taxable income.
Page Ref.: I:1-5
Objective: 2
7) If a taxpayer's total tax liability is $30,000, taxable income is $100,000, and economic income is $120,000,
the average tax rate is 30 percent.
Answer: TRUE
Explanation: The average rate equals the tax liability divided by the taxable income.
Page Ref.: I:1-5
Objective: 2
8) If a taxpayer's total tax liability is $4,000, taxable income is $20,000, and total economic income is
$40,000, then the effective tax rate is 20 percent.
Answer: FALSE
Explanation: The effective rate would be $4,000/$40,000 = 10 percent.
Page Ref.: I:1-6
Objective: 2
9) Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays tax of $12,000 on
$120,000. The tax is a
A) progressive tax.
B) proportional tax.
C) regressive tax.
D) None of the above.
Answer: B
Explanation: The tax rate is proportional because the 10% tax rate applies to both taxpayers regardless of
their income level.
Page Ref.: I:1-4; Example I:1-3
Objective: 2
10) Which of the following taxes is progressive?
A) sales tax
B) excise tax
C) property tax
D) federal income tax
Answer: D
Explanation: Federal income tax rates increase as a taxpayer's taxable income rises.
Page Ref.: I:1-4; Topic Review I:1-1
Objective: 2
3
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,11) Which of the following taxes is proportional?
A) gift tax
B) income tax
C) sales tax
D) Federal Insurance Contributions Act (FICA)
Answer: C
Explanation: A sales tax is assessed at a fixed rate of the purchase amount, based on state and local law.
Page Ref.: I:1-4; Topic Review I:1-1
Objective: 2
12) Which of the following taxes is regressive?
A) Federal Insurance Contributions Act (FICA)
B) excise tax
C) property tax
D) gift tax
Answer: A
Explanation: For upper income wage earners, the Social Security tax ceases at a maximum wage base. For
2025, wages over $176,100 are not subject to the Social Security tax. In 2026, the limit is expected to
increase to $181,800.
Page Ref.: I:1-5; Topic Review I:1-1
Objective: 2
13) The corporate tax rate is
A) progressive.
B) regressive.
C) proportional.
D) None of the above.
Answer: C
Explanation: The corporate tax rate is a flat 21 percent.
Page Ref.: I:1-5
Objective: 2
14) Sarah contributes $25,000 to a church. Sarah's marginal tax rate is 35% while her average tax rate is
25%. After considering her tax savings, Sarah's contribution costs
A) $6,250.
B) $8,750.
C) $16,250.
D) $18,750.
Answer: C
Explanation: [$25,000 × (100% - 35%)] = $16,250
Page Ref.: I:1-5; Example I:1-4
Objective: 2
4
Copyright © 2026 Pearson Education, Inc.
,15) Helen, who is single, is considering purchasing a residence that will provide an $18,000 tax deduction
for property taxes and mortgage interest. If her marginal tax rate is 24% and her effective tax rate is 20%,
what is the amount of Helen's tax savings from purchasing the residence?
A) $3,600
B) $4,320
C) $3,200
D) $18,000
Answer: B
Explanation: $18,000 × .24 marginal rate = $4,320 tax savings.
Page Ref.: I:1-5; Example I:1-4
Objective: 2
16) Charlotte pays $8,000 in tax deductible property taxes. Charlotte's marginal tax rate is 24%, effective
tax rate is 20% and average rate is 22%. Charlotte's tax savings from paying the property tax is
A) $1,600.
B) $1,760.
C) $1,920.
D) $8,000.
Answer: C
Explanation: $8,000 × 0.24 = $1,920
Page Ref.: I:1-5; Example I:1-4
Objective: 2
17) Briana, who is single, has taxable income for 2025 of $90,000, resulting in a total tax of $14,714. Her
total economic income is $100,000. Briana's average tax rate and effective tax rate are, respectively,
A) 16.35% and 14.41%.
B) 16.35% and 22%.
C) 14.41% and 22%.
D) 14.41% and 16.35%.
Answer: A
Explanation: Average tax rate: $14,714 ÷ $90,000 = 16.35%
Effective tax rate: $14,714 ÷ $100,000 = 14.71%
Page Ref.: I:1-5 and I:1-6; Example I:1-5
Objective: 2
18) Larry and Ally are married and file a joint return. They are considering purchasing a personal
residence that will generate two deductions: $10,000 in home mortgage interest and $8,000 in real estate
taxes. Their marginal tax rate is 24%. What is the total tax savings if Larry and Ally purchase the
residence?
Answer: ($10,000 + $8,000) × .24 = $4,320
Page Ref.: I:1-5; Example I:1-4
Objective: 2
5
Copyright © 2026 Pearson Education, Inc.
,19) Larry and Ally are married and file a joint return. They are considering purchasing a personal
residence that will generate two deductions: $10,000 in home mortgage interest and $8,000 in real estate
taxes. Their marginal tax rate is 24%. If Larry and Ally purchase the residence, what will be the after-tax
cost of this additional $18,000 in expenditures?
Answer: Tax savings of expenditures: ($10,000 + $8,000) × .24 = $4,320
After-tax cost: $18,000 - $4,320 = $13,680
Page Ref.: I:1-5; Example I:1-4
Objective: 2
LO3: Other Types of Taxes
1) All states impose a state income tax which is generally based on an individual's federal adjusted gross
income (AGI) with minor adjustments.
Answer: FALSE
Explanation: While many states impose a state income tax, not all states do. In those states that do
impose tax, the taxes vary greatly in both form and rates.
Page Ref.: I:1-7
Objective: 3
2) The unified transfer tax system, comprised of the gift and estate taxes, is based upon the total property
transfers an individual makes during lifetime and at death.
Answer: TRUE
Explanation: Gift and estate taxes, which comprise a unified transfer tax system, are based on cumulative
transfers.
Page Ref.: I:1-7
Objective: 3
3) Gifts between spouses are generally exempt from transfer taxes.
Answer: TRUE
Explanation: The tax law allows for unlimited transfers between spouses.
Page Ref.: I:1-8
Objective: 3
4) The primary liability for payment of the gift tax is imposed upon the donee.
Answer: FALSE
Explanation: The gift tax is imposed on the donor.
Page Ref.: I:1-8
Objective: 3
5) For gift tax purposes, a $19,000 annual exclusion per donee is permitted in 2025.
Answer: TRUE
Explanation: Donors are allowed to exclude $19,000 per donee per year for gift tax purposes.
Page Ref.: I:1-8
Objective: 3
6
Copyright © 2026 Pearson Education, Inc.
,6) In 2025, an individual will be subject to gift tax on gifts made to a charity greater than $19,000.
Answer: FALSE
Explanation: Contributions to charity are not limited by the gift tax exclusion.
Page Ref.: I:1-8
Objective: 3
7) Property is generally included on an estate tax return at its historical cost basis.
Answer: FALSE
Explanation: Property is generally valued at fair market value at date of death or the alternate valuation
date.
Page Ref.: I:1-10
Objective: 3
8) Property transferred to the decedent's spouse is exempt from the estate tax because of the estate tax
marital deduction provision.
Answer: TRUE
Explanation: The estate and gift tax law allows tax exempt transfers to spouses.
Page Ref.: I:1-10
Objective: 3
9) Gifts made during a taxpayer's lifetime may affect the amount of estate tax paid by the taxpayer's
estate.
Answer: TRUE
Explanation: Gift and estate taxes are applied to cumulative transfers under the uniform tax system.
Page Ref.: I:1-10
Objective: 3
10) While federal and state income taxes, as well as the federal gift and estate taxes, are generally
progressive in nature, property taxes are proportional.
Answer: TRUE
Explanation: Property taxes are assessed on the value of property and are proportionate to the value of
the property.
Page Ref.: I:1-11
Objective: 3
11) The unified transfer tax system
A) imposes a single tax upon transfers of property during an individual's lifetime only.
B) imposes a single tax upon transfers of property during an individual's life and at death.
C) imposes a single tax upon transfers of property only at an individual's death.
D) None of the above.
Answer: B
Explanation: The gift (transfers during life) tax and estate (transfers after death) tax systems are unified.
Page Ref.: I:1-7
Objective: 3
7
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, 12) When property is transferred, the gift tax is based on
A) replacement cost of the transferred property.
B) fair market value on the date of transfer.
C) the transferor's original cost of the transferred property.
D) the transferor's depreciated cost of the transferred property.
Answer: B
Explanation: The gift tax is based on the property's fair market value on the date of transfer.
Page Ref.: I:1-8
Objective: 3
13) Paul makes the following property transfers in 2025:
• $22,000 cash to his wife
• $34,000 cash to a qualified charity
• $220,000 house to his son
• $3,000 computer to an unrelated friend
The total of Paul's taxable gifts, assuming he does not elect gift splitting with his spouse, subject to the
unified transfer tax is
A) $201,000.
B) $204,000.
C) $224,000.
D) $217,000.
Answer: A
Explanation: $220,000 - $19,000 = $201,000. The gift to the unrelated friend is below the $19,000 annual
gift tax exclusion. The gifts to his wife and to the charity are not subject to gift tax.
Page Ref.: I:1-8 and I:1-9; Example I:1-6
Objective: 3
14) Charlie makes the following gifts in 2025: $40,000 to his spouse, $30,000 to his church, $20,000 to his
nephew, and $25,000 to a friend. Assuming Charlie does not elect gift splitting with his wife, his taxable
gifts in the current year will be
A) $18,000.
B) $7,000.
C) $31,000.
D) $46,000.
Answer: B
Explanation: ($20,000 - $19,000) + (25,000 - $19,000) = $7,000. The gift to his spouse and the charitable gift
are not subject to gift taxes.
Page Ref.: I:1-8 and I:1-9; Example I:1-6
Objective: 3
8
Copyright © 2026 Pearson Education, Inc.
Individuals 39th Edition Mitchell Franklin
TESTBANK
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
,Pearson's Federal Taxation 2026: Individuals, 39e (Franklin)
Chapter I1: An Introduction to Taxation
LO1: History of Taxation in the United States
1) The federal income tax is the dominant form of taxation by the federal government.
Answer: TRUE
Explanation: The federal income tax provides more revenues than any other tax.
Page Ref.: I:1-2
Objective: 1
2) The Sixteenth Amendment to the U.S. Constitution permits the passage of a federal income tax law.
Answer: TRUE
Explanation: The Sixteenth Amendment amended the Constitution to permit the imposition of an income
tax.
Page Ref.: I:1-2
Objective: 1
3) When a change in the tax law is deemed necessary by Congress, the entire Internal Revenue Code must
be revised.
Answer: FALSE
Explanation: The federal income tax law is changed on an incremental basis.
Page Ref.: I:1-3
Objective: 1
4) The largest source of federal revenues is the corporate income tax.
Answer: FALSE
Explanation: The largest source is the individual income tax.
Page Ref.: I:1-3
Objective: 1
5) Until about 100 years ago, attempts to impose a federal income tax were ruled unconstitutional. The
amendment to the U.S. Constitution allowing the imposition of a federal income tax is the
A) Second Amendment.
B) Thirteenth Amendment.
C) Sixteenth Amendment.
D) Nineteenth Amendment.
Answer: C
Explanation: The Sixteenth Amendment, ratified in 1913, gave Congress the power to impose a federal
income tax.
Page Ref.: I:1-2
Objective: 1
1
Copyright © 2026 Pearson Education, Inc.
,6) The largest source of revenues for the federal government comes from
A) individual income taxes.
B) corporate income taxes.
C) Social Security and Medicare taxes (FICA).
D) estate and gift taxes.
Answer: A
Explanation: The individual income tax has provided the largest source of revenues for many years.
Page Ref.: I:1-3
Objective: 1
LO2: Types of Tax Rate Structures
1) A progressive tax rate structure is one where the rate of tax increases as the tax base increases.
Answer: TRUE
Explanation: Under a progressive tax system, the rate increases as the tax base increases.
Page Ref.: I:1-4
Objective: 2
2) The terms "progressive tax" and "flat tax" are synonymous.
Answer: FALSE
Explanation: A proportional, not progressive, tax and flat tax are synonymous.
Page Ref.: I:1-4
Objective: 2
3) A proportional tax rate is one where the rate of the tax is the same for all taxpayers, regardless of
income levels.
Answer: TRUE
Explanation: A proportional tax is essentially a flat tax.
Page Ref.: I:1-4
Objective: 2
4) Regressive tax rates decrease as the tax base increases.
Answer: TRUE
Explanation: Regressive rates increase as the base decreases.
Page Ref.: I:1-5
Objective: 2
5) The marginal tax rate is useful in tax planning because it measures the tax effect of a proposed
transaction.
Answer: TRUE
Explanation: The marginal rate applies to the planned addition to income or reduction to income.
Page Ref.: I:1-5
Objective: 2
2
Copyright © 2026 Pearson Education, Inc.
,6) A taxpayer's average tax rate is the tax rate applied to an incremental amount of taxable income that is
added to the tax base.
Answer: FALSE
Explanation: The marginal tax rate is the tax rate applied to an incremental amount of taxable income.
Page Ref.: I:1-5
Objective: 2
7) If a taxpayer's total tax liability is $30,000, taxable income is $100,000, and economic income is $120,000,
the average tax rate is 30 percent.
Answer: TRUE
Explanation: The average rate equals the tax liability divided by the taxable income.
Page Ref.: I:1-5
Objective: 2
8) If a taxpayer's total tax liability is $4,000, taxable income is $20,000, and total economic income is
$40,000, then the effective tax rate is 20 percent.
Answer: FALSE
Explanation: The effective rate would be $4,000/$40,000 = 10 percent.
Page Ref.: I:1-6
Objective: 2
9) Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays tax of $12,000 on
$120,000. The tax is a
A) progressive tax.
B) proportional tax.
C) regressive tax.
D) None of the above.
Answer: B
Explanation: The tax rate is proportional because the 10% tax rate applies to both taxpayers regardless of
their income level.
Page Ref.: I:1-4; Example I:1-3
Objective: 2
10) Which of the following taxes is progressive?
A) sales tax
B) excise tax
C) property tax
D) federal income tax
Answer: D
Explanation: Federal income tax rates increase as a taxpayer's taxable income rises.
Page Ref.: I:1-4; Topic Review I:1-1
Objective: 2
3
Copyright © 2026 Pearson Education, Inc.
,11) Which of the following taxes is proportional?
A) gift tax
B) income tax
C) sales tax
D) Federal Insurance Contributions Act (FICA)
Answer: C
Explanation: A sales tax is assessed at a fixed rate of the purchase amount, based on state and local law.
Page Ref.: I:1-4; Topic Review I:1-1
Objective: 2
12) Which of the following taxes is regressive?
A) Federal Insurance Contributions Act (FICA)
B) excise tax
C) property tax
D) gift tax
Answer: A
Explanation: For upper income wage earners, the Social Security tax ceases at a maximum wage base. For
2025, wages over $176,100 are not subject to the Social Security tax. In 2026, the limit is expected to
increase to $181,800.
Page Ref.: I:1-5; Topic Review I:1-1
Objective: 2
13) The corporate tax rate is
A) progressive.
B) regressive.
C) proportional.
D) None of the above.
Answer: C
Explanation: The corporate tax rate is a flat 21 percent.
Page Ref.: I:1-5
Objective: 2
14) Sarah contributes $25,000 to a church. Sarah's marginal tax rate is 35% while her average tax rate is
25%. After considering her tax savings, Sarah's contribution costs
A) $6,250.
B) $8,750.
C) $16,250.
D) $18,750.
Answer: C
Explanation: [$25,000 × (100% - 35%)] = $16,250
Page Ref.: I:1-5; Example I:1-4
Objective: 2
4
Copyright © 2026 Pearson Education, Inc.
,15) Helen, who is single, is considering purchasing a residence that will provide an $18,000 tax deduction
for property taxes and mortgage interest. If her marginal tax rate is 24% and her effective tax rate is 20%,
what is the amount of Helen's tax savings from purchasing the residence?
A) $3,600
B) $4,320
C) $3,200
D) $18,000
Answer: B
Explanation: $18,000 × .24 marginal rate = $4,320 tax savings.
Page Ref.: I:1-5; Example I:1-4
Objective: 2
16) Charlotte pays $8,000 in tax deductible property taxes. Charlotte's marginal tax rate is 24%, effective
tax rate is 20% and average rate is 22%. Charlotte's tax savings from paying the property tax is
A) $1,600.
B) $1,760.
C) $1,920.
D) $8,000.
Answer: C
Explanation: $8,000 × 0.24 = $1,920
Page Ref.: I:1-5; Example I:1-4
Objective: 2
17) Briana, who is single, has taxable income for 2025 of $90,000, resulting in a total tax of $14,714. Her
total economic income is $100,000. Briana's average tax rate and effective tax rate are, respectively,
A) 16.35% and 14.41%.
B) 16.35% and 22%.
C) 14.41% and 22%.
D) 14.41% and 16.35%.
Answer: A
Explanation: Average tax rate: $14,714 ÷ $90,000 = 16.35%
Effective tax rate: $14,714 ÷ $100,000 = 14.71%
Page Ref.: I:1-5 and I:1-6; Example I:1-5
Objective: 2
18) Larry and Ally are married and file a joint return. They are considering purchasing a personal
residence that will generate two deductions: $10,000 in home mortgage interest and $8,000 in real estate
taxes. Their marginal tax rate is 24%. What is the total tax savings if Larry and Ally purchase the
residence?
Answer: ($10,000 + $8,000) × .24 = $4,320
Page Ref.: I:1-5; Example I:1-4
Objective: 2
5
Copyright © 2026 Pearson Education, Inc.
,19) Larry and Ally are married and file a joint return. They are considering purchasing a personal
residence that will generate two deductions: $10,000 in home mortgage interest and $8,000 in real estate
taxes. Their marginal tax rate is 24%. If Larry and Ally purchase the residence, what will be the after-tax
cost of this additional $18,000 in expenditures?
Answer: Tax savings of expenditures: ($10,000 + $8,000) × .24 = $4,320
After-tax cost: $18,000 - $4,320 = $13,680
Page Ref.: I:1-5; Example I:1-4
Objective: 2
LO3: Other Types of Taxes
1) All states impose a state income tax which is generally based on an individual's federal adjusted gross
income (AGI) with minor adjustments.
Answer: FALSE
Explanation: While many states impose a state income tax, not all states do. In those states that do
impose tax, the taxes vary greatly in both form and rates.
Page Ref.: I:1-7
Objective: 3
2) The unified transfer tax system, comprised of the gift and estate taxes, is based upon the total property
transfers an individual makes during lifetime and at death.
Answer: TRUE
Explanation: Gift and estate taxes, which comprise a unified transfer tax system, are based on cumulative
transfers.
Page Ref.: I:1-7
Objective: 3
3) Gifts between spouses are generally exempt from transfer taxes.
Answer: TRUE
Explanation: The tax law allows for unlimited transfers between spouses.
Page Ref.: I:1-8
Objective: 3
4) The primary liability for payment of the gift tax is imposed upon the donee.
Answer: FALSE
Explanation: The gift tax is imposed on the donor.
Page Ref.: I:1-8
Objective: 3
5) For gift tax purposes, a $19,000 annual exclusion per donee is permitted in 2025.
Answer: TRUE
Explanation: Donors are allowed to exclude $19,000 per donee per year for gift tax purposes.
Page Ref.: I:1-8
Objective: 3
6
Copyright © 2026 Pearson Education, Inc.
,6) In 2025, an individual will be subject to gift tax on gifts made to a charity greater than $19,000.
Answer: FALSE
Explanation: Contributions to charity are not limited by the gift tax exclusion.
Page Ref.: I:1-8
Objective: 3
7) Property is generally included on an estate tax return at its historical cost basis.
Answer: FALSE
Explanation: Property is generally valued at fair market value at date of death or the alternate valuation
date.
Page Ref.: I:1-10
Objective: 3
8) Property transferred to the decedent's spouse is exempt from the estate tax because of the estate tax
marital deduction provision.
Answer: TRUE
Explanation: The estate and gift tax law allows tax exempt transfers to spouses.
Page Ref.: I:1-10
Objective: 3
9) Gifts made during a taxpayer's lifetime may affect the amount of estate tax paid by the taxpayer's
estate.
Answer: TRUE
Explanation: Gift and estate taxes are applied to cumulative transfers under the uniform tax system.
Page Ref.: I:1-10
Objective: 3
10) While federal and state income taxes, as well as the federal gift and estate taxes, are generally
progressive in nature, property taxes are proportional.
Answer: TRUE
Explanation: Property taxes are assessed on the value of property and are proportionate to the value of
the property.
Page Ref.: I:1-11
Objective: 3
11) The unified transfer tax system
A) imposes a single tax upon transfers of property during an individual's lifetime only.
B) imposes a single tax upon transfers of property during an individual's life and at death.
C) imposes a single tax upon transfers of property only at an individual's death.
D) None of the above.
Answer: B
Explanation: The gift (transfers during life) tax and estate (transfers after death) tax systems are unified.
Page Ref.: I:1-7
Objective: 3
7
Copyright © 2026 Pearson Education, Inc.
, 12) When property is transferred, the gift tax is based on
A) replacement cost of the transferred property.
B) fair market value on the date of transfer.
C) the transferor's original cost of the transferred property.
D) the transferor's depreciated cost of the transferred property.
Answer: B
Explanation: The gift tax is based on the property's fair market value on the date of transfer.
Page Ref.: I:1-8
Objective: 3
13) Paul makes the following property transfers in 2025:
• $22,000 cash to his wife
• $34,000 cash to a qualified charity
• $220,000 house to his son
• $3,000 computer to an unrelated friend
The total of Paul's taxable gifts, assuming he does not elect gift splitting with his spouse, subject to the
unified transfer tax is
A) $201,000.
B) $204,000.
C) $224,000.
D) $217,000.
Answer: A
Explanation: $220,000 - $19,000 = $201,000. The gift to the unrelated friend is below the $19,000 annual
gift tax exclusion. The gifts to his wife and to the charity are not subject to gift tax.
Page Ref.: I:1-8 and I:1-9; Example I:1-6
Objective: 3
14) Charlie makes the following gifts in 2025: $40,000 to his spouse, $30,000 to his church, $20,000 to his
nephew, and $25,000 to a friend. Assuming Charlie does not elect gift splitting with his wife, his taxable
gifts in the current year will be
A) $18,000.
B) $7,000.
C) $31,000.
D) $46,000.
Answer: B
Explanation: ($20,000 - $19,000) + (25,000 - $19,000) = $7,000. The gift to his spouse and the charitable gift
are not subject to gift taxes.
Page Ref.: I:1-8 and I:1-9; Example I:1-6
Objective: 3
8
Copyright © 2026 Pearson Education, Inc.
