TEST BANK FOR
South-Western Federal Taxation 2025 Individual Income Taxes, 45th Edition
Chapter 1-20
Name: Class: Date:
chapter 1
Indicate whether the statement is true or false.
1. If a special agent becomes involved in the audit of a return, this indicates that the IRS suspects that fraud is involved.
a. True
b. False
2. 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.
a. True
b. False
3. 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.
a. True
b. False
4. No state may offer an income tax amnesty program more than once.
a. True
b. False
5. When interest is charged on a deficiency, any part of a month counts as a full month.
a. True
b. False
6. Stealth taxes have the effect of generating additional taxes from all taxpayers.
a. True
b. False
7. The amount of a taxpayer’s itemized deductions will increase the chance of being audited by the IRS.
a. True
b. False
8. The majority of IRS audits are handled by correspondence.
a. True
b. False
9. 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.
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, a. True
b. False
10. The civil fraud penalty can entail large fines and possible incarceration.
a. True
b. False
11. 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.
a. True
b. False
12. To mitigate the effect of the annual accounting period concept, the tax law permits the carryforward of excess
charitable contributions of a particular year to other years.
a. True
b. False
13. There is a Federal excise tax on hotel occupancy.
a. True
b. False
14. Currently, the tax base for the Social Security component of the FICA is not limited to a dollar amount.
a. True
b. False
15. Currently, the Federal corporate income tax is less progressive than the individual income tax.
a. True
b. False
16. The Federal excise tax on gasoline is an example of a proportional tax.
a. True
b. False
17. 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.
a. True
b. False
18. If more IRS audits are producing a higher number of no change results, this indicates increased compliance on the part
of taxpayers.
a. True
b. False
19. In preparing a tax return, all questions on the return must be answered.
a. True
b. False
20. 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.
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, a. True
b. False
21. 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.
a. True
b. False
22. The formula for the Federal income tax on corporations is the same as that applicable to individuals.
a. True
b. False
23. The annual exclusion, currently $15,000, is available for gift and estate tax purposes.
a. True
b. False
24. One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from
being accumulated within a family unit.
a. True
b. False
25. Under state amnesty programs, all delinquent and unpaid income taxes are forgiven.
a. True
b. False
26. For state income tax purposes, a majority of states allow a deduction for Federal income taxes.
a. True
b. False
27. The IRS is required to redetermine the interest rate on underpayments and overpayments once a year.
a. True
b. False
28. A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis.
a. True
b. False
29. A major advantage of a flat tax type of income tax is its simplicity.
a. True
b. False
30. Various tax provisions encourage the creation of certain types of retirement plans. Such provisions can be justified on
both economic and social grounds.
a. True
b. False
31. One of the motivations for making a gift is to save on income taxes.
a. True
b. False
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, 32. Some states use their state income tax return as a means of collecting unpaid sales and use taxes.
a. True
b. False
33. A calendar year taxpayer files his 2019 Federal income tax return on March 4, 2020. The return reflects an
overpayment of $6,000, and the taxpayer requests a refund of this amount. The refund is paid on May 16, 2020. The
refund need not include interest.
a. True
b. False
34. When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax
purposes.
a. True
b. False
35. For the negligence penalty to apply, the underpayment must be caused by intentional disregard of rules and
regulations without intent to defraud.
a. True
b. False
36. 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.
a. True
b. False
37. The amount of the state excise taxes on gasoline varies from state to state.
a. True
b. False
38. 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.
a. True
b. False
39. An office audit by the IRS takes place at the office of the taxpayer.
a. True
b. False
40. The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business
use personalty.
a. True
b. False
41. The value added tax (VAT) has not had wide acceptance in the international community.
a. True
b. False
42. Jason’s business warehouse is destroyed by fire. Because 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
Copyright Cengage Learning. Powered by Cognero. Page 4
South-Western Federal Taxation 2025 Individual Income Taxes, 45th Edition
Chapter 1-20
Name: Class: Date:
chapter 1
Indicate whether the statement is true or false.
1. If a special agent becomes involved in the audit of a return, this indicates that the IRS suspects that fraud is involved.
a. True
b. False
2. 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.
a. True
b. False
3. 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.
a. True
b. False
4. No state may offer an income tax amnesty program more than once.
a. True
b. False
5. When interest is charged on a deficiency, any part of a month counts as a full month.
a. True
b. False
6. Stealth taxes have the effect of generating additional taxes from all taxpayers.
a. True
b. False
7. The amount of a taxpayer’s itemized deductions will increase the chance of being audited by the IRS.
a. True
b. False
8. The majority of IRS audits are handled by correspondence.
a. True
b. False
9. 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.
Copyright Cengage Learning. Powered by Cognero. Page 1
, a. True
b. False
10. The civil fraud penalty can entail large fines and possible incarceration.
a. True
b. False
11. 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.
a. True
b. False
12. To mitigate the effect of the annual accounting period concept, the tax law permits the carryforward of excess
charitable contributions of a particular year to other years.
a. True
b. False
13. There is a Federal excise tax on hotel occupancy.
a. True
b. False
14. Currently, the tax base for the Social Security component of the FICA is not limited to a dollar amount.
a. True
b. False
15. Currently, the Federal corporate income tax is less progressive than the individual income tax.
a. True
b. False
16. The Federal excise tax on gasoline is an example of a proportional tax.
a. True
b. False
17. 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.
a. True
b. False
18. If more IRS audits are producing a higher number of no change results, this indicates increased compliance on the part
of taxpayers.
a. True
b. False
19. In preparing a tax return, all questions on the return must be answered.
a. True
b. False
20. 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.
Copyright Cengage Learning. Powered by Cognero. Page 2
, a. True
b. False
21. 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.
a. True
b. False
22. The formula for the Federal income tax on corporations is the same as that applicable to individuals.
a. True
b. False
23. The annual exclusion, currently $15,000, is available for gift and estate tax purposes.
a. True
b. False
24. One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from
being accumulated within a family unit.
a. True
b. False
25. Under state amnesty programs, all delinquent and unpaid income taxes are forgiven.
a. True
b. False
26. For state income tax purposes, a majority of states allow a deduction for Federal income taxes.
a. True
b. False
27. The IRS is required to redetermine the interest rate on underpayments and overpayments once a year.
a. True
b. False
28. A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis.
a. True
b. False
29. A major advantage of a flat tax type of income tax is its simplicity.
a. True
b. False
30. Various tax provisions encourage the creation of certain types of retirement plans. Such provisions can be justified on
both economic and social grounds.
a. True
b. False
31. One of the motivations for making a gift is to save on income taxes.
a. True
b. False
Copyright Cengage Learning. Powered by Cognero. Page 3
, 32. Some states use their state income tax return as a means of collecting unpaid sales and use taxes.
a. True
b. False
33. A calendar year taxpayer files his 2019 Federal income tax return on March 4, 2020. The return reflects an
overpayment of $6,000, and the taxpayer requests a refund of this amount. The refund is paid on May 16, 2020. The
refund need not include interest.
a. True
b. False
34. When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax
purposes.
a. True
b. False
35. For the negligence penalty to apply, the underpayment must be caused by intentional disregard of rules and
regulations without intent to defraud.
a. True
b. False
36. 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.
a. True
b. False
37. The amount of the state excise taxes on gasoline varies from state to state.
a. True
b. False
38. 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.
a. True
b. False
39. An office audit by the IRS takes place at the office of the taxpayer.
a. True
b. False
40. The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business
use personalty.
a. True
b. False
41. The value added tax (VAT) has not had wide acceptance in the international community.
a. True
b. False
42. Jason’s business warehouse is destroyed by fire. Because 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
Copyright Cengage Learning. Powered by Cognero. Page 4
