TestbbankbIncomebTax
CHAPTER 1: AN INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAW
b b b b b b b b b b b
1. ThebratificationbofbthebSixteenthbAmendmentbtobthebU.S.bConstitutionbwasbnecessarybtobvalidatebtheb
Federalbincomebtaxbonbcorporations.
a. True
b. False
ANSWER: False
RATIONALE:b ThebSixteenthbAmendmentbvalidatedbonlybthebtaxbonbindividuals.bThebincomebtaxbonbcorporationsbh
adbbeenbpreviouslybsanctionedbbybthebcourts.
2. BeforebthebSixteenthbAmendmentbtobthebConstitutionbwasbratified,btherebwasbnobvalidbFederalbincomeb
taxbonbindividuals.
a. True
b. False
ANSWER: False
RATIONALE:
TherebexistedbabFederalbincomebtaxbduring bthebCivilbWarbthatbwasbsanctionedbbybthebU.S.b
SupremebCourt.
3. Thebfirstbincomebtaxbonbindividualsb(after bthebratificationbofbthebSixteenthbAmendmentbtobtheb
Constitution)bleviedbtaxbratesbfrombablowbofb2%btobabhighbofb6%.
a. True
b. False
ANSWER: True
4. ThebFederalbincomebtaxbonbindividualsbgeneratesbmorebrevenuebthanbthebFederalbincomebtaxbonb
1
,TestbbankbIncomebTax
corporations.
2
,TestbbankbIncomebTax
a. True
b. False
ANSWER: True
5. ThebpayasyougobfeaturebofbthebFederalbincomebtaxbonbindividualsbconformsbtobAdambSmith’sbcanonbofb
certainty.
a. True
b. False
ANSWER: False
RATIONALE:b Pay-as-you-
gobrefersbtobthebwithholding bprovisionsbapplicablebtobwagesbandbother btypesbofbincomebandbaddsbconveniencebtob
thebtaxbsystem.
6. Becausebtheblawbisbcomplicated,bmostbindividual btaxpayersbarebnotbablebtobcompletebtheirbFederalb
incomebtaxbreturnsbwithoutboutsidebassistance.
a. True
b. False
ANSWER: True
RATIONALE:b Approximatelyb60%busebtaxbreturnbpreparers,bwhilebslightlybmorebthanb32%bpurchasebtaxbreturnbsoftwar
e.
7. ThebFICAbtaxb(Medicarebcomponent)bonbwagesbisbprogressivebsincebthebtaxbduebincreasesbasbwagesb
increase.
a. True
b. False
ANSWER: False
RATIONALE:b ThebFICAbtaxb(Medicarebcomponent)bisbproportional bbecausebthebratebisbconstantbregardlessbofbthebwag
esbearned.
3
, TestbbankbIncomebTax
8. ThebFederalbestatebandbgiftbtaxesbarebexamplesbofbprogressivebtaxes.
a. True
b. False
ANSWER: True
9. ThebFederalbexcisebtaxbonbcigarettesbisbanbexamplebofbabproportional btax.
a. True
b. False
ANSWER: True
RATIONALE:b Thebtaxbisbabflatb$1.01bper bpack.
10. Currently,bthebFederalbincomebtaxbisblessbprogressivebthanbitbever bhasbbeenbinbthebpast.
a. True
b. False
ANSWER: False
RATIONALE:b Currently,bthebFederalbincomebtaxbhasbsixbrates.bAtbonebtime,bitbhadbtwobrates.
11. Monabinheritsbherbmother’sbpersonalbresidence,bwhichbshebconvertsbtobabfurnishedbrentbhouse.bTheseb
changesbshouldbaffectbthebamountbofbadbvalorembpropertybtaxesbleviedbonbthebproperties.
a. True
b. False
ANSWER: True
RATIONALE:bConversionbfrombresidentialbtobrentalbusebwillbincreasebthebtaxes.bFurthermore,bMona’sbmother b
maybhavebhadbabseniorbcitizenbexemptionbonbthebproperty,bwhichbwillbnoblongerbbebappropriate.bLastly,btheb
furnishingsbinbthebrentbhousebcouldbnowbbebsubjectbtobanbadbvalorembtaxbonbpersonalty.
4
CHAPTER 1: AN INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAW
b b b b b b b b b b b
1. ThebratificationbofbthebSixteenthbAmendmentbtobthebU.S.bConstitutionbwasbnecessarybtobvalidatebtheb
Federalbincomebtaxbonbcorporations.
a. True
b. False
ANSWER: False
RATIONALE:b ThebSixteenthbAmendmentbvalidatedbonlybthebtaxbonbindividuals.bThebincomebtaxbonbcorporationsbh
adbbeenbpreviouslybsanctionedbbybthebcourts.
2. BeforebthebSixteenthbAmendmentbtobthebConstitutionbwasbratified,btherebwasbnobvalidbFederalbincomeb
taxbonbindividuals.
a. True
b. False
ANSWER: False
RATIONALE:
TherebexistedbabFederalbincomebtaxbduring bthebCivilbWarbthatbwasbsanctionedbbybthebU.S.b
SupremebCourt.
3. Thebfirstbincomebtaxbonbindividualsb(after bthebratificationbofbthebSixteenthbAmendmentbtobtheb
Constitution)bleviedbtaxbratesbfrombablowbofb2%btobabhighbofb6%.
a. True
b. False
ANSWER: True
4. ThebFederalbincomebtaxbonbindividualsbgeneratesbmorebrevenuebthanbthebFederalbincomebtaxbonb
1
,TestbbankbIncomebTax
corporations.
2
,TestbbankbIncomebTax
a. True
b. False
ANSWER: True
5. ThebpayasyougobfeaturebofbthebFederalbincomebtaxbonbindividualsbconformsbtobAdambSmith’sbcanonbofb
certainty.
a. True
b. False
ANSWER: False
RATIONALE:b Pay-as-you-
gobrefersbtobthebwithholding bprovisionsbapplicablebtobwagesbandbother btypesbofbincomebandbaddsbconveniencebtob
thebtaxbsystem.
6. Becausebtheblawbisbcomplicated,bmostbindividual btaxpayersbarebnotbablebtobcompletebtheirbFederalb
incomebtaxbreturnsbwithoutboutsidebassistance.
a. True
b. False
ANSWER: True
RATIONALE:b Approximatelyb60%busebtaxbreturnbpreparers,bwhilebslightlybmorebthanb32%bpurchasebtaxbreturnbsoftwar
e.
7. ThebFICAbtaxb(Medicarebcomponent)bonbwagesbisbprogressivebsincebthebtaxbduebincreasesbasbwagesb
increase.
a. True
b. False
ANSWER: False
RATIONALE:b ThebFICAbtaxb(Medicarebcomponent)bisbproportional bbecausebthebratebisbconstantbregardlessbofbthebwag
esbearned.
3
, TestbbankbIncomebTax
8. ThebFederalbestatebandbgiftbtaxesbarebexamplesbofbprogressivebtaxes.
a. True
b. False
ANSWER: True
9. ThebFederalbexcisebtaxbonbcigarettesbisbanbexamplebofbabproportional btax.
a. True
b. False
ANSWER: True
RATIONALE:b Thebtaxbisbabflatb$1.01bper bpack.
10. Currently,bthebFederalbincomebtaxbisblessbprogressivebthanbitbever bhasbbeenbinbthebpast.
a. True
b. False
ANSWER: False
RATIONALE:b Currently,bthebFederalbincomebtaxbhasbsixbrates.bAtbonebtime,bitbhadbtwobrates.
11. Monabinheritsbherbmother’sbpersonalbresidence,bwhichbshebconvertsbtobabfurnishedbrentbhouse.bTheseb
changesbshouldbaffectbthebamountbofbadbvalorembpropertybtaxesbleviedbonbthebproperties.
a. True
b. False
ANSWER: True
RATIONALE:bConversionbfrombresidentialbtobrentalbusebwillbincreasebthebtaxes.bFurthermore,bMona’sbmother b
maybhavebhadbabseniorbcitizenbexemptionbonbthebproperty,bwhichbwillbnoblongerbbebappropriate.bLastly,btheb
furnishingsbinbthebrentbhousebcouldbnowbbebsubjectbtobanbadbvalorembtaxbonbpersonalty.
4
