TestwbankwIncomewTax
CHAPTER 1: AN INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAW
w w w w w w w w w w w
1. ThewratificationwofwthewSixteenthwAmendmentwtowthewU.S.wConstitutionwwaswnecessarywtowvalidatewt
hewFederalwincomewtaxwonwcorporations.
a. True
b. False
ANSWER: False
RATIONALE:w ThewSixteenthwAmendmentwvalidatedwonlywthewtaxwonwindividuals.wThewincomewtaxwonwcorporation
swhadwbeenwpreviouslywsanctionedwbywthewcourts.
2. BeforewthewSixteenthwAmendmentwtowthewConstitutionwwaswratified,wtherewwaswnowvalidwFederalwinco
mewtaxwonwindividuals.
a. True
b. False
ANSWER: False
RATIONALE:
TherewexistedwawFederalwincomewtaxwduringwthewCivilwWarwthatwwaswsanctionedwbywthewU
.S.wSupremewCourt.
3. Thewfirstwincomewtaxwonwindividualsw(afterwthewratificationwofwthewSixteenthwAmendmentwtowt
hewConstitution)wleviedwtaxwrateswfromwawlowwofw2%wtowawhighwofw6%.
a. True
b. False
ANSWER: True
4. ThewFederalwincomewtaxwonwindividualswgenerateswmorewrevenuewthanwthewFederalwincomewtaxw
1
,onwcorporations.
2
,a. True
b. False
ANSWER: True
5. ThewpayasyougowfeaturewofwthewFederalwincomewtaxwonwindividualswconformswtowAdamwSmith’swcanon
wofwcertainty.
a. True
b. False
ANSWER: False
RATIONALE:w Pay-as-you-
gowreferswtowthewwithholdingwprovisionswapplicablewtowwageswandwotherwtypeswofwincomewandwaddswconvenience
wtowthewtaxwsystem.
6. Becausewthewlawwiswcomplicated,wmostwindividualwtaxpayerswarewnotwablewtowcompletewtheirwFede
ralwincomewtaxwreturnswwithoutwoutsidewassistance.
a. True
b. False
ANSWER: True
RATIONALE:w Approximatelyw60%wusewtaxwreturnwpreparers,wwhilewslightlywmorewthanw32%wpurchasewtaxwreturnwsoft
ware.
7. ThewFICAwtaxw(Medicarewcomponent)wonwwageswiswprogressivewsincewthewtaxwduewincreaseswaswwag
eswincrease.
a. True
b. False
ANSWER: False
RATIONALE:w ThewFICAwtaxw(Medicarewcomponent)wiswproportionalwbecausewthewratewiswconstantwregardlesswofwtheww
ageswearned.
3
, 8. ThewFederalwestatewandwgiftwtaxeswarewexampleswofwprogressivewtaxes.
a. True
b. False
ANSWER: True
9. ThewFederalwexcisewtaxwonwcigaretteswiswanwexamplewofwawproportionalwtax.
a. True
b. False
ANSWER: True
RATIONALE:w Thewtaxwiswawflatw$1.01wperwpack.
10. Currently,wthewFederalwincomewtaxwiswlesswprogressivewthanwitweverwhaswbeenwinwthewpast.
a. True
b. False
ANSWER: False
RATIONALE:w Currently,wthewFederalwincomewtaxwhaswsixwrates.wAtwonewtime,witwhadwtwowrates.
11. Monawinheritswherwmother’swpersonalwresidence,wwhichwshewconvertswtowawfurnishedwrentwhouse.wThe
sewchangeswshouldwaffectwthewamountwofwadwvaloremwpropertywtaxeswleviedwonwthewproperties.
a. True
b. False
ANSWER: True
RATIONALE:wConversionwfromwresidentialwtowrentalwusewwillwincreasewthewtaxes.wFurthermore,wMona’swmotherw
maywhavewhadwawseniorwcitizenwexemptionwonwthewproperty,wwhichwwillwnowlongerwbewappropriate.wLastly,wthe
wfurnishingswinwthewrentwhousewcouldwnowwbewsubjectwtowanwadwvaloremwtaxwonwpersonalty.
4
CHAPTER 1: AN INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAW
w w w w w w w w w w w
1. ThewratificationwofwthewSixteenthwAmendmentwtowthewU.S.wConstitutionwwaswnecessarywtowvalidatewt
hewFederalwincomewtaxwonwcorporations.
a. True
b. False
ANSWER: False
RATIONALE:w ThewSixteenthwAmendmentwvalidatedwonlywthewtaxwonwindividuals.wThewincomewtaxwonwcorporation
swhadwbeenwpreviouslywsanctionedwbywthewcourts.
2. BeforewthewSixteenthwAmendmentwtowthewConstitutionwwaswratified,wtherewwaswnowvalidwFederalwinco
mewtaxwonwindividuals.
a. True
b. False
ANSWER: False
RATIONALE:
TherewexistedwawFederalwincomewtaxwduringwthewCivilwWarwthatwwaswsanctionedwbywthewU
.S.wSupremewCourt.
3. Thewfirstwincomewtaxwonwindividualsw(afterwthewratificationwofwthewSixteenthwAmendmentwtowt
hewConstitution)wleviedwtaxwrateswfromwawlowwofw2%wtowawhighwofw6%.
a. True
b. False
ANSWER: True
4. ThewFederalwincomewtaxwonwindividualswgenerateswmorewrevenuewthanwthewFederalwincomewtaxw
1
,onwcorporations.
2
,a. True
b. False
ANSWER: True
5. ThewpayasyougowfeaturewofwthewFederalwincomewtaxwonwindividualswconformswtowAdamwSmith’swcanon
wofwcertainty.
a. True
b. False
ANSWER: False
RATIONALE:w Pay-as-you-
gowreferswtowthewwithholdingwprovisionswapplicablewtowwageswandwotherwtypeswofwincomewandwaddswconvenience
wtowthewtaxwsystem.
6. Becausewthewlawwiswcomplicated,wmostwindividualwtaxpayerswarewnotwablewtowcompletewtheirwFede
ralwincomewtaxwreturnswwithoutwoutsidewassistance.
a. True
b. False
ANSWER: True
RATIONALE:w Approximatelyw60%wusewtaxwreturnwpreparers,wwhilewslightlywmorewthanw32%wpurchasewtaxwreturnwsoft
ware.
7. ThewFICAwtaxw(Medicarewcomponent)wonwwageswiswprogressivewsincewthewtaxwduewincreaseswaswwag
eswincrease.
a. True
b. False
ANSWER: False
RATIONALE:w ThewFICAwtaxw(Medicarewcomponent)wiswproportionalwbecausewthewratewiswconstantwregardlesswofwtheww
ageswearned.
3
, 8. ThewFederalwestatewandwgiftwtaxeswarewexampleswofwprogressivewtaxes.
a. True
b. False
ANSWER: True
9. ThewFederalwexcisewtaxwonwcigaretteswiswanwexamplewofwawproportionalwtax.
a. True
b. False
ANSWER: True
RATIONALE:w Thewtaxwiswawflatw$1.01wperwpack.
10. Currently,wthewFederalwincomewtaxwiswlesswprogressivewthanwitweverwhaswbeenwinwthewpast.
a. True
b. False
ANSWER: False
RATIONALE:w Currently,wthewFederalwincomewtaxwhaswsixwrates.wAtwonewtime,witwhadwtwowrates.
11. Monawinheritswherwmother’swpersonalwresidence,wwhichwshewconvertswtowawfurnishedwrentwhouse.wThe
sewchangeswshouldwaffectwthewamountwofwadwvaloremwpropertywtaxeswleviedwonwthewproperties.
a. True
b. False
ANSWER: True
RATIONALE:wConversionwfromwresidentialwtowrentalwusewwillwincreasewthewtaxes.wFurthermore,wMona’swmotherw
maywhavewhadwawseniorwcitizenwexemptionwonwthewproperty,wwhichwwillwnowlongerwbewappropriate.wLastly,wthe
wfurnishingswinwthewrentwhousewcouldwnowwbewsubjectwtowanwadwvaloremwtaxwonwpersonalty.
4
