,ACCESS Test Bank for Pearson's Federal Taxation 2023 Comprehensive 36th Editi
u u u u u u u u u u
on Rupert u
Chapter I:1u
An Introduction to Taxation
u u u
Discussion Questions
u
I:1-
1u TheuSupremeuCourtuheldutheuincomeutaxutoubeuunconstitutionaluinu1895ubecauseutheuincomeutaxuw
asuconsideredutoubeuaudirectutax.u Atuthatutime,utheuU.S.uConstitutionurequireduthatuanuincomeutaxubeua
pportioneduamongutheustatesuinuproportionutoutheirupopulations.u Thisutypeuofutaxusystemuwouldubeue
xtremelyudifficultutouadministerubecauseudifferenturatesuofutaxuwoulduapplyutouindividualutaxpayersud
ependinguonutheirustatesuofuresidence.u p.uI:1-2.
I:1-2u Theupay-as-you-
gouwithholdinguwasuneededuinu1943utouavoidusignificantutaxucollectionuproblemsu asu theu taxu baseu b
roadenedu fromu 6%u ofu theu populationu inu 1939u tou 74%u inu 1945.uPay-as-you-
goupermittedutheufederalugovernmentutoudeductutaxesudirectlyuoutuofuanuemployee'suwages.u p.uI:1-3.
I:1-
3u Underuauprogressiveutaxurateustructure,utheutaxurateuincreasesuasutheutaxpayer'suincomeuincreases.u
Currently,uforu2022,utaxuratesuofu10%,u12%,u22%,u24%,u32%,u35%uoru37%uapplyudependinguuponuth
eutaxpayer'sufilingustatusuandutaxableuincomeulevels.uUnderuauproportionalutaxurateuoru"flatutax"ustructu
re,utheusameutaxurateuappliesutouallutaxpayersuregardlessuofutheiruincomeulevels.uUnderuauregressiveuta
xurateustructure,utheutaxurateudecreasesuwithuanuincreaseuinuincomeulevel.u Theuconceptuofuverticaluequ
ityuholdsuthatutaxpayersuwithuhigheruincomeulevelsushouldupayuauhigheruproportionuofutaxuanduthatuth
eutaxushouldubeuborneubyuthoseuwhouhaveutheu"abilityutoupay."u Thus,uCongressmanuPatrick'suopposit
ionutoutheuflatutaxuisuphilosophicallyucorrect;uunderuauflatutaxusystem,uallutaxpayersupayutaxesuatutheusa
meurate,uregardlessuofutheuabilityutoupay.u pp.uI:1-4uanduI:1-5.
I:1-
4u Ituisupossibleuforutheugovernmentutouraiseutaxesuwithouturaisingutaxurates.u Becauseuthereuareutwouc
omponentsuinucomputinguautaxpayer'sutax,utheutaxubaseuandutheutaxurate,utaxesucanubeuraisedubyuincre
asingueitherutheurateuorutheubase.u Thus,uevenuthoughutheuGovernoruproclaimeduthatutaxuratesuhaveurem
aineduatutheusameulevel,uadjustmentsutoutheutaxubase,usuchuasutheueliminationuofudeductions,uresultuinuta
xuincreasesuwhichucanubeuasumuch,uorumore,uasuincreasesuinutaxurates.u p.uI:1-4.
I:1-
5u TheumarginalutaxurateuisuofugreaterusignificanceuinumeasuringutheutaxueffectuforuCarmen'sudecisio
n.u Theumarginalutaxurateuisutheupercentageuthatuisuappliedutouanuincrementaluamountuofutaxableuinco
meuthatuisuaddedutouorusubtractedufromutheutaxubase.u Throughutheumarginalutaxurate,utheutaxpayerumay
umeasureutheutaxueffectuofutheucharitableucontributionutouheruchurch.u Ifuherumarginalutaxurateuisu24%,
usheuwillusaveu24¢uforueachu$1ucontributedutouheruchurch.u Theuaverageutaxurateuisusimplyutheutotaluta
xuliabilityudividedubyutaxableuincome.u pp.uI:1-5uanduI:1-6.
I:1-
Copyrightu©u2023uPearsonuEducation,uInc.
I:1-1
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,6u Giftuanduestateutaxesuareulevieduwhenuautransferuofuwealthu(property)utakesuplaceuanduareubothupar
tuofutheuunifiedutransferutaxusystem.u Theutaxubaseuforucomputingutheugiftutaxuisutheufairumarketuvalueu
ofuallugiftsumadeuinutheucurrentuyearuminusuanuannualudoneeuexclusionuofu$16,000u(2022)u peru donee
,u minusu au maritalu deductionu foru giftsu tou spouseu andu au charitableu contributions
Copyrightu©u2023uPearsonuEducation,uInc.
I:1-2
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, ACCESS Test Bank for Pearson's Federal Taxation 2023 Comprehensive 36th Editi
u u u u u u u u u u
on Rupert u
deductionuifuapplicable,uplusutheuvalueuofuallutaxableugiftsuinuprioruyears.u Theutaxubaseuforutheuestateuta
xuisutheudecedent'sugrossuestate,uminusudeductionsuforuexpenses,uanduaumaritaluorucharitableudeducti
onuifuapplicable,uplusutaxableugiftsumadeuafteru1976.u pp.uI:1-7uthroughuI:1-10.
I:1-
7u u a.u u u Cathy,utheudonor,uisuprimarilyuliableuforutheugiftutaxuonutheutwougifts.u Theuchildrenuareuco
ntingentlyuliableuforupaymentuofutheugiftutaxuinutheueventutheudonorufailsutoupay.
b.
Beforeuconsideringutheuunifiedutaxucredituequivalentuofu$12.06umillionuforu2022,uaugi
ftutaxuresultsuonutheutwougiftsuforutheucurrentuyearu2022ucomputeduasufollows:
Totalugifts $100,000
Minus:uAnnualugiftutaxuexclusionu($16,000uxu2udonees)
( 32,000)u
u u
Giftutaxubase $u 68,000
SinceuCathyuhasuneverumadeugiftsuinuprioruyears,unougiftutaxuwillubeudueubecauseuofutheusubstantialuu
nifiedutaxucredituthatuisuavailable.u pp.uI:1-8uanduI:1-9.
I:1-8u Carlosuwouldureportuautaxableugainuofu$2,000u($27,000u-
u$25,000).u Hisutaxubasisuinutheustockuthatuheuinheriteduisutheufairumarketuvalueuonutheudateuofuhisufath
er’sudeath.u pp.uI:1-9uanduI:1-u10.
I:1-
9u a.u u Mostuestatesuareunotusubjectutoutheufederaluestateutaxubecauseuofugenerousucredituandudeductio
nuprovisions,usuchuasutheuunifiedutaxucredituandutheuunlimitedumaritaludeduction.u Theuunifiedutaxucreditu
equivalentuforu2022uisu$12.06umillion.u Thisumeansuthat,uatuauminimum,uforudecedentsudyinguinu2022,un
ouestateuofu$12.06umillionuorulessuwillubeusubjectutoutheufederaluestateutax.
b.u u Thisuisuaucontroversialuquestionuthatuhasuproponentsuonubothusidesuofutheuissue.u Thoseu
thatubelieveutheuestateutaxushouldubeureduceduorueliminatedubasicallyuargueuthatutheuestateutaxuisuaudou
bleutax,uthatuis,utheupropertyuofutheudecedentuhasualreadyubeenusubjectutouincomeutaxationuduringuhisu
oruherulifetimeuandushouldunotubeusubjectedutoufurtherutaxationuatudeath.u Onutheuotheruhand,upropone
ntsuofuretaininguoruincreasingutheuestateutaxubelieveuinutheuabilityutoupayuprinciple.u p.uI:1-10.
I:1-10u a. Progressive.
b. Progressive.
c. Proportional.
d. Proportional.
e. Proportional.u(However,ustateuandulocalusalesutaxesuareuconsidereduregressiveuwhenu
measureduagainstuincome).
pp.uI:1-4uanduI:1-5uanduI:1-12.
I:1-
11u Decrease.u WhenuCarolynuoperatesuherubusinessuasuausoleuproprietor,usheuisuconsideredutoubeuself
-employed.u Auself-employmentutaxuisuimposeduatutheurateuofu15.3%uforu2022u(12.4%uOASDI
+u2.9%uMedicare)uonualluofuherubusinessuincomeuwithuauceilinguonutheunon-
Copyrightu©u2023uPearsonuEducation,uInc.
I:1-3
mynursytest.store
u u u u u u u u u u
on Rupert u
Chapter I:1u
An Introduction to Taxation
u u u
Discussion Questions
u
I:1-
1u TheuSupremeuCourtuheldutheuincomeutaxutoubeuunconstitutionaluinu1895ubecauseutheuincomeutaxuw
asuconsideredutoubeuaudirectutax.u Atuthatutime,utheuU.S.uConstitutionurequireduthatuanuincomeutaxubeua
pportioneduamongutheustatesuinuproportionutoutheirupopulations.u Thisutypeuofutaxusystemuwouldubeue
xtremelyudifficultutouadministerubecauseudifferenturatesuofutaxuwoulduapplyutouindividualutaxpayersud
ependinguonutheirustatesuofuresidence.u p.uI:1-2.
I:1-2u Theupay-as-you-
gouwithholdinguwasuneededuinu1943utouavoidusignificantutaxucollectionuproblemsu asu theu taxu baseu b
roadenedu fromu 6%u ofu theu populationu inu 1939u tou 74%u inu 1945.uPay-as-you-
goupermittedutheufederalugovernmentutoudeductutaxesudirectlyuoutuofuanuemployee'suwages.u p.uI:1-3.
I:1-
3u Underuauprogressiveutaxurateustructure,utheutaxurateuincreasesuasutheutaxpayer'suincomeuincreases.u
Currently,uforu2022,utaxuratesuofu10%,u12%,u22%,u24%,u32%,u35%uoru37%uapplyudependinguuponuth
eutaxpayer'sufilingustatusuandutaxableuincomeulevels.uUnderuauproportionalutaxurateuoru"flatutax"ustructu
re,utheusameutaxurateuappliesutouallutaxpayersuregardlessuofutheiruincomeulevels.uUnderuauregressiveuta
xurateustructure,utheutaxurateudecreasesuwithuanuincreaseuinuincomeulevel.u Theuconceptuofuverticaluequ
ityuholdsuthatutaxpayersuwithuhigheruincomeulevelsushouldupayuauhigheruproportionuofutaxuanduthatuth
eutaxushouldubeuborneubyuthoseuwhouhaveutheu"abilityutoupay."u Thus,uCongressmanuPatrick'suopposit
ionutoutheuflatutaxuisuphilosophicallyucorrect;uunderuauflatutaxusystem,uallutaxpayersupayutaxesuatutheusa
meurate,uregardlessuofutheuabilityutoupay.u pp.uI:1-4uanduI:1-5.
I:1-
4u Ituisupossibleuforutheugovernmentutouraiseutaxesuwithouturaisingutaxurates.u Becauseuthereuareutwouc
omponentsuinucomputinguautaxpayer'sutax,utheutaxubaseuandutheutaxurate,utaxesucanubeuraisedubyuincre
asingueitherutheurateuorutheubase.u Thus,uevenuthoughutheuGovernoruproclaimeduthatutaxuratesuhaveurem
aineduatutheusameulevel,uadjustmentsutoutheutaxubase,usuchuasutheueliminationuofudeductions,uresultuinuta
xuincreasesuwhichucanubeuasumuch,uorumore,uasuincreasesuinutaxurates.u p.uI:1-4.
I:1-
5u TheumarginalutaxurateuisuofugreaterusignificanceuinumeasuringutheutaxueffectuforuCarmen'sudecisio
n.u Theumarginalutaxurateuisutheupercentageuthatuisuappliedutouanuincrementaluamountuofutaxableuinco
meuthatuisuaddedutouorusubtractedufromutheutaxubase.u Throughutheumarginalutaxurate,utheutaxpayerumay
umeasureutheutaxueffectuofutheucharitableucontributionutouheruchurch.u Ifuherumarginalutaxurateuisu24%,
usheuwillusaveu24¢uforueachu$1ucontributedutouheruchurch.u Theuaverageutaxurateuisusimplyutheutotaluta
xuliabilityudividedubyutaxableuincome.u pp.uI:1-5uanduI:1-6.
I:1-
Copyrightu©u2023uPearsonuEducation,uInc.
I:1-1
mynursytest.store
,6u Giftuanduestateutaxesuareulevieduwhenuautransferuofuwealthu(property)utakesuplaceuanduareubothupar
tuofutheuunifiedutransferutaxusystem.u Theutaxubaseuforucomputingutheugiftutaxuisutheufairumarketuvalueu
ofuallugiftsumadeuinutheucurrentuyearuminusuanuannualudoneeuexclusionuofu$16,000u(2022)u peru donee
,u minusu au maritalu deductionu foru giftsu tou spouseu andu au charitableu contributions
Copyrightu©u2023uPearsonuEducation,uInc.
I:1-2
mynursytest.store
, ACCESS Test Bank for Pearson's Federal Taxation 2023 Comprehensive 36th Editi
u u u u u u u u u u
on Rupert u
deductionuifuapplicable,uplusutheuvalueuofuallutaxableugiftsuinuprioruyears.u Theutaxubaseuforutheuestateuta
xuisutheudecedent'sugrossuestate,uminusudeductionsuforuexpenses,uanduaumaritaluorucharitableudeducti
onuifuapplicable,uplusutaxableugiftsumadeuafteru1976.u pp.uI:1-7uthroughuI:1-10.
I:1-
7u u a.u u u Cathy,utheudonor,uisuprimarilyuliableuforutheugiftutaxuonutheutwougifts.u Theuchildrenuareuco
ntingentlyuliableuforupaymentuofutheugiftutaxuinutheueventutheudonorufailsutoupay.
b.
Beforeuconsideringutheuunifiedutaxucredituequivalentuofu$12.06umillionuforu2022,uaugi
ftutaxuresultsuonutheutwougiftsuforutheucurrentuyearu2022ucomputeduasufollows:
Totalugifts $100,000
Minus:uAnnualugiftutaxuexclusionu($16,000uxu2udonees)
( 32,000)u
u u
Giftutaxubase $u 68,000
SinceuCathyuhasuneverumadeugiftsuinuprioruyears,unougiftutaxuwillubeudueubecauseuofutheusubstantialuu
nifiedutaxucredituthatuisuavailable.u pp.uI:1-8uanduI:1-9.
I:1-8u Carlosuwouldureportuautaxableugainuofu$2,000u($27,000u-
u$25,000).u Hisutaxubasisuinutheustockuthatuheuinheriteduisutheufairumarketuvalueuonutheudateuofuhisufath
er’sudeath.u pp.uI:1-9uanduI:1-u10.
I:1-
9u a.u u Mostuestatesuareunotusubjectutoutheufederaluestateutaxubecauseuofugenerousucredituandudeductio
nuprovisions,usuchuasutheuunifiedutaxucredituandutheuunlimitedumaritaludeduction.u Theuunifiedutaxucreditu
equivalentuforu2022uisu$12.06umillion.u Thisumeansuthat,uatuauminimum,uforudecedentsudyinguinu2022,un
ouestateuofu$12.06umillionuorulessuwillubeusubjectutoutheufederaluestateutax.
b.u u Thisuisuaucontroversialuquestionuthatuhasuproponentsuonubothusidesuofutheuissue.u Thoseu
thatubelieveutheuestateutaxushouldubeureduceduorueliminatedubasicallyuargueuthatutheuestateutaxuisuaudou
bleutax,uthatuis,utheupropertyuofutheudecedentuhasualreadyubeenusubjectutouincomeutaxationuduringuhisu
oruherulifetimeuandushouldunotubeusubjectedutoufurtherutaxationuatudeath.u Onutheuotheruhand,upropone
ntsuofuretaininguoruincreasingutheuestateutaxubelieveuinutheuabilityutoupayuprinciple.u p.uI:1-10.
I:1-10u a. Progressive.
b. Progressive.
c. Proportional.
d. Proportional.
e. Proportional.u(However,ustateuandulocalusalesutaxesuareuconsidereduregressiveuwhenu
measureduagainstuincome).
pp.uI:1-4uanduI:1-5uanduI:1-12.
I:1-
11u Decrease.u WhenuCarolynuoperatesuherubusinessuasuausoleuproprietor,usheuisuconsideredutoubeuself
-employed.u Auself-employmentutaxuisuimposeduatutheurateuofu15.3%uforu2022u(12.4%uOASDI
+u2.9%uMedicare)uonualluofuherubusinessuincomeuwithuauceilinguonutheunon-
Copyrightu©u2023uPearsonuEducation,uInc.
I:1-3
mynursytest.store
