TestgbankgIncomegTax
CHAPTER 1: AN INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAW
g g g g g g g g g g g
1. ThegratificationgofgthegSixteenthgAmendmentgtogthegU.S.gConstitutiongwasgnecessarygtogvalidategth
egFederalgincomegtaxgongcorporations.
a. True
b. False
ANSWER: False
RATIONALE:g ThegSixteenthgAmendmentgvalidatedgonlygthegtaxgongindividuals.gThegincomegtaxgongcorporations
ghadgbeengpreviouslygsanctionedgbygthegcourts.
2. BeforegthegSixteenthgAmendmentgtogthegConstitutiongwasgratified,gtheregwasgnogvalidgFederalgincom
egtaxgongindividuals.
a. True
b. False
ANSWER: False
RATIONALE:
TheregexistedgagFederalgincomegtaxgduringgthegCivilgWargthatgwasgsanctionedgbygthegU.
S.gSupremegCourt.
3. Thegfirstgincomegtaxgongindividualsg(aftergthegratificationgofgthegSixteenthgAmendmentgtogth
egConstitution)gleviedgtaxgratesgfromgaglowgofg2%gtogaghighgofg6%.
a. True
b. False
ANSWER: True
4. ThegFederalgincomegtaxgongindividualsggeneratesgmoregrevenuegthangthegFederalgincomegtaxgo
1
,ngcorporations.
2
,a. True
b. False
ANSWER: True
5. ThegpayasyougogfeaturegofgthegFederalgincomegtaxgongindividualsgconformsgtogAdamgSmith’sgcanong
ofgcertainty.
a. True
b. False
ANSWER: False
RATIONALE:g Pay-as-you-
gogrefersgtogthegwithholdinggprovisionsgapplicablegtogwagesgandgothergtypesgofgincomegandgaddsgconvenienceg
togthegtaxgsystem.
6. Becausegtheglawgisgcomplicated,gmostgindividualgtaxpayersgaregnotgablegtogcompletegtheirgFeder
algincomegtaxgreturnsgwithoutgoutsidegassistance.
a. True
b. False
ANSWER: True
RATIONALE:g Approximatelyg60%gusegtaxgreturngpreparers,gwhilegslightlygmoregthang32%gpurchasegtaxgreturngsoftw
are.
7. ThegFICAgtaxg(Medicaregcomponent)gongwagesgisgprogressivegsincegthegtaxgduegincreasesgasgwag
esgincrease.
a. True
b. False
ANSWER: False
RATIONALE:g ThegFICAgtaxg(Medicaregcomponent)gisgproportionalgbecausegthegrategisgconstantgregardlessgofgthegw
agesgearned.
3
, 8. ThegFederalgestategandggiftgtaxesgaregexamplesgofgprogressivegtaxes.
a. True
b. False
ANSWER: True
9. ThegFederalgexcisegtaxgongcigarettesgisgangexamplegofgagproportionalgtax.
a. True
b. False
ANSWER: True
RATIONALE:g Thegtaxgisgagflatg$1.01gpergpack.
10. Currently,gthegFederalgincomegtaxgisglessgprogressivegthangitgeverghasgbeengingthegpast.
a. True
b. False
ANSWER: False
RATIONALE:g Currently,gthegFederalgincomegtaxghasgsixgrates.gAtgonegtime,gitghadgtwogrates.
11. Monaginheritsghergmother’sgpersonalgresidence,gwhichgshegconvertsgtogagfurnishedgrentghouse.gThes
egchangesgshouldgaffectgthegamountgofgadgvaloremgpropertygtaxesgleviedgongthegproperties.
a. True
b. False
ANSWER: True
RATIONALE:gConversiongfromgresidentialgtogrentalgusegwillgincreasegthegtaxes.gFurthermore,gMona’sgmotherg
mayghaveghadgagseniorgcitizengexemptiongongthegproperty,gwhichgwillgnoglongergbegappropriate.gLastly,gtheg
furnishingsgingthegrentghousegcouldgnowgbegsubjectgtogangadgvaloremgtaxgongpersonalty.
4
CHAPTER 1: AN INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAW
g g g g g g g g g g g
1. ThegratificationgofgthegSixteenthgAmendmentgtogthegU.S.gConstitutiongwasgnecessarygtogvalidategth
egFederalgincomegtaxgongcorporations.
a. True
b. False
ANSWER: False
RATIONALE:g ThegSixteenthgAmendmentgvalidatedgonlygthegtaxgongindividuals.gThegincomegtaxgongcorporations
ghadgbeengpreviouslygsanctionedgbygthegcourts.
2. BeforegthegSixteenthgAmendmentgtogthegConstitutiongwasgratified,gtheregwasgnogvalidgFederalgincom
egtaxgongindividuals.
a. True
b. False
ANSWER: False
RATIONALE:
TheregexistedgagFederalgincomegtaxgduringgthegCivilgWargthatgwasgsanctionedgbygthegU.
S.gSupremegCourt.
3. Thegfirstgincomegtaxgongindividualsg(aftergthegratificationgofgthegSixteenthgAmendmentgtogth
egConstitution)gleviedgtaxgratesgfromgaglowgofg2%gtogaghighgofg6%.
a. True
b. False
ANSWER: True
4. ThegFederalgincomegtaxgongindividualsggeneratesgmoregrevenuegthangthegFederalgincomegtaxgo
1
,ngcorporations.
2
,a. True
b. False
ANSWER: True
5. ThegpayasyougogfeaturegofgthegFederalgincomegtaxgongindividualsgconformsgtogAdamgSmith’sgcanong
ofgcertainty.
a. True
b. False
ANSWER: False
RATIONALE:g Pay-as-you-
gogrefersgtogthegwithholdinggprovisionsgapplicablegtogwagesgandgothergtypesgofgincomegandgaddsgconvenienceg
togthegtaxgsystem.
6. Becausegtheglawgisgcomplicated,gmostgindividualgtaxpayersgaregnotgablegtogcompletegtheirgFeder
algincomegtaxgreturnsgwithoutgoutsidegassistance.
a. True
b. False
ANSWER: True
RATIONALE:g Approximatelyg60%gusegtaxgreturngpreparers,gwhilegslightlygmoregthang32%gpurchasegtaxgreturngsoftw
are.
7. ThegFICAgtaxg(Medicaregcomponent)gongwagesgisgprogressivegsincegthegtaxgduegincreasesgasgwag
esgincrease.
a. True
b. False
ANSWER: False
RATIONALE:g ThegFICAgtaxg(Medicaregcomponent)gisgproportionalgbecausegthegrategisgconstantgregardlessgofgthegw
agesgearned.
3
, 8. ThegFederalgestategandggiftgtaxesgaregexamplesgofgprogressivegtaxes.
a. True
b. False
ANSWER: True
9. ThegFederalgexcisegtaxgongcigarettesgisgangexamplegofgagproportionalgtax.
a. True
b. False
ANSWER: True
RATIONALE:g Thegtaxgisgagflatg$1.01gpergpack.
10. Currently,gthegFederalgincomegtaxgisglessgprogressivegthangitgeverghasgbeengingthegpast.
a. True
b. False
ANSWER: False
RATIONALE:g Currently,gthegFederalgincomegtaxghasgsixgrates.gAtgonegtime,gitghadgtwogrates.
11. Monaginheritsghergmother’sgpersonalgresidence,gwhichgshegconvertsgtogagfurnishedgrentghouse.gThes
egchangesgshouldgaffectgthegamountgofgadgvaloremgpropertygtaxesgleviedgongthegproperties.
a. True
b. False
ANSWER: True
RATIONALE:gConversiongfromgresidentialgtogrentalgusegwillgincreasegthegtaxes.gFurthermore,gMona’sgmotherg
mayghaveghadgagseniorgcitizengexemptiongongthegproperty,gwhichgwillgnoglongergbegappropriate.gLastly,gtheg
furnishingsgingthegrentghousegcouldgnowgbegsubjectgtogangadgvaloremgtaxgongpersonalty.
4
