TEST BANK for Income Tax Fundamentals 42nd Edition by Gerald Whittenburg, All Chapters 1-12

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CHAPTER1: AN INTRODUCTION TOTAXATION AND UNDERSTANDING THE FEDERAL TAX LAW
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1. ThejratificationjofjthejSixteenthjAmendmentjtojthejU.S.jConstitutionjwasjnecessaryjtojvalidatejthejFed
eraljincomejtaxjonjcorporations.
a. True
b. False


ANSWER: False
RATIONALE:j ThejSixteenthjAmendmentjvalidatedjonlyjthejtaxjonjindividuals.jThejincomejtaxjonjcorporationsjhadjb
eenjpreviouslyjsanctionedjbyjthejcourts.


2. BeforejthejSixteenthjAmendmentjtojthejConstitutionjwasjratified,jtherejwasjnojvalidjFederaljincomejtaxj
onjindividuals.
a. True
b. False


ANSWER: False
RATIONALE:
TherejexistedjajFederaljincomejtaxjduringjthejCiviljWarjthatjwasjsanctionedjbyjthejU.S.jSupr
emejCourt.


3. Thejfirstjincomejtaxjonjindividualsj(afterjthejratificationjofjthejSixteenthjAmendmentjtojthejCon
stitution)jleviedjtaxjratesjfromjajlowjofj2%jtojajhighjofj6%.
a. True
b. False


ANSWER: True


4. ThejFederaljincomejtaxjonjindividualsjgeneratesjmorejrevenuejthanjthejFederaljincomejtaxjonjcorp
1

,TestjbankjIncomejTax
orations.




2

,TestjbankjIncomejTax



a. True
b. False


ANSWER: True


5. ThejpayasyougojfeaturejofjthejFederaljincomejtaxjonjindividualsjconformsjtojAdamjSmith’sjcanonjofjcert
ainty.
a. True
b. False


ANSWER: False
RATIONALE:j Pay-as-you-
gojrefersjtojthejwithholdingjprovisionsjapplicablejtojwagesjandjotherjtypesjofjincomejandjaddsjconveniencejtojthejt
axjsystem.


6. Becausejthejlawjisjcomplicated,jmostjindividualjtaxpayersjarejnotjablejtojcompletejtheirjFederaljinco
mejtaxjreturnsjwithoutjoutsidejassistance.
a. True
b. False


ANSWER: True
RATIONALE:j Approximatelyj60%jusejtaxjreturnjpreparers,jwhilejslightlyjmorejthanj32%jpurchasejtaxjreturnjsoftware.
7. ThejFICAjtaxj(Medicarejcomponent)jonjwagesjisjprogressivejsincejthejtaxjduejincreasesjasjwagesjincre
ase.
a. True
b. False


ANSWER: False
RATIONALE:j ThejFICAjtaxj(Medicarejcomponent)jisjproportionaljbecausejthejratejisjconstantjregardlessjofjthejwagesjear
ned.



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, TestjbankjIncomejTax



8. ThejFederaljestatejandjgiftjtaxesjarejexamplesjofjprogressivejtaxes.
a. True
b. False


ANSWER: True


9. ThejFederaljexcisejtaxjonjcigarettesjisjanjexamplejofjajproportionaljtax.
a. True
b. False


ANSWER: True
RATIONALE:j Thejtaxjisjajflatj$1.01jperjpack.


10. Currently,jthejFederaljincomejtaxjisjlessjprogressivejthanjitjeverjhasjbeenjinjthejpast.
a. True
b. False


ANSWER: False
RATIONALE:j Currently,jthejFederaljincomejtaxjhasjsixjrates.jAtjonejtime,jitjhadjtwojrates.


11. Monajinheritsjherjmother’sjpersonaljresidence,jwhichjshejconvertsjtojajfurnishedjrentjhouse.jThesejcha
ngesjshouldjaffectjthejamountjofjadjvaloremjpropertyjtaxesjleviedjonjthejproperties.
a. True
b. False


ANSWER: True
RATIONALE:jConversionjfromjresidentialjtojrentaljusejwilljincreasejthejtaxes.jFurthermore,jMona’sjmotherjma
yjhavejhadjajseniorjcitizenjexemptionjonjthejproperty,jwhichjwilljnojlongerjbejappropriate.jLastly,jthejfurnishi
ngsjinjthejrentjhousejcouldjnowjbejsubjectjtojanjadjvaloremjtaxjonjpersonalty.



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