Test Bank for South-Western Federal Taxation 2026: Individual Income Taxes, 29th Edition by Young, Nellen

Chapter 01 - 2026 Complete Chapters Included

Indicate whether the statement is true or false.
1. In preparing a tax return, all questions on the return must be answered.
a. True
b. False

ANSWER: False

2. The formula for the Federal income tax on corporations is the same as that applicable to individuals.
a. True
b. False

ANSWER: False
3. A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty.
a. True
b. False

ANSWER: False
4. An inheritance tax is a tax on a decedent’s right to pass property at death.
a. True
b. False

ANSWER: False
5. A major advantage of a flat tax type of income tax is its simplicity.
a. True
b. False

ANSWER: True
6. A parent employs her twin daughters, age 17, in her sole proprietorship. The daughters are not subject to FICA
coverage.
a. True
b. False

ANSWER: True
7. Sales made over the internet are not exempt from the application of a general sales (or use) tax.
a. True
b. False

ANSWER: True




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Chapter 01 - 2026

8. When a state decouples from a Federal tax provision, it means that this provision will not apply for state income
tax purposes.
a. True
b. False

ANSWER: True
9. Before the Sixteenth Amendment to the Constitution was ratified, there was no valid Federal income tax on
individuals.
a. True
b. False

ANSWER: False
10. One of the motivations for making a gift is to save on income taxes.
a. True
b. False

ANSWER: True
11. When Congress enacts a tax cut that is phased in over a period of years, revenue neutrality is achieved.
a. True
b. False

ANSWER: False
12. An excise tax is often used to try to influence behavior.
a. True
b. False

ANSWER: True
13. The value added tax (VAT) has not had wide acceptance in the international community.
a. True
b. False

ANSWER: False
14. Various tax provisions encourage the creation of certain types of retirement plans. Such provisions can be
justified on both economic and social grounds.
a. True
b. False

ANSWER: True




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Chapter 01 - 2026

15. The majority of IRS audits are handled by correspondence.
a. True
b. False

ANSWER: True
16. For Federal income tax purposes, there never has been a general amnesty period.
a. True
b. False

ANSWER: True
17. Not all of the states that impose a general sales tax also have a use tax.
a. True
b. False

ANSWER: False
18. The first income tax on individuals (after the ratification of the Sixteenth Amendment to the Constitution) levied
tax rates from a low of 1% to a high of 6%.
a. True
b. False

ANSWER: True
19. In cases of doubt, courts have held that tax relief provisions should be broadly construed in favor of taxpayers.
a. True
b. False

ANSWER: False
20. Jason’s business warehouse is destroyed by fire. Because the insurance proceeds exceed the basis of the
property, a gain results. If Jason shortly reinvests the proceeds in a new warehouse, no gain is recognized due to
the application of the wherewithal to pay concept.
a. True
b. False

ANSWER: True
21. Mona inherits her mother’s personal residence, which she converts to a furnished rental house. These changes
should affect the amount of ad valorem property taxes levied on the properties.
a. True
b. False

ANSWER: True




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Chapter 01 - 2026

22. To mitigate the effect of the annual accounting period concept, the tax law permits the carryforward of excess
charitable contributions of a particular year to other years.
a. True
b. False

ANSWER: True
23. For omissions from gross income in excess of 25% of that reported, there is no statute of limitations on
additional income tax assessments by the IRS.
a. True
b. False

ANSWER: False
24. The Federal excise tax on gasoline has a proportional effect on all taxpayers (that is, neither progressive nor
regressive).
a. True
b. False

ANSWER: False
25. States impose either a state income tax or a general sales tax, but not both types of taxes.
a. True
b. False

ANSWER: False
26. Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain
the same.
a. True
b. False

ANSWER: True
27. Sally’s neighbor often brags that his employer often pays him in cash “off the books” to save him taxes. Sally is
tired of hearing this and contacts the IRS to report the neighbor. If this tip results in taxes collected by the IRS,
Sally will likely receive an award of a portion of the tax and penalties collected.
a. True
b. False

ANSWER: True
28. The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to
obtain additional education. These provisions can be justified on both economic and equity grounds.
a. True
b. False

ANSWER: False

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