,Solution manual for Concepts in Federal Taxation
2022 29th Edition Kevin E. Murphy
Notes
1- All Chapters are step by step.
2- We have shown you 10 pages.
3- The file contains all Appendix and Excel
sheet if it exists.
4- We have all what you need, we make
update at every time. There are many
new editions waiting you.
5- If you think you purchased the wrong file
You can contact us at every time, we can
replace it with true one.
Our email:
, CHAPTER 1
FEDERAL INCOME TAXATION - AN OVERVIEW
2022
Edition Topic Status
Questions
1 Adam Smith's system requirements Unchanged
2 How well income tax and employment taxes meet Adam Unchanged
Smith's requirements
3 Proportional, regressive, or proportional tax Unchanged
4 Proportional, regressive, or proportional tax Unchanged
5 Federal income tax as a revenue producer Unchanged
6 Collection of income taxes Unchanged
7 Sales tax versus excise tax Unchanged
8 Collection of sales and excise taxes Unchanged
9 Real property versus personal property taxes Unchanged
10 Gift tax Unchanged
11 Estate tax Unchanged
12 Valuation of gift and estate assets Unchanged
13 Payment of gift and estate taxes Unchanged
14 Primary sources of tax law Unchanged
15 Supreme Court cases Unchanged
16 Federal income tax base Unchanged
17 Exclusion Unchanged
18 Deferral versus exclusion Unchanged
19 Gross income versus income Unchanged
20 Deductibility of expenses Unchanged
21 Expense versus loss Unchanged
1-1
© 2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,1-2
2022
Edition Topic Status
22 Transaction loss versus annual loss Unchanged
23 Legislative grace concept Unchanged
24 Inflation effects on taxes Unchanged
25 Pay-as-you-go collection of taxes Unchanged
26 Tax credits Unchanged
27 Tax credit versus deduction Unchanged
28 Tax credit versus deduction Unchanged
29 Statute of limitations Unchanged
30 Auditing returns Unchanged
31 IRS examinations Unchanged
32 30-day letters Unchanged
33 90-day letters Unchanged
34 Individual versus corporate taxable income Unchanged
35 Deductions for and from AGI Unchanged
36 Standard deduction Unchanged
37 Why study taxes? Unchanged
38 Goal of tax planning Unchanged
39 Tax planning-who benefits Unchanged
Problems
40 What is a tax? Unchanged
41 Definition of a tax - five scenarios Unchanged
42 Calculation of tax and tax rates (marginal, average, Unchanged
effective)
43 Calculation of tax - comparing entities Unchanged
© 2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, 1-3
2022
Edition Topic Status
44 Social Security calculation/tax rate (marginal, average, Unchanged
effective)
45 Progressive, proportional, regressive taxes Unchanged
46-CT Progressive, proportional, regressive taxes Unchanged
47 Social Security tax calculation Unchanged
48 Social Security tax calculation Unchanged
49 Social Security tax calculation/payment by employer Unchanged
50 Self-employment tax calculation Unchanged
51 Social security/self-employment tax Unchanged
52 Classification of income items Unchanged
53 Classification of income items Unchanged
54 What is deductible? Unchanged
55 Classification of deduction items Unchanged
56 Calculation of taxable income/tax liability Unchanged
57 Calculation of taxable income/tax liability Unchanged
58-COMM Effect of deduction FOR/FROM adjusted gross income Unchanged
59-COMM Tax planning Unchanged
60 Gift versus Income Unchanged
61-CT Tax planning Date
updates only
62 Tax planning Date
updates only
63 Tax planning Date
updates only
64-CT Tax planning - income splitting Unchanged
65 Evasion versus avoidance Date
© 2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,1-4
2022
Edition Topic Status
updates only
66 Evasion versus avoidance Date
updates only
67-IID Prepaid taxes Date
updates only
68-IID Student loan interest Unchanged
69-IID Gift versus sale of stock Unchanged
70-IID Income splitting Unchanged
71 INTERNET Unchanged
72 INTERNET Unchanged
73 Research Problem Unchanged
74 Research Problem Unchanged
75 Spreadsheet Problem Unchanged
76-DC-CT Value-added Tax Unchanged
77-DC-CT How inflation adjustments preserve after tax income Date
updates only
78-TPC- Actions an owner can take to reduce taxes Unchanged
COMM
79-EDC-CT Statements on Standards for Tax Services (SSTS) to Unchanged
situations in problem 67
© 2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1
FEDERAL INCOME TAXATION - AN OVERVIEW
DISCUSSION QUESTIONS
1. Briefly state Adam Smith's four requirements for a good tax system.
a. Equality - A tax should be imposed based on the taxpayer's ability to pay.
b. Certainty - The taxpayer should be able to determine the amount of tax and
how to make the required payment.
c. Convenience - The tax should be levied as close as possible to the time the
taxpayer receives the amount subject to tax.
d. Economy - The cost of taxpayer compliance and administering the tax
system should be small in relation to the revenue generated.
2. Based on the discussion in the chapter, evaluate how well each of these taxes meets
Adam Smith's four requirements:
a. Income tax
Adam Smith's four criteria for evaluating a tax are Equality, Certainty,
Convenience, and Economy. The aspects of the income tax that promote each
of the individual criteria are:
Equality - Progressive tax rates; the use of a standard deduction and exemption
amounts have the effect of exempting low-income taxpayers from the tax;
indexing of tax rates, and standard deduction and exemption amounts that are
adjusted for inflation.
Certainty - The use of an annual accounting period and the consistent use of the
same tax return due date.
Convenience - The use of a pay as you go system of collecting taxes is more
convenient than collecting all taxes at one date. Taxpayers determine their own
tax due in privacy.
Economy - The cost of running the IRS is a small percentage of the total tax
collected.
1-5
© 2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,1-6 Chapter 1: Federal Income Taxation - An Overview
Factors in the tax system that dilute Adam Smith's requirements:
Equality - Income exclusions and special deductions allow taxpayers with high
incomes to pay taxes equivalent to those with lower incomes. The use of tax
planning by higher income taxpayers also negates some of the equality of the
system.
Certainty - The complexity of many of the tax law provisions and numerous
changes in the tax law from year to year make an accurate calculation of tax
liability less certain.
Convenience - Some would contend that determining the amount of tax to be
withheld is difficult for many people, making the pay as you go system less
convenient.
Economy - There are significant costs of record-keeping and compliance that
are borne by the taxpayers, making the tax less economical.
b. Employment taxes
The aspects of employment taxes that promote compliance with each of the four
requirements:
Certainty - The taxes are due as income is earned. Since total income to be
earned by the employee is unknown during the year, the total tax will only be
known once the year is complete.
Convenience - Taxes are collected by employers and paid by the employer to the
government.
Economy - No annual reporting is required by the individual; however, the
employer must incur the reporting costs. Costs of compliance are minimal.
Aspects that dilute the requirements:
Equality - The tax is not progressive; the tax consumes more of low-income
taxpayer's income than a higher income taxpayer's income.
Economy - The cost of reporting is proportionately higher for smaller
businesses.
© 2022 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter 1: Federal Income Taxation - An Overview 1-7
3. Based solely on the definitions in the chapter, is the Social Security tax a proportional,
regressive, or progressive tax? Explain, and state how the tax might be viewed
differently.
Strictly speaking, the Social Security tax is a proportional tax because it is
applied at a constant rate (6.20 % up to $142,800 and 1.45% on all wages and
salaries) to all levels of the tax base. Using the tax base, salaries and wages, the
marginal cost is always equal to the average cost, which is indicative of a
proportional tax.
When viewed as a percentage of the taxpayer's total income, the Social Security
tax is a regressive tax. That is, if you compare marginal and average tax rates
for taxpayers whose income is greater than the OASDI base amount, the marginal
tax rate is 1.45% and the average tax rate decreases as income increases. Thus,
higher income taxpayers (those whose income exceeds the base amount subject
to tax) pay lower marginal and average rates of tax than those whose income
does not exceed the base.
© 2022 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, 1-8 Chapter 1: Federal Income Taxation - An Overview
4. Based solely on the definitions in the chapter, is the sales tax a proportional, regressive,
or progressive tax? Explain and state how the tax might be viewed differently.
Strictly speaking, the sales tax is a proportional tax because it is applied at a
constant rate to all levels of the tax base. Using the tax base, goods and services
purchased, the marginal tax rate is always equal to the average tax rate, which
is indicative of a proportional tax.
When another base is used to calculate marginal and average tax rates, the tax
appears to be regressive. For example, if total economic income is used as the
base, lower income taxpayers will spend a higher percentage of their income on
items subject to the sales tax when compared to higher income taxpayers. Thus,
the marginal tax rate will be less than the average tax rate, which is indicative of
a regressive tax.
5. As stated in the text, the federal income tax is the largest revenue-producing tax in use
in the United States. Why do you think the income tax produces more revenue than
any other tax?
There are two main reasons why the income tax is the largest revenue producer.
They evolve around the calculation of a tax as the TAX BASE x TAX RATE. First,
the tax rates are generally higher than other most other taxes (10% to 37% versus
say, a 7% sales tax). Second, the tax base, taxable income, is larger than most
other bases. For example, most individuals’ taxable income is greater than the
amount they would spend on items subject to a sales or excise tax. Those taxes
with higher rate schedules than the income tax (gift tax, estate tax) have relatively
small tax bases. That is, not very many gifts and/or estates are subject to the tax
in a given year.
6. How are federal, state, and local income taxes collected by the government? Consider
the cases of an employee and a self-employed taxpayer.
Employers are required to withhold income taxes on the wages and salaries of
their employees. Employers are then responsible for depositing the taxes
withheld to the appropriate governmental unit. Self-employed taxpayers are
required to estimate their taxes and make quarterly payments to the appropriate
governmental unit.
7. How is a sales tax different from an excise tax?
Both are taxes on goods and/or services purchased. A sales tax is a percentage
of the value of the sales price of the goods or services. It is paid when the goods
and/or services are sold. An excise tax is based on either a quantity or volume
of the product being sold, such as a gallon of gasoline or per tire. Although it is
technically paid when the goods are sold, the excise tax is generally included in
the sales price and is typically not shown separately as a tax.
8. Who is responsible for collecting sales and excise taxes? Who actually pays the tax?
© 2022 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2022 29th Edition Kevin E. Murphy
Notes
1- All Chapters are step by step.
2- We have shown you 10 pages.
3- The file contains all Appendix and Excel
sheet if it exists.
4- We have all what you need, we make
update at every time. There are many
new editions waiting you.
5- If you think you purchased the wrong file
You can contact us at every time, we can
replace it with true one.
Our email:
, CHAPTER 1
FEDERAL INCOME TAXATION - AN OVERVIEW
2022
Edition Topic Status
Questions
1 Adam Smith's system requirements Unchanged
2 How well income tax and employment taxes meet Adam Unchanged
Smith's requirements
3 Proportional, regressive, or proportional tax Unchanged
4 Proportional, regressive, or proportional tax Unchanged
5 Federal income tax as a revenue producer Unchanged
6 Collection of income taxes Unchanged
7 Sales tax versus excise tax Unchanged
8 Collection of sales and excise taxes Unchanged
9 Real property versus personal property taxes Unchanged
10 Gift tax Unchanged
11 Estate tax Unchanged
12 Valuation of gift and estate assets Unchanged
13 Payment of gift and estate taxes Unchanged
14 Primary sources of tax law Unchanged
15 Supreme Court cases Unchanged
16 Federal income tax base Unchanged
17 Exclusion Unchanged
18 Deferral versus exclusion Unchanged
19 Gross income versus income Unchanged
20 Deductibility of expenses Unchanged
21 Expense versus loss Unchanged
1-1
© 2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,1-2
2022
Edition Topic Status
22 Transaction loss versus annual loss Unchanged
23 Legislative grace concept Unchanged
24 Inflation effects on taxes Unchanged
25 Pay-as-you-go collection of taxes Unchanged
26 Tax credits Unchanged
27 Tax credit versus deduction Unchanged
28 Tax credit versus deduction Unchanged
29 Statute of limitations Unchanged
30 Auditing returns Unchanged
31 IRS examinations Unchanged
32 30-day letters Unchanged
33 90-day letters Unchanged
34 Individual versus corporate taxable income Unchanged
35 Deductions for and from AGI Unchanged
36 Standard deduction Unchanged
37 Why study taxes? Unchanged
38 Goal of tax planning Unchanged
39 Tax planning-who benefits Unchanged
Problems
40 What is a tax? Unchanged
41 Definition of a tax - five scenarios Unchanged
42 Calculation of tax and tax rates (marginal, average, Unchanged
effective)
43 Calculation of tax - comparing entities Unchanged
© 2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, 1-3
2022
Edition Topic Status
44 Social Security calculation/tax rate (marginal, average, Unchanged
effective)
45 Progressive, proportional, regressive taxes Unchanged
46-CT Progressive, proportional, regressive taxes Unchanged
47 Social Security tax calculation Unchanged
48 Social Security tax calculation Unchanged
49 Social Security tax calculation/payment by employer Unchanged
50 Self-employment tax calculation Unchanged
51 Social security/self-employment tax Unchanged
52 Classification of income items Unchanged
53 Classification of income items Unchanged
54 What is deductible? Unchanged
55 Classification of deduction items Unchanged
56 Calculation of taxable income/tax liability Unchanged
57 Calculation of taxable income/tax liability Unchanged
58-COMM Effect of deduction FOR/FROM adjusted gross income Unchanged
59-COMM Tax planning Unchanged
60 Gift versus Income Unchanged
61-CT Tax planning Date
updates only
62 Tax planning Date
updates only
63 Tax planning Date
updates only
64-CT Tax planning - income splitting Unchanged
65 Evasion versus avoidance Date
© 2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,1-4
2022
Edition Topic Status
updates only
66 Evasion versus avoidance Date
updates only
67-IID Prepaid taxes Date
updates only
68-IID Student loan interest Unchanged
69-IID Gift versus sale of stock Unchanged
70-IID Income splitting Unchanged
71 INTERNET Unchanged
72 INTERNET Unchanged
73 Research Problem Unchanged
74 Research Problem Unchanged
75 Spreadsheet Problem Unchanged
76-DC-CT Value-added Tax Unchanged
77-DC-CT How inflation adjustments preserve after tax income Date
updates only
78-TPC- Actions an owner can take to reduce taxes Unchanged
COMM
79-EDC-CT Statements on Standards for Tax Services (SSTS) to Unchanged
situations in problem 67
© 2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, CHAPTER 1
FEDERAL INCOME TAXATION - AN OVERVIEW
DISCUSSION QUESTIONS
1. Briefly state Adam Smith's four requirements for a good tax system.
a. Equality - A tax should be imposed based on the taxpayer's ability to pay.
b. Certainty - The taxpayer should be able to determine the amount of tax and
how to make the required payment.
c. Convenience - The tax should be levied as close as possible to the time the
taxpayer receives the amount subject to tax.
d. Economy - The cost of taxpayer compliance and administering the tax
system should be small in relation to the revenue generated.
2. Based on the discussion in the chapter, evaluate how well each of these taxes meets
Adam Smith's four requirements:
a. Income tax
Adam Smith's four criteria for evaluating a tax are Equality, Certainty,
Convenience, and Economy. The aspects of the income tax that promote each
of the individual criteria are:
Equality - Progressive tax rates; the use of a standard deduction and exemption
amounts have the effect of exempting low-income taxpayers from the tax;
indexing of tax rates, and standard deduction and exemption amounts that are
adjusted for inflation.
Certainty - The use of an annual accounting period and the consistent use of the
same tax return due date.
Convenience - The use of a pay as you go system of collecting taxes is more
convenient than collecting all taxes at one date. Taxpayers determine their own
tax due in privacy.
Economy - The cost of running the IRS is a small percentage of the total tax
collected.
1-5
© 2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
,1-6 Chapter 1: Federal Income Taxation - An Overview
Factors in the tax system that dilute Adam Smith's requirements:
Equality - Income exclusions and special deductions allow taxpayers with high
incomes to pay taxes equivalent to those with lower incomes. The use of tax
planning by higher income taxpayers also negates some of the equality of the
system.
Certainty - The complexity of many of the tax law provisions and numerous
changes in the tax law from year to year make an accurate calculation of tax
liability less certain.
Convenience - Some would contend that determining the amount of tax to be
withheld is difficult for many people, making the pay as you go system less
convenient.
Economy - There are significant costs of record-keeping and compliance that
are borne by the taxpayers, making the tax less economical.
b. Employment taxes
The aspects of employment taxes that promote compliance with each of the four
requirements:
Certainty - The taxes are due as income is earned. Since total income to be
earned by the employee is unknown during the year, the total tax will only be
known once the year is complete.
Convenience - Taxes are collected by employers and paid by the employer to the
government.
Economy - No annual reporting is required by the individual; however, the
employer must incur the reporting costs. Costs of compliance are minimal.
Aspects that dilute the requirements:
Equality - The tax is not progressive; the tax consumes more of low-income
taxpayer's income than a higher income taxpayer's income.
Economy - The cost of reporting is proportionately higher for smaller
businesses.
© 2022 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Chapter 1: Federal Income Taxation - An Overview 1-7
3. Based solely on the definitions in the chapter, is the Social Security tax a proportional,
regressive, or progressive tax? Explain, and state how the tax might be viewed
differently.
Strictly speaking, the Social Security tax is a proportional tax because it is
applied at a constant rate (6.20 % up to $142,800 and 1.45% on all wages and
salaries) to all levels of the tax base. Using the tax base, salaries and wages, the
marginal cost is always equal to the average cost, which is indicative of a
proportional tax.
When viewed as a percentage of the taxpayer's total income, the Social Security
tax is a regressive tax. That is, if you compare marginal and average tax rates
for taxpayers whose income is greater than the OASDI base amount, the marginal
tax rate is 1.45% and the average tax rate decreases as income increases. Thus,
higher income taxpayers (those whose income exceeds the base amount subject
to tax) pay lower marginal and average rates of tax than those whose income
does not exceed the base.
© 2022 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, 1-8 Chapter 1: Federal Income Taxation - An Overview
4. Based solely on the definitions in the chapter, is the sales tax a proportional, regressive,
or progressive tax? Explain and state how the tax might be viewed differently.
Strictly speaking, the sales tax is a proportional tax because it is applied at a
constant rate to all levels of the tax base. Using the tax base, goods and services
purchased, the marginal tax rate is always equal to the average tax rate, which
is indicative of a proportional tax.
When another base is used to calculate marginal and average tax rates, the tax
appears to be regressive. For example, if total economic income is used as the
base, lower income taxpayers will spend a higher percentage of their income on
items subject to the sales tax when compared to higher income taxpayers. Thus,
the marginal tax rate will be less than the average tax rate, which is indicative of
a regressive tax.
5. As stated in the text, the federal income tax is the largest revenue-producing tax in use
in the United States. Why do you think the income tax produces more revenue than
any other tax?
There are two main reasons why the income tax is the largest revenue producer.
They evolve around the calculation of a tax as the TAX BASE x TAX RATE. First,
the tax rates are generally higher than other most other taxes (10% to 37% versus
say, a 7% sales tax). Second, the tax base, taxable income, is larger than most
other bases. For example, most individuals’ taxable income is greater than the
amount they would spend on items subject to a sales or excise tax. Those taxes
with higher rate schedules than the income tax (gift tax, estate tax) have relatively
small tax bases. That is, not very many gifts and/or estates are subject to the tax
in a given year.
6. How are federal, state, and local income taxes collected by the government? Consider
the cases of an employee and a self-employed taxpayer.
Employers are required to withhold income taxes on the wages and salaries of
their employees. Employers are then responsible for depositing the taxes
withheld to the appropriate governmental unit. Self-employed taxpayers are
required to estimate their taxes and make quarterly payments to the appropriate
governmental unit.
7. How is a sales tax different from an excise tax?
Both are taxes on goods and/or services purchased. A sales tax is a percentage
of the value of the sales price of the goods or services. It is paid when the goods
and/or services are sold. An excise tax is based on either a quantity or volume
of the product being sold, such as a gallon of gasoline or per tire. Although it is
technically paid when the goods are sold, the excise tax is generally included in
the sales price and is typically not shown separately as a tax.
8. Who is responsible for collecting sales and excise taxes? Who actually pays the tax?
© 2022 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
