,TESTBANK for South-Western Federal Taxation
2023 Essentials of Taxation Individuals and
Business Entities 26th Edition Annette Nellen
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
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:
,Name: Class: Date:
CH 1 Introduction to Taxation
True / False
1. The Medicare component of the FICA tax (1.45% on wages) is progressive since the tax due increases as wages
increase.
a. True
b. False
ANSWER: False
2. The Federal estate and gift taxes are examples of progressive rate taxes.
a. True
b. False
ANSWER: True
3. The Federal excise tax on gasoline has a proportional effect on all taxpayers (that is, neither progressive or regressive).
a. True
b. False
ANSWER: False
4. Currently, the Federal corporate income tax is less progressive than the individual income tax.
a. True
b. False
ANSWER: True
5. 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
6. 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
7. 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
8. The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business
use personalty.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 1
,Name: Class: Date:
CH 1 Introduction to Taxation
9. An excise tax is often used to try to influence behavior.
a. True
b. False
ANSWER: True
10. There is a Federal excise tax on hotel occupancy.
a. True
b. False
ANSWER: False
11. The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the United States.
a. True
b. False
ANSWER: False
12. The amount of the state excise taxes on gasoline varies from state to state.
a. True
b. False
ANSWER: True
13. Not all of the states that impose a general sales tax also have a use tax.
a. True
b. False
ANSWER: False
14. Sales made over the internet are not exempt from the application of a general sales (or use) tax.
a. True
b. False
ANSWER: True
15. Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.
a. True
b. False
ANSWER: True
16. States impose either a state income tax or a general sales tax, but not both types of taxes.
a. True
b. False
ANSWER: False
17. A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no
such taxes.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 2
,Name: Class: Date:
CH 1 Introduction to Taxation
18. On transfers by death, the Federal government relies on an estate tax, while states may impose an estate tax, an
inheritance tax, both taxes, or neither tax.
a. True
b. False
ANSWER: True
19. An inheritance tax is a tax on a decedent’s right to pass property at death.
a. True
b. False
ANSWER: False
20. One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from
being accumulated within a family unit.
a. True
b. False
ANSWER: True
21. Under Clint’s will, all of his property passes to either the Lutheran Church or to his wife. No Federal estate tax will be
due on Clint’s death.
a. True
b. False
ANSWER: True
22. Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same
rate.
a. True
b. False
ANSWER: True
23. The annual exclusion, currently $15,000, is available for gift and estate tax purposes.
a. True
b. False
ANSWER: False
24. In 2022, José, a widower, sells land (fair market value of $100,000) to his daughter, Linda, for $50,000. José has not
made a taxable gift.
a. True
b. False
ANSWER: False
25. Julius, a married taxpayer, makes gifts to each of his six children. A maximum of twelve annual exclusions could be
allowed as to these gifts.
a. True
b. False
Copyright Cengage Learning. Powered by Cognero. Page 3
,Name: Class: Date:
CH 1 Introduction to Taxation
ANSWER: True
26. One of the motivations for making a gift is to save on income taxes.
a. True
b. False
ANSWER: True
27. The formula for the Federal income tax on corporations is the same as that applicable to individuals.
a. True
b. False
ANSWER: False
28. A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis.
a. True
b. False
ANSWER: True
29. For state income tax purposes, some states allow a credit for dependents rather than a deduction.
a. True
b. False
ANSWER: True
30. Some states use their state income tax return as a means of collecting unpaid sales and use taxes.
a. True
b. False
ANSWER: True
31. No state may offer an income tax amnesty program more than once.
a. True
b. False
ANSWER: False
32. For Federal income tax purposes, there never has been a general amnesty period.
a. True
b. False
ANSWER: True
33. Under state amnesty programs, all delinquent and unpaid income taxes are forgiven.
a. True
b. False
ANSWER: False
34. When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax
purposes.
a. True
Copyright Cengage Learning. Powered by Cognero. Page 4
,Name: Class: Date:
CH 1 Introduction to Taxation
b. False
ANSWER: True
35. The principal objective of the FUTA tax is to provide some measure of retirement security.
a. True
b. False
ANSWER: False
36. Currently, the tax base for the Social Security component of the FICA is not limited to a dollar amount.
a. True
b. False
ANSWER: False
37. A parent employs his twin daughters, age 17, in his sole proprietorship. The daughters are not subject to FICA
coverage.
a. True
b. False
ANSWER: True
38. Unlike FICA, FUTA requires that employers comply with state as well as Federal rules.
a. True
b. False
ANSWER: True
39. A major advantage of a flat tax type of income tax is its simplicity.
a. True
b. False
ANSWER: True
40. The objective of pay-as-you-go (paygo) is to improve administrative feasibility.
a. True
b. False
ANSWER: True
41. 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
42. A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.
a. True
b. False
ANSWER: True
43. The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain
Copyright Cengage Learning. Powered by Cognero. Page 5
,Name: Class: Date:
CH 1 Introduction to Taxation
additional education. These provisions can be justified on both economic and equity grounds.
a. True
b. False
ANSWER: False
44. 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
45. To lessen or eliminate the effect of multiple taxation, a taxpayer who is subject to both foreign and U.S. income taxes
on the same income is allowed either a deduction or a credit for the foreign tax paid.
a. True
b. False
ANSWER: True
46. 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
47. 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
48. Because it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize a gain in the
year the installment sale occurs.
a. True
b. False
ANSWER: False
49. Stealth taxes have the effect of generating additional taxes from all taxpayers.
a. True
b. False
ANSWER: False
50. A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and
not when earned is consistent with generally accepted accounting principles.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 6
,Name: Class: Date:
CH 1 Introduction to Taxation
51. As a matter of administrative convenience, the IRS would prefer to have Congress decrease (rather than increase) the
amount of the standard deduction allowed to individual taxpayers.
a. True
b. False
ANSWER: False
52. 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
53. On occasion, Congress has to enact legislation that clarifies the tax law in order to change a result reached by the U.S.
Supreme Court.
a. True
b. False
ANSWER: True
54. Ultimately, most taxes are paid by individuals.
a. True
b. False
ANSWER: True
55. Tomas owns a sole proprietorship, and Lucy is the sole shareholder of a C corporation. In the current year, both
businesses make a net profit of $60,000. Neither business distributes any funds to the owners in the year. For the current
year, Tomas must report $60,000 of income on his individual tax return, but Lucy is not required to report any income
from the corporation on her individual tax return.
a. True
b. False
ANSWER: True
56. Carol and Candace are equal partners in Peach Partnership. In the current year, Peach had a net profit of $75,000
($250,000 gross income – $175,000 operating expenses) and distributed $25,000 to each partner. Peach must pay tax on
$75,000 of income.
a. True
b. False
ANSWER: False
57. Rajib is the sole shareholder of Cardinal Corporation, a calendar year S corporation. In the current year, Cardinal
generated a net profit of $350,000 ($520,000 gross income – $170,000 operating expenses) and distributed $80,000 to
Rajib. Rajib must report the Cardinal Corporation profit of $350,000 on his Federal income tax return.
a. True
b. False
ANSWER: True
58. Donald owns a 45% interest in a partnership that earned $130,000 in the current year. He also owns 45% of the stock
Copyright Cengage Learning. Powered by Cognero. Page 7
, Name: Class: Date:
CH 1 Introduction to Taxation
in a C corporation that earned $130,000 during the year. Donald received $20,000 in distributions from each of the two
entities during the year. With respect to this information, Donald must report $78,500 of income on his individual income
tax return for the year.
a. True
b. False
ANSWER: True
59. Quail Corporation is a C corporation that generates net income of $125,000 during the current year. If Quail paid
dividends of $25,000 to its shareholders, the corporation must pay tax on $100,000 of net income. Shareholders must
report the $25,000 of dividends as income.
a. True
b. False
ANSWER: False
60. Eagle Company, a partnership, had a short-term capital loss of $10,000 during the current year. Aaron, who owns 25%
of Eagle, will report $2,500 of Eagle’s short-term capital loss on his individual tax return.
a. True
b. False
ANSWER: True
61. Matt, the sole shareholder of Pastel Corporation (a C corporation), has the corporation pay him a salary of $600,000 in
the current year. The Tax Court has held that $200,000 represents unreasonable compensation. Matt must report a salary
of $400,000 and a dividend of $200,000 on his individual tax return.
a. True
b. False
ANSWER: True
Multiple Choice
62. Which, if any, is not one of Adam Smith’s canons (principles) of taxation?
a. Economy in collection
b. Certainty
c. Convenience of payment
d. Simplicity
ANSWER: d
63. Which, if any, of the following taxes are regressive (rather than progressive)?
a. State general sales tax
b. Federal individual income tax
c. Federal estate tax
d. Federal gift tax
ANSWER: a
64. Which, if any, of the following transactions will increase a taxing jurisdiction’s revenue from the ad valorem tax
imposed on real estate?
a. A resident dies and leaves his farm to his church.
Copyright Cengage Learning. Powered by Cognero. Page 8
2023 Essentials of Taxation Individuals and
Business Entities 26th Edition Annette Nellen
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
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:
,Name: Class: Date:
CH 1 Introduction to Taxation
True / False
1. The Medicare component of the FICA tax (1.45% on wages) is progressive since the tax due increases as wages
increase.
a. True
b. False
ANSWER: False
2. The Federal estate and gift taxes are examples of progressive rate taxes.
a. True
b. False
ANSWER: True
3. The Federal excise tax on gasoline has a proportional effect on all taxpayers (that is, neither progressive or regressive).
a. True
b. False
ANSWER: False
4. Currently, the Federal corporate income tax is less progressive than the individual income tax.
a. True
b. False
ANSWER: True
5. 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
6. 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
7. 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
8. The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business
use personalty.
a. True
b. False
ANSWER: True
Copyright Cengage Learning. Powered by Cognero. Page 1
,Name: Class: Date:
CH 1 Introduction to Taxation
9. An excise tax is often used to try to influence behavior.
a. True
b. False
ANSWER: True
10. There is a Federal excise tax on hotel occupancy.
a. True
b. False
ANSWER: False
11. The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the United States.
a. True
b. False
ANSWER: False
12. The amount of the state excise taxes on gasoline varies from state to state.
a. True
b. False
ANSWER: True
13. Not all of the states that impose a general sales tax also have a use tax.
a. True
b. False
ANSWER: False
14. Sales made over the internet are not exempt from the application of a general sales (or use) tax.
a. True
b. False
ANSWER: True
15. Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.
a. True
b. False
ANSWER: True
16. States impose either a state income tax or a general sales tax, but not both types of taxes.
a. True
b. False
ANSWER: False
17. A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no
such taxes.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 2
,Name: Class: Date:
CH 1 Introduction to Taxation
18. On transfers by death, the Federal government relies on an estate tax, while states may impose an estate tax, an
inheritance tax, both taxes, or neither tax.
a. True
b. False
ANSWER: True
19. An inheritance tax is a tax on a decedent’s right to pass property at death.
a. True
b. False
ANSWER: False
20. One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from
being accumulated within a family unit.
a. True
b. False
ANSWER: True
21. Under Clint’s will, all of his property passes to either the Lutheran Church or to his wife. No Federal estate tax will be
due on Clint’s death.
a. True
b. False
ANSWER: True
22. Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same
rate.
a. True
b. False
ANSWER: True
23. The annual exclusion, currently $15,000, is available for gift and estate tax purposes.
a. True
b. False
ANSWER: False
24. In 2022, José, a widower, sells land (fair market value of $100,000) to his daughter, Linda, for $50,000. José has not
made a taxable gift.
a. True
b. False
ANSWER: False
25. Julius, a married taxpayer, makes gifts to each of his six children. A maximum of twelve annual exclusions could be
allowed as to these gifts.
a. True
b. False
Copyright Cengage Learning. Powered by Cognero. Page 3
,Name: Class: Date:
CH 1 Introduction to Taxation
ANSWER: True
26. One of the motivations for making a gift is to save on income taxes.
a. True
b. False
ANSWER: True
27. The formula for the Federal income tax on corporations is the same as that applicable to individuals.
a. True
b. False
ANSWER: False
28. A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis.
a. True
b. False
ANSWER: True
29. For state income tax purposes, some states allow a credit for dependents rather than a deduction.
a. True
b. False
ANSWER: True
30. Some states use their state income tax return as a means of collecting unpaid sales and use taxes.
a. True
b. False
ANSWER: True
31. No state may offer an income tax amnesty program more than once.
a. True
b. False
ANSWER: False
32. For Federal income tax purposes, there never has been a general amnesty period.
a. True
b. False
ANSWER: True
33. Under state amnesty programs, all delinquent and unpaid income taxes are forgiven.
a. True
b. False
ANSWER: False
34. When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax
purposes.
a. True
Copyright Cengage Learning. Powered by Cognero. Page 4
,Name: Class: Date:
CH 1 Introduction to Taxation
b. False
ANSWER: True
35. The principal objective of the FUTA tax is to provide some measure of retirement security.
a. True
b. False
ANSWER: False
36. Currently, the tax base for the Social Security component of the FICA is not limited to a dollar amount.
a. True
b. False
ANSWER: False
37. A parent employs his twin daughters, age 17, in his sole proprietorship. The daughters are not subject to FICA
coverage.
a. True
b. False
ANSWER: True
38. Unlike FICA, FUTA requires that employers comply with state as well as Federal rules.
a. True
b. False
ANSWER: True
39. A major advantage of a flat tax type of income tax is its simplicity.
a. True
b. False
ANSWER: True
40. The objective of pay-as-you-go (paygo) is to improve administrative feasibility.
a. True
b. False
ANSWER: True
41. 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
42. A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.
a. True
b. False
ANSWER: True
43. The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain
Copyright Cengage Learning. Powered by Cognero. Page 5
,Name: Class: Date:
CH 1 Introduction to Taxation
additional education. These provisions can be justified on both economic and equity grounds.
a. True
b. False
ANSWER: False
44. 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
45. To lessen or eliminate the effect of multiple taxation, a taxpayer who is subject to both foreign and U.S. income taxes
on the same income is allowed either a deduction or a credit for the foreign tax paid.
a. True
b. False
ANSWER: True
46. 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
47. 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
48. Because it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize a gain in the
year the installment sale occurs.
a. True
b. False
ANSWER: False
49. Stealth taxes have the effect of generating additional taxes from all taxpayers.
a. True
b. False
ANSWER: False
50. A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and
not when earned is consistent with generally accepted accounting principles.
a. True
b. False
ANSWER: False
Copyright Cengage Learning. Powered by Cognero. Page 6
,Name: Class: Date:
CH 1 Introduction to Taxation
51. As a matter of administrative convenience, the IRS would prefer to have Congress decrease (rather than increase) the
amount of the standard deduction allowed to individual taxpayers.
a. True
b. False
ANSWER: False
52. 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
53. On occasion, Congress has to enact legislation that clarifies the tax law in order to change a result reached by the U.S.
Supreme Court.
a. True
b. False
ANSWER: True
54. Ultimately, most taxes are paid by individuals.
a. True
b. False
ANSWER: True
55. Tomas owns a sole proprietorship, and Lucy is the sole shareholder of a C corporation. In the current year, both
businesses make a net profit of $60,000. Neither business distributes any funds to the owners in the year. For the current
year, Tomas must report $60,000 of income on his individual tax return, but Lucy is not required to report any income
from the corporation on her individual tax return.
a. True
b. False
ANSWER: True
56. Carol and Candace are equal partners in Peach Partnership. In the current year, Peach had a net profit of $75,000
($250,000 gross income – $175,000 operating expenses) and distributed $25,000 to each partner. Peach must pay tax on
$75,000 of income.
a. True
b. False
ANSWER: False
57. Rajib is the sole shareholder of Cardinal Corporation, a calendar year S corporation. In the current year, Cardinal
generated a net profit of $350,000 ($520,000 gross income – $170,000 operating expenses) and distributed $80,000 to
Rajib. Rajib must report the Cardinal Corporation profit of $350,000 on his Federal income tax return.
a. True
b. False
ANSWER: True
58. Donald owns a 45% interest in a partnership that earned $130,000 in the current year. He also owns 45% of the stock
Copyright Cengage Learning. Powered by Cognero. Page 7
, Name: Class: Date:
CH 1 Introduction to Taxation
in a C corporation that earned $130,000 during the year. Donald received $20,000 in distributions from each of the two
entities during the year. With respect to this information, Donald must report $78,500 of income on his individual income
tax return for the year.
a. True
b. False
ANSWER: True
59. Quail Corporation is a C corporation that generates net income of $125,000 during the current year. If Quail paid
dividends of $25,000 to its shareholders, the corporation must pay tax on $100,000 of net income. Shareholders must
report the $25,000 of dividends as income.
a. True
b. False
ANSWER: False
60. Eagle Company, a partnership, had a short-term capital loss of $10,000 during the current year. Aaron, who owns 25%
of Eagle, will report $2,500 of Eagle’s short-term capital loss on his individual tax return.
a. True
b. False
ANSWER: True
61. Matt, the sole shareholder of Pastel Corporation (a C corporation), has the corporation pay him a salary of $600,000 in
the current year. The Tax Court has held that $200,000 represents unreasonable compensation. Matt must report a salary
of $400,000 and a dividend of $200,000 on his individual tax return.
a. True
b. False
ANSWER: True
Multiple Choice
62. Which, if any, is not one of Adam Smith’s canons (principles) of taxation?
a. Economy in collection
b. Certainty
c. Convenience of payment
d. Simplicity
ANSWER: d
63. Which, if any, of the following taxes are regressive (rather than progressive)?
a. State general sales tax
b. Federal individual income tax
c. Federal estate tax
d. Federal gift tax
ANSWER: a
64. Which, if any, of the following transactions will increase a taxing jurisdiction’s revenue from the ad valorem tax
imposed on real estate?
a. A resident dies and leaves his farm to his church.
Copyright Cengage Learning. Powered by Cognero. Page 8
