Test bank Income Tax
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CHAPTER 1: bg b g AN INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAW
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1. The ratification of the Sixteenth Amendment to the U.S. Constitution was necessary to validate the
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Federal income tax on corporations.
bg bg bg bg
a. True
b. False
ANSWER: False
RATIONALE: The Sixteenth Amendment validated only the tax on individuals. The income tax on corporations h
b g bg bg bg bg bg bg bg bg bg bg bg bg bg bg
ad been previously sanctioned by the courts.
bg bg bg bg bg bg
2. Before the Sixteenth Amendment to the Constitution was ratified, there was no valid Federal income
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
tax on individuals.
bg bg
a. True
b. False
ANSWER: False
RATIONALE:
There existed a Federal income tax during the Civil War that was sanctioned by the U.S.
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
Supreme Court. bg
3. The first income tax on individuals (after the ratification of the Sixteenth Amendment to the
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
Constitution) levied tax rates from a low of 2% to a high of 6%.
bg bg bg bg bg bg bg bg bg bg bg bg bg
a. True
b. False
ANSWER: True
4. The Federal income tax on individuals generates more revenue than the Federal income tax on
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
1
,corporations.
2
,a. True
b. False
ANSWER: True
5. The payasyougo feature of the Federal income tax on individuals conforms to Adam Smith’s canon of
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
certainty.
a. True
b. False
ANSWER: False
RATIONALE: Pay-as-you- b g
go refers to the withholding provisions applicable to wages and other types of income and adds convenience to
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
the tax system.
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6. Because the law is complicated, most individual taxpayers are not able to complete their Federal
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
income tax returns without outside assistance.
bg bg bg bg bg
a. True
b. False
ANSWER: True
RATIONALE: Approximately 60% use tax return preparers, while slightly more than 32% purchase tax return softwa
b g bg bg bg bg bg bg bg bg bg bg bg bg bg bg
re.
7. The FICA tax (Medicare component) on wages is progressive since the tax due increases as wages
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
increase.
a. True
b. False
ANSWER: False
RATIONALE: The FICA tax (Medicare component) is proportional because the rate is constant regardless of the wag
b g bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
es earned.
bg
3
, 8. The Federal estate and gift taxes are examples of progressive taxes.
bg bg bg bg bg bg bg bg bg bg
a. True
b. False
ANSWER: True
9. The Federal excise tax on cigarettes is an example of a proportional tax.
bg bg bg bg bg bg bg bg bg bg bg bg
a. True
b. False
ANSWER: True
RATIONALE: The tax is a flat $1.01 per pack.
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10. Currently, the Federal income tax is less progressive than it ever has been in the past.
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
a. True
b. False
ANSWER: False
RATIONALE: Currently, the Federal income tax has six rates. At one time, it had two rates.
b g bg bg bg bg bg bg bg bg bg bg bg bg bg bg
11. Mona inherits her mother’s personal residence, which she converts to a furnished rent house. These
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
changes should affect the amount of ad valorem property taxes levied on the properties.
bg bg bg bg bg bg bg bg bg bg bg bg bg
a. True
b. False
ANSWER: True
RATIONALE: Conversion from residential to rental use will increase the taxes. Furthermore, Mona’s mother ma
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y have had a senior citizen exemption on the property, which will no longer be appropriate. Lastly, the furni
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
shings in the rent house could now be subject to an ad valorem tax on personalty.
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
4
bg bg bg
CHAPTER 1: bg b g AN INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAW
bg bg bg bg bg bg bg bg bg
1. The ratification of the Sixteenth Amendment to the U.S. Constitution was necessary to validate the
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
Federal income tax on corporations.
bg bg bg bg
a. True
b. False
ANSWER: False
RATIONALE: The Sixteenth Amendment validated only the tax on individuals. The income tax on corporations h
b g bg bg bg bg bg bg bg bg bg bg bg bg bg bg
ad been previously sanctioned by the courts.
bg bg bg bg bg bg
2. Before the Sixteenth Amendment to the Constitution was ratified, there was no valid Federal income
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
tax on individuals.
bg bg
a. True
b. False
ANSWER: False
RATIONALE:
There existed a Federal income tax during the Civil War that was sanctioned by the U.S.
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
Supreme Court. bg
3. The first income tax on individuals (after the ratification of the Sixteenth Amendment to the
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
Constitution) levied tax rates from a low of 2% to a high of 6%.
bg bg bg bg bg bg bg bg bg bg bg bg bg
a. True
b. False
ANSWER: True
4. The Federal income tax on individuals generates more revenue than the Federal income tax on
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
1
,corporations.
2
,a. True
b. False
ANSWER: True
5. The payasyougo feature of the Federal income tax on individuals conforms to Adam Smith’s canon of
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
certainty.
a. True
b. False
ANSWER: False
RATIONALE: Pay-as-you- b g
go refers to the withholding provisions applicable to wages and other types of income and adds convenience to
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
the tax system.
bg bg
6. Because the law is complicated, most individual taxpayers are not able to complete their Federal
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
income tax returns without outside assistance.
bg bg bg bg bg
a. True
b. False
ANSWER: True
RATIONALE: Approximately 60% use tax return preparers, while slightly more than 32% purchase tax return softwa
b g bg bg bg bg bg bg bg bg bg bg bg bg bg bg
re.
7. The FICA tax (Medicare component) on wages is progressive since the tax due increases as wages
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
increase.
a. True
b. False
ANSWER: False
RATIONALE: The FICA tax (Medicare component) is proportional because the rate is constant regardless of the wag
b g bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
es earned.
bg
3
, 8. The Federal estate and gift taxes are examples of progressive taxes.
bg bg bg bg bg bg bg bg bg bg
a. True
b. False
ANSWER: True
9. The Federal excise tax on cigarettes is an example of a proportional tax.
bg bg bg bg bg bg bg bg bg bg bg bg
a. True
b. False
ANSWER: True
RATIONALE: The tax is a flat $1.01 per pack.
b g bg bg bg bg bg bg bg
10. Currently, the Federal income tax is less progressive than it ever has been in the past.
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
a. True
b. False
ANSWER: False
RATIONALE: Currently, the Federal income tax has six rates. At one time, it had two rates.
b g bg bg bg bg bg bg bg bg bg bg bg bg bg bg
11. Mona inherits her mother’s personal residence, which she converts to a furnished rent house. These
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
changes should affect the amount of ad valorem property taxes levied on the properties.
bg bg bg bg bg bg bg bg bg bg bg bg bg
a. True
b. False
ANSWER: True
RATIONALE: Conversion from residential to rental use will increase the taxes. Furthermore, Mona’s mother ma
bg bg bg bg bg bg bg bg bg bg bg bg bg bg
y have had a senior citizen exemption on the property, which will no longer be appropriate. Lastly, the furni
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
shings in the rent house could now be subject to an ad valorem tax on personalty.
bg bg bg bg bg bg bg bg bg bg bg bg bg bg bg
4
