TestgbankgIncomegTax
CHAPTER 1: AN INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAW
g g g g g g g g g g g
1. ThegratificationgofgthegSixteenthgAmendmentgtogthegU.S.gConstitutiongwasgnecessarygtogvalidategtheg
Federalgincomegtaxgongcorporations.
a. True
b. False
ANSWER: False
RATIONALE:g ThegSixteenthgAmendmentgvalidatedgonlygthegtaxgongindividuals.gThegincomegtaxgongcorporationsgha
dgbeengpreviouslygsanctionedgbygthegcourts.
2. BeforegthegSixteenthgAmendmentgtogthegConstitutiongwasgratified,gtheregwasgnogvalidgFederalgincomegt
axgongindividuals.
a. True
b. False
ANSWER: False
RATIONALE:
TheregexistedgagFederalgincomegtaxgduringgthegCivilgWargthatgwasgsanctionedgbygthegU.S.g
SupremegCourt.
3. Thegfirstgincomegtaxgongindividualsg(aftergthegratificationgofgthegSixteenthgAmendmentgtogtheg
Constitution)gleviedgtaxgratesgfromgaglowgofg2%gtogaghighgofg6%.
a. True
b. False
ANSWER: True
4. ThegFederalgincomegtaxgongindividualsggeneratesgmoregrevenuegthangthegFederalgincomegtaxgongc
1
,orporations.
2
,a. True
b. False
ANSWER: True
5. ThegpayasyougogfeaturegofgthegFederalgincomegtaxgongindividualsgconformsgtogAdamgSmith’sgcanongofgc
ertainty.
a. True
b. False
ANSWER: False
RATIONALE:g Pay-as-you-
gogrefersgtogthegwithholdinggprovisionsgapplicablegtogwagesgandgothergtypesgofgincomegandgaddsgconveniencegtogt
hegtaxgsystem.
6. Becausegtheglawgisgcomplicated,gmostgindividualgtaxpayersgaregnotgablegtogcompletegtheirgFederalgi
ncomegtaxgreturnsgwithoutgoutsidegassistance.
a. True
b. False
ANSWER: True
RATIONALE:g Approximatelyg60%gusegtaxgreturngpreparers,gwhilegslightlygmoregthang32%gpurchasegtaxgreturngsoftwar
e.
7. ThegFICAgtaxg(Medicaregcomponent)gongwagesgisgprogressivegsincegthegtaxgduegincreasesgasgwagesgi
ncrease.
a. True
b. False
ANSWER: False
RATIONALE:g ThegFICAgtaxg(Medicaregcomponent)gisgproportionalgbecausegthegrategisgconstantgregardlessgofgthegwage
sgearned.
3
, 8. ThegFederalgestategandggiftgtaxesgaregexamplesgofgprogressivegtaxes.
a. True
b. False
ANSWER: True
9. ThegFederalgexcisegtaxgongcigarettesgisgangexamplegofgagproportionalgtax.
a. True
b. False
ANSWER: True
RATIONALE:g Thegtaxgisgagflatg$1.01gpergpack.
10. Currently,gthegFederalgincomegtaxgisglessgprogressivegthangitgeverghasgbeengingthegpast.
a. True
b. False
ANSWER: False
RATIONALE:g Currently,gthegFederalgincomegtaxghasgsixgrates.gAtgonegtime,gitghadgtwogrates.
11. Monaginheritsghergmother’sgpersonalgresidence,gwhichgshegconvertsgtogagfurnishedgrentghouse.gThesegc
hangesgshouldgaffectgthegamountgofgadgvaloremgpropertygtaxesgleviedgongthegproperties.
a. True
b. False
ANSWER: True
RATIONALE:gConversiongfromgresidentialgtogrentalgusegwillgincreasegthegtaxes.gFurthermore,gMona’sgmothergma
yghaveghadgagseniorgcitizengexemptiongongthegproperty,gwhichgwillgnoglongergbegappropriate.gLastly,gthegfurnish
ingsgingthegrentghousegcouldgnowgbegsubjectgtogangadgvaloremgtaxgongpersonalty.
4
CHAPTER 1: AN INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAW
g g g g g g g g g g g
1. ThegratificationgofgthegSixteenthgAmendmentgtogthegU.S.gConstitutiongwasgnecessarygtogvalidategtheg
Federalgincomegtaxgongcorporations.
a. True
b. False
ANSWER: False
RATIONALE:g ThegSixteenthgAmendmentgvalidatedgonlygthegtaxgongindividuals.gThegincomegtaxgongcorporationsgha
dgbeengpreviouslygsanctionedgbygthegcourts.
2. BeforegthegSixteenthgAmendmentgtogthegConstitutiongwasgratified,gtheregwasgnogvalidgFederalgincomegt
axgongindividuals.
a. True
b. False
ANSWER: False
RATIONALE:
TheregexistedgagFederalgincomegtaxgduringgthegCivilgWargthatgwasgsanctionedgbygthegU.S.g
SupremegCourt.
3. Thegfirstgincomegtaxgongindividualsg(aftergthegratificationgofgthegSixteenthgAmendmentgtogtheg
Constitution)gleviedgtaxgratesgfromgaglowgofg2%gtogaghighgofg6%.
a. True
b. False
ANSWER: True
4. ThegFederalgincomegtaxgongindividualsggeneratesgmoregrevenuegthangthegFederalgincomegtaxgongc
1
,orporations.
2
,a. True
b. False
ANSWER: True
5. ThegpayasyougogfeaturegofgthegFederalgincomegtaxgongindividualsgconformsgtogAdamgSmith’sgcanongofgc
ertainty.
a. True
b. False
ANSWER: False
RATIONALE:g Pay-as-you-
gogrefersgtogthegwithholdinggprovisionsgapplicablegtogwagesgandgothergtypesgofgincomegandgaddsgconveniencegtogt
hegtaxgsystem.
6. Becausegtheglawgisgcomplicated,gmostgindividualgtaxpayersgaregnotgablegtogcompletegtheirgFederalgi
ncomegtaxgreturnsgwithoutgoutsidegassistance.
a. True
b. False
ANSWER: True
RATIONALE:g Approximatelyg60%gusegtaxgreturngpreparers,gwhilegslightlygmoregthang32%gpurchasegtaxgreturngsoftwar
e.
7. ThegFICAgtaxg(Medicaregcomponent)gongwagesgisgprogressivegsincegthegtaxgduegincreasesgasgwagesgi
ncrease.
a. True
b. False
ANSWER: False
RATIONALE:g ThegFICAgtaxg(Medicaregcomponent)gisgproportionalgbecausegthegrategisgconstantgregardlessgofgthegwage
sgearned.
3
, 8. ThegFederalgestategandggiftgtaxesgaregexamplesgofgprogressivegtaxes.
a. True
b. False
ANSWER: True
9. ThegFederalgexcisegtaxgongcigarettesgisgangexamplegofgagproportionalgtax.
a. True
b. False
ANSWER: True
RATIONALE:g Thegtaxgisgagflatg$1.01gpergpack.
10. Currently,gthegFederalgincomegtaxgisglessgprogressivegthangitgeverghasgbeengingthegpast.
a. True
b. False
ANSWER: False
RATIONALE:g Currently,gthegFederalgincomegtaxghasgsixgrates.gAtgonegtime,gitghadgtwogrates.
11. Monaginheritsghergmother’sgpersonalgresidence,gwhichgshegconvertsgtogagfurnishedgrentghouse.gThesegc
hangesgshouldgaffectgthegamountgofgadgvaloremgpropertygtaxesgleviedgongthegproperties.
a. True
b. False
ANSWER: True
RATIONALE:gConversiongfromgresidentialgtogrentalgusegwillgincreasegthegtaxes.gFurthermore,gMona’sgmothergma
yghaveghadgagseniorgcitizengexemptiongongthegproperty,gwhichgwillgnoglongergbegappropriate.gLastly,gthegfurnish
ingsgingthegrentghousegcouldgnowgbegsubjectgtogangadgvaloremgtaxgongpersonalty.
4
