Question 1

_____ 11. There are three basic taxable entities: the individual, the fiduciary, and the C corporation.

Accepted Answer

This statement is true. The three basic taxable entities are the individual, the fiduciary (such as a trust or estate), and the C corporation.

Question 2

______ 1. A hidden tax is one that is included with a payment but not specifically identified.

Accepted Answer

A hidden tax is sometimes referred to as an "embedded" tax because it is embedded or included within the price of a product or service, rather than being identified as a separate tax.

Question 3

_____ 7. Any current changes to the tax laws are now amendments to the Internal Revenue Code of 2017.

Accepted Answer

There is no specific "Internal Revenue Code of 2017", rather the Internal Revenue Code is continuously updated and amended by Congress. Any current changes to the tax laws are amendments to the most current version of the Internal Revenue Code.

Question 4

_____ 3. The person receiving the gift pays the gift tax.

Accepted Answer

The person giving the gift is responsible for paying the gift tax. However, the recipient may have to pay income tax on the gift depending on the amount and type of gift received.

Question 5

_____ 10. Vertical equity asserts that persons in similar circumstances should face similar tax burdens.

Accepted Answer

Vertical equity asserts that individuals with different abilities to pay should face different tax burdens, typically meaning those with higher incomes should pay more in taxes.

Question 6

Differentiate a wealth tax from a wealth transfer tax and give an example of each.

Accepted Answer

The answer of Differentiate a wealth tax from a wealth...

Question 7

_____ 14. A $100 tax deduction is more valuable to a taxpayer than a $100 tax credit.

Accepted Answer

A tax credit is more valuable to a taxpayer than a tax deduction because a tax credit reduces the amount of tax owed dollar-for-dollar, whereas a tax deduction only reduces the taxpayer's taxable income. So a $100 tax credit reduces the taxpayer's tax liability by $100, while a $100 tax deduction only reduces the taxpayer's taxable income by $100, resulting in a smaller reduction in tax liability.

Question 8

_____ 13. The lowest tax rate on the tax rate schedules for taxable incomes is the same for individuals and C corporations.

Accepted Answer

The tax rate schedules for individuals and C corporations differ, with individuals having a progressive tax rate system and C corporations having a flat tax rate.

Question 9

_____ 5. The type and degree of connection between a business and a state necessary for a state to impose a tax is referred to as nexus.

Accepted Answer

This statement is true. Nexus refers to the minimum level of contact between a business and a state that allows the state to impose a tax on the business.

Question 10

_____ 16. All limited liability companies (LLCs) can file their tax returns as partnerships.

Accepted Answer

Not all LLCs can file as partnerships; single-member LLCs are typically treated as sole proprietorships for tax purposes unless they elect otherwise.

Question 11

_____ 6. The 13^th Amendment to the US Constitution that provided for an income tax was ratified in 1916.

Accepted Answer

The 13th Amendment, ratified in 1865, abolished slavery. The 16th Amendment, ratified in 1913, authorized the federal income tax.

Question 12

_____ 12. All interest paid to a taxpayer must be included in gross income.

Accepted Answer

Not all interest is taxable; certain types, like municipal bond interest, may be exempt from federal income tax.

Question 13

_____ 9. Adam Smith's four canons of taxation are Equity, Certainty, Economy and Convenience.

Accepted Answer

This statement is true. Adam Smith's four canons of taxation are indeed Equity, Certainty, Economy and Convenience.

Question 14

Compare a sales tax to a use tax.

Accepted Answer

The answer of Compare a sales tax to a use...

Question 15

Name and describe two types of taxes other than the income tax. Give example of each.

Accepted Answer

The answer of Name and describe two types of taxes...

Question 16

_____ 17. Partnerships and S corporations are flow-through entities.

Accepted Answer

Partnerships and S corporations are flow-through entities, meaning that their income, deductions, and credits flow through to their owners' personal income tax returns. The entity itself does not pay income tax on its profits like a C corporation would.

Question 17

_____ 4. The value added tax is a type of consumption tax.

Accepted Answer

The value added tax (VAT) is a consumption tax imposed on the value added to goods and services at each stage of production or distribution. It is based on the idea that the ultimate consumer of a product or service should be the one to bear the tax burden.

Question 18

_____ 15. Corporations are only allowed to carry their net operating losses forward.

Accepted Answer

Corporations are allowed to carry their net operating losses forward or back for a certain number of years depending on the tax law in their jurisdiction.

Question 19

_____ 2. Both sales and use taxes are collected in the state in which the sale takes place.

Accepted Answer

Sales tax is collected in the state where the sale occurs, while use tax is collected in the state where the purchased goods are used if sales tax was not collected at the point of sale.

Question 20

_____ 8. A flat tax generally would be considered a regressive tax.

Accepted Answer

A flat tax is considered proportional, as it taxes all income at the same rate, regardless of the amount, unlike a regressive tax which takes a larger percentage from lower-income earners.

Quiz 1: Introduction to Taxation