Deck 1: Introduction to Taxation

Question 1

The Federal estate and gift taxes are examples of progressive taxes.

Answer 1

True

Question 2

Like the Federal counterpart, the amount of the state excise taxes on gasoline varies from state to state.

Answer 2

False

Question 3

The Federal excise tax on cigarettes is an example of a proportional tax.

Answer 3

True

Question 4

Currently, the Federal income tax is less progressive than it ever has been in the past.

Question 5

Unlike FICA, FUTA requires that employers comply with state as well as Federal rules.

Question 6

A Federal excise tax is no longer imposed on admission to theaters.

Question 7

States impose either a state income tax or a general sales tax, but not both types of taxes.

Question 8

A parent employs his twin daughters, age 17, in his sole proprietorship.The daughters are not subject to FICA coverage.

Question 9

The principal objective of the FUTA tax is to provide some measure of retirement security.

Question 10

There is a Federal excise tax on hotel occupancy.

Question 11

An inheritance tax is a tax on a decedent's right to pass property at death.

Question 12

Sales made by mail order are not exempt from the application of a general sales (or use) tax.

Question 13

Currently, the tax base for the Social Security component of the FICA is not limited to a dollar amount.

Question 14

On transfers by death, the Federal government relies on an estate tax, while states impose an estate tax, an inheritance tax, both taxes, or neither tax.

Question 15

Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.

Question 16

The FICA tax (Medicare component) on wages is progressive since the tax due increases as wages increase.

Question 17

The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the U.S.

Question 18

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.

Question 19

Not all of the states that impose a general sales tax also have a use tax.

Question 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 the family unit.

Question 21

Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same rate.

Question 22

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.

Question 23

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 in 2017.

Question 24

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.

Question 25

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.

Question 26

Jake, the sole shareholder of Peach Corporation, a C corporation, has the corporation pay him $100,000.For income tax purposes, Jake would prefer to have the payment treated as dividend instead of salary.

Question 27

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.

Question 28

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.

Question 29

Don, 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.Don must report a salary of $400,000 and a dividend of $200,000 on his individual tax return.

Question 30

Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same.

Question 31

The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use personalty.

Question 32

Rajib is the sole shareholder of Robin Corporation, a calendar year S corporation.In the current year, Robin earned net profit of $350,000 ($520,000 gross income - $170,000 operating expenses) and distributed $80,000 to Rajib.Rajib must report Robin Corporation profit of $350,000 on his Federal income tax return.

Question 33

One of the motivations for making a gift is to save on income taxes.

Question 34

Double taxation of corporate income results because dividend distributions are included in a shareholder's gross income but are not deductible by the corporation.

Question 35

Donald owns a 45% interest in a partnership that earned $130,000 in the current year.He also owns 45% of the stock 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.

Question 36

A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty.

Question 37

The annual exclusion, currently $14,000, is available for gift and estate tax purposes.

Question 38

Quail Corporation is a C corporation with 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.

Question 39

Thrush Corporation files Form 1120, which reports taxable income of $200,000 in the current year.The corporation's tax is $56,250.

Question 40

In 2017, 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.

Question 41

The Federal income tax on individuals generates more revenue than the Federal income tax on corporations.

Question 42

Before the Sixteenth Amendment to the Constitution was ratified, there was no valid Federal income tax on individuals.

Question 43

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.
B)A large property owner issues a conservation easement as to some of her land.
C)A tax holiday issued 10 years ago has expired.
D)A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons.
E)None of these.

Question 44

Which, if any, of the following transactions will decrease a taxing jurisdiction's ad valorem tax revenue imposed on real estate?

A)A tax holiday is granted to an out-of-state business that is searching for a new factory site.
B)An abandoned church is converted to a restaurant.
C)A public school is razed and turned into a city park.
D)A local university sells a dormitory that will be converted for use as an apartment building.
E)None of these.

Question 45

For Federal income tax purposes, there never has been a general amnesty period.

Question 46

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.

Question 47

In cases of doubt, courts have held that tax relief provisions should be broadly construed in favor of taxpayers.

Question 48

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.

Question 49

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.

Question 50

The ratification of the Sixteenth Amendment to the U.S.Constitution was necessary to validate the Federal income tax on corporations.

Question 51

As it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize gain in the year the installment sale occurs.

Question 52

The formula for the Federal income tax on corporations is the same as that applicable to individuals.

Question 53

When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax purposes.

Question 54

The corporate marginal income tax rates range from 15% to 39%, while the individual marginal income tax rates range from 10% to 39.6%.

Question 55

Which, if any, of the following taxes are proportional (rather than progressive)?

A)State general sales tax
B)Federal corporate income tax
C)Federal estate tax
D)Federal gift tax
E)All of these

Question 56

The first income tax on individuals (after the ratification of the Sixteenth Amendment to the Constitution) levied tax rates from a low of 2% to a high of 6%.

Question 57

Because the law is complicated, most individual taxpayers are not able to complete their Federal income tax returns without outside assistance.

Question 58

Employment taxes apply to all entity forms of operating a business.As a result, employment taxes are a neutral factor in selecting the most tax effective form of operating a business.

Question 59

Stealth taxes have the effect of generating additional taxes from all taxpayers.

Question 60

The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith's canon (principle) of certainty.

Question 61

A use tax is imposed by:

A)The Federal government and all states.
B)The Federal government and a majority of the states.
C)All states and not the Federal government.
D)Most of the states and not the Federal government.
E)None of these.

Question 62

A characteristic of FICA is that:

A)It does not apply when one spouse works for the other spouse.
B)It is imposed only on the employer.
C)It provides a modest source of income in the event of loss of employment.
D)It is administered by both state and Federal governments.
E)None of these.

Question 63

Indicate which, if any, statement is incorrect.State income taxes:

A)Can piggyback to the Federal version.
B)Cannot apply to visiting nonresidents.
C)Can decouple from the Federal version.
D)Can provide occasional amnesty programs.
E)None of these.

Question 64

State income taxes generally can be characterized by:

A)The same date for filing as the Federal income tax.
B)No provision for withholding procedures.
C)Allowance of a deduction for Federal income taxes paid.
D)Applying only to individuals and not applying to corporations.
E)None of these.

Question 65

Taxes not imposed by the Federal government include:

A)Tobacco excise tax.
B)Customs duties (tariffs on imports).
C)Tax on rental cars.
D)Gas guzzler tax.
E)None of these.

Question 66

Provisions in the tax law that promote energy conservation and more use of alternative (non-fossil) fuels can be justified by:

A)Political considerations.
B)Economic and social considerations.
C)Promoting administrative feasibility.
D)Encouragement of small business.
E)None of these.

Question 67

Which, if any, of the following provisions cannot be justified as mitigating the effect of the annual accounting period concept?

A)Nonrecognition of gain allowed for involuntary conversions.
B)Net operating loss carryback and carryover provisions.
C)Carry over of excess charitable contributions.
D)Use of the installment method to recognize gain.
E)Carry over of excess capital losses.

Question 68

A VAT (value added tax):

A)Is regressive in its effect.
B)Has not proved popular outside of the U.S.
C)Is not a tax on consumption.
D)Is used exclusively by third world (less developed) countries.
E)None of these.

Question 69

Property can be transferred within the family group by gift or at death.One motivation for preferring the gift approach is:

A)To take advantage of the higher unified transfer tax credit available under the gift tax.
B)To avoid a future decline in value of the property transferred.
C)To take advantage of the per donee annual exclusion.
D)To shift income to higher bracket donees.
E)None of these.

Question 70

Taxes levied by both states and the Federal government include:

A)General sales tax.
B)Custom duties.
C)Hotel occupancy tax.
D)Franchise tax.
E)None of these.

Question 71

Both economic and social considerations can be used to justify:

A)Favorable tax treatment for accident and health plans provided for employees and financed by employers.
B)Disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g., fines, penalties, illegal kickbacks, bribes to government officials).
C)Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education.
D)Allowance of a deduction for state and local income taxes paid.
E)None of these.

Question 72

Which, if any, of the following is a typical characteristic of an ad valorem tax on personalty?

A)Taxpayer compliance is greater for personal use property than for business use property.
B)The tax on automobiles sometimes considers the age of the vehicle.
C)Most states impose a tax on intangibles.
D)The tax on intangibles generates considerable revenue since it is difficult for taxpayers to avoid.
E)None of these.

Question 73

Federal excise taxes that are no longer imposed include:

A)Tax on air travel.
B)Tax on wagering.
C)Tax on the manufacture of sporting equipment.
D)Tax on alcohol.
E)None of these.

Question 74

Social considerations can be used to justify:

A)Allowance of a credit for child care expenses.
B)Allowing excess capital losses to be carried over to other years.
C)Allowing accelerated amortization for the cost of installing pollution control facilities.
D)Allowing a Federal income tax deduction for state and local sales taxes.
E)None of these.

Question 75

Burt and Lisa are married and live in a common law state.Burt wants to make gifts to their four children in 2017.What is the maximum amount of the annual exclusion they will be allowed for these gifts?

A)$14,000.
B)$28,000.
C)$56,000.
D)$112,000.
E)None of these.

Question 76

Which, if any, of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS)?

A)Penalties are imposed for failure to file a return or pay a tax on time.
B)Prepaid income is taxed in the year received and not in the year earned.
C)Annual adjustments for indexation increases the amount of the standard deduction allowed.
D)Casualty losses must exceed 10% of AGI to be deductible.
E)A deduction is allowed for charitable contributions.

Question 77

The U.S.(either Federal, state, or local) does not impose:

A)Franchise taxes.
B)Severance taxes.
C)Occupational fees.
D)Custom duties.
E)Export duties.

Question 78

A characteristic of FUTA is that:

A)It is imposed on both employer and employee.
B)It is imposed solely on the employee.
C)Compliance requires following guidelines issued by both state and Federal regulatory authorities.
D)It is applicable to spouses of employees but not to any children under age 18.
E)None of these.

Question 79

Allowing a domestic production activities deduction for certain manufacturing income can be justified:

A)As mitigating the effect of the annual accounting period concept.
B)As promoting administrative feasibility.
C)By economic considerations.
D)Based on the wherewithal to pay concept.
E)None of these.

Question 80

Taxes levied by all states include:

A)Tobacco excise tax.
B)Individual income tax.
C)Inheritance tax.
D)General sales tax.
E)None of these.