Question 1

The Internal Revenue Code is a compilation of Federal tax legislation that appears in Title 26 of the United States Code.

Accepted Answer

The Internal Revenue Code (IRC) is indeed the primary body of federal statutory tax law in the United States, and it is organized as Title 26 of the United States Code.

Question 2

The favorable treatment of research and development expenses is one means of controlling the economy.

Accepted Answer

False

Question 3

Proposed Regulations have the force and effect of law.

Accepted Answer

Proposed regulations are a preliminary step in the regulatory process and do not have the force and effect of law until they have been finalized and adopted through the proper legal procedures.

Question 4

These Internal Revenue Code citations are incorrect: § 2121) and § 12211).

Accepted Answer

The answer of These Internal Revenue Code citations are incorrect:...

Question 5

Although a corporation is subject to a Federal income tax, a partnership is not.

Accepted Answer

A partnership itself does not pay federal income taxes directly to the IRS; instead, its profits and losses are passed through to the individual partners, who then report their share of the profits or losses on their personal tax returns.

Question 6

The Federal income tax law allows a taxpayer to claim a deduction for state and local income taxes but limits all state taxes to a maximum of $10,000.

Accepted Answer

This is a reference to the State and Local Tax (SALT) deduction cap, which was implemented as part of the Tax Cuts and Jobs Act of 2017, limiting the amount taxpayers can deduct for state and local taxes to $10,000.

Question 7

Alabama and South Carolina are community property states.

Accepted Answer

Alabama and South Carolina are not community property states; they follow the equitable distribution model for dividing property in a divorce.

Question 8

The encouragement of private-sector pension plans can be justified under the encouragement of certain industries.

Accepted Answer

The answer of The encouragement of private-sector pension plans can...

Question 9

A tax bill cannot originate in the Senate Finance Committee.

Accepted Answer

The answer of A tax bill cannot originate in the...

Question 10

One of the justifications for the enactment of the tax law governing corporate reorganizations was the economic benefit it would provide businesses including making them more efficient).

Accepted Answer

The tax law governing corporate reorganizations was enacted in part to provide economic benefits to businesses, including making them more efficient, by allowing them to restructure in a tax-neutral manner, thereby facilitating transactions that could improve their operations, competitive standing, and overall health without incurring prohibitive tax costs.

Question 11

The U.S. Federal government has a provision in the Constitution that precludes deficit spending.

Accepted Answer

The U.S. Constitution does not explicitly prohibit deficit spending. Instead, it grants Congress the power to borrow money on the credit of the United States, allowing for the possibility of spending more than the government receives in revenue.

Question 12

Temporary Regulations have the same authoritative value as Final Regulations for four years.

Accepted Answer

Temporary Regulations have the same authoritative value as Final Regulations but only for three years, not four.

Question 13

Internal Revenue Code § 6 involves gross income and § 7 outlines itemized deductions.

Accepted Answer

Internal Revenue Code does not have sections numbered as § 6 or § 7. Gross income is primarily discussed in § 61, and itemized deductions are outlined in various sections, but not § 7.

Question 14

One Internal Revenue Code section enables shareholders in a small business corporation to obtain an ordinary deduction for any loss recognized on a stock investment.

Accepted Answer

Section 1244 of the Internal Revenue Code allows shareholders in qualifying small business corporations to deduct losses on stock as ordinary losses rather than capital losses, providing potential tax benefits.

Question 15

Longer class lives for depreciable property and the required use of the straight-line method of depreciation would likely dampen the tax incentive for purchasing capital assets.

Accepted Answer

Longer class lives and the requirement to use the straight-line method spread out the depreciation deductions over more years, reducing the annual tax savings and making capital investments less attractive from a tax perspective.

Question 16

Revenue-neutral tax laws reduce deficits.

Accepted Answer

Revenue-neutral tax laws are designed to not increase or decrease the total amount of tax revenue collected by the government, meaning they do not directly affect budget deficits or surpluses.

Question 17

Taxpayers may read Committee Reports to determine the intent of Congress.

Accepted Answer

Committee Reports are documents produced by Congressional committees that describe the purpose and scope of legislation, including the intent of Congress, which can be useful for taxpayers and others trying to understand the law.

Question 18

Subchapter P refers to the subchapter in the Internal Revenue Code that deals with partners and partnerships.

Accepted Answer

Subchapter P of the Internal Revenue Code deals with capital gains and losses, not partners and partnerships. Partnerships are covered under Subchapter K.

Question 19

Many states have balanced budgets because laws or constitutional amendments preclude deficit spending.

Accepted Answer

Many states in the United States have laws or constitutional amendments that require the state government to have a balanced budget, effectively prohibiting deficit spending.

Question 20

Regulations are arranged in a different sequence than the Internal Revenue Code.

Accepted Answer

The answer of Regulations are arranged in a different sequence...

Quiz 1: Understanding and Working With the Federal Tax Law