Chapter 01: An Introduction to Taxation and Understanding the Federal Tax Law

Chapter 01: An Introduction to Taxation and Understanding the Federal Tax Law

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Indicate whether the statement is true or false.

• Because the law is complicated, most individual taxpayers are not able to complete their Federal income tax returns

without outside assistance.

• True
• False

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

on corporations.

• True
• False

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

• The first income tax on individuals (after the ratification of the Sixteenth Amendment to the Constitution) levied tax

rates from a low of 1% to a high of 6%.

• True
• False

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

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

certainty.

• True
• False

• The Medicare component of the FICA tax (1.45% on wages) is progressive since the tax due increases as wages

increase.

• True
• False

• The Federal estate and gift taxes are examples of progressive rate taxes.
• True
• False

• The Federal excise tax on gasoline has a proportional effect on all taxpayers (that is, neither progressive or regressive).
• True
• False

• Currently, the Federal corporate income tax is less progressive than the individual income tax.
• True
• False

(South-Western Federal Taxation 2024 Comprehensive Volume 47e by Young, Persellin, Nellen, Maloney, Cuccia, Lassar, Cripe) (Test Bank all Chapters) 1 / 4

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Class:

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Chapter 01: An Introduction to Taxation and Understanding the Federal Tax Law

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• 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.

• True
• False

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

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

same.

• True
• False

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

use personalty.

• True
• False

• An excise tax is often used to try to influence behavior.
• True
• False

• There is a Federal excise tax on hotel occupancy.
• True
• False

• The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the United States.
• True
• False

• The amount of the state excise taxes on gasoline varies from state to state.
• True
• False

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

• Sales made over the internet are not exempt from the application of a general sales (or use) tax.
• True
• False

• Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.
• True
• False
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Chapter 01: An Introduction to Taxation and Understanding the Federal Tax Law

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

• 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.

• True
• False

• On transfers by death, the Federal government relies on an estate tax, while states may impose an estate tax, an

inheritance tax, both taxes, or neither tax.

• True
• False

• An inheritance tax is a tax on a decedent’s right to pass property at death.
• True
• False

• One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from

being accumulated within a family unit.

• True
• False

• 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.

• True
• False

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

rate.

• True
• False

• The annual exclusion, currently $17,000, is available for gift and estate tax purposes.
• True
• False

• In 2023, 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.

• True
• False

• 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.

• True
• False
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Chapter 01: An Introduction to Taxation and Understanding the Federal Tax Law

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

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

• A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis.
• True
• False

• For state income tax purposes, some states allow a credit for dependents rather than a deduction.
• True
• False

• Some states use their state income tax return as a means of collecting unpaid use tax.
• True
• False

• No state may offer an income tax amnesty program more than once.
• True
• False

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

• Under state amnesty programs, all delinquent and unpaid income taxes are forgiven.
• True
• False

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

purposes.

• True
• False

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

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

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