INTRODUCTION TO TAXATION

Solutions Manual for South-Western Federal Taxation 2023 Essentials of Taxation Individuals and Business Entities, 26e Annette Nellen, Andrew Cuccia, Mark Persellin, James Young (All Chapters Download link at the end of this file) 1 / 2

CHAPTER 1

INTRODUCTION TO TAXATION

SOLUTIONS TO PROBLEM MATERIALS

PROBLEMS

• (LO 1) Various answers are possible, including using the Key Terms at the end of each chapter,

referring to the Glossary (Appendix C), looking up the footnote resources to the Internal Revenue Code in Appendix D, using chapter features (e.g., Global Tax Issues, Ethics & Equity, Tax Planning, and Digging Deeper), examining the tax forms used in the chapters, and completing additional end- of-chapter assignments. All of these resources will help students engage more deeply with the materials and help their understanding.

• (LO 3, 5, 6) Some tax and nontax considerations James should investigate include the following:

• State and local income taxes.• State and local sales taxes.• State and local property taxes.• Employee implications of the move (Will James lose current employees? Is the labor market better in the new location? Is cost of living lower or higher in new location?).• Logistics/transportation of products to customers (specifically document lower costs).• State infrastructure (better in new location?).

• (LO 1, 2, 3) A tax is regressive if it represents a larger percentage of the income of a low-income

taxpayer relative to the income of a high-income taxpayer. Examples of regressive taxes include sales and excise taxes. A tax is progressive if it represents a larger percentage of the income of a high- income taxpayer relative to the income of a low-income taxpayer. The Federal income tax is an example of a progressive tax.

4. (LO 3)

• The parsonage probably was not listed on the property tax rolls because it was owned by a tax-

exempt church. Apparently, the taxing authorities are not aware that ownership has changed.

• Ethan should notify the authorities of his purchase. This will force him to pay back taxes but

may eliminate future interest and penalties.

• (LO 1, 6) (See Digging Deeper 1.) As to Adam Smith’s canon on economy, the Federal income tax

yields a mixed result. From the standpoint of the IRS, economy exists as collection costs are nominal (when compared with revenue generated). The government's cost of collecting Federal taxes amounts to less than one-half of 1 percent of the revenue collected. Economy is not present, however, if one looks to the compliance effort and costs expended by taxpayers. According to recent estimates, about 56% of individual taxpayers who file a return pay a preparer, and one-third purchase tax software.1-1 .

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