(Test Bank) South-Western Federal Taxation 2022: Essentials of Taxation: Individuals and Business Entities

Nellen,Cuccia,Persellin,Young, 25

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Test Bank for South-Western Federal Taxation 2022: Essentials of Taxation: Individuals and Business Entities, The downloadable file consists of 595 pages, and the total size of the file is 8.06 MB. Purchase now only for highly discounted price.

Author(s): Nellen, Cuccia, Persellin, Young

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Chapter 1 1. Because the law is complicated, most individual taxpayers are not able to complete their Federal income tax returns without outside assistance. a. True b. False ANSWER: True 2. The ratification of the Sixteenth Amendment to the U.S. Constitution was necessary to validate the Federal income tax on corporations. a. True b. False ANSWER: False 3. Before the Sixteenth Amendment to the Constitution was ratified, there was no valid Federal income tax on individuals. a. True b. False ANSWER: False 4. 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%. a. True b. False ANSWER: True 5. The Federal income tax on individuals generates more revenue than the Federal income tax on corporations. a. True b. False ANSWER: True 6. The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith’s canon (principle) of certainty. a. True b. False ANSWER: False 7. The Medicare component of the FICA tax (1.45% on wages) is progressive since the tax due increases as wages increase. a. True b. False ANSWER: False 8. The Federal estate and gift taxes are examples of progressive rate taxes. a. True b. False ANSWER: True 9. The Federal excise tax on gasoline has a proportional effect on all taxpayers (that is, neither progressive or regressive). a. True b. False ANSWER: False 10. Currently, the Federal corporate income tax is less progressive than the individual income tax. a. True b. False ANSWER: True 11. 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. a. True b. False ANSWER: True 12. A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty . a. True b. False ANSWER: False 13. Even if property tax rates are not changed, the amount of ad valorem taxes imposed on realty may not remain the same. a. True b. False ANSWER: True 14. The ad valorem tax on personal use personalty is more often avoided by taxpayers than the ad valorem tax on business use personalty. a. True b. False ANSWER: True 15. An excise tax is often used to try to influence behavior. a. True b. False ANSWER: True 16. There is a Federal excise tax on hotel occupancy. a. True b. False ANSWER: False 17. The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the United States. a. True b. False ANSWER: False 18. The amount of the state excise taxes on gasoline varies from state to state. a. True b. False ANSWER: True 19. Not all of the states that impose a general sales tax also have a use tax. a. True b. False ANSWER: False 20. Sales made over the internet are not exempt from the application of a general sales (or use) tax. a. True b. False ANSWER: True 21. Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate. a. True b. False ANSWER: True 22. States impose either a state income tax or a general sales tax, but not both types of taxes. a. True b. False ANSWER: False 23. 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. a. True b. False ANSWER: False 24. 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. a. True b. False ANSWER: True 25. An inheritance tax is a tax on a decedent’s right to pass property at death. a. True b. False ANSWER: False 26. 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. a. True b. False ANSWER: True 27. 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. a. True b. False ANSWER: True 28. Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same rate. a. True b. False ANSWER: True 29. The annual exclusion, currently $15,000, is available for gift and estate tax purposes. a. True b. False ANSWER: False 30. In 2021, 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. a. True b. False ANSWER: False 31. 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. a. True b. False ANSWER: True 32. One of the motivations for making a gift is to save on income taxes. a. True b. False ANSWER: True 33. The formula for the Federal income tax on corporations is the same as that applicable to individuals. a. True b. False ANSWER: False 34. A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis. a. True b. False ANSWER: True 35. For state income tax purposes, some states allow a credit for dependents rather than a deduction. a. True b. False ANSWER: True 36. Some states use their state income tax return as a means of collecting unpaid sales and use taxes. a. True b. False ANSWER: True 37. No state may offer an income tax amnesty program more than once. a. True b. False ANSWER: False 38. For Federal income tax purposes, there never has been a general amnesty period. a. True b. False ANSWER: True 39. Under state amnesty programs, all delinquent and unpaid income taxes are forgiven. a. True b. False ANSWER: False 40. When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax purposes. a. True b. False ANSWER: True 41. The principal objective of the FUTA tax is to provide some measure of retirement security. a. True b. False ANSWER: False 42. Currently, the tax base for the Social Security component of the FICA is not limited to a dollar amount. a. True b. False ANSWER: False 43. A parent employs his twin daughters, age 17, in his sole proprietorship. The daughters are not subject to FICA coverage. a. True b. False ANSWER: True 44. Unlike FICA, FUTA requires that employers comply with state as well as Federal rules. a. True b. False ANSWER: True 45. A major advantage of a flat tax type of income tax is its simplicity. a. True b. False ANSWER: True 46. The value added tax (VAT) has not had wide acceptance in the international community. a. True b. False ANSWER: False 47. If more IRS audits are producing a higher number of no change results, this indicates increased compliance on the part of taxpayers. a. True b. False ANSWER: False 48. The amount of a taxpayer’s itemized deductions will increase the chance of being audited by the IRS. a. True b. False ANSWER: True 49. An office audit by the IRS takes place at the office of the taxpayer. a. True b. False ANSWER: False 50. The IRS agent auditing the return will issue an RAR even if the taxpayer owes no additional taxes. a. True b. False ANSWER: True 51. If a special agent becomes involved in the audit of a return, this indicates that the IRS suspects that fraud is involved. a. True b. False ANSWER: True 52. If a taxpayer files early (i.e., before the due date of the return), the statute of limitations on assessments begins on the date the return is filed. a. True b. False ANSWER: False 53. For omissions from gross income in excess of 25% of that reported, there is no statute of limitations on additional income tax assessments by the IRS. a. True b. False ANSWER: False 54. If an income tax return is not filed by a taxpayer, there is no statute of limitations on assessments of tax by the IRS. a. True b. False ANSWER: True 55. If fraud is involved, there is no time limit on the assessment of a deficiency by the IRS. a. True b. False ANSWER: True 56. The IRS is required to redetermine the interest rate on underpayments and overpayments once a year. a. True b. False ANSWER: False 57. A calendar year taxpayer files his 2020 Federal income tax return on March 4, 2021. The return reflects an overpayment of $6,000, and the taxpayer requests a refund of this amount. The refund is paid on May 16, 2021. The refund need not include interest. a. True b. False ANSWER: True 58. For individual taxpayers, the interest rate for income tax refunds (overpayments) is the same as that applicable to assessments (underpayments). a. True b. False ANSWER: True 59. During any month in which both the failure to file penalty and the failure to pay penalty apply, the failure to file penalty is increased by the amount of the failure to pay penalty. a. True b. False ANSWER: False 60. When interest is charged on a deficiency, any part of a month counts as a full month. a. True b. False ANSWER: False 61. For the negligence penalty to apply, the underpayment must be caused by intentional disregard of rules and regulations without intent to defraud. a. True b. False ANSWER: True 62. Upon audit by the IRS, Faith is assessed a deficiency of $40,000 of which $25,000 is attributable to negligence. The 20% negligence penalty will apply to $25,000. a. True b. False ANSWER: True 63. If a tax deficiency is attributable to fraud, the negligence penalty will not be imposed. a. True b. False ANSWER: True 64. The civil fraud penalty can entail large fines and possible incarceration. a. True b. False ANSWER: False 65. Even though a client refuses to correct an error on a past return, it may be possible for a practitioner to continue to prepare returns for the client. a. True b. False ANSWER: True 66. In preparing an income tax return, the use of a client’s estimates is not permitted. a. True b. False ANSWER: False 67. In preparing a tax return, all questions on the return must be answered. a. True b. False ANSWER: False 68. A CPA firm in California sends many of its less complex tax returns to be prepared by a group of accountants in India. If certain procedures are followed, this outsourcing of tax return preparation is proper. a. True b. False ANSWER: True 69. The objective of pay-as-you-go (paygo ) is to improve administrative feasibility. a. True b. False ANSWER: True 70. When Congress enacts a tax cut that is phased in over a period of years, revenue neutrality is achieved. a. True b. False ANSWER: False 71. A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary. a. True b. False ANSWER: True 72. The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. These provisions can be justified on both economic and equity grounds. a. True b. False ANSWER: False 73. Various tax provisions encourage the creation of certain types of retirement plans. Such provisions can be justified on both economic and social grounds. a. True b. False ANSWER: True 74. To lessen or eliminate the effect of multiple taxation, a taxpayer who is subject to both foreign and U.S. income taxes on the same income is allowed either a deduction or a credit for the foreign tax paid. a. True b. False ANSWER: True 75. To mitigate the effect of the annual accounting period concept, the tax law permits the carryforward of excess charitable contributions of a particular year to other years. a. True b. False ANSWER: True 76. Jason’s business warehouse is destroyed by fire. Because the insurance proceeds exceed the basis of the property, a gain results. If Jason shortly reinvests the proceeds in a new warehouse, no gain is recognized due to the application of the wherewithal to pay concept. a. True b. False ANSWER: True 77. Because it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize a gain in the year the installment sale occurs. a. True b. False ANSWER: False 78. Stealth taxes have the effect of generating additional taxes from all taxpayers. a. True b. False ANSWER: False 79. 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. a. True b. False ANSWER: False 80. 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. a. True b. False ANSWER: False 81. In cases of doubt, courts have held that tax relief provisions should be broadly construed in favor of taxpayers. a. True b. False ANSWER: False 82. 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. a. True b. False ANSWER: True 83. Ultimately, most taxes are paid by individuals. a. True b. False ANSWER: True 84. The majority of IRS audits are handled by correspondence. a. True b. False ANSWER: True 85. Sally’s neighbor often brags that his employer often pays him in cash “off the books” to save him taxes. Sally is tired of hearing this and contacts the IRS to report the neighbor. If this tip results in taxes collected by the IRS, Sally will likely receive an award of a portion of the tax and penalties collected. a. True b. False ANSWER: True 86. Bracket creep will not exist if there is only a single (flat) tax rate for the income tax. a. True b. False ANSWER: True Multiple Choice 87. Which, if any, of the following statements best describes the history of the Federal income tax? a. It did not exist during the Civil War. b. The Federal income tax on corporations was held by the U.S. Supreme Court to be allowable under the U.S. Constitution. c. The Federal income tax on individuals was held by the U.S. Supreme Court to be allowable under the U.S. Constitution. d. Both the Federal income tax on individuals and on corporations was held by the U.S. Supreme Court to be contrary to the U.S. Constitution. ANSWER: b 88. Which, if any, is not one of Adam Smith’s canons (principles) of taxation? a. Economy in collection b. Certainty c. Convenience of payment d. Simplicity ANSWER: d 89. Which, if any, of the following taxes are regressive (rather than progressive )? a. State general sales tax b. Federal individual income tax c. Federal estate tax d. Federal gift tax ANSWER: a 90. 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. ANSWER: c 91. 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. ANSWER: a 92. 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. ANSWER: b 93. Federal excise taxes that are no longer imposed include: a. Tax on air travel. b. Tax on wagering. c. Tax on alcohol. d. None of these. ANSWER: d 94. 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. ANSWER: c 95. Taxes levied by both states and the Federal government include: a. General sales tax. b. Customs duties. c. Hotel occupancy tax. d. None of these. ANSWER: d 96. Taxes levied by all states include: a. Tobacco excise tax. b. Individual income tax. c. Inheritance tax. d. General sales tax. ANSWER: a 97. 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 but not the Federal government. d. Most of the states but not the Federal government. ANSWER: d 98. Gabriele and Lisa are married and live in a common law state. They want to make gifts to their four children in 2021. What is the maximum amount of the annual exclusion they will be allowed for these gifts? a. $15,000. b. $30,000. c. $60,000. d. $120,000. ANSWER: d 99. 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. ANSWER: c 100. 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. ANSWER: b 101. 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 but not to corporations. ANSWER: a 102. A characteristic of FICA tax 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. None of these. ANSWER: d 103. 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. ANSWER: c 104. The United States (either Federal, state, or local) does not impose: a. Franchise taxes. b. Severance taxes. c. Custom duties. d. Export duties. ANSWER: d 105. The proposed flat tax: a. Would increase the number of deductions available to individuals b. Would not require individuals to file returns. c. Would tax the increment in value as goods move through the production and manufacturing stages to the marketplace. d. Is a type of consumption tax. ANSWER: d 106. A VAT (value added tax): a. Is regressive in its effect. b. Has not proved popular outside of the United States. c. Is not a tax on consumption. d. Is used exclusively by third world (less developed) countries. ANSWER: a 107. Characteristics of the “fair tax” (i.e., national sales tax) include which, if any, of the following: a. Abolition of the Federal individual (but not the corporate) income tax. b. Abolition of all Federal income taxes but retention of payroll taxes (including the self-employment tax). c. Abolition of all Federal income taxes and payroll taxes but retention of the Federal estate and gift taxes. d. Abolition of all Federal income and payroll taxes as well as the Federal estate and gift taxes. ANSWER: d 108. In terms of probability, which of the following taxpayers would be least likely to be audited by the IRS? a. Taxpayer owns and operates a check -cashing service. b. Taxpayer is an employed electrician. c. Taxpayer just received a $3 million personal injury award as a result of a lawsuit. d. Taxpayer just won a $1 million slot machine jackpot at a Las Vegas casino. ANSWER: b