Federal Taxation Chapter 1 Introduction Questions with Correct Answers

What is taxation? Correct Answer - The primary purpose is to raise revenue for government operations. - Is often used as a tool to influence the behavior of individuals and businesses. - ex. Income tax credits are designed to encourage people to purchase a fuel-efficient car. - ex. A tobacco excise tax may discourage individuals from smoking. - Ultimately, all taxes are paid by individuals. Learning and Coping with Taxation Correct Answer - The study of taxation involves reviewing various rules and exceptions, and when possible, trying to understand the justification for them - Taxation requires a mastery of certain general rules, being able to apply them, and knowing when exceptions might apply Criticism of Income Tax Correct Answer - One of the reasons the income tax evoked such criticism was that many regarded it as an invasion of privacy. - At the turn of the century, financial affairs were regarded as highly personal and only concerned the party involved, not the business of the U.S. government corporate income tax Correct Answer - enacted in 1909, was held to be constitutional, because it was deemed to be an excise tax. - In essence, it was considered to be a tax on the right to do business in the corporate form. It was like a form of franchise tax. - Because a corporation is an entity created under state law, jurisdictions possess the right to tax its creation and operation. Ratification of Sixteenth Amendment Correct Answer - The timing of the ratification of the Sixteenth Amendment to the U.S. Constitution (1913) was instrumental in the financing of U.S. participation in World War I. - The passage of the Sixteenth Amendment allowed Congress to levy income tax on individuals and corporations without apportioning it among the states. Tax Law Prior to IRC of 1939 Correct Answer -The tax practitioner or the tax professor of past years must have encountered difficulty prior to the enactment of the Internal Revenue Code of 1939. - For example, the resolution of a particular problem might have required reference to dozens of different statutes. - Various revenue acts passed but unorganized - Difficult to solve problems