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Answer Key included from page 469

100% correct answers

TEST BANK FOR
South-Western Federal Taxation - Individual Income Taxes
Chapter 1-20

Name: Class: Date:

chapter 1



Indicate whether the statement is true or false.

1. 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

2. 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

3. 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

4. Stealth taxes have the effect of generating additional taxes from all taxpayers.
a. True
b. False

5. When interest is charged on a deficiency, any part of a month counts as a full month.
a. True
b. False

6. No state may offer an income tax amnesty program more than once.
a. True
b. False

7. The majority of IRS audits are handled by correspondence.
a. True
b. False

8. The amount of a taxpayer’s itemized deductions will increase the chance of being audited by the IRS.
a. True

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b. False

9. 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.

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a. True
b. False

10. The civil fraud penalty can entail large fines and possible incarceration.
a. True
b. False

11. 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

12. 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

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

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

15. Currently, the Federal corporate income tax is less progressive than the individual income tax.
a. True
b. False

16. The Federal excise tax on gasoline is an example of a proportional tax.
a. True
b. False

17. 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

18. 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

19. In preparing a tax return, all questions on the return must be answered.
a. True
b. False

20. 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.

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a. True
b. False

21. 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

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

23. The annual exclusion, currently $15,000, is available for gift and estate tax purposes.
a. True
b. False

24. 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

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

26. For state income tax purposes, a majority of states allow a deduction for Federal income taxes.
a. True
b. False

27. The IRS is required to redetermine the interest rate on underpayments and overpayments once a year.
a. True
b. False

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

29. A major advantage of a flat tax type of income tax is its simplicity.
a. True
b. False

30. 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

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