Chapter 1 - An Overview of Federal Taxation
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Tax Awareness - CORRECT ANSWER - The ability to recognize tax problems, pitfalls, and
planning opportunities.
Tax - CORRECT ANSWER - An exaction for the support of the Government. A tax provides
a means through which the government services a majority of the revenues necessary to keep it
in operation.
Characteristics of a Tax - CORRECT ANSWER - 1. There is no direct relationship between
the exaction of revenue and any benefit to be received by the taxpayer.
2. Taxes are levied on the basis of predetermined criteria.
3. Taxes are levied on a recurring or predictable basis.
4. Taxes may be distinguished from regulations or penalties.
What is the Sixteenth Amendment? - CORRECT ANSWER - Congress shall have the power
to lay and collect taxes on incomes from whatever source derived, without apportionment among
the several states, and without regard to any census or enumeration.
What is the constitutional problem? - CORRECT ANSWER - Early in its existence, the US
government was supported by excise and custom duties. These duties became insufficient to
support the government by the early twentieth century and steps were begun to impose an
income tax. Several attempts to impose such a tax were found to be unconstitutional prior to the
passage of the Sixteenth Amendment to the US Constitution because direct taxes were not legal
unless apportioned among the states.
What are the highest sources of revenues for the U.S. government? (In Order) - CORRECT
ANSWER - 1. Individual Income Tax (46%)
2. SS, Medicare, Unemployment, and Other Retirement (32%)
3. Corporate Income Tax (13%)
, Tax Base - CORRECT ANSWER - The amount which a tax is levied.
Taxable Income - CORRECT ANSWER - The taxpayer's total income less exclusions,
deductions, and exemptions that might be available to a particular taxpayer.
Income - CORRECT ANSWER - Any permanent increment to wealth is generally defined as
income.
Exclusions - CORRECT ANSWER - Certain increments to wealth that are not included in a
particular Federal tax base.
Deduction - CORRECT ANSWER - A reduction in the gross (total) amount that must be
included in the taxable base.
Tax Rate - CORRECT ANSWER - Some percentage applied to the tax base to determine a
taxpayer's liability.
Proportional Tax Rate - CORRECT ANSWER - Remains at a constant percentage regardless
of the size of the tax base.
Progressive Tax Rate - CORRECT ANSWER - An Increasing percentage rate is applied to
increasing increments of the tax base.
Regressive Tax Rate - CORRECT ANSWER - A decreasing percentage rate is applied to
increasing increments of the tax base.
Marginal Tax Rate - CORRECT ANSWER - The percentage at which the next unit of the tax
base will be taxed.
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Tax Awareness - CORRECT ANSWER - The ability to recognize tax problems, pitfalls, and
planning opportunities.
Tax - CORRECT ANSWER - An exaction for the support of the Government. A tax provides
a means through which the government services a majority of the revenues necessary to keep it
in operation.
Characteristics of a Tax - CORRECT ANSWER - 1. There is no direct relationship between
the exaction of revenue and any benefit to be received by the taxpayer.
2. Taxes are levied on the basis of predetermined criteria.
3. Taxes are levied on a recurring or predictable basis.
4. Taxes may be distinguished from regulations or penalties.
What is the Sixteenth Amendment? - CORRECT ANSWER - Congress shall have the power
to lay and collect taxes on incomes from whatever source derived, without apportionment among
the several states, and without regard to any census or enumeration.
What is the constitutional problem? - CORRECT ANSWER - Early in its existence, the US
government was supported by excise and custom duties. These duties became insufficient to
support the government by the early twentieth century and steps were begun to impose an
income tax. Several attempts to impose such a tax were found to be unconstitutional prior to the
passage of the Sixteenth Amendment to the US Constitution because direct taxes were not legal
unless apportioned among the states.
What are the highest sources of revenues for the U.S. government? (In Order) - CORRECT
ANSWER - 1. Individual Income Tax (46%)
2. SS, Medicare, Unemployment, and Other Retirement (32%)
3. Corporate Income Tax (13%)
, Tax Base - CORRECT ANSWER - The amount which a tax is levied.
Taxable Income - CORRECT ANSWER - The taxpayer's total income less exclusions,
deductions, and exemptions that might be available to a particular taxpayer.
Income - CORRECT ANSWER - Any permanent increment to wealth is generally defined as
income.
Exclusions - CORRECT ANSWER - Certain increments to wealth that are not included in a
particular Federal tax base.
Deduction - CORRECT ANSWER - A reduction in the gross (total) amount that must be
included in the taxable base.
Tax Rate - CORRECT ANSWER - Some percentage applied to the tax base to determine a
taxpayer's liability.
Proportional Tax Rate - CORRECT ANSWER - Remains at a constant percentage regardless
of the size of the tax base.
Progressive Tax Rate - CORRECT ANSWER - An Increasing percentage rate is applied to
increasing increments of the tax base.
Regressive Tax Rate - CORRECT ANSWER - A decreasing percentage rate is applied to
increasing increments of the tax base.
Marginal Tax Rate - CORRECT ANSWER - The percentage at which the next unit of the tax
base will be taxed.
