Chap 01 2026 - Nellen
Indicate whether the statement is true or false.
1. Under Clint’s will, all of his property passes to either the Lutheran Church or to his spouse. No Federal estate
tax will be due on Clint’s death.
a. True
b. False
ANSWER: True
2. Unlike FICA, FUTA requires that employers comply with state as well as Federal rules.
a. True
b. False
ANSWER: True
3. 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
4. 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
5. The Federal excise tax on gasoline has a proportional effect on all taxpayers (that is, neither progressive nor
regressive).
a. True
b. False
ANSWER: False
6. An excise tax is often used to try to influence behavior.
a. True
b. False
ANSWER: True
7. States impose either a state income tax or a general sales tax, but not both types of taxes.
a. True
b. False
ANSWER: False
Page 1
,Name: Class: Date:
Chap 01 2026 - Nellen
8. A parent employs her twin daughters, age 17, in her sole proprietorship. The daughters are not subject to FICA
coverage.
a. True
b. False
ANSWER: True
9. 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
10. 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
11. An inheritance tax is a tax on a decedent’s right to pass property at death.
a. True
b. False
ANSWER: False
12. A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.
a. True
b. False
ANSWER: True
13. 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
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
Page 2
,Name: Class: Date:
Chap 01 2026 - Nellen
15. For state income tax purposes, some states allow a credit for dependents rather than a deduction.
a. True
b. False
ANSWER: True
16. For Federal income tax purposes, there never has been a general amnesty period.
a. True
b. False
ANSWER: True
17. There is a Federal excise tax on hotel occupancy.
a. True
b. False
ANSWER: False
18. 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
19. The Federal estate and gift taxes are examples of progressive rate taxes.
a. True
b. False
ANSWER: True
20. 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
21. 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
Page 3
, Name: Class: Date:
Chap 01 2026 - Nellen
22. 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
23. 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
24. In 2025, 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
25. 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
26. 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
27. 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
Page 4
Indicate whether the statement is true or false.
1. Under Clint’s will, all of his property passes to either the Lutheran Church or to his spouse. No Federal estate
tax will be due on Clint’s death.
a. True
b. False
ANSWER: True
2. Unlike FICA, FUTA requires that employers comply with state as well as Federal rules.
a. True
b. False
ANSWER: True
3. 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
4. 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
5. The Federal excise tax on gasoline has a proportional effect on all taxpayers (that is, neither progressive nor
regressive).
a. True
b. False
ANSWER: False
6. An excise tax is often used to try to influence behavior.
a. True
b. False
ANSWER: True
7. States impose either a state income tax or a general sales tax, but not both types of taxes.
a. True
b. False
ANSWER: False
Page 1
,Name: Class: Date:
Chap 01 2026 - Nellen
8. A parent employs her twin daughters, age 17, in her sole proprietorship. The daughters are not subject to FICA
coverage.
a. True
b. False
ANSWER: True
9. 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
10. 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
11. An inheritance tax is a tax on a decedent’s right to pass property at death.
a. True
b. False
ANSWER: False
12. A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.
a. True
b. False
ANSWER: True
13. 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
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
Page 2
,Name: Class: Date:
Chap 01 2026 - Nellen
15. For state income tax purposes, some states allow a credit for dependents rather than a deduction.
a. True
b. False
ANSWER: True
16. For Federal income tax purposes, there never has been a general amnesty period.
a. True
b. False
ANSWER: True
17. There is a Federal excise tax on hotel occupancy.
a. True
b. False
ANSWER: False
18. 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
19. The Federal estate and gift taxes are examples of progressive rate taxes.
a. True
b. False
ANSWER: True
20. 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
21. 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
Page 3
, Name: Class: Date:
Chap 01 2026 - Nellen
22. 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
23. 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
24. In 2025, 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
25. 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
26. 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
27. 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
Page 4
