South-Western Federal 2026 complete Test Bank: Comprehensive 49th Edition by James Young ||ISBN:9798214043753 |ultimate guide 100% verified

Test bank Income Tax
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CHAPTER 1: bg b g AN INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAW
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1. The ratification of the Sixteenth Amendment to the U.S. Constitution was necessary to validate the
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Federal income tax on corporations.
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a. True
b. False


ANSWER: False
RATIONALE: The Sixteenth Amendment validated only the tax on individuals. The income tax on corporations h
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ad been previously sanctioned by the courts.
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2. Before the Sixteenth Amendment to the Constitution was ratified, there was no valid Federal income
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tax on individuals.
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a. True
b. False


ANSWER: False
RATIONALE:
There existed a Federal income tax during the Civil War that was sanctioned by the U.S.
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Supreme Court. bg




3. The first income tax on individuals (after the ratification of the Sixteenth Amendment to the
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Constitution) levied tax rates from a low of 2% to a high of 6%.
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a. True
b. False


ANSWER: True


4. The Federal income tax on individuals generates more revenue than the Federal income tax on
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1

,corporations.




2

,a. True
b. False


ANSWER: True


5. The payasyougo feature of the Federal income tax on individuals conforms to Adam Smith’s canon of
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certainty.
a. True
b. False


ANSWER: False
RATIONALE: Pay-as-you- b g




go refers to the withholding provisions applicable to wages and other types of income and adds convenience to
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the tax system.
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6. Because the law is complicated, most individual taxpayers are not able to complete their Federal
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income tax returns without outside assistance.
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a. True
b. False


ANSWER: True
RATIONALE: Approximately 60% use tax return preparers, while slightly more than 32% purchase tax return softwa
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re.
7. The FICA tax (Medicare component) on wages is progressive since the tax due increases as wages
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increase.
a. True
b. False


ANSWER: False
RATIONALE: The FICA tax (Medicare component) is proportional because the rate is constant regardless of the wag
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es earned.
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3

, 8. The Federal estate and gift taxes are examples of progressive taxes.
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a. True
b. False


ANSWER: True


9. The Federal excise tax on cigarettes is an example of a proportional tax.
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a. True
b. False


ANSWER: True
RATIONALE: The tax is a flat $1.01 per pack.
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10. Currently, the Federal income tax is less progressive than it ever has been in the past.
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a. True
b. False


ANSWER: False
RATIONALE: Currently, the Federal income tax has six rates. At one time, it had two rates.
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11. Mona inherits her mother’s personal residence, which she converts to a furnished rent house. These
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changes should affect the amount of ad valorem property taxes levied on the properties.
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a. True
b. False


ANSWER: True
RATIONALE: Conversion from residential to rental use will increase the taxes. Furthermore, Mona’s mother ma
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y have had a senior citizen exemption on the property, which will no longer be appropriate. Lastly, the furni
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shings in the rent house could now be subject to an ad valorem tax on personalty.
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