Test Bank for Taxation for Decision Makers,
2020, 10th Edition, Shirley Dennis-Escoffier
Karen A. Fortin
1
,2 Taxation for Decision Makers Test Bank
Chapter 1
Introduction to Taxation
Note to Instructor: The reference tables in the appendix of the text may be required for a limited number
of answers to the questions and problems in this chapter. This is indicated by “REFERENCE TABLES
REQUIRED” after the learning objective.
True-False: Insert T for True and F for False before the questions.
1. A hidden tax is one that is included with a payment but not specifically identified.
ANSWER True LO 1.1
DIFFICULTY: Easy
2. Both sales and use taxes are collected in the state in which the sale takes place.
ANSWER False LO 1.1
DIFFICULTY: Easy
3. The person receiving the gift pays the gift tax.
ANSWER False LO 1.1
DIFFICULTY: Easy
4. The value added tax is a type of consumption tax.
ANSWER True LO 1.1
DIFFICULTY: Easy
5. The type and degree of connection between a business and a state necessary for a state to
impose a tax is referred to as nexus.
ANSWER True LO 1.1
DIFFICULTY: Easy
6. The 16th Amendment to the US Constitution that provided for an income tax was ratified in
1939.
ANSWER False LO 1.1
DIFFICULTY: Easy
7. Any current changes to the tax laws are now amendments to the Internal Revenue Code of
2019.
ANSWER False LO 1.1
DIFFICULTY: Easy
8. A flat tax generally would be considered a regressive tax.
, Chapter 1: Introduction to Taxation 3
ANSWER False LO 1.2
DIFFICULTY: Easy
9. Adam Smith’s four canons of taxation are Equity, Certainty, Economy and Convenience.
ANSWER True LO 1.3
DIFFICULTY: Easy
10. Vertical equity asserts that persons in similar circumstances should face similar tax burdens.
ANSWER False LO 1.3
DIFFICULTY: Easy
11. There are three basic taxable entities: the individual, the fiduciary, and the C corporation.
ANSWER True LO 1.4
DIFFICULTY: Easy
12. All interest paid to a taxpayer must be included in gross income.
ANSWER False LO 1.4
DIFFICULTY: Moderate
13. The lowest tax rate on the tax rate schedules for taxable incomes is the same for individuals
and C corporations.
ANSWER False LO 1.4 REFERENCE TABLES REQUIRED
DIFFICULTY: Easy
14. A $100 tax deduction is more valuable to a taxpayer than a $100 tax credit.
ANSWER False LO 1.4
DIFFICULTY: Easy
15. A corporation incurring a net operating loss in 2019 can only carry that loss forward to offset
profits in future years.
ANSWER True LO 1.5
DIFFICULTY: Moderate
16. All limited liability companies (LLCs) can file their tax returns as partnerships.
ANSWER False LO 1.5
DIFFICULTY: Moderate
17. Partnerships and S corporations are flow-through entities.
ANSWER True LO 1.5
DIFFICULTY: Easy
2020, 10th Edition, Shirley Dennis-Escoffier
Karen A. Fortin
1
,2 Taxation for Decision Makers Test Bank
Chapter 1
Introduction to Taxation
Note to Instructor: The reference tables in the appendix of the text may be required for a limited number
of answers to the questions and problems in this chapter. This is indicated by “REFERENCE TABLES
REQUIRED” after the learning objective.
True-False: Insert T for True and F for False before the questions.
1. A hidden tax is one that is included with a payment but not specifically identified.
ANSWER True LO 1.1
DIFFICULTY: Easy
2. Both sales and use taxes are collected in the state in which the sale takes place.
ANSWER False LO 1.1
DIFFICULTY: Easy
3. The person receiving the gift pays the gift tax.
ANSWER False LO 1.1
DIFFICULTY: Easy
4. The value added tax is a type of consumption tax.
ANSWER True LO 1.1
DIFFICULTY: Easy
5. The type and degree of connection between a business and a state necessary for a state to
impose a tax is referred to as nexus.
ANSWER True LO 1.1
DIFFICULTY: Easy
6. The 16th Amendment to the US Constitution that provided for an income tax was ratified in
1939.
ANSWER False LO 1.1
DIFFICULTY: Easy
7. Any current changes to the tax laws are now amendments to the Internal Revenue Code of
2019.
ANSWER False LO 1.1
DIFFICULTY: Easy
8. A flat tax generally would be considered a regressive tax.
, Chapter 1: Introduction to Taxation 3
ANSWER False LO 1.2
DIFFICULTY: Easy
9. Adam Smith’s four canons of taxation are Equity, Certainty, Economy and Convenience.
ANSWER True LO 1.3
DIFFICULTY: Easy
10. Vertical equity asserts that persons in similar circumstances should face similar tax burdens.
ANSWER False LO 1.3
DIFFICULTY: Easy
11. There are three basic taxable entities: the individual, the fiduciary, and the C corporation.
ANSWER True LO 1.4
DIFFICULTY: Easy
12. All interest paid to a taxpayer must be included in gross income.
ANSWER False LO 1.4
DIFFICULTY: Moderate
13. The lowest tax rate on the tax rate schedules for taxable incomes is the same for individuals
and C corporations.
ANSWER False LO 1.4 REFERENCE TABLES REQUIRED
DIFFICULTY: Easy
14. A $100 tax deduction is more valuable to a taxpayer than a $100 tax credit.
ANSWER False LO 1.4
DIFFICULTY: Easy
15. A corporation incurring a net operating loss in 2019 can only carry that loss forward to offset
profits in future years.
ANSWER True LO 1.5
DIFFICULTY: Moderate
16. All limited liability companies (LLCs) can file their tax returns as partnerships.
ANSWER False LO 1.5
DIFFICULTY: Moderate
17. Partnerships and S corporations are flow-through entities.
ANSWER True LO 1.5
DIFFICULTY: Easy
