?
A?
VI
TU
_S
ED
OV
PR
AP
,AP
TABLE OF CONTENTS
PR Fundamentals of Taxation (2026 Release) - Solutions Manual
Ana Cruz, Michael Deschamps, Frederick Niswander, Debra Prendergast, Dan Schisler
Chapter 1 Introduction to Taxation, the Income Tax Formula, and Form 1040
Chapter 2
OV
Expanded Tax Formula, Form 1040, and Basic Concepts
Chapter 3 Gross Income: Inclusions and Exclusions
R
Chapter 4 Adjustments for Adjusted Gross Income
ED
U
Chapter 5 Itemized Deductions
SE
Chapter 6 Self-Employed Business Income (Line 3 of Schedule 1 and Schedule C)
Chapter 7 Capital Gains and Other Sales of Property (Schedule D and Form 4797)
_S
IS
Chapter 8 Rental Property, Royalties, and Income from Flow-Through Entities (Line 5, Schedule 1, and
Schedule E)
Chapter 9
Chapter 10 Payroll Taxes
O
Tax Credits (Form 1040, Lines 19, 20, 27 through 29, and 31, Schedule 3, Lines 1 through 14)
TU
N
Chapter 11 Retirement and Other Tax-Deferred Plans and Annuities
N
Chapter 12 Special Property Transactions
VI
O
Chapter 13 At-Risk/Passive Activity Loss Rules and the Individual Alternative Minimum Tax
Chapter 14 Partnership Taxation
C
Chapter 15 Corporate Taxation
A?
ED
?
M
,AP Solutions Manual
CHAPTER 1 – SOLUTIONS
PR END OF CHAPTER MATERIAL
Discussion Questions
1. (Introduction) Give a brief history of the income tax in the United States.
OV
Answer:
The first federal income tax was enacted in 1861 to help finance the Civil War
and was discarded soon thereafter. In 1894, another income tax was
promulgated by Congress to raise additional tax revenue and to expand the
ED
sources of revenue. In 1895, the Supreme Court ruled that the federal income
tax was unconstitutional. In 1913, the sixteenth Amendment to the U.S.
Constitution was enacted. This amendment gave Congress the power to levy
and collect taxes. In 2022, the federal government collected about $2.28 trillion
in individual income taxes.
Feedback:
_S
Learning Objective: 01-01
Topic: Tax Rate Structures
Difficulty: 1 Easy
EA: No
TU
2. (Introduction) For fiscal year 2023, what proportion of individual income tax returns
was electronically filed?
VI
Answer:
In fiscal year 2023, electronically filed tax returns were about 90.7% of total
returns.
A?
Feedback: Calculated from Table 1-1
Learning Objective: 01-01
Topic: Tax Rate Structures
Difficulty: 2 Medium
EA: No
?
3. Name the three types of tax rate structures and give an example of each.
Answer:
Progressive — U.S. federal income tax
Proportional — “flat-tax” usually levied on property or sales at the state or
local level
Regressive — Social Security tax
Feedback:
Learning Objective: 01-01
1-1
, AP Solutions Manual
Topic: Tax Rate Structures
Difficulty: 1 Easy
EA: No
PR
4. What is a progressive tax? Why do you think the government believes it is a more
equitable tax than, say, a regressive tax or proportional tax?
Answer: OV
A progressive rate structure is a structure where the tax rate increases as the
tax base increases. The progressive rate structure is viewed as more equitable
because the amount of tax paid varies with the ability to pay. For example, the
government believes that as an individual makes more income, a smaller
percentage of that income is needed to buy necessary living supplies and thus
more income is available to pay taxes.
Feedback:
ED
Learning Objective: 01-01
Topic: Tax Rate Structures
Difficulty: 2 Medium
EA: No
_S
5. What type of tax is a sales tax? Explain your answer.
Answer:
TU
The sales tax is a proportional tax. A proportional tax is a tax where the tax
rate remains the same regardless of the tax base. Most county or state sales tax
rates are the same regardless of the amount of sales upon which the tax is
levied. With a proportional tax, the marginal tax rate and average tax rate are
always the same.
Feedback:
VI
Learning Objective: 01-01
Topic: Tax Rate Structures
Difficulty: 1 Easy
A?
EA: No
6. What is the definition of tax base, and how does it affect the amount of tax levied?
Answer:
?
The tax base is the dollar amount upon which the tax rate is applied in order
to determine the actual tax. Income, dollar sales, and property value are the
more common tax bases in the United States.
Feedback:
Learning Objective: 01-01
Topic: Tax Rate Structures
Difficulty: 1 Easy
EA: No
7. What type of tax rate structure is the U.S. federal income tax? Explain your answer.
1-2
A?
VI
TU
_S
ED
OV
PR
AP
,AP
TABLE OF CONTENTS
PR Fundamentals of Taxation (2026 Release) - Solutions Manual
Ana Cruz, Michael Deschamps, Frederick Niswander, Debra Prendergast, Dan Schisler
Chapter 1 Introduction to Taxation, the Income Tax Formula, and Form 1040
Chapter 2
OV
Expanded Tax Formula, Form 1040, and Basic Concepts
Chapter 3 Gross Income: Inclusions and Exclusions
R
Chapter 4 Adjustments for Adjusted Gross Income
ED
U
Chapter 5 Itemized Deductions
SE
Chapter 6 Self-Employed Business Income (Line 3 of Schedule 1 and Schedule C)
Chapter 7 Capital Gains and Other Sales of Property (Schedule D and Form 4797)
_S
IS
Chapter 8 Rental Property, Royalties, and Income from Flow-Through Entities (Line 5, Schedule 1, and
Schedule E)
Chapter 9
Chapter 10 Payroll Taxes
O
Tax Credits (Form 1040, Lines 19, 20, 27 through 29, and 31, Schedule 3, Lines 1 through 14)
TU
N
Chapter 11 Retirement and Other Tax-Deferred Plans and Annuities
N
Chapter 12 Special Property Transactions
VI
O
Chapter 13 At-Risk/Passive Activity Loss Rules and the Individual Alternative Minimum Tax
Chapter 14 Partnership Taxation
C
Chapter 15 Corporate Taxation
A?
ED
?
M
,AP Solutions Manual
CHAPTER 1 – SOLUTIONS
PR END OF CHAPTER MATERIAL
Discussion Questions
1. (Introduction) Give a brief history of the income tax in the United States.
OV
Answer:
The first federal income tax was enacted in 1861 to help finance the Civil War
and was discarded soon thereafter. In 1894, another income tax was
promulgated by Congress to raise additional tax revenue and to expand the
ED
sources of revenue. In 1895, the Supreme Court ruled that the federal income
tax was unconstitutional. In 1913, the sixteenth Amendment to the U.S.
Constitution was enacted. This amendment gave Congress the power to levy
and collect taxes. In 2022, the federal government collected about $2.28 trillion
in individual income taxes.
Feedback:
_S
Learning Objective: 01-01
Topic: Tax Rate Structures
Difficulty: 1 Easy
EA: No
TU
2. (Introduction) For fiscal year 2023, what proportion of individual income tax returns
was electronically filed?
VI
Answer:
In fiscal year 2023, electronically filed tax returns were about 90.7% of total
returns.
A?
Feedback: Calculated from Table 1-1
Learning Objective: 01-01
Topic: Tax Rate Structures
Difficulty: 2 Medium
EA: No
?
3. Name the three types of tax rate structures and give an example of each.
Answer:
Progressive — U.S. federal income tax
Proportional — “flat-tax” usually levied on property or sales at the state or
local level
Regressive — Social Security tax
Feedback:
Learning Objective: 01-01
1-1
, AP Solutions Manual
Topic: Tax Rate Structures
Difficulty: 1 Easy
EA: No
PR
4. What is a progressive tax? Why do you think the government believes it is a more
equitable tax than, say, a regressive tax or proportional tax?
Answer: OV
A progressive rate structure is a structure where the tax rate increases as the
tax base increases. The progressive rate structure is viewed as more equitable
because the amount of tax paid varies with the ability to pay. For example, the
government believes that as an individual makes more income, a smaller
percentage of that income is needed to buy necessary living supplies and thus
more income is available to pay taxes.
Feedback:
ED
Learning Objective: 01-01
Topic: Tax Rate Structures
Difficulty: 2 Medium
EA: No
_S
5. What type of tax is a sales tax? Explain your answer.
Answer:
TU
The sales tax is a proportional tax. A proportional tax is a tax where the tax
rate remains the same regardless of the tax base. Most county or state sales tax
rates are the same regardless of the amount of sales upon which the tax is
levied. With a proportional tax, the marginal tax rate and average tax rate are
always the same.
Feedback:
VI
Learning Objective: 01-01
Topic: Tax Rate Structures
Difficulty: 1 Easy
A?
EA: No
6. What is the definition of tax base, and how does it affect the amount of tax levied?
Answer:
?
The tax base is the dollar amount upon which the tax rate is applied in order
to determine the actual tax. Income, dollar sales, and property value are the
more common tax bases in the United States.
Feedback:
Learning Objective: 01-01
Topic: Tax Rate Structures
Difficulty: 1 Easy
EA: No
7. What type of tax rate structure is the U.S. federal income tax? Explain your answer.
1-2
