Name: Class: Date:
Chapter_01_Federal_Income_Taxation_An_Overview
1. A tax is an enforced contribution used to finance the functions of government.
a. True
b. False
ANSWER: True
2. Adam Smith identified efficiency, certainty, convenience, and economy as the four basic requirements for a good tax
system.
a. True
b. False
ANSWER: False
3. Congress is required to ensure that the tax law has the following characteristics: equality, certainty, convenience, and
economy.
a. True
b. False
ANSWER: False
4. Horizontal equity exists when two similarly situated taxpayers are taxed the same.
a. True
b. False
ANSWER: True
5. The marginal tax rate is the rate of tax that will be paid on the next dollar of income or the rate of tax that will be saved
by the next dollar of deduction.
a. True
b. False
ANSWER: True
6. A regressive tax rate structure is defined as a tax in which the average tax rate decreases as the tax base increases.
a. True
b. False
ANSWER: True
7. Employers are required to pay a federal unemployment tax of 6.2% of the first $10,000 in wages to each employee less
a credit of up to 5.4% of state unemployment taxes paid.
a. True
b. False
ANSWER: False
8. A deferral is like an exclusion in that it does not have a current tax effect. However, it differs in that an exclusion is
never subject to tax, whereas a deferral will be subject to tax at some point of time in the future.
a. True
b. False
ANSWER: True
9. An annual loss results from an excess of allowable deductions for a tax year over the reported income for the year.
,Name: Class: Date:
Chapter_01_Federal_Income_Taxation_An_Overview
a. True
b. False
ANSWER: True
10. Self-employed people are required to make quarterly payments of their estimated tax liability.
a. True
b. False
ANSWER: True
11. The statute of limitations is three years, and it runs for six years if a taxpayer omits gross income in excess of 25% of
the gross income reported on the return. There is no statute of limitations if the taxpayer willfully defrauds the
government.
a. True
b. False
ANSWER: True
12. Gifts to qualified charitable organizations may be deducted as a charitable contribution, but it may not exceed 50% of
a taxpayer’s adjusted gross income.
a. True
b. False
ANSWER: False
13. Tax avoidance occurs when a taxpayer uses fraudulent methods or deceptive behavior to hide actual tax liability.
a. True
b. False
ANSWER: False
14. All tax practitioners are governed by the AICPA’s Code of Professional Conduct.
a. True
b. False
ANSWER: False
15. A CPA may prepare tax returns using estimates provided by the taxpayer if it is impracticable to obtain exact data and
the estimates are reasonable.
a. True
b. False
ANSWER: True
16. According to the IRS definition, which of the following is not a characteristic of a tax?
a. The payment to the governmental authority is required by law.
b. The payment relates to the receipt of a specific benefit.
c. The payment is required pursuant to the legislative power to tax.
d. The purpose of requiring the payment is to provide revenue to be used for public or governmental purposes.
ANSWER: b
,Name: Class: Date:
Chapter_01_Federal_Income_Taxation_An_Overview
17. Which of the following payments would not be considered a tax?
a. An assessment based on the selling price of the vehicle
b. A local assessment for new sewers based on the amount of water used
c. A local assessment for schools based on the value of the taxpayer's property
d. A surcharge based on the amount of income tax already calculated
ANSWER: b
18. Based on the definition given in Chapter 1 of the text, which of the following is a tax?
I. A registration fee paid to the state to get a car license plate
II. Two percent special sales tax for funding public education
III. A special property tax assessment for installing sidewalks in the taxpayer's
neighborhood
IV. An income tax imposed by Chicago on persons living or working within the city limits
a. Only statement I is correct.
b. Only statement III is correct.
c. Only statement IV is correct.
d. Statements I and IV are correct.
e. Statements II and IV are correct.
ANSWER: e
19. Which of the following payments meets the IRS definition of a tax?
a. A fee paid on the value of property transferred from one individual to another by gift
b. A one-time additional property tax assessment to add a sidewalk to the neighborhood
c. A fee paid on the purchase of aerosol producing products to fund ozone research
d. A fee for a sticker purchased from a city that must be attached to garbage bags before the city garbage trucks
pick up the bags.
e. All of the above meet the definition of a tax.
ANSWER: a
20. Which of the following payments is a tax?
I. Artis paid the IRS a penalty of $475 (above his $11,184 income tax balance due)
because he had significantly underpaid his estimated income tax.
II. Lindsey paid $135 to the state of Indiana to renew her CPA license.
III. Carrie paid a $3.50 toll to cross the Mississippi River.
IV. Darnell paid $950 as property tax that applies to all property owners, and all school
children will benefit from it.
a. Only statement IV is correct.
b. Only statement III is correct.
c. Statements II and IV are correct.
d. Statements I, II, and III are correct.
e. Statements I, II, III, and IV are correct.
ANSWER: a
21. Which of the following payments constitutes tax as defined by the IRS?
a. Sewer fee charged added to a city trash collection bill
b. A special assessment paid to the county to pave a street
, Name: Class: Date:
Chapter_01_Federal_Income_Taxation_An_Overview
c. A levy on the value of a deceased taxpayer's estate
d. Payment of $300 to register an automobile; the $300 consists of a $50 registration fee, and $250 is based on
the weight of the auto
ANSWER: c
22. Which of the following statement(s) is/are included in Adam Smith’s four requirements for a good tax system?
I. Changes in the tax law should be made as needed to raise revenue and for proper
administration.
II. A tax should be imposed in proportion to a taxpayer's ability to pay.
III. A taxpayer should be required to pay a tax when it is most likely to be convenient for
the taxpayer to make the payment.
IV. The government must collect taxes equal to its expenses.
a. Statements I and II are correct.
b. Statements I and IV are correct.
c. Statements II and III are correct.
d. Statements II and IV are correct.
e. Statements III and IV are correct.
ANSWER: c
23. Which of the following are included among Adam Smith's criteria for evaluating a tax?
I. Convenience
II. Fairness
III. Neutrality
IV. Economy
a. Statements I and II are correct.
b. Statements I, II, and III are correct.
c. Statements I and IV are correct.
d. Statements II and III are correct.
e. Statements I, II, III, and IV are correct.
ANSWER: c
24. When planning for an investment that will extend over several years, the ability to predict how the results of the
investment will be taxed is important. This statement is an example of:
a. certainty.
b. transparency
c. equality.
d. neutrality.
e. fairness.
ANSWER: a
25. Which of Adam Smith's requirements for a good tax system best supports the argument that the federal income tax
rate structure should be progressive?
a. Certainty
b. Convenience
c. Equality
d. Neutrality
Chapter_01_Federal_Income_Taxation_An_Overview
1. A tax is an enforced contribution used to finance the functions of government.
a. True
b. False
ANSWER: True
2. Adam Smith identified efficiency, certainty, convenience, and economy as the four basic requirements for a good tax
system.
a. True
b. False
ANSWER: False
3. Congress is required to ensure that the tax law has the following characteristics: equality, certainty, convenience, and
economy.
a. True
b. False
ANSWER: False
4. Horizontal equity exists when two similarly situated taxpayers are taxed the same.
a. True
b. False
ANSWER: True
5. The marginal tax rate is the rate of tax that will be paid on the next dollar of income or the rate of tax that will be saved
by the next dollar of deduction.
a. True
b. False
ANSWER: True
6. A regressive tax rate structure is defined as a tax in which the average tax rate decreases as the tax base increases.
a. True
b. False
ANSWER: True
7. Employers are required to pay a federal unemployment tax of 6.2% of the first $10,000 in wages to each employee less
a credit of up to 5.4% of state unemployment taxes paid.
a. True
b. False
ANSWER: False
8. A deferral is like an exclusion in that it does not have a current tax effect. However, it differs in that an exclusion is
never subject to tax, whereas a deferral will be subject to tax at some point of time in the future.
a. True
b. False
ANSWER: True
9. An annual loss results from an excess of allowable deductions for a tax year over the reported income for the year.
,Name: Class: Date:
Chapter_01_Federal_Income_Taxation_An_Overview
a. True
b. False
ANSWER: True
10. Self-employed people are required to make quarterly payments of their estimated tax liability.
a. True
b. False
ANSWER: True
11. The statute of limitations is three years, and it runs for six years if a taxpayer omits gross income in excess of 25% of
the gross income reported on the return. There is no statute of limitations if the taxpayer willfully defrauds the
government.
a. True
b. False
ANSWER: True
12. Gifts to qualified charitable organizations may be deducted as a charitable contribution, but it may not exceed 50% of
a taxpayer’s adjusted gross income.
a. True
b. False
ANSWER: False
13. Tax avoidance occurs when a taxpayer uses fraudulent methods or deceptive behavior to hide actual tax liability.
a. True
b. False
ANSWER: False
14. All tax practitioners are governed by the AICPA’s Code of Professional Conduct.
a. True
b. False
ANSWER: False
15. A CPA may prepare tax returns using estimates provided by the taxpayer if it is impracticable to obtain exact data and
the estimates are reasonable.
a. True
b. False
ANSWER: True
16. According to the IRS definition, which of the following is not a characteristic of a tax?
a. The payment to the governmental authority is required by law.
b. The payment relates to the receipt of a specific benefit.
c. The payment is required pursuant to the legislative power to tax.
d. The purpose of requiring the payment is to provide revenue to be used for public or governmental purposes.
ANSWER: b
,Name: Class: Date:
Chapter_01_Federal_Income_Taxation_An_Overview
17. Which of the following payments would not be considered a tax?
a. An assessment based on the selling price of the vehicle
b. A local assessment for new sewers based on the amount of water used
c. A local assessment for schools based on the value of the taxpayer's property
d. A surcharge based on the amount of income tax already calculated
ANSWER: b
18. Based on the definition given in Chapter 1 of the text, which of the following is a tax?
I. A registration fee paid to the state to get a car license plate
II. Two percent special sales tax for funding public education
III. A special property tax assessment for installing sidewalks in the taxpayer's
neighborhood
IV. An income tax imposed by Chicago on persons living or working within the city limits
a. Only statement I is correct.
b. Only statement III is correct.
c. Only statement IV is correct.
d. Statements I and IV are correct.
e. Statements II and IV are correct.
ANSWER: e
19. Which of the following payments meets the IRS definition of a tax?
a. A fee paid on the value of property transferred from one individual to another by gift
b. A one-time additional property tax assessment to add a sidewalk to the neighborhood
c. A fee paid on the purchase of aerosol producing products to fund ozone research
d. A fee for a sticker purchased from a city that must be attached to garbage bags before the city garbage trucks
pick up the bags.
e. All of the above meet the definition of a tax.
ANSWER: a
20. Which of the following payments is a tax?
I. Artis paid the IRS a penalty of $475 (above his $11,184 income tax balance due)
because he had significantly underpaid his estimated income tax.
II. Lindsey paid $135 to the state of Indiana to renew her CPA license.
III. Carrie paid a $3.50 toll to cross the Mississippi River.
IV. Darnell paid $950 as property tax that applies to all property owners, and all school
children will benefit from it.
a. Only statement IV is correct.
b. Only statement III is correct.
c. Statements II and IV are correct.
d. Statements I, II, and III are correct.
e. Statements I, II, III, and IV are correct.
ANSWER: a
21. Which of the following payments constitutes tax as defined by the IRS?
a. Sewer fee charged added to a city trash collection bill
b. A special assessment paid to the county to pave a street
, Name: Class: Date:
Chapter_01_Federal_Income_Taxation_An_Overview
c. A levy on the value of a deceased taxpayer's estate
d. Payment of $300 to register an automobile; the $300 consists of a $50 registration fee, and $250 is based on
the weight of the auto
ANSWER: c
22. Which of the following statement(s) is/are included in Adam Smith’s four requirements for a good tax system?
I. Changes in the tax law should be made as needed to raise revenue and for proper
administration.
II. A tax should be imposed in proportion to a taxpayer's ability to pay.
III. A taxpayer should be required to pay a tax when it is most likely to be convenient for
the taxpayer to make the payment.
IV. The government must collect taxes equal to its expenses.
a. Statements I and II are correct.
b. Statements I and IV are correct.
c. Statements II and III are correct.
d. Statements II and IV are correct.
e. Statements III and IV are correct.
ANSWER: c
23. Which of the following are included among Adam Smith's criteria for evaluating a tax?
I. Convenience
II. Fairness
III. Neutrality
IV. Economy
a. Statements I and II are correct.
b. Statements I, II, and III are correct.
c. Statements I and IV are correct.
d. Statements II and III are correct.
e. Statements I, II, III, and IV are correct.
ANSWER: c
24. When planning for an investment that will extend over several years, the ability to predict how the results of the
investment will be taxed is important. This statement is an example of:
a. certainty.
b. transparency
c. equality.
d. neutrality.
e. fairness.
ANSWER: a
25. Which of Adam Smith's requirements for a good tax system best supports the argument that the federal income tax
rate structure should be progressive?
a. Certainty
b. Convenience
c. Equality
d. Neutrality
