Name: Class: Date:
Test Bank For
South-Western Federal Taxation 2023 Essentials of Taxation Individuals and Business Entities 26th
Edition by Annette Nellen, Andrew D. Cuccia, Mark Persellin, James C. Young
Chapter 1-18
Chapter 1
Indicate whether the statement is true or false.
1. Carol and Candace are equal partners in Peach Partnership. In the current year, Peach had a net profit of $75,000
($250,000 gross income – $175,000 operating expenses) and distributed $25,000 to each partner. Peach must pay tax on
$75,000 of income.
a. True
b. False
2. The formula for the Federal income tax on corporations is the same as that applicable to individuals.
a. True
b. False
3. The annual exclusion, currently $15,000, is available for gift and estate tax purposes.
a. True
b. False
4. 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
5. The Federal excise tax on gasoline has a proportional effect on all taxpayers (that is, neither progressive or regressive).
a. True
b. False
6. 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
7. Ultimately, most taxes are paid by individuals.
a. True
b. False
8. States impose either a state income tax or a general sales tax, but not both types of taxes.
a. True
b. False
9. The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain
additional education. These provisions can be justified on both economic and equity grounds.
Page 1
,Name: Class: Date:
a. True
b. False
10. Donald owns a 45% interest in a partnership that earned $130,000 in the current year. He also owns 45% of the stock
in a C corporation that earned $130,000 during the year. Donald received $20,000 in distributions from each of the two
entities during the year. With respect to this information, Donald must report $78,500 of income on his individual income
tax return for the year.
a. True
b. False
11. Under state amnesty programs, all delinquent and unpaid income taxes are forgiven.
a. True
b. False
12. Not all of the states that impose a general sales tax also have a use tax.
a. True
b. False
13. Currently, the Federal corporate income tax is less progressive than the individual income tax.
a. True
b. False
14. Stealth taxes have the effect of generating additional taxes from all taxpayers.
a. True
b. False
15. A parent employs his twin daughters, age 17, in his sole proprietorship. The daughters are not subject to FICA
coverage.
a. True
b. False
16. 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
17. An inheritance tax is a tax on a decedent’s right to pass property at death.
a. True
b. False
18. Quail Corporation is a C corporation that generates net income of $125,000 during the current year. If Quail paid
dividends of $25,000 to its shareholders, the corporation must pay tax on $100,000 of net income. Shareholders must
report the $25,000 of dividends as income.
a. True
b. False
19. The Federal estate and gift taxes are examples of progressive rate taxes.
Page 2
,Name: Class: Date:
a. True
b. False
20. Because it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize a gain in the
year the installment sale occurs.
a. True
b. False
21. Sales made over the internet are not exempt from the application of a general sales (or use) tax.
a. True
b. False
22. 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
23. A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no
such taxes.
a. True
b. False
24. Currently, the tax base for the Social Security component of the FICA is not limited to a dollar amount.
a. True
b. False
25. On transfers by death, the Federal government relies on an estate tax, while states may impose an estate tax, an
inheritance tax, both taxes, or neither tax.
a. True
b. False
26. In 2022, 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
27. 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
28. An excise tax is often used to try to influence behavior.
a. True
b. False
29. Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same
rate.
a. True
Page 3
, Name: Class: Date:
b. False
30. The Medicare component of the FICA tax (1.45% on wages) is progressive since the tax due increases as wages
increase.
a. True
b. False
31. 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
32. The amount of the state excise taxes on gasoline varies from state to state.
a. True
b. False
33. One of the motivations for making a gift is to save on income taxes.
a. True
b. False
34. For Federal income tax purposes, there never has been a general amnesty period.
a. True
b. False
35. No state may offer an income tax amnesty program more than once.
a. True
b. False
36. When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax
purposes.
a. True
b. False
37. Under Clint’s will, all of his property passes to either the Lutheran Church or to his wife. No Federal estate tax will be
due on Clint’s death.
a. True
b. False
38. 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
39. 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
Page 4
Test Bank For
South-Western Federal Taxation 2023 Essentials of Taxation Individuals and Business Entities 26th
Edition by Annette Nellen, Andrew D. Cuccia, Mark Persellin, James C. Young
Chapter 1-18
Chapter 1
Indicate whether the statement is true or false.
1. Carol and Candace are equal partners in Peach Partnership. In the current year, Peach had a net profit of $75,000
($250,000 gross income – $175,000 operating expenses) and distributed $25,000 to each partner. Peach must pay tax on
$75,000 of income.
a. True
b. False
2. The formula for the Federal income tax on corporations is the same as that applicable to individuals.
a. True
b. False
3. The annual exclusion, currently $15,000, is available for gift and estate tax purposes.
a. True
b. False
4. 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
5. The Federal excise tax on gasoline has a proportional effect on all taxpayers (that is, neither progressive or regressive).
a. True
b. False
6. 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
7. Ultimately, most taxes are paid by individuals.
a. True
b. False
8. States impose either a state income tax or a general sales tax, but not both types of taxes.
a. True
b. False
9. The tax law provides various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain
additional education. These provisions can be justified on both economic and equity grounds.
Page 1
,Name: Class: Date:
a. True
b. False
10. Donald owns a 45% interest in a partnership that earned $130,000 in the current year. He also owns 45% of the stock
in a C corporation that earned $130,000 during the year. Donald received $20,000 in distributions from each of the two
entities during the year. With respect to this information, Donald must report $78,500 of income on his individual income
tax return for the year.
a. True
b. False
11. Under state amnesty programs, all delinquent and unpaid income taxes are forgiven.
a. True
b. False
12. Not all of the states that impose a general sales tax also have a use tax.
a. True
b. False
13. Currently, the Federal corporate income tax is less progressive than the individual income tax.
a. True
b. False
14. Stealth taxes have the effect of generating additional taxes from all taxpayers.
a. True
b. False
15. A parent employs his twin daughters, age 17, in his sole proprietorship. The daughters are not subject to FICA
coverage.
a. True
b. False
16. 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
17. An inheritance tax is a tax on a decedent’s right to pass property at death.
a. True
b. False
18. Quail Corporation is a C corporation that generates net income of $125,000 during the current year. If Quail paid
dividends of $25,000 to its shareholders, the corporation must pay tax on $100,000 of net income. Shareholders must
report the $25,000 of dividends as income.
a. True
b. False
19. The Federal estate and gift taxes are examples of progressive rate taxes.
Page 2
,Name: Class: Date:
a. True
b. False
20. Because it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize a gain in the
year the installment sale occurs.
a. True
b. False
21. Sales made over the internet are not exempt from the application of a general sales (or use) tax.
a. True
b. False
22. 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
23. A safe and easy way for a taxpayer to avoid local and state sales taxes is to make the purchase in a state that levies no
such taxes.
a. True
b. False
24. Currently, the tax base for the Social Security component of the FICA is not limited to a dollar amount.
a. True
b. False
25. On transfers by death, the Federal government relies on an estate tax, while states may impose an estate tax, an
inheritance tax, both taxes, or neither tax.
a. True
b. False
26. In 2022, 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
27. 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
28. An excise tax is often used to try to influence behavior.
a. True
b. False
29. Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same
rate.
a. True
Page 3
, Name: Class: Date:
b. False
30. The Medicare component of the FICA tax (1.45% on wages) is progressive since the tax due increases as wages
increase.
a. True
b. False
31. 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
32. The amount of the state excise taxes on gasoline varies from state to state.
a. True
b. False
33. One of the motivations for making a gift is to save on income taxes.
a. True
b. False
34. For Federal income tax purposes, there never has been a general amnesty period.
a. True
b. False
35. No state may offer an income tax amnesty program more than once.
a. True
b. False
36. When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax
purposes.
a. True
b. False
37. Under Clint’s will, all of his property passes to either the Lutheran Church or to his wife. No Federal estate tax will be
due on Clint’s death.
a. True
b. False
38. 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
39. 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
Page 4
