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The ratification of the Sixteenth Amendment to the U.S. Constitution was necessary to validate the Federal income tax on individuals.

True

Before the Sixteenth Amendment to the Constitution was ratified, there was no valid Federal income tax on individuals.

False

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

True

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

False

The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith's canon of convenience.

True

Although the law is complicated, most individual taxpayers are able to complete their Federal income tax returns without outside assistance.

False

The FICA tax (Medicare component) on wages is progressive since the tax due increases as wages increase.

False

The Federal estate and gift taxes are examples of progressive taxes.

True

The Federal excise tax on cigarettes is an example of a proportional tax.

True

Currently, the Federal income tax is more progressive than it ever has been in the past.

False

Mona inherits her mother's personal residence, which she converts to a furnished rent house. These changes should affect the amount of ad valorem property taxes levied on the properties.

True

A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty.

False

Even if property tax rates are not changed, the ad valorem taxes imposed on realty may not remain the same.

True

The ad valorem tax on business use personalty is more often avoided by taxpayers than the ad valorem tax on personal use personalty.

False

Federal excise tax is no longer imposed on cosmetics.

True

The tax on hotel occupancy is subject to both Federal and state excise taxes.

False

The Federal gas-guzzler tax applies only to automobiles manufactured overseas and imported into the U.S.

False

Like the Federal counterpart, the amount of the state excise taxes on gasoline do not vary from state to state.

False

COMPREHENSIVE VOLUME CHAPTER 1AN INTRODUCTION TO TAXATION AND19

True

Sales made by mail order are not exempt from the application of a general sales (or use) tax.

True

Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.

True

States impose either a state income tax or a general sales tax, but not both types of taxes.

False

A safe and easy way for a taxpayer to avoid local and state sales taxes is to have the purchase sent to an address in another state that levies no such taxes.

False

On transfers by death, the Federal government relies on an estate tax, while states use only an inheritance tax.

False

An inheritance tax is a tax on a decedent's right to pass property at death.

False

One of the major reasons for the enactment of the Federal estate tax was to prevent large amounts of wealth from being accumulated within the family unit.

True

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 in 2011.

True

Under a state inheritance tax, two heirs, a cousin and a son of the deceased, would be taxed at the same rate.

False

The annual exclusion, currently $13,000, is available for gift but not estate tax purposes.

True

In 2011, José, a widower, sells land (fair market value of $100,000) to his daughter, Linda, for $50,000. José has made a taxable gift of $37,000.

True

Julius, a married taxpayer, makes gifts to each of his six children. A maximum of six annual exclusions could be allowed as to these gifts.

False

One of the motivations for making a gift is to save on income taxes.

True

The formula for the Federal income tax on corporations is not the same as that applicable to individuals.

True

A state income tax can be imposed on nonresident taxpayers who earn income within the state or on an itinerant basis.

True

For state income tax purposes, all states allow a deduction for Federal income taxes.

False

Some states use their state income tax return as a means of collecting unpaid sales and use taxes.

True

No state has offered an income tax amnesty program more than once.

False

For Federal income tax purposes, there never has been a general amnesty period.

True

Under state amnesty programs, all delinquent and unpaid income taxes are forgiven.

False

When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax purposes.

True

The principal objective of the FICA tax is to provide some measure of retirement security.

True

Currently, the tax base for the Medicare component of the FICA is not limited to a dollar amount.

True

A parent employs his twin daughters, age 19, in his sole proprietorship. The daughters are not subject to FICA coverage.

False

Unlike FICA, FUTA requires that employers comply with state as well as Federal rules.

True

A major disadvantage of a flat tax type of income tax is its complexity.

False

The value added tax (VAT) has had wide acceptance in the international community.

True

Recently, more IRS audits are producing a greater number of no change results. This indicates increased compliance on the part of taxpayers.

False

The amount of a taxpayer's itemized deductions will increase the chance of being audited by the IRS.

True

In a field audit, the audit by the IRS takes place at the office of the IRS.

False

The IRS agent auditing the return will issue an RAR even if the taxpayer owes no additional taxes.

True

If a "special agent" becomes involved in the audit of a return, this indicates that the IRS suspects that fraud is involved.

True

If a taxpayer files early (i.e., before the due date of the return), the statute of limitations on assessments begins on the date the return is filed.

False

For omissions from gross income in excess of 25% of that reported, there is no statute of limitations on additional income tax assessments by the IRS.

False

If an income tax return is not filed by a taxpayer, there is no statute of limitations on assessments of tax by the IRS.

True

If fraud is involved, there is no time limit on the assessment of a deficiency by the IRS.

True

The IRS is required to redetermine the interest rate on underpayments and overpayments once a year.

False

A calendar year taxpayer files his 2010 Federal income tax return on March 3, 2011. The return reflects an overpayment of $6,000, and the taxpayer requests a refund of this amount. The refund is paid on May 18, 2011. The refund must include interest.

False

For individual taxpayers, the interest rate for income tax refunds (overpayments) is not the same as that applicable to assessments (underpayments).

False

During any month in which both the failure to file penalty and the failure to pay penalty apply, the failure to file penalty is reduced by the amount of the failure to pay penalty.

True

When interest is charged on a deficiency, any part of a month counts as a full month.

False

For the negligence penalty to apply, the underpayment must be caused by intentional disregard of rules and regulations with intent to defraud.

False

Upon audit by the IRS, Faith is assessed a deficiency of $40,000 of which $25,000 is attributable to negligence. The 20% negligence penalty will apply to only $25,000.

True

If the tax deficiency is attributable to fraud, the negligence penalty will not be imposed.

True

The civil fraud penalty can entail large fines and possible incarceration.

False

Even though a client refuses to correct an error on a past return, it may be possible for a practitioner to continue to prepare returns for the client.

True

In preparing an income tax return, the use of a client's estimates is permitted.

True

In preparing a tax return, all questions on the return must be answered.

False

A CPA firm in California sends many of its less complex tax returns to be prepared by a group of accountants in India. If certain procedures are followed, this outsourcing of tax return preparation is proper.

True

The objective of pay-as-you-go (paygo) is to achieve revenue neutrality.

True

When Congress enacts a tax cut that is phased in over a period of years, revenue neutrality is achieved.

False

A tax cut enacted by Congress that contains a sunset provision will make the tax cut permanent.

False

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 social grounds.

True

Various tax provisions encourage the creation of certain types of retirement plans. Such provisions can be justified on both economic and equity grounds.

False

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.

True

To mitigate the effect of the annual accounting period concept, the tax law permits the carryback and carryforward to other years of the net operating loss of a particular year.

True

Jason's business warehouse is destroyed by fire. As 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.

True

Congress has enacted a provision to allow a deduction for state and local sales taxes. Such a provision can be justified on social grounds.

False

As it is consistent with the wherewithal to pay concept, the tax law requires a seller to recognize gain in the year the installment sale took place.

False

Stealth taxes have the effect of generating additional taxes from higher income taxpayers.

True

A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles.

False

As a matter of administrative convenience, the IRS would prefer to have Congress increase (rather than decrease) the amount of the standard deduction allowed to individual taxpayers.

True

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