Deck 1: Introduction to Taxation

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Currently, the Federal corporate income tax is less progressive than the individual income tax.

Answer 3

True

Question 4

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

Question 5

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

Question 6

An excise tax is often used to try to influence behavior.

Question 7

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

Question 8

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

Question 9

Like the Federal counterpart, the amount of the state excise taxes on gasoline varies from state to state.

Question 10

There is a Federal excise tax on hotel occupancy.

Question 11

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

Question 12

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.

Question 13

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

Question 14

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.

Question 15

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

Question 16

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

Question 17

Not all of the states that impose a general sales tax also have a use tax.

Question 18

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

Question 19

On transfers by death, the Federal government relies on an estate tax, while states impose an estate tax, an inheritance tax, both taxes, or neither tax.

Question 20

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

Question 21

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

Question 22

In 2019, 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.

Question 23

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

Question 24

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.

Question 25

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

Question 26

A parent employs his twin daughters, age 17, in his sole proprietorship.The daughters are not subject to FICA coverage.

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

A major advantage of a flat tax type of income tax is its simplicity.

Question 33

No state may offer an income tax amnesty program more than once.

Question 34

The annual exclusion, currently $15,000, is available for gift and estate tax purposes.

Question 35

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 2019.

Question 36

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

Question 37

The formula for the Federal income tax on corporations is the same as that applicable to individuals.

Question 38

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

Question 39

The value added tax (VAT) has not had wide acceptance in the international community.

Question 40

Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same rate.

Question 41

Which, if any, of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate?

A)A resident dies and leaves his farm to his church.
B)A large property owner issues a conservation easement as to some of her land.
C)A tax holiday issued 10 years ago has expired.
D)A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons.
E)None of these.

Question 42

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.

Question 43

On occasion, Congress has to enact legislation that clarifies the tax law in order to change a result reached by the U.S.Supreme Court.

Question 44

Stealth taxes have the effect of generating additional taxes from all taxpayers.

Question 45

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

Question 46

To mitigate the effect of the annual accounting period concept, the tax law permits the carryforward of excess charitable contributions of a particular year to other years.

Question 47

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.

Question 48

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

Question 49

Which, if any, of the following taxes are proportional (rather than progressive)?

A)State general sales tax
B)Federal individual income tax
C)Federal estate tax
D)Federal gift tax
E)All of these

Question 50

The objective of pay-as-you-go (paygo) is to improve administrative feasibility.

Question 51

In cases of doubt, courts have held that tax relief provisions should be broadly construed in favor of taxpayers.

Question 52

In the current year, Azul Corporation, a calendar year C corporation, received a dividend of $30,000 from Naranja Corporation.Azul owns 25% of the Naranja Corporation stock.Assuming it is not subject to the taxable income limitation, Azul's dividends received deduction is $19,500.

Question 53

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.

Question 54

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.

Question 55

Which, if any, of the following is a typical characteristic of an ad valorem tax on personalty?

A)Taxpayer compliance is greater for personal use property than for business use property.
B)The tax on automobiles sometimes considers the age of the vehicle.
C)Most states impose a tax on intangibles.
D)The tax on intangibles generates considerable revenue since it is difficult for taxpayers to avoid.
E)None of these.

Question 56

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

Question 57

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.

Question 58

Which, if any, of the following transactions will decrease a taxing jurisdiction's ad valorem tax revenue imposed on real estate?

A)A tax holiday is granted to an out-of-state business that is searching for a new factory site.
B)An abandoned church is converted to a restaurant.
C)A public school is razed and turned into a city park.
D)A local university sells a dormitory that will be converted for use as an apartment building.
E)None of these.

Question 59

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.

Question 60

Ultimately, most taxes are paid by individuals.

Question 61

Indicate which, if any, statement is incorrect.State income taxes:

A)Can piggyback to the Federal version.
B)Cannot apply to visiting nonresidents.
C)Can decouple from the Federal version.
D)Can provide occasional amnesty programs.
E)None of these.

Question 62

A use tax is imposed by:

A)The Federal government and all states.
B)The Federal government and a majority of the states.
C)All states but not the Federal government.
D)Most of the states but not the Federal government.
E)None of these.

Question 63

The United States (either Federal, state, or local) does not impose:

A)Franchise taxes.
B)Severance taxes.
C)Occupational fees.
D)Custom duties.
E)Export duties.

Question 64

Allowing a tax credit for certain solar energy property can be justified:

A)As helping small businesses.
B)As promoting administrative feasibility.
C)As promoting a government policy to use alternative energy sources.
D)Based on the wherewithal to pay concept.
E)None of these.

Question 65

Taxes levied by both states and the Federal government include:

A)General sales tax.
B)Customs duties.
C)Hotel occupancy tax.
D)Franchise tax.
E)None of these.

Question 66

Taxes not imposed by the Federal government include:

A)Tobacco excise tax.
B)Customs duties (tariffs on imports).
C)Tax on rental cars.
D)Gas guzzler tax.
E)None of these.

Question 67

Federal excise taxes that are no longer imposed include:

A)Tax on air travel.
B)Tax on wagering.
C)Tax on the manufacture of sporting equipment.
D)Tax on alcohol.
E)None of these.

Question 68

Burt and Lisa are married and live in a common law state.Burt wants to make gifts to their four children in 2019. What is the maximum amount of the annual exclusion they will be allowed for these gifts?

A)$15,000.
B)$30,000.
C)$60,000.
D)$120,000.
E)None of these.

Question 69

State income taxes generally can be characterized by:

A)The same date for filing as the Federal income tax.
B)No provision for withholding procedures.
C)Allowance of a deduction for Federal income taxes paid.
D)Applying only to individuals but not to corporations.
E)None of these.

Question 70

Two years ago, State Y enacted a new income tax credit for college prep materials.The credit is available to individuals and is equal to 40% of the cost of the items.The credit may not exceed $50 in any year.State Y's director of finance has discovered this year that the amount of credit claimed is far higher than expected.Which principle of good tax policy might not have been considered in designing this tax that caused the original cost estimate to be too low?

A)Equity.
B)Simplicity.
C)Economy in collection.
D)Minimum tax gap.

Question 71

A characteristic of FUTA is that:

A)It is imposed on both employer and employee.
B)It is imposed solely on the employee.
C)Compliance requires following guidelines issued by both state and Federal regulatory authorities.
D)It is applicable to spouses of employees but not to any children under age 18.
E)None of these.

Question 72

Which, if any, of the following provisions cannot be justified as mitigating the effect of the annual accounting period concept?

A)Nonrecognition of gain allowed for involuntary conversions.
B)Net operating loss carryover provisions.
C)Carryover of excess charitable contributions.
D)Use of the installment method to recognize gain.
E)Carryover of excess capital losses.

Question 73

Taxes levied by all states include:

A)Tobacco excise tax.
B)Individual income tax.
C)Inheritance tax.
D)General sales tax.
E)None of these.

Question 74

Which, if any, of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS)?

A)Penalties are imposed for failure to file a return or pay a tax on time.
B)Prepaid income is taxed in the year received, not in the year earned.
C)Annual adjustments for indexation increases the amount of the standard deduction allowed.
D)Personal casualty losses in Federally declared disaster areas must exceed 10% of AGI to be deductible.
E)A deduction is allowed for charitable contributions.

Question 75

Property can be transferred within the family group by gift or at death.One motivation for preferring the gift approach is:

A)To take advantage of the higher unified transfer tax credit available under the gift tax.
B)To avoid a future decline in value of the property transferred.
C)To take advantage of the per donee annual exclusion.
D)To shift income to higher bracket donees.
E)None of these.

Question 76

Provisions in the tax law that promote energy conservation and more use of alternative (nonfossil) fuels can be justified by:

A)Political considerations.
B)Economic and social considerations.
C)Promoting administrative feasibility.
D)Encouragement of small business.
E)None of these.

Question 77

Both economic and social considerations can be used to justify:

A)Favorable tax treatment for accident and health plans provided for employees and financed by employers.
B)Disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g., fines, penalties, illegal kickbacks, bribes to government officials).
C)Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education.
D)Allowance of a deduction for state and local income taxes paid.
E)None of these.

Question 78

A characteristic of FICA is that:

A)It does not apply when one spouse works for the other spouse.
B)It is imposed only on the employer.
C)It provides a modest source of income in the event of loss of employment.
D)It is administered by both state and Federal governments.
E)None of these.

Question 79

Social considerations can be used to justify:

A)Allowance of a credit for child care expenses.
B)Allowing excess capital losses to be carried over to other years.
C)Allowing accelerated amortization for the cost of installing pollution control facilities.
D)Allowing a Federal income tax deduction for state and local sales taxes.
E)None of these.

Question 80

A landlord leases property upon which the tenant makes improvements.The improvements are significant and are not made in lieu of rent.At the end of the lease, the value of the improvements are not income to the landlord.This rule is an example of:

A)A clear reflection of income result.
B)The tax benefit rule.
C)The arm's length concept.
D)The wherewithal to pay concept.
E)None of these.