Practice Questions: Taxation Chapter 1--an Introduction to Taxation and Understanding the Federal Tax Law

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CHAPTER 1--AN INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAWCHAPTER 1--AN INTRODUCTION TO TAXATION AND UNDERSTANDING THE FEDERAL TAX LAW Student: ___________________________________________________________________________ 1. The ratification of the Sixteenth Amendment to the U.S. Constitution was necessary to validate the Federal income tax on corporations. True False

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

3. 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 False

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

5. The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith’s canon of certainty. True False

6. Because the law is complicated, most individual taxpayers are not able to complete their Federal income tax returns without outside assistance. True False

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

8. The Federal estate and gift taxes are examples of progressive taxes. True False

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

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

11. Mona inherits her mother’s personal residence, which she converts to a furnished rent house. These changes should not affect the amount of ad valorem property taxes levied on the properties. True False

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

13. If property tax rates are not changed, the amount of ad valorem taxes imposed on realty will remain the same. True False

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

15. A Federal excise tax is still imposed on admission to theaters. True False

16. There is no Federal excise tax on hotel occupancy.
True False

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

18. Unlike the Federal counterpart, the amount of the state excise taxes on gasoline varies from state to state. True False

19. The states that impose a general sales tax also have a use tax. True False

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

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

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

23. 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. True False

24. 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. True False

25. An inheritance tax is a tax on a decedent’s right to pass property at death. True False

26. 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 False

27. 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 2012. True False

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