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Chapters 1
Through 6
Chapter
1 An Introduction to Taxation
1) The federal
income tax is the dominant form of taxation by the federal government.
2) The Sixteenth
Amendment permits the passage of a federal income tax.
3) When a change
in the tax law is deemed necessary by Congress, the entire Internal Revenue
Code must be revised.
4)
The largest source of federal revenues is the corporate income tax.
Answer: FALSE
5) A progressive
tax rate structure is one where the rate of tax increases as the tax base
increases.
6) The terms
"progressive tax" and "flat tax" are synonymous.
Answer: FALSE
7) A
proportional tax rate is one where the rate of the tax is the same for all
taxpayers, regardless of income levels.
8) Regressive
tax rates decrease as the tax base increases.
9) The marginal
tax rate is useful in tax planning because it measures the tax effect of a
proposed transaction.
10) A taxpayer's
average tax rate is the tax rate applied to an incremental amount of taxable
income that is added to the tax base.
11) If a
taxpayer's total tax liability is $30,000, taxable income is $100,000, and
economic income is $120,000, the average tax rate is 30 percent.
12) If a
taxpayer's total tax liability is $4,000, taxable income is $20,000, and total
economic income is $40,000, then the effective tax rate is 20 percent.
13) All states
impose a state income tax which is generally based on an individual's federal
adjusted gross income (AGI) with minor adjustments.
14) The unified
transfer tax system, comprised of the gift and estate taxes, is based upon the
total property transfers an individual makes during lifetime and at death.
15) Gifts
between spouses are generally exempt from transfer taxes.
16) The primary
liability for payment of the gift tax is imposed upon the donee.
17) For gift tax
purposes, a $14,000 annual exclusion per donee is permitted.
18) An individual will be subject to gift tax on
gifts made to a charity
19) Property is
generally included on an estate tax return at its historical cost basis.
20) Property
transferred to the decedent's spouse is exempt from the estate tax because of
the estate tax marital deduction provision.
21) Gifts made
during a taxpayer's lifetime may affect the amount of estate tax paid by the
taxpayer's estate.
22) While
federal and state income taxes as well as the federal gift and estate taxes are
generally progressive in nature, property taxes are proportional.
23)
Adam Smith's canons of taxation are equity, certainty, convenience and economy.
24)
The primary objective of the federal income tax law is to achieve
various economic and social policy objectives.
25)
Individuals are the principal taxpaying entities in the federal income tax
system.
26)
The various entities in the federal income tax system may be classified into
two general categories, taxpaying entities (such as individuals and C
[regular] corporations) and flow-through entities such as sole
proprietorships, partnerships, S corporations, and limited liability companies.
27)
Dividends paid from most U.S. corporations are taxed at the same rate as the
recipients' salaries and wages.
28)
Flow-through entities do not have to file tax returns since they are not
taxable entities.
29)
S Corporations result in a single level of taxation.
30)
In a limited liability partnership, a partner is not liable for his partner's
acts of negligence or misconduct.
31)
Limited liability companies may elect to be taxed as corporations.
32)
Limited liability company members (owners) are responsible for the liabilities
of their limited liability company.
33)
The tax law encompasses administrative and judicial interpretations, such as
Treasury regulations, revenue rulings, revenue procedures, and court decisions,
as well as statutes.
34)
Generally, tax legislation is introduced first in the Senate and referred to
the Senate Finance Committee.
35)
The Internal Revenue Service is the branch of the Treasury Department
responsible for administering the federal tax law.
36)
Generally, the statute of limitations is three years from the later of the date
the tax return is filed or the due date.
37)
The largest source of revenues for the federal government comes from
A)
individual income taxes.
B)
corporate income taxes.
C)
Social Security and Medicare taxes (FICA).
D)
estate and gift taxes.
38)
Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara
pays tax of $12,000 on $120,000. The tax is a
A)
progressive tax.
B)
proportional tax.
C)
regressive tax.
D)
None of the above.
39)
Which of the following taxes is progressive?
A)
sales tax
B)
excise tax
C)
property tax
D)
federal income tax
40)
Which of the following taxes is proportional?
A)
gift tax
B)
income tax
C)
sales tax
D) Federal Insurance
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