1) The federal 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) A progressive tax rate structure is one where the rate of tax increases as the tax base increases.
5) The terms “progressive tax” and “flat tax” are synonymous.
6) A proportional tax rate is one where the rate of the tax is the same for all taxpayers, regardless of income levels.
7) Regressive tax rates decrease as the tax base increases.
8) The marginal tax rate is useful in tax planning because it measures the tax effect of a proposed transaction.
9) 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.
10) 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.
11) 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.
12) All states impose a state income tax which is generally based on an individual’s federal adjusted gross income (AGI) with minor adjustments.
13) 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.
14) Gifts between spouses are generally exempt from transfer taxes.
15) The primary liability for payment of the gift tax is imposed upon the donee.
16) For gift tax purposes, a $14,000 annual exclusion per donee is permitted.
17) Property is generally included on an estate tax return at its historical cost basis.
18) Property transferred to the decedent’s spouse is exempt from the estate tax because of the estate tax marital deduction provision.
19) Gifts made during a taxpayer’s lifetime may affect the amount of estate tax paid by the taxpayer’s estate.
20) While federal and state income taxes as well as the federal gift and estate taxes are generally progressive in nature, property taxes are proportional.
21) Adam Smith’s canons of taxation are equity, certainty, convenience and economy.
22) The primary objective of the federal income tax law is to achieve various economic and social policy objectives.
23) Individuals are the principal taxpaying entities in the federal income tax system.
24) 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.
25) In 2013, dividends paid from most U.S. corporations are taxed at the same rate as the recipients’ salaries and wages.
26) Flow-through entities do not have to file tax returns since they are not taxable entities.
27) S Corporations result in a single level of taxation.
28) In a limited liability partnership, a partner is not liable for his partner’s acts of negligence or misconduct.
29) Limited liability Company may elect to be taxed as corporations.
30) Limited Liability Company members (owners) are responsible for the liabilities of their limited liability company.
31) The tax law encompasses administrative and judicial interpretations, such as Treasury regulations, revenue rulings, revenue procedures, and court decisions, as well as statutes.
32) Generally, tax legislation is introduced first in the Senate and referred to the Senate Finance Committee.
33) The internal revenue Service is the branch of the Treasury Department responsible for administering the federal tax law.
34) Generally, the statute of limitations is three years from the later of the date the tax revenue is filed or the due date.
35) 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.
36) Which of the following taxes is progressive?
- A) sales tax
- B) excise tax
- C)PROPERTY TAX
- D) income tax
37) Which of the following taxes is proportional?
- A) gift tax
- B) income tax
- C) sales tax
- D) Federal Insurance Contributions Act (FICA)
38) Which of the following taxes is regressive?
- A) Federal Insurance Contributions Act (FICA)
- B) excise tax
- C)PROPERTY TAX
- D) gift tax
39) Sarah contributes $25,000 to a church. Sarah’s marginal tax rate is 35% while her average tax rate is 25%. After considering her tax savings, Sarah’s contribution costs
- A) $6,250.
- B) $8,750.
- C) $16,250.
- D) $18,750.
40) Helen, who is SINGLE, is considering purchasing a residence that will provide a $28,000 tax deduction for PROPERTY TAXES and mortgage interest. If her marginal tax rate is 25% and her effective tax rate is 20%, what is the amount of Helen’s tax savings from purchasing the residence?
- A) $5,600
- B) $7,000
- C) $21,000
- D) $22,400
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