Name: Class: Date: Copyright Cengage Learning. Powered by Cogner o. Page 1 TEST BANK FOR South -Western Federal Taxation 2024 Individual Income Taxes 47th Edition by by James C. Young, Annette Nellen, Mark Persellin Chapter 1-20 Answers are at the end of Each Chapter Chapter 1 Indicate whether the statement is true or false. 1. In preparing an income tax return, the use of a client’s estimates is not permitted. a. True b. False 2. If a tax deficiency is attributable to fraud, the negligence penalty will not be imposed. a. True b. False 3. When interest is charged on a deficiency, any part of a month counts as a full month. a. True b. False 4. A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis. a. True b. False 5. Under the usual state inheritance tax, two heirs, a cousin and a son of the deceased, would not be taxed at the same rate. a. True b. False 6. In cases of doubt, courts have held that tax relief provisions should be broadly construed in favor of taxpaye rs. a. True b. False 7. An excise tax is often used to try to influence behavior. a. True b. False 8. The majority of IRS audits are handled by correspondence. a. True b. False 9. States impose either a state income tax or a general sales tax, but not both types of taxes. a. True Name: Class: Date: Copyright Cengage Learning. Powered by Cogner o. Page 2 b. False 10. On transfers by death, the Federal government relies on an estate tax, while states may impose an estate tax, an inheritance tax, both taxes, or neither tax. a. True b. False 11. The first income tax on individuals (after the ratification of the Sixteenth Amendment to the Constitution) levied tax rates from a low of 1% to a high of 6%. a. True b. False 12. A fixture will be subject to the ad valorem tax on personalty rather than the ad valorem tax on realty . a. True b. False 13. 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. a. True b. False 14. 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. a. True b. False 15. Before the Sixteenth Amendment to the Constitution was ratified, there was no valid Federal income tax on individuals. a. True b. False 16. 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. a. True b. False 17. Currently, the tax base for the Social Security component of the FICA is not limited to a dollar amount. a. True b. False 18. 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. a. True b. False 19. If an income tax return is not filed by a taxpayer, there is no statute of limitations on assessments of tax by the IRS. a. True Name: Class: Date: Copyright Cengage Learning. Powered by Cogner o. Page 3 b. False 20. Stealth taxes have the effect of generating additional taxes from all taxpayers. a. True b. False 21. 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. a. True b. False 22. If more IRS audits are producing a higher number of no change results, this indicates increased compliance on the part of taxpayer s. a. True b. False 23. Under state amnesty programs, all delinquent and unpaid income taxes are forgiven. a. True b. False 24. An office audit by the IRS takes place at the office of the taxpayer. a. True b. False 25. In 2023, 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. a. True b. False 26. When a state decouples from a Federal tax provision, it means that this provision will not apply for state income tax purposes. a. True b. False 27. The ratification of the Sixteenth Amendment to the U.S. Constitution was necessary to validate the Federal income tax on corporations. a. True b. False 28. The civil fraud penalty can entail large fines and possible incarceration. a. True b. False 29. 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. a. True b. False Name: Class: Date: Copyright Cengage Learning. Powered by Cogner o. Page 4 30. For the negligence penalty to apply, the underpayment must be caused by intentional disregard of rules and regulations without intent to defraud. a. True b. False 31. The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith’s canon (principle) of certainty. a. True b. False 32. 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. a. True b. False 33. The value added tax (VAT) has not had wide acceptance in the international community. a. True b. False 34. A parent employs her twin daughters, age 17, in her sole proprietorship. The daughters are not subject to FICA coverage. a. True b. False 35. No state may offer an income tax amnesty program more than once. a. True b. False 36. In preparing a tax return, all questions on the return must be answered. a. True b. False 37. An inheritance tax is a tax on a decedent’s right to pass property at death. a. True b. False 38. 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. a. True b. False 39. The Medica re component of the FICA tax (1.45% on wages) is progressive since the tax due increases as wages increase. a. True b. False
