Deck 1: Introduction to Federal Taxation and Understanding the Federal Tax Law

Question 1

The current tax system can be classified as "pay-as-you-go."

Answer 1

True

Question 2

Prior to the Sixteenth Amendment direct taxes were illegal.

Answer 2

True

Question 3

All U.S. taxes are based on an individual's income.

Answer 3

False
No, there are also excise and customs taxes. The income tax is but one tax that is used

Question 4

The majority of dollars collected by the U.S. government come by way of corporate taxation.

Question 5

Another name for a flat tax is a progressive tax.

Question 6

Property taxes are a major source of revenue for the federal government.

Question 7

Tax avoidance should be at the top of every taxpayer's list for tax planning.

Question 8

Stamps purchased to enable postal delivery services are an example of user fees.

Question 9

The U.S. federal tax system is a self-assessment tax collection system.

Question 10

The value-added tax is an example of an indirect tax that is similar to sales taxes.

Question 11

Tax avoidance is discouraged as being anti-American.

Question 12

Since 1913, changes in the tax laws have always increased individual tax rates, never decreased them.

Question 13

A system whereby income taxes are withheld systematically from current wages can be referred to as a "pay-as- you-go" system.

Question 14

Customs taxes are imposed on exports to protect our natural resources from leaving the country. Also, some states tax natural resources, and some countries restrict and tax the amount of natural resources leaving their country.

Question 15

The Sixteenth Amendment gave Congress the right to tax all income from whatever source derived.

Question 16

The Sixteenth Amendment to the U.S. Constitution gives Congress the power to lay and collect taxes on incomes from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.

Question 17

An equitable tax system is a fair tax system.

Question 18

A regressive tax structure is one in which the average tax rate increases as the tax base decreases.

Question 19

Most state and local property taxes use a single tax rate, making them a type of ad valorem tax.

Question 20

Tax avoidance can be the sole business purpose for a transaction.

Question 21

When a transfer of wealth occurs upon a person's death and the tax owed is levied on the recipient, it is called:

A) estate tax.
B) inheritance tax.
C) gift tax.
D) none of the above.

Question 22

All relevant taxes, including state, local and foreign income taxes, as well as employment and other taxes, must be taken into consideration when computing the tax effects of any proposed transaction.

Question 23

If the current U.S. deficit remains high, what options are available to Congress and the President?

Question 24

The Sixteenth Amendment to the U.S. Constitution affects:

A) direct taxes.
B) indirect taxes.
C) both (a) and (b).
D) neither (a) nor (b).

Question 25

The doctrine of separation of powers refers to the relationship between the Internal Revenue Service and the Treasury Department.

Question 26

Once taxable income has been calculated, the taxpayer's regular tax liability is computed using the progressive income tax rates; however, different tax rates apply to corporate and individual taxpayers.

Question 27

Revenue legislation begins in the Senate.

Question 28

A partnership is taxed as a separate entity.

Question 29

The major source of federal tax revenue is:

A) Corporate income tax
B) Individual income tax
C) Excise tax
D) Estate tax

Question 30

The rate of tax that a taxpayer pays on the last dollar of income is known as:

A) the marginal tax rate.
B) the average tax rate.
C) the effective tax rate.
D) none of the above.

Question 31

Since 1980, the group of taxpayers whose tax burden has increased the most is:

A) Individuals
B) Corporations
C) Trusts and estates
D) None of the above

Question 32

To be guilty of tax evasion, you must:

A) Try to maximize profits.
B) Try to minimize your tax liability.
C) Arrange your affairs so as to keep your taxes as low as possible.
D) Refuse to disclose a tax liability based on a completed transaction.

Question 33

Flow-through entities do not pay tax on taxable income, so it is not necessary for them to keep track of their gross income.

Question 34

The IRS levies penalties for which of the following:

A) Bouncing checks
B) Fraud
C) Late filing
D) All of the above

Question 35

The art of using existing tax laws to pay the least amount of tax legally possible is known as:

A) tax evasion.
B) tax avoidance.
C) tax elusion.
D) None of the above.

Question 36

The most popular form of doing business in the United States is:

A) Corporate form
B) Partnership form
C) Single proprietorship
D) S corporation

Question 37

The ultimate source of power to tax resides with the:

A) President
B) House Ways and Means Committee
C) Senate Finance Committee
D) Constitution

Question 38

The sections of the Internal Revenue Code are amended

A) by the Joint Committee on Taxation.
B) by the House of Representatives.
C) by public laws.
D) by the Senate.

Question 39

A main source of revenues for most local governments is:

A) payroll taxes.
B) property taxes.
C) income taxes.
D) None of the above.

Question 40

Which notion recognizes that mere appreciation in value does not necessarily mean that the owner has the resources to pay the tax associated with the appreciation:

A) cash-on-delivery principle.
B) wherewithal-to-pay concept.
C) capital recovery doctrine.
D) None of the above.

Question 41

What is meant by the phrase "pay-as-you-go" tax system?

Question 42

If taxpayers believe that tax rates will increase in the future, what tax planning steps might they take to minimize their tax bills?

Question 43

Some people maintain that corporations should not pay taxes. Explain.