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FTax IRGTB ch01 p001-016

FTax IRGTB ch01 p001-016 - 1 An Overview of Federal...

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An Overview of Federal Taxation Test Bank True or False 1. A correlation exists between the amount of Federal tax an individual pays and the value of benefits an individual receives. 2. The Thirteenth Amendment enacted in 1916 made it clear that Congress had the right to impose an income tax. 3. The Federal income tax base is called adjusted gross income. 4. The gift tax and the estate tax provide a very significant portion of total Federal revenues. 5. As a source of revenue, the Federal corporate income tax is larger than the Federal individual income tax. 6. Congress has chosen to exclude many sources of income from taxation even though it has the authority to tax income from whatever source derived. 7. A source of income is taxable only when listed as a taxable source of revenue in the Internal Revenue Code. 8. An expenditure is deductible only when listed as a deduction in the Internal Revenue Code. 9. If T is in the 35 percent tax rate bracket, then all of T s income is being taxed at 35 percent. 10. Knowing his marginal tax rate allows a taxpayer to determine the tax impact of an additional dollar added to the tax base or an additional dollar of deduction. 11. A credit is different from a deduction in that the credit reduces the base amount subject to the tax, whereas a deduction directly reduces the tax liability itself. 12. The unitary tax is a device that the Federal government has developed to tax corporations on income that they have earned outside the boundaries of the United States. 1 1-1
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13. Interest income earned on government obligations issued by a state or local government (e.g., the state of Ohio) is generally subject to Federal income taxation. 14. Congress enacted wealth transfer taxes primarily to diversify the Federal government s sources of income. 15. The estate tax applicable credit amount is $5 million in 2011. 16. The estate tax applicable credit amount, generally available only to low income families filing joint income tax returns, reduces the federal income tax. 17. The gift tax and the estate tax exempt the same amount from taxation in 2012. 18. By making the gift-splitting election, an unmarried donor can in effect make use of twice the annual exclusion to which she is normally entitled. 19. Unlike the unified transfer tax, the typical state inheritance tax imposes a tax on the right to receive property at death. 20. Both FICA and FUTA impose a double tax on the employer and the employee. 21. Self-employed individuals are required to pay self-employment taxes if self-employment income is $400 or more. 22. FUTA tax revenues are used by the Federal government to augment unemployment-benefit programs of the various states. 23. An excise tax is imposed on the profits of a business or profession, but not on an individual s income.
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