South-Western Federal Taxation 2022: Individual Income Taxes 45th edition by James C. Young Solution

more children to educate.
11.  (LO 4) A possible explanation is that Sophia made capital improvements (e.g., added a swimming
pool) to her residence and her parents became retirees (e.g., reached age 65).
12.  (LO 4) Presuming that the dockage facilities are comparable in Massachusetts, the Morgans may be
trying to avoid ad valorem taxes. Taxes on nonbusiness property vary from one state to another and
are frequently avoided.
13.  (LO 4) In general, Federal excise taxes apply to fewer items than in the past. Lawmakers have
focused on and increased certain Federal excise taxes (e.g., those on tobacco products, gasoline, and
air travel).
14.  (LO 4) Jayla could have been overcharged, but it is likely that at least part of the excess is attributable
to a hotel occupancy tax and a car rental tax. In major cities, these types of excise taxes have become
a popular way of financing capital improvements such as sports arenas and stadiums. Consequently,
the amount of the taxes could be significant.
15.  (LO 4) An excise tax is limited to a particular transaction (e.g., sale of gasoline), whereas a general
sales tax covers a multitude of transactions (e.g., sale of all nonfood goods).
a.  The following states do not impose a general sales tax: Alaska, Delaware, Montana, New
Hampshire, and Oregon.
b.  There is no Federal general sales tax.
An Introduction to Taxation and Understanding the Federal Tax Law  1-3
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16.  (LO 4)
a.  Jackson County must be in a state that imposes a lower (or no) sales tax. With certain major
purchases (i.e., big-ticket items), any use tax imposed by the state of the Garcías’ residence
could come into play.
b.  In some states, the sales tax rate varies depending on the county and/or city.
Note: Generally, buyers are subject to the sales and use tax rate where they live. For example, if the
Garcías buy goods in a different state with a zero or lower sales tax rate than in their state, they owe
use tax to their home state for the difference.
17.  (LO 4) Caleb probably purchased his computer out of state through a catalog or via the internet. In
such cases, state collection of the sales (use) tax is not likely. Caleb needs to pay use tax on his own
(which is equal to the sales tax).
18.  (LO 4) If the tax is imposed on the right to pass property at death, it is classified as an estate tax. If it
taxes the right to receive property from a decedent, it is termed an inheritance tax.
a.  Some states impose both an estate tax and an inheritance tax. Some states (e.g., Florida and
Texas) levy neither tax.
b.  The Federal government imposes an estate tax.
19.  (LO 4) Jake either has a severe misunderstanding as to the rules regarding transfer taxes or is lying to
Jessica to delay any parting with his wealth. The marital deduction allows interspousal transfers
(whether by gift or at death) free of any tax (either gift or estate). As a result, in the case of spousal
transfers, there is no tax reason to prefer transfers at death over lifetime gifts.
20.  (LO 4)
a.  The purpose of the unified transfer tax credit is to eliminate the tax on all but substantial gifts
and estates.
b.  Yes. The credit for 2021 is $4,625,800; for 2020, it is $4,577,800.
c.  Yes. The credit is available to cover transfers by gift or by death (or both), but the amount
can be used only once.
21.  (LO 4) $570,000. 19 donees (5 married children + 5 spouses + 9 grandchildren)  $15,000 (annual
exclusion for 2021)  2 donors (Elijah and Anastasia) = $570,000.
22.  (LO 4) The individual income tax is progressive in nature; the corporate income tax is assessed at a
flat 21% rate. In addition, the corporate income tax does not make any distinction as to deductions—
only business deductions are allowed. Nor does it require the computation of adjusted gross income
(AGI) or provide for the standard deduction and the deduction for qualified business income.
23.  (LO 4)
a.  For state income tax purposes, “piggyback” means making use of what was done for Federal
income tax purposes. By “decoupling,” a state decides not to allow a particular Federal
provision (e.g., exclusion, deduction, credit) for state income tax purposes.
b.  States often use IRS audit results to identify errors that might also exist on the taxpayer’s
state tax return.
c.  Most states allow their residents some form of tax credit for income taxes paid to other states.
24.  (LO 4) What happened here likely is not a coincidence. The IRS probably notified the state of