South-Western Federal Taxation 2022 Essentials of Taxation Individuals and Business Entities 25th ed

a.  True
b.  False
ANSWER: False
51. As a matter of administrative convenience, the IRS would prefer to have Congress decrease (rather than increase) the
amount of the standard deduction allowed to individual taxpayers.
a.  True
b.  False
ANSWER: False
52. In cases of doubt, courts have held that tax relief provisions should be broadly construed in favor of taxpayers.
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Class:
Date:
Ch 1 Introduction To Taxation
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a.  True
b.  False
ANSWER: False
53. 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
ANSWER: True
54. Ultimately, most taxes are paid by individuals.
a.  True
b.  False
ANSWER: True
55. Tomas owns a sole proprietorship, and Lucy is the sole shareholder of a C corporation. In the current year, both
businesses make a net profit of $60,000. Neither business distributes any funds to the owners in the year. For the current
year, Tomas must report $60,000 of income on his individual tax return, but Lucy is not required to report any income
from the corporation on her individual tax return.
a.  True
b.  False
ANSWER: True
56. Carol and Candace are equal partners in Peach Partnership. In the current year, Peach had a net profit of $75,000
($250,000 gross income – $175,000 operating expenses) and distributed $25,000 to each partner. Peach must pay tax on
$75,000 of income.
a.  True
b.  False
ANSWER: False
57. Rajib is the sole shareholder of Cardinal Corporation, a calendar year S corporation. In the current year, Cardinal
generated a net profit of $350,000 ($520,000 gross income – $170,000 operating expenses) and distributed $80,000 to
Rajib. Rajib must report the Cardinal Corporation profit of $350,000 on his Federal income tax return.
a.  True
b.  False
ANSWER: True
58. Donald owns a 45% interest in a partnership that earned $130,000 in the current year. He also owns 45% of the stock
in a C corporation that earned $130,000 during the year. Donald received $20,000 in distributions from each of the two
entities during the year. With respect to this information, Donald must report $78,500 of income on his individual income
tax return for the year.
a.  True
b.  False
ANSWER: True
59. Quail Corporation is a C corporation that generates net income of $125,000 during the current year. If Quail paid
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Class:
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Ch 1 Introduction To Taxation
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dividends of $25,000 to its shareholders, the corporation must pay tax on $100,000 of net income. Shareholders must
report the $25,000 of dividends as income.
a.  True
b.  False
ANSWER: False
Multiple Choice
60. Which, if any, of the following statements best describes the history of the Federal income tax?
a.  It did not exist during the Civil War.
b.  The Federal income tax on corporations was held by the U.S. Supreme Court to be allowable under the U.S.
Constitution.
c.  The Federal income tax on individuals was held by the U.S. Supreme Court to be allowable under the U.S.
Constitution.
d.  Both the Federal income tax on individuals and on corporations was held by the U.S. Supreme Court to be
contrary to the U.S. Constitution.
ANSWER: b
61. Which, if any, of the following taxes are regressive (rather than progressive)?
a.  State general sales tax
b.  Federal individual income tax
c.  Federal estate tax
d.  Federal gift tax
ANSWER: a
62. Which, if any, of the following transactions will increase a taxing jurisdiction’s revenue from the ad valorem tax
imposed on real estate?
a.  A resident dies and leaves his farm to his church.
b.  A large property owner issues a conservation easement as to some of her land.
c.  A tax holiday issued 10 years ago has expired.
d.  A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons.
e.  None of these.
ANSWER: c
63. Which, if any, of the following transactions will decrease a taxing jurisdiction’s ad valorem tax revenue imposed on
real estate?
a.  A tax holiday is granted to an out-of-state business that is searching for a new factory site.
b.  An abandoned church is converted to a restaurant.
c.  A public school is razed and turned into a city park.
d.  A local university sells a dormitory that will be converted for use as an apartment building.