ACC 330 True/False Final Exam Practice
A basic premise of federal income tax law is that an expense is deductible unless the Internal Revenue Code specifically prohibits the deduction.
F
A convenient tax has low compliance costs for taxpayers and low collection and enforcement costs for the government.
F
A corporation can use the installment sale method of accounting for both book and tax purposes.
F
A corporation is usually subject to tax by any state in which it engages in any business transactions.
F
A sole proprietor usually cannot be held personally liable for the debts arising from the business.
F
A tax meets the standard of efficiency if it generates enough revenue to pay for the public goods and services provided by the government.
F
A tax meets the standard of sufficiency if it is easy for people to pay the tax.
F
A taxpayer who performs services in exchange for a partnership interest can elect to defer paying tax on the fair market value of the services.
F
A taxpayer who receives or pays boot in a nontaxable exchange must recognize gain to the extent of the FMV of the boot.
F
A temporary difference between book income and taxable income results when an item of income reflected on the books is never included in taxable income.
F
Accurate measurement of taxable income is the only objective of the federal income tax laws.
F
Boot disqualifies the entire nontaxable exchange.
F
Capital losses are deductible under any circumstances.
F
Corporations incorporated in the U.S. are subject only to taxes imposed by the U.S. federal government.
F
For tax purposes, the cost basis of an asset does not include any portion of the purchase price paid through debt financing.
F
If a business is formed as an S corporation, its income may be subject to double taxation.
F
Inventory, accounts receivable, and machinery used in a business are examples of capital assets.
F
Losses realized on the sale of personal use assets are deductible.
F
Mrs. Cooley exchanged 400 shares of stock for corporate bonds. If the stock and bonds were issued by the same corporation, they are like-kind properties, and the exchange is nontaxable.
F
Multi-state businesses can reduce their overall tax cost to the extent they can shift income from a low-tax state to a high-tax state.
F
Partners receiving guaranteed payments are not required to pay self-employment tax on such payments.
F
Payment of a tax entitles the payer to a specific good or service from the government.
F
Repair costs incurred to keep a tangible asset in good working order must be capitalized to the cost of the asset.
F
S-Corporations can have an unlimited number of shareholders.
F
Tax avoidance is the reduction of a person's tax liability through illegal means.
F
Tax liability divided by taxable income equals marginal tax rate.
F
Taxable income is defined as gross income minus allowable deductions and credits.
F
Taxpayers never have to pay tax on gains realized in a non-taxable exchange.
F
Taxpayers using the cash method of accounting for tax purposes must always pay tax when cash is received and can always deduct the cost of business expenses in the period when cash is paid.
F
The MACRS calculation is based on the estimated useful life of the depreciable asset.
F
The corporation's tax basis in an asset transferred into the business is the fair market value of the asset.
F
The goal of tax planning is to reduce tax costs or increase tax savings as much as possible.
F
The tax cost of a transaction depends on the taxpayer's average tax rate for the year.
F
The tax cost of a transaction represents a cash inflow.
F
A Corporation is a taxable entity with an unlimited life, where shareholders have limited liability for the debts of the corporation.
T
A capital gain or loss results from the sale or exchange of a capital asset.
T
A cash basis taxpayer must account for any prepayment of interest expense under the accrual method.
T
A deferred tax asset is analogous to a prepaid tax.
T
A dollar available today is always worth more than a dollar not available until a future period.
T
A limited liability company with more than one member is generally considered a partnership for federal tax purposes.
T
A partnership is an unincorporated business activity owned by at least two taxpayers.
T
A permanent difference between book income and taxable income affects only one taxable year.
T
A significant advantage of issuing stock instead of debt is that payment of dividends is discretionary.
T
A static forecast of the revenue effect of a tax rate change assumes that the tax base does not change.
T
A tax with a graduated rate structure must have at least two brackets of tax base.
T
A taxpayer cannot compute its net Section 1231 gain or loss for a taxable year until the year closes.
T
A taxpayer that operates more than one business may use a different method of accounting for each business.
T
All general partners have unlimited personal liability for the debts of the entity.
T
All types of business and investment real properties are like-kind
T
An above-the-line deduction reduces both adjusted gross income and taxable income.
T
An affiliated group consists of a parent company that directly owns 80% of at least one subsidiary corporation plus all other subsidiaries that are 80% owned within the group.
T
An asset's adjusted book basis and adjusted tax basis convey no information about the asset's fair market value.
T
An itemized deduction doesn't result in any tax savings in a year in which an individual taxpayer takes the standard deduction.
T
Congress provides an indirect subsidy to charities by allowing an itemized deduction for charitable contributions.
T
Corporations are required to pay their federal tax liability in four quarterly estimated tax installments.
T
Dividends-received deductions generally are allowed for dividends from foreign corporations.
T
GAAP rules are intended to prevent managers from inflating book income and deferring expenses. In contrast, tax laws are intended to prevent managers from understating income and accelerating expenses.
T
Gains realized on the sale of personal use assets are taxable.
T
Horizontal equity means that two taxpayers with similar economic situations pay roughly the same amount of tax.
T
If a business expenditure creates or enhances an identifiable asset with a useful life substantially beyond the current year, the expenditure must be capitalized.
T
In contrast to a partnership, every member of an LLC has limited liability for the LLC's debts.
T
Income shifting generally occurs between related parties.
T
MACRS depreciation for buildings is based on the straight-line method
T
Most tax credits for which a corporate taxpayer would be eligible are nonrefundable.
T
Net cash flow from a transaction equals the difference between cash received and cash disbursed in the transaction.
T
Nontaxable exchanges typically cause a temporary difference between book income and taxable income.
T
Owners of sole proprietorships generally pay higher employment-related taxes compared to taxpayers who are employees of a corporation due to the self-employment tax.
T
Partnerships are generally described as pass-through entities.
T
Section 179 is a special provision that sometimes allows taxpayers to deduct the entire cost of an asset in the year of purchase.
T
Tax neutrality for asset exchanges is the exception rather than the rule.
T
Tax systems with regressive rate structures result in a proportionally heavier tax burden on persons with smaller tax bases.
T
Taxpayers holding appreciated property can defer gain recognition for tax purposes until they sell the property.
T
The MACRS calculation ignores any salvage or residual value of an asset.
T
The after-tax cost of an expenditure is minimized when the expenditure is deductible in the current year.
T
The burden of corporate taxation is often borne by corporate shareholders, customers, employees, and suppliers.
T
The corporate characteristic of limited liability is more important to the shareholders than the characteristic of centralized management.
T
The federal income tax deduction allowed for state income taxes paid decreases the cost of the state taxes.
T
The federal income tax system provides incentives for individual taxpayers to meet their housing needs by purchasing instead of renting a home.
T
The general rule is that a net Section 1231 loss is treated as an ordinary loss and a net Section 1231 gain is treated as capital gain.
T
The individual income tax rate schedule is progressive.
T
The installment sale method of accounting is not applicable to realized losses.
T
The purpose of Schedules M-1 and M-3 are to explain the differences between financial statement income and taxable income.
T
The rate at which an item of income is taxed depends on the tax character of the income.
T
The sale of business inventory always generates ordinary income or loss.
T
The sales factor in the UDITPA state income tax apportionment formula equals in-state sales divided by total sales
T
The seller's amount realized on the sale of property equals any cash received plus the FMV of any property received plus any amount of debt relief to the seller.
T
The standard deduction for single individuals equals one-half of the standard deduction for married individuals filing jointly.
T
The substance over form doctrine allows the IRS to look through the legal formalities of a transaction to determine its true economic nature.
T
The tax law does not allows deductions based on estimated expenses that result in an allowance or reserve for financial statement purposes.
T
The tax rates for individuals who qualify as a head-of-household are lower than the tax rates for single individuals.
T
The tax savings from a transaction represents a cash inflow.
T
The theory of distributional justice is a rationale for a progressive income tax system.
T
The value of a tax credit is greater than the value of a deduction of the same amount.
T
Under 2017 law, an individual's taxable income equals adjusted gross income less the greater of the standard deduction or itemized deductions less the exemption amount.
T
When unrelated parties agree to an exchange of noncash properties, the economic presumption is that the properties are of equal value.
T