CONSTITUTIONAL AND LEGISLATIVE SOURCES
TEST BANK, Chapter 3
Multiple Choice
Choose the best answer for each of the following questions:
1. Regarding the taxing powers of the federal government, the U.S. Constitution requires
that:
a. taxes imposed by Congress must apply uniformly throughout the U.S.
b. no direct taxes may be imposed on income
c. all revenues from the federal income tax must be apportioned to the population of the
states from which they were collected
d. all of the above
Answer: a
Rationale:
According to the U.S. Constitution, Article I, Section 8, Clause 1, Congress has the
power to lay and collect taxes, duties, imposts, and excises, but it must do so uniformly
throughout the United States.
2. Which of the following is an administrative source of the Federal tax law issued by the
IRS?
a. court rulings
b. Internal Revenue Code
c. tax treaties
d. revenue rulings
e. none of the above
Answer: d
Rationale:
Revenue rulings are administrative sources of federal tax law issued by the Internal
Revenue Service (IRS).
3. The first Internal Revenue Code was:
a. the Internal Revenue Code of 1939
b. the Internal Revenue Code of 1954
c. the Revenue Act of 1913
d. none of the above
Answer: a
Rationale:
The first Internal Revenue Code was enacted in 1939.
4. As of 2009, the percentage of U.S. households who did not pay any Federal income tax
was roughly:
a. 74 percent
b. 30 percent
c. 47 percent
d. All U.S. houses pay some Federal income tax.
Answer: c
Rationale:
As of 2009, approximately 47 percent of U.S. households did not pay any Federal income
tax, according to data from the Tax Policy Center.
5. A “tax protestor” is:
a. a person who files a ‘frivolous’ return with the IRS
b. a person who brings a “frivolous” matter before the Tax Court
c. can be subject to a penalty for frivolous Tax Court petitions
d. all of the above
e. only a and b
Answer: d
Rationale:
A tax protestor encompasses all the given definitions - someone filing frivolous returns,
presenting frivolous matters before the Tax Court, and being subject to penalties for such
actions.
6. The overriding purpose of tax treaties is to:
a. create ‘tax havens’
b. minimize tax liability of multinational corporations
c. require business taxpayers to file returns in all countries in which they operate
d. eliminate the ‘double taxation’ that a taxpayer would face if his or her income were
subject to tax in both countries
Answer: d
Rationale:
Tax treaties aim to eliminate the double taxation that occurs when a taxpayer's income is
subject to tax in both the taxpayer's home country and another country where the income
is earned.
7. Which of the following issues is NOT addressed by tax treaties?
a. what tax disclosures must be made by a visitor to a host country
b. treatment of business and investment income earned by a foreign visitor in the United
States
c. treatment of business and investment income earned by a foreign citizen in his home
country
d. how to compute the taxable amount in the host country
e. all of the above
Answer: c
Rationale:
Tax treaties generally do not address the treatment of business and investment income
earned by a foreign citizen in their home country; they focus on issues related to crossborder taxation.
8. Which of the following statements is CORRECT regarding tax treaties:
a. They are authorized by the U.S. Constitution.
b. They are usually initiated by the State Department, not the Treasury.
c. The U.S. can have multiple types of tax treaties with one country.
d. All of the above statements are correct.
Answer: d
Rationale:
All the statements are correct - tax treaties are authorized by the U.S. Constitution, they
are typically initiated by the State Department, and the U.S. can have different types of
tax treaties with a single country based on specific tax issues.
9. P.L. 107-16 is the citation for:
a. the Conference report on the 16th public law enacted in the 107th Congress
b. the 16th public law enacted in the 107th Congress
c. a public law enacted by Congress but not signed by the President
d. none of the above
Answer: b
Rationale:
P.L. 107-16 refers to the 16th public law enacted in the 107th Congress.
10. In the House of Representatives, tax law changes are primarily considered by:
a. the Finance Committee
b. the Joint Conference Committee
c. the Budget Committee
d. the Ways and Means Committee
Answer: d
Rationale:
The Ways and Means Committee in the House of Representatives primarily considers tax
law changes.
11. If any differences exist between the House- and Senate-passed versions of a tax bill,
the bill is referred to:
a. the Finance Committee
b. the President
c. the Joint Conference Committee
d. the Supreme Court
Answer: c
Rationale: When there are discrepancies between the House and Senate versions of a tax
bill, the bill is typically sent to a conference committee, known as the Joint Conference
Committee, to reconcile the differences.
12. Each Congress lasts for:
a. 2 years
b. 1 year
c. 3 years
d. 4 years
Answer: a
Rationale: Each Congress in the United States lasts for two years. It begins on January 3
of odd-numbered years and ends on January 3 of the next odd-numbered year.
13. Which of the following statements is CORRECT regarding the enactment into law of
a tax bill?
a. A tax bill must always be signed by the President to become law.
b. A tax law must be approved by the Treasury Department.
c. A tax law must either be signed into law by the President or Congress must override a
presidential veto of the proposed law.
d. only b and c
Answer: c
Rationale: For a tax bill to become law, it must either be signed by the President or
Congress must override a presidential veto. Approval by the Treasury Department is not
required.
14. Which of the following statements is CORRECT regarding Committee Reports?
a. They are published in the Internal Revenue Bulletin.
b. They are produced by the Treasury Department.
c. They explain the elements of proposed tax law changes and reasons for the changes.
d. all of the above
e. only a and c
Answer: e
Rationale: Committee Reports are produced by congressional committees and explain
the provisions and reasons behind proposed tax law changes. They are not published in
the Internal Revenue Bulletin and are not produced by the Treasury Department.
15. Which of the following is INCORRECT regarding the Floor Debate Report?
a. It is contained in the Congressional Record.
b. It is a supplement to the Committee Report.
c. It summarizes the discussions made in the House or the Senate concerning a proposed
tax bill.
d. All of the above statements are correct.
Answer: d
Rationale: The statement is incorrect. The Floor Debate Report is not a supplement to
the Committee Report; instead, it summarizes discussions made in the House or the
Senate regarding a proposed tax bill and is contained in the Congressional Record.
16. A subtitle of the Internal Revenue Code:
a. is indicated by a capital letter, such as “Subtitle A”
b. relates to a well-defined area of the law
c. is used as a short-hand reference to describe types of corporations
d. only a and b
e. all of the above
Answer: d
Rationale: Subtitles of the Internal Revenue Code are indicated by capital letters and
typically relate to well-defined areas of tax law, providing a shorthand reference for
specific topics.
17. Which of the following statements is INCORRECT regarding the structure of the
Internal Revenue Code:
a. Code section numbers start over in each chapter.
b. Each Code section is used only once in the Internal Revenue Code.
c. Code sections inserted between existing section numbers are indicated by adding a
capital letter to the Section number (e.g., Section 25A).
d. The Internal Revenue Code is Title 26 of the United States Code.
Answer: a
Rationale:
Code section numbers do not start over in each chapter of the Internal Revenue Code.
Instead, they are continuous throughout the entire Code.
18. The current Internal Revenue Code is the:
a. Internal Revenue Code of 2011
b. Internal Revenue Code of 1986
c. Internal Revenue Code of 1954
d. none of the above
Answer: b
Rationale:
The current Internal Revenue Code is the Internal Revenue Code of 1986, which has been
amended numerous times since its enactment.
19. Subtitle A of the Internal Revenue Code deals with:
a. estate and gift taxes
b. employment taxes
c. income taxes
d. excise taxes
Answer: c
Rationale: Subtitle A of the Internal Revenue Code primarily deals with income taxes.
20. Which of the following sections of the Internal Revenue Code deal with partnerships?
a. the 700s
b. the 300s
c. Section 162
d. Section 501
Answer: a
Rationale: Sections in the 700s of the Internal Revenue Code typically deal with
partnership taxation.
21. Code Section 61 relates to:
a. deductions for adjusted gross income
b. the definition of gross income
c. corporate tax rates
d. the deduction for state taxes
Answer: b
Rationale:
Code Section 61 of the Internal Revenue Code provides the general definition of gross
income for federal income tax purposes, encompassing all income from whatever source
derived, unless specifically excluded by law.
22. Which of the following statements is INCORRECT regarding the reasons tax
researchers may have difficulty in interpreting the Internal Revenue Code:
a. Code sections can appear to conflict.
b. Definitions can be significantly different from the common use of a term.
c. All exceptions to a Code section are addressed within that same section.
d. Frequently, phrases modify percentage or dollar amounts.
Answer: c
Rationale: The statement is incorrect. Exceptions to a Code section are not always
addressed within the same section, which can lead to complexity and difficulty in
interpretation for tax researchers.
23. A “technical corrections act” is:
a. A set of changes made by IRS to fit new tax law provisions into the Code.
b. An act passed by Congress to remove errors in implementing and interpreting the new
provisions of a tax law.
c. The act which provides the effective dates for a new tax law.
d. None of the above.
Answer: b
Rationale:
A technical corrections act is legislation passed by Congress to correct errors, clarify
language, or address unintended consequences in previously enacted tax laws.
24. Which of the following statements is INCORRECT regarding effective dates in the
Internal Revenue Code:
a. All sections of a new tax law go into effect at the same time.
b. New Code provisions may not go into effect immediately upon adoption by Congress.
c. Some effective dates can precede passage of the act.
d. All of the above are correct.
Answer: a
Rationale:
The statement is incorrect. Not all sections of a new tax law necessarily go into effect
simultaneously; different provisions may have different effective dates based on
legislative intent.
25. Which of the following statements is CORRECT regarding the definition of terms in
the Internal Revenue Code?
a. All definitions are included in Section 7701.
b. Definitions are always included within the Code section to which they apply.
c. Definitions are written into the Code by the IRS rather than included in tax laws passed
by Congress.
d. Sometimes, a researcher may need to consult the regulations to find a complete
definition of a term.
Answer: d
Rationale:
While some definitions are included in Section 7701, not all definitions are consolidated
there. Definitions may appear in various sections of the Code, and researchers may need
to consult regulations or other sources for comprehensive definitions of terms.
True or False
Indicate whether the following statements are true or false by circling the correct answer.
1. The 16th Amendment to the U.S. Constitution authorized the imposition of a Federal
income tax.
Answer: True
Rationale:
The 16th Amendment, ratified in 1913, explicitly granted Congress the power to levy an
income tax without apportioning it among the states based on population. This
amendment significantly expanded the federal government's authority to impose income
taxes on individuals and entities.
2. Statutory sources of Federal tax law come out of the legislative branch of the U.S.
government.
Answer: True
Rationale:
Statutory sources of Federal tax law indeed originate from the legislative branch, which
consists of Congress. Congress has the authority to pass laws, including tax laws, through
the enactment of statutes. These statutes form the foundation of Federal tax law, outlining
various provisions, regulations, and guidelines that taxpayers must adhere to. Examples
include the Internal Revenue Code (IRC) and related legislation passed by Congress,
which serve as the primary sources of Federal tax law.
3. Circuit Courts are administrative sources of the Federal tax law.
Answer: False
Rationale:
Circuit Courts are judicial sources of the Federal tax law.
4. In Pollock v. Farmers’ Loan and Trust Co., the Supreme Court held that the income tax
was unconstitutional because it was a constitutionally prohibited ‘direct tax’.
Answer: True
Rationale:
In the case of Pollock v. Farmers’ Loan and Trust Co. (1895), the Supreme Court did
indeed hold that certain provisions of the income tax law passed in 1894 were
unconstitutional. The Court determined that the tax on income derived from property,
such as rental income and interest, constituted a direct tax. According to the Constitution,
direct taxes must be apportioned among the states based on population, which was not
done in the 1894 income tax law. As a result, the Court ruled the tax unconstitutional.
However, it's worth noting that this decision was later overruled by the ratification of the
16th Amendment in 1913, which explicitly allowed Congress to levy an income tax
without apportionment.
5. Historically, the 1913 income tax was a tax on wealthy and high-income taxpayers.
Answer: True
Rationale:
The income tax established in 1913 through the ratification of the 16th Amendment was
indeed primarily targeted at wealthy and high-income taxpayers. The tax rates were
structured progressively, meaning that higher-income individuals were subject to higher
tax rates. Initially, only a small percentage of the population, primarily those with
significant income and wealth, were subject to income taxation. The tax applied to
individuals earning above certain thresholds, which were relatively high compared to
average incomes at the time. Therefore, it is accurate to state that historically, the 1913
income tax was aimed at wealthy and high-income taxpayers.
6. Taxpayers who file frivolous returns are subject to a $25,000 fine.
Answer: False
Rationale:
The frivolous return penalty is $5,000. The Tax Court penalty for frivolous actions is
$25,000.
7. Congress cannot override a Presidential veto of a tax bill.
Answer: False
Rationale:
Congress can override a Presidential veto of a tax bill with a sufficient number of votes.
8. The North American Free Trade Agreement (NAFTA) is a non-tax international treaty
which addresses some tax-related issues.
Answer: True
Rationale:
NAFTA, which was replaced by the United States-Mexico-Canada Agreement (USMCA)
in 2020, primarily focused on trade and economic cooperation between the United States,
Canada, and Mexico. While NAFTA itself is not a tax treaty, it does address certain taxrelated issues, particularly concerning cross-border trade and investment. For example,
NAFTA included provisions related to the treatment of taxes on goods and services
traded between member countries, as well as rules governing the taxation of income
derived from cross-border activities. Therefore, it is accurate to state that NAFTA, as an
international treaty, did address some tax-related matters alongside its primary focus on
trade.
9. Treaties may expire because of a specific congressional time limitation.
Answer: True
Rationale:
Treaties negotiated by the United States can indeed expire due to various reasons,
including a specific congressional time limitation. While some treaties may have built-in
expiration dates or renewal mechanisms specified within the treaty text, others may
require congressional approval or ratification to remain in effect beyond a certain period.
If Congress does not take action to extend or renew a treaty before its expiration date or
specified time limitation, the treaty may cease to be binding. Additionally, treaties may
expire due to changes in circumstances, termination by one or more parties, or
supersession by newer agreements. Therefore, it is accurate to affirm that treaties may
expire because of a specific congressional time limitation, among other factors.
10. Subparagraphs are the major divisions of the Internal Revenue Code covering such
broad topics as Income Taxes, and Estate and Gift Taxes.
Answer: False
Rationale:
Subtitles are the major divisions of the Internal Revenue Code covering such broad topics
as Income Taxes, and Estate and Gift Taxes.
11. When a Code provision and a provision under a treaty conflict, the one adopted
earlier in time generally controls.
Answer: False
Rationale:
When a Code provision and a provision under a treaty conflict, the one adopted later in
time generally controls.
12. Tax treaties are agreements negotiated between countries concerning the treatment of
entities subject to tax in both countries.
Answer: True
Rationale:
Tax treaties, also known as double taxation treaties, are indeed agreements negotiated
between two or more countries to address issues related to double taxation of entities
subject to tax in both countries. These treaties aim to mitigate the effects of double
taxation by allocating taxing rights between the treaty countries and providing
mechanisms for resolving disputes. Tax treaties typically cover various types of taxes,
including income tax, capital gains tax, and withholding tax. They establish rules for
determining residency, defining taxable income, and providing relief from double
taxation through methods such as tax credits or exemptions. Therefore, it is accurate to
state that tax treaties are agreements negotiated between countries concerning the
treatment of entities subject to tax in both countries.
13. The Joint Conference Committee is called on to resolve differences between the
House Ways and Means Committee version and the full House version of tax legislation.
Answer: False
Rationale:
The Joint Conference Committee is called on to resolve differences between the House
version and the Senate version of tax legislation.
14. Section 121(B)(2)(a)(b)(iii) would be a correct type of Code citation.
Answer: False
Rationale:
Section 121(b)(2)(A)(ii) would be a correct Code citation. Subsections are denoted by
small letters and subparagraphs are denoted by capital letters and two subsections would
not be together in a citation.
15. Most tax legislation begins in the House of Representatives.
Answer: True
Rationale:
Most tax legislation does indeed originate in the House of Representatives in the United
States. This is because the Constitution grants the House of Representatives the power to
initiate revenue-related bills, including tax legislation. The process typically begins with
a member of the House introducing a bill related to taxation. The bill then goes through
the legislative process, including committee review, amendments, and voting. If approved
by the House, the bill is then sent to the Senate for consideration. If both chambers of
Congress pass the bill in identical form, it is sent to the President for signature into law.
Therefore, it is accurate to affirm that most tax legislation begins in the House of
Representatives.
16. The ‘General Explanation’ of tax legislation, called the “Blue Book,” is prepared by
the Joint Conference Committee.
Answer: False
Rationale:
The ‘General Explanation’ of tax legislation, the “Blue Book,” is prepared by the Joint
Committee on Taxation.
17. Trade or business deductions are contained in Code Section 62.
Answer: False
Rationale:
Trade or business deductions are in Code Section 162.
18.Whenever a major new tax law is passed, CCH and RIA both publish the related
Committee Reports.
Answer: True
Rationale:
When a major new tax law is passed, both CCH (Commerce Clearing House) and RIA
(RIA Checkpoint) typically publish related Committee Reports. These reports provide
detailed analyses and explanations of the provisions included in the new tax law,
including insights into the legislative intent behind various provisions. They often include
summaries, interpretations, and commentary from experts in tax law. Tax professionals,
practitioners, and researchers frequently rely on these Committee Reports to understand
the implications of the new tax law and to guide their compliance efforts and advisory
services. Therefore, it is accurate to state that both CCH and RIA typically publish
Committee Reports related to major new tax laws.
19. A report of Floor Debate is included in the Congressional Record and may include
some detailed or technical information that is excluded from a Committee Report.
Answer: True
Rationale:
A report of Floor Debate is indeed included in the Congressional Record, which is the
official transcript of proceedings and debates that occur on the floor of the United States
Congress. This report may contain detailed or technical information that is not
necessarily included in a Committee Report. During floor debate, members of Congress
discuss and deliberate on proposed legislation, offering insights, arguments, amendments,
and explanations related to the bill under consideration. The Congressional Record
provides a comprehensive record of these discussions, including statements made by
individual members, questions raised, and responses given. As floor debate involves a
broader range of perspectives and discussions than committee deliberations, it may
include additional details, explanations, or viewpoints that are not present in a Committee
Report. Therefore, it is accurate to affirm that a report of Floor Debate included in the
Congressional Record may include some detailed or technical information that is
excluded from a Committee Report.
20. The term ‘not less than 50’ represents only those numbers which are more than 50.
Answer: False
Rationale:
The term ‘not less than 50’ represents 50 or more.
Short Answer
1. List several issues that tax treaties commonly address.
Answer: Any tax matter may be covered in a tax treaty with another country. Types of
issues commonly covered by treaties include:
•
How to treat the business and investment income of a visiting taxpayer.
•
When the visitor is subject to the host country’s tax laws.
•
How to offset the possibility of taxing the same income or assets more than once.
•
How to compute the taxable amount in the host country.
•
To what extent the host-country withholding and taxes are applied to a visitor’s
transactions.
•
How taxes levied by a state/province/canton are treated by the taxpayer.
•
What tax disclosures must be made by a visitor.
2. What is a tax protestor and what types of sanctions are tax protestors subject to?
Answer: A tax protestor is someone who refuses to cooperate with the tax laws or pay tax
based on frivolous or groundless legal positions. Frequently, tax protestors challenge the
constitutionality of the federal income tax. Congress has passed several laws to
discourage tax protestors. A taxpayer is subject to a $5,000 fine if he or she files a
“frivolous” tax return as a form of protest against the IRS or the U.S. budgetary process.
Also, the Tax Court can imposed a penalty of up to $25,000 if the taxpayer brings a
frivolous matter before the Court.
3. What information is included in the history of a Code section?
Answer: The history of a Code section includes a list of Public Laws that have altered or
amended the section. This listing generally includes a reference to the section as it existed
prior to amendment as well as the effective date of the amendment to the law.
Essay Question
1. Describe the steps in the legislative process by which a tax bill becomes law.
Answer: Most tax legislation originates in the House of Representatives. In the House,
tax law changes are considered by the House Ways and Means Committee. Upon
approval of a bill by the Committee, the bill is sent to the full House for a vote. It if is
passed, it goes to the Senate. In the Senate, the bill is referred to the Senate Finance
Committee. When the Finance Committee approves the bill, it goes to the Senate floor for
a vote. If the Senate passes a different version than the House version, the bill is sent to
the Joint Conference Committee where the differences are resolved in negotiations. The
compromise bill from the Joint Conference Committee must then be approved by both
the House and the Senate. If approved, the legislation is sent to the President for his
signature. If the President signs the measure, it becomes a Public Law and the new
provisions are incorporated into the Internal Revenue Code. If the bill is vetoed by the
President, Congress can override the veto with a sufficient revote.
Test Bank for Federal Tax Research
Roby B. Sawyers, Steven Gill, Debra Sanders, William A. Raabe, Gerald E. Whittenburg
9781111221645, 9781337282987, 9781285439396
