Question

1. An individual taxpayer can deduct actual itemized deductions or the standard deduction, whichever is higher.

True

False

2. Generally, gifts and inheritances are taxable income to the recipient.

True

False

A taxpayer has no recourse and must accept an IRS tax assessment.

True

False

3. The return of capital principle prevents the cost of an investment made with after-tax dollars from being taxed.

True

False

4.The Internal Revenue Code is the highest tax law authority in the U.S.

True

False

Answer 1

Solution. 1.True

An individual needs to pay income tax annually on amount of its total income and gains. Standard deduction is an amount set considering factors such as marital status,age; which is deducted from such income while filing income tax return. Whereas, item encompasses expenses which are deducted from gross income. Here, taxpayer needs to carefully analyse which of the above mentioned deduction amount is higher, which in turn, reduces taxable income. So, an individual taxpayer can deduct actual itemized deductions or the standard deduction, whichever is higher.

2.False

A gift which is in cash form or generates cash gains to the recipient are taxable. Other than such, general gifts and inheritances does not contribute to taxable income to the recipient.

False. Only cash or income generating gifts and inheritance are needed to be disclosed along with taxable income and comes under IRS assessment.

3.True

The return of capital principle is non taxable activity and facilitates in prevention of cost of an investment from being taxed. It is an amount distributed to shareholder's and is not recorded in accounting reports. They are not taken into account as an income and hence, tax free.

4.False

The Congress still holds the right of levying and collection of taxes in U.S. IRS is working as a part of federal government in preparation, recording and control of tax policies and collection and forms treasury department of U.S.