Question 1

The income shifting and timing strategies are examples of:

Accepted Answer

A)  illegal taxpayer strategies. 
B)  tax evasion. 
C)  tax avoidance. 
D)  All of the choices are correct. 
E)  None of the choices are correct. 
A)  illegal taxpayer strategies. 
B)  tax evasion. 
C)  tax avoidance. 
D)  All of the choices are correct. 
E)  None of the choices are correct.

Question 2

Investors must consider complicit taxes as well as explicit taxes in order to make correct investment choices.

Accepted Answer

A) True 
 B)False

Question 3

Tax evasion is a legal activity that forms the basis of the basic tax planning strategies.

Accepted Answer

A) True 
 B)False

Question 4

The constructive receipt doctrine:

Accepted Answer

A)  applies equally to income and expenses. 
B)  causes income to be recognized after it is actually received. 
C)  is particularly restrictive for accrual basis taxpayers. 
D)  causes income to be recognized before it is actually received. 
E)  None of the choices are correct. 
A)  applies equally to income and expenses. 
B)  causes income to be recognized after it is actually received. 
C)  is particularly restrictive for accrual basis taxpayers. 
D)  causes income to be recognized before it is actually received. 
E)  None of the choices are correct.

Question 5

Troy is not a very astute investor. He has a knack for investing in losing stocks. In his latestinvestment move, he has realized a loss of about $40,000 (original basis of $50,000; current fair market value of $10,000) in High Tech, Inc. The good news is that unlike prior years, he actually has $45,000 of gains that he can use to offset the loss. Troy is considering either selling the High Tech, Inc. stock to his sister, Louise, or on the stock market. Which should he choose and why? Please explain why the IRS may treat the two transactions differently.

Accepted Answer

If Troy sells the stock to his sister, b

Question 6

One limitation of the timing strategy is the difficulties in accelerating a tax deduction without accelerating the actual cash outflow that generates the tax deduction.

Accepted Answer

A) True 
 B)False

Question 7

When considering cash outflows, higher present values are preferred.

Accepted Answer

A) True 
 B)False

Question 8

Implicit taxes may reduce the benefits of the conversion strategy.

Accepted Answer

A) True 
 B)False

Question 9

If tax rates will be lower next year, taxpayers should accelerate their deductions regardless of their after-tax rate of return.

Accepted Answer

A) True 
 B)False

Question 10

Boeing is considering opening a plant in two neighboring states. One state has a corporate tax rate of 15%. If operated in this state, the plant is expected to generate $1,200,000 pre-tax profit. The other state has a corporate tax rate of 5%. If operated in this state, the plant is expected to generate$1,085,000 of pre-tax profit. Which state should Boeing choose based upon tax considerations only? Why do you think the plant in the state with a lower tax rate would produce a lower pre-tax income?

Accepted Answer

Boeing should choose to operate the plan

Question 11

Which of the following may limit the conversion strategy?

Accepted Answer

A)  Constructive receipt doctrine. 
B)  Implicit taxes. 
C)  Activities with preferential tax rates. 
D)  Assignment of income doctrine. 
E)  None of the choices are correct. 
A)  Constructive receipt doctrine. 
B)  Implicit taxes. 
C)  Activities with preferential tax rates. 
D)  Assignment of income doctrine. 
E)  None of the choices are correct.

Question 12

The goal of tax planning generally is to:

Accepted Answer

A)  minimize taxes. 
B)  maximize after-tax wealth. 
C)  minimize IRS scrutiny. 
D)  support the Federal government. 
E)  None of the choices are correct. 
A)  minimize taxes. 
B)  maximize after-tax wealth. 
C)  minimize IRS scrutiny. 
D)  support the Federal government. 
E)  None of the choices are correct.

Question 13

Which of the following is more likely to receive IRS scrutiny under the assignment of income doctrine?

Accepted Answer

A)  A cash-basis business delaying billing its customers until after year end. 
B)  A taxpayer gifting stock to his children. 
C)  A parent employing her child in the family business. 
D)  A corporation paying its shareholders a $20,000 dividend. 
E)  None of the choices are correct. 
A)  A cash-basis business delaying billing its customers until after year end. 
B)  A taxpayer gifting stock to his children. 
C)  A parent employing her child in the family business. 
D)  A corporation paying its shareholders a $20,000 dividend. 
E)  None of the choices are correct.

Question 14

The timing strategy is based on the idea that the location of where the income is taxedaffects the tax costs of the income.

Accepted Answer

A) True 
 B)False

Question 15

A taxpayer earning income in "cash" and not reporting it as taxable income is an example of:

Accepted Answer

A)  income shifting. 
B)  tax avoidance. 
C)  conversion. 
D)  tax evasion. 
E)  None of the choices are correct. 
A)  income shifting. 
B)  tax avoidance. 
C)  conversion. 
D)  tax evasion. 
E)  None of the choices are correct.

Question 16

Which of the following is an example of the timing strategy?

Accepted Answer

A)  A corporation paying its shareholders a $20,000 dividend. 
B)  A taxpayer gifting stock to his children. 
C)  A cash-basis business delaying billing its customers until after year end. 
D)  A parent employing her child in the family business. 
E)  None of the choices are correct. 
A)  A corporation paying its shareholders a $20,000 dividend. 
B)  A taxpayer gifting stock to his children. 
C)  A cash-basis business delaying billing its customers until after year end. 
D)  A parent employing her child in the family business. 
E)  None of the choices are correct.

Question 17

Assume that Bill's marginal tax rate is 30%. If corporate bonds pay 8% interest, what interest rate would a municipal bond have to offer for Bill to be indifferent between the two bonds?

Accepted Answer

A)  30.00%. 
B)  7.00%. 
C)  10.40%. 
D)  8.00%. 
E)  None of the choices are correct. 
A)  30.00%. 
B)  7.00%. 
C)  10.40%. 
D)  8.00%. 
E)  None of the choices are correct.

Question 18

Tax savings generated from deductions are considered cash inflows.

Accepted Answer

A) True 
 B)False

Question 19

An investment's time horizon does not affect after-tax rates of return on investments taxed annually.

Accepted Answer

A) True 
 B)False

Question 20

Maurice is currently considering investing in a high dividend yield stock with no growth potentialthat pays a 6% dividend yield or bonds issued by The Coca Cola Company that pay 8%. If Maurice's ordinary tax rate is 25% and his dividend tax rate is 15%, which investment should he choose? Which investment should he choose if his ordinary tax rate is 30%? At what ordinary tax rate would he be indifferent to the stock or to the bond? What strategy is this decision based upon?

Accepted Answer

Maurice's after tax rate of return on th

Exam 3: Tax Planning Strategies and Related Limitations

The income shifting and timing strategies are examples of:

Investors must consider complicit taxes as well as explicit taxes in order to make correct investment choices.

Tax evasion is a legal activity that forms the basis of the basic tax planning strategies.

The constructive receipt doctrine:

One limitation of the timing strategy is the difficulties in accelerating a tax deduction without accelerating the actual cash outflow that generates the tax deduction.

When considering cash outflows, higher present values are preferred.

Implicit taxes may reduce the benefits of the conversion strategy.

If tax rates will be lower next year, taxpayers should accelerate their deductions regardless of their after-tax rate of return.

Which of the following may limit the conversion strategy?

The goal of tax planning generally is to:

Which of the following is more likely to receive IRS scrutiny under the assignment of income doctrine?

The timing strategy is based on the idea that the location of where the income is taxedaffects the tax costs of the income.

A taxpayer earning income in "cash" and not reporting it as taxable income is an example of:

Which of the following is an example of the timing strategy?

Assume that Bill's marginal tax rate is 30%. If corporate bonds pay 8% interest, what interest rate would a municipal bond have to offer for Bill to be indifferent between the two bonds?

Tax savings generated from deductions are considered cash inflows.

An investment's time horizon does not affect after-tax rates of return on investments taxed annually.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters