Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

O'Reilly is a masterful lottery player. The megamillion jackpot is now up to $200 million. If O'Reilly wins the jackpot, he has a choice of receiving $200 million in 5 years or a smaller lump sum currently. Advise O'Reilly on his choice under the following scenarios. Which option should he take and why?
a. O'Reilly's after-tax return is 10%. If he chooses the current lump sum option, the lottery will pay him $130 million.
b. O'Reilly's after-tax return is 10%. His current tax rate will be 35% if he receives the lottery payment now. His expected tax rate in five years will be 40%. If he chooses the current lump sum option, the lottery will pay him $100 million.

Accepted Answer

(a) If O'Reilly takes the current lump s

Question 3

Paying "fabricated" expenses in high tax rate years is an example of:

Accepted Answer

A)  conversion. 
B)  tax evasion. 
C)  timing. 
D)  income shifting. 
E)  none of these. 
A)  conversion. 
B)  tax evasion. 
C)  timing. 
D)  income shifting. 
E)  none of these.

Question 4

Richard recently received $10,000 of compensation for some consulting work (paid in cash). Jeffrey recently received $10,000 of interest income from City of Dallas bonds. Both taxpayers report no taxable income from these transactions. Is this considered tax avoidance or tax evasion? What is the difference, if any, between the two?

Accepted Answer

Richard is engaged in tax evasion. Jeffr

Question 5

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

Accepted Answer

A)  A corporation paying its shareholders a $20,000 dividend. 
B)  A corporation paying its owner a $20,000 salary. 
C)  A high tax rate taxpayer investing in tax exempt municipal bonds. 
D)  A cash-basis business delaying billing its customers until after year end. 
E)  None of these. 
A)  A corporation paying its shareholders a $20,000 dividend. 
B)  A corporation paying its owner a $20,000 salary. 
C)  A high tax rate taxpayer investing in tax exempt municipal bonds. 
D)  A cash-basis business delaying billing its customers until after year end. 
E)  None of these.

Question 6

Assume that Juanita is indifferent between investing in a corporate bond that pays 10.2% interest and a stock with no growth potential that pays a 6% dividend yield. Assume that the tax rate on dividends is 15%. What is Juanita's marginal tax rate?

Accepted Answer

A)  50%. 
B)  40%. 
C)  30%. 
D)  15%. 
E)  None of these. 
A)  50%. 
B)  40%. 
C)  30%. 
D)  15%. 
E)  None of these.

Question 7

Assume that Lavonia's marginal tax rate is 20%. If a city of Tampa bond pays 5% interest, what interest rate would a corporate bond have to offer for Lavonia to be indifferent between the two bonds?

Accepted Answer

A)  20%. 
B)  8%. 
C)  7%. 
D)  4%. 
E)  None of these. 
A)  20%. 
B)  8%. 
C)  7%. 
D)  4%. 
E)  None of these.

Question 8

Danny argues that tax accountants suffer from one-mindedness in their attempts at tax planning (i.e., reducing taxes at all costs). Is Danny's view of tax planning correct - i.e., does he understand what the goal of tax planning is? Please elaborate.

Accepted Answer

Danny has an incomplete view of the goal

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Virtually every transaction involves the taxpayer and two other parties that have an interest in the tax ramifications of the transaction.

Accepted Answer

A) True 
 B)False

Question 11

There are two basic timing-related tax rate strategies. What are they? What is the intent of each strategy? In which situations do the tax rate and timing strategies provide conflicting recommendations? What information do you need to determine the appropriate action?

Accepted Answer

The two basic timing-related tax rate st

Question 12

Effective tax planning requires all of these considerations except:

Accepted Answer

A)  nontax factors. 
B)  the taxpayer's tax costs of alternative transactions. 
C)  the other party's tax costs of alternative transactions. 
D)  the other party's nontax costs of alternative transactions. 
E)  all of the above are required considerations. 
A)  nontax factors. 
B)  the taxpayer's tax costs of alternative transactions. 
C)  the other party's tax costs of alternative transactions. 
D)  the other party's nontax costs of alternative transactions. 
E)  all of the above are required considerations.

Question 13

If tax rates will be higher next year, taxpayers should defer their income to next year regardless of their after-tax rate of return.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is an example of the income shifting strategy?

Accepted Answer

A)  A corporation paying its shareholders a $20,000 dividend. 
B)  A corporation paying its owner a $20,000 salary. 
C)  A high tax rate taxpayer investing in tax exempt municipal bonds. 
D)  A cash-basis business delaying billing its customers until after year end. 
E)  None of these. 
A)  A corporation paying its shareholders a $20,000 dividend. 
B)  A corporation paying its owner a $20,000 salary. 
C)  A high tax rate taxpayer investing in tax exempt municipal bonds. 
D)  A cash-basis business delaying billing its customers until after year end. 
E)  None of these.

Question 15

Tax savings generated from deductions are considered cash inflows.

Accepted Answer

A) True 
 B)False

Question 16

If Nicolai earns an 8% after-tax rate of return, $20,000 today would be worth how much to Nicolai in 5 years? (round present and future value amounts to 3 places)

Accepted Answer

A)  $20,000. 
B)  $13,620. 
C)  $18,520. 
D)  $21,600. 
E)  None of these. 
A)  $20,000. 
B)  $13,620. 
C)  $18,520. 
D)  $21,600. 
E)  None of these.

Question 17

Which of the following may limit the conversion strategy?

Accepted Answer

A)  implicit taxes. 
B)  assignment of income doctrine. 
C)  constructive receipt doctrine. 
D)  activities with preferential tax rates. 
E)  none of these. 
A)  implicit taxes. 
B)  assignment of income doctrine. 
C)  constructive receipt doctrine. 
D)  activities with preferential tax rates. 
E)  none of these.

Question 18

Troy is not a very astute investor. He has a knack for investing in losing stocks. In his latest investment 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 19

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 20

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

Accepted Answer

A)  A cash basis taxpayer paying all outstanding bills by year end. 
B)  A parent employing her child in the family business. 
C)  A business paying its owner a $30,000 salary. 
D)  A taxpayer investing in a tax preferred investment. 
E)  None of these. 
A)  A cash basis taxpayer paying all outstanding bills by year end. 
B)  A parent employing her child in the family business. 
C)  A business paying its owner a $30,000 salary. 
D)  A taxpayer investing in a tax preferred investment. 
E)  None of these.

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

Paying "fabricated" expenses in high tax rate years is an example of:

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

Assume that Juanita is indifferent between investing in a corporate bond that pays 10.2% interest and a stock with no growth potential that pays a 6% dividend yield. Assume that the tax rate on dividends is 15%. What is Juanita's marginal tax rate?

Assume that Lavonia's marginal tax rate is 20%. If a city of Tampa bond pays 5% interest, what interest rate would a corporate bond have to offer for Lavonia to be indifferent between the two bonds?

Danny argues that tax accountants suffer from one-mindedness in their attempts at tax planning (i.e., reducing taxes at all costs). Is Danny's view of tax planning correct - i.e., does he understand what the goal of tax planning is? Please elaborate.

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

Virtually every transaction involves the taxpayer and two other parties that have an interest in the tax ramifications of the transaction.

There are two basic timing-related tax rate strategies. What are they? What is the intent of each strategy? In which situations do the tax rate and timing strategies provide conflicting recommendations? What information do you need to determine the appropriate action?

Effective tax planning requires all of these considerations except:

If tax rates will be higher next year, taxpayers should defer their income to next year regardless of their after-tax rate of return.

Which of the following is an example of the income shifting strategy?

Tax savings generated from deductions are considered cash inflows.

If Nicolai earns an 8% after-tax rate of return, $20,000 today would be worth how much to Nicolai in 5 years? (round present and future value amounts to 3 places)

Which of the following may limit the conversion strategy?

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.

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

An Introduction to Tax

Tax Compliance , the Irs, and Tax Authorities

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

Filters

Exam 3: Tax Planning Strategies and Related Limitations

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

Paying "fabricated" expenses in high tax rate years is an example of:

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

Assume that Juanita is indifferent between investing in a corporate bond that pays 10.2% interest and a stock with no growth potential that pays a 6% dividend yield. Assume that the tax rate on dividends is 15%. What is Juanita's marginal tax rate?

Assume that Lavonia's marginal tax rate is 20%. If a city of Tampa bond pays 5% interest, what interest rate would a corporate bond have to offer for Lavonia to be indifferent between the two bonds?

Danny argues that tax accountants suffer from one-mindedness in their attempts at tax planning (i.e., reducing taxes at all costs). Is Danny's view of tax planning correct - i.e., does he understand what the goal of tax planning is? Please elaborate.

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

Virtually every transaction involves the taxpayer and two other parties that have an interest in the tax ramifications of the transaction.

There are two basic timing-related tax rate strategies. What are they? What is the intent of each strategy? In which situations do the tax rate and timing strategies provide conflicting recommendations? What information do you need to determine the appropriate action?

Effective tax planning requires all of these considerations except:

If tax rates will be higher next year, taxpayers should defer their income to next year regardless of their after-tax rate of return.

Which of the following is an example of the income shifting strategy?

Tax savings generated from deductions are considered cash inflows.

If Nicolai earns an 8% after-tax rate of return, $20,000 today would be worth how much to Nicolai in 5 years? (round present and future value amounts to 3 places)

Which of the following may limit the conversion strategy?

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.

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

An Introduction to Tax

Tax Compliance , the Irs, and Tax Authorities

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

Filters