Question 1

If Joel earns a 10% after-tax rate of return,$10,000 received in two years is worth how much today (rounded) ?

Accepted Answer

A) $10,000 
B) $9,090 
C) $8,260 
D) $11,000 
E) None of these

Question 2

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 3

Assume that Keisha's marginal tax rate is 40% and her tax rate on dividends is 15%.If a city of Atlanta bond pays 7.65% interest,what dividend yield would a dividend-paying stock (with no growth potential) have to offer for Keisha to be indifferent between the two investments?

Accepted Answer

A) 15% 
B) 10% 
C) 9% 
D) 7.65% 
E) None of these

Question 4

The timing strategy is particularly effective for cash basis taxpayers.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following increases the benefits of income deferral?

Accepted Answer

A) increasing tax rates 
B) smaller after-tax rate of return 
C) larger after-tax rate of return 
D) smaller magnitude of transactions 
E) None of these

Question 6

A common income shifting strategy is to:

Accepted Answer

A) shift income from low tax rate taxpayers to high tax rate taxpayers 
B) shift deductions from low tax rate taxpayers to high tax rate taxpayers 
C) shift deductions from high tax rate taxpayers to low tax rate taxpayers 
D) accelerate tax deductions 
E) None of these

Question 7

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

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

The answer of Danny argues that tax accountants suffer from...

Question 9

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

The answer of Troy is not a very astute investor.He...

Question 10

Paying dividends to shareholders is one effective way of shifting income from a corporation to its shareholders.

Accepted Answer

A) True 
 B)False

Question 11

The business purpose,step-transaction,and substance-over-form doctrines may limit the income shifting strategy.

Accepted Answer

A) True 
 B)False

Question 12

If tax rates are decreasing:

Accepted Answer

A) taxpayers should accelerate income 
B) taxpayers should defer deductions 
C) taxpayers should defer income 
D) taxpayers should defer deductions and accelerate income 
E) None of these

Question 13

If Lucy earns a 6% after-tax rate of return,$8,000 received in four years is worth how much today?

Accepted Answer

A) $8,000 
B) $7,544 
C) $8,989 
D) $6,336 
E) None of these

Question 14

Compare and contrast the constructive receipt doctrine and the assignment of income doctrine.In what situations do these doctrines apply? What tax planning strategies does each doctrine limit?

Accepted Answer

The answer of Compare and contrast the constructive receipt doctrine...

Question 15

The income shifting and timing strategies are examples of:

Accepted Answer

A) tax avoidance 
B) tax evasion 
C) illegal taxpayer strategies 
D) All of these 
E) None of these

Question 16

Which of the following does not limit the benefits of deferring income?

Accepted Answer

A) increasing tax rates 
B) a taxpayer with severe cash flow needs 
C) if continuing an investment would generate a low rate of return 
D) if continuing an investment would subject the taxpayer to unnecessary risk 
E) None of these

Question 17

When considering cash inflows,higher present values are preferred.

Accepted Answer

A) True 
 B)False

Question 18

Jason's employer pays year-end bonuses each year on December 31.Jason,a cash basis taxpayer,would prefer to not pay tax on his bonus this year (and actually would prefer his daughter to pay tax on the bonus) .So,he leaves town on December 31,2013 and has his daughter,Julie,pick up his check on January 2nd,2014.Who reports the income and when?

Accepted Answer

A) Julie in 2013 
B) Julie in 2014 
C) Jason in 2013 
D) Jason in 2014 
E) None of these

Question 19

Which of the following decreases the benefits of accelerating deductions?

Accepted Answer

A) decreasing tax rates 
B) smaller after-tax rate of return 
C) larger after-tax rate of return 
D) larger magnitude of transactions 
E) None of these

Question 20

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

Accepted Answer

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

Exam 3: Tax Planning Strategies and Related Limitations

If Joel earns a 10% after-tax rate of return,$10,000 received in two years is worth how much today (rounded) ?

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.

Assume that Keisha's marginal tax rate is 40% and her tax rate on dividends is 15%.If a city of Atlanta bond pays 7.65% interest,what dividend yield would a dividend-paying stock (with no growth potential) have to offer for Keisha to be indifferent between the two investments?

The timing strategy is particularly effective for cash basis taxpayers.

Which of the following increases the benefits of income deferral?

A common income shifting strategy is to:

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?

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.

Paying dividends to shareholders is one effective way of shifting income from a corporation to its shareholders.

The business purpose,step-transaction,and substance-over-form doctrines may limit the income shifting strategy.

If tax rates are decreasing:

If Lucy earns a 6% after-tax rate of return,$8,000 received in four years is worth how much today?

Compare and contrast the constructive receipt doctrine and the assignment of income doctrine.In what situations do these doctrines apply? What tax planning strategies does each doctrine limit?

The income shifting and timing strategies are examples of:

Which of the following does not limit the benefits of deferring income?

When considering cash inflows,higher present values are preferred.

Which of the following decreases the benefits of accelerating deductions?

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