Question 1

The Current Model provides the future value of an investment having which of the following characteristics?

Accepted Answer

A) only after-tax dollars are invested 
B) only before-tax dollars are invested 
C) the earnings on the investment are taxed at the end of the investment period 
D) investment earnings are exempt from taxation 
A) only after-tax dollars are invested 
B) only before-tax dollars are invested 
C) the earnings on the investment are taxed at the end of the investment period 
D) investment earnings are exempt from taxation

Question 2

Employer-sponsored qualified retirement plans and deductible IRAs fit the Pension Model.

Accepted Answer

A) True 
 B)False

Question 3

Given a choice between a fully-taxable investment and a tax-favored investment,investors will prefer the tax-favored investment,assuming the two investments are equally risky.

Accepted Answer

A) True 
 B)False

Question 4

Under the Pension Model,the entire accumulation,not just the earnings,is taxed at the end of the investment horizon.

Accepted Answer

A) True 
 B)False

Question 5

A single taxpayer earns a salary of $6,000.If he is taxed with a 10% flat rate,he has $5,400 of after-tax dollars available to invest.

Accepted Answer

A) True 
 B)False

Question 6

Examples of the Exempt Model include deductible IRAs,H.R.10 (Keogh)plans,Sec.401(k)plans,and tax deferred annuities.

Accepted Answer

A) True 
 B)False

Question 7

The Pass-Through Model applies to a sole proprietorship.

Accepted Answer

A) True 
 B)False

Question 8

State and local government obligations such as municipal bonds are classic examples of which model?

Accepted Answer

A) Deferred Model 
B) Exempt Model 
C) Current Model 
D) Pension Model 
A) Deferred Model 
B) Exempt Model 
C) Current Model 
D) Pension Model

Question 9

In the Current Model,investment earnings are taxed as they are earned.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements regarding implicit taxes and clienteles is not true?

Accepted Answer

A) Market forces drive down the BTROR of tax-favored assets. 
B) The reduced return of tax-favored assets is an implicit tax. 
C) Investors whose tax rate exceeds that of the marginal investor can reap some benefit through the clientele effect. 
D) Marginal investors will always benefit from the implicit tax on tax-favored investments. 
A) Market forces drive down the BTROR of tax-favored assets. 
B) The reduced return of tax-favored assets is an implicit tax. 
C) Investors whose tax rate exceeds that of the marginal investor can reap some benefit through the clientele effect. 
D) Marginal investors will always benefit from the implicit tax on tax-favored investments.

Question 11

Taxpayers often have to decide between contributing to a traditional nondeductible IRA or a Roth IRA.In making the comparison between the two IRAs,which models should the taxpayer use?

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\hline \text { Traditional Nondeductible } & \
\text { IRA } & \text { Roth IRA } \
\hline \text { Deferred Model } & \text { Exempt Model } \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline \text { Traditional Nondeductible } & \
\text { IRA } & \text { Roth IRA } \
\hline \text { Exempt Model } & \text { Deferred Model } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline \text { Traditional Nondeductible } & \
\text { IRA } & \text { Roth IRA } \
\hline \text { Pension Model } & \text { Deferred Model } \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline \text { Traditional Nondeductible } & \
\text { IRA } & \text { Roth IRA } \
\hline \text { Pension Model } & \text { Exempt Model } \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | l | } 
\hline \text { Traditional Nondeductible } & \
\text { IRA } & \text { Roth IRA } \
\hline \text { Deferred Model } & \text { Exempt Model } \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline \text { Traditional Nondeductible } & \
\text { IRA } & \text { Roth IRA } \
\hline \text { Exempt Model } & \text { Deferred Model } \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline \text { Traditional Nondeductible } & \
\text { IRA } & \text { Roth IRA } \
\hline \text { Pension Model } & \text { Deferred Model } \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline \text { Traditional Nondeductible } & \
\text { IRA } & \text { Roth IRA } \
\hline \text { Pension Model } & \text { Exempt Model } \
\hline
\end{array}$$

Question 12

Pass-through entities include partnerships,limited liability companies,limited liability partnerships,and C corporations.

Accepted Answer

A) True 
 B)False

Question 13

Taxpayers often have to decide between contributing to a traditional deductible IRA or a Roth IRA.In making the comparison between the two IRAs,which models should the taxpayer use?

Accepted Answer

A)  $\begin{array}{|l|l|}
\hline\text { Traditional } IRA& \text { Roth IRA } \
\hline \text { Deferred Model } & \text { Pension Model }\\hline
\end{array}$ 
B)  $\begin{array}{|l|l|}
\hline\text { Traditional } IRA& \text { Roth IRA } \
\hline \text { Exempt Model } & \text { Deferred Model }\\hline
\end{array}$ 
C)  $\begin{array}{|l|l|}
\hline\text { Traditional } IRA& \text { Roth IRA } \
\hline \text { Pension Model } & \text { Deferred Model }\\hline
\end{array}$ 
D)  $$\begin{array} {| l | l |} 
\hline\text { Traditional IRA } & \text { Roth IRA } \
\hline \text { Pension Model } & \text { Exempt Model } \
\hline
\end{array}$$ 
A)  $\begin{array}{|l|l|}
\hline\text { Traditional } IRA& \text { Roth IRA } \
\hline \text { Deferred Model } & \text { Pension Model }\\hline
\end{array}$ 
B)  $\begin{array}{|l|l|}
\hline\text { Traditional } IRA& \text { Roth IRA } \
\hline \text { Exempt Model } & \text { Deferred Model }\\hline
\end{array}$ 
C)  $\begin{array}{|l|l|}
\hline\text { Traditional } IRA& \text { Roth IRA } \
\hline \text { Pension Model } & \text { Deferred Model }\\hline
\end{array}$ 
D)  $$\begin{array} {| l | l |} 
\hline\text { Traditional IRA } & \text { Roth IRA } \
\hline \text { Pension Model } & \text { Exempt Model } \
\hline
\end{array}$$

Question 14

The Current Model most closely describes a pass-through entity while a variation of the Deferred Model describes a C corporation.

Accepted Answer

A) True 
 B)False

Question 15

The nondeductible traditional IRA is a classic example of the Pension Model.

Accepted Answer

A) True 
 B)False

Question 16

In the Pension Model

Accepted Answer

A) investment earnings are taxed currently. 
B) investment earnings are exempt from explicit taxation. 
C) investment earnings are taxed at the end of the investment period. 
D) the initial investment is deductible or excludible from gross income,and the investment earnings are taxed at the end of the investment period. 
A) investment earnings are taxed currently. 
B) investment earnings are exempt from explicit taxation. 
C) investment earnings are taxed at the end of the investment period. 
D) the initial investment is deductible or excludible from gross income,and the investment earnings are taxed at the end of the investment period.

Question 17

A pass-through entity's primary characteristic is that income escapes taxation at the entity level and passes through to be taxed at the ownership level.

Accepted Answer

A) True 
 B)False

Question 18

The Deferred Model offers two levels of tax deferral-the original contribution escapes current taxation as do the earnings on the underlying investment.

Accepted Answer

A) True 
 B)False

Question 19

An individual is planning to establish a new corporation and is weighing the choice between the C corporation form and the S corporation form.She expects the corporation to be profitable each year,with all profits reinvested except to the extent needed to pay corporate taxes or shareholder taxes on profits.The shareholder's plan is to sell the business after six years for a substantial gain.Factors to consider in modelling the entity choice include all of the following except

Accepted Answer

A) the individual's ordinary income and capital gains tax rates. 
B) the shareholder's eligibility for the qualified business income deduction. 
C) the availability of the Sec.1202 exclusion. 
D) all of the factors must be considered in the modelling. 
A) the individual's ordinary income and capital gains tax rates. 
B) the shareholder's eligibility for the qualified business income deduction. 
C) the availability of the Sec.1202 exclusion. 
D) all of the factors must be considered in the modelling.

Question 20

The Deferred Model investment outperforms the Current Model investment if interest rates and tax rates are constant over time because the interest on the Deferred Model investment grows tax free until withdrawal.

Accepted Answer

A) True 
 B)False

Exam 34: Taxes and Investment Planning

The Current Model provides the future value of an investment having which of the following characteristics?

Employer-sponsored qualified retirement plans and deductible IRAs fit the Pension Model.

Given a choice between a fully-taxable investment and a tax-favored investment,investors will prefer the tax-favored investment,assuming the two investments are equally risky.

Under the Pension Model,the entire accumulation,not just the earnings,is taxed at the end of the investment horizon.

A single taxpayer earns a salary of $6,000.If he is taxed with a 10% flat rate,he has $5,400 of after-tax dollars available to invest.

Examples of the Exempt Model include deductible IRAs,H.R.10 (Keogh)plans,Sec.401(k)plans,and tax deferred annuities.

The Pass-Through Model applies to a sole proprietorship.

State and local government obligations such as municipal bonds are classic examples of which model?

In the Current Model,investment earnings are taxed as they are earned.

Which of the following statements regarding implicit taxes and clienteles is not true?

Taxpayers often have to decide between contributing to a traditional nondeductible IRA or a Roth IRA.In making the comparison between the two IRAs,which models should the taxpayer use?

Pass-through entities include partnerships,limited liability companies,limited liability partnerships,and C corporations.

Taxpayers often have to decide between contributing to a traditional deductible IRA or a Roth IRA.In making the comparison between the two IRAs,which models should the taxpayer use?

The Current Model most closely describes a pass-through entity while a variation of the Deferred Model describes a C corporation.

The nondeductible traditional IRA is a classic example of the Pension Model.

In the Pension Model

A pass-through entity's primary characteristic is that income escapes taxation at the entity level and passes through to be taxed at the ownership level.

The Deferred Model offers two levels of tax deferral-the original contribution escapes current taxation as do the earnings on the underlying investment.

The Deferred Model investment outperforms the Current Model investment if interest rates and tax rates are constant over time because the interest on the Deferred Model investment grows tax free until withdrawal.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Business Expenses and Deferred Compensation

Itemized Deductions

Losses and Bad Debts

Depreciation,cost Recovery,amortization,and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods,tax Credits,and Payment of Tax

Tax Research

Corporations

Partnerships and S Corporations

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