Question 1

The tax law applies uniformly to every commercial transaction by every business entity.

Accepted Answer

A) True 
 B)False  False

Question 2

A taxpayer should prefer to pay a $100 implicit tax rather than a $100 explicit tax.

Accepted Answer

A) True 
 B)False  False

Question 3

Which of the following statements about tax avoidance and tax evasion is false?

Accepted Answer

A) Tax avoidance is legal,while tax evasion is illegal. 
B) The difference between avoidance and evasion is clearly defined in the tax law. 
C) Tax evasion is a federal felony offence. 
D) Taxpayers should not regard tax avoidance as unethical. 
A) Tax avoidance is legal,while tax evasion is illegal. 
B) The difference between avoidance and evasion is clearly defined in the tax law. 
C) Tax evasion is a federal felony offence. 
D) Taxpayers should not regard tax avoidance as unethical. B

Question 4

Which of the following statements about tax deferral is true?

Accepted Answer

A) The value of tax deferral increases as the taxpayer's discount rate for computing NPV decreases. 
B) Tax deferral is not an effective planning strategy if the taxpayer's marginal tax rate is stable over time. 
C) The greater the length of time that the payment of a tax is deferred,the less the tax costs in NPV terms. 
D) Both A and C are true. 
A) The value of tax deferral increases as the taxpayer's discount rate for computing NPV decreases. 
B) Tax deferral is not an effective planning strategy if the taxpayer's marginal tax rate is stable over time. 
C) The greater the length of time that the payment of a tax is deferred,the less the tax costs in NPV terms. 
D) Both A and C are true.

Question 5

Which of the following statements about the entity variable is false?

Accepted Answer

A) If Congress replaced the current progressive income tax rates with a proportionate rate applying to all taxpayers,the entity variable would no longer be a factor in tax planning. 
B) The entity variable becomes more important when Congress increases the progressivity of the income tax. 
C) Tax planning strategies based on the entity variable must involve at least two different taxpayers. 
D) Tax planning strategies based on the entity variable must involve some type of income taxed at a preferential rate. 
A) If Congress replaced the current progressive income tax rates with a proportionate rate applying to all taxpayers,the entity variable would no longer be a factor in tax planning. 
B) The entity variable becomes more important when Congress increases the progressivity of the income tax. 
C) Tax planning strategies based on the entity variable must involve at least two different taxpayers. 
D) Tax planning strategies based on the entity variable must involve some type of income taxed at a preferential rate.

Question 6

The after-tax value of a dollar of income to a high-tax entity is more than the after-tax value to a low-tax entity.

Accepted Answer

A) True 
 B)False

Question 7

Mrs.Stout has a $35,000 capital gain eligible for a 28% preferential tax rate.Which of the following statements is false?

Accepted Answer

A) If Mrs.Stout's regular marginal tax rate is 22%,she can elect to recharacterize the capital gain as ordinary income. 
B) If Mrs.Stout's regular marginal tax rate is 24%,the preferential tax rate has no value to her. 
C) If Mrs.Stout's regular marginal tax rate is 35%,the preferential tax rate saves her $2,450 in tax. 
D) None of the above is false. 
A) If Mrs.Stout's regular marginal tax rate is 22%,she can elect to recharacterize the capital gain as ordinary income. 
B) If Mrs.Stout's regular marginal tax rate is 24%,the preferential tax rate has no value to her. 
C) If Mrs.Stout's regular marginal tax rate is 35%,the preferential tax rate saves her $2,450 in tax. 
D) None of the above is false.

Question 8

Municipal bond investments bear less implicit tax than investments in taxable corporate bonds.

Accepted Answer

A) True 
 B)False

Question 9

The tax law provides that individuals do not pay tax on the first $250,000 of gain realized on the sale of a principal residence.This rule is an example of the:

Accepted Answer

A) Entity variable 
B) Time period variable 
C) Jurisdiction variable 
D) Character variable 
A) Entity variable 
B) Time period variable 
C) Jurisdiction variable 
D) Character variable

Question 10

In 20Y1,Ms.Graves transferred appreciated property to KL Partnership in exchange for an ownership interest in the partnership.She deliberately waited until 20Y3 before taking cash out of the partnership.Ms.Graves may have been trying to prevent the IRS from applying the:

Accepted Answer

A) Business purpose doctrine 
B) Economic substance doctrine 
C) Substance over form doctrine 
D) Step transaction doctrine 
A) Business purpose doctrine 
B) Economic substance doctrine 
C) Substance over form doctrine 
D) Step transaction doctrine

Question 11

Assume that Congress recently amended the tax law to provide for a maximum 12% rate on interest income from U.S.savings bonds.Compute the tax savings from this preferential rate for:
A.Mrs.Edwin,who has a 15% marginal rate on ordinary income and earned $290 interest on her investment in U.S.savings bonds.
B.Mr.Kalter,who has a 35% marginal rate on ordinary income and earned $290 interest on his investment in U.S.savings bonds.

Accepted Answer

A.Mrs.Edwin saved $8.70 ($290

Question 12

Tatun Inc.pays state income tax at a 5% rate and federal income tax at a 21% rate.Tatun recently engaged in a transaction in Mexico,which levied a $25,200 income tax on the transaction.Tatun's pretax net income for the current year is $1,913,900.Compute Tatun's total income tax burden assuming that:
A.The Mexican tax is nondeductible for state and federal tax purposes.
B.The Mexican tax is deductible for state and federal tax purposes.

Accepted Answer

A.Tatun's state tax is $95,695 ($1,913,9

Question 13

The assignment of income doctrine indicates that:

Accepted Answer

A) Income from a transaction must be taxed to the person who receives the cash from the transaction. 
B) Income from a transaction must be taxed to the person who reports the transaction on his or her tax return. 
C) Income from a transaction must be taxed to the person that earns the income. 
D) None of the above 
A) Income from a transaction must be taxed to the person who receives the cash from the transaction. 
B) Income from a transaction must be taxed to the person who reports the transaction on his or her tax return. 
C) Income from a transaction must be taxed to the person that earns the income. 
D) None of the above

Question 14

Which of the following statements about ordinary income and capital gain is false?

Accepted Answer

A) Every item of income is ultimately characterized as either ordinary income or capital gain for federal tax purposes. 
B) Most ordinary income items are taxed at the regular individual or corporate tax rates. 
C) Individuals and corporations pay tax on their capital gains at a preferential rate. 
D) None of the above is false. 
A) Every item of income is ultimately characterized as either ordinary income or capital gain for federal tax purposes. 
B) Most ordinary income items are taxed at the regular individual or corporate tax rates. 
C) Individuals and corporations pay tax on their capital gains at a preferential rate. 
D) None of the above is false.

Question 15

Which of the following statements about ordinary income and capital gain is true?

Accepted Answer

A) Income characterized as capital gain can have no additional tax characteristics. 
B) Individuals pay tax on their capital gains at a preferential the same rate as ordinary income. 
C) Corporations pay tax on both ordinary income at their regular rate and capital gain at their regular a preferential rate. 
D) Individuals pay tax on their capital gains at a preferential rate and corporations pay tax on both ordinary income and capital gain at their regular rate. 
A) Income characterized as capital gain can have no additional tax characteristics. 
B) Individuals pay tax on their capital gains at a preferential the same rate as ordinary income. 
C) Corporations pay tax on both ordinary income at their regular rate and capital gain at their regular a preferential rate. 
D) Individuals pay tax on their capital gains at a preferential rate and corporations pay tax on both ordinary income and capital gain at their regular rate.

Question 16

The tax character of an item of income depends on how the income is reported on the firm's financial statements.

Accepted Answer

A) True 
 B)False

Question 17

Planning opportunities are created when the tax law applies differentially to alternative business transactions.

Accepted Answer

A) True 
 B)False

Question 18

A planning strategy that defers a tax cost without deferring the receipt of before-tax cash flows decreases the NPV of the transaction.

Accepted Answer

A) True 
 B)False

Question 19

Bailey Inc.is planning a transaction that requires a $60,000 deductible cash expenditure.The transaction is structured so that Bailey will pay the cash and report the deduction this year (year 0).Use Appendix A of your textbook provided to compute the increase in the NPV of the transaction if it can be restructured so that Bailey will report the deduction this year,but pay the cash three years later (year 3).Bailey's marginal tax rate is 25%,and it uses a 9% discount rate to compute NPV.

Accepted Answer

A) $8,677 
B) $9,014 
C) $9,480 
D) None of the above 
A) $8,677 
B) $9,014 
C) $9,480 
D) None of the above

Question 20

Mr.Crum,an architect,billed a client $12,500 for professional services rendered.When Mr.Crum received a check in full payment from the client,he endorsed the check and mailed it to his college-age son,Paul,who cashed it and deposited the $12,500 in his own bank account.Which of the following statements is a correct application of the assignment of income doctrine?

Accepted Answer

A) Mr.Crum must report $12,500 income on his tax return because he earned it. 
B) Paul must report $12,500 income on his tax return because he received the cash. 
C) It is illegal for Mr.Crum to transfer the check to Paul. 
D) Mr.Crum and Paul may decide which one of them reports $12,500 income on his tax return. 
A) Mr.Crum must report $12,500 income on his tax return because he earned it. 
B) Paul must report $12,500 income on his tax return because he received the cash. 
C) It is illegal for Mr.Crum to transfer the check to Paul. 
D) Mr.Crum and Paul may decide which one of them reports $12,500 income on his tax return.

The tax law applies uniformly to every commercial transaction by every business entity.

A taxpayer should prefer to pay a $100 implicit tax rather than a $100 explicit tax.

Which of the following statements about tax avoidance and tax evasion is false?

Which of the following statements about tax deferral is true?

Which of the following statements about the entity variable is false?

The after-tax value of a dollar of income to a high-tax entity is more than the after-tax value to a low-tax entity.

Mrs.Stout has a $35,000 capital gain eligible for a 28% preferential tax rate.Which of the following statements is false?

Municipal bond investments bear less implicit tax than investments in taxable corporate bonds.

The tax law provides that individuals do not pay tax on the first $250,000 of gain realized on the sale of a principal residence.This rule is an example of the:

In 20Y1,Ms.Graves transferred appreciated property to KL Partnership in exchange for an ownership interest in the partnership.She deliberately waited until 20Y3 before taking cash out of the partnership.Ms.Graves may have been trying to prevent the IRS from applying the:

The assignment of income doctrine indicates that:

Which of the following statements about ordinary income and capital gain is false?

Which of the following statements about ordinary income and capital gain is true?

The tax character of an item of income depends on how the income is reported on the firm's financial statements.

Planning opportunities are created when the tax law applies differentially to alternative business transactions.

A planning strategy that defers a tax cost without deferring the receipt of before-tax cash flows decreases the NPV of the transaction.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 4: Maxims of Income Tax Planning

The tax law applies uniformly to every commercial transaction by every business entity.

A taxpayer should prefer to pay a $100 implicit tax rather than a $100 explicit tax.

Which of the following statements about tax avoidance and tax evasion is false?

Which of the following statements about tax deferral is true?

Which of the following statements about the entity variable is false?

The after-tax value of a dollar of income to a high-tax entity is more than the after-tax value to a low-tax entity.

Mrs.Stout has a $35,000 capital gain eligible for a 28% preferential tax rate.Which of the following statements is false?

Municipal bond investments bear less implicit tax than investments in taxable corporate bonds.

The tax law provides that individuals do not pay tax on the first $250,000 of gain realized on the sale of a principal residence.This rule is an example of the:

In 20Y1,Ms.Graves transferred appreciated property to KL Partnership in exchange for an ownership interest in the partnership.She deliberately waited until 20Y3 before taking cash out of the partnership.Ms.Graves may have been trying to prevent the IRS from applying the:

The assignment of income doctrine indicates that:

Which of the following statements about ordinary income and capital gain is false?

Which of the following statements about ordinary income and capital gain is true?

The tax character of an item of income depends on how the income is reported on the firm's financial statements.

Planning opportunities are created when the tax law applies differentially to alternative business transactions.

A planning strategy that defers a tax cost without deferring the receipt of before-tax cash flows decreases the NPV of the transaction.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters