Question 1

Income-shifting transactions occur more frequently between related parties than between unrelated parties.

Accepted Answer

A) True 
 B)False

Question 2

The time period variable reflects the fact that:

Accepted Answer

A) Federal income tax rules are not stable over time. 
B) A tax dollar paid this year cost more than a tax dollar paid in a future year. 
C) A taxpayer's marginal rate next year may be more or less than the current marginal rate. 
D) None of the above 
A) Federal income tax rules are not stable over time. 
B) A tax dollar paid this year cost more than a tax dollar paid in a future year. 
C) A taxpayer's marginal rate next year may be more or less than the current marginal rate. 
D) None of the above

Question 3

Tax evasion is a federal crime punishable by imprisonment.

Accepted Answer

A) True 
 B)False

Question 4

Tax avoidance is the reduction of a person's tax liability through illegal means.

Accepted Answer

A) True 
 B)False

Question 5

A strategy to shift income from one taxpayer to a different taxpayer reflects the entity variable,while a strategy to shift income from one year to a different year reflects the time period variable.

Accepted Answer

A) True 
 B)False

Question 6

OWB Inc.and Owin Inc.are owned by the same family.OWB's marginal tax rate is 30%,and Owin's marginal tax rate is 21%.OWB has the opportunity to engage in a transaction that will generate $250,000 taxable cash flow.Alternatively,Owin could engage in the transaction.However,Owin would incur an extra $60,000 deductible cash expense with respect to the transaction.Which of the following statements is true?

Accepted Answer

A) Because OWB and Owin are owned by the same family,the family is indifferent as to which corporation engages in the transaction. 
B) OWB should engage in the transaction to generate $24,900 more after-tax cash flow. 
C) OWB should engage in the transaction to avoid the extra expense. 
D) Owin should engage in the transaction because it has the lower marginal tax rate. 
A) Because OWB and Owin are owned by the same family,the family is indifferent as to which corporation engages in the transaction. 
B) OWB should engage in the transaction to generate $24,900 more after-tax cash flow. 
C) OWB should engage in the transaction to avoid the extra expense. 
D) Owin should engage in the transaction because it has the lower marginal tax rate.

Question 7

Hilex Inc.structures a transaction to shift income from its 20Y0 tax year to its 20Y2 tax year.This tax planning strategy may be taking advantage of the:

Accepted Answer

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

Question 8

Acme Inc.is planning a transaction that requires a $100,000 deductible cash expenditure.The transaction is structured so that Acme 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 Acme will report the deduction this year,but pay the cash three years later (year 3).Acme's marginal tax rate is 21%,and it uses a 7% discount rate to compute NPV.

Accepted Answer

A) $15,928 
B) $18,400 
C) $21,516 
D) None of the above 
A) $15,928 
B) $18,400 
C) $21,516 
D) None of the above

Question 9

Nilo Inc.sold an asset to PPQ Partnership,which is unrelated to Nilo.PPQ immediately sold the property to Nilo Western Inc.,which is a 100% controlled Nilo subsidiary.The IRS could treat the two sales as one sale of the asset by Nilo to Nilo Western by applying the:

Accepted Answer

A) Economic substance doctrine 
B) Assignment of income doctrine 
C) Step transaction doctrine 
D) Constructive payment doctrine 
A) Economic substance doctrine 
B) Assignment of income doctrine 
C) Step transaction doctrine 
D) Constructive payment doctrine

Question 10

Mr.Coomb structured a transfer of real estate to his daughter as a sale.Upon audit,the IRS agent analyzed the economic consequences of the transfer and treated it as a gift by applying the:

Accepted Answer

A) Business purpose doctrine 
B) Substance over form doctrine 
C) Assignment of income doctrine 
D) Step transaction doctrine 
A) Business purpose doctrine 
B) Substance over form doctrine 
C) Assignment of income doctrine 
D) Step transaction doctrine

Question 11

Hubern Inc.is planning a transaction that will generate $275,000 taxable income and cash inflow.The transaction is structured so that Hubern will receive the cash and report the income 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 Hubern will receive the cash this year,but report the income one year later (year 1).Hubern's marginal tax rate is 21%,and it uses a 9% discount rate to compute NPV.

Accepted Answer

A) $6,276 
B) $17,938 
C) $4,793 
D) None of the above 
A) $6,276 
B) $17,938 
C) $4,793 
D) None of the above

Question 12

Which of the following statements about tax legal doctrines is false?

Accepted Answer

A) The scope of the economic substance,business purpose,substance over form,and step transaction doctrines often overlap. 
B) Taxpayers can invoke the substance over form doctrine to undo the tax consequences of a failed planning strategy. 
C) The IRS's application of the doctrines is subjective. 
D) The economic substance,business purpose,substance over form,and step transaction doctrines increase the uncertainty of the tax law. 
A) The scope of the economic substance,business purpose,substance over form,and step transaction doctrines often overlap. 
B) Taxpayers can invoke the substance over form doctrine to undo the tax consequences of a failed planning strategy. 
C) The IRS's application of the doctrines is subjective. 
D) The economic substance,business purpose,substance over form,and step transaction doctrines increase the uncertainty of the tax law.

Income-shifting transactions occur more frequently between related parties than between unrelated parties.

The time period variable reflects the fact that:

Tax evasion is a federal crime punishable by imprisonment.

Tax avoidance is the reduction of a person's tax liability through illegal means.

A strategy to shift income from one taxpayer to a different taxpayer reflects the entity variable,while a strategy to shift income from one year to a different year reflects the time period variable.

Hilex Inc.structures a transaction to shift income from its 20Y0 tax year to its 20Y2 tax year.This tax planning strategy may be taking advantage of the:

Nilo Inc.sold an asset to PPQ Partnership,which is unrelated to Nilo.PPQ immediately sold the property to Nilo Western Inc.,which is a 100% controlled Nilo subsidiary.The IRS could treat the two sales as one sale of the asset by Nilo to Nilo Western by applying the:

Mr.Coomb structured a transfer of real estate to his daughter as a sale.Upon audit,the IRS agent analyzed the economic consequences of the transfer and treated it as a gift by applying the:

Which of the following statements about tax legal doctrines is false?

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

Income-shifting transactions occur more frequently between related parties than between unrelated parties.

The time period variable reflects the fact that:

Tax evasion is a federal crime punishable by imprisonment.

Tax avoidance is the reduction of a person's tax liability through illegal means.

A strategy to shift income from one taxpayer to a different taxpayer reflects the entity variable,while a strategy to shift income from one year to a different year reflects the time period variable.

Hilex Inc.structures a transaction to shift income from its 20Y0 tax year to its 20Y2 tax year.This tax planning strategy may be taking advantage of the:

Nilo Inc.sold an asset to PPQ Partnership,which is unrelated to Nilo.PPQ immediately sold the property to Nilo Western Inc.,which is a 100% controlled Nilo subsidiary.The IRS could treat the two sales as one sale of the asset by Nilo to Nilo Western by applying the:

Mr.Coomb structured a transfer of real estate to his daughter as a sale.Upon audit,the IRS agent analyzed the economic consequences of the transfer and treated it as a gift by applying the:

Which of the following statements about tax legal doctrines is false?

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