Question 1

The after-tax cost of a dollar of deductible expense to a high-tax entity is less than the after-tax cost to a low-tax entity.

Accepted Answer

A) True 
 B)False

Question 2

Mr. Erske plans to pay $100,000 for one of three investment alternatives that have the same risk. The income from investment 1 would be taxed at Mr. Erske's 32% regular tax rate, the income from investment 2 would be taxed at a 15% preferential rate, and the income from investment 3 is tax-exempt. The investments offer the following before-tax yields.Investment 1: 8.5%Investment 2: 7.5%Investment 3: 6.0%Which investment should Mr. Erske select?

Accepted Answer

A)  Investment 1 
B)  Investment 2 
C)  Investment 3 
D)  Mr. Erske is neutral between investment 2 and investment 3. 
A)  Investment 1 
B)  Investment 2 
C)  Investment 3 
D)  Mr. Erske is neutral between investment 2 and investment 3.

Question 3

The assignment of income doctrine constrains tax deferral strategies.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements about implicit and explicit taxes is false?

Accepted Answer

A)  The amount of implicit tax on an investment depends on the owner's marginal tax rate. 
B)  The taxpayer pays an explicit tax to the taxing jurisdiction. 
C)  An investment yielding ordinary income taxed at the regular tax rates should not have an implicit tax. 
D)  None of these choices are false. 
A)  The amount of implicit tax on an investment depends on the owner's marginal tax rate. 
B)  The taxpayer pays an explicit tax to the taxing jurisdiction. 
C)  An investment yielding ordinary income taxed at the regular tax rates should not have an implicit tax. 
D)  None of these choices are false.

Question 5

Which of the following entities is not a taxable entity for federal income tax purposes?

Accepted Answer

A)  Mr. Bob Clark, a U.S. citizen and resident of West Virginia 
B)  PTS Limited, an Arizona partnership 
C)  Confad Inc., an Oklahoma corporation listed on Nasdaq 
D)  All of these choices are taxable entities. 
A)  Mr. Bob Clark, a U.S. citizen and resident of West Virginia 
B)  PTS Limited, an Arizona partnership 
C)  Confad Inc., an Oklahoma corporation listed on Nasdaq 
D)  All of these choices are taxable entities.

Question 6

Mrs. Jax plans to pay $100,000 for one of three investment alternatives that have the same risk. The income from investment 1 would be taxed at Mrs. Jax's 37% regular tax rate, the income from investment 2 would be taxed at a 20% preferential rate, and the income from investment 3 is tax-exempt. The investments offer the following before-tax yields.Investment 1: 8.25%Investment 2: 7.5%Investment 3: 6.0%Which investment should Mrs. Jax select?

Accepted Answer

A)  Investment 1 
B)  Investment 2 
C)  Investment 3 
D)  Mrs. Jax is neutral between investment 2 and investment 3. 
A)  Investment 1 
B)  Investment 2 
C)  Investment 3 
D)  Mrs. Jax is neutral between investment 2 and investment 3.

Question 7

The 15% preferential tax rate on capital gains has the same value to every individual taxpayer.

Accepted Answer

A) True 
 B)False

Question 8

Hilex Inc. structures a transaction to shift income from its California office to its Oregon office. This tax planning strategy may be taking advantage of the:

Accepted Answer

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

Question 9

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)  The value of tax deferral increases as the taxpayer's discount rate for computing NPV decreases and the greater the length of time that the payment of a tax is deferred, the less the tax costs in NPV terms. 
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)  The value of tax deferral increases as the taxpayer's discount rate for computing NPV decreases and the greater the length of time that the payment of a tax is deferred, the less the tax costs in NPV terms.

Question 10

Mr. Dole needed to sell appreciated stock out of his investment portfolio to generate cash to pay for his Christmas spending. He decided to postpone the sale from December 20Y1 until January 20Y2. Mr. Dole is taking advantage 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 11

The tax character of an item of income can change when Congress amends the tax law.

Accepted Answer

A) True 
 B)False

Question 12

Mrs. Day structures a transaction to shift income from her sole proprietorship to her grandson's business. This tax planning strategy may be taking advantage 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 13

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 costs 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 these choices are correct. 
A)  Federal income tax rules are not stable over time. 
B)  A tax dollar paid this year costs 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 these choices are correct.

Question 14

Sancel Inc. is planning a transaction that will generate $70,000 taxable income and cash inflow. The transaction is structured so that Sancel 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 Sancel will receive the cash this year, but report the income two years later (year 2). Sancel's marginal tax rate is 21%, and it uses a 10% discount rate to compute NPV.

Accepted Answer

A)  $2,558 
B)  $1,338 
C)  $9,622 
D)  None of these choices are correct. 
A)  $2,558 
B)  $1,338 
C)  $9,622 
D)  None of these choices are correct.

Question 15

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:The Mexican tax is nondeductible for state and federal tax purposes.The Mexican tax is deductible for state and federal tax purposes.

Accepted Answer

Tatun's state tax is $95,695 ($1,913,900

Question 16

In the United States, individuals and corporations are the two entities that pay tax on business income.

Accepted Answer

A) True 
 B)False

Question 17

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 18

A taxpayer may choose to accept a reduced market rate of return on an investment to take advantage of a tax preference associated with the investment. In such case, the taxpayer will pay a/an:

Accepted Answer

A)  Excise tax 
B)  Explicit tax 
C)  Implicit tax 
D)  Transaction tax 
A)  Excise tax 
B)  Explicit tax 
C)  Implicit tax 
D)  Transaction tax

Question 19

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.

Question 20

The rate at which an item of income is taxed depends on the tax character of the income.

Accepted Answer

A) True 
 B)False

The after-tax cost of a dollar of deductible expense to a high-tax entity is less than the after-tax cost to a low-tax entity.

The assignment of income doctrine constrains tax deferral strategies.

Which of the following statements about implicit and explicit taxes is false?

Which of the following entities is not a taxable entity for federal income tax purposes?

The 15% preferential tax rate on capital gains has the same value to every individual taxpayer.

Hilex Inc. structures a transaction to shift income from its California office to its Oregon office. This tax planning strategy may be taking advantage of the:

Which of the following statements about tax deferral is true?

Mr. Dole needed to sell appreciated stock out of his investment portfolio to generate cash to pay for his Christmas spending. He decided to postpone the sale from December 20Y1 until January 20Y2. Mr. Dole is taking advantage of the:

The tax character of an item of income can change when Congress amends the tax law.

Mrs. Day structures a transaction to shift income from her sole proprietorship to her grandson's business. This tax planning strategy may be taking advantage of the:

The time period variable reflects the fact that:

In the United States, individuals and corporations are the two entities that pay tax on business income.

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:

A taxpayer may choose to accept a reduced market rate of return on an investment to take advantage of a tax preference associated with the investment. In such case, the taxpayer will pay a/an:

The rate at which an item of income is taxed depends on the tax character of the income.

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 after-tax cost of a dollar of deductible expense to a high-tax entity is less than the after-tax cost to a low-tax entity.

The assignment of income doctrine constrains tax deferral strategies.

Which of the following statements about implicit and explicit taxes is false?

Which of the following entities is not a taxable entity for federal income tax purposes?

The 15% preferential tax rate on capital gains has the same value to every individual taxpayer.

Hilex Inc. structures a transaction to shift income from its California office to its Oregon office. This tax planning strategy may be taking advantage of the:

Which of the following statements about tax deferral is true?

Mr. Dole needed to sell appreciated stock out of his investment portfolio to generate cash to pay for his Christmas spending. He decided to postpone the sale from December 20Y1 until January 20Y2. Mr. Dole is taking advantage of the:

The tax character of an item of income can change when Congress amends the tax law.

Mrs. Day structures a transaction to shift income from her sole proprietorship to her grandson's business. This tax planning strategy may be taking advantage of the:

The time period variable reflects the fact that:

In the United States, individuals and corporations are the two entities that pay tax on business income.

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:

A taxpayer may choose to accept a reduced market rate of return on an investment to take advantage of a tax preference associated with the investment. In such case, the taxpayer will pay a/an:

The rate at which an item of income is taxed depends on the tax character of the income.

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