Question 1

Allowing an investment to increase in value without selling it is an example of tax planning by:

Accepted Answer

A) changing the timing of recognition of taxable income 
B) changing the character of income 
C) spreading income among related parties 
D) none of these are correct 
A) changing the timing of recognition of taxable income 
B) changing the character of income 
C) spreading income among related parties 
D) none of these are correct A

Question 2

The "Child Tax Credit" was created to prevent parents from sheltering income by putting accounts in the names of their lower-taxed children.

Accepted Answer

A) True 
 B)False  False

Question 3

The effective average tax rate can be found by dividing the total tax liability by the economic income.

Accepted Answer

A) True 
 B)False  True

Question 4

With respect to tax planning activities, the decision maker must compare the after-tax benefits with the pretax costs.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following tax law rules creates incentives for tax planning?

Accepted Answer

A) The federal income tax itself is deductible in determining taxable income. 
B) Reducing the amount of income tax that is paid decreases a taxpayer's allowable deductions. 
C) The federal income tax itself is not allowed as a deduction in determining taxable income. 
D) None of these are correct. 
A) The federal income tax itself is deductible in determining taxable income. 
B) Reducing the amount of income tax that is paid decreases a taxpayer's allowable deductions. 
C) The federal income tax itself is not allowed as a deduction in determining taxable income. 
D) None of these are correct.

Question 6

Where ATC = after-tax cost, BTC = before-tax cost, and MTR = marginal tax rate, the after-tax cost of tax planning can be expressed as:

Accepted Answer

A) ATC = BTC × (1 - MTR) 
B) a factor of the time value of money 
C) MTR × taxable income = ATC 
D) ATC = BTC ÷ (1 - MTR) 
A) ATC = BTC × (1 - MTR) 
B) a factor of the time value of money 
C) MTR × taxable income = ATC 
D) ATC = BTC ÷ (1 - MTR)

Question 7

With regard to employers, generally, salary payments to employees are deductible but fringe benefit payments are not.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following are the two pervasive judicial doctrines that often limit the taxpayer's ability to employ effective planning techniques?

Accepted Answer

A) the progressive tax rate requirement and marginal rates 
B) business purpose and substance over form 
C) business purpose and changing tax jurisdiction 
D) all of these are judicial doctrines that limit effective tax planning 
A) the progressive tax rate requirement and marginal rates 
B) business purpose and substance over form 
C) business purpose and changing tax jurisdiction 
D) all of these are judicial doctrines that limit effective tax planning

Question 9

Which of the following is a feature of a properly accomplished tax planning?

Accepted Answer

A) It allows the tax professional to exercise a higher degree of creativity. 
B) It forces the client to identify financial goals and general means by which to achieve them. 
C) It affords the practitioner the greatest possible degree of control over the prescribed transactions and the tax consequences. 
D) All of these are correct. 
A) It allows the tax professional to exercise a higher degree of creativity. 
B) It forces the client to identify financial goals and general means by which to achieve them. 
C) It affords the practitioner the greatest possible degree of control over the prescribed transactions and the tax consequences. 
D) All of these are correct.

Question 10

Which of the following is the basic formula for computing a taxpayer's tax liability?

Accepted Answer

A) Tax Liability = Tax Base ÷ Tax Rate 
B) Tax Liability = Tax Base × (1 - Tax Rate) 
C) Tax Liability = Tax Base × Tax Rate 
D) None of these are correct 
A) Tax Liability = Tax Base ÷ Tax Rate 
B) Tax Liability = Tax Base × (1 - Tax Rate) 
C) Tax Liability = Tax Base × Tax Rate 
D) None of these are correct

Question 11

Identify the five goals of tax planning behavior and give an example of each.

Accepted Answer

The five main goals of tax planning are:

Question 12

What is a statutory tax trap? Give an example.

Accepted Answer

Statutory tax traps are rules designed b

Question 13

Jeffrey Heinz, a salaried person, incurred a loss of $4,000 from passive activities. This loss can be applied as a deduction to offset taxable income from:

Accepted Answer

A) his salary 
B) his long-term capital gains for the year 
C) passive activities 
D) any source 
A) his salary 
B) his long-term capital gains for the year 
C) passive activities 
D) any source

Question 14

A proportional tax rate system represents:

Accepted Answer

A) a progressive tax rate structure 
B) a flat tax rate structure 
C) the U.S. federal income tax system 
D) none of these are correct 
A) a progressive tax rate structure 
B) a flat tax rate structure 
C) the U.S. federal income tax system 
D) none of these are correct

Question 15

Whenever a series of transactions results in significant tax savings, the IRS may attempt to apply the concept of substance over form by collapsing several transactions into one.

Accepted Answer

A) True 
 B)False

Question 16

Investing in non-dividend-paying stock that is expected to appreciate yearly by 5 percent instead of investing in 5 percent corporate bonds is an example of tax planning by:

Accepted Answer

A) spreading income through portfolio diversification 
B) avoiding income recognition 
C) changing the timing of recognition of taxable income 
D) changing the character of income 
A) spreading income through portfolio diversification 
B) avoiding income recognition 
C) changing the timing of recognition of taxable income 
D) changing the character of income

Question 17

a) Michael formed a new corporation by investing $200,000 cash. Following the advice of his tax consultant, Michael designated $120,000 to be used for the purchase of corporate stock and $80,000 as a loan to the corporation. What tax advantage does this arrangement have over structuring the entire investment as a purchase of stock? Explain.​b) Dorothy has $30,000 to invest and is considering a corporate bond that pays 7 percent annual interest or a non-dividend-paying stock that is expected to appreciate by 7 percent each year. Given that both investments are of similar risk, and the long-term capital gains tax rate is lower than the ordinary income tax rate, which option should Dorothy choose? Why?​c) Gabriel is the sole shareholder of a management-consulting corporation. In addition, he has invested in passive rental activities that generate $20,000 per year in passive losses. According to the Code, such losses from passive activities cannot be applied as deductions to offset other types of taxable income. Advise Gabriel as to how he can salvage the $20,000 deduction.

Accepted Answer

a) Michael formed a new corporation by i

Question 18

For 2016, the amount of exemption that a child can enjoy on any interest, dividends, or capital gains income is limited to:

Accepted Answer

A) $1,050 
B) $1,900 
C) $10,000 
D) There is no exemption for this type of income. 
A) $1,050 
B) $1,900 
C) $10,000 
D) There is no exemption for this type of income.

Question 19

Under a regressive tax rate structure, the applicable tax rate:

Accepted Answer

A) increases as the tax base grows larger 
B) remains unchanged irrespective of the level of the tax base 
C) best reflects the capacity of the taxpayer to pay 
D) decreases as the tax base grows larger 
A) increases as the tax base grows larger 
B) remains unchanged irrespective of the level of the tax base 
C) best reflects the capacity of the taxpayer to pay 
D) decreases as the tax base grows larger

Question 20

Taxpayers often can legally reduce their exposure to taxation by:

Accepted Answer

A) avoiding the recognition of taxable income 
B) deducting federal taxes 
C) not appearing before tax officials 
D) postponing deductions 
A) avoiding the recognition of taxable income 
B) deducting federal taxes 
C) not appearing before tax officials 
D) postponing deductions

Allowing an investment to increase in value without selling it is an example of tax planning by:

The "Child Tax Credit" was created to prevent parents from sheltering income by putting accounts in the names of their lower-taxed children.

The effective average tax rate can be found by dividing the total tax liability by the economic income.

With respect to tax planning activities, the decision maker must compare the after-tax benefits with the pretax costs.

Which of the following tax law rules creates incentives for tax planning?

Where ATC = after-tax cost, BTC = before-tax cost, and MTR = marginal tax rate, the after-tax cost of tax planning can be expressed as:

With regard to employers, generally, salary payments to employees are deductible but fringe benefit payments are not.

Which of the following are the two pervasive judicial doctrines that often limit the taxpayer's ability to employ effective planning techniques?

Which of the following is a feature of a properly accomplished tax planning?

Which of the following is the basic formula for computing a taxpayer's tax liability?

Identify the five goals of tax planning behavior and give an example of each.

What is a statutory tax trap? Give an example.

Jeffrey Heinz, a salaried person, incurred a loss of $4,000 from passive activities. This loss can be applied as a deduction to offset taxable income from:

A proportional tax rate system represents:

Whenever a series of transactions results in significant tax savings, the IRS may attempt to apply the concept of substance over form by collapsing several transactions into one.

Investing in non-dividend-paying stock that is expected to appreciate yearly by 5 percent instead of investing in 5 percent corporate bonds is an example of tax planning by:

For 2016, the amount of exemption that a child can enjoy on any interest, dividends, or capital gains income is limited to:

Under a regressive tax rate structure, the applicable tax rate:

Taxpayers often can legally reduce their exposure to taxation by:

Introduction to Tax Practice and Ethics

Tax Research Methodology

Constitutional and Legislative Sources

Administrative Regulations and Rulings

Judicial Interpretations

Tax Services Ria Checkpoint

Tax Services CCH Intelliconnect

Tax Services Specialty and Others

Multijurisdictional and Other Research

Financial Accounting Research

Communicating Research Results

Working With the IRS

Tax Practice and Administration: Sanctions, Agreements, and Disclosures

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Exam 12: Tax Planning

Allowing an investment to increase in value without selling it is an example of tax planning by:

The "Child Tax Credit" was created to prevent parents from sheltering income by putting accounts in the names of their lower-taxed children.

The effective average tax rate can be found by dividing the total tax liability by the economic income.

With respect to tax planning activities, the decision maker must compare the after-tax benefits with the pretax costs.

Which of the following tax law rules creates incentives for tax planning?

Where ATC = after-tax cost, BTC = before-tax cost, and MTR = marginal tax rate, the after-tax cost of tax planning can be expressed as:

With regard to employers, generally, salary payments to employees are deductible but fringe benefit payments are not.

Which of the following are the two pervasive judicial doctrines that often limit the taxpayer's ability to employ effective planning techniques?

Which of the following is a feature of a properly accomplished tax planning?

Which of the following is the basic formula for computing a taxpayer's tax liability?

Identify the five goals of tax planning behavior and give an example of each.

What is a statutory tax trap? Give an example.

Jeffrey Heinz, a salaried person, incurred a loss of $4,000 from passive activities. This loss can be applied as a deduction to offset taxable income from:

A proportional tax rate system represents:

Whenever a series of transactions results in significant tax savings, the IRS may attempt to apply the concept of substance over form by collapsing several transactions into one.

Investing in non-dividend-paying stock that is expected to appreciate yearly by 5 percent instead of investing in 5 percent corporate bonds is an example of tax planning by:

For 2016, the amount of exemption that a child can enjoy on any interest, dividends, or capital gains income is limited to:

Under a regressive tax rate structure, the applicable tax rate:

Taxpayers often can legally reduce their exposure to taxation by:

Introduction to Tax Practice and Ethics

Tax Research Methodology

Constitutional and Legislative Sources

Administrative Regulations and Rulings

Judicial Interpretations

Tax Services Ria Checkpoint

Tax Services CCH Intelliconnect

Tax Services Specialty and Others

Multijurisdictional and Other Research

Financial Accounting Research

Communicating Research Results

Working With the IRS

Tax Practice and Administration: Sanctions, Agreements, and Disclosures

Filters