Question 1

Which of the following statements about tax planning is false?

Accepted Answer

A)  The goal of tax planning is tax minimization. 
B)  Tax planning involves structuring transactions to reduce tax costs or increase tax savings. 
C)  Sound tax planning ideas should be entirely legal. 
D)  None of the above is false. 
A)  The goal of tax planning is tax minimization. 
B)  Tax planning involves structuring transactions to reduce tax costs or increase tax savings. 
C)  Sound tax planning ideas should be entirely legal. 
D)  None of the above is false.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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 4

Mrs Day structures a transaction to shift income from her New York business to her New Hampshire 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 5

The entity variable is important because the amount of taxable income generated by a business depends on the type of entity conducting the business.

Accepted Answer

A) True 
 B)False

Question 6

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 7

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 8

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 9

The time period variable is based on the time value of money.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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 the above 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 the above are taxable entities.

Question 12

Mr Cox has the choice between two transactions. Transaction A will generate $500,000 taxable cash flow in the current year (year 0). Transaction B will generate $460,000 cash flow in the current year, but Mr Cox will not be required to report $460,000 income until next year (year 1). Mr Cox has a 40% marginal tax rate and uses a 10% discount rate to compute NPV. Use Appendix A of your textbook provided to determine which of the following statements is true?

Accepted Answer

A)  Mr. Cox should choose transaction A because it generates more before-tax cash flow. 
B)  Mr. Cox should choose transaction A because its NPV exceeds transaction B's NPV. 
C)  Mr. Cox should choose transaction B because the tax cost is deferred one year. 
D)  Mr. Cox should choose transaction B because its NPV exceeds transaction A's NPV. 
A)  Mr. Cox should choose transaction A because it generates more before-tax cash flow. 
B)  Mr. Cox should choose transaction A because its NPV exceeds transaction B's NPV. 
C)  Mr. Cox should choose transaction B because the tax cost is deferred one year. 
D)  Mr. Cox should choose transaction B because its NPV exceeds transaction A's NPV.

Which of the following statements about tax planning is false?

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

Mrs Day structures a transaction to shift income from her New York business to her New Hampshire business. This tax planning strategy may be taking advantage of the:

The entity variable is important because the amount of taxable income generated by a business depends on the type of entity conducting the business.

Which of the following statements about tax deferral is true?

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

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

The time period variable is based on the time value of money.

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:

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

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

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

Which of the following statements about tax planning is false?

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

Mrs Day structures a transaction to shift income from her New York business to her New Hampshire business. This tax planning strategy may be taking advantage of the:

The entity variable is important because the amount of taxable income generated by a business depends on the type of entity conducting the business.

Which of the following statements about tax deferral is true?

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

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

The time period variable is based on the time value of money.

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:

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

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

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