Question 1

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 2

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 3

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 two years later (year 2).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 4

Deduction-shifting transactions usually occur between unrelated taxpayers.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

A reduced market rate of return on a tax-favored investment is called an implicit tax.

Accepted Answer

A) True 
 B)False

Question 7

Jelk Company is structuring a transaction that will generate $140,000 taxable revenue and cash inflow.Which of the following structures is the most effective in terms of the time period variable?

Accepted Answer

A) Jelk will receive the cash and report the income in 20Y1. 
B) Jelk will receive the cash in 20Y2 and report the income in 20Y1. 
C) Jelk will receive the cash and report the income in 20Y2. 
D) Jelk will receive the cash in 20Y1 and report the income in 20Y2. 
A) Jelk will receive the cash and report the income in 20Y1. 
B) Jelk will receive the cash in 20Y2 and report the income in 20Y1. 
C) Jelk will receive the cash and report the income in 20Y2. 
D) Jelk will receive the cash in 20Y1 and report the income in 20Y2.

Question 8

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 9

Which of the following statements is true?

Accepted Answer

A) Mary Gilly owns 100% of the stock of Gilly Inc.Both Mary and Gilly Inc.are taxpayers under federal law. 
B) The same rate schedule applies to both individual and corporate taxpayers. 
C) The tax provisions governing the computation of individual business income are separate and distinct from the tax provisions governing the computation of corporate business income. 
D) Mary Gilly owns 100% of the stock to Gilly Inc.Both Mary and Gilly Inc.are taxpayers under federal law and the tax provisions governing the computation of individual business income are separate and distinct from the tax provisions governing the computation of corporate business income. 
A) Mary Gilly owns 100% of the stock of Gilly Inc.Both Mary and Gilly Inc.are taxpayers under federal law. 
B) The same rate schedule applies to both individual and corporate taxpayers. 
C) The tax provisions governing the computation of individual business income are separate and distinct from the tax provisions governing the computation of corporate business income. 
D) Mary Gilly owns 100% of the stock to Gilly Inc.Both Mary and Gilly Inc.are taxpayers under federal law and the tax provisions governing the computation of individual business income are separate and distinct from the tax provisions governing the computation of corporate business income.

Question 10

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 11

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 12

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 30% 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.

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

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:

Deduction-shifting transactions usually occur between unrelated taxpayers.

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

A reduced market rate of return on a tax-favored investment is called an implicit tax.

Jelk Company is structuring a transaction that will generate $140,000 taxable revenue and cash inflow.Which of the following structures is the most effective in terms of the time period variable?

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:

Which of the following statements is true?

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

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

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

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

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:

Deduction-shifting transactions usually occur between unrelated taxpayers.

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

A reduced market rate of return on a tax-favored investment is called an implicit tax.

Jelk Company is structuring a transaction that will generate $140,000 taxable revenue and cash inflow.Which of the following structures is the most effective in terms of the time period variable?

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:

Which of the following statements is true?

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

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

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