Exam 3: Tax Planning Strategies and Related Limitations

The goal of tax planning generally is to:

Tax evasion is a legal activity that forms the basis of the basic tax planning strategies discussed in class.

An astute tax student once summarized that many of the tax planning strategies merely make use of the variation of taxation across different dimensions. Explain why this is true. Be specific.

The business purpose, step-transaction, and substance-over-form doctrines may limit the income shifting strategy.

The assignment of income doctrine is a natural limitation to the timing strategy.

Rodney, a cash basis taxpayer, owes $40,000 in tax deductible consulting fees for his business. Assume that it is December 28 and that Rodney can avoid any finance charges if he pays the accounting fees by January 10th. Rodney's tax rate this year is 30% and his after-tax rate of return is 10%. At what tax rate next year, will Rodney be indifferent between paying the $40,000 this year and next year?

The present value concept becomes more important as interest rates increase.

Lucinda is contemplating a long range planning strategy that will allow her to defer sizable portions of her income for 10 years. What type of planning strategy is she contemplating? What are some potential risks associated with this type of strategy?

When considering cash inflows, higher present values are preferred.

A taxpayer paying his 10 year old daughter $50,000 a year for consulting likely violates which doctrine?