Question 1

Which of the following statements about tax legal doctrines is false?

Accepted Answer

A)  The scope of the economic substance, business purpose, substance over form, and step transaction doctrines often overlap. 
B)  Taxpayers can invoke the substance over form doctrine to undo the tax consequences of a failed planning strategy. 
C)  The IRS's application of the doctrines is subjective. 
D)  The economic substance, business purpose, substance over form, and step transaction doctrines increase the uncertainty of the tax law. 
A)  The scope of the economic substance, business purpose, substance over form, and step transaction doctrines often overlap. 
B)  Taxpayers can invoke the substance over form doctrine to undo the tax consequences of a failed planning strategy. 
C)  The IRS's application of the doctrines is subjective. 
D)  The economic substance, business purpose, substance over form, and step transaction doctrines increase the uncertainty of the tax law.

Question 2

Income-shifting transactions occur more frequently between related parties than between unrelated parties.

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 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 5

Which of the following statements about ordinary income and capital gain is false?

Accepted Answer

A)  Every item of income is characterized as either ordinary income or capital gain for federal tax purposes. 
B)  Ordinary income is taxed at the regular individual or corporate tax rates. 
C)  Individuals and corporations pay tax on their capital gains at a preferential rate. 
D)  None of the above is false. 
A)  Every item of income is characterized as either ordinary income or capital gain for federal tax purposes. 
B)  Ordinary income is taxed at the regular individual or corporate tax rates. 
C)  Individuals and corporations pay tax on their capital gains at a preferential rate. 
D)  None of the above is false.

Question 6

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 7

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

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

Which of the following statements about tax avoidance and tax evasion is false?

Accepted Answer

A)  Tax avoidance is legal, while tax evasion is illegal. 
B)  The difference between avoidance and evasion is clearly defined in the tax law. 
C)  Tax evasion is a federal felony offence. 
D)  Taxpayers should not regard tax avoidance as unethical. 
A)  Tax avoidance is legal, while tax evasion is illegal. 
B)  The difference between avoidance and evasion is clearly defined in the tax law. 
C)  Tax evasion is a federal felony offence. 
D)  Taxpayers should not regard tax avoidance as unethical.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

The goal of tax planning is to reduce tax costs or increase tax savings as much as possible.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Which of the following statements about tax legal doctrines is false?

Income-shifting transactions occur more frequently between related parties than between unrelated parties.

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:

Which of the following statements about ordinary income and capital gain is false?

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?

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

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

Which of the following statements about tax avoidance and tax evasion is false?

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

The goal of tax planning is to reduce tax costs or increase tax savings as much as possible.

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

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 tax legal doctrines is false?

Income-shifting transactions occur more frequently between related parties than between unrelated parties.

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:

Which of the following statements about ordinary income and capital gain is false?

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?

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

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

Which of the following statements about tax avoidance and tax evasion is false?

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

The goal of tax planning is to reduce tax costs or increase tax savings as much as possible.

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

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