Question 1

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

Accepted Answer

A) True 
 B)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

Carter Inc. and CCC Inc. are owned by the same family. Carter's marginal tax rate is 30%, and CCC's marginal tax rate is 20%. Carter has the opportunity to engage in a transaction that will generate $500,000 taxable cash flow. Alternatively, CCC could engage in the transaction. However, CCC would incur an extra $42,500 deductible cash expense with respect to the transaction. Which of the following statements is true?

Accepted Answer

A) CCC should engage in the transaction to generate $16,000 more after-tax cash flow. 
B) Carter should engage in the transaction to avoid the extra expense. 
C) CCC should engage in the transaction because it has the lower marginal tax rate. 
D) Because Carter and CCC are owned by the same family, the family is indifferent as to which corporation engages in the transaction. 
A) CCC should engage in the transaction to generate $16,000 more after-tax cash flow. 
B) Carter should engage in the transaction to avoid the extra expense. 
C) CCC should engage in the transaction because it has the lower marginal tax rate. 
D) Because Carter and CCC are owned by the same family, the family is indifferent as to which corporation engages in the transaction.

Question 4

Which of the following statements about the jurisdiction variable is true?

Accepted Answer

A) Most businesses are subject to the taxing jurisdiction of more than one government. 
B) For federal purposes, state income taxes are deductible in the computation of taxable income. 
C) Businesses can often minimize total tax burden by conducting business in jurisdictions with favorable tax climates. 
D) All of the above statements are true. 
A) Most businesses are subject to the taxing jurisdiction of more than one government. 
B) For federal purposes, state income taxes are deductible in the computation of taxable income. 
C) Businesses can often minimize total tax burden by conducting business in jurisdictions with favorable tax climates. 
D) All of the above statements are true.

Question 5

Mrs. James plans to invest in one of two investment alternatives having the same risk. Investment 1 has a before-tax return of 10% and the income from investment 1 would be taxed at Mrs. James' 35% regular tax rate. Investment 2 has a before-tax return of 8% and the income from investment 2 would be taxed at a 15% preferential rate. Which of the following statements regarding these investment choices is false?

Accepted Answer

A) The after-tax rate of return on investment 1 is 6.5%. 
B) The after-tax rate of return on investment 2 is 6.8%. 
C) Investment 2 bears implicit tax relative to investment 1. 
D) Mrs.James should choose investment 1. 
A) The after-tax rate of return on investment 1 is 6.5%. 
B) The after-tax rate of return on investment 2 is 6.8%. 
C) Investment 2 bears implicit tax relative to investment 1. 
D) Mrs.James should choose investment 1.

Question 6

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 7

Andrea Mitchell can shift income to her daughter, Lynn, by endorsing a check for $10,000 received for a client over to Lynn.

Accepted Answer

A) True 
 B)False

Question 8

Hubern Inc. is planning a transaction that will generate $275,000 taxable income and cash inflow. The transaction is structured so that Hubern will receive the cash and report the income this year (year 0). Compute the increase in the NPV of the transaction if it can be restructured so that Hubern will receive the cash this year, but report the income one year later (year 1). Hubern's marginal tax rate is 40%, and it uses a 9% discount rate to compute NPV.

Accepted Answer

A) $6,276 
B) $8,933 
C) $9,130 
D) None of the above 
A) $6,276 
B) $8,933 
C) $9,130 
D) None of the above

Question 9

Planning opportunities are created when the tax law applies differentially to alternative business transactions.

Accepted Answer

A) True 
 B)False

Question 10

Mr. Fox has $200,000 to invest. He could buy corporate bonds with a 10% before-tax yield or tax-exempt bonds with an 8% before-tax yield. Which of the following statements is false?

Accepted Answer

A) If Mr.Fox invests in the tax-exempt bonds, he will pay $4,000 implicit tax every year. 
B) If Mr.Fox's marginal tax rate is 15%, he should invest in the corporate bonds. 
C) If Mr.Fox's marginal tax rate is 40%, he should invest in the tax-exempt bonds. 
D) None of the above is falsE.In statement B, Mr.Fox's explicit tax is $1,500, which is less than the $2,000 implicit tax on the yield from the tax-exempt bonds.Therefore, he should invest in the taxable bonds.In statement 
A) If Mr.Fox invests in the tax-exempt bonds, he will pay $4,000 implicit tax every year. 
B) If Mr.Fox's marginal tax rate is 15%, he should invest in the corporate bonds. 
C) If Mr.Fox's marginal tax rate is 40%, he should invest in the tax-exempt bonds. 
D) None of the above is falsE.In statement B, Mr.Fox's explicit tax is $1,500, which is less than the $2,000 implicit tax on the yield from the tax-exempt bonds.Therefore, he should invest in the taxable bonds.In statement

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

Mrs. Lester has the choice between two transactions. Transaction A will generate $175,000 taxable cash flow in the current year (year 0). Transaction B will generate $160,000 cash flow in the current year, but Mrs. Lester will not be required to report $160,000 income for two years (year 2). Mrs. Lester has a 40% marginal tax rate and uses a 9% discount rate to compute NPV. Which of the following statements is true?

Accepted Answer

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

Question 14

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 15

Municipal bond investments bear less implicit tax than investments in taxable corporate bonds.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Mr. Blau structured an income-generating transaction so that the $90,000 income and cash flow shifted to Mr. Blau's sister, Kim. If Mr. Blau's marginal tax rate is 35%, and Kim's tax rate is 15%, compute the tax savings from the income shift.

Accepted Answer

A) $13,500 
B) $21,500 
C) $31,500 
D) None of the above 
A) $13,500 
B) $21,500 
C) $31,500 
D) None of the above

Question 18

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 19

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 20

Tatun Inc. pays state income tax at a 5% rate and federal income tax at a 34% rate. Tatun recently engaged in a transaction in Mexico, which levied a $25,200 income tax on the transaction. Tatun's pretax net income for the current year is $1,913,900. Compute Tatun's total income tax burden assuming that:
A.Tatun's state tax is $95,695 ($1,913,900 * 5%), and its federal tax is $618,190 ([$1,913,900 - $95,695 deduction for state tax] * 34%).Tatun's total income tax burden is $739,085 ($95,695 state tax + $618,190 federal tax + $25,200 Mexican tax).
A.The Mexican tax is nondeductible for state and federal tax purposes.
B.Tatun's state tax is $94,435 ([$1,913,900 - $25,200 deduction for Mexican tax] * 5%), and its federal tax is $610,050 ([$1,913,900 - $94,435 deduction for state tax - $25,200 deduction for Mexican tax] * 34%).Tatun's total income tax burden is $729,685 ($94,435 state tax + $610,050 federal tax + $25,200 Mexican tax).
B.The Mexican tax is deductible for state and federal tax purposes.

Accepted Answer

A. Tatun's state tax is $95,695 ($1,913,

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

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

Which of the following statements about the jurisdiction variable is true?

Which of the following statements about tax planning is false?

Andrea Mitchell can shift income to her daughter, Lynn, by endorsing a check for $10,000 received for a client over to Lynn.

Planning opportunities are created when the tax law applies differentially to alternative business transactions.

Mr. Fox has $200,000 to invest. He could buy corporate bonds with a 10% before-tax yield or tax-exempt bonds with an 8% before-tax yield. Which of the following statements is false?

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

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:

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

Municipal bond investments bear less implicit tax than investments in taxable corporate bonds.

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

Mr. Blau structured an income-generating transaction so that the $90,000 income and cash flow shifted to Mr. Blau's sister, Kim. If Mr. Blau's marginal tax rate is 35%, and Kim's tax rate is 15%, compute the tax savings from the income shift.

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, 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 a Present Value of $1 B Present Value of Annuity of $1 C 2013 Income Tax Rates

Filters

Exam 4: Maxims of Income Tax Planning

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

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

Which of the following statements about the jurisdiction variable is true?

Which of the following statements about tax planning is false?

Andrea Mitchell can shift income to her daughter, Lynn, by endorsing a check for $10,000 received for a client over to Lynn.

Planning opportunities are created when the tax law applies differentially to alternative business transactions.

Mr. Fox has $200,000 to invest. He could buy corporate bonds with a 10% before-tax yield or tax-exempt bonds with an 8% before-tax yield. Which of the following statements is false?

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

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:

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

Municipal bond investments bear less implicit tax than investments in taxable corporate bonds.

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

Mr. Blau structured an income-generating transaction so that the $90,000 income and cash flow shifted to Mr. Blau's sister, Kim. If Mr. Blau's marginal tax rate is 35%, and Kim's tax rate is 15%, compute the tax savings from the income shift.

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, 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 a Present Value of $1 B Present Value of Annuity of $1 C 2013 Income Tax Rates

Filters