Question 1

The constructive receipt doctrine is more of an issue for cash basis taxpayers.

Accepted Answer

A) True 
 B)False

Question 2

Investing in municipal bonds to avoid paying tax on interest earned and to earn a higher after-tax yield is an example of:

Accepted Answer

A)   conversion
B)   tax evasion
C)   timing
D)   income shifting
E)   None of theseF) A) and E)
G) A) and B)

Question 3

The timing strategy becomes more attractive as interest rates (i.e., rates of return) increase.

Accepted Answer

A) True 
 B)False

Question 4

Paying "fabricated" expenses in high tax rate years is an example of:

Accepted Answer

A)   conversion
B)   tax evasion
C)   timing
D)   income shifting
E)   None of theseF) C) and D)
G) D) and E)

Question 5

If Julius has a 20% tax rate and a 10% after-tax rate of return, $25,000 of income in three years will cost him how much tax in today's dollars (rounded) ?

Accepted Answer

A)   $3,755
B)   $18,775
C)   $5,000
D)   $25,000
E)   None of theseF) A) and B)
G) B) and D)

Question 6

Effective tax planning does not require consideration of:

Accepted Answer

A)   nontax factors
B)   the taxpayer's tax costs of alternative transactions
C)   the other party's tax costs of alternative transactions
D)   the other party's nontax costs of alternative transactions
E)   None of theseF) D) and E)
G) B) and C)

Question 7

Future value can be computed as Future Value = Present Value/(1 + r)n.

Accepted Answer

A) True 
 B)False

Question 8

Assume that Marsha is indifferent between investing in a city of Destin bond that pays 6% interest and a corporate bond that pays 8% interest. What is Marsha's marginal tax rate?

Accepted Answer

A)   50%
B)   40%
C)   30%
D)   20%
E)   None of theseF) A) and C)
G) A) and D)

Question 9

Which of the following may limit the conversion strategy?

Accepted Answer

A)   implicit taxes
B)   assignment of income doctrine
C)   constructive receipt doctrine
D)   activities with preferential tax rates
E)   None of theseF) B) and E)
G) A) and B)

Question 10

The time value of money suggests that $1 in one year is worth less than $1 today.

Accepted Answer

A) True 
 B)False

Question 11

David, an attorney and cash basis taxpayer, is new to the concept of tax planning and recently learned of the timing strategy. To implement the timing strategy, David plans to establish a new policy that allows his clients to wait up to five years to pay their attorney fees. Assume that David expects his marginal tax rates to remain constant over the foreseeable future. What is wrong with this strategy?

Accepted Answer

While this plan defers the taxation on h...

Question 12

Assume that Bill's marginal tax rate is 30%. If corporate bonds pay 8% interest, what interest rate would a municipal bond have to offer for Bill to be indifferent between the two bonds?

Accepted Answer

A)   30%
B)   10.4%
C)   8%
D)   7%
E)   None of theseF) B) and E)
G) D) and E)

Question 13

Assuming a positive interest rate, the present value of money suggests:

Accepted Answer

A)   $1 today = $1 in one year
B)   $1 today > $1 in one year
C)   $1 today 
D)   $1 today 
E)   None of theseF) A) and B)
G) A) and C)

Question 14

Which of the following is an example of the income shifting strategy?

Accepted Answer

A)   A corporation paying its shareholders a $20,000 dividend
B)   A corporation paying its owner a $20,000 salary
C)   A high tax rate taxpayer investing in tax exempt municipal bonds
D)   A cash-basis business delaying billing its customers until after year end
E)   None of theseF) B) and C)
G) None of the above

Question 15

Which of the following decreases the benefits of accelerating deductions?

Accepted Answer

A)   decreasing tax rates
B)   smaller after-tax rate of return
C)   larger after-tax rate of return
D)   larger magnitude of transactions
E)   None of theseF) A) and D)
G) C) and D)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

If Joel earns a 10% after-tax rate of return, $10,000 received in two years is worth how much today (rounded) ?

Accepted Answer

A)   $10,000
B)   $9,090
C)   $8,260
D)   $11,000
E)   None of theseF) A) and B)
G) B) and E)

Question 18

A common income shifting strategy is to:

Accepted Answer

A)   shift income from low tax rate taxpayers to high tax rate taxpayers
B)   shift deductions from low tax rate taxpayers to high tax rate taxpayers
C)   shift deductions from high tax rate taxpayers to low tax rate taxpayers
D)   accelerate tax deductions
E)   None of theseF) B) and D)
G) A) and D)

Question 19

Assume that Keisha's marginal tax rate is 40% and her tax rate on dividends is 15%. If a city of Atlanta bond pays 7.65% interest, what dividend yield would a dividend-paying stock (with no growth potential)  have to offer for Keisha to be indifferent between the two investments?

Accepted Answer

A)   15%
B)   10%
C)   9%
D)   7.65%
E)   None of theseF) A) and C)
G) B) and E)

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 3: Tax Planning Strategies and Related Limitations

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

Correct Answer
verified

If Julius has a 20% tax rate and a 10% after-tax rate of return, $25,000 of income in three years will cost him how much tax in today's dollars (rounded) ?

Correct Answer
verified

Effective tax planning does not require consideration of:

Correct Answer
verified

Future value can be computed as Future Value = Present Value/(1 + r)n.

Correct Answer
verified

If Joel earns a 10% after-tax rate of return, $10,000 received in two years is worth how much today (rounded) ?

Correct Answer
verified

Paying "fabricated" expenses in high tax rate years is an example of:

Correct Answer
verified

Which of the following is an example of the income shifting strategy?

Correct Answer
verified

Which of the following may limit the conversion strategy?

Correct Answer
verified

The time value of money suggests that $1 in one year is worth less than $1 today.

Correct Answer
verified

Assume that Keisha's marginal tax rate is 40% and her tax rate on dividends is 15%. If a city of Atlanta bond pays 7.65% interest, what dividend yield would a dividend-paying stock (with no growth potential) have to offer for Keisha to be indifferent between the two investments?

Correct Answer
verified

Correct Answer
verified
While this plan defers the taxation on h...
View Answer

A common income shifting strategy is to:

Correct Answer
verified

Investing in municipal bonds to avoid paying tax on interest earned and to earn a higher after-tax yield is an example of:

Correct Answer
verified

Which of the following decreases the benefits of accelerating deductions?

Correct Answer
verified

The constructive receipt doctrine is more of an issue for cash basis taxpayers.

Correct Answer
verified

Assume that Bill's marginal tax rate is 30%. If corporate bonds pay 8% interest, what interest rate would a municipal bond have to offer for Bill to be indifferent between the two bonds?

Correct Answer
verified

The timing strategy becomes more attractive as interest rates (i.e., rates of return) increase.

Correct Answer
verified

Assume that Marsha is indifferent between investing in a city of Destin bond that pays 6% interest and a corporate bond that pays 8% interest. What is Marsha's marginal tax rate?

Correct Answer
verified

Assuming a positive interest rate, the present value of money suggests:

Correct Answer
verified

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

Correct Answer
verified

Exam 3: Tax Planning Strategies and Related Limitations

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

Correct AnswerverifiedShow Answer

If Julius has a 20% tax rate and a 10% after-tax rate of return, $25,000 of income in three years will cost him how much tax in today's dollars (rounded) ?

Correct AnswerverifiedShow Answer

Effective tax planning does not require consideration of:

Correct AnswerverifiedShow Answer

Future value can be computed as Future Value = Present Value/(1 + r)n.

Correct AnswerverifiedShow Answer

If Joel earns a 10% after-tax rate of return, $10,000 received in two years is worth how much today (rounded) ?

Correct AnswerverifiedShow Answer

Paying "fabricated" expenses in high tax rate years is an example of:

Correct AnswerverifiedShow Answer

Which of the following is an example of the income shifting strategy?

Correct AnswerverifiedShow Answer

Which of the following may limit the conversion strategy?

Correct AnswerverifiedShow Answer

The time value of money suggests that $1 in one year is worth less than $1 today.

Correct AnswerverifiedShow Answer

Assume that Keisha's marginal tax rate is 40% and her tax rate on dividends is 15%. If a city of Atlanta bond pays 7.65% interest, what dividend yield would a dividend-paying stock (with no growth potential) have to offer for Keisha to be indifferent between the two investments?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedWhile this plan defers the taxation on h...View AnswerShow Answer

A common income shifting strategy is to:

Correct AnswerverifiedShow Answer

Investing in municipal bonds to avoid paying tax on interest earned and to earn a higher after-tax yield is an example of:

Correct AnswerverifiedShow Answer

Which of the following decreases the benefits of accelerating deductions?

Correct AnswerverifiedShow Answer

The constructive receipt doctrine is more of an issue for cash basis taxpayers.

Correct AnswerverifiedShow Answer

Assume that Bill's marginal tax rate is 30%. If corporate bonds pay 8% interest, what interest rate would a municipal bond have to offer for Bill to be indifferent between the two bonds?

Correct AnswerverifiedShow Answer

The timing strategy becomes more attractive as interest rates (i.e., rates of return) increase.

Correct AnswerverifiedShow Answer

Assume that Marsha is indifferent between investing in a city of Destin bond that pays 6% interest and a corporate bond that pays 8% interest. What is Marsha's marginal tax rate?

Correct AnswerverifiedShow Answer

Assuming a positive interest rate, the present value of money suggests:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
While this plan defers the taxation on h...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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