Tax Planning and Strategy Review Questions
Course Introduction
Tax Planning and Strategy is a comprehensive course that explores the principles and techniques used to minimize tax liabilities and optimize financial outcomes for individuals and businesses within the boundaries of the law. Students will analyze current tax legislation, case law, and regulatory guidance to develop effective tax strategies, including deferral, shifting, and conversion of income. The course covers tax implications of various business structures, investment choices, and transaction types, as well as ethical considerations and the impact of global tax trends. By the end of the course, participants will be equipped with the analytical tools necessary to identify tax planning opportunities and create strategies that support organizational and personal financial objectives.
Recommended Textbook
Principles of Taxation for Business and Investment Planning 2018 21st Edition
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18 Chapters
1806 Verified Questions
1806 Flashcards
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Page 2
by Sally Jones
Chapter 1: Taxes and Taxing Jurisdictions
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87 Verified Questions
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Sample Questions
Q1) The city of Mayfield charges individuals convicted of DWI (driving while intoxicated)$500 for the first conviction and $2,000 for any subsequent conviction.These charges are an example of a(n):
A)User's fee
B)Transaction-based tax
C)Activity-based tax
D)Government penalty
Answer: D
Q2) Mrs.Renfru is a Brazilian citizen who permanently resides in Houston,Texas.Which of the following statements is true?
A)The U.S.government has no jurisdiction to tax Mrs.Renfru because she is not a U.S.citizen.
B)The U.S.government has jurisdiction to tax Mrs.Renfru only on income that she earns from a source within the United States.
C)The U.S.government has jurisdiction to tax Mrs.Renfru.
D)Mrs.Renfru can elect whether to pay tax to the United States or to Brazil.
Answer: C
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Page 3
Chapter 2: Policy Standards for a Good Tax
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Sample Questions
Q1) Which of the following taxes is most convenient for individuals to pay?
A)Sales tax
B)Use tax
C)Federal income tax
D)Real property tax
Answer: A
Q2) A tax meets the standard of efficiency if it generates enough revenue to pay for the public goods and services provided by the government.
A)True
B)False
Answer: False
Q3) Which of the following statements about a regressive tax rate structure is false?
A)A regressive rate structure cannot result in vertical equity.
B)Regressive rates decrease as the tax base increases.
C)A regressive rate structure places a proportionally heavier tax burden on taxpayers with smaller tax bases than persons with greater tax bases.
D)None of the above is false.
Answer: A
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Chapter 3: Taxes As Transaction Costs
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Sample Questions
Q1) Mrs.Scott received a $12,000 cash payment.If her marginal tax rate is 40%,which of the following statements is true?
A)If only $9,200 of the payment is taxable income,her after-tax cash flow is $9,200.
B)If the payment is not taxable income,her after-tax cash flow is $12,000.
C)If the payment is taxable income,her after-tax cash flow is $4,800.
D)None of the above is true.
Answer: B
Q2) Ms.Teague incurred a $35,000 expense.If her marginal tax rate is 20%,which of the following statements is true?
A)If the expense is nondeductible,Ms.Teague's after-tax cost is zero.
B)If the expense is deductible,Ms.Teague's after-tax cost is $28,000.
C)If only $17,500 of the expense is deductible,Ms.Teague's after-tax cost is $14,000.
D)If the expense is nondeductible,Ms.Teague's after-tax cost is zero and,if the expense is deductible,Ms.Teague's after-tax cost is $28,000.
Answer: B
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Chapter 4: Maxims of Income Tax Planning
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Sample Questions
Q1) The substance over form doctrine allows the IRS to look through the legal formalities of a transaction to determine its true economic nature.
A)True
B)False
Q2) 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:
A)Entity variable
B)Time period variable
C)Jurisdiction variable
D)Character variable
Q3) Andrea Mitchell can shift income to her daughter,Lynn,by endorsing a check for $10,000 received for a client over to Lynn.
A)True
B)False
Q4) The 15% preferential tax rate on capital gains has the same value to every individual taxpayer.
A)True
B)False
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6
Chapter 5: Tax Research
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Sample Questions
Q1) Which of the following is not primary authority on which to base research conclusions?
A)Journal of Taxation article written by a professor.
B)Revenue ruling.
C)U)S.Tax Court decision.
D)U)S.Supreme Court decision.
Q2) The topical index of a commercial tax service is considered primary authority.
A)True
B)False
Q3) Based on the citation Rev.Rul.89-157,1989-1 C.B.221:
A)This revenue ruling was issued in 1989.
B)This revenue ruling is no longer valid.
C)The abbreviation C.B.stands for Comprehensive Bulletin.
D)This revenue ruling appears on page 157.
Q4) Which of the following is not a proper citation to a Treasury regulation?
A)Reg.Sec.1.61-1(a)
B)Reg.1.61-1(a)
C)Reg.§1.61-1(a)
D)Treasury Regulation 61-1(a)
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Chapter 6: Taxable Income From Business Operations
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Sample Questions
Q1) Welch Inc.has used a fiscal ending September 30 as its taxable year since its incorporation in 1988.The shareholders have decided to shut down Welch's business and dissolve the corporation on March 31.Which of the following statements is false?
A)Welch's final tax return will be a short-period return.
B)Welch's final tax return will include its income from October 1 to March 31.
C)Welch must annualize its taxable income on its final tax return.
D)None of the above is false.
Q2) Which of the following statements about the constructive receipt doctrine is false?
A)The doctrine applies to cash basis taxpayers.
B)The doctrine relates to the time period variable in tax planning.
C)Application of the doctrine by the IRS is subjective and depends on the facts and circumstances of each case.
D)None of the above is false.
Q3) If an accrual basis taxpayer prepays interest expense,the payment results in an unfavorable temporary book/tax difference.
A)True
B)False
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Page 8
Chapter 7: Property Acquisitions and Cost Recovery
Deductions
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Sample Questions
Q1) For tax purposes,the cost basis of an asset does not include any portion of the purchase price paid through debt financing.
A)True
B)False
Q2) Colby Company performed professional services for M&E Inc.In exchange for the services,M&E gave Colby a 12-month lease on commercial office space.M&E could have charged $4,350 monthly rent for the space on the open market.Compute Colby's tax basis in the lease.
A)The lease is an intangible asset and therefore has a zero basis to Colby.
B)The lease has a zero basis because Colby obtained the lease at no cost.
C)$52,200.
D)None of the above
Q3) Tregor Inc.,which manufactures plastic components,rents equipment on a monthly basis for use in its manufacturing process.The monthly rent is a deductible expense when incurred.
A)True
B)False
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Page 9
Chapter 8: Property Dispositions
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Sample Questions
Q1) Princetown Inc.has a $4.82 million basis in 88% of the outstanding stock of Merryvale Corporation.Merryvale manufactures Christmas decorations,cards,and wrapping paper.Princetown's board of directors recently learned that Merryvale is bankrupt.The board voted unanimously to dissolve the corporation and distribute all assets to Merryvale's creditors.What is the tax consequence to Princetown of the board's actions?
A)No loss recognition until Princetown actually disposes of the Merryvale stock.
B)$4.82 million Section 1231 loss.
C)$4.82 million capital loss.
D)$4.82 million ordinary loss.
Q2) Verno Inc.purchased business equipment in March and sold it in November.Verno's gain or loss recognized on the sale is ordinary.
A)True
B)False
Q3) Mr.and Mrs.Plame sold an investment asset to their grandson Leonard.Because Leonard is a related party,the Plames do not recognize any gain or loss realized on sale.
A)True
B)False
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Page 10
Chapter 9: Nontaxable Exchanges
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Sample Questions
Q1) When unrelated parties agree to an exchange of noncash properties,the economic presumption is that the properties have the same adjusted book basis.
A)True
B)False
Q2) Tarletto Inc.'s current year income statement includes a $229,000 gain realized on the exchange of an old business asset for a new business asset.If the exchange is nontaxable,Tarletto's book basis in the new asset is $229,000 greater than its tax basis.
A)True
B)False
Q3) Acme Inc.and Beamer Company exchanged like-kind production assets.Acme's asset had a $240,000 FMV and $117,300 adjusted tax basis,and Beamer's asset had a $225,000 FMV and a $168,200 adjusted tax basis.Beamer paid $15,000 cash to Acme as part of the exchange.Which of the following statements is true?
A)Acme's realized gain is $122,700 and recognized gain is -0-.
B)Beamer's realized gain is $56,800 and recognized gain is $15,000.
C)Acme's basis in its newly acquired asset is $117,300.
D)Beamer's basis in its newly acquired asset is $168,200.
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Chapter 10: Sole Proprietorships, Partnerships, llcs, and S
Corporations
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Sample Questions
Q1) Bernard and Leon formed a partnership on January 1 with cash contributions of $600,000 and $200,000,respectively.The partners agree to share profits and losses in the ratio of their initial capital contributions.The partnership immediately borrowed $800,000.What is Bernard's tax basis in his partnership interest?
A)$1,200,000
B)$600,000
C)$800,000
D)$1,400,000
Q2) Which of the following statements regarding sole proprietorships is false?
A)A sole proprietorship has no legal identity separate from that of its owner.
B)Sole proprietorships are the most common form of business entity in the U.S.
C)The cash flow generated by a sole proprietorship belongs to the owner.
D)The assets and liabilities of a sole proprietorship are held in the name of the business,not the owner.
Q3) Tax savings achieved by operating a business through a pass-through entity,rather than as a C corporation,is an example of entity variable tax planning.
A)True
B)False
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Chapter 11: The Corporate Taxpayer
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Sample Questions
Q1) For a corporate taxpayer in the 34% marginal tax bracket,a $20,000 tax credit is equivalent to a $58,824 tax deduction.
A)True
B)False
Q2) The corporate alternative minimum tax is designed to insure that corporations with substantial economic income will pay their fair share of the federal tax burden.
A)True
B)False
Q3) Fleet,Inc.owns 85% of the stock of Pete,Inc.and 35% of the stock of Zete,Inc.The remaining stock of Pete and Zete is owned by unrelated individuals.Which of the following statements is correct?
A)Fleet,Pete,and Zete are an affiliated group.
B)Fleet and Zete are an affiliated group.
C)Fleet and Pete are an affiliated group.
D)There is no affiliated group here.
Q4) At least three corporations are required to form an affiliated group.
A)True
B)False
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Page 13
Chapter 12: The Choice of Business Entity
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Sample Questions
Q1) Bryan Houlberg expects his C corporation to generate a profit of $200,000.What is the effective tax rate on the $200,000 if net income after corporate tax is distributed to him as a dividend and his marginal tax rate on ordinary income is 39.6%?
A)35%
B)59.6%
C)44.5%
D)39.6%
Q2) Mr.and Mrs.Johnson and their two children,Alice and Ben,are the four equal partners in JAB Partnership.This year,JAB generated $40,000 of ordinary income.Compute the tax cost associated with this income if Mr.and Mrs.Johnson's marginal tax rate is 35%,Alice's marginal tax rate is 25%,and Ben's marginal tax rate is 28%.
A)$12,300
B)$8,800
C)$35,200
D)$0
Q3) Typical family-owned businesses are operated as passthrough entities.
A)True
B)False
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Chapter 13: Jurisdictional Issues in Business Taxation
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Sample Questions
Q1) International tax treaties generally allow a government to tax a non-resident firm that maintains a permanent residence in the treaty country.
A)True
B)False
Q2) The United States taxes its citizens on their worldwide incomes.
A)True
B)False
Q3) Which of the following activities create state income tax nexus?
A)Selling products over the Internet to customers in the state.The products are delivered by U.S.mail.
B)Traveling salespersons soliciting orders for tangible goods from customers in the state.
C)Ownership of manufacturing and distribution facilities within the state.
D)All of the above activities create state income tax nexus
Q4) Under most tax treaties,income attributable to a permanent establishment through which a foreign taxpayer conducts business can be taxed only by the taxpayer's country of residence.
A)True
B)False
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15
Chapter 14: The Individual Tax Formula
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Sample Questions
Q1) Last year,Mr.Corbett's AGI was $141,000,and his total tax liability was $33,650.This year,his total tax liability is $35,290.Compute the minimum amount of current year tax that Mr.Corbett had to prepay (withholding and estimated payments)to avoid an underpayment penalty.
A)$31,761
B)$33,650
C)$30,285
D)$35,290
Q2) An individual's taxable income equals adjusted gross income less the greater of the standard deduction or itemized deductions less the exemption amount.
A)True
B)False
Q3) Mr.Pearl's total income and self-employment tax on this year's Form 1040 is $72,610.If Mr.Pearl paid at least $65,349 of this tax in the form of withholding or quarterly estimated payments,he will not incur an underpayment penalty.
A)True
B)False
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Chapter 15: Compensation and Retirement Planning
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Sample Questions
Q1) Olan Inc.provides an on-site day care center free of charge to employees who have pre-school children.Employees who enroll their children may exclude the value of this fringe benefit from gross income.
A)True
B)False
Q2) Self-employed individuals have fewer opportunities than employees to underpay income and payroll taxes.
A)True
B)False
Q3) Six years ago,Linus Corporation granted Pauline a nonqualified option to purchase 5,000 shares of Linus stock for $13 per share.On date of grant,the market price was $11 per share.Last year,Pauline exercised the option when the market price was $47 per share.This year,she sold the stock for $40 per share.Compute Pauline's gain or loss recognized on sale.
A)$135,000 gain
B)$10,000 loss
C)$35,000 loss
D)No gain or loss on sale
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Chapter 16: Investment and Personal Financial Planning
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Sample Questions
Q1) The interest earned on a state or local government bond is exempt from federal taxation.
A)True
B)False
Q2) Twenty years ago,Mrs.Cole purchased an insurance policy on her own life.Mrs.Cole died this year,and the policy paid the $300,000 death benefit to her son Jeffrey.During her life,Mrs.Cole paid total premiums of $71,200 on the policy.Which of the following statements is true?
A)Jeffrey must recognize the $300,000 payment as ordinary income.
B)Jeffrey must recognize $228,800 of the $300,000 payment as capital gain.
C)Jeffrey can exclude the $300,000 payment from gross income.
D)Jeffrey must recognize $228,800 of the $300,000 payment as ordinary income.
Q3) Bess gave her grandson ten acres of undeveloped land.Bess' tax basis in the land was $35,000,and its fair market value at date of gift was $175,000.Two years after receiving the land,the grandson sold it for $200,000.Compute his recognized gain on sale.
A)$0
B)$25,000
C)$165,000
D)$200,000
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Chapter 17: Tax Consequences of Personal Activities
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Sample Questions
Q1) Mr.and Mrs.McGraw received $50,160 Social Security benefits this year.They also received $108,000 taxable pension payments and earned $47,300 interest and dividends from their investment portfolio.How much of the McGraw's Social Security is included in gross income?
A)$0
B)$25,080
C)$42,636
D)$50,160
Q2) This year,David paid his physician $6,200 for routine examinations and received a $3,000 reimbursement from his medical insurance company.David is allowed a $3,200 medical expense as an above-the-line deduction.
A)True
B)False
Q3) A drunk driver seriously injured Leah.The court awarded her $200,000 for her physical injuries and $300,000 as punitive damages.Leah must include $300,000 in gross income.
A)True
B)False
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Chapter 18: The Tax Compliance Process
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Sample Questions
Q1) Mr.and Mrs.Clyde were married for 21 years before Mrs.Clyde divorced her husband in 2016.This year,the IRS determined that the Clydes underpaid their 2015 tax by $19,650.In which case would Mrs.Clyde be relieved of liability for the underpayment under the innocent spouse rule?
A)Mrs.Clyde did not read through the Form 1040 before she signed it.
B)Mrs.Clyde remarried this year and is now Mrs.Novak.
C)Mr.Clyde was the sole income earner during the entire marriage.
D)None of the above.
Q2) Mrs.Hepp completed her 2016 Form 1040 on April 13,2017.The return showed a $923 balance due.Mrs.Hepp needed more time to double check all her computations.What can Mrs.Hepp do to give herself more time?
A)She can do nothing because the Form 1040 must be filed by April 15.
B)She can file a request by April 15 for an automatic extension of time to file her Form 1040 and to pay the balance due.
C)She can file a request by April 15 for an automatic extension of time to file her Form 1040 and pay the $923 estimated balance due with the extension request.
D)She can file a late Form 1040 without penalty as long as she mails the return before May 15,2017.
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