Tax Planning
Test Preparation
Course Introduction
Tax Planning is a course designed to provide students with a comprehensive understanding of strategies used by individuals and businesses to minimize tax liabilities within the legal framework. The course covers key concepts such as tax law fundamentals, the differences between tax avoidance and tax evasion, and the implications of various income types and deductions. Students will analyze practical case studies to learn how to structure investments, business transactions, and estate plans efficiently. Emphasis is placed on staying current with changing tax regulations and using critical thinking to evaluate different tax planning opportunities, all while adhering to ethical and legal standards.
Recommended Textbook
South Western Federal Taxation 2013 Corporations Partnerships Estates and Trusts 36th Edition
Available Study Resources on Quizplus
20 Chapters
2489 Verified Questions
2489 Flashcards
Source URL: https://quizplus.com/study-set/3580 Page 2
Chapter 1: Understanding and Working With the Federal Tax Law
Available Study Resources on Quizplus for this Chatper
68 Verified Questions
68 Flashcards
Source URL: https://quizplus.com/quiz/71106
Sample Questions
Q1) Which state is a community property state?
A)North Carolina.
B)California.
C)Vermont.
D)Florida.
E)All of the above.
Answer: B
Q2) Some Regulations are arranged in different sequence than the Code.
A)True
B)False
Answer: False
Q3) Federal tax legislation generally originates in the House Ways and Means Committee.
A)True
B)False
Answer: True
Q4) There are two forms of fiscal policy: discretionary and automatic.
A)True
B)False
Answer: True
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Corporations: Introduction and Operating Rules
Available Study Resources on Quizplus for this Chatper
113 Verified Questions
113 Flashcards
Source URL: https://quizplus.com/quiz/71095
Sample Questions
Q1) Because of the taxable income limitation,no dividends received deduction is allowed if a corporation has an NOL for the current taxable year.
A)True
B)False
Answer: False
Q2) Flycatcher Corporation,a C corporation,has two equal individual shareholders,Nancy and Pasqual.In the current year,Flycatcher earned $100,000 net profit and paid a dividend of $10,000 to each shareholder.Regardless of any tax consequences resulting from their interests in Flycatcher,Nancy is in the 33% marginal tax bracket and Pasqual is in the 15% marginal tax bracket.With respect to the current year,which of the following statements is incorrect?
A)Flycatcher cannot avoid the corporate tax altogether by paying out all $100,000 of net profit as dividends to the shareholders.
B)Nancy incurs income tax of $1,500 on her dividend income.
C)Pasqual incurs income tax of $1,500 on his dividend income.
D)Flycatcher pays corporate tax of $22,250.
E)None of the above.
Answer: C
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Corporations: Special Situations
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/71093
Sample Questions
Q1) In connection with the construction of a housing project,a contractor pays an architect to design the homes being built.The architect's fee is an embedded service that qualifies as DPGR.
A)True
B)False
Answer: True
Q2) Blue Company,a U.S.corporation based in Texas,manufactures and sells a product which includes some components made in Mexico.None of Blue's income from sales constitute DPGR.
A)True
B)False
Answer: False
Q3) The DPAD is not allowed for AMT purposes.
A)True
B)False
Answer: False
Q4) A sole proprietor shows the DPAD as a deduction for adjusted gross income (DFOR)on Form 1040.
Answer: T RUE
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Corporations: Organization and Capital Structure
Available Study Resources on Quizplus for this Chatper
93 Verified Questions
93 Flashcards
Source URL: https://quizplus.com/quiz/71092
Sample Questions
Q1) To help avoid the thin capitalization problem,it is advisable to make the repayment of the debt contingent upon the corporation's earnings.
A)True
B)False
Q2) Adam transfers cash of $300,000 and land worth $200,000 to Camel Corporation for 100% of the stock in Camel.In the first year of operation,Camel has net taxable income of $70,000.If Camel distributes $50,000 to Adam:
A)Adam has taxable income of $50,000.
B)Camel Corporation has a tax deduction of $50,000.
C)Adam has no taxable income from the distribution.
D)Camel Corporation reduces its basis in the land to $150,000.
E)None of the above.
Q3) In order to encourage the development of an industrial park,a county donates land to Ecru Corporation.The donation does not result in gross income to Ecru.
A)True
B)False
Q4) What is the rationale underlying the tax deferral treatment available under § 351?
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Corporations: Earnings Profits and Dividend
Distributions
Available Study Resources on Quizplus for this Chatper
98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/71091
Sample Questions
Q1) If a distribution of stock rights is taxable and their fair market value is less than 15 percent of the value of the old stock,then either a zero basis or a portion of the old stock basis may be assigned to the rights,at the shareholder's option.
A)True
B)False
Q2) Certain dividends from foreign corporations can be qualified dividends for purposes of the 15% rate available to individuals.
A)True
B)False
Q3) Ten years ago,Carrie purchased 2,000 shares in Osprey Corporation for $20,000.In the current year,Carrie receives a nontaxable stock dividend of 20 shares of Osprey preferred.Values at the time of the dividend are: $8,000 for the preferred stock and $72,000 for the common.Based on this information,Carrie's basis in the stock is:
A)$20,000 in the common and $8,000 in the preferred.
B)$2,000 in the common and $18,000 in the preferred.
C)$18,000 in the common and $2,000 in the preferred.
D)$19,802 in the common and $198 in the preferred.
E)None of the above.
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Corporations: Redemptions and Liquidations
Available Study Resources on Quizplus for this Chatper
112 Verified Questions
112 Flashcards
Source URL: https://quizplus.com/quiz/71090
Sample Questions
Q1) The text discusses four different limitations on loss recognition by liquidating corporations.Provide a brief description of each of these loss limitations.
Q2) For purposes of a partial liquidation,the termination of a business test is a subjective test that should be relied upon only after obtaining a favorable ruling from the IRS.
A)True
B)False
Q3) Under what circumstances will preferred stock received in a nontaxable stock dividend not generate ordinary income,under § 306,upon its disposition?
Q4) Joe owns 100% of Green Corporation (E & P of $500,000)and 100% of Navy Corporation (E & P of $400,000).Joe sells 100 shares in Green (basis of $40,000)to Navy for $70,000,its fair market value.Joe purchased the stock in Green six years ago.Joe has:
A)Dividend income of $70,000.
B)A long-term capital gain of $70,000.
C)Dividend income of $30,000.
D)A long-term capital gain of $30,000.
E)None of the above.
To view all questions and flashcards with answers, click on the resource link above.
Page 8
Chapter 7: Corporations: Reorganizations
Available Study Resources on Quizplus for this Chatper
116 Verified Questions
116 Flashcards
Source URL: https://quizplus.com/quiz/71089
Sample Questions
Q1) In a divisive "Type D" reorganization,the distributing corporation obtains control of the new target by exchanging some of its assets for at least 80% of the new target's outstanding stock.
A)True
B)False
Q2) Dirty Corporation has owned two chemical manufacturing facilities for the last 20 years.One facility is located in Oklahoma while the other is in Oregon.There have been some environmental investigations at the Oregon facility.Therefore,Dirty creates a new corporation,called Clean,and places the assets of the Oregon plant into Clean in exchange for all of Clean's stock.Dirty distributes this stock proportionately to its shareholders in exchange for 40% of their Dirty stock.How will this transaction be treated for tax purposes?
A)As a split-up "Type D" reorganization.
B)As a split-off "Type D" reorganization.
C)As a spin-off "Type D" reorganization.
D)This transaction does not qualify as a reorganization,because Dirty does not have two active lines of business.
E)None of the above.
Q3) Discuss the role of letter rulings in corporate reorganizations.
To view all questions and flashcards with answers, click on the resource link above.
Page 9
Chapter 8: Consolidated Tax Returns
Available Study Resources on Quizplus for this Chatper
141 Verified Questions
141 Flashcards
Source URL: https://quizplus.com/quiz/71088
Sample Questions
Q1) A calendar year parent corporation wants to file its tax returns on a consolidated basis with its affiliates.The group's election to file consolidated Federal corporate income tax returns must be made by the extended due date of the first return on which the consolidation is applied .
A)True
B)False
Q2) Consolidated group members each are jointly and severally liable for the entire consolidated income tax liability.
A)True
B)False
Q3) If subsidiary stock is redeemed or sold outside the group when an excess loss account exists,the selling parent corporation recognizes capital gain income equal to the account balance.
A)True
B)False
Q4) The foreign tax credit of a consolidated group can be greater than the sum of the credits of the group members when filing separately.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 10
Chapter 9: Taxation of International Transactions
Available Study Resources on Quizplus for this Chatper
149 Verified Questions
149 Flashcards
Source URL: https://quizplus.com/quiz/71087
Sample Questions
Q1) Olaf,a citizen of Norway with no trade or business activities in the United States,sells at a gain 200 shares of MicroShift,Inc. ,a U.S.company.The sale takes place through Olaf's broker in Oslo.How is this gain treated for U.S.tax purposes?
A)It is foreign-source income subject to U.S.taxation.
B)It is foreign-source income not subject to U.S.taxation.
C)It is U.S.-source income subject to U.S.taxation.
D)It is U.S.-source income exempt from U.S.taxation.
Q2) Without the foreign tax credit,double taxation would result when:
A)The United States taxes the U.S.-source income of a U.S.resident.
B)A foreign country taxes the foreign-source income of a nonresident alien.
C)The United States and a foreign country both tax the foreign-source income of a U.S.resident.
D)Terms of a tax treaty assign income taxing rights to the U.S.
Q3) Waltz,Inc. ,a U.S.taxpayer,pays foreign taxes of $50,000 on foreign-source general basket income of $90,000.Waltz's worldwide taxable income is $450,000,on which it owes U.S.taxes of $157,500 before FTC.Waltz's FTC is $50,000.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: Partnerships: Formation, operation, and Basis
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/71105
Sample Questions
Q1) When property is contributed to a partnership for a capital and profits interest,the holding period of the contributing partner's interest:
A)Always starts the day after the contribution date.
B)Always starts the day the property was contributed.
C)May include the holding period of the contributed property.
D)Never includes the holding period of the contributed property.
E)None of the above.
Q2) The partnership reports each partner's share of income to the partner in a single amount on Form 1099.
A)True B)False
Q3) Syndication costs arise when partnership interests are being marketed to investors.These costs are amortized over 180 months.
A)True
B)False
Q4) A limited liability company offers all "members" protection from claims by the LLC's creditors.
A)True B)False
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Partnerships: Distributions, transfer of Interests, and Terminations
Available Study Resources on Quizplus for this Chatper
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/71104
Sample Questions
Q1) On December 31 of last year,Rachel gave her daughter,Courtney,a gift of a 25% interest in a partnership in which capital is a material income-producing factor.For the current calendar year,the partnership's ordinary income was $200,000.Rachel and Courtney were the only partners,and there were no guaranteed payments.Rachel's services performed for the partnership were worth $40,000,and Courtney has never performed any services.What is Courtney's distributive share of partnership income for the current year?
A)$100,000.
B)$80,000.
C)$50,000.
D)$40,000.
E)None of the above.
Q2) A partnership is required to make a downward adjustment to the basis of its assets if a partnership interest is sold and if the total decline in value of partnership assets is more than $250,000.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
Page 13
Chapter 12: S: Corporations
Available Study Resources on Quizplus for this Chatper
154 Verified Questions
154 Flashcards
Source URL: https://quizplus.com/quiz/71103
Sample Questions
Q1) For a new corporation,a premature S election may not be effective.
A)True
B)False
Q2) The maximum number of shareholders in an S corporation is:
A)75.
B)100.
C)200.
D)Indeterminable.
Q3) Milke,Inc. ,an S corporation,has gross receipts of $190,000 and gross income of $170,000.Milke has AEP of $22,000 and ordinary income of $29,000.The company reports passive investment income of $100,000,with $40,000 of expenses directly related to the production of passive investment income.Calculate Milke's excess net passive income and any passive investment income penalty tax.
Q4) Charitable contributions are subject to a 10% limitation at the S corporation level.
A)True
B)False
Q5) To make a valid S election,the entity must file a properly completed Form
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Comparative Forms of Doing Business
Available Study Resources on Quizplus for this Chatper
141 Verified Questions
141 Flashcards
Source URL: https://quizplus.com/quiz/71102
Sample Questions
Q1) An effective way for all C corporations to avoid double taxation is not to make dividend distributions.
A)True
B)False
Q2) If lease rental payments to a noncorporate shareholder-lessor are classified as unreasonable,the taxable income of a C corporation decreases and the gross income of the shareholder remains the same.
A)True
B)False
Q3) With respect to special allocations,is the S corporation treated more like a partnership or a C corporation?
Q4) Aubrey has been operating his business as a C corporation for the past 5 years.The corporation pays him a reasonable salary.The profits of the corporation,after paying Federal income tax,are distributed to him each year as a dividend.He is considering electing S status for his corporation in order to avoid double taxation.What factors should he consider assuming after-tax earnings will continue to be distributed to him?
Q5) How can double taxation be avoided or reduced by owning assets outside a C corporation?
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Taxes on the Financial Statements
Available Study Resources on Quizplus for this Chatper
87 Verified Questions
87 Flashcards
Source URL: https://quizplus.com/quiz/71101
Sample Questions
Q1) The major purpose of ASC 740 (SFAS 109)is to match current-year GAAP income with its corresponding tax expenses.
A)True
B)False
Q2) Gravel,Inc. ,earns book net income before tax of $600,000.Gravel puts into service a depreciable asset this year,and first year tax depreciation exceeds book depreciation by $120,000.Gravel has recorded no other temporary or permanent book-tax differences.Assuming that the U.S.tax rate is 35%,what is Gravel's current income tax expense reported on its GAAP financial statements?
A)$252,000.
B)$210,000.
C)$168,000.
D)$42,000.
Q3) Which of the following items are not included in the GAAP financial statement income tax footnote's effective tax rate reconciliation?
A)Hypothetical tax on book income at U.S.Federal corporate tax rate.
B)Total tax expense per the GAAP financial statements.
C)Tax effect of temporary differences.
D)Tax effect of permanent differences.
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: Exempt Entities
Available Study Resources on Quizplus for this Chatper
145 Verified Questions
145 Flashcards
Source URL: https://quizplus.com/quiz/71100
Sample Questions
Q1) The tax consequences to a donor of making a charitable contribution to an exempt organization classified as a private foundation may be less favorable than the tax consequences to a donor of making a charitable contribution to an exempt organization that is not classified as a private foundation.
A)True
B)False
Q2) Rose,Inc. ,a qualifying § 501(c)(3)organization,incurs lobbying expenditures of $145,000 during the taxable year.Exempt purpose expenditures are $500,000.If Rose makes the election under § 501(h)to make lobbying expenditures on a limited basis,its tax liability resulting from the lobbying expenditures is:
A)$0.
B)$7,250.
C)$11,250.
D)$36,250.
E)Some other amount.
Q3) Identify the components of the tax model for unrelated business taxable income.
Q4) An exempt entity in no circumstance is subject to Federal income tax.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Multistate Corporate Taxation
Available Study Resources on Quizplus for this Chatper
145 Verified Questions
145 Flashcards
Source URL: https://quizplus.com/quiz/71099
Sample Questions
Q1) The typical local property tax falls on both an investor's real estate and her stock portfolio.
A)True
B)False
Q2) Sylvia spends time working at the offices of her employer as a consultant to clients who are located in three different U.S.states.To which state(s)' payroll factor(s)is Sylvia's compensation assigned? Apply the general UDITPA rules.
Q3) The individual seller of a used auto should collect and remit sales tax to the state.
A)True
B)False
Q4) A(n)____________________ business operates its separate companies as a whole.It cannot be segregated into independently operating divisions or branches.
Q5) List which items are included in the payroll factor of a state.Consider all forms of compensation that an employee might receive.Apply the general UDITPA rules.
Q6) A state sales/use tax is designed to be collected by the ____________________ (seller/purchaser)of the product and then remitted to the state.
To view all questions and flashcards with answers, click on the resource link above.
Page 18
Chapter 17: Tax Practice and Ethics
Available Study Resources on Quizplus for this Chatper
152 Verified Questions
152 Flashcards
Source URL: https://quizplus.com/quiz/71098
Sample Questions
Q1) When the IRS issues a notice of tax due,the taxpayer has 90 days to either pay the tax or file a petition with the Tax Court.This is conveyed in the "ninety-day letter."
A)True
B)False
Q2) Circular 230 allows a tax preparer to:
A)Take a position on a tax return that is contrary to a decision of the U.S.Supreme Court.
B)Operate the "Tax Nerd's Blog" on the Internet.
C)Charge a $5,000 fee to prepare a Form 1040EZ.
D)Avoid signing a tax return that is likely to be audited.
Q3) CPA Jennifer has heard about the AICPA's Statements on Standards for Tax Services.Although Jennifer is a licensed CPA in her state,she is not a member of the AICPA.How do the Statements affect Jennifer's tax practice?
Q4) A taxpayer penalty may be waived if there is shown to be reasonable cause for the misstatement on the tax return.The courts have applied this standard strictly.List three or more assertions for a waiver of a taxpayer penalty that courts have found not to constitute reasonable cause.Example: Ignorance of the tax law.
Q5) The ____________________,a presidential appointee,is the "IRS's attorney."
To view all questions and flashcards with answers, click on the resource link above.
Page 19
Chapter 18: The Federal Gift and Estate Taxes
Available Study Resources on Quizplus for this Chatper
170 Verified Questions
170 Flashcards
Source URL: https://quizplus.com/quiz/71097
Sample Questions
Q1) Mitch pays the surgeon and the hospital for his nondependent aunt's gall bladder operation.The transfer is not subject to the gift tax.
A)True
B)False
Q2) At the time of his death in 2012,Leroy owed Federal income taxes on income earned in 2010.Leroy's estate cannot claim an estate tax deduction for the income tax it pays.
A)True
B)False
Q3) For Federal estate tax purposes,the gross estate may include property the decedent does not own.
A)True
B)False
Q4) In 2000,Irv creates a revocable trust,income payable to his children for life,remainder to his grandchildren.In 2010,Irv relinquishes the power to revoke the trust.If Irv dies in 2012,the trust is not included in his gross estate.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above.
20
Chapter 19: Family Tax Planning
Available Study Resources on Quizplus for this Chatper
149 Verified Questions
149 Flashcards
Source URL: https://quizplus.com/quiz/71096
Sample Questions
Q1) Which,if any,of the following factors should reduce the value of a note receivable included in the gross estate of the holder?
A)The interest rate provided for is 10%.
B)The note is not supported by collateral.
C)The note is payable on demand.
D)The note is forgiven by the decedent's will.
E)None of the above.
Q2) At the time of Addison's death,he owned 70% of the stock in Robin Corporation,a closely held family business.Over the past five years,Robin has averaged annual profits of $400,000 in an industry where the usual rate of return is 9%.If the book value of the corporation's assets is $1,000,000 and goodwill exists,what might be a realistic value of the stock in Addison's gross estate?
A)$310,000.
B)$1,550,000.
C)$1,785,000.
D)$2,550,000.
E)None of the above.
Q3) What are the advantages of § 6166 (extension of time when the estate consists largely of an interest in a closely held business)?
To view all questions and flashcards with answers, click on the resource link above.
Page 21
Chapter 20: Income Taxation of Trusts and Estates
Available Study Resources on Quizplus for this Chatper
150 Verified Questions
150 Flashcards
Source URL: https://quizplus.com/quiz/71094
Sample Questions
Q1) A complex trust pays tax on the income that it retains and adds to corpus.
A)True
B)False
Q2) Corpus,principal,and assets of the trust are synonyms.
A)True
B)False
Q3) The Leonardo Estate operates a business and generates cost recovery deductions.Which taxpayer(s),if any,can deduct these items,e.g. ,the deceased,the estate,the income or remainder beneficiaries?
Q4) The Ulrich Trust has distributable net income (DNI)for the year of $100,000 and no income from tax-exempt sources.Under the terms of the trust instrument,the trustee must distribute $60,000 to Roger and $60,000 to Sally.After paying these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the Ulrich trustee distributes an additional $15,000 to Roger and $15,000 to Sally.How much gross income from the trust must Roger recognize?
A)$15,000.
B)$50,000.
C)$60,000.
D)$75,000.
To view all questions and flashcards with answers, click on the resource link above. Page 22