Tax Final

B. shift deductions from low tax rate taxpayers to high tax rate payers

A common income shifting strategy is to: 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 Page 9 of 11 E. None of the above

C. assignment of income doctrine

A taxpayer instructing her son to collect rent checks for the taxpayer's property and to report this as taxable income on the son's tax return violates which doctrine? A. constructive receipt doctrine B. implicit tax doctrine C. assignment of income doctrine D. step-transaction doctrine E. None of the above

C. substance-over-form doctrine

A taxpayer paying his 10 year old daughter $50,000 a year for consulting likely violates which doctrine? A. constructive receipt doctrine B. implicit tax doctrine C. substance-over-form doctrine D. step-transaction doctrine E. None of the above

E. None of the above. Corporations are always required a tax return

Corporations are required to file a tax return only if their taxable income is greater than: A. $0. B. $1,000. C. $600. D. $750. E. None of the above. Corporations are always required a tax return.

C. 7.00%

Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%. What is Curtis's after-tax rate of return on the city of Athens bond? A. 1.96% B. 2.52% C. 7.00% D. 9.00% E. None of the above

A. 30-day letter

Dan received a letter from the IRS that gave him the choice of (1) requesting a conference with an Appeals Officer or (2) agreeing to a proposed tax adjustment. Dan received the: A. 30-day letter. B. 90-day letter. C. Appeals letter. D. Tax adjustment letter. E. None of the above.

B. if the position has a realistic possibility of being sustained by the IRS or courts

According to the Statement on Standards for Tax Services, a tax practitioner can recommend a tax return position: A. if the position is frivolous and disclosed on the tax return. B. if the position has a realistic possibility of being sustained by the IRS or courts. C. only if the position meets the "more likely than not" standard. D. only if the position meets the "clear and convincing evidence" standard. E. None of the above.

E. None of the above 8%x(1-.30)=5.6%

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? A. 30% B. 10.4% C. 8% D. 7% E. None of the above

D. 20% 6.25% x (1 - mtr) = 5%; mtr = 1 - (5%/6.25%) = 20%

Assume that Javier is indifferent between investing in a city of El Paso bond that pays 5% interest and a corporate bond that pays 6.25% interest. What is Javier's marginal tax rate? A. 50% B. 40% C. 30% D. 20% E. None of the above

D. 7.5% 10% x (1 - .25) = 7.5%

Assume that Larry's marginal tax rate is 25%. If corporate bonds pay 10% interest, what interest rate would a municipal bond have to offer for Larry to be indifferent between the two bonds? A. 25% B. 12.5% C. 10% D. 7.5% E. None of the above

E. None of the above 5%/(1 - .20) = 6.25%

Assume that Lavonia's marginal tax rate is 20%. If a city of Tampa bond pays 5% interest, what interest rate would a corporate bond have to offer for Lavonia to be indifferent between the two bonds? A. 20% B. 8% C. 7% D. 4% E. None of the above

D. 6.8% 8% x (1 - .15) = 6.8%

Assume that Lucas' marginal tax rate is 30% and his tax rate on dividends is 15%. If a dividend-paying stock (with no growth potential) pays an 8% dividend yield, what interest rate would a municipal bond have to offer for Lucas to be indifferent between the two investments? A. 30% B. 15% C. 8% D. 6.8% E. None of the above

A. 6% After-tax yield of the corporate bond is 10.2% x (1 - .50) = 5.1%; The after tax yield of the dividend paying stock must be 5.1%. Therefore, 5.1% = Yield x (1 - .15) and Yield = 6%

Assume that Shavonne's marginal tax rate is 50% and her tax rate on dividends is 15%. If a corporate bond pays 10.2% interest, what dividend yield would a dividend-paying stock (with no growth potential) have to offer for Shavonne to be indifferent between the two investments? A. 6% B. 7% C. 10.2% D. 15% E. None of the above

B. 90-day letter

Basu received a letter from the IRS that gave him the choice of (1) paying a proposed deficiency or (2) filing a petition with the U.S. Tax Court. Basu received the: A. 30-day letter. B. 90-day letter. C. Appeals letter. D. Tax adjustment letter. E. None of the above.

April 15th, 2013

Bill filed his 2009 tax return on March 15th, 2010. The statute of limitations for IRS assessment on Bill's 2009 tax return should end: A. March 15th, 2012. B. April 15th, 2012. C. March 15th, 2013. D. April 15th, 2013. E. None of the above.

D. IRS

Circular 230 was issued by: A. AICPA. B. State Boards of Accountancy. C. American Bar Association. D. IRS. E. None of the above.

B. Economy

Congress recently approved a new, bigger budget for the IRS. What taxation concept evaluates the cost of administering our tax law? A. Convenience B. Economy C. Certainty D. Equity E. None of the above

C. May 15th, 2013

Henry filed his 2009 tax return on May 15th, 2010. The statute of limitations for IRS assessment on Henry's 2009 tax return should end: A. May 15th, 2012. B. April 15th, 2012. C. May 15th, 2013. D. April 15th, 2013. E. None of the above.

E. None of the above (12,106.25-21,175.75/(65,000-100,000)=25.91%

If Manny earns an additional $35,000 in taxable income in year 2014, what is his marginal tax rate (rounded) on this income? A. 18.96% B. 28.00% C. 26.52% D. 25.00% E. None of the above

B. October 15th

If Paula requests an extension to file her tax return, the latest she could file her return without penalty is: A. September 15th. B. October 15th. C. August 15th. D. November 15th. E. None of the above.

D. $18,816 $15,000 x (1.12)^2 = $18,816

If Scott earns a 12% after-tax rate of return, $15,000 today would be worth how much to Scott in 2 years? A. $15,000 B. $11,955 C. 18,520 D. $18,816 E. None of the above

D. open facts are preferred to closed facts

In a planning context, A. closed facts are preferred to open facts. B. new facts are preferred to old facts. C. old facts are preferred to new facts. D. open facts are preferred to closed facts. E. None of the above.

E. an offset against ordinary income of $3,000 and a NSTCL carry forward of $4,200 $2,800 NLTCG - $10,000 NSTCL = $7,200 NSTCL; Use $3,000 NSTCL to reduce ordinary income leaving $4,200 as a NSTCL carryforward.

In the current year, Norris, an individual, has $50,000 of ordinary income, a Net Short Term Capital Loss (NSTCL) of $10,000 and a Net Long Term Capital Gain (NLTCG) of $2,800. From his capital gains and losses, Norris reports: A. an offset against ordinary income of $10,000 B. an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,000 C. an offset against ordinary income of $2,800 and a NSTCL carryforward of $7,200 D. an offset against ordinary income of $3,000 and a NSTCL carryforward of $7,200 E. an offset against ordinary income of $3,000 and a NSTCL carryforward of $4,200

A. 7.50% Jackson's marginal tax rate is 25%, so his after-tax rate of return on the Sundial, Inc. bonds would be 7.5%. Therefore, the city of Mitchell must pay 7.5% to make Jackson indifferent between the two bonds.

Jackson has the choice to invest in city of Mitchell bonds or Sundial, Inc. corporate bonds that pay 10% interest. Jackson is a single taxpayer who earns $50,000 annually. Assume that the city of Mitchell bonds and the Sundial, Inc. bonds have similar risk. What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial, Inc. bonds for year 2014? A. 7.50% B. 10.00% C. 8.00% D. 7.20% E. None of the above

B. National Research Program

Ramon's tax return was randomly selected for audit. Which IRS program likely selected Ramon's return for audit? A. DIF System. B. National Research Program. C. Document perfection. D. Information matching. E. None of the above.

B. 2008

Rolando's employer pays year-end bonuses each year on December 31. Rolando, a cash basis taxpayer, would prefer to not pay tax on his bonus this year. So, he leaves town on December 31, 2008 and doesn't pick up his check until January 2nd, 2009. When should Rolando report his bonus and why? A. 2009 B. 2008 C. Rolando can choose the year to report the income D. It does not matter E. None of the above

B. causes income to be recognized before it is actually received

The constructive receipt doctrine A. is particularly restrictive for accrual basis taxpayers B. causes income to be recognized before it is actually received C. causes income to be recognized after it is actually received D. applies equally to income and expenses E. None of the above

C. The tax base

The difficulty in calculating a tax is typically in the determination of: A. The correct tax rate B. Where to file the tax return C. The tax base D. The due date for the return E. None of the above

C. Maximize after-tax wealth

The goal of tax planning generally is to: A. Minimize taxes B. Minimize IRS scrutiny C. Maximize after-tax wealth D. Support the Federal government E. None of the above

A. $3,000

The maximum amount of net capital losses individuals may deduct against their ordinary income per year is: A. $3,000 B. $5,000 C. Zero, losses are not deductible D. There is no maximum. All losses are allowed to be deducted. E. None of these

D. April 17th

This year April 15th falls on a Saturday. Individual tax returns will be due on: A. April 14th. B. April 15th. C. April 16th. D. April 17th. E. None of the above.

E. I and III are correct

To calculate a tax, you need to know: I. the tax base II. the taxing agency III. the tax rate IV. the purpose of the tax A. Only I is correct B. Only IV is correct C. Only III is correct D. Items I through IV are correct E. I and III are correct

D. specific identification

When selling stocks, which method of calculating basis provides the greatest opportunity for minimizing gains or increasing losses? A. LIFO B. FIFO C. Weighted average D. Specific identification E. None of these

D. not recognized at time of sale and and added to basis of the newly acquired stock

When the wash sale rules apply, the realized loss is: A. recognized at time of sale B. not recognized at time of sale and does not affect basis of newly acquired stock C. recognized at time of sale and added to basis of the newly acquired stock D. not recognized at time of sale and added to basis of the newly acquired stock E. not recognized at time of sale and subtracted from the basis of the newly acquired stock

D. arms length transaction

Which is not a basic tax planning strategy? A. income shifting B. timing C. conversion D. arms length transaction E. None of the above

C. US District Court

Which of the following courts is the only court that provides for a jury trial? A. Tax Court. B. U.S. Court of Federal Claims. C. U.S. District Court. D. U.S. Circuit Court of Appeals. E. None of the above.

E. None of the above

Which of the following does not limit the benefits of deferring income? A. increasing tax rates B. a taxpayer with severe cash flow needs C. if continuing an investment would generate a low rate of return D. if continuing an investment would subject the taxpayer to unnecessary risk E. None of the above

B. The average tax rate changes under a proportional tax rate structure, but it is static for a progressive tax rate system

Which of the following is false? A. A proportional tax rate structure imposes a constant tax rate while a progressive tax rate structure imposes an increasing marginal rate related to the tax base B. The average tax rate changes under a proportional tax rate structure, but it is static for a progressive tax rate system C. An example of a proportional tax is the tax on gasoline D. An example of a progressive tax is the federal tax on gifts E. None of the above

A. taxpayers with varying tax rates

Which of the following is needed to implement the income shifting strategy? A. taxpayers with varying tax rates B. decreasing tax rates C. increasing tax rates D. unrelated taxpayers E. None of the above

E. None of the above

Which of the following is not a civil penalty imposed on taxpayers? A. failure to file a tax return. B. failure to pay tax owed. C. fraud. D. failure to make estimated tax payments. E. None of the above.

E. None of the above

Which of the following is not a common tool used in conducting tax research? A. citatory. B. annotated tax service. C. topical tax service. D. keyword search. E. None of the above.

B. Proportional tax rate structure

Which of the following is not an example of a graduated tax rate structure? A. Progressive tax rate structure B. Proportional tax rate structure C. U.S. Federal Income Tax D. Regressive tax rate structure E. None of the above

D. Tax service

Which of the following is not considered a primary authority? A. Tax Court case B. Regulation C. Revenue Ruling D. Tax Service E. None of the above.

D. the taxpayer's tax rate last year

Which of the following is not required to determine the best timing strategy? A. the taxpayer's after-tax rate of return B. the taxpayer's tax rate this year C. the taxpayer's tax rate in future years D. the taxpayer's tax rate last year E. None of the above

C. They are often subject to implicit taxes

Which of the following is true regarding tax-advantaged assets? A. They are typically subject to excise taxes to account for their low explicit taxes B. A corporate bond is typically considered a tax-advantaged asset C. They are often subject to implicit taxes D. B and C are correct but not A E. None of the above

B. Use taxes attempt to eliminate any tax advantage of purchasing goods out of state

Which of the following is true regarding use taxes? A. A use tax is relatively easy to enforce compared to a sales tax. B. Use taxes attempt to eliminate any tax advantage of purchasing goods out of state. C. Use taxes encourage taxpayers to buy goods out of state to avoid paying sales tax in their home state. D. A use tax is generally a progressive tax. E. None of the above is true.

A. Implicit taxes

Which of the following may limit the conversion strategy? A. implicit taxes B. assignment of income doctrine C. constructive receipt doctrine D. activities with preferential tax rates E. None of the above

D. Sales tax

Which of the following represents the largest percentage of state tax revenue? A. Property tax B. Individual income tax C. Other D. Sales tax E. None of the above

C. Individual income taxes

Which of the following taxes represents the largest portion of U.S. Federal Tax revenues? A. Employment taxes B. Corporate income taxes C. Individual income taxes D. Estate and gift taxes E. None of the above

B. annotated tax service

Which of the following types of tax services are arranged by code section? A. legal tax service. B. annotated tax service. C. professional tax service. D. topical tax service. E. None of the above.

C. Two taxpayers pay different amounts of estate tax because one taxpayer's estate is worth significantly more.

Which of the following would not be a failure of the horizontal equity concept? A. Two taxpayers with identical income pay different amounts of tax because one taxpayer's income includes tax exempt interest. B. Two taxpayers pay different amounts of property tax amounts on similar plots of land (i.e., same value) because one plot of land is used to raise crops. C. Two taxpayers pay different amounts of estate tax because one taxpayer's estate is worth significantly more. D. All of the above. E. None of the above.

B. is not required to file a tax return but should file a return anyway

Dominique earned $1,500 this year, and his employer withheld $200 of federal income tax from his salary. Assuming that Dominique will have zero tax liability this year, he: A. is required to file a tax return. B. is not required to file a tax return but should file a return anyway. C. is required to file a tax return but should not file because he owes no tax. D. is not required to file a tax return and should not file a return. E. None of the above.

B. taxes assessed to fund a specific purpose

Earmarked taxes are: A. taxes assessed only on certain taxpayers B. taxes assessed to fund a specific purpose C. taxes assessed for only a specific time period D. taxes assessed to discourage less desirable behavior E. None of the above

A. Convenience

Employers often withhold federal income taxes directly from worker's paychecks. This is an example of which principle in practice? A. Convenience B. Certainty C. Economy D. Equity E. None of the above

D. 2nd Circuit or Federal Circuit

Princess, who resides in the 2nd Circuit, recently found a circuit court case that is favorable to her research question. Which of the following circuits would she prefer to have issued the opinion? A. 2nd Circuit B. Federal Circuit C. 1st Circuit D. 2nd Circuit or the Federal Circuit E. None of the above

D. Invest in city of Mitchell bonds because their implicit tax is less than the explicit tax on Sundial, Inc. bonds Implicit tax: 10% - 7.8% = 2.2%, Explicit tax: 10% X .25 = 2.5%

Jackson has the choice to invest in city of Mitchell bonds that pay 7.8% interest or Sundial, Inc. corporate bonds that pay 10% interest. Jackson is a head of household taxpayer who earns $50,000 annually. Assume that the city of Mitchell bonds and the Sundial, Inc. bonds have similar risk. How would you advise Jackson to invest his money? A. Invest in Sundial, Inc. bonds because their explicit tax is greater than the implicit tax on city of Mitchell bonds. B. Invest in city of Mitchell bonds because their implicit tax is greater than the explicit tax on Sundial, Inc. bonds. C. Invest in Sundial, Inc. bonds because their explicit tax is less than the implicit tax on city of Mitchell bonds. D. Invest in city of Mitchell bonds because their implicit tax is less than the explicit tax on Sundial, Inc. bonds. E. None of the above.

D. closed facts

Jeremy has a new client. He has identified a research question that relates to a transaction that the client completed several months ago. This type of research question will primarily involve: A. open facts. B. new facts. C. old facts. D. closed facts. E. None of the above.

C. tax treaty

Josephine is considering taking a 6 month rotation in Paris for her job. Which type of authority may be especially helpful in determining the tax consequences of Josephine's job in Paris? A. determination letter. B. private letter ruling. C. tax treaty. D. regulation. E. revenue procedure.

B. US Court or Federal Claims only

Lavonda discovered that the U.S. Circuit Court of Appeals for the Federal Circuit has recently issued a favorable opinion with respect to an issue that she is going to litigate with the IRS. Lavonda should choose which of the following trial courts to hear her case: A. Tax Court only. B. U.S. Court of Federal Claims only. C. U.S. District Court only. D. Tax Court or the U.S. District Court. E. Tax Court or the U.S. Court of Federal Claims.

E. None of the above (8,428.75 - 16,132.75)/(50,000 - 80,000) = 25.68%

Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Leonardo had $30,000 additional tax deductions for year 20013, his marginal tax rate (rounded) on the deductions would be: A. 28.00% B. 25.00% C. 36.48% D. 27.99% E. None of the above

C. document perfection

Leslie made a mathematical mistake in computing her tax liability. Which audit program will likely catch Leslie's mistake? A. DIF System. B. Mathematical correction. C. Document perfection. D. Information matching. E. None of the above.

E. All of these

Long-term capital gains can be taxed at a maximum rate of: A. 20 percent B. 25 percent C. 28 percent D. Both 20 percent and 28 percent E. All of these.

E. None of the above (12,106.25-21,175.75/(65,000-100,000)=25.91%

Manny, a single taxpayer, earns $65,000 per year in taxable income and an additional $12,000 per year in city of Boston bonds. If Manny earns an additional $35,000 in taxable income in year 2014, what is his marginal tax rate (rounded) on this income? A. 18.96% B. 28.00% C. 26.52% D. 25.00% E. None of the above

E. None of the above 25%

Manny, a single taxpayer, earns $65,000 per year in taxable income and an additional $12,000 per year in city of Boston bonds. Use this information for questions 34 and 35. What is Manny's current marginal tax rate for year 2014? A. 33.00% B. 28.00% C. 18.50% D. 23.46% E. None of the above

C. $10,928.75 $4,991.25+.25($60,000-$36,250)

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2013, how much federal tax will he owe? A. $15,000 B. $12,437.50 C. $10,928.75 D. $8,582.5 E. None of the above

E. None of the above

Martin has never filed a 2008 tax return despite earning approximately $20,000 providing landscaping work in the community. When does the statute of limitations expire for Martin's 2008 tax return? A. 2011. B. 2012. C. 2015. D. 2016. E. None of the above.

E. before-tax rates of return and liquidity needs

Nontax factor(s) investors should consider when choosing between investments include: A. before-tax rates of return B. after-tax rates of return C. liquidity needs D. before-tax rates of return and after-tax rates of return E. before-tax rates of return and liquidity needs

B. tax evasion

Paying "fabricated" expenses in high tax rate years is an example of: A. conversion B. tax evasion C. timing D. income shifting E. None of the above