Topic 2

On 12/31/X4, Zoom, LLC reported a $60,000 loss on its books. The items included in the loss computation were $30,000 in sales revenue, $15,000 in qualified dividends, $22,000 in cost of goods sold, $50,000 charitable contribution, $20,000 in employee wages, and $13,000 of rent expense. How much ordinary business income (loss) will Zoom report on its X4 return? ($8,000). ($25,000). ($60,000). ($95,000).

($25,000).

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, 2017 and doesn't pick up his check until January 2, 2018. When should Rolando report his bonus? 2018. 2017. Rolando can choose the year to report the income. it does not matter. None of the choices are correct.

2017.

Princess, who resides in the 2nd Circuit, recently found a circuit court case that is favorable to her income tax research question. Which of the following circuits would she prefer to have issued the opinion? 2nd Circuit. Federal Circuit. 1st Circuit. 2nd Circuit or the Federal Circuit. None of the choices are correct.

2nd Circuit or the Federal Circuit.

Which of the following is an example of the timing strategy? A cash basis taxpayer paying all outstanding bills by year end. A parent employing her child in the family business. A business paying its owner a $30,000 salary. A taxpayer investing in a tax preferred investment. None of the choices are correct.

A cash basis taxpayer paying all outstanding bills by year end.

Which of the following is an example of the timing strategy? A corporation paying its shareholders a $20,000 dividend. A parent employing her child in the family business. A taxpayer gifting stock to his children. A cash-basis business delaying billing its customers until after year end. None of the choices are correct.

A cash-basis business delaying billing its customers until after year end.

Which is not a basic tax planning strategy? Income shifting. Timing. Conversion. Arms-length transaction. None of the choices are correct.

Arms-length transaction.

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? Constructive receipt doctrine. Implicit tax doctrine. Assignment of income doctrine. Step-transaction doctrine. None of the choices are correct.

Assignment of income doctrine.

Which of the following committees typically initiates tax legislation? House Ways and Means Committee. Joint Conference Committee. Senate Finance Committee. Senate Tax Committee. None of the choices are correct.

House Ways and Means Committee.

Which judicial doctrine means that a court will rule consistently with its previous rulings and the rulings of higher courts with appellate jurisdiction? Judicial hierarchy. The Goldman rule. Judicial consistency. Stare decisis. None of the choices are correct.

Stare decisis.

Which of the following increases the benefits of income deferral? Increasing tax rates. Smaller after-tax rate of return. Larger after-tax rate of return. Smaller magnitude of transactions. None of the choices are correct.

Larger after-tax rate of return.

Which of the following has the highest authoritative weight? Legislative regulation. Private letter ruling. Revenue ruling. Action on decision. Revenue procedure.

Legislative regulation.

Required information [The following information applies to the questions displayed below.] Turtle Creek Partnership had the following revenues, expenses, gains, losses, and distributions: Sales revenue$40,000 Long-term capital gains$2,000 Cost of goods sold$(13,000) Depreciation—MACRS$(3,000) Amortization of organization costs$(1,000) Guaranteed payments to partners for general management$(10,000) Cash distributions to partners$(2,000) b. What are Turtle Creek's separately stated items for the year? (Select all that apply from above.)

Long-term capital gains$2,000 Guaranteed payments to partners for general management$(10,000) Cash distributions to partners$(2,000)

Which of the following would not be classified as a separately stated item? Short-term capital gains. Charitable contributions. MACRS depreciation expense. Guaranteed payments.

MACRS depreciation expense. Section 179 is treated as a separately stated item; however, MACRS depreciation expense is included in the computation of a partnership's ordinary business income (loss). Guaranteed payments are deducted when computing a partnership's ordinary business income (loss), it must also be separately stated to the partner who receives the guaranteed payment.

Which of the following does not limit the benefits of deferring income? Increasing tax rates. A taxpayer with severe cash flow needs. If continuing an investment would generate a low rate of return. If continuing an investment would subject the taxpayer to unnecessary risk. None of the choices are correct.

None of the choices are correct.

Which of the following does not limit the income shifting strategy? Assignment of income doctrine. Business purpose doctrine. Substance-over-form doctrine. Step-transaction doctrine. None of the choices are correct.

None of the choices are correct.

Which of the following is not considered a secondary authority? Text book. Private Letter Ruling. Correct Tax article. Tax service. None of the choices are correct.

Private Letter Ruling.

Which of the following has the lowest authoritative weight? Legislative regulation. Private letter ruling. Revenue ruling. Interpretative regulation. Revenue procedure.

Private letter ruling.

The regulation with the lowest authoritative weight is the: Procedural regulation. Interpretative regulation. Proposed regulation. Legislative regulation. None of the choices are correct.

Proposed regulation.

On 12/31/X4, Zoom, LLC reported a $60,000 loss on its books. The items included in the loss computation were $30,000 in sales revenue, $15,000 in qualified dividends, $22,000 in cost of goods sold, $50,000 charitable contribution, $20,000 in employee wages, and $13,000 of rent expense. How much ordinary business income (loss) will Zoom report on its X4 return?

Revenue $30,000 COGS (22,000) Wages (20,000) Rent (15,000) OBI (25,000) Ordinary Business Income (Loss) = (25,000) Note: Qualified dividends and charitable contribution deduction will be separately stated on the return.

Which of the following has the highest authoritative weight? Text book. Private letter ruling. Revenue ruling. Correct Tax service. Tax article.

Revenue ruling.

Required information [The following information applies to the questions displayed below.] Turtle Creek Partnership had the following revenues, expenses, gains, losses, and distributions: Sales revenue$40,000 Long-term capital gains$2,000 Cost of goods sold$(13,000) Depreciation—MACRS$(3,000) Amortization of organization costs$(1,000) Guaranteed payments to partners for general management$(10,000) Cash distributions to partners$(2,000) a. Given these items, what is Turtle Creek's ordinary business income (loss) for the year?

Sales revenue$40,000 Less: Cost of goods sold$(13,000) Depreciation — MACRS$(3,000) Amortization of organization costs$(1,000) Guaranteed payments$(10,000) Equals: Ordinary Business Income$13,000

Which of the following decreases the benefits of accelerating deductions? Decreasing tax rates. Smaller after-tax rate of return. Larger after-tax rate of return. Larger magnitude of transactions. None of the choices are correct.

Smaller after-tax rate of return.

A taxpayer paying his 10-year-old daughter $50,000 a year for consulting likely violates which doctrine? Constructive receipt doctrine. Implicit tax doctrine. Substance-over-form doctrine. Step-transaction doctrine. None of the choices are correct.

Substance-over-form doctrine. IRS is allowed to consider the substance regardless of form to reclassify the transactions according to its substance.

Jaime recently found a "favorable" trial level court opinion directly on point for her tax question. Which trial level court would she prefer to have issued the opinion? Tax Court. District Court. Circuit Court. Divorce Court. None of the choices are correct.

Tax Court.

Which of the following is not considered a primary authority? Tax Court case. Treasury Regulation. Revenue Ruling. Tax service. None of the choices are correct.

Tax service.

Which of the following is needed to implement the income shifting strategy? Taxpayers with varying tax rates. Decreasing tax rates. Increasing tax rates. Unrelated taxpayers. None of the choices are correct.

Taxpayers with varying tax rates.

Which of the following is not required to determine the best timing strategy? The taxpayer's after-tax rate of return. The taxpayer's tax rate this year. The taxpayer's tax rate in future years. The taxpayer's tax rate last year. None of the choices are correct.

The taxpayer's tax rate last year.

For each of the following citations, identify the type of authority (statutory, administrative, or judicial). a. Reg. Sec. 1.111-1(b) b. IRC Sec. 469(c)(7)(B)(i) c. Rev. Rul. 82-204, 1982-2 C.B. 192 d. Amdahl Corp., 108 TC 507 (1997) e. PLR 9727004 f. Hills v. Comm., 50 AFTR2d 82-6070 (11th Cir., 1982)

a. Administrative. Type of regulation (1 = income tax), code section 111, regulation number 1, paragraph b. b. Statutory. Internal Revenue Code, Section 469, subsection c, paragraph 7, subparagraph B, clause i. c. Administrative. Internal Revenue Service ruling number 82-204 (204th ruling of 1982), volume of cumulative bulletin 1982-2, page number 192. d. Judicial. Volume 108 of the Tax Court reporter, page 507, year 1997. e. Administrative. Internal Revenue Service, Private Letter Ruling, Year 1997, week number 27 (27th week of 1997), ruling number 004 (4th ruling of the week). f. Judicial. 50th volume of RIA AFTR2d court reporter, paragraph 82, circuit 11th, year 1982.

Effective tax planning requires all of these considerations except: nontax factors. the taxpayer's tax costs of alternative transactions. the other party's tax costs of alternative transactions. the other party's nontax costs of alternative transactions. all of the choices are required considerations.

all of the choices are required considerations.

The constructive receipt doctrine: is particularly restrictive for accrual basis taxpayers. causes income to be recognized before it is actually received. causes income to be recognized after it is actually received. applies equally to income and expenses. None of the choices are correct.

causes income to be recognized before it is actually received.

The goal of tax planning generally is to: minimize taxes. minimize IRS scrutiny. maximize after-tax wealth. support the Federal government. None of the choices are correct.

maximize after-tax wealth.

A common income shifting strategy is to: shift income from low tax rate taxpayers to high tax rate taxpayers. shift deductions from low tax rate taxpayers to high tax rate taxpayers. shift deductions from high tax rate taxpayers to low tax rate taxpayers. accelerate tax deductions. None of the choices are correct.

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

The income shifting and timing strategies are examples of: tax avoidance. tax evasion. illegal taxpayer strategies. All of the choices are correct. None of the choices are correct.

tax avoidance.

A taxpayer earning income in "cash" and not reporting it as taxable income is an example of: tax avoidance. tax evasion. conversion. income shifting. None of the choices are correct.

tax evasion.

Paying "fabricated" expenses in high tax rate years is an example of: conversion. tax evasion. timing. income shifting. None of the choices are correct.

tax evasion.

If tax rates are decreasing: taxpayers should accelerate income. taxpayers should defer deductions. taxpayers should accelerate deductions. taxpayers should defer deductions and accelerate income. None of the choices are correct.

taxpayers should accelerate deductions.

If tax rates are decreasing: taxpayers should accelerate income. taxpayers should defer deductions. taxpayers should defer income. taxpayers should defer deductions and accelerate income. None of the choices are correct.

taxpayers should defer income. Why? To keep decreasing rate.

Which of the following tax planning strategies is based on the present value of money? timing. tax avoidance. income shifting. conversion. None of the choices are correct.

timing.

If tax rates are increasing: taxpayers should accelerate income. taxpayers should defer deductions. taxpayers should defer income. you need more information to make a recommendation. None of the choices are correct.

you need more information to make a recommendation.