Tax Planning Strategies & Related Limitations

Question 1

effective ___ ________ maximizes the taxpayer’s _____-___ wealth while achieving the taxpayer’s ______ goals

Answer 1

tax planning
after-tax
nontax

Question 2

Virtually every transaction includes three parties …

Answer 2

the taxpayer
the other transacting party
the government

Question 3

What are the three basic tax planning strategies?

Answer 3

timing
income shifting
conversion

Question 4

Deferring or accelerating taxable income and tax deductions is what tax planning strategy?

Answer 4

timing

Question 5

Shifting income from high- to low-tax-rate taxpayers is what tax planning strategy?

Answer 5

income shifting

Question 6

Converting income from high- to low-tax-rate activities?

Answer 6

conversion

Question 7

The concept that $1 today is worth more than $1 in the future in known as …

Answer 7

present value or time value of money

Question 8

What is the judicial doctrine holding that earned income is taxed to the taxpayer providing the service, and that income from property is taxed to the individual who owns the property when the income accrues?

Answer 8

assignment of income doctrine

Question 9

Financial activities among family members among owners and their businesses, or among businesses owned by the same owners is what type of transaction?

Answer 9

related-party transactions

Question 10

Transactions among unrelated taxpayers, where each transacting party negotiates for his or her own benefit are called what?

Answer 10

arm’s length transactions

Question 11

What is the most common method of shifting income from corporations to their owners?

Answer 11

compensation paid to employee-owners

Question 12

Besides compensation what are two other income-shifting methods for corporation to owner?

Answer 12

owner’s renting property to business

owner’s loaning money to the business

Question 13

True or False:

paying dividends are an effective way to shift income

Answer 13

False

Question 14

What is the formula to derive the discount factor?

Answer 14

PV=FV/(1+r)^n

where FV=$1

Question 15

When tax rates are constant, taxpayers should __________ tax deductions and _____ recognizing taxable income

Answer 15

accelerate

defer

Question 16

Income from property such as gains or losses form the sale of property, dividends, interest, rents, royalties, and annuities are often referred to as ________ ______.

Answer 16

unearned income

Question 17

Income from services is often referred to as ______ ______.

Answer 17

earned income

Question 18

An investment that pays a stream of equal payments over time is called _______.

Answer 18

an annuity

Question 19

What are the two basic types of annuities?

Answer 19

1. paid over a fixed period

2. paid over a person’s life

Question 20

What is included in ordinary business income?

Answer 20

YES- revenue, cogs, wages, rent, depreciation, amortization, guaranteed payments

NO-qualified dividends, charitable contributions

Question 21

4 types of secondary authorities

Answer 21

1. tax research services
2. tax articles
3. newsletters
4. textbooks

Question 22

Rank in order of highest authoritative weight -

(a) revenue rulings and procedures
(b) regulations
(c) letter rulings

Answer 22

1. (b) regulations
2. (a) revenue rulings and procedures
3. (c) letter rulings

Question 23

8 Common Separately Stated Items include

Answer 23

• interest income
• guaranteed payments
• net earnings (loss) from self-employment
• tax-exempt income
• net rental real estate income
• investment interest expense
• royalties
• §179 deductions

Question 24

Statutory, Administrative, or Judicial?

1. Reg. Sec 1.111-1(b)
2. IRC Sec 469(c)(7)(B)(i)
3. Rev. Rul. 82-204, 1982-2 C.B. 192
4. Amdahl Corp., 108 TC 507 (1997)
5. PLR 9727004
6. Hills v. Comm., 50 AFTR2d 82-6070 (11th Cir., 1982)

Answer 24

1. Administrative
2. Statutory
3. Administrative
4. Judicial
5. Administrative
6. Judicial