McGraw Hills Taxation Of Individuals 2018 Edition 9th Edition by Brian C. Spilker – Test Bank
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Sample
Test
Taxation of Individuals, 9e (Spilker)
Chapter 3 Tax Planning Strategies and Related
Limitations
1) The goal of tax planning is tax minimization.
Answer: FALSE
Explanation: The goal of tax planning is the maximization
of after-tax wealth while achieving the taxpayer’s nontax goals.
Difficulty: 1 Easy
Topic: Basic Tax Planning Overview
Learning Objective: 03-01 Identify the objectives of basic
tax planning strategies.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
2) Nontax factors do not play an important role in tax planning.
Answer: FALSE
Difficulty: 1 Easy
Topic: Basic Tax Planning Overview
Learning Objective: 03-01 Identify the objectives of basic
tax planning strategies.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
3) Virtually every transaction involves the taxpayer and two
other parties that have an interest in the tax ramifications of the
transaction.
Answer: TRUE
Explanation: Virtually every transaction involves the
taxpayer, the other transacting party, and the government.
Difficulty: 2 Medium
Topic: Basic Tax Planning Overview
Learning Objective: 03-01 Identify the objectives of basic
tax planning strategies.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
4) The timing strategy is based on the idea that the location of
where the income is taxed affects the tax costs of the income.
Answer: FALSE
Explanation: The timing strategy is based upon when income is
taxed as opposed to where it is taxed.
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking; FN Decision Making
5) In general, tax planners prefer to accelerate deductions.
Answer: TRUE
Difficulty: 1 Easy
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: FN Decision Making
6) The concept of present value is an important part of the timing
strategy.
Answer: TRUE
Difficulty: 1 Easy
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.; 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: FN Decision Making
7) Assuming an after-tax rate of return of 10%, John should
prefer to pay an expense of $85 today instead of an expense of $100 in one
year. Use Exhibit 3.1 in the text.
Answer: TRUE
Explanation: 1/(1 + 0.10) = 0.909 PV. $100 × 0.909 =
$90.90 vs. $85.00
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
8) The time value of money suggests that $1 in one year from now
is worth less than $1 today.
Answer: TRUE
Difficulty: 1 Easy
Topic: Timing Strategies
Learning Objective: 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
9) The present value concept becomes more important as interest
rates increase.
Answer: TRUE
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
10) Future value can be computed as Future Value = Present
Value/(1 + r)n.
Answer: FALSE
Explanation: Future Value = Present Value × (1 + r)n
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
11) When considering cash inflows, higher present values are
preferred.
Answer: TRUE
Difficulty: 1 Easy
Topic: Timing Strategies
Learning Objective: 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
12) When considering cash outflows, higher present values are
preferred.
Answer: FALSE
Difficulty: 1 Easy
Topic: Timing Strategies
Learning Objective: 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
13) Tax savings generated from deductions are considered cash
inflows.
Answer: TRUE
Difficulty: 1 Easy
Topic: Timing Strategies
Learning Objective: 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
14) In general, tax planners prefer to defer income. This is an
example of the conversion strategy.
Answer: FALSE
Explanation: Deferring income is an example of the timing
strategy.
Difficulty: 1 Easy
Topic: Timing Strategies; Conversion Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.; 03-05 Apply the conversion
strategy, provide examples, and describe its limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: FN Decision Making
15) The timing strategy is particularly effective for cash basis
taxpayers.
Answer: TRUE
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: FN Decision Making
16) The timing strategy becomes more attractive as tax rates
decrease.
Answer: FALSE
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: FN Decision Making
17) The timing strategy becomes more attractive as interest
rates (i.e., rates of return) increase.
Answer: TRUE
Difficulty: 1 Easy
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: FN Decision Making
18) The timing strategy becomes more attractive if a taxpayer is
able to accelerate deductions by two or more years (versus one year).
Answer: TRUE
Difficulty: 1 Easy
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: FN Decision Making
19) One limitation of the timing strategy is the difficulties in
accelerating a tax deduction without accelerating the actual cash outflow that
generates the tax deduction.
Answer: TRUE
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: FN Decision Making
20) The constructive receipt doctrine is a natural limitation
for the conversion strategy.
Answer: FALSE
Difficulty: 2 Medium
Topic: Conversion Strategies; Additional Limitations to
Tax Planning Strategies: Judicial Doctrines
Learning Objective: 03-05 Apply the conversion strategy,
provide examples, and describe its limitations.; 03-06 Describe basic judicial
doctrines that limit tax planning strategies.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
21) The constructive receipt doctrine is more of an issue for
cash basis taxpayers.
Answer: TRUE
Difficulty: 2 Medium
Topic: Timing Strategies; Additional Limitations to Tax
Planning Strategies: Judicial Doctrines
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.; 03-06 Describe basic judicial
doctrines that limit tax planning strategies.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
22) If tax rates will be higher next year, taxpayers should
accelerate their deductions regardless of their after-tax rate of return.
Answer: FALSE
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: FN Decision Making
23) If tax rates will be lower next year, taxpayers should
accelerate their deductions regardless of their after-tax rate of return.
Answer: TRUE
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
24) If tax rates will be higher next year, taxpayers should
defer their income to next year regardless of their after-tax rate of return.
Answer: FALSE
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
25) The value of a tax deduction is higher for a taxpayer with a
lower tax rate.
Answer: FALSE
Difficulty: 1 Easy
Topic: Timing Strategies; Income-Shifting Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.; 03-04 Apply the strategy of income
shifting, provide examples, and describe its limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
26) The income shifting strategy requires taxpayers with varying
tax rates.
Answer: TRUE
Difficulty: 1 Easy
Topic: Income-Shifting Strategies
Learning Objective: 03-04 Apply the strategy of income
shifting, provide examples, and describe its limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
27) The assignment of income doctrine is a natural limitation to
the timing strategy.
Answer: FALSE
Explanation: The assignment of income doctrine requires
income to be taxed to the taxpayer who actually earns it.
Difficulty: 2 Medium
Topic: Timing Strategies; Additional Limitations to Tax
Planning Strategies: Judicial Doctrines
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.; 03-06 Describe basic judicial
doctrines that limit tax planning strategies.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
28) The business purpose, step-transaction, and
substance-over-form doctrines may limit the income shifting strategy.
Answer: TRUE
Difficulty: 2 Medium
Topic: Additional Limitations to Tax Planning Strategies:
Judicial Doctrines; Income-Shifting Strategies
Learning Objective: 03-06 Describe basic judicial
doctrines that limit tax planning strategies.; 03-04 Apply the strategy of
income shifting, provide examples, and describe its limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
29) Paying dividends to shareholders is one effective way of
shifting income from a corporation to its shareholders.
Answer: FALSE
Explanation: Because corporations don’t get a deduction
for dividends paid, paying dividends is not an
effective way to shift income.
Difficulty: 2 Medium
Topic: Income-Shifting Strategies
Learning Objective: 03-04 Apply the strategy of income
shifting, provide examples, and describe its limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
30) The conversion strategy capitalizes on the fact that tax
rates vary across different activities.
Answer: TRUE
Difficulty: 1 Easy
Topic: Conversion Strategies
Learning Objective: 03-05 Apply the conversion strategy,
provide examples, and describe its limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: FN Decision Making
31) An investment’s time horizon does not affect after-tax rates
of return on investments taxed annually.
Answer: TRUE
Difficulty: 2 Medium
Topic: Conversion Strategies
Learning Objective: 03-05 Apply the conversion strategy,
provide examples, and describe its limitations.
Bloom’s: Analyze; Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
32) Implicit taxes may reduce the benefits of the conversion
strategy.
Answer: TRUE
Difficulty: 2 Medium
Topic: Conversion Strategies
Learning Objective: 03-05 Apply the conversion strategy,
provide examples, and describe its limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: FN Decision Making
33) Investors must consider complicit taxes as well as explicit
taxes in order to make correct investment choices.
Answer: FALSE
Explanation: Investors must consider implicit as well as
explicit taxes.
Difficulty: 2 Medium
Topic: Conversion Strategies
Learning Objective: 03-05 Apply the conversion strategy,
provide examples, and describe its limitations.
Bloom’s: Analyze; Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
34) The business purpose, step-transaction, and
substance-over-form doctrines may limit the conversion strategy.
Answer: TRUE
Difficulty: 2 Medium
Topic: Conversion Strategies; Additional Limitations to
Tax Planning Strategies: Judicial Doctrines
Learning Objective: 03-05 Apply the conversion strategy,
provide examples, and describe its limitations.; 03-06 Describe basic judicial
doctrines that limit tax planning strategies.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: FN Decision Making
35) Tax avoidance is a legal activity that forms the basis of
the basic tax planning strategies.
Answer: TRUE
Explanation: Tax avoidance is legal; tax evasion is not.
Difficulty: 1 Easy
Topic: Tax Avoidance versus Tax Evasion
Learning Objective: 03-07 Contrast tax avoidance and tax
evasion.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: FN Decision Making
36) Tax evasion is a legal activity that forms the basis of the
basic tax planning strategies.
Answer: FALSE
Difficulty: 2 Medium
Topic: Tax Avoidance versus Tax Evasion
Learning Objective: 03-07 Contrast tax avoidance and tax
evasion.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: FN Decision Making
37) The downside of tax avoidance includes the potential of
stiff monetary penalties and imprisonment.
Answer: FALSE
Difficulty: 2 Medium
Topic: Tax Avoidance versus Tax Evasion
Learning Objective: 03-07 Contrast tax avoidance and tax
evasion.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
38) The goal of tax planning generally is to:
1. A)
minimize taxes.
2. B)
minimize IRS scrutiny.
3. C)
maximize after-tax wealth.
4. D)
support the Federal government.
5. E)
None of the choices are correct.
Answer: C
Difficulty: 2 Medium
Topic: Basic Tax Planning Overview
Learning Objective: 03-01 Identify the objectives of basic
tax planning strategies.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
39) Effective tax planning requires all of these considerations
except:
1. A)
nontax factors.
2. B)
the taxpayer’s tax costs of alternative transactions.
3. C)
the other party’s tax costs of alternative transactions.
4. D)
the other party’s nontax costs of alternative transactions.
5. E)
all of the choices are required considerations.
Answer: E
Difficulty: 2 Medium
Topic: Basic Tax Planning Overview
Learning Objective: 03-01 Identify the objectives of basic
tax planning strategies.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
40) Which is not a basic tax planning strategy?
1. A) Income
shifting.
2. B)
Timing.
3. C)
Conversion.
4. D)
Arms-length transaction.
5. E)
None of the choices are correct.
Answer: D
Difficulty: 1 Easy
Topic: Basic Tax Planning Overview
Learning Objective: 03-01 Identify the objectives of basic
tax planning strategies.
Bloom’s: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
41) Which of the following tax planning strategies is based on
the present value of money?
1. A)
timing.
2. B)
tax avoidance.
3. C)
income shifting.
4. D)
conversion.
5. E)
None of the choices are correct.
Answer: A
Difficulty: 1 Easy
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
42) Assuming a positive interest rate, the present value of
money suggests:
1. A) $1
today = $1 in one year.
2. B) $1
today > $1 in one year.
3. C) $1
today< $1 in one year.
4. D) $1
today ≤ $1 in one year.
5. E)
None of the choices are correct.
Answer: B
Difficulty: 1 Easy
Topic: Timing Strategies
Learning Objective: 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
43) If Joel earns a 10% after-tax rate of return, $10,000
received in two years is worth how much today? Use Exhibit 3.1 in the
text. (Round
present and future value amounts to 3 places)
1. A)
$10,000.
2. B)
$9,090.
3. C)
$8,260.
4. D)
$11,000.
5. E)
None of the choices are correct.
Answer: C
Explanation: $10,000 × 0.826 (Discount Factor, 2 years,
10%) = $8,260.
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
44) If Lucy earns a 6% after-tax rate of return, $8,000 received
in four years is worth how much today? Use Exhibit 3.1 in the text. (Round present and future value
amounts to 3 places)
1. A)
$8,000.
2. B)
$7,544.
3. C)
$8,989.
4. D)
$6,336.
5. E)
None of the choices are correct.
Answer: D
Explanation: $8,000 × 0.792 (Discount Factor, 4 years, 6%)
= $6,336.
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
45) If Nicolai earns an 8% after-tax rate of return, $20,000
today would be worth how much to Nicolai in 5 years? Use Exhibit 3.1 in the
text. (Round
present and future value amounts to 3 places)
1. A)
$20,000.
2. B)
$13,620.
3. C) $18,520.
4. D)
$21,600.
5. E)
None of the choices are correct.
Answer: E
Explanation: $20,000 × (1.08)5 = $29,387 or $20,000 ×
1.46933 = $29,387.
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
46) If Scott earns a 12% after-tax rate of return, $15,000 today
would be worth how much to Scott in 2 years?UseExhibit 3.1 in the text. (Round present and future
value amounts to 3 places)
1. A)
$15,000.
2. B)
$11,955.
3. C)
$18,520.
4. D)
$18,816.
5. E)
None of the choices are correct.
Answer: D
Explanation: $15,000 × (1.12)2 = $18,816 or $15,000 ×
1.25440 = $18,816.
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
47) If Rudy has a 25% tax rate and a 6% after-tax rate of
return, a $30,000 tax deduction in four years will save how much tax in today’s
dollars? Use Exhibit 3.1 in the text. (Round present and future value amounts to 3 places)
1. A)
$30,000.
2. B)
$7,500.
3. C)
$23,760.
4. D)
$5,940.
5. E)
None of the choices are correct.
Answer: D
Explanation: $30,000 × 0.25 (tax rate) × 0.792 (Discount
Factor, 6%, 4 years) = $5,940.
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.; 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
48) If Jim invested $100,000 in an annual-dividend paying stock
today with a 7 percent return, what investment time period will give Jim the
greatest after-tax return?
1. A) 1
year.
2. B) 5
years.
3. C) 10
years.
4. D) 20
years.
5. E)
All yield the same after-tax return.
Answer: E
Explanation: Time horizon doesn’t affect after-tax rate of
return on investments taxed annually.
Difficulty: 1 Easy
Topic: Timing Strategies; Conversion Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.; 03-05 Apply the conversion
strategy, provide examples, and describe its limitations.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
49) If Julius has a 30% tax rate and a 10% after-tax rate of
return, a $40,000 tax deduction in two years will save how much tax in today’s
dollars?Use Exhibit 3.1 in the text. (Round present and future value amounts to 3 places)
1. A)
$40,000.
2. B)
$9,912.
3. C)
$33,040.
4. D)
$12,000.
5. E)
None of the choices are correct.
Answer: B
Explanation: $40,000 × 0.30 (tax rate) × 0.826 (Discount
Factor, 10%, 2 years) = $9,912.
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.; 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
50) If Thomas has a 40% tax rate and a 6% after-tax rate of
return, $50,000 of income in five years will cost him how much tax in today’s
dollars? Use Exhibit 3.1 in the text. (Round present and future value amounts to 3 places)
1. A)
$50,000.
2. B)
$20,000.
3. C)
$37,350.
4. D)
$14,940.
5. E)
None of the choices are correct.
Answer: D
Explanation: $50,000 × 0.40 (tax rate) × 0.747 (Discount
Factor, 6%, 5 years) = $14,940.
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.; 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
51) If Julius has a 20% tax rate and a 10% after-tax rate of
return, $25,000 of income in three years will cost him how much tax in today’s
dollars? Use Exhibit 3.1 in the text. (Round present and future value amounts to 3 places)
755.
A) $3,755.
756.
B) $18,775.
757.
C) $5,000.
758.
D) $25,000.
759.
E) None of the choices are correct.
Answer: A
Explanation: $25,000 × 0.20 (tax rate) × 0.751 (Discount
Factor, 10%, 3 years) = $3,755.
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.; 03-03 Apply the concept of present
value to tax planning.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
52) Which of the following increases the benefits of income
deferral?
1. A)
Increasing tax rates.
2. B)
Smaller after-tax rate of return.
3. C)
Larger after-tax rate of return.
4. D)
Smaller magnitude of transactions.
5. E)
None of the choices are correct.
Answer: C
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
53) Which of the following decreases the benefits of
accelerating deductions?
1. A)
Decreasing tax rates.
2. B)
Smaller after-tax rate of return.
3. C)
Larger after-tax rate of return.
4. D)
Larger magnitude of transactions.
5. E)
None of the choices are correct.
Answer: B
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-02 Apply the timing strategy and
describe its applications and limitations.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
54) Which of the following does not limit the benefits of
deferring income?
1. A)
Increasing tax rates.
2. B) A
taxpayer with severe cash flow needs.
3. C) If
continuing an investment would generate a low rate of return.
4. D) If
continuing an investment would subject the taxpayer to unnecessary risk.
5. E)
None of the choices are correct.
Answer: E
Difficulty: 2 Medium
Topic: Timing Strategies
Learning Objective: 03-02 Applythe timing strategy and
describe its applications and limitations.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
55) The constructive receipt doctrine:
1. A) is
particularly restrictive for accrual basis taxpayers.
2. B)
causes income to be recognized before it is actually received.
3. C)
causes income to be recognized after it is actually received.
4. D)
applies equally to income and expenses.
5. E)
None of the choices are correct.
Answer: B
Difficulty: 2 Medium
Topic: Additional Limitations to Tax Planning Strategies: Judicial
Doctrines
Learning Objective: 03-06 Describe basic judicial
doctrines that limit tax planning strategies.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
56) 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, 2016 and doesn’t pick up his
check until January 2, 2017. When should Rolando report his bonus?
2017. A)
2017.
2018. B)
2016.
2019. C)
Rolando can choose the year to report the income.
2020. D) it
does not matter.
2021. E)
None of the choices are correct.
Answer: B
Difficulty: 2 Medium
Topic: Additional Limitations to Tax Planning Strategies:
Judicial Doctrines
Learning Objective: 03-06 Describe basic judicial
doctrines that limit tax planning strategies.
Bloom’s: Analyze
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
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