A taxpayer earning income in 'Cash'; and not reporting it as taxable income is an example of:

A. tax avoidance

B. tax evasion

C. conversion

D. income shifting

E. None of these

Answer: B

Investing in municipal bonds to avoid paying tax on interest earned and to earn a higher after-tax yield is an example of:

A. conversion

B. tax evasion

C. timing

D. income shifting

E. None of these

Answer: A

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 these

Answer: B

Assume that Will's marginal tax rate is 32% and his tax rate on dividends is 15%. If a dividend- paying stock (with no growth potential) pays a dividend yield of 8%, what interest rate must the corporate bond offer for Will to be indifferent between the two investments?

Assume that Will's marginal tax rate is 32% and his tax rate on dividends is 15%. If a dividend- paying stock (with no growth potential) pays a dividend yield of 8%, what interest rate must the corporate bond offer for Will to be indifferent between the two investments?

A. 12%

B. 11%

C. 10%

D. 8%

E. None of these

Answer: C

Assume that Jose is indifferent between investing in a corporate bond that pays 10% interest and a stock with no growth potential that pays an 8% dividend yield. Assume that the tax rate on dividends is 15%. What is Joses marginal tax rate?

A. 47%

B. 37%

C. 32%

D. 15%

E. None of these

Answer: C

Assume that Juanita is indifferent between investing in a corporate bond that pays 10.2% interest and a stock with no growth potential that pays a 6% dividend yield. Assume that the tax rate on dividends is 15%. What is Juanitas marginal tax rate?

A. 50%

B. 40%

C. 30%

D. 15%

E. None of these

Answer: A

The income shifting and timing strategies are examples of:

A. tax avoidance

B. tax evasion

C. illegal taxpayer strategies

D. All of these

E. None of these

Answer: A

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 these

Answer: D

Assume that Keisha's marginal tax rate is 40% and her tax rate on dividends is 15%. If a city of Atlanta bond pays 7.65% interest, what dividend yield would a dividend-paying stock (with no growth potential) have to offer for Keisha to be indifferent between the two investments?

Assume that Keisha's marginal tax rate is 40% and her tax rate on dividends is 15%. If a city of Atlanta bond pays 7.65% interest, what dividend yield would a dividend-paying stock (with no growth potential) have to offer for Keisha to be indifferent between the two investments?

A. 15%

B. 10%

C. 9%

D. 7.65%

E. None of these

Answer: C

Assume that Shavonnes 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 these

Answer: A

Assume that Larrys 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 these

Answer: D

Assume that Lavonias 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 these

Answer: E

Assume that Marsha is indifferent between investing in a city of Destin bond that pays 6% interest and a corporate bond that pays 8% interest. What is Marshas marginal tax rate?

A. 50%

B. 40%

C. 30%

D. 20%

E. None of these

Answer: E

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 Javiers marginal tax rate?

A. 50%

B. 40%

C. 30%

D. 20%

E. None of these

Answer: D

Which of the following is an example of the conversion strategy?

A. A corporation paying its shareholders a $20,000 dividend

B. A corporation paying its owner a $20,000 salary

C. A high tax rate taxpayer investing in tax exempt municipal bonds

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

E. None of these

Answer: C

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 these

Answer: A

Assume that Bills 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 these

Answer: E

Assume that Johns marginal tax rate is 40%. If a city of Austin bond pays 6% interest, what interest rate would a corporate bond have to offer for John to be indifferent between the two bonds?

A. 30%

B. 10%

C. 6%

D. 3.6%

E. None of these

Answer: B

Jasons employer pays year-end bonuses each year on December 31. Jason, a cash basis taxpayer, would prefer to not pay tax on his bonus this year (and actually would prefer his daughter to pay tax on the bonus). So, he leaves town on December 31, 2014 and has his daughter, Julie, pick up his check on January 2 nd , 2015. Who reports the income and when?

A. Julie in 2014

B. Julie in 2015

C. Jason in 2014

D. Jason in 2015

E. None of these

Answer: C

Which of the following is more likely to receive IRS scrutiny under the assignment of income doctrine?

A. A corporation paying its shareholders a $20,000 dividend

B. A parent employing her child in the family business

C. A taxpayer gifting stock to his children

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

E. None of these

Answer: B