LO 12.6 10. Indicate whether the following statements are true or false:

_____ Decreasing one’s tax liability through legal methods is called tax avoidance, while illegally reducing taxes is called tax evasion.

_____ In a ‘‘closed’’ transaction, all tax-significant events have been completed.

_____ The marginal tax rate is computed as the total tax paid divided by the total income of the taxpayer.

_____ The marginal tax rate is the most important rate for decision making in tax-planning situations.

_____ One of the primary benefits of qualified pension plans is the deferral of taxation on the earnings which allows for tax-deferred compounding.

_____ The ‘‘ordinary and necessary test’’ is one of many tax traps facing taxpayers.

_____ For expenses to be deductible for tax purposes, they must be reasonable.

_____ The business purpose test will limit the tax benefit of transactions that are entered into solely for tax reasons.