1. The timing strategy becomes more attractive if a taxpayer is able to accelerate deductions by two or more years (versus one year). True False 2. When considering cash inflows, higher present values are preferred. True False 3. 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. True False 4. Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2012, how much federal tax will he owe? A. $15,000.00 B. $12,375.00 C. $11,030.00 D. $9,645.00 E. None of these 5. Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2012, what is his effective tax rate (rounded)? A. 23.08% B. 16.97% C. 14.84% D. 25.00% E. None of these 6. The city of Granby, Colorado recently enacted a 1.5% surcharge on vacation cabin rentals that will help pay for the city's new elementary school. This surcharge is an example of _______. A. A sin tax to discourage undesirable behavior B. A government fine C. An earmarked tax D. Both A and C E. None of these 7. Al believes that SUVs have negative social and environmental effects because of their increased carbon monoxide emissions. He proposes eliminating sales taxes on smaller automobiles in favor of higher sales taxes levied on SUVs. Al performs some calculations and comes to the conclusion that based on the current number of SUVs owned in the U.S. exactly the same amount of total sales tax will be collected under his reformed system. Which of the following concepts explains why Al's idea may not work? A. The ability to pay principle B. Horizontal equity C. Substitution effect D. Vertical equity E. None of these 8. If Susie earns $750,000 in taxable income and files as head of household for year 2012, what is Susie's average tax rate (rounded)? A. 31.44% B. 31.90% C. 33.00% D. 35.00% E. None of these 9. Which of the following is not a factor that determines whether a taxpayer is required to file a tax return? A. Filing status. B. Taxpayer's gross income. C. Taxpayer's employment. D. Taxpayer's age. E. None of these. 10. Which of the following is not a common method that the IRS uses to select returns for audit? A. DIF system. B. Tax Select system. C. Information matching. D. Document perfection. E. None of these. 11. Tyrone claimed a large amount of charitable contributions as a tax deduction relative to taxpayers with similar levels of income. If Tyrone's tax return is chosen for audit because of his large charitable contributions, which audit program likely identified Tyrone's tax return for audit? A. DIF System. B. Deduction Detective. C. Document perfection. D. Information matching. E. None of these. 12. Dan received a letter from the IRS that gave him the choice of (1) requesting a conference with an Appeals Officer or (2) agreeing to a proposed tax adjustment. Dan received the: A. 30-day letter. B. 90-day letter. C. Appeals letter. D. Tax adjustment letter. E. None of these. 13. Lavonda discovered that the U.S. Circuit Court of Appeals for the Federal Circuit has recently issued a favorable opinion with respect to an issue that she is going to litigate with the IRS. Lavonda should choose which of the following trial courts to hear her case: A. Tax Court only. B. U.S. Court of Federal Claims only. C. U.S. District Court only. D. Tax Court or the U.S. District Court. E. Tax Court or the U.S. Court of Federal Claims. 14. Which of the following has the highest authoritative weight? A. Text book. B. Private letter ruling. C. Revenue ruling. D. Tax service. E. Tax article. 15. Josephine is considering taking a 6 month rotation in Paris for her job. Which type of authority may be especially helpful in determining the tax consequences of Josephine's job in Paris? A. Determination letter. B. Private letter ruling. C. Tax treaty. D. Regulation. E. Revenue procedure. 16. Which of the following has the lowest authoritative weight? A. Legislative regulation. B. Private letter ruling. C. Revenue ruling. D. Interpretative regulation. E. Revenue procedure. 17. The regulation with the lowest authoritative weight is the: A. procedural regulation B. interpretative regulation C. proposed regulation D. legislative regulation E. None of the above 18. 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? A. Tax Court B. District Court C. Circuit Court D. Divorce Court E. None of the above 19. Edie would like to better understand a new code section enacted four weeks ago. Which of the following authorities will help Edie understand the newly enacted code section? A. IRS regulations. B. U.S. Tax Court cases. C. Committee reports. D. IRS revenue rulings. E. None of these. 20. Which of the following is not a source of a tax practitioner's professional responsibilities? A. AICPA Code of Professional Conduct. B. Statements on Standards for Tax Services. C. Circular 230. D. State Board of Accountancy statutes. E. None of these. 21. Which is not a basic tax planning strategy? A. income shifting B. timing C. conversion D. arms length transaction E. None of these 22. 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 (rounded)? A. $3,755 B. $18,775 C. $5,000 D. $25,000 E. None of these 23. Which of the following is an example of the timing strategy? A. A cash basis taxpayer paying all of its outstanding bills by year end B. A parent employing her child in the family business C. A business paying its owner a $30,000 salary D. A taxpayer investing in a tax preferred investment E. None of these 24. 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 25. 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? A. constructive receipt doctrine B. implicit tax doctrine C. assignment of income doctrine D. step-transaction doctrine E. None of these Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. 26. If Leonardo earned an additional $30,000 of taxable income this year, what would be the marginal tax rate (rounded) on the extra income for year 2012? A. 28.21% B. 25.00% C. 28.00% D. 33.00% E. None of these Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. 27. If Leonardo and his wife file married filing jointly in 2012, what would be their average tax rate (rounded)? A. 15.00% B. 25.00% C. 18.89% D. 24.12% E. None of these Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%. 28. If Curtis invested in the Initech, Inc. bonds, what would be his after-tax rate of return from this investment? A. 5.04% B. 7.00% C. 6.48% D. 2.52% E. None of these Jackson has the choice to invest in city of Mitchell bonds or Sundial, Inc. corporate bonds that pay 10% interest. Jackson is a single taxpayer who earns $50,000 annually. Assume that the city of Mitchell bonds and the Sundial, Inc. bonds have similar risk. 29. What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial, Inc. bonds for year 2012? A. 7.50% B. 10.00% C. 8.00% D. 7.20% E. None of these 30. Bono owns and operates a sole proprietorship and has a 30% marginal tax rate. He provides his son, Richie, $12,000 a year for college expenses. Richie, works as a street musician and has a marginal tax rate of 15%. What could Bono do to reduce his family tax burden? How much pre-tax income does it currently take Bono to generate the $12,000 after-taxes given to Richie? If Richie worked for his father's sole proprietorship, what salary would Bono have to pay him to generate $12,000 after taxes? (Ignore any Social Security, Medicare, or Self Employment Tax issues.) How much money would this strategy save