13.3 - Tax Planning Flashcards

1
Q

What are the 4 roles of tax planning?

A
  • Assist individuals and businesses in reaching maximization of after-tax wealth in the most tax-efficient way possible
  • Considering alternative treatments
  • Projecting tax consequences
  • Determining role of taxes in decision making
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Identify the 3 basic types of tax planning?

A
  • Timing of income recognition
  • Shifting of income among taxpayers and jurisdictions
  • Conversion of income among high and low rate activities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Define “timing” of income recognition as a form of tax planning

A
  • Accelerates / defers recognition of income and /or deductions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the purpose or goal of accelerating / deferring recognition of income and/or deductions?

A
  • Results in lowest tax liability for the CY
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What 3 items should be considered in the timing of income recognition?

A
  • Time value of money
    • Can taxpayer make a higher return?
  • Future tax law
  • Individual circumstances of the taxpayer
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Identify the types of “shifting” transactions that take place as a form of tax planning

A
  • Moving income between entities and their owners
  • Shifting income from one jurisdiction to another with different marginal tax rates
  • Moving income and the tax liability from one family member to another who is subject to a lower marginal rate
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Define an arm’s length transaction

A
  • Occurs when involved parties act independently, regardless of relationships
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the purpose of an arm’s lenth transaction

A
  • Guarantee all parties act in their own self-interest and not for common good of all parties to IRS detriment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Identify 3 shifting determinants

A
  • Income / assets available for shifting
  • Best strategy for realizing the shift
  • Best recipient of income / asset within the family or entity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How does “shifting” occur in jursidiction shifting?

A

By the following:

  • City
  • County
  • State
  • Country
  • Internal / business encouraged by each country given credit for tax paid to the other
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Define “conversion” as a form of tax planning

A
  • Converting ordinary income property into capital gain property
  • Converting property to non-taxable property
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Provide examples of converting property to non-taxable property as part of a conversion tax plan

A
  • Investing in municipal bonds
  • Convert nondeductible personal expense to a business expense
  • Employee benefits
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Define tax avoidance

A

Minimization of tax liability through legal arrangements & transactions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When does tax avoidance normally take place?

A
  • Take place prior to incurring a tax liability
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Identify 5 actions that constitute tax evasion

A
  • Understatement of income
  • Improper allocation of income
  • Claiming of fictitious deductions
  • Questionable conduct of the taxpayer
  • Accounting irregularities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

When does tax evasion normally take place?

A
  • Takes place once a tax liability has already been incurred
17
Q

What is the key distinction between avoidance and evasion?

A

intent

18
Q

What class of crime is fraud?

A

Felony

19
Q

What are the legal consequences of committing fraud?

A
  • Fined not more than $100,000
    • $500,000 if a corporation
  • Imprisoned not more than 5 years