ACC250 Chapter 3

Question 1

Transactions among unrelated taxpayers, where each transacting party negotiates for his or her own benefit.

Answer 1

arm’s-length transactions

Question 2

The judicial doctrine holding that earned income is taxed to the taxpayer providing the service, and that income from property is taxed to the individual who owns the property when the income accrues.

Answer 2

assignment of income doctrine

Question 3

The judicial doctrine that allows the IRS to challenge and disallow business expenses for transactions with no underlying business motivation.

Answer 3

business purpose doctrine

Question 4

The judicial doctrine that provides that a taxpayer must recognize income when it is actually or constructively received. Deemed to have occurred if the income has been credited to the taxpayer’s account or if the income is unconditionally available to the taxpayer, the taxpayer is aware of the income’s availability, and there are no restrictions on the taxpayer’s control over the income.

Answer 4

constructive receipt doctrine

Question 5

The factor based on the taxpayer’s rate of return that is used to determine the present value of future cash inflows (ex tax savings ) and outflows (ex tax paid).

Answer 5

discount factor

Question 6

Judicial doctrine that says transactions must meet two criteria to obtain tax benefits: 1. must meaningfully change a taxpayer’s economic position and 2. taxpayer must have a substantial purpose for the transaction.

Answer 6

economic substance doctrine

Question 7

The concept that $1 today is (i.e. will be) worth more than $1 in the future. ex. $1 invested today should be worth $1.50 in one year. Hence, $1 today is equivalent to $1.05 in one year.

Answer 7

present value

Question 8

Financial activities among family members, among owners and their businesses, or among businesses owned by the same owners.

Answer 8

related-party transaction

Question 9

Judicial doctrine that allows the IRS to collapse a series of related transactions into one transaction to determine the tax consequences of the transaction.

Answer 9

step-transaction doctrine

Question 10

Judicial doctrine that allows the IRS to consider the transaction’s substance regardless of its form and, where appropriate, reclassify the transaction according to its substance.

Answer 10

substance-over-form doctrine

Question 11

The legal act of arranging one’s transactions or affairs to reduce taxes paid.

Answer 11

tax avoidance

Question 12

The willful attempt to defraud the government. Falls outside the confines of legal tax avoidance.

Answer 12

tax evasion