CFP

Income Tax Law Fundamentals - Answer Key

1. C

Effective tax planning is known as tax avoidance. Investing in public muni-bonds provides interest exempt from both federal and AMT tax. Since she bought "local" muni-bonds, she is supporting a debt obligation of a local municipality. Home ownership is a good way to build long-term equity.

2.
B

Traditional IRAs, annuities and 401(k) plans are all examples of tax-deferred investment vehicles. Income earned in individual, joint and revocable trust accounts is all taxed in the year earned.

3.
A

Tax evasion is illegal and tax avoidance techniques are legal. The IRC is the highest source of tax authority. Tax-free income is exempt from federal income tax, but sometimes taxed at the state and local levels.

4.
D

Regulations are issued by the U.S. Treasury Department. All the other choices are responsibilities of the National Office of the IRS.

5.
D

All of the above statements are true concerning the federal tax trial and appeal courts.



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