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TXX 5772 –
1. The sales tax is the perfect example of a (or an):
a. direct tax
b. income tax
c. head tax
d. progressive tax
e. none of the above
2. In the McDonell case, the first determination the Tax Court made was:
a. it excluded the benefit of the trip from taxpayer’s gross income.
b. that the trip was not a prize or award under Section 74.
c. it included the benefit of the trip in the taxpayer’s gross income.
d. that the trip was a prize or award under Section 74.
e. none of the above.
3. Congress’s purpose in enacting Section 117 was:
a. to provide a clear-cut method for distinguishing between taxable and non-taxable educational grants.
b. to include in gross income amounts received as grants by degree candidates.
c. to clearly define the term scholarships.
d. to clearly define educational expenses for purposes of educational grants.
e. none of the above.
4. If an employee receives an amount from his or her employer for educational assistance, he or she may exclude a certain amount. The code Section which permits this is Section:
a. 74
b. 102
c. 132
d. 274
e. none of the above.
5. Which of the following statements is false?
a. In all situations, the basis of property in the hands of a done is the same basis the property had in the hands of the donor.
b. A major revision of the 1954 Internal Revenue Code occurred in 1969.
c. “Gestalt,” in the context of learning the Internal Revenue Code “Code” refers to the phase of a person’s understanding when one begins to understand the structure or pattern of the Code.
d. Gross income does not include the amount of any damage received on account of personal injuries.
e. all of the above are true.
6. Kent Knobe gave Larry Lawson a gift having a fair market value of $133,000 on February 14, 2012. Kent had purchased the gift property in 2004 for $93,000, the taxable gift was $120,000, and paid a gift tax of $1
5,000
. What is Larry’s basis in the property?
a. $93,000
b. $120,000
c. $9
8,000
d. $108,000
e. $133,000
7. Starting in 2012, Mr. West must pay his former spouse $20,000 annually under a divorce decree in the following amounts:
$
1,000
a month for mortgage payments (including principal and interest) on a jointly owned home until she dies
$200 a month for tuition fees paid to a private school until their son attains the age of 18 or leaves the school prior to age 18
$5,000 a year cash payment to former Mrs. West until she dies
In addition to the above amounts, the former Mrs. West also received in 2012 a lump-sum amount of $150,000 from the sale of their other marital assets.
Assume the parties did not file a joint return and were not members of the same household. Also, assume that there were no written statements between the parties as to how the amounts should be treated. What is the amount of Mr. West’s 2012 alimony deductions?
a. $20,000
b. $155,000
c. $17,600
d. $11,000
8. Holly and Harp Oaks were divorced in 2010. The divorce decree was silent regarding the exemption for their 12-year-old daughter, June. Holly has legal custody of her daughter and did not sign a statement releasing the exemption. Holly earned $8,000 and Frank earned $80,000. June had a paper route and earned $3,000. June lived with Harp 4 months of the year and with Holly 8 months. Who may claim the exemption for June in 2012?
a. June may, since she had gross income over $3,000 and files her own return.
b. Since June lived with both Holly and Harp during the year, they both may claim her as an exemption.
c. Holly may, since she has legal custody and physical custody for more than half the year.
d. Harp may, since he earned more than Holly and, therefore, is presumed to have provided more than 50% of June’s support.
9. Based on the following 2012 events, how much should Rachel include in income on her federal income tax return?
|
Jury awarded punitive damages
|
$10,000
|
|
Kickbacks on sale of goods (not treated as a reduction elsewhere)
|
5,000 |
|
Money borrowed from a bank
|
8,000 |
|
Increase in the value of an asset
|
1,000 |
a. $10,000
b. $15,000
c. $16,000
d. $24,000
10. Insurance policy dividends used to purchase additional life insurance are not taxable to the policyowner.
a. True
b. False
11. Dividend payments made by an insurance company that are based on an policy and that exceed the total amount of premiums paid by the insured are taxable to the insured.
a. True
b. False
12. On a business-related life insurance policy, if it is cashed out during the life of a terminally-ill or chronically-ill person, the amount is excluded from gross income.
a. True
b. False
13. Which of the following is false?
a. Taxability of the recovery of damages can be determined, in part, by identifying the nature of the injury.
b. An annuity is a contract that pays a fixed income at set regular intervals for a specific period of time.
c. Gross income includes amounts from the forgiveness of loans made by educational organizations to refinance existing student loans.
d. Insurance policy dividends used to purchase additional life insurance are not taxable to the policyowner.
e. all of the above are true.
14. On February 10, 2012, Rose was in an automobile accident while she was going to work. The doctor advised her to stay home for six months due to her injuries. On February 25, 2012, she files a lawsuit. On July 20, 2012, Rose returned to work. On December 15, 2012 the lawsuit was settled received the following amounts:
|
Compensation for lost wages
|
$25,000
|
|
Personal injury damages awarded (none of which was for punitive damages) |
40,000
|
How much of the settlement must Rose include in ordinary income on her 2012 tax return?
a. $0
b. $25,000
c. $40,000
d. $65,000
15. All of the following would be excluded from income as a qualified scholarship by an individual who is a candidate for a degree at a qualified educational institution, except:
a.Tuition
b. Student fees
c. Course books
d. Room and board
16. To be deductible for tax purposes, trade or business expenses must be:
a. Ordinary and necessary
b. Reasonable in amount
c. Related to an activity which is deemed to be a trade or business
d. All of the above
17. Business depreciable property placed in service prior to what year is not eligible for ACRS depreciation?
a. 1978
b. 1980
c. 1981
d. 1982
18. A nonbusiness bad debt is deductible for tax purposes as a(n):
a. Short-term capital loss
b. Itemized deduction
c. Long-term capital loss
d. Ordinary business deduction
19. The IRS takes the position that a taxpayer’s tax home, for purposes of determining travel expenses, is at the location of the taxpayer’s:
a. Principal place of business
b. Personal residence
c. Principal place of business or personal residence, whichever results in a lower tax deduction
d. Personal residence if located in excess of 50 miles from principal place of business
20. If a taxpayer has two places of business in different areas, the IRS usually considers the following factors in determining the taxpayer’s principal place of business: (Choose the wrong answer.)
a. Taxpayer’s preference for principal place of business
b. Degree of business activity at each location
c. Amount of income at each location
d. Amount of time spent at each location
21. Research and experimental expenditures connected with a trade or business can be capitalized and amortized for tax purposes over a period of not less than:
a. 30 months
b. 60 months
c. 120 months
d. 180 months
22. A calendar-year corporation incurs $53,000 of start-up costs. If the corporation began business on August 1 of the current year, what is the maximum amount of the start-up costs that it can deduct against business income in the current year? (round your answer to the nearest dollar)
a. $3,417
b. $5,000
c. $2,000
d. $6,333
e. none of the above
23. During the current year, a calendar year corporation incurred $52,000 of research and experimental expenditures. The corporation elects to capitalize and amortize the costs over 60 months. If the corporation first realizes benefits from the research and experimental expenditures on November 1 of the current year, its R&E deduction will equal:
a. $4,633
b. $3,544
c. $2,217
d. $1,733
24. Ann Jones uses a dry cleaning machine in her business, and it was completely destroyed by fire. At the time of the fire, the adjusted basis was $20,000 and its fair market value was $18,000. How much is Ann’s loss?
a. $18,000
b. $2,000
c. $20,000
d. None of the above
25. Ann Jones uses a dry cleaning machine in her business, and it was partially destroyed by fire. At the time of the fire, the adjusted basis was $20,000 and its fair market value was $18,000. The adjusted basis after the fire is $10,000 and the fair market value after the casualty is $10,000. How much is the casualty loss?
a. $10,000
b. $8,000
c. $18,000
d. $20,000
26. ABC, Inc. of Jasper, Georgia suffered a casualty loss of $150,000 in March 2012. This loss was caused by heavy rains that completely flooded their factory. As a result of these rains, the President declared North Georgia (including Jasper) a disaster area on March 23, 2012. In what year can ABC, Inc. elect to deduct the casualty loss?
a. 2012 or 2013
b. 2011 or 2012
c. 2012
d. 2011
27. Which of the following is not a passive activity?
a. Owning a business and not materially participating
b. Having rental condos
c. Owning a limited partnership interest in a real estate limited partnership
d. Owning a working interest in oil and gas properties
28. All of the outstanding stock of a closely held C corporation is owned equally by Evelyn Humo and Steve Bufusno. In 2012, the corporation generates taxable income of $20,000 from its active business activities. In addition, it earns $20,000 of interest from investments and incurs a $40,000 loss from a passive activity. How much income does the C corporation report for 2012?
a. $10,000 of portfolio income
b. $0
c. $20,000 of portfolio income
d. None of the above
29. All of the outstanding stock of a closely held C corporation is owned equally by Evelyn Humo and Steve Bufusno. In 2012, the corporation generates taxable income of $20,000 from its active business activities. In addition, it earns $20,000 of interest from investments and incurs a $40,000 loss from a passive activity. How much of a passive loss carryover does the corporation have?
a. $20,000 b. $0 c. $40,000 d. None of the above
30. During 2012, Hugh Hughes reported the following income and loss:
Activity X ($50,000)
Activity Y $20,000
Both Activity X and Activity Y are passive to Mr. Hughes. Hugh purchased Activity X in 1987 and Activity Y in 1993. How much is the loss that Mr. Hughes may deduct in 2012?
a. $50,000
b. $30,000
c. $3,000
d. $0
e. none of the above
31. John Mapp dies with passive activity property having an adjusted basis of $50,000, suspended losses of $20,000, and a fair market value at the date of Mr. Mapp’s death of $77,000. How much suspended loss can be taken on Mr. Mapp’s final Form 1040 return?
a. $20,000
b. $77,000
c. $7,000
d. $0 e. none of the above
32. John Mapp dies with passive activity property having an adjusted basis of $50,000, suspended losses of $20,000, and a fair market value at the date of Mr. Mapp’s death of $60,000. How much suspended loss can be taken on Mr. Mapp’s final Form 1040 return?
a. $10,000
b. $20,000
c. $0
d. None of the above
33. Billy Ray owns several parcels of rental real estate, and he actively participates in managing the properties. His total loss from these activities in 2012 is $30,000. Assuming that his AGI for 2012 is $110,000, what is the allowable deduction from these properties in 2012?
a. $0
b. $15,000
c. $20,000
d. $30,000
e. none of the above
34. Billy Ray owns several parcels of rental real estate, and he actively participates in managing the properties. His total loss from these activities in 2012 is $30,000 and his AGI for 2012 is $110,000. How much of the disallowed loss from rental real estate activities may be carried over to future years?
a. 0%
b. 10%
c. 50%
d. 100%
e. None of the above
35. Billy Ray owns several parcels of rental real estate, and he actively participates in managing the properties. His total loss from these activities in 2012 is $30,000 and his AGI for 2012 is $110,000. For how many years may the disallowed loss be carried forward?
a. The disallowed loss may not be carried forward.
b. The disallowed loss may be carried forward for 15 years.
c. The disallowed loss may be carried forward for 15 years, but only after it has been carried back for 3 years.
d. The disallowed loss may be carried forward indefinitely.
e. none of the above
36. Fines and penalties paid to the government for the violation of a law are:
a. Generally deductible for tax purposes as business expenses
b. Not deductible for tax purposes
c. Deductible if ordinary and necessary
d. Deductible if reasonable in amount
e. none of the above
37. Which of the following statements is false?
a. Even if an employee has contributed his own taxed dollars to the purchase of an annuity under a qualified plan, his receipts
under the annuity, whether variable or fixed, will be fully taxable to him or her as ordinary income.
b. Life benefits (i.e., received during the life of the insured) received under a life insurance policy are subject to tax.
c. The legislative history of the 1954 Code makes it clear that, while sec. 61 omits the phrase “in whatever form paid,” the definition of gross income still includes “income realized in any form.”
d. Debt discharge that is intended as a gift is treated as a gift rather than under the debt discharge rules.
e. all of the above are true.
38. Jerome Judson’s divorce decree calls for him to pay his former wife $200 a month as child support and $200 a month as alimony. This year he paid only $3,600. Jerome may deduct $1,800 as alimony.
a. True b. False
39. On August 1 of this year, Bart Barnes transferred property to his former spouse in settlement of marital rights, under a divorce instrument effective July 26. The property cost $10,000 and had a fair market value of $20,000 when transferred. Bart will recognize gain on the transfer.
a. True b. False
40. Cal Cotton, under a divorce instrument, is required to make mortgage payments and pay real estate taxes and insurance premiums on property owned by him but used by his former wife as her residence. Cal may deduct these payments as alimony.
a. True b. False
41. In order to limit the extent that “front-loaded” payments may qualify as alimony, a recapture rule may apply to the part of the payments made in the first two post-separation years that exceed $25,000 a year.
a. True b. False
42. Paul and Joan divorced in 2012. They have two children, ages five and ten. The divorce decree requires Joan to pay $300 a month to Paul and does not specify the use of the money. According to the decree, the payments will stop after the children reach 18. Joan may deduct payments as alimony.
a. True b. False
43. Bob Bixby gave his daughter, Jane, his personal residence with an adjusted basis to him of $260,000 and a fair market value of $250,000. Jane lived in the house for two years and then sold it for $240,000. As a result of the sale, Jane will:
a. Report no gain or loss
b. Report a $10,000 loss
c. Report a $20,000 loss
d. Have her father report a $20,000 loss
e. none of the above
44. A Treasury Regulation contains the following statement: “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the facts.” This statement refers to which of the following concepts?
a. the economic reality test
b. fair allocation of income and expenses
c. transfer pricing rule
d. fair accounting in order to reflect true accretion to income
e. none of the above
45. Upon winning an award, the recipient, and if he or she wants to avoid inclusion in income, he or she must:
a. disavow the award in favor of a charitable or governmental entity prior to the award being granted.
b. disavow the award in favor of a charitable or governmental entity within 30 days of the date the award is granted.
c. disavow the award in favor of a charitable or governmental entity within 45 days of the date the award is granted.
d. disavow the award in favor of a charitable or governmental entity within 90 days of the date the award is granted.
e. none of the above.
46. All of the following statements are true, except:
a. Retroactive income taxes may not be passed by Congress because they are unconstitutional.
b. In general, the Treasury Department may not issue retroactive regulations.
c. Robert Hall was one of the academic proponents of the flat tax.
d. The first internal-revenue law was enacted in March 1791.
e. all of the above are true.
47. The formal origin of tax law is a bill which is introduced in the House of Representatives.
a. Commonly, the bill passed by the House is passed by the Senate almost identically to the way it was passed by the House.
b. Commonly, the president passes the bill, introduced in the House; prior to the House passing it, but before there is a chance that it be vetoed.
c. Commonly, the Treasury Department has little to do with the drafting of a bill having to do with federal taxation.
d. Commonly, the primary author of a tax bill is the majority leader of the House.
e. none of the above.
48. In 1913, the XVI Amendment to the U.S. Constitution gives Congress the power to tax.
a. True b. False
49. Sometimes, albeit rarely, federal income taxation statutory law can be found in other federal statutes (other than the Internal Revenue Code). An example of this is
a. deductibility of office in the home deduction for anesthesiologists
b. deductibility of moving expenses of armed forces personnel
c. deductibility of passive real estate losses in excess of revenue
d. deductibility of excess revenue from oil from excess costs
e. none of the above
50. The text states that reading the Internal Revenue Code cold is not very productive. They posit that it must be read:
a. in the abstract
b. with a philosophical eye
c. with a specific circumstance in mind
d. with general thoughts in mind
e. with an open mind
51.
Which of the following in not a payment deductible as alimony?
a. Payments for life insurance premiums required by the divorce decree.
b. Payments for medical expenses of your spouse under the terms of the divorce decree.
c. Half of the mortgage payment on a home jointly owned with your ex-spouse when required by the divorce decree
d. Payments for child support required by the divorce decree
