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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
