Question 1

A sole proprietor paid legal fees in connection with the acquisition of a building that he uses in his business.The sole proprietor can deduct the legal fees for AGI.

Accepted Answer

A) True 
 B)False

Question 2

An expense is considered necessary if it is "appropriate and helpful" in the taxpayer's business.

Accepted Answer

A) True 
 B)False

Question 3

Chana purchased 400 shares of Tronco Corporation stock for $40,000 in 2014.On December 27,2019,Chana sells the 400 shares for $24,000.Chana purchases 300 shares of Tronco Corporation stock on January 16,2020 for $8,000.Chana's recognized loss on sale of the 400 shares in 2019 and her basis in her 300 new shares are

Accepted Answer

A)  $$\begin{array} { |l | l| } 
\hline \text { Recognized Loss } & \text { Basis } \
\hline \$ 0 & \$ 32,000\\hline
\end{array}$$ 
B)  $$\begin{array} {| l | l| } 
\hline \text { Recognized Loss } & \text { Basis } \
\hline \$ 4,000 & \$ 20,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} {| l | l| } 
\hline \text { Recognized Loss } & \text { Basis } \
\hline \$ 12,000 & \$ 20,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { |l | l| } 
\hline \text { Recognized Loss } & \text { Basis } \
\hline \$ 16,000 & \$ 8,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { |l | l| } 
\hline \text { Recognized Loss } & \text { Basis } \
\hline \$ 0 & \$ 32,000\\hline
\end{array}$$ 
B)  $$\begin{array} {| l | l| } 
\hline \text { Recognized Loss } & \text { Basis } \
\hline \$ 4,000 & \$ 20,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} {| l | l| } 
\hline \text { Recognized Loss } & \text { Basis } \
\hline \$ 12,000 & \$ 20,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { |l | l| } 
\hline \text { Recognized Loss } & \text { Basis } \
\hline \$ 16,000 & \$ 8,000 \
\hline
\end{array}$$

Question 4

Various criteria will disqualify the deduction of a business or investment related expenditure.Which of the following criteria will not disqualify a business or investment expenditure?

Accepted Answer

A) Capital expenditure 
B) Expenses related to tax-exempt income 
C) Expenses are not incurred annually. 
D) Expenses are illegal or in violation of public policy. 
A) Capital expenditure 
B) Expenses related to tax-exempt income 
C) Expenses are not incurred annually. 
D) Expenses are illegal or in violation of public policy.

Question 5

On August 1 of this year,Sharon,a cash-method taxpayer,signs a lease for office space and begins business.The lease is for 3 years.At the time the lease is signed,Sharon pays the $12,600 rent for the entire 36-month lease term.How much can Sharon deduct this year?

Accepted Answer

A) $350 
B) $1,750 
C) $5,950 
D) $12,600 
A) $350 
B) $1,750 
C) $5,950 
D) $12,600

Question 6

Fines and penalties are tax deductible if related to the taxpayer's trade or business.

Accepted Answer

A) True 
 B)False

Question 7

Pat,an insurance executive,contributed $1,000,000 to the reelection campaign of Governor Stephens,in hopes that Stephens will appoint her to a coveted position on the State Board of Insurance.How much of the contribution can Pat deduct?

Accepted Answer

A) $0 
B) $100,000 
C) $500,000 
D) $1,000,000 
A) $0 
B) $100,000 
C) $500,000 
D) $1,000,000

Question 8

Abby owns a condominium in the Great Smokey Mountains.During the year,Abby uses the condo a total of 21 days.The condo is also rented to tourists for a total of 79 days and generates rental income of $12,500.Abby incurs the following expenses: $$\begin{array} { | l | r | } 
\hline \text { Expense } & \text { Amount } \
\hline \text { Mortgage interest } & \$ 4,100 \
\hline \text { Property taxes } & 1,900 \
\hline \text { Utilities } & 2,200 \
\hline \text { Insurance } & 1,200 \
\hline \text { Depreciation } & 10,000 \
\hline
\end{array}$$ Using the IRS method of allocating expenses,the amount of depreciation that Abby may take with respect to the rental property will be

Accepted Answer

A) $5,074. 
B) $8,515. 
C) $7,900. 
D) $10,000. 
A) $5,074. 
B) $8,515. 
C) $7,900. 
D) $10,000.

Question 9

Which of the following factors is not used to determine whether an activity is a hobby or a business?

Accepted Answer

A) the taxpayer's expertise in the activity 
B) the taxpayer's financial status 
C) the personal pleasure derived from the activity 
D) the business success of the taxpayer in other dissimilar businesses 
A) the taxpayer's expertise in the activity 
B) the taxpayer's financial status 
C) the personal pleasure derived from the activity 
D) the business success of the taxpayer in other dissimilar businesses

Question 10

One of the criteria to be satisfied in order for a business to deduct an expense is that the expense be "necessary." In applying this standard,case law has determined that necessary means

Accepted Answer

A) indispensable if the business is to succeed. 
B) mandated by law. 
C) appropriate and helpful to the business. 
D) none of the above. 
A) indispensable if the business is to succeed. 
B) mandated by law. 
C) appropriate and helpful to the business. 
D) none of the above.

Question 11

Maria pays the following legal and accounting fees during the year: $$\begin{array} {| l | r | } 
\hline \text { Legal fees in connection with ongoing operations of a trade or business } & \$ 4,000 \
\hline \text { Legal fees related to purchase of personal residence } & 2,600 \
\hline \text { Legal fees related to tax deficiency related to Schedule A itemized } & \
\text { deductions } & 500 \
\hline \text { Tax return preparation fees: Allocable to preparation of Schedule C } & 2,000 \
\hline \text { Tax return preparation fees: Allocable to preparation of remainder of } & \
\text { return } & 2,100\\hline
\end{array}$$ What is the total amount of her for AGI deduction for these fees?

Accepted Answer

A) $4,000 
B) $6,000 
C) $8,100 
D) $11,200 
A) $4,000 
B) $6,000 
C) $8,100 
D) $11,200

Question 12

Under current tax law,a taxpayer has a choice of immediately deducting or capitalizing and amortizing current year research costs.When weighing this decision,the taxpayer should consider

Accepted Answer

A) expiring tax deduction carryovers. 
B) current and future marginal tax rates. 
C) time value of money. 
D) all of the above. 
A) expiring tax deduction carryovers. 
B) current and future marginal tax rates. 
C) time value of money. 
D) all of the above.

Question 13

If property that qualifies as a taxpayer's residence is rented for less than 15 days per year,the taxpayer includes no rental income in gross income and similarly may claim no expenses related to the property other than interest and taxes.

Accepted Answer

A) True 
 B)False

Question 14

A change to adjusted gross income cannot affect a taxpayer's itemized deductions.

Accepted Answer

A) True 
 B)False

Question 15

During the current year,Martin purchases undeveloped land as an investment.Martin intends to rent the land as pastureland and hopefully sell it later for a profit.In the current year,Martin receives no rent but he does pay taxes of $2,800,mortgage interest of $900 and liability insurance of $500.How much of these expenses can Martin deduct (before any limitations)on his current tax return?

Accepted Answer

A) $0 
B) $1,400 
C) $3,700 
D) $4,200 
A) $0 
B) $1,400 
C) $3,700 
D) $4,200

Question 16

For the years 2015 through 2019 (inclusive)Mary,a best-selling author,has been involved in operating an antique store.In 2015,2016 and 2017 her revenue exceeded the expenses from the activity.In 2018 and 2019,the antique store generated a loss.Which statement is correct?

Accepted Answer

A) The activity is a business.The IRS cannot prove it is a hobby. 
B) The activity is a hobby.Mary cannot prove it is a business. 
C) The activity is presumed to be a business.However,the IRS may prove it is a hobby. 
D) The activity is presumed to be a hobby.However,Mary may prove it is a business. 
A) The activity is a business.The IRS cannot prove it is a hobby. 
B) The activity is a hobby.Mary cannot prove it is a business. 
C) The activity is presumed to be a business.However,the IRS may prove it is a hobby. 
D) The activity is presumed to be a hobby.However,Mary may prove it is a business.

Question 17

Rob sells stock with a cost of $3,000 to his daughter for $2,200,which is its fair market value.Later the daughter sells the stock for $3,200 to an unrelated party.Which of the following describes the tax treatment to Rob and Daughter?

Accepted Answer

A)  $$\begin{array} { | l | l | } 
\hline \text { Rob } & \text { Daughter } \
\hline \text { Recognizes no loss } & \text { Recognizes gain of } \$ 1,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline\text { Rob } & \text { Daughter } \
\hline \text { Recognizes no loss } & \text { Recognizes gain of } \$ 200 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline\text { Rob } & \text { Daughter } \
\hline \text { Recognizes } \$ 800 \text { loss } & \text { Recognizes gain of } \$ 1,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline\text { Rob } & \text { Daughter } \
\hline \text { Recognizes } \$ 800 \text { loss } & \text { Recognizes gain of } \$ 200 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | l | } 
\hline \text { Rob } & \text { Daughter } \
\hline \text { Recognizes no loss } & \text { Recognizes gain of } \$ 1,000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | l | } 
\hline\text { Rob } & \text { Daughter } \
\hline \text { Recognizes no loss } & \text { Recognizes gain of } \$ 200 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | l | } 
\hline\text { Rob } & \text { Daughter } \
\hline \text { Recognizes } \$ 800 \text { loss } & \text { Recognizes gain of } \$ 1,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | l | } 
\hline\text { Rob } & \text { Daughter } \
\hline \text { Recognizes } \$ 800 \text { loss } & \text { Recognizes gain of } \$ 200 \
\hline
\end{array}$$

Question 18

Losses incurred on wash sales of stock or securities are generally disallowed in the year of sale.

Accepted Answer

A) True 
 B)False

Question 19

Kaitlyn owns a hotel in Phoenix,Arizona.The city of Phoenix has proposed legislation to increase the hotel room tax.Kaitlyn incurs $1,000 of lobbying expenses to discourage passage of the legislation.Kaitlyn can deduct the $1,000.

Accepted Answer

A) True 
 B)False

Question 20

American Healthcare (AH),an insurance company,is trying to persuade Congress to enact nationwide anti-smoking legislation.As part of this effort,AH paid $500,000 to hire a lobbying firm to discuss its concerns with members of Congress.AH also contributed $100,000 to candidates for political office who support limiting public smoking.What amount of these expenditures can AH deduct?

Accepted Answer

A) $0 
B) $100,000 
C) $500,000 
D) $600,000 
A) $0 
B) $100,000 
C) $500,000 
D) $600,000

Exam 22: Deductions and Losses

A sole proprietor paid legal fees in connection with the acquisition of a building that he uses in his business.The sole proprietor can deduct the legal fees for AGI.

An expense is considered necessary if it is "appropriate and helpful" in the taxpayer's business.

Various criteria will disqualify the deduction of a business or investment related expenditure.Which of the following criteria will not disqualify a business or investment expenditure?

On August 1 of this year,Sharon,a cash-method taxpayer,signs a lease for office space and begins business.The lease is for 3 years.At the time the lease is signed,Sharon pays the $12,600 rent for the entire 36-month lease term.How much can Sharon deduct this year?

Fines and penalties are tax deductible if related to the taxpayer's trade or business.

Pat,an insurance executive,contributed $1,000,000 to the reelection campaign of Governor Stephens,in hopes that Stephens will appoint her to a coveted position on the State Board of Insurance.How much of the contribution can Pat deduct?

Which of the following factors is not used to determine whether an activity is a hobby or a business?

One of the criteria to be satisfied in order for a business to deduct an expense is that the expense be "necessary." In applying this standard,case law has determined that necessary means

Under current tax law,a taxpayer has a choice of immediately deducting or capitalizing and amortizing current year research costs.When weighing this decision,the taxpayer should consider

If property that qualifies as a taxpayer's residence is rented for less than 15 days per year,the taxpayer includes no rental income in gross income and similarly may claim no expenses related to the property other than interest and taxes.

A change to adjusted gross income cannot affect a taxpayer's itemized deductions.

For the years 2015 through 2019 (inclusive)Mary,a best-selling author,has been involved in operating an antique store.In 2015,2016 and 2017 her revenue exceeded the expenses from the activity.In 2018 and 2019,the antique store generated a loss.Which statement is correct?

Rob sells stock with a cost of $3,000 to his daughter for $2,200,which is its fair market value.Later the daughter sells the stock for $3,200 to an unrelated party.Which of the following describes the tax treatment to Rob and Daughter?

Losses incurred on wash sales of stock or securities are generally disallowed in the year of sale.

Kaitlyn owns a hotel in Phoenix,Arizona.The city of Phoenix has proposed legislation to increase the hotel room tax.Kaitlyn incurs $1,000 of lobbying expenses to discourage passage of the legislation.Kaitlyn can deduct the $1,000.

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Business Expenses and Deferred Compensation

Itemized Deductions

Losses and Bad Debts

Depreciation,cost Recovery,amortization,and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods,tax Credits,and Payment of Tax

Tax Research

Corporations

Partnerships and S Corporations

Taxes and Investment Planning

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