Question 1

Explain how returns are selected for audit.

Accepted Answer

The IRS uses both computers and experien

Question 2

Nick sells land with a $7,000 adjusted basis for $10,000. Nick receives a $2,000 down payment with the balance o due the following year. Nick is unable to collect the remaining $8,000 and, after incurring legal fees of $500, he repossesses the land when it has a fair market value of $9,000.
a. What is the amount of gain that Nick must report in the first year?
b. What is the amount of gain that Nick must report in the second year?
c. What is the basis in the repossessed stock?

Accepted Answer

a. The gross profit percentage is $3,000

Question 3

Sumedha is the beneficiary of her mother's $500,000 life insurance policy. She receives $54,000 per year over ten years in settlement of her mother's policy. Sumedha will exclude the $54,000 proceeds received each year from the life insurance company.

Accepted Answer

A) True 
 B)False

Question 4

Jeremy has $18,000 of Sec. 1231 gains and $23,000 of Sec. 1231 losses. The gains and losses are characterized as

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 5

In order to qualify to file as surviving spouse, all of the following criteria must be met by the widow or widower except

Accepted Answer

A)  he or she must be a U.S. citizen or resident. 
B)  he or she must have at least one dependent child living at home the entire year and pay over half of the expenses of the home. 
C)  he or she must be qualified to file a joint return in the year of death. 
D)  he or she and the decedent must have shared the same household as of date of death. 
A)  he or she must be a U.S. citizen or resident. 
B)  he or she must have at least one dependent child living at home the entire year and pay over half of the expenses of the home. 
C)  he or she must be qualified to file a joint return in the year of death. 
D)  he or she and the decedent must have shared the same household as of date of death.

Question 6

Total Corporation has earned $75,000 current E&P and has an accumulated E&P deficit from prior year of $25,000. The corporation pays a $100,000 distribution to shareholders. Shareholders of the corporation have a total stock basis of $40,000. The tax results of the distributions to the shareholders will be

Accepted Answer

A)  dividend income of $75,000 and tax- free return of capital of $25,000. 
B)  dividend income of $60,000 and tax- free return of capital of $40,000. 
C)  dividend income of $50,000, tax- free return of capital of $40,000 and capital gain of $10,000. 
D)  dividend income of $100,000. 
A)  dividend income of $75,000 and tax- free return of capital of $25,000. 
B)  dividend income of $60,000 and tax- free return of capital of $40,000. 
C)  dividend income of $50,000, tax- free return of capital of $40,000 and capital gain of $10,000. 
D)  dividend income of $100,000.

Question 7

Adanya's marginal tax rate is 37% and she is trying to decide whether to invest in tax- exempt bonds which pay 5% interest or taxable bonds paying 7% interest. The bonds have equivalent risk. Which of the bonds would yield the highest amount of income after taxes?

Accepted Answer

The taxable bonds yield 4.41%

Question 8

Which of the following statements regarding proposed regulations is not correct?

Accepted Answer

A)  Practitioners and other interested parties may comment on proposed regulations. 
B)  Proposed and temporary regulations are generally issued simultaneously. 
C)  Proposed regulations do not provide any insight into the IRS's interpretation of the tax law. 
D)  Proposed regulations expire after three years. 
A)  Practitioners and other interested parties may comment on proposed regulations. 
B)  Proposed and temporary regulations are generally issued simultaneously. 
C)  Proposed regulations do not provide any insight into the IRS's interpretation of the tax law. 
D)  Proposed regulations expire after three years.

Question 9

Fin is a self- employed tutor, regularly meeting with clients in a 100 square foot area of his home. Fin is terrible at keeping records. Without the records, he will be able to deduct $500 for a home office deduction for AGI.

Accepted Answer

A) True 
 B)False

Question 10

All recognized gains and losses must eventually be classified either as capital or ordinary.

Accepted Answer

A) True 
 B)False

Question 11

Elisa sued her former employer for discrimination. She was awarded $200,000 for lost wages, $30,000 for medical expenses related to emotional distress resulting from the discrimination, and $300,000 in punitive damages. The amount taxable is

Accepted Answer

A)  $500,000. 
B)  $200,000. 
C)  $0. 
D)  $530,000. 
A)  $500,000. 
B)  $200,000. 
C)  $0. 
D)  $530,000.

Question 12

Five different capital gain tax rates could apply to long- term capital assets sold by noncorporate taxpayers.

Accepted Answer

A) True 
 B)False

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

Hope sustained a $3,600 casualty loss due to a severe rainstorms classified as a federal disaster. She also incurred a $800 loss from a tornado also classified as a federal disaster in the same year. Both losses involved personal- use property. Hope's AGI for the year is $25,000 and she does not have insurance coverage. Hope's deductible casualty loss is

Accepted Answer

A)  $4,300. 
B)  $4,200. 
C)  $1,800. 
D)  $1,700. 
A)  $4,300. 
B)  $4,200. 
C)  $1,800. 
D)  $1,700.

Question 15

XZ Partnership has two equal partners. Assume no taxpayer qualifies for the small business exception. XY earns
$16 million of non- interest ordinary income and incurs $6 million of interest expense.
a. How much interest expense can the partnership deduct in determining the partnership's ordinary income?
b. What is each partner's share of the partnership's ordinary income?
c. If the interest expense is not fully deducted this year, how is the excess treated?

Accepted Answer

a. The partnership's interest expense de

Question 16

Dwayne has general business credits totaling $30,000 before limitation. His regular tax liability is $83,000 and his tentative minimum tax is $79,000. What amount of general business credit can Dwayne take this year?

Accepted Answer

A)  $14,500 
B)  $4,000 
C)  $30,000 
D)  $25,000 
A)  $14,500 
B)  $4,000 
C)  $30,000 
D)  $25,000

Question 17

This year, a contractor agrees to build a building for $2,000,000, which will be completed by the end of next year. The builder's cost is estimated to be $1,700,000. The actual costs this year are $800,000 and next year's actual costs are $800,000. If the tax rate is 20% and the interest rate is 10%, the look back interest for the percentage of completion method is

Accepted Answer

A)  $0. 
B)  $1,176. 
C)  $6,000. 
D)  $2,000. 
A)  $0. 
B)  $1,176. 
C)  $6,000. 
D)  $2,000.

Question 18

An employer contributing to a qualified retirement plan will be allowed a deduction when the employee recognizes the income at retirement or separation from service.

Accepted Answer

A) True 
 B)False

Question 19

Derek, a single taxpayer, has AGI of $55,000 which includes $5,000 of qualified dividends. Derek does not itemize deductions. What is his 2018 federal income tax?

Accepted Answer

A)  $5,030 
B)  $5,400 
C)  $5,120 
D)  $5,015 
A)  $5,030 
B)  $5,400 
C)  $5,120 
D)  $5,015

Question 20

Witte Corporation reported the following results for the current year:   What is the amount of the charitable contribution carryover to next year?

Accepted Answer

A)  $16,000 
B)  $0 
C)  $14,000 
D)  $30,000 
A)  $16,000 
B)  $0 
C)  $14,000 
D)  $30,000

Explain how returns are selected for audit.

Sumedha is the beneficiary of her mother's $500,000 life insurance policy. She receives $54,000 per year over ten years in settlement of her mother's policy. Sumedha will exclude the $54,000 proceeds received each year from the life insurance company.

Jeremy has $18,000 of Sec. 1231 gains and $23,000 of Sec. 1231 losses. The gains and losses are characterized as

In order to qualify to file as surviving spouse, all of the following criteria must be met by the widow or widower except

Adanya's marginal tax rate is 37% and she is trying to decide whether to invest in tax- exempt bonds which pay 5% interest or taxable bonds paying 7% interest. The bonds have equivalent risk. Which of the bonds would yield the highest amount of income after taxes?

Which of the following statements regarding proposed regulations is not correct?

Fin is a self- employed tutor, regularly meeting with clients in a 100 square foot area of his home. Fin is terrible at keeping records. Without the records, he will be able to deduct $500 for a home office deduction for AGI.

All recognized gains and losses must eventually be classified either as capital or ordinary.

Elisa sued her former employer for discrimination. She was awarded $200,000 for lost wages, $30,000 for medical expenses related to emotional distress resulting from the discrimination, and $300,000 in punitive damages. The amount taxable is

Five different capital gain tax rates could apply to long- term capital assets sold by noncorporate taxpayers.

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.

Dwayne has general business credits totaling $30,000 before limitation. His regular tax liability is $83,000 and his tentative minimum tax is $79,000. What amount of general business credit can Dwayne take this year?

An employer contributing to a qualified retirement plan will be allowed a deduction when the employee recognizes the income at retirement or separation from service.

Derek, a single taxpayer, has AGI of $55,000 which includes $5,000 of qualified dividends. Derek does not itemize deductions. What is his 2018 federal income tax?

Witte Corporation reported the following results for the current year: What is the amount of the charitable contribution carryover to next year?

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

Filters

Exam 16: Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals

Explain how returns are selected for audit.

Sumedha is the beneficiary of her mother's $500,000 life insurance policy. She receives $54,000 per year over ten years in settlement of her mother's policy. Sumedha will exclude the $54,000 proceeds received each year from the life insurance company.

Jeremy has $18,000 of Sec. 1231 gains and $23,000 of Sec. 1231 losses. The gains and losses are characterized as

In order to qualify to file as surviving spouse, all of the following criteria must be met by the widow or widower except

Adanya's marginal tax rate is 37% and she is trying to decide whether to invest in tax- exempt bonds which pay 5% interest or taxable bonds paying 7% interest. The bonds have equivalent risk. Which of the bonds would yield the highest amount of income after taxes?

Which of the following statements regarding proposed regulations is not correct?

Fin is a self- employed tutor, regularly meeting with clients in a 100 square foot area of his home. Fin is terrible at keeping records. Without the records, he will be able to deduct $500 for a home office deduction for AGI.

All recognized gains and losses must eventually be classified either as capital or ordinary.

Elisa sued her former employer for discrimination. She was awarded $200,000 for lost wages, $30,000 for medical expenses related to emotional distress resulting from the discrimination, and $300,000 in punitive damages. The amount taxable is

Five different capital gain tax rates could apply to long- term capital assets sold by noncorporate taxpayers.

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.

Dwayne has general business credits totaling $30,000 before limitation. His regular tax liability is $83,000 and his tentative minimum tax is $79,000. What amount of general business credit can Dwayne take this year?

An employer contributing to a qualified retirement plan will be allowed a deduction when the employee recognizes the income at retirement or separation from service.

Derek, a single taxpayer, has AGI of $55,000 which includes $5,000 of qualified dividends. Derek does not itemize deductions. What is his 2018 federal income tax?

Witte Corporation reported the following results for the current year: What is the amount of the charitable contribution carryover to next year?

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

Filters