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

On July 1, Joseph, a 10% owner, sells his interest in ABC Partnership to Andy, an outsider, for $165,000 cash and the release from $20,000 of partnership liabilities. Joseph's partnership interest at the beginning of the year was $120,000. The partnership earned income through June 30 of $100,000. Joseph's share of partnership liabilities increased by $5,000 from January 1 to June 30. What are the tax consequences to Joseph on the sale of his partnership interest (assume the partnership does not hold any inventory or unrealized receivables)?

Which of the following companies whose business involves long- term contracts will be eligible to use the completed contract method?

A taxpayer purchased an asset for $50,000 several years ago. He is now planning to sell it. Under the recovery of basis doctrine the taxpayer will not recognize any gain or pay any related taxes unless he sells the asset for more than $50,000.

Under the accrual method, recurring liabilities may be deducted currently and paid in the next period if all of the following are present except for

Mattie has group term life insurance coverage of $120,000 provided by her employer on a nondiscriminatory basis. She must include premiums for $120,000 of coverage in gross income, determined by using IRS tables.

If the shares of stock sold or exchanged are not specifically identified, the average cost method of identification must be used.

In order for the gain on the sale of a personal residence to be excluded under Sec. 121, a replacement residence must be purchased within two years.

All of the following statements are true except

Business investigation expenses incurred by a taxpayer who is already involved in a similar business and who enters the new business are deductible currently.

Michelle, age 20, is a full- time college student with earned income from wages of $5,200 and interest income of $700. Michelle's parents provide more than half of Michelle's support. Michelle's 2018 taxable income is

Martina, who has been employed by the Smythe Corporation for ten years, receives a $400 watch as a length of service award in a meaningful presentation. The fair value of the watch is taxable.

The gain or loss on an asset purchased on March 31, 2017, and sold on March 31, 2018, is classified as short- term.

All of the following conditions would encourage a taxpayer to avoid like- kind exchange treatment on the disposition of an otherwise qualifying asset except

For purposes of the dependency criteria, a qualifying child may not provide more than one- half of his or her own support during the year.

Savings accounts and money market funds are examples of investments taxed under the Current Model.

S corporations and their shareholders are subject to the rules regarding

Which of the following statements with respect to a like- kind exchange is false?

The taxpayer must be occupying the residence at the time of the sale in order for Sec. 121 to apply.

Losses on sales of property between a taxpayer and his/her siblings are disallowed.

The amount recaptured as ordinary income under either Sec. 1245 or Sec. 1250 can never exceed the realized gain.