Question 1

If a loan has been made to a related party,what are some considerations for determining whether the loan is a bona fide debt or is,in fact,merely a gift?

Accepted Answer

Consider whether there is a written inst

Question 2

Juan has a casualty loss of $32,500 on investment property after receiving an insurance settlement.This is Juan's only casualty transaction this year.Juan's loss is

Accepted Answer

A) an ordinary loss. 
B) a capital loss. 
C) a Sec.1231 loss. 
D) a Sec.1244 loss. 
A) an ordinary loss. 
B) a capital loss. 
C) a Sec.1231 loss. 
D) a Sec.1244 loss.

Question 3

Losses from passive activities that cannot be deducted currently are carried over for up to 5 subsequent years.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is most likely not considered a casualty?

Accepted Answer

A) fire loss 
B) water damage caused by the bursting of a water heater 
C) death of a pine tree due to a two-day infestation of pine beetles 
D) water damage to the walls and ceiling of a taxpayer's personal residence as the result of gradual deterioration of the roof 
A) fire loss 
B) water damage caused by the bursting of a water heater 
C) death of a pine tree due to a two-day infestation of pine beetles 
D) water damage to the walls and ceiling of a taxpayer's personal residence as the result of gradual deterioration of the roof

Question 5

Stacy,who is married and sole shareholder of ABC Corporation,sold all of her stock in the corporation for $100,000.Stacy had organized the corporation in 2009 by contributing $225,000 and receiving all of the capital stock of the corporation.ABC Corporation is a domestic corporation engaged in the manufacturing of ski boots.The stock in ABC Corporation qualified as Sec.1244 stock.The sale results in a(n)

Accepted Answer

A) ordinary loss of $125,000. 
B) long-term capital loss of $125,000. 
C) long-term capital loss of $100,000 and ordinary loss of $25,000. 
D) ordinary loss of $100,000 and long-term capital loss of $25,000. 
A) ordinary loss of $125,000. 
B) long-term capital loss of $125,000. 
C) long-term capital loss of $100,000 and ordinary loss of $25,000. 
D) ordinary loss of $100,000 and long-term capital loss of $25,000.

Question 6

Charlie owns activity B which was considered a passive activity and generated a $17,000 suspended loss.Charlie increases his involvement with activity B so that this year activity B is not considered passive for Charlie.During this year,activity B produces a $9,000 loss.In addition,Charlie acquires an investment in activity X,a passive activity,this year.Charlie's share of activity X's income is $13,000.Charlie's salary this year is $70,000.As a result,this year Charlie must

Accepted Answer

A) offset B's loss carryover against X's current income and carry over $9,000 loss from activity B to next year. 
B) offset B's carryover loss and current loss against X's income first and then offset any remaining loss against salary. 
C) offset B's $9,000 loss against X's $13,000 income and offset B's loss carryover against the remaining $4,000 of X's income. 
D) offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year. 
A) offset B's loss carryover against X's current income and carry over $9,000 loss from activity B to next year. 
B) offset B's carryover loss and current loss against X's income first and then offset any remaining loss against salary. 
C) offset B's $9,000 loss against X's $13,000 income and offset B's loss carryover against the remaining $4,000 of X's income. 
D) offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year.

Question 7

Before consideration of stock sales,Rex has generated $150,000 of AGI this year due to salary,interest income and dividends.Rex is a single taxpayer.He plans to sell his shares of Trisco Inc. ,a qualifying small business corporation under Sec.1244,realizing a $110,000 loss.Due to the sale of the stock,he will reduce his AGI by

Accepted Answer

A) $3,000. 
B) $110,000. 
C) $50,000. 
D) $53,000. 
A) $3,000. 
B) $110,000. 
C) $50,000. 
D) $53,000.

Question 8

Lewis died during the current year.Lewis owned passive activity property with a FMV of $61,000 and a basis of $48,000.Suspended losses of $15,000 were attributable to the property.How much of the suspended loss is deductible on Lewis's final income tax return?

Accepted Answer

A) $0 
B) $2,000 
C) $13,000 
D) $15,000 
A) $0 
B) $2,000 
C) $13,000 
D) $15,000

Question 9

In 2016,Grace loaned her friend Paula $12,000 to invest in various stocks.Paula signed a note to repay the principal with interest.Unfortunately the market for that industry sector plunged,and Paula incurred large losses.In 2017,Paula declared personal bankruptcy and Grace was unable to collect any of her loan.Grace had no other gains or losses last year or this year.The result is

Accepted Answer

A) Grace deducts a business bad debt of $12,000 in 2017. 
B) Grace deducts a $12,000 nonbusiness bad debt as a short-term capital loss in 2017. 
C) Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2017 and carries $9,000 over to subsequent years. 
D) Grace deducts a business bad debt of $3,000 in 2017 and carries $9,000 over to subsequent years. 
A) Grace deducts a business bad debt of $12,000 in 2017. 
B) Grace deducts a $12,000 nonbusiness bad debt as a short-term capital loss in 2017. 
C) Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2017 and carries $9,000 over to subsequent years. 
D) Grace deducts a business bad debt of $3,000 in 2017 and carries $9,000 over to subsequent years.

Question 10

Why was Section 1244 enacted by Congress? Specifically,consider and discuss some of the individual qualifying requirements of Sec.1244.

Accepted Answer

Sec.1244 was enacted in order to encoura

Question 11

Last year,Abby loaned her friend,Pat,$10,000.Although Pat had signed a note payable that contained interest payments and a maturity date,the loan had not been repaid this year when Pat died insolvent.For this year,assuming that the loan was bona fide,Abby should account for nonpayment of the loan as a(n)

Accepted Answer

A) itemized deduction. 
B) ordinary loss. 
C) long-term capital loss. 
D) short-term capital loss. 
A) itemized deduction. 
B) ordinary loss. 
C) long-term capital loss. 
D) short-term capital loss.

Question 12

One of the requirements which must be met for stock to be considered Section 1244 stock is that the stock must be owned by an individual or a partnership.

Accepted Answer

A) True 
 B)False

Question 13

Due to an unusual event,a taxpayer has a large loss in the current year,resulting in an NOL.The taxpayer expects next year's taxable income to return to the same approximate amount he reported in last few years,however he expects his income tax rate to decrease due to the recent election results.The taxpayer should elect to forego the carryback period.

Accepted Answer

A) True 
 B)False

Question 14

Erin,a single taxpayer,has 1,000 shares of 1244 stock she purchased directly from AAA Corporation for $120,000 five years ago.The stock has a FMV of $30,000,and Erin is thinking of selling the stock.She has no other capital gains or losses for the year.Discuss the tax consequences and planning opportunities relating to selling the stock.

Accepted Answer

A single taxpayer may deduct up to $50,0

Question 15

Jamie sells investment real estate for $80,000,resulting in a $15,000 loss.Jamie's loss is

Accepted Answer

A) an ordinary loss. 
B) a capital loss. 
C) a Sec.1231 loss. 
D) a Sec.1244 loss. 
A) an ordinary loss. 
B) a capital loss. 
C) a Sec.1231 loss. 
D) a Sec.1244 loss.

Question 16

Jen and Saachi are the owners of J&S Legal Services,P.C. ,an incorporated law firm treated as a C corporation for tax purposes.Jen and Saachi work full-time in the firm,performing all of the legal services.This year,J&S generates taxable income of $100,000 from the active business operations,and also reports investment interest income of $22,000 and losses of $28,000 from a passive activity.As a result,J&S Legal Services,P.C.reports taxable income of

Accepted Answer

A) $122,000. 
B) $100,000. 
C) $94,000. 
D) $97,000. 
A) $122,000. 
B) $100,000. 
C) $94,000. 
D) $97,000.

Question 17

Distinguish between the accrual-method taxpayer and the cash-method taxpayer with regard to basis in a receivable.

Accepted Answer

An accrual-method taxpayer reports incom

Question 18

Amy,a single individual and sole shareholder of Brown Corporation,sold all of the Brown stock for $30,000.Amy's stock basis was $150,000.She had owned the stock for 3 years.Brown Corporation meets the Section 1244 requirements.Amy has

Accepted Answer

A) a $50,000 ordinary loss and $70,000 LTCL. 
B) a $50,000 STCL and a $70,000 LTCL. 
C) a $100,000 ordinary loss and a $20,000 LTCL. 
D) a $100,000 LTCL and a $20,000 ordinary loss. 
A) a $50,000 ordinary loss and $70,000 LTCL. 
B) a $50,000 STCL and a $70,000 LTCL. 
C) a $100,000 ordinary loss and a $20,000 LTCL. 
D) a $100,000 LTCL and a $20,000 ordinary loss.

Question 19

Jana reports the following income and loss:   Activities A,B,and C are all passive activities.
Based on this information,Jana will recognize

Accepted Answer

A) adjusted gross income of $80,000. 
B) salary of $120,000 and deductible net losses of $40,000. 
C) salary of $120,000,passive income of $60,000,and passive loss carryovers of $100,000. 
D) salary of $120,000 and net passive losses of $40,000 that will be carried over. 
A) adjusted gross income of $80,000. 
B) salary of $120,000 and deductible net losses of $40,000. 
C) salary of $120,000,passive income of $60,000,and passive loss carryovers of $100,000. 
D) salary of $120,000 and net passive losses of $40,000 that will be carried over.

Question 20

Hope sustained a $3,600 casualty loss due to a severe storm.She also incurred a $800 loss from a theft in the same year.Both the casualty and theft 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) $1,700. 
B) $1,800. 
C) $4,200. 
D) $4,300. 
A) $1,700. 
B) $1,800. 
C) $4,200. 
D) $4,300.

Exam 24: Losses and Bad Debts

If a loan has been made to a related party,what are some considerations for determining whether the loan is a bona fide debt or is,in fact,merely a gift?

Juan has a casualty loss of $32,500 on investment property after receiving an insurance settlement.This is Juan's only casualty transaction this year.Juan's loss is

Losses from passive activities that cannot be deducted currently are carried over for up to 5 subsequent years.

Which of the following is most likely not considered a casualty?

Lewis died during the current year.Lewis owned passive activity property with a FMV of $61,000 and a basis of $48,000.Suspended losses of $15,000 were attributable to the property.How much of the suspended loss is deductible on Lewis's final income tax return?

Why was Section 1244 enacted by Congress? Specifically,consider and discuss some of the individual qualifying requirements of Sec.1244.

One of the requirements which must be met for stock to be considered Section 1244 stock is that the stock must be owned by an individual or a partnership.

Jamie sells investment real estate for $80,000,resulting in a $15,000 loss.Jamie's loss is

Distinguish between the accrual-method taxpayer and the cash-method taxpayer with regard to basis in a receivable.

Amy,a single individual and sole shareholder of Brown Corporation,sold all of the Brown stock for $30,000.Amy's stock basis was $150,000.She had owned the stock for 3 years.Brown Corporation meets the Section 1244 requirements.Amy has

Jana reports the following income and loss: Activities A,B,and C are all passive activities. Based on this information,Jana will recognize

Hope sustained a $3,600 casualty loss due to a severe storm.She also incurred a $800 loss from a theft in the same year.Both the casualty and theft 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

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