Question 1

All domestic bribes (i.e. ,to a U.S.official) are disallowed as deductions.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is a deduction for AGI (itemized deduction)?

Accepted Answer

A) Contribution to a traditional IRA. 
B) Roof repairs to a personal use home. 
C) Safe deposit box rental fee in which stock certificates are stored. 
D) Property tax on personal residence. 
E) All of the above. 
A) Contribution to a traditional IRA. 
B) Roof repairs to a personal use home. 
C) Safe deposit box rental fee in which stock certificates are stored. 
D) Property tax on personal residence. 
E) All of the above.

Question 3

Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

Accepted Answer

Because the interest income on municipal

Question 4

Assuming an activity is deemed to be a hobby,discuss the order and limits in which expenses must be deducted.

Accepted Answer

Amounts deductible under other Code sect

Question 5

Which of the following can be claimed as a deduction for AGI?

Accepted Answer

A) Personal casualty losses. 
B) Investment interest expenses. 
C) Medical expenses. 
D) Property taxes on personal use real estate. 
E) None of the above. 
A) Personal casualty losses. 
B) Investment interest expenses. 
C) Medical expenses. 
D) Property taxes on personal use real estate. 
E) None of the above.

Question 6

Generally,a closely-held family corporation is not permitted to take a deduction for a salary paid to a family member in calculating corporate taxable income.

Accepted Answer

A) True 
 B)False

Question 7

Under what circumstances may a taxpayer deduct the expenses of investigating a possible business acquisition,if (1) the business is not acquired;and (2) the business is acquired?

Accepted Answer

(1)
 The expenses of investigation may b

Question 8

Sandra owns an insurance agency.The following selected data are taken from the agency balance sheet and income statement prepared using the accrual method. Revenue $250,000 Salaries and commissions 100,000 Rent 10,000 Insurance 5,000 Utilities 6,000 Accounts receivable,1/1/2015 40,000 Accounts receivable,12/31/2015 38,000 Accounts payable,1/1/2015 12,000 Accounts payable,12/31/2015 11,000 Calculate Sandra's net profit using the cash method for 2015.

Accepted Answer

Sandra's accrual method net profit is ca

Question 9

Investigation of a business unrelated to one's present business never results in a current period deduction of the entire amount if the amount of the investigation expenses exceeds $5,000.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not relevant in determining whether an activity is profit-seeking or a hobby?

Accepted Answer

A) Whether the activity is enjoyed by the taxpayer. 
B) The expertise of the taxpayers or their advisers. 
C) The time and effort expended. 
D) The relationship of profits earned and losses incurred. 
E) All of the above are relevant factors. 
A) Whether the activity is enjoyed by the taxpayer. 
B) The expertise of the taxpayers or their advisers. 
C) The time and effort expended. 
D) The relationship of profits earned and losses incurred. 
E) All of the above are relevant factors.

Question 11

Petal,Inc.is an accrual basis taxpayer.Petal uses the aging approach to calculate the reserve for bad debts.During 2015,the following occur associated with bad debts. Credit sales $400,000 Collections on credit sales 250,000 Amount added to the reserve 10,000 Beginning balance in the reserve -0- Identifiable bad debts during 2015 12,000 The amount of the deduction for bad debt expense for Petal for 2015 is:

Accepted Answer

A) $10,000. 
B) $12,000. 
C) $22,000. 
D) $140,000. 
E) None of the above. 
A) $10,000. 
B) $12,000. 
C) $22,000. 
D) $140,000. 
E) None of the above.

Question 12

Janet is the CEO for Silver,Inc. ,a closely held corporation.Her total compensation for 2015 is $5 million.Of this amount,$2 million is a salary and $3 million is a bonus.The bonus was calculated as 5% of Silver's net income before the bonus and before taxes ($60 million × 5% = $3 million).The bonus provision has been in effect since Janet became CEO five years ago and is related to Silver's performance.It is approved annually by the entire board of directors (1 of the 5 directors is an outside director) of Silver.How much of Janet's compensation can Silver deduct for 2015?

Accepted Answer

All of the $5 million is deductible by S

Question 13

In determining whether an activity should be classified as a business or as a hobby,the satisfaction of the presumption (i.e. ,profit in at least 3 out of 5 years) ensures treatment as a business.

Accepted Answer

A) True 
 B)False

Question 14

Bob and April own a house at the beach.The house was rented to unrelated parties for 8 weeks during the year.April and the children used the house 12 days for their vacation during the year.After properly dividing the expenses between rental and personal use,it was determined that a loss was incurred as follows: Gross rental income $4,000 Less: Mortgage interest and property taxes $3,500 Other allocated expenses 2,000 (5,500) Net rental loss ($1,500) ​ What is the correct treatment of the rental income and expenses on Bob and April's joint income tax return for the current year assuming the IRS approach is used if applicable?

Accepted Answer

A) A $1,500 loss should be reported. 
B) Only the mortgage interest and property taxes should be deducted. 
C) Since the house was used more than 10 days personally by Bob and April,the rental expenses (other than mortgage interest and property taxes) are limited to the gross rental income in excess of deductions for interest and taxes allocated to the rental use. 
D) Since the house was used less than 50% personally by Bob and April,all expenses allocated to personal use may be deducted. 
E) Bob and April should include none of the income or expenses related to the beach house in their current year income tax return. 
A) A $1,500 loss should be reported. 
B) Only the mortgage interest and property taxes should be deducted. 
C) Since the house was used more than 10 days personally by Bob and April,the rental expenses (other than mortgage interest and property taxes) are limited to the gross rental income in excess of deductions for interest and taxes allocated to the rental use. 
D) Since the house was used less than 50% personally by Bob and April,all expenses allocated to personal use may be deducted. 
E) Bob and April should include none of the income or expenses related to the beach house in their current year income tax return.

Question 15

Sandra sold 500 shares of Wren Corporation to Bob,her brother,for its fair market value.She had paid $26,000 for the stock.Calculate Sandra's and Bob's gain or loss under the following circumstances:
a.Sandra sold the shares to Bob for $20,000.One year later,Bob sold them for $18,000.
b.Sandra sold the shares to Bob for $30,000.One year later,Bob sold them for $27,000.
c.Sandra sold the shares to Bob for $20,000.One year later,Bob sold them for $28,000.

Accepted Answer

a.Sandra has no deductible loss.Bob's re

Question 16

During the year,Jim rented his vacation home for 200 days and lived in it for 19 days.During the remaining days,the vacation home was available for rental use.Is the vacation home subject to the limitation on the deductions of a personal/rental vacation home?

Accepted Answer

The vacation home is not subject to the

Question 17

Salaries are considered an ordinary and necessary expense of a trade or business if they meet what other requirement? What are the tax consequences if this requirement is not met?

Accepted Answer

"Reasonableness" is an additional requir

Question 18

The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.

Accepted Answer

A) True 
 B)False

Question 19

Paula is the sole shareholder of Violet,Inc.For 2015,she receives from Violet a salary of $300,000 and dividends of $100,000.Violet's taxable income for 2015 is $500,000.On audit,the IRS treats $100,000 of Paula's salary as unreasonable.Which of the following statements is correct?

Accepted Answer

A) Paula's gross income will increase by $100,000 as a result of the IRS adjustment. 
B) Violet's taxable income will not be affected by the IRS adjustment. 
C) Paula's gross income will decrease by $100,000 as a result of the IRS adjustment. 
D) Violet's taxable income will decrease by $100,000 as a result of the IRS adjustment. 
E) None of the above is correct. 
A) Paula's gross income will increase by $100,000 as a result of the IRS adjustment. 
B) Violet's taxable income will not be affected by the IRS adjustment. 
C) Paula's gross income will decrease by $100,000 as a result of the IRS adjustment. 
D) Violet's taxable income will decrease by $100,000 as a result of the IRS adjustment. 
E) None of the above is correct.

Question 20

Taylor,a cash basis architect,rents the building in which his office is located for $5,000 per month.He commenced his practice on February 1,2015.In order to guarantee no rent increases during an 18-month period,he signed an 18-month lease and prepaid the $90,000 on February 1,2015.How much can Taylor deduct as rent expense for 2015?

Accepted Answer

Taylor is a cash basis taxpayer.Thus,he

Exam 6: Deductions and Losses: in General

All domestic bribes (i.e. ,to a U.S.official) are disallowed as deductions.

Which of the following is a deduction for AGI (itemized deduction)?

Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

Assuming an activity is deemed to be a hobby,discuss the order and limits in which expenses must be deducted.

Which of the following can be claimed as a deduction for AGI?

Generally,a closely-held family corporation is not permitted to take a deduction for a salary paid to a family member in calculating corporate taxable income.

Under what circumstances may a taxpayer deduct the expenses of investigating a possible business acquisition,if (1) the business is not acquired;and (2) the business is acquired?

Investigation of a business unrelated to one's present business never results in a current period deduction of the entire amount if the amount of the investigation expenses exceeds $5,000.

Which of the following is not relevant in determining whether an activity is profit-seeking or a hobby?

In determining whether an activity should be classified as a business or as a hobby,the satisfaction of the presumption (i.e. ,profit in at least 3 out of 5 years) ensures treatment as a business.

During the year,Jim rented his vacation home for 200 days and lived in it for 19 days.During the remaining days,the vacation home was available for rental use.Is the vacation home subject to the limitation on the deductions of a personal/rental vacation home?

Salaries are considered an ordinary and necessary expense of a trade or business if they meet what other requirement? What are the tax consequences if this requirement is not met?

The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.

Paula is the sole shareholder of Violet,Inc.For 2015,she receives from Violet a salary of $300,000 and dividends of $100,000.Violet's taxable income for 2015 is $500,000.On audit,the IRS treats $100,000 of Paula's salary as unreasonable.Which of the following statements is correct?

An Introduction to Taxation and Understanding the Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, cost Recovery, amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, basis Considerations, and Nontaxabl

Property Transactions: Capital Gains and Losses, section 1231 and Recapture Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

Family Tax Planning

Income Taxation of Trusts and Estates

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