Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Trade or business expenses of a self-employed taxpayer should be treated as:

Accepted Answer

A)  Deductible for AGI on Schedule E. 
B)  A deduction from AGI. 
C)  Deductible for AGI on Schedule C. 
D)  An itemized deduction if not reimbursed. 
E)  None of the above. 
A)  Deductible for AGI on Schedule E. 
B)  A deduction from AGI. 
C)  Deductible for AGI on Schedule C. 
D)  An itemized deduction if not reimbursed. 
E)  None of the above.

Question 3

If a taxpayer operates an illegal business, no deductions are permitted.

Accepted Answer

A) True 
 B)False

Question 4

Section 212 expenses that are related to rent and royalty income are deductions for AGI.

Accepted Answer

A) True 
 B)False

Question 5

The portion of a shareholder-employee's salary that is classified as unreasonable has no effect on the amount of a shareholder-employee's gross income, but results in an increase in the taxable income of the corporation.

Accepted Answer

A) True 
 B)False

Question 6

During the year, Martin rented his vacation home for three months and spent one month there. Gross rental income from the property was $5,000. Martin incurred the following expenses: mortgage interest, $3,000? real estate taxes, $1,500? utilities, $800? maintenance, $500? and depreciation, $4,000. Compute Martin's allowable deductions for the vacation home under the court's approach and the IRS's approach.

Accepted Answer

Since the vacation home is rented for 15

Question 7

In January, Lance sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale. Five months later, James sold the same stock through his broker for $27,000. What is the tax effect of these transactions?

Accepted Answer

A)  Disallowed loss to James of $2,000? gain to Lance of $1,000. 
B)  Disallowed loss to Lance of $2,000? gain to James of $3,000. 
C)  Deductible loss to Lance of $2,000? gain to James of $3,000. 
D)  Disallowed loss to Lance of $2,000? gain to James of $1,000. 
E)  None of the above. 
A)  Disallowed loss to James of $2,000? gain to Lance of $1,000. 
B)  Disallowed loss to Lance of $2,000? gain to James of $3,000. 
C)  Deductible loss to Lance of $2,000? gain to James of $3,000. 
D)  Disallowed loss to Lance of $2,000? gain to James of $1,000. 
E)  None of the above.

Question 8

Which of the following may be deductible in 2018?

Accepted Answer

A)  Bribes that relate to a U.S. business. 
B)  Fines paid for violations of the law. 
C)  Interest on a loan used in a hobby. 
D)  All of the above. 
E)  None of the above. 
A)  Bribes that relate to a U.S. business. 
B)  Fines paid for violations of the law. 
C)  Interest on a loan used in a hobby. 
D)  All of the above. 
E)  None of the above.

Question 9

Beige, Inc., an airline manufacturer, is conducting negotiations for the sale of military aircraft. One negotiation is with a U.S. assistant secretary of defense. She can close the deal on the purchase of 50 attack helicopters if she is paid $750,000 under the table. Another negotiation is with the minister of defense of a third world country. To complete the sale of 20 jet fighters to his government, he demands that he be paid a $1 million grease payment. Beige makes the payments and closes the deals. How much of these payments are deductible by Beige, Inc.?

Accepted Answer

The $750,000 payment to the U.S. assista

Question 10

If a vacation home is determined to be a personal/rental use residence, which of the following statements is correct?

Accepted Answer

A)  All rental income is included in gross income. 
B)  All rental related expenses that are deductible are classified as deductions from AGI. 
C)  Expenses must be allocated between rental and personal use. 
D)  Only a. and c. are correct. 
E)  a., b., and c. are correct. 
A)  All rental income is included in gross income. 
B)  All rental related expenses that are deductible are classified as deductions from AGI. 
C)  Expenses must be allocated between rental and personal use. 
D)  Only a. and c. are correct. 
E)  a., b., and c. are correct.

Question 11

If a publicly-traded corporation hires a new CEO in 2018 and she earns $12,000,000 from a performance-based compensation plan, the corporation can deduct the entire $12,000,000.

Accepted Answer

A) True 
 B)False

Question 12

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 13

What are the relevant factors to be considered in determining whether an activity is profit-seeking or a hobby?

Accepted Answer

The nine relevant factors detailed in Re

Question 14

Investment related expenses, such as paying a fee to an investment manager, generally are deductions from adjusted gross income in 2018.

Accepted Answer

A) True 
 B)False

Question 15

The income of a sole proprietorship is reported on Schedule C (Profit or Loss from Business).

Accepted Answer

A) True 
 B)False

Question 16

Martha rents part of her personal residence in the summer for 3 weeks for $3,000. Anne rents all of her personal residence for one week in December for $2,500. Anne is not required to include the $2,500 in her gross income whereas Martha is required to include the $3,000 in her gross income.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Two-thirds of treble damage payments under the antitrust law are not deductible.

Accepted Answer

A) True 
 B)False

Question 19

Paula is the sole shareholder of Violet, Inc. For 2018, she receives from Violet a salary of $300,000 and dividends of $100,000. Violet's taxable income for 2018 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

In distinguishing whether an activity is a hobby or a trade or business, discuss the presumptive rule.

Accepted Answer

The Code provides a rebuttable presumpti

Exam 6: Deductions and Losses: In General

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

Trade or business expenses of a self-employed taxpayer should be treated as:

If a taxpayer operates an illegal business, no deductions are permitted.

Section 212 expenses that are related to rent and royalty income are deductions for AGI.

The portion of a shareholder-employee's salary that is classified as unreasonable has no effect on the amount of a shareholder-employee's gross income, but results in an increase in the taxable income of the corporation.

In January, Lance sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale. Five months later, James sold the same stock through his broker for $27,000. What is the tax effect of these transactions?

Which of the following may be deductible in 2018?

If a vacation home is determined to be a personal/rental use residence, which of the following statements is correct?

If a publicly-traded corporation hires a new CEO in 2018 and she earns $12,000,000 from a performance-based compensation plan, the corporation can deduct the entire $12,000,000.

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.

What are the relevant factors to be considered in determining whether an activity is profit-seeking or a hobby?

Investment related expenses, such as paying a fee to an investment manager, generally are deductions from adjusted gross income in 2018.

The income of a sole proprietorship is reported on Schedule C (Profit or Loss from Business).

Martha rents part of her personal residence in the summer for 3 weeks for $3,000. Anne rents all of her personal residence for one week in December for $2,500. Anne is not required to include the $2,500 in her gross income whereas Martha is required to include the $3,000 in her gross income.

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?

Two-thirds of treble damage payments under the antitrust law are not deductible.

Paula is the sole shareholder of Violet, Inc. For 2018, she receives from Violet a salary of $300,000 and dividends of $100,000. Violet's taxable income for 2018 is $500,000. On audit, the IRS treats $100,000 of Paula's salary as unreasonable. Which of the following statements is correct?

In distinguishing whether an activity is a hobby or a trade or business, discuss the presumptive rule.

An Introduction to Taxation and Understanding the Federal 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 Nontaxable Exchanges

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

Taxing Business Income

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

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

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