Question 1

Trena LLC, a tax partnership owned equally by Trent and Nina, sells a building it had placed in service five years ago. Sec. 291 will require that part of the gain (up to 20% of accumulated depreciation) be treated as ordinary gain, with the balance treated as Sec. 1231 gain.

Accepted Answer

A) True 
 B)False

Question 2

Jeff owned one passive activity. Jeff sold the activity and realized a $2,000 gain on the sale. Prior to the sale, he realized a current year loss from the activity of $6,000. In addition, he has suspended losses from prior years of $7,000. What is the net impact on Jeff's AGI this year due to the passive activity?

Accepted Answer

A)  decrease of $11,000 
B)  no net change 
C)  decrease of $4,000 
D)  increase of $2,000

Question 3

In calculating a taxpayer's AMT, adjustments for timing differences will be made for all of the following assets except for

Accepted Answer

A)  incentive stock options. 
B)  machinery placed in service in 2015 (bonus depreciation is not applicable). 
C)  an office building placed in service in 2015. 
D)  All of the above will require a timing adjustment for AMT.

Question 4

Deductions for AGI may be located

Accepted Answer

A)  on Schedule C as a deduction. 
B)  on Schedule E as a deduction. 
C)  on the front page of Form 1040. 
D)  All of the above are true.

Question 5

Which of the following factors is important in distinguishing between capital and revenue expenditures?

Accepted Answer

A)  The expenditure restores the property. 
B)  The expenditure provides a betterment, adding to the value of the property. 
C)  The expenditure improves the property, adding to the value of the property. 
D)  All of the above.

Question 6

Tara transfers land with a $690,000 adjusted basis and a $700,000 FMV to a corporation in a Sec. 351 transfer. Immediately after the transfer, Tara owns 100% of the corporation- stock with a FMV of $615,000. In addition, $85,000 of business- related liabilities are assumed by the corporation with respect to the transfer. No other property is transferred. Tara's recognized gain on the transfer is

Accepted Answer

A)  $0. 
B)  $5,000. 
C)  $15,000. 
D)  $10,000.

Question 7

Taxpayers who own mutual funds recognize their share of capital gains even if no distributions are received.

Accepted Answer

A) True 
 B)False

Question 8

In year 1 a contractor agrees to build a building for $2,500,000 by the end of year 2. The builder's cost is estimated to be $1,800,000. The actual costs year 1 are $900,000 and year 2's actual costs are $1,300,000. Under the completed contract method, the gross profit for year 1 is

Accepted Answer

A)  $350,000. 
B)  $300,000. 
C)  $700,000. 
D)  $0.

Question 9

George and Meredith who are married, have a regular tax liability of $19,379 based on regular taxable income of $125,000. The couple took the standard deduction in arriving at regular taxable income. This year they generated tax preferences of $25,000, and positive adjustments attributable to the exercise of incentive stock options of $30,000. What is George and Meredith's alternative minimum tax for 2018?

Accepted Answer

The answer of George and Meredith who are married, have...

Question 10

According to the Statements on Standards for Tax Services, what belief should a CPA have before taking a pro- taxpayer position on a tax return?

Accepted Answer

The answer of According to the Statements on Standards for...

Question 11

Under the percentage of completion method, gross income is reported

Accepted Answer

A)  based on the portion of work that is incomplete. 
B)  based on the portion of work that has been completed. 
C)  using a percentage that is determined by dividing current year costs by the expected total revenue. 
D)  when the contract is completed.

Question 12

Assume Congress wishes to encourage healthy eating and is considering a deduction for broccoli purchases. In order to maximize the value of this tax deduction for taxpayers, Congress should provide for a(n)

Accepted Answer

A)  deduction for AGI. 
B)  itemized deduction. 
C)  deduction from AGI. 
D)  All of the above would provide the same tax savings to taxpayers

Question 13

During 2018 a company provides free meals to employees in its facility so that employees are available to help clients throughout the work hours. The employees can exclude the value of the meals eaten, and the company can fully deduct the meals provided to employees.

Accepted Answer

A) True 
 B)False

Question 14

Indicators of possible exposure of accumulated earning tax risk would include all of the following except

Accepted Answer

A)  substantial marketable securities held by the corporation. 
B)  limited dividend paying history. 
C)  loans to shareholders. 
D)  All of the above factors could indicate retention of earnings beyond business needs.

Question 15

How does the treatment of a liquidation of a subsidiary into its parent corporation differ from the general rule?

Accepted Answer

The answer of How does the treatment of a liquidation...

Question 16

Joan earns $119,900 in her job as a physician's assistant. She also has her own business selling cosmetics. This business generated $10,000 of earnings. What is Joan's self- employment tax for 2018?

Accepted Answer

A)  $1,344 
B)  $1,530 
C)  $1,322 
D)  $268

Question 17

Sarah owned land with a FMV of $150,000 (adjusted basis $135,000) which is investment property (a capital asset). Sarah owned a second tract of land, a 1231 asset, with a FMV of $38,000 (adjusted basis $55,000). Both tracts were acquired in 2000 and condemned by the state this year. The state paid an amount equal to FMV. If there are no other transactions involving capital assets or 1231 assets, what is the amount that Sarah must report on her current year return?

Accepted Answer

The answer of Sarah owned land with a FMV of...

Question 18

Section 179 allows taxpayers to immediately expense up to $1,000,000 for 2018 of the cost of real and personal property placed into service in a trade or business, subject to limitations.

Accepted Answer

A) True 
 B)False

Question 19

One criterion which will permit a deduction for an expenditure by the accrual- basis taxpayer prior to economic performance is that either the amount is not material or the earlier accrual of the item results in a better matching of income and expense.

Accepted Answer

A) True 
 B)False

Question 20

Eva is the sole shareholder of an S corporation. Eva gifts half of her S corporation stock to Adam, her newborn son. The S corporation is a highly profitable manufacturing company. The pass- through of the ordinary income to Adam can be subject to tax at his parents' marginal rate.

Accepted Answer

A) True 
 B)False

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

Trena LLC, a tax partnership owned equally by Trent and Nina, sells a building it had placed in service five years ago. Sec. 291 will require that part of the gain (up to 20% of accumulated depreciation) be treated as ordinary gain, with the balance treated as Sec. 1231 gain.

In calculating a taxpayer's AMT, adjustments for timing differences will be made for all of the following assets except for

Deductions for AGI may be located

Which of the following factors is important in distinguishing between capital and revenue expenditures?

Taxpayers who own mutual funds recognize their share of capital gains even if no distributions are received.

In year 1 a contractor agrees to build a building for $2,500,000 by the end of year 2. The builder's cost is estimated to be $1,800,000. The actual costs year 1 are $900,000 and year 2's actual costs are $1,300,000. Under the completed contract method, the gross profit for year 1 is

According to the Statements on Standards for Tax Services, what belief should a CPA have before taking a pro- taxpayer position on a tax return?

Under the percentage of completion method, gross income is reported

Assume Congress wishes to encourage healthy eating and is considering a deduction for broccoli purchases. In order to maximize the value of this tax deduction for taxpayers, Congress should provide for a(n)

During 2018 a company provides free meals to employees in its facility so that employees are available to help clients throughout the work hours. The employees can exclude the value of the meals eaten, and the company can fully deduct the meals provided to employees.

Indicators of possible exposure of accumulated earning tax risk would include all of the following except

How does the treatment of a liquidation of a subsidiary into its parent corporation differ from the general rule?

Joan earns $119,900 in her job as a physician's assistant. She also has her own business selling cosmetics. This business generated $10,000 of earnings. What is Joan's self- employment tax for 2018?

Section 179 allows taxpayers to immediately expense up to $1,000,000 for 2018 of the cost of real and personal property placed into service in a trade or business, subject to limitations.

One criterion which will permit a deduction for an expenditure by the accrual- basis taxpayer prior to economic performance is that either the amount is not material or the earlier accrual of the item results in a better matching of income and expense.

Eva is the sole shareholder of an S corporation. Eva gifts half of her S corporation stock to Adam, her newborn son. The S corporation is a highly profitable manufacturing company. The pass- through of the ordinary income to Adam can be subject to tax at his parents' marginal rate.