Question 1

During the current year, Danika recognizes a $30,000 Sec. 1231 gain and a $22,000 Sec. 1231 loss. Prior to this, Danika's only Sec. 1231 item was a $15,000 loss two years ago. Danika must report a(n)

Accepted Answer

A)  $8,000 ordinary income. 
B)  $8,000 ordinary income and $7,000 net LTCG. 
C)  $8,000 net LTCG. 
D)  $15,000 ordinary income.

Question 2

During the course of an audit, a CPA discovers an error in a prior return. According to the Statements on Standards for Tax Services, the CPA should

Accepted Answer

A)  inform the IRS of the error, regardless of whether the client grants permission. 
B)  correct the error in the current year's tax return. 
C)  withdraw from the engagement. 
D)  ask the client for permission to disclose the error to the IRS.

Question 3

Jill is considering making a donation to her church. She wants to give $50,000 for the new church building. She has some stock with a FMV of $50,000 and an adjusted basis of $10,000 that she has held for 3 years. She is planning to sell the stock and donate the $50,000 proceeds to the church. What should she consider before taking that action?

Accepted Answer

The answer of Jill is considering making a donation to...

Question 4

Carl filed his tax return, properly claiming the head of household filing status. Carl's employer paid or provided following to Carl:  How much of this income should Carl report (assume benefits are provided on a nondiscriminatory basis)?

Accepted Answer

A)  $70,100 
B)  $65,000 
C)  $69,000 
D)  $69,500

Question 5

Expenditures for long- term care insurance premiums qualify as a medical expense deduction subject to an annual limit based upon the age of an individual.

Accepted Answer

A) True 
 B)False

Question 6

Medical expenses incurred on behalf of children of divorced parents are deductible by the parent who pays the expenses but only if that parent also is entitled to the dependency exemption.

Accepted Answer

A) True 
 B)False

Question 7

Two separate business operations conducted at the same location may be treated as separate activities under the passive activity rules.

Accepted Answer

A) True 
 B)False

Question 8

In computing AMTI, tax preference items are

Accepted Answer

A)  excluded. 
B)  added only. 
C)  either added or subtracted. 
D)  subtracted only.

Question 9

A client wants to take a tax return position with less than a 10% probability of being upheld in court. The CPA should

Accepted Answer

A)  inform the client that the position does not have a realistic possibility of success. 
B)  ask the client to sign a waiver of his right to sue the CPA in the event the IRS disallows the position. 
C)  take the client's desired position and sign the return as usual. 
D)  take the client's desired position, but not sign the tax return.

Question 10

In 2016, Toni purchased 100 shares of common stock in Blue Corporation for $5,280. In 2017, Blue declared a stock dividend of one share of its common stock for each 10 shares held. In 2018, Blue's common stock split 2- for- 1 at a time when the FMV was $80 a share. What is Toni's basis in each of her shares of the Blue Corporation stock if both of the earlier stock dividends were tax- free?

Accepted Answer

A)  $80 per share 
B)  $48 for 110 shares and $0 for all additional shares 
C)  $52.80 for 100 shares and $0 for all additional shares 
D)  $24 per share

Question 11

Margo and Jonah have two children, ages 13 and 17. Their modified AGI is $410,500. What is their child tax credit?

Accepted Answer

A)  $2,000 
B)  $4,000 
C)  $2,900 
D)  $1,450

Question 12

Nonrefundable tax credits are allowed to reduce or totally eliminate a taxpayer's tax liability but any credits in excess of the tax liability are lost.

Accepted Answer

A) True 
 B)False

Question 13

Jimmy owns a trucking business. During the current year he incurred the following:  The fines for speeding were a necessary cost because missing deadlines would cause lost business and are ordina industry. What is the total amount of deductible expenses?

Accepted Answer

A)  $123,000 
B)  $108,000 
C)  $144,000 
D)  $115,000

Question 14

A citator enables tax researchers to locate authorities (e.g., cases and IRS pronouncements) that have cited a particular case.

Accepted Answer

A) True 
 B)False

Question 15

Investment interest expense is deductible when incurred to purchase tax- exempt securities.

Accepted Answer

A) True 
 B)False

Question 16

Steve and Marian purchase a new condominium in Manhattan on February 1, 2018 to use as their primary residence. The purchase price of the condominium is $1.5 million. The couple obtained a $1.0 million mortgage from the bank and paid the balance in cash. On their joint tax return the couple will be allowed an itemized deduction for interest expense on a principal balance of up to

Accepted Answer

A)  $750,000. 
B)  $1.0 million. 
C)  $500,000. 
D)  $1.5 million.

Question 17

Dividends paid from E&P are taxable to shareholders and are, therefore, deductible by the corporation.

Accepted Answer

A) True 
 B)False

Question 18

If the U.S. District Court for Rhode Island, the Tax Court, and the Eleventh Circuit have all ruled on a particular issue, then what precedents have been set for which courts in the future?

Accepted Answer

The answer of If the U.S. District Court for Rhode...

Question 19

Inventory may be valued on the tax return at the lower of cost or market unless

Accepted Answer

A)  the taxpayer determines inventory cost using the LIFO method. 
B)  replacement cost is higher than historical cost. 
C)  the cash method of accounting is used by the taxpayer. 
D)  the taxpayer determines inventory cost using the FIFO method.

Question 20

Identify which of the following statements is false.

Accepted Answer

A)  Circuit Court decisions are reported in the Federal Reporter. 
B)  Citations to the AFTR and the USTC are referred to as secondary citations. 
C)  A circuit court of appeals must follow the opinion of another circuit court of appeals if the latter appeals court has previously ruled on the tax issue. 
D)  A U.S. Supreme Court opinion in a tax matter has the same status as Congressional tax legislation.

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

During the current year, Danika recognizes a $30,000 Sec. 1231 gain and a $22,000 Sec. 1231 loss. Prior to this, Danika's only Sec. 1231 item was a $15,000 loss two years ago. Danika must report a(n)

During the course of an audit, a CPA discovers an error in a prior return. According to the Statements on Standards for Tax Services, the CPA should

Carl filed his tax return, properly claiming the head of household filing status. Carl's employer paid or provided following to Carl: How much of this income should Carl report (assume benefits are provided on a nondiscriminatory basis) ?

Expenditures for long- term care insurance premiums qualify as a medical expense deduction subject to an annual limit based upon the age of an individual.

Medical expenses incurred on behalf of children of divorced parents are deductible by the parent who pays the expenses but only if that parent also is entitled to the dependency exemption.

Two separate business operations conducted at the same location may be treated as separate activities under the passive activity rules.

In computing AMTI, tax preference items are

A client wants to take a tax return position with less than a 10% probability of being upheld in court. The CPA should

Margo and Jonah have two children, ages 13 and 17. Their modified AGI is $410,500. What is their child tax credit?

Nonrefundable tax credits are allowed to reduce or totally eliminate a taxpayer's tax liability but any credits in excess of the tax liability are lost.

Jimmy owns a trucking business. During the current year he incurred the following: The fines for speeding were a necessary cost because missing deadlines would cause lost business and are ordina industry. What is the total amount of deductible expenses?

A citator enables tax researchers to locate authorities (e.g., cases and IRS pronouncements) that have cited a particular case.

Investment interest expense is deductible when incurred to purchase tax- exempt securities.

Dividends paid from E&P are taxable to shareholders and are, therefore, deductible by the corporation.

If the U.S. District Court for Rhode Island, the Tax Court, and the Eleventh Circuit have all ruled on a particular issue, then what precedents have been set for which courts in the future?

Inventory may be valued on the tax return at the lower of cost or market unless

Identify which of the following statements is false.