Question 1

Identify which of the following statements is false.

Accepted Answer

A)  The U.S. Tax Court follows the previous decisions of the U.S. Court of Appeals to which the tax matter is appealable. 
B)  The U.S. Tax Court may intentionally issue conflicting decisions. 
C)  The opportunity for "forum shopping" occurs when different precedents on the same point exist. 
D)  The U.S. Tax Court must follow the previous decisions of the U.S. District Court for the district in which the taxpayer lives.

Question 2

Taj Corporation has started construction of a new mall with a cost estimate of $50 million. The mall is expected to be ready to open in 18 months. Taj cannot deduct the interest expense on the construction loan.

Accepted Answer

A) True 
 B)False

Question 3

Discuss the tax treatment of a nonqualified stock option plan.

Accepted Answer

The answer of Discuss the tax treatment of a nonqualified...

Question 4

Any Section 179 deduction that is not allowed currently due to the taxable income limitation may be carried over and deducted in future years.

Accepted Answer

A) True 
 B)False

Question 5

When the Tax Court follows the opinion of the circuit court of appeals to which the case is appealable, the court is following the

Accepted Answer

A)  Golsen rule. 
B)  Conformity rule. 
C)  Acquiescence rule. 
D)  Forum shopping rule.

Question 6

What is the primary purpose of Form 1065, Partnership Tax Return?

Accepted Answer

The answer of What is the primary purpose of Form...

Question 7

Darla sold an antique clock in 2018 for $3,000. She had purchased the clock in 2009 for $2,000. If she is otherwise in the 32% marginal tax bracket, what is the maximum tax rate on the capital gain on the sale of the clock?

Accepted Answer

A)  25% 
B)  15% 
C)  32% 
D)  28%

Question 8

Galvin Corporation has owned all of the stock of Rialto Corporation for five years. Rialto Corporation has been actively engaged in manufacturing in Kansas, but it is now bankrupt, and the stock is worthless. Galvin Corporation will recognize a long- term capital loss.

Accepted Answer

A) True 
 B)False

Question 9

A couple has filed a joint tax return since they were first married. Because of self- employment income and significant investment income, they have made joint quarterly estimated tax payments. Before year- end the couple has divorced, and they will each file their own individual returns. The estimated payments made jointly while still married earlier in the year will be divided evenly between the two individual returns.

Accepted Answer

A) True 
 B)False

Question 10

Unless an election is made to expense research and experimental expenditures or to defer and amortize the expenditures, these costs must be capitalized.

Accepted Answer

A) True 
 B)False

Question 11

Jarrett owns a mountain chalet that he purchased in 2008 for $175,000. This year, the home appraised at $300,000. Shortly after the appraisal, a severe blizzard hit the area in spring of the current year, destroying trees and severely damaging several homes, including Jarrett's chalet. The blizzard was declared a federal disaster. The chalet's value was reduced to $135,000. Jarrett does not have insurance. Jarrett's AGI is $200,000. Jarrett's deductible loss after limitations is

Accepted Answer

A)  $135,000. 
B)  $164,900. 
C)  $144,900. 
D)  $165,000.

Question 12

Julia suffered a severe stroke and has been admitted to a private hospital where she is expected to remain for the rest of her life. She is certified by a licensed health care practitioner as being a "chronically ill individual." Her hospital expenses amount to $350 per day. She will receive $340 per day from a $500,000 life insurance policy as an accelerated death benefit. In 2018, she was in the hospital for 10 days and received $3,400. How much of this amount is taxable?

Accepted Answer

A)  $500 
B)  $3,400 
C)  $0 
D)  $100

Question 13

On May 1, 2008, Empire Properties Corp., a calendar- year taxpayer, purchased an apartment building for
$1,000,000, of which $400,000 was allocable to the land. The corporation sold the property this year on Septembe 2018.
a. What was the corporation's depreciation for the building in 2008, using statutory percentages under MACRS
b. What was the corporation's depreciation for the building in 2018, using statutory percentages under MACRS

Accepted Answer

The answer of On May 1, 2008, Empire Properties Corp.,...

Question 14

The fair value of lodging cannot be excluded from gross income unless the employee is required to accept the lodging as a condition of employment.

Accepted Answer

A) True 
 B)False

Question 15

Tanya has earnings from self- employment of $240,000, resulting in self- employment tax of $22,350 and Additional Medicare Tax of $360. Due to these taxes, Tanya will be allowed a deduction for AGI of

Accepted Answer

A)  $11,355. 
B)  $11,175. 
C)  $22,350. 
D)  $22,710.

Question 16

Which of the following statements is correct regarding limitations on employer's contributions to qualified retirement plans in 2018?

Accepted Answer

A)  Defined contribution plan contributions are limited to the lesser of $55,000 or 100% of an employee's compensation. 
B)  If an employer has more than one type of qualified plan, a maximum deduction of 100% of compensation is allowed. 
C)  Defined contribution plan contributions are limited to the lesser of $220,000 or 25% of an employee's compensation. 
D)  Defined benefit plans are limited to an annual benefit to an employee of the lesser of $55,000 or 100% of the employee's average compensation for the highest three years.

Question 17

Passive activity loss limitations apply to S corporation shareholders in the same manner as partners.

Accepted Answer

A) True 
 B)False

Question 18

What must an individual taxpayer prove to receive a worthless security deduction?

Accepted Answer

The answer of What must an individual taxpayer prove to...

Question 19

The Smiths owned and occupied their principal residence, with an adjusted basis of $250,000, for ten years. The destroyed by a tornado and the Smiths receive insurance proceeds of $800,000. Six months later, they purchase a residence for $850,000.
a. What is the amount of gain the Smiths must recognize?
b. What is the basis of the new residence?

Accepted Answer

The answer of The Smiths owned and occupied their principal...

Question 20

A deduction will be allowed for an expenditure unless the Internal Revenue Code specifically disallows it.

Accepted Answer

A) True 
 B)False

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

Identify which of the following statements is false.

Taj Corporation has started construction of a new mall with a cost estimate of $50 million. The mall is expected to be ready to open in 18 months. Taj cannot deduct the interest expense on the construction loan.

Discuss the tax treatment of a nonqualified stock option plan.

Any Section 179 deduction that is not allowed currently due to the taxable income limitation may be carried over and deducted in future years.

When the Tax Court follows the opinion of the circuit court of appeals to which the case is appealable, the court is following the

What is the primary purpose of Form 1065, Partnership Tax Return?

Darla sold an antique clock in 2018 for $3,000. She had purchased the clock in 2009 for $2,000. If she is otherwise in the 32% marginal tax bracket, what is the maximum tax rate on the capital gain on the sale of the clock?

Galvin Corporation has owned all of the stock of Rialto Corporation for five years. Rialto Corporation has been actively engaged in manufacturing in Kansas, but it is now bankrupt, and the stock is worthless. Galvin Corporation will recognize a long- term capital loss.

Unless an election is made to expense research and experimental expenditures or to defer and amortize the expenditures, these costs must be capitalized.

The fair value of lodging cannot be excluded from gross income unless the employee is required to accept the lodging as a condition of employment.

Tanya has earnings from self- employment of $240,000, resulting in self- employment tax of $22,350 and Additional Medicare Tax of $360. Due to these taxes, Tanya will be allowed a deduction for AGI of

Which of the following statements is correct regarding limitations on employer's contributions to qualified retirement plans in 2018?

Passive activity loss limitations apply to S corporation shareholders in the same manner as partners.

What must an individual taxpayer prove to receive a worthless security deduction?

A deduction will be allowed for an expenditure unless the Internal Revenue Code specifically disallows it.