Which of the following is (are) secondary sources of tax law?
I. Revenue Ruling.
II. The Tax Adviser.
III. Murphy and Higgins’ Concepts in Federal Taxation.
IV. Tax Treaty with Denmark.
a. Statements I, II, and III are correct.
b. Statements I and II are correct.
c. Statements II and III are correct.
d. Only statement IV is correct.
e. Only statement III is correct.
Richard is a sales person for Publix Company. Every month Richard fills out an
expense account report, documenting all his expenses and submits it for reimbursement.
During the current year, Richard submitted documentation and receives $12,500 of
reimbursements. All his claims are reimbursed. How will these expenses and
reimbursements affect Richard’s income tax calculation?
I. Expense amounts are deductible from AGI.
II. Reimbursed amounts are excluded from gross income.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Withholding of taxes from the taxpayers wages and quarterly estimated tax payments
are a result of the
a. Ability to Pay Concept.
b. Administrative Convenience Concept.
c. Arm’s-Length Transaction Concept.
d. Capital Recovery Concept.
e. Pay-as-You-Go Concept.
For each of the following situations, determine whether the item is deductible, and
discuss any limitations, which might be placed on the deduction.
a. Carl owns an office building that he rents out to various businesses. During the
current year, rental income from the building is $95,000. Carl’s allowable expenses
relating to the office building are $150,000.
b. Edward sells stock to an unrelated party at a $70,000 loss during the current year.
c. Lee sold furniture at a loss of $5,000 during the current year.
Darlene and Devin are married. Darlene earns $48,000 and Devin earns $41,000. Their
adjusted gross income is $97,000. Darlene’s employer provides her with a qualified
pension plan, Devin’s does not. What are Darlene and Devin’s maximum combined IRA
contribution and deduction amounts?
Contribution Deduction
a. $11,000 $5,000
b. $11,000 $6,000
c. $11,000 $8,000
d. $11,000 $10,725
e. $11,000 $11,000
Tyrone sells his personal-use car that had cost $15,000 for $10,000. Why is the loss
realized on this transaction disallowed as a deduction?
I. Legislative Grace is lacking.
II. Personal losses are disallowed.
III. Business purpose is lacking.
a. Only statement I is correct.
b. Only statement II is correct.
c. Only statement III is correct.
d. Statements I and II are correct.
e. Statements I, II, and III are correct.
Carolyn and Craig are married. They have two children (8 years old and 13 years old)
living with them. How many dependency exemptions are claimed on Carolyn and
Craig’s 2015 tax return?
a. 0
b. 1
c. 2
d. 3
e. 4
Sybil purchased 500 shares of Qualified Small Business Stock (QSB) for $25,000 on
March 2, 2003. On November 29, 2014, she sells the stock for $125,000. Sybil also
sells 100 shares of stock she acquired two years ago realizing a gain of $20,000. Sybil
has $100,000 of other income. Which of the following statements about the stock sale
is/are true?
I. The tax paid on Sybil’s two stock sales is $17,000.
II. The tax rate on the $20,000 gain is 15%.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Garcia is a self-employed chiropractor and a cash basis taxpayer. During the most
recent tax year, he provides patient services totaling $400,000. Of that total amount, he
estimates $20,000 will never be collected. How much can Garcia deduct as a bad debt
expense in the current tax year?
a. $- 0 –
b. $6,000
c. $10,000
d. $14,000
e. $20,000
The statute of limitations is three years, six years if the taxpayer omits gross income in
excess of 25%, and there is no statute of limitations if the taxpayer willfully defrauds
the government.
a. True
b. False
Primary sources of tax law include
I. Treasury Regulations.
II. IRS Revenue Procedures.
III. Internal Revenue Code of 1986.
IV. The Tax Law Review.
a. Only statement III is correct.
b. Statements II and III are correct.
c. Only statement I is correct.
d. Statements I, II, and III are correct.
e. Statements I, II, III, and IV are correct.
Which of the following will render a corporation ineligible for S corporation status?
I. The corporation has 95 stockholders.
II. One of the stockholders is a citizen- resident of Canada.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
An excise tax
I. is levied on the value of property.
II. is levied on the quantity of the product or service.
III. differs from an sale tax, because a sales tax is imposed on the value of property.
a. Only statement I is correct.
b. Only statement II is correct.
c. Statements I and II are correct.
d. Statements II and III are correct.
e. Statements I, II, and III are correct.
Dreamland Corporation purchased 10,000 shares of Sleepytime, Inc. common stock for
$200,000 on February 19, 2014. On December 31, 2014, the value of the Sleepytime
stock declines to $180,000. Dreamland sells the Sleepytime stock for $170,000 on
January 10, 2015. Dreamland does not recognize a loss on the stock in 2014, but does
recognize a loss of $30,000 in 2015. Which of the following Concepts, Constructs,
and/or Doctrines form the basis for this treatment?
I. Realization Concept.
II. Related Party Provisions.
III. Capital Recovery Concept.
IV. Tax Benefit Rule.
a. Statements I and II are correct.
b. Statements I and III are correct.
c. Statements II and IV are correct.
d. Statements I, II and III are correct.
e. Statements I, III and IV are correct.
Ward and June are in the 28% tax bracket. Included in their assets is a Dell Corporation
bond with a face value of $10,000. The bond pays $1,000 per year in interest. Ward and
June gift the bond to their son, Wally (age 19), on January 1, 2015. Wally is in the 10%
tax bracket. Wally’s taxable income from the receipt of the bond and the bond interest in
2015 is
a. $-0-
b. $1,000
c. $1,500
d. $10,000
e. $11,000
Bruce operates an illegal drug business. Which of the following is deductible?
a. Commissions paid to dealers.
b. Rent for a warehouse.
c. Bribes paid to local police.
d. Cost of drugs sold.
e. Interest on debt to finance the purchase of inventory.
Randy is a single individual who receives a salary of $30,000. During 2015, he has
$7,000 withheld for payment of his federal income taxes and $2,500 for his state
income taxes. In 2015, he receives a $400 refund after filing his 2015 federal tax return
and a $50 refund after filing his state tax return.
I. Randy is allowed a deduction for the $2,500 of state taxes withheld from his salary on
his 2015 federal tax return.
II. If Randy has total itemized deductions of $6,250 on his 2014 federal tax return, he
must include the $50 state tax refund in his 2015 gross income.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Bethany bought a new suit to wear to work. She will not be able to deduct the cost of
the suit even though she wears it to work.
a. True
b. False
John sells his uncle Bob land held for investment for $10,000 that he had purchased 3
years ago for $12,000. John is precluded from taking the $2,000 loss under the
arm’s-length transaction concept since this is a related party transaction.
a. True
b. False
Which of the following types of cases are subject to the Chief Counsel’s Acquiescence /
Non -acquiescence Policy?
a. Circuit Court Decisions.
b. District Court Decisions.
c. U.S. Court of Federal Claims.
d. Tax Court Regular Decisions.
e. All of the above are correct.
Title 26 of the U.S. Code includes
I. Bankruptcy legislation.
II. Employment tax legislation.
III. Estate and Gift tax legislation.
IV. Alcohol and Tobacco tax legislation.
a. Only statement II is correct.
b. Statements II and III are correct.
c. Statements II, III, and IV are correct.
d. Statements I, II, III, and IV are correct.
e. None of the above are in Title 26.
Moonglow, Inc., purchases a group-term life insurance plan for all its employees.
Harold receives $250,000 of insurance for the current year at a cost to the company of
$2,500. The IRS Table of Premium values indicates that premiums are $1.08 annually
per $1,000 of protection. How much gross income does Harold have from the purchase
of the life insurance by Moonglow, Inc.?
a. $216
b. $270
c. $2,000
d. $2,270
e. $2,500
Under the computation of the alternative minimum tax, the Alternative Depreciation
System may be used but is not required.
a. True
b. False
Christy purchases $1,000-worth of supplies from a local vendor. The supplies are
delivered on March 29, 2015. The supplies are fully used up by year end. Because of
unusual circumstances, a bill for the supplies arrives from the vendor on January 10,
2016, and is promptly paid. When can Christy deduct the expenses?
I. In 2015, if she is an accrual basis taxpayer.
II. In 2016, if she is a cash basis taxpayer.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Which of the following individuals can be claimed as a dependent in the current year?
(Assume any test not mentioned has been satisfied).
I. Kelly’s mother, Dana, lives with her for 10 of 12 months during the year. Kelly
provides all the support for Dana during that time. The other two months were spent
with Dana’s other daughter, Alice. Dana’s annual income consists of $12,750 in Social
Security and $1,850 of savings account interest. Kelly may claim Dana as a dependent.
II. Bart is a 22-year-old college student. His tuition of $7,000 is paid by a scholarship
he received for his good high school record. He lives with his parents, who also provide
him with $450 monthly support. Bart earns $1,950 mowing lawns in the neighborhood
for other support. He may be claimed as a dependent of his parents.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Sullivan, a pilot for Northern Airlines, has adjusted gross income of $92,000 before
considering the following losses. The passive activity rules disallow the deduction for a
loss in which of the following?
I. Sullivan has a $4,500 loss from his ownership interest in Cowco, a feeder-cattle
limited partnership. Sullivan is a general partner and is responsible for day-to-day
management decisions.
II. Sullivan has a $7,000 loss from his ownership interest in Swineco, a feeder-pig
limited partnership. Sullivan is a limited partner.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Sonya inherits 1,000 shares of Big Red Airline Corporation stock from the estate of her
Uncle Tony. Tony died on August 4, 2015. The stock’s value on August 4, 2015, is
$2,000. Tony purchased the stock for $3,000 several years ago. Sonya sells the 1,000
shares for $2,300 on December 8, 2015. What is Sonya’s holding period of the stock?
a. Short-term.
b. Long-term.
c. Depends on which value is used.
d. Depends on whether an estate tax was paid.
If an individual sells depreciable real estate at a gain
I. the entire gain is taxed at a maximum rate of 15%.
II. the gain due to depreciation is taxed as a long-term capital gain.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Under a qualified pension plan
I. The yearly earnings on the pension plan assets are taxable income to the employee.
II. An employer’s contribution is not taxable income to the employee at the time of the
contribution.
a. Only I is correct.
b. Only II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Limited liability refers to an owner’s liability for which of the following?
I. The amount invested in the entity.
II. The liabilities of the corporation that the owner has personally guaranteed.
III. All of the outstanding liabilities of the corporation.
IV. Only for the corporation’s loans from financial institutions
a. Only statement I is correct.
b. Only statement III is correct.
c. Statements II and IV are correct.
d. Statements I, II, and IV are correct.
e. Statements I, II, III, and IV are correct.
Pedro owns a 50% interest in a limited partnership that operates an apartment complex.
During the current year, the partnership generates a taxable rental loss of $42,000.
Pedro’s other sources of income are salary of $55,000 and interest of $18,000. What is
Pedro’s allowable loss from the apartment?
a. $ – 0 –
b. $18,000
c. $21,000
d. $25,000
e. None of the above.
Which of the following individuals or couples qualify for the 2015 earned income
credit?
I. Holly is single, 23 years old, and has just finished drama school. She earns $2,000
doing commercials and another $6,000 as a taxicab driver.
II. Larry and Shari are both 30 years old. Larry works part-time and earns $6,000, and
Shari, who is starting her own business, earns $9,000. They have one child.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Davidson Corporation has the following gains and losses from Section 1231 property
during 2015:
Casualty losses $(6,000)
Casualty gains 7,000
Section 1231 gains 6,000
Section 1231 losses (9,000)
No net Section 1231 losses have been deducted as ordinary losses in prior years. How
much of the 2015 Section 1231 gains and losses are recognized as long-term capital
gains?
a. $- 0 –
b. $1,000
c. $2,000
d. $3,000
e. $6,000
To be a qualifying relative, an individual must meet certain tests. These tests include,
I. the citizen or residency test.
II. the non-support test.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.