Unreimbursed medical costs are deductible only to the extent that they exceed 3.0% of
the taxpayer’s adjusted gross income.
a. True
b. False
Classification of a nonrecognition transaction as a continuation of an investment
requires a qualified replacement asset.
a. True
b. False
The intent of the alimony recapture rules is to
a. Prevent the payee from having a large tax liability when there is not an adequate
wherewithal to pay.
b. Prevent former spouses from skipping out of their obligations to pay the other
spouse.
c. Reclassify property settlements as capital gains, rather than ordinary income.
d. Prevent child support from being disguised as alimony.
e. Prevent tax deductions for property settlements.
Which of the following is (are) secondary sources of tax law?
I. Tax Notes.
II. LEXIS.
III. RIA Federal Tax Citator.
IV. Tax Court Memorandum.
a. Statements I, II, and III are correct.
b. Statements I and II are correct.
c. Statements II and IV are correct.
d. Only statement IV is correct.
e. Only statement III is correct.
Which of the following payments is a tax?
I. Artis paid the IRS a penalty of $475 (above his $11,184 income tax balance due)
because he had significantly underpaid his estimated income tax.
II. Lindsey paid $135 to the State of Indiana to renew her CPA license.
III. Carrie paid a $3.50 toll to cross the Mississippi River.
IV. Darnell paid $950 to the County Treasurer’s Office for an assessment on his
business equipment.
a. Only statement IV is correct.
b. Only statement III is correct.
c. Statements II and IV are correct.
d. Statements I, II, and III are correct.
e. Statements I, II, III, and IV are correct.
Laura and Jason are married and have 3 children ages 2, 6, and 8. Their adjusted gross
income for the year is $95,000. The maximum they can contribute to their children’s
Coverdell Education Savings Accounts is
a. $- 0 –
b. $667
c. $1,500
d. $2,000
e. $6,000
Which of the following is a permanent citation?
I. Rev. Proc. 84-33, 1984-1 C.B. 134.
II. Rev. Rul. 92-83, I.R.B. No. 14, 6.
III. O’Neil v. Comm., 44 TCM 843 (1989).
IV. Prop. Reg. Sec. 1.283-4(c).
a. Only statement I is correct.
b. Statements I, II, and IV are correct.
c. Statements I and III are correct.
d. Statements II and III are correct.
e. Statements I, II, III, and IV are correct.
Jerry and Lana are married and have two children ages 12 and 10. Their adjusted gross
income for 2015 is $124,000. What amount can they claim for the child tax credit?
a. $200
b. $800
c. $1,000
d. $1,300
e. $2,000
Joyce receives investment property from her mother as a gift in 2015. Her mother paid
$15,000 for the property in 2011, and it is valued at $18,000 on the date of the gift.
Joyce sells the property eight months later for $16,000. Joyce’s realized gain or loss is
a. $1,000 loss
b. $2,000 loss
c. $1,000 gain
d. $2,000 gain
e. $16,000 gain
In 2012, Jim had a $5,000 net Section 1231 gain. In 2014, Jim reported a Section 1231
loss of $12,000. In 2015, Jim has a $15,000 net Section 1231 gain. He had no other
sales of property in 2015. What is Jim’s ordinary income from his 2015 property
transactions?
a. $- 0 –
b. $7,000
c. $3,000
d. $12,000
e. $15,000
Which of the following taxes paid by Trevor Products, Inc. can be deducted during
2015?
I. Real estate taxes.
II. Sales tax on purchase of new equipment.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Davis, Inc., a motorcycle wheel manufacturer, purchased a new spoke machine in 2015
for $200,000. What are the tax effects of this purchase?
I. If taxable income is $100,000, then $25,000 can be expensed in 2015.
II. No Section 179 election is allowed if Davis decides to use a $200,000 depreciable
basis.
III. If Davis had purchased a total of $400,000 of equipment in 2015, the corporation
can deduct none of the purchases in 2015 through use of the Section 179 election.
a. Only statement I is correct.
b. Statements I and II are correct.
c. Statements II and III are correct.
d. Statements I and III are correct.
e. Statements I, II, and III are correct.
To qualify for the child- and dependent-care credit, the taxpayer must have earned
income and must incur qualified expenses for the care of qualified individuals.
a. True
b. False
Ellie has the following capital gains and losses and qualified dividend income during
the current year:
Short-term capital loss $(10,000)
Collectibles loss (4,000)
Long-term capital gain 5,000
Qualified dividend income 10,000
The tax effect of the above is:
a. Long-term gain $3,000; short-term capital loss $10,000,
b. Long-term capital gain $7,000; short-term capital loss $14,000.
c. Collectibles loss $1,000; net short-term capital loss $5,000; qualified dividend
income $10,000.
d. Net short-term capital loss $9,000; qualified dividend income $10,000.
e. Net capital loss $3,000, qualified dividend income $10,000.
When two qualified assets are exchanged and their fair market values are not equal,
additional nonqualifying property referred to as “boot” can be used to equalize the
transaction without disqualifying the nonrecognition transaction.
a. True
b. False
Greenville Floral places a new tractor (7-year MACRS) into service on January 8, 2015.
They pay $28,000 for the tractor. This is the only business asset placed into service
during this year. Greenville Floral wants to minimize the amount of depreciation
deductible in 2015. What is Greenville Floral’s cost recovery for 2015?
a. $1,400
b. $2,000
c. $2,999
d. $4,000
e. $4,001
Allen has the following capital gains and losses and Qualified dividend income during
the current year:
Short-term capital gain $4,000
Collectibles loss (5,000)
Long-term capital gain 1,000
Qualified dividend income 3,000
Allen’s capital gain/loss position for the year is:
a. Long-term gain $1,000; short-term capital gain $2,000.
b. Net short-term capital gain $1,000.
c. Short-term capital gain $4,000; long-term capital loss $1,000
d. Net short-term capital gain $3,000.
e. Net capital gain $-0-
Glenn and Vera divorce during the current year. Per their divorce agreement, Glenn
receives their former personal residence valued at $180,000 with a basis of $100,000.
Also, Glenn will pay Vera $5,000 annually for eight years. If Vera dies before the end of
the eight years, the balance of the payments is to be paid to Vera’s estate in a lump sum.
The couple has not lived together for the past two years.
a. Glenn can deduct $5,000 annually for alimony paid to Vera.
b. Vera can deduct $40,000 (1/2 of the unrealized gain on the house).
c. Vera does not recognize any income from the property and/or cash transactions.
d. Vera must recognize $40,000 as a gain on the disposition of her interest in the house.
e. Vera must recognize all the cash received as alimony income.
Rayburn is the sole owner of a dance studio. During the current year, his net
self-employment income from the dance studio is $50,000. What is Rayburn ‘s
self-employment tax?
a. $3,825.00
b. $5,738.00
c. $6,200.00
d. $7,650.00
Determine the proper classification(s) of the asset discussed in the following scenario:
Judge Ruiz purchased a new brass-trimmed gavel to use in her courtroom.
I. Personal use property. IV. Intangible property.
II. Business use property. V. Real estate.
III. Tangible property. VI. Personal property.
a. Statements I and III are correct.
b. Only statement VI is correct.
c. Statements II and III are correct.
d. Statements II, III, and VI are correct.
e. Statements II and VI are correct.
Although nontaxable income and nondeductible expenditures are not included in the
computation of taxable income, they do affect the shareholder’s basis in their S
corporation stock.
a. True
b. False
On April 1, Sally is given $20,000 worth of City of Boise bonds for her 18th birthday.
On June 30, Sally receives the $800 annual interest payment on the bonds. How much
income should Sally recognize due to these two events?
a. $- 0 –
b. $200
c. $800
d. $20,000
e. $20,800
Howard is single and has a son age 15. Howard’s adjusted gross income for 2015 is
$80,000. What amount can he claim for the child tax credit?
a. $- 0 –
b. $250
c. $350
d. $750
e. $1,000
Which of the following production of income expenses would be deductible:
I. Interest expense on loan to acquire U.S. Treasury notes.
II. Interest expense on loan to acquire IBM Corporate bonds.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Debra and Ken refinance their personal residence on July 1, 2015. They borrow
$96,000 over a 20-year period and paid points of $1,920. For 2015, what amount of the
points is deductible?
a. $- 0 –
b. $48
c. $96
d. $480
e. $960
In September 2015, Eduardo sells stock he purchased in October 2012 at a gain of
$5,000. If Eduardo is in the 10% marginal tax rate bracket and he has no other capital
asset sales in 2015, what is his tax on the sale of the stock?
a. $- 0 –
b. $500
c. $750
d. $1,000
e. $1,250
Eloise is a sales representative for a video production company. While at an exposition,
she incurs $2,000 in entertainment expenses and $1,200 for meals. The expenses occur
while she is discussing business and Eloise makes an adequate accounting to her
employer and is reimbursed $1,200. How much may Eloise deduct if her AGI is
$40,000?
a. $- 0 –
b. $1,200 for AGI and $200 from AGI.
c. $1,200 for AGI and $2,000 from AGI.
d. $- 0 – for AGI and $200 from AGI.
e. $- 0 – for AGI and $1,000 from AGI.
Determine the proper classification(s) of the asset discussed in the following scenario:
Victoria purchased a new show case saw for her antique business.
I. Personal use property. IV. Intangible property.
II. Business use property. V. Real estate.
III. Tangible property. VI. Personal property.
a. Statements I, III and VI are correct.
b. Statements II and III are correct.
c. Only statement VI is correct.
d. Statements II, III, and VI are correct.
e. Statements II, IV and VI are correct.
Michael operates an illegal cock fighting business. Which of the following expenses is
currently deductible?
a. Fines paid to the local authorities.
b. Bribes paid to local police.
c. Rent expense on the enterprise’s building.
d. Expenditures to acquire bar and kitchen equipment.
e. None of these expenses are currently deductible.
Pedro owns 5 rental properties. He contracts with East Lake Properties, Inc., to manage
the real estate. East Lake obtains tenants, negotiates leases, makes necessary repairs,
pays expenses related to the properties, and remits monthly net receipts to Pedro.
I. Pedro’s sale of the properties at a gain will result in a capital gain.
II. Pedro’s sale of the properties at a loss results in an ordinary loss on his tax return.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Patricia and her daughter Sheila each own 50% of Draper, Inc. Patricia is the president
and CFO of the corporation and receives a salary of $125,000. Other individuals with
similar responsibilities as Patricia are paid approximately the same salary. Sheila, who
is vice president, is paid a salary of $50,000. However, Sheila is not involved in the
business decisions and rarely visits the office. Which of the following are correct
statements?
I. Draper can deduct $175,000 as salary expense.
II. Sheila must report $50,000 as income.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
During the year, Aimee reports $30,000 of active business income, $15,000 of income
from passive activity X, and a $25,000 loss from passive activity Y. Determine the tax
consequences of these events.
I. The $15,000 income from activity X can offset $15,000 of the loss from activity Y.
II. Any passive loss that is not deducted in the current year is suspended.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Match each statement with the correct term below.
a. A loss that is generally not deductible.
b. The borrower is personally liable for the debt.
c. The loss is used to offset income in future periods.
d. A liability that is only secured by the underlying property.
e. The loss may be used to offset income from prior periods.
f. A type of stock that receives some ordinary loss treatment.
g. Involved in a rental activity for more than 500 hours in a year.
h. Cash or other assets contributed plus recourse debts of the activity.
i. Owns at least a 10% interest and is significantly involved in the rental activity.
j. The amount of the loss for fully destroyed property is the property’s adjusted basis.
k. The amount of loss is limited to the lower of the property’s adjusted basis, or the
reduction in fair market value.
l. Management is left to at least one general partner whose liability is not limited and
who is responsible for the on-going activities of the business.
Business casualty loss
Cash Method
Match each statement with the correct term below.
a. Begins on the day after acquisition and ends on the day of disposition.
b. The initial investment in an asset.
c. An asset’s basis transfers from one owner to another.
d. The capital investment remaining in an asset at the date of its disposition.
e. Sales price less expenses of disposition.
f. A purchase of all of the assets of a business.
g. Amount realized is less than adjusted basis.
h. A purchase of all of the assets of a business by buying the stock of a corporation.
i. A term used to identify a situation in which an asset has a different basis for
determining gain than for determining loss.
j. The date of death used to value a decedent’s estate in the absence of any special
election.
k. Six months after the date of death, used to value a decedent’s estate when the
executor of the estate makes election.
l. Amount realized is greater than adjusted basis.Carryover basis
Each of the numbered items below is accorded only one of the following lettered
treatments. Use the existing law as it applies to the current year, match the best answer
to the statements below.
a. Fully excluded from gross income.
b. Fully included in gross income.
c. Partially excluded from gross income.
David’s employer laid him off for three months during the slow winter season. He
collects $4,375 in unemployment compensation.
Belina and Harry form the B&H Partnership in 2015. Belina contributes $15,000 for a
25% interest in the partnership. Harry contributes a building worth $45,000 for a 75%
interest in the partnership. During 2015, B&H reports an income of $12,000 from
operations. Belina withdraws $6,000 and Harry withdraws $12,000 from the
partnership. How much gross income will Belina and Harry report from their
investment in B&H and what are their bases in the partnership at the end of 2015?
Each of the numbered items below is accorded only one of the following lettered
treatments. Use the existing law as it applies to the current year, match the best answer
to the statements below.
a. Fully excluded from gross income.
b. Fully included in gross income.
c. Partially excluded from gross income.
Jeane’s medical insurance carrier reimburses him 80% of his qualified medical
expenses. During the current year Jeane receives $3,682 in payments.
Explain why a taxpayer would ever consider using accelerated depreciation methods on
personal property, given the provisions of Section 1245.
Each of the numbered items below is accorded only one of the following lettered
treatments. Use the existing law as it applies to the current year, match the best answer
to the statements below.
a. Fully excluded from gross income.
b. Fully included in gross income.
c. Partially excluded from gross income.
Raymond dies on July 8th of the current year. Out of love and respect for Raymond, his
employer gives his widow $5,000.
Match each statement with the correct term below.
a. Prepaid interest.
b. An amount that each taxpayer who is neither a qualifying child nor a qualifying
relative, and who files a return, is allowed to deduct.
c. One test for a qualifying relative.
d. The minimum amount a taxpayer can deduct for personal expenditures.
e. A deduction in this category is always allowed. That is, there is no minimum
allowable amount and generally no income limitation placed on these deductions.
f. Generally, these deductions are for specifically allowed personal expenditures.
g. An exception to this test is a custodial parent.
h. Interest paid on debt used to buy securities.
i. Interest paid on credit cards, personal loans, car loans, etc.
j. Interest paid on a mortgage secured by the taxpayer’s residence. The proceeds of the
loan can be used for any purpose and the interest is still deductible.
k. A tax designed to prevent the shifting of unearned income to children of the taxpayer.
Personal interest
Match each statement with the correct term below.
a. Dues, uniforms, subscriptions.
b. Intended to punish and are taxable.
c. Taxable if from an employer-provided policy.
d. Any personal wrong, such as libel, slander, or assault.
e. Excludable amount limited to gross profit percentage.
f. Gratuitous and not a form of compensation for services.
g. Excludability requires that it must be a condition of employment.
h. Excluded if for compensatory payments for sickness or personal physical injury.
i. To replace lost earnings and is excluded if due to personal physical injury.
j. Excluded if provided on the employer’s business premises and for the convenience of
employer.
Disability payment
Match each term with the correct statement below.
a. Allocates income, losses, and deductions to its owners for inclusion in their personal
returns.
b. Each tax unit must keep separate records and report the results of its operations
separate and apart from other tax units.
c. Income from services must be taxed to the taxpayer rendering the service and income
from property must be taxed to the owner of the property.
d. Any tax year that ends on the last day of a month other than December.
e. All taxpayers must report the results of their operations on an annual basis.
f. A tax year that ends on December 31.
g. A tax entity that is liable for the payment of tax.
Annual Accounting Period Concept
What incentive provisions or preferential treatments exist for capital gains?
Match each statement with the correct term below.
a. Begins on the day after acquisition and ends on the day of disposition.
b. The initial investment in an asset.
c. An asset’s basis transfers from one owner to another.
d. The capital investment remaining in an asset at the date of its disposition.
e. Sales price less expenses of disposition.
f. A purchase of all of the assets of a business.
g. Amount realized is less than adjusted basis.
h. A purchase of all of the assets of a business by buying the stock of a corporation.
i. A term used to identify a situation in which an asset has a different basis for
determining gain than for determining loss.
j. The date of death used to value a decedent’s estate in the absence of any special
election.
k. Six months after the date of death, used to value a decedent’s estate when the
executor of the estate makes election.
l. Amount realized is greater than adjusted basis.
Realized loss
Imputed income
List the criteria necessary for an expenditure to be deductible as a trade or business
expense or an expense for the production of income.
Match each statement with the correct term below.
a. Not deductible.
b. Short-term capital loss.
c. Limited to $25 per person.
d. Deductible as an ordinary loss
e. Only 50% of the cost is deductible.
f. Must be away from tax home overnight to be deductible.
g. General area where a taxpayer conducts principal activity.
Child support
Match each statement with the correct term below.
a. A loss that is generally not deductible.
b. The borrower is personally liable for the debt.
c. The loss is used to offset income in future periods.
d. A liability that is only secured by the underlying property.
e. The loss may be used to offset income from prior periods.
f. A type of stock that receives some ordinary loss treatment.
g. Involved in a rental activity for more than 500 hours in a year.
h. Cash or other assets contributed plus recourse debts of the activity.
i. Owns at least a 10% interest and is significantly involved in the rental activity.
j. The amount of the loss for fully destroyed property is the property’s adjusted basis.
k. The amount of loss is limited to the lower of the property’s adjusted basis, or the
reduction in fair market value.
l. Management is left to at least one general partner whose liability is not limited and
who is responsible for the on-going activities of the business.
Small business stock