Grant exchanges an old pizza oven from his business for a new oven. In addition to the
old oven, which had a basis of $10,000, Grant pays $4,000 cash and takes out a loan on
the new oven for $6,000. The new oven is valued at $22,000. What is Grant’s basis in
the new oven?
a. $12,000
b. $16,000
c. $20,000
d. $22,000
e. $32,000
A taxpayer had the following for the current year:
Active Portfolio Passive
Income Income Income
Income $75,000 $22,000 $55,000
Deductions (45,000) (16,000) (110,000)
Income(Loss) $30,000 $6,000 $(55,000)
I. If the taxpayer is a closely held corporation, taxable income from the three activities
is income of $6,000.
II. If the taxpayer is an individual and the passive income is not related to a rental real
estate activity, taxable income is $36,000.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
On July 17, 2015, Elise purchases office furniture (7-year property) costing $50,000 for
use in her business. She wishes to use the Section 179 election. Her taxable income
before the depreciation deduction is $25,000. What is the maximum total cost recovery
deduction Elise can take for the current year?
a. $7,145
b. $24,287
c. $23,573
d. $28,573
e. $29,462
Allowing individuals to deduct a standard deduction amount in lieu of itemizing their
allowable personal deductions is an application of the
a. Administrative Convenience Concept.
b. Wherewithal-to-Pay Concept.
c. Annual Accounting Period Concept
d. Capital Recovery Concept.
e. Business Purpose Concept.
Karen receives the right to acquire 400 shares of Fremont Corporation stock through the
company’s incentive stock option plan. The fair market value of the stock at the date of
the grant is $15 and the exercise price of the option is $19 per share. The fair market
value of the stock at the date of exercise is $22. At the date of exercise, the tax
consequences to Karen and the Fremont Corporation are
Karen Fremont
a. $1,600 $1,600
b. $1,600 $-0-
c. $-0- $-0-
d. $-0- $1,600
Sales of property between a partner who owns more than 50% of a partnership’s interest
and the partnership are subject to the related party rules.
a. True
b. False
Smokey purchases undeveloped land in 1999 for $20,000. In the current year he
contributes the property to the Camp Fire Girls of America to use as their summer
camp. The fair market value of the land at the date of the contribution is $25,000. If
Smokey’s AGI is $100,000, what is his maximum deductible charitable contribution?
a. $5,000
b. $20,000
c. $25,000
d. $30,000
e. $50,000
Nancy purchased her houseboat six years ago for $35,000. She has lived in the
houseboat since she purchased it. A friend has offered $62,000 for the houseboat. If she
sells it, she will be able to exclude the gain.
a. True
b. False
Which of the following legal expenses paid by the Kerr Corporation can be deducted in
the current year?
I. Legal fees to resolve a tax dispute with the Internal Revenue Service.
II. Legal fees to purchase land that will be used to expand its warehouse.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Portia, a CPA, operates a financial and tax planning service. During the months of
February, March, and April of every year, she hires graduate tax students from The
University of Chicago as interns. This year she hires 4 interns. One is her brother,
Sidney. She pays all interns except Sidney $20 per hour for help with tax return
preparation and tax research. Sidney receives $25 an hour. She cannot deduct the full
amount of Sidney’s hourly wages because the expense is not
a. appropriate.
b. ordinary.
c. necessary.
d. reasonable.
c. What are two things that you could expect to find in a Cumulative Bulletin?
Maria is single and has a 2015 taxable income of $199,800. She also received $15,000
of tax-exempt income. Maria’s effective tax rate is:
a. 22.8%
b. 23.1%
c. 25.3%
d. 28.0%
e. 33.0%
Which of the following items is a capital asset in the hands of the taxpayer?
a. Taxpayer owns a 10-year old Harley-Davidson motorcycle.
b. Taxpayer owns a used car lot. He owns a 1962 Cadillac that is for sale on the lot.
c. Taxpayer owns a notebook computer that he carries to his clients for work purposes.
d. Taxpayer, a farmer, has a prize winning steer in his herd.
e. None of the above items are capital assets.
Which of the following factors are used to aid in determining whether an activity that
earns income is profit motivated and should be treated as a business or is subject to the
hobby loss rules?
I. The amounts of occasional profits, if any.
II. Taxpayer’s success in similar activities.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
The all-events test requires that
I. All events have occurred that determine a liability exists
II The due date for payment of the liability has been established
III. The amount of a liability is determined with reasonable accuracy.
a. Only statement I is correct.
b. Statement I and II are correct.
c. Statement I and III are correct
d. Statements I, II, and III are correct.
e. Only statement III is correct
Dorchester purchased investment realty in 2001 for $25,000. During the current year he
contributes it to the American Heart Association to use as the site for its new local
headquarters. The realty has a value of $52,000 on the contribution date, and
Dorchester’s AGI is $100,000. Dorchester’s maximum current year contribution
deduction is
a. $- 0 –
b. $25,000
c. $30,000
d. $50,000
e. $52,000
Irvin’s adjusted basis in the Gamma Partnership is zero at the beginning of the current
year. He has a $15,000 suspended loss from the previous year. During the current year,
Gamma’s operating income is $30,000. Arvin is a 40% partner, and he receives a
distribution of $10,000 cash this year. If Arvin materially participates in Gamma’s
operations, how much of the suspended loss can he deduct?
a. $-0-
b. $2,000
c. $9,000
d. $10,000
e. $12,000
An interpretative regulation is issued when Congress specifically delegates the
authority to the Treasury Department to write specific rules for a designated Code
section.
a. True
b. False
A business expense includes
I. an expenditure that satisfies the dominant profit-motive requirement.
II. an expenditure that is incurred in a trade or business activity.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Arnold sells a parcel of investment real estate to Oswald for $600,000 in 2015. Arnold
will receive $200,000 annually, plus interest at 8%, from 2016 through 2018. Arnold
will recognize no gross income on this sale in 2015. Which of the following determines
this treatment?
a. Administrative Convenience Concept
b. All-inclusive Income Concept.
c. Ability-To-Pay Concept.
d. Claim of Right Doctrine.
e. Wherewithal -to-Pay Concept.
Sensor Corporation was formed and began operations in 2013. For that year, it had
operating income of $50,000, long-term capital gains of $25,000 and short-term capital
losses of $10,000. In 2014, the corporation had $5,000 of net long-term capital losses,
and in 2015 the corporation had $20,000 of net long-term capital losses. How much
capital loss is available to carry forward to 2016?
a. $- 0 –
b. $10,000
c. $15,000
d. $20,000
e. $25,000
Which of the following qualifies as a like-kind exchange of property?
I. Inventory for inventory.
II. Office equipment for a delivery van.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
A nonqualified stock option is a right to buy a share of stock at a fixed price within a
specified time period. If the employee recognizes income when the stock option is
received then the employer can take a deduction of the same amount.
a. True
b. False
Citators
a. are primary authorities.
b. are not necessary for effective tax research.
c. refer to the case being evaluated as the citing case.
d. give information on the history of a court case.
Concerning the credit for child and dependent care
I. If a taxpayer’s adjusted gross income does not exceed $43,000, the child and
dependent care credit rate is 30%.
II. Expenditures qualifying for credit can exceed the earned income of the taxpayer.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Ally served as chairperson of the local school board. Upon completion of her term in
office, the employees in the school district offices take up a collection and purchase her
a silver sterling tray in recognition of her outstanding service to the organization. The
value of the tray is $200. What are the tax effects of the award?
I. The value of the tray is included in gross income because of services rendered.
II. The tray is a gift because it is from a detached and disinterested generosity.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both are correct.
d. Neither is correct.
Silvia is a single individual who has income of $80,000. Todd is a single individual who
has income of $35,000. Neither of them itemizes their deductions. Both taxpayers will
take a standard deduction of $6,300 in 2015. The concept that allows both Silvia and
Todd to take this deduction is
a. Capital Recovery.
b. Administrative Convenience.
c. Entity.
d. Wherewithal to Pay.
e. Pay-as-You Go.
When Kerri filed her 2015 tax return on April 15, 2016, she did not include a $2,000
bonus received from her employer on January 10, 2016 relating to her work
performance during 2015. What concept, construct, or doctrine supports Kerri’s actions?
a. Arms-length Transaction Concept.
b. Substance Over Form Doctrine.
c. Constructive Receipt Doctrine.
d. Claim of Right.
e. Entity Concept.
Stephen is a furniture salesman for Foster’s Furniture Mart. Stephen purchases a
bedroom suite from Foster’s for $8,000. The sticker price is $11,000. Foster’s policy is
to “discount” all customer purchases for up to $1,000 off of the sticker price for
purchases over $10,000. What is the tax treatment of Stephen’s furniture purchase?
I. Stephen does not need to account for the furniture purchase since it is for his personal
use.
II. Stephen has imputed income because of the nature of the furniture purchase.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Neither statement is correct.
Watson Company purchases used equipment (5-year MACRS property) for $210,000
on July 8, 2015. What is Watson’ maximum allowable cost recovery deduction for 2015
on the equipment if this is the only purchase of equipment for 2015?
a. $54,000
b. $42,000
c. $39,000
d. $42,500
e. $49,000