Question 11 (TCOs 2 and 3) Evelyn sold her personal residence to Drew on March 1 for $300,000 Before

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Question 11 (TCOs 2 and 3) Evelyn sold her personal
residence to Drew on March 1 for $300,000 Before the sale, Evelyn paid the
real estate taxes of $3,000 for the calendar year For income tax purposes, the
real estate tax deduction is apportioned as follows: $750 to Evelyn and $2,250
to Drew Drew’s basis in the residence is _____ (Points : 5)

$297,750

$299,250

$300,750

$302,250

None of the
above

Question 22 (TCOs 3, 4, 5, and 7) Which of the following
is a deduction for AGI? (Points : 5)

Casualty losses

Charitable
contributions

Real estate tax on personal residence

Qualified
tuition expense

None of the
above

Question 33 (TCOs 3, 4, 5, and 7) Lilly made the following
gifts during the year

To Lola, a key client ($10 of the amount listed was for gift
wrapping) $40

To Jonelle, Lilly’s secretary, on Jonelle’s birthday $40

To Gerard, Lilly’s boss, at Christmas $80

Presuming proper substantiation, Lilly’s deduction is _____
(Points : 5)

$60

$85

$80

$160

None of the
above

Question 44 (TCOs 3, 4, 5, and 7) Aileen made a gift to
Aretha of a passive activity with an adjusted basis of $40,000, suspended
losses of $35,000, and a fair market value of $120,000 Which of the following
statements is true? (Points : 5)

Aretha’s adjusted basis is $120,000

Aretha’s
adjusted basis is $40,000 and Aileen can deduct the $35,000 of suspended losses
in the future

Aretha’s
adjusted basis is $40,000 and the $35,000 of suspended losses are lost

Aretha’s
adjusted basis is $75,000

None of the
above

Question 55 (TCOs 3, 4, 5, and 7) Which of the following
types of allowable deductions can be claimed as deductions from AGI? (Points :
5)

Moving expenses

Alimony
expenses

Home mortgage
interest expenses

Student loan
interest expenses

All of the above

Question 66 (TCOs 3, 4, 5, and 7) Which of the following
is not an itemized deduction allowed for AMT purposes? (Points : 5)

Casualty losses

Gambling losses

State income taxes

Medical
expenses in excess of 10% of AGI

None of the
above

Question 77 (TCOs 3, 4, 5, and 7) Kobe, age 19, is a full-time
student at State College and a candidate for a bachelor’s degree During 20X2,
he received the following payments

Wages $3,000

State scholarship for 10 months (tuition and books) $5,000

Loan from college financial aid office $2,750

Cash support from parents $2,500

Cash dividends $1,500

Cash prize awarded in contest $1,250

$16,000

What is Kobe’s adjusted gross income for 20X2? (Points : 5)

$5,500

$5,750

$7,000

$9,750

None of the
above

Question 88 (TCOs 3, 4, 5, and 7) Cornelia incurred the
following expenses for her dependent son during the current year

Payment of principal on son’s mortgage loan $5,500

Interest on son’s mortgage loan $4,500

Payment of son’s medical expenses $2,500

Payment of son’s property taxes $2,750

How much may Cornelia consider in computing her itemized
deductions? (Points : 5)

$2,750

$2,500

$4,500

$9,750

$15,250 v

Page 2

Question 11 (TCOs 7, 8, and 9) Orlando and Katelyn were divorced
Their only marital property was a personal residence with a value of $250,000
and cost of $100,000 Under the terms of the divorce agreement, Katelyn would
receive the house and Katelyn would pay Orlando $25,000 each year for 5 years,
or until Orlando’s death, whichever should occur first Orlando and Katelyn
lived apart when the payments were made to Orlando The divorce agreement did
not contain the word alimony Katelyn paid the $125,000 to Orlando over the
5-year period Then, Katelyn sold the residence for $300,000 Katelyn’s
recognized gain is _____ (Points : 5)

$0

$50,000
($300,000 – $250,000)

$125,000
($300,000 – $125,000 – $50,000)

$200,000 ($300,000 – $100,000)

None of the
above

Question 22 (TCOs 2, 8, and 9) Trigger Inc provides
group-term life insurance only to the officers of the corporation Carlota, a
vice president, received $250,000 of coverage for the year at a cost to Trigger
Inc of $1,600 The uniform premiums (based on Carlota’s age) are $6 a year for
$1,000 of protection (ie, $1,500 for Carlota) How much must Carlota include
in gross income this year? (Points : 5)

$0

$1,200

$1,500

$1,600

None of the
above

Question 33 (TCOs 2, 8, and 9) If a vacation home is used
primarily for personal use (rented for fewer than 15 days per year), which of
the following is true? (Points : 5)

All expenses
are deductible from AGI

Expenses must
be allocated between rental and personal use

Depreciation is
allowed as a deduction

All rental income is excluded from AGI

None of the
above

Question 44 (TCOs 2 and 11) Nicholas loaned Lyle (a
friend) $30,000 in 20X1 with the agreement that the loan would be repaid in 2
years In 20X2, Lyle filed for bankruptcy and Nicholas learned that he could
expect to receive $050 on the dollar In 20X2, final settlement was made and
Nicholas received $16,000 Assuming the loan is a nonbusiness bad debt, how
should Nicholas account for the bad debt? (Points : 5)

$14,000
ordinary loss in 20X2

$15,000
ordinary loss in 20X0, and $9,000 ordinary loss in 20X2

$14,000 short-term capital loss in 20X2

$15,000
short-term capital loss in 20X0, and $9,000 short-term capital loss in 20X2

None of the
above

Question 55 (TCOs 2 and 11) In December 20X2, Mitch died
His wife was the beneficiary of his $650,000 life insurance policy Mitch had
paid $25,000 in premiums His wife elected to collect the proceeds in 10 equal
installments of $75,000 ($65,000 on the face amount of the policy and $10,000
interest) Of the $75,000 she collected in 20X2, the taxable amount is _____
(Points : 5)

$0

$10,000

$65,000

$75,000

None of the
above

Question 66 (TCOs 2 and 11) Upon the recommendation of a
physician, Roberto has a therapeutic pool installed in his personal residence
He suffers from severe muscular degeneration disease If Roberto does not use
the pool on a regular basis, his muscles will deteriorate to the point that he
will be unable to walk In connection with this pool, Roberto incurs and pays
the following amounts during the current year

Therapeutic pool and cost of installation $11,000

Increase in utility bills due to the pool $400

Cost of certified appraisal $500

The pool has an estimated useful life of 5 years The
appraisal was to determine the value of Roberto’s residence with and without
the pool The appraisal states that the pool increased the value of Roberto’s
residence by $4,000 Disregarding percentage limitations, how much of the above
expenditures qualify for the medical expense deduction in the current year?
(Points : 5)

$11,900

$11,400

$7,500

$7,400

None of the
above

Question 77 (TCOs 2 and 11) In January, Charlie sold stock
with a cost basis of $40,000 to his brother Allen for $30,000, the fair market
value of the stock on the date of sale Five months later, Allen sold the same
stock through his broker for $45,000 What is the tax effect of these
transactions? (Points : 5)

Disallowed loss
to Allen of $10,000; recognized gain to Charlie of $5,000

Disallowed loss
to Charlie of $10,000; recognized gain to Allen of $15,000

Deductible loss to Charlie of $10,000; recognized gain to
Allen of $15,000

Disallowed loss
to Charlie of $10,000; recognized gain to Allen of $5,000

None of the
above

Question 88 (TCO 1) Social considerations can be used to
justify _____ (Points : 5)

allowing accelerated amortization for the cost of installing
pollution control facilities

allowing a federal income tax deduction for state and local
income taxes paid on the same income

allowing a carryback and carryover of net operating losses

disallowing a deduction for fines and penalties

B and C

Question 99 (TCOs 2, 3, 6, 8, 9, and 10) An office audit
_____ (Points : 5)

can often be resolved by correspondence between the IRS and
the taxpayer

involves numerous items reported on the return and is
conducted in the office of the taxpayer’s representative

usually is restricted in scope and is conducted in the IRS
office

involves complex issues that are broad in scope

All of the
above

Question 1010 (TCOs 2, 3, 6, 8, 9, and 10) Which of the
following is not a primary source of the tax law? (Points : 5)

Constitution

Legislative
history materials

Judicial
decisions

Legal opinions

All of above

Question 1111 (TCOs 2, 3, 6, 8, 9, and 10) Raquel operates
a hardware store as a sole proprietorship Which of the following items are
capital assets in the hands of Raquel? (Points : 5)

Sixteen light
fixtures that have been in inventory for over a year

Stock in which Raquel invested some of the store’s excess
cash

A note
receivable that was given to her by a customer in payment of the balance due on
the customer’s account at the store

The vacant lot
next to her store used as a parking lot for customers

None of the
above

Question 1212 (TCOs 2, 3, 6, 8, 9, and 10) Rosie purchased
for $9,250 a $10,000 bond when it was issued 2 years ago Rosie amortized $250
of the original issue discount and then sold the bond for $9,750 Which of the
following statements is correct ? (Points
: 5)

Rosie has $500
of long-term capital gain

Rosie has $250 of long-term capital gain

Rosie has $250
of long-term capital loss

Rosie has $500
long-term capital loss

None of the
above

Question 1313 (TCOs 2, 3, 6, 8, 9, and 10) Dale, age 16,
is claimed as a dependent on his parents’ tax return During 20X2, he had
interest income of $3,750 from a savings account and $500 wages from a
part-time job Dale’s taxable income is _____ (Points : 5)

$4,250

$3,750

$3,700

$3,300

None of the
above

Question 1414 (TCO 6) During 20X2, taxpayers decided to
sell their residence, which had a basis of $350,000 They had owned and
occupied the residence for 8 years To make it more attractive to prospective
buyers, they had it painted in April at a cost of $5,000 and paid for the work
immediately They sold the house in May for $500,000 Broker’s commissions and
other selling expenses amounted to $30,000 They purchased a new residence in
June for $250,000 What is the recognized gain? (Points : 5)

$0

$115,000

$120,000

$150,000

None of the above

Question 1515 (TCO 6) Tiffany gives her niece a machine to
use in her business with a fair market value of $100,000 and a basis in Tiffany’s
hands of $150,000 What is the niece’s basis for depreciation (cost recovery)?
(Points : 5)

$0

$100,000

$125,000

$150,000

None of the
above

Question 1616 (TCO 6) Jamal sells equipment for $16,000,
which had been purchased for $90,000 and on which $70,000 of depreciation had
been taken He had used the equipment in his business for several years Jamal
has _____ (Points : 5)

a $4,000 § 1245 loss

a $4,000 § 1231 loss

a $4,000 § 1250 loss

a $16,000 § 1231 gain

None of the
above

Question 1717 (TCO 6) Nigel elects to treat the cutting of
timber as a sale or exchange under § 1231 Nigel purchased the land for
$120,000 and the timber for $210,000 several years ago On the first day of
20X2, the timber was appraised at $230,000, and in September 20X2, it was cut
and sold for $238,750 What is Nigel’s Section 1231 gain from this transaction?
(Points : 5)

$0

$8,750

$20,000

$28,750

None of the
above

Question 1818 (TCOs 2, 6, and 11) Payton purchased his
home for $300,000 As a sole proprietor, he operates a certified public
accounting practice in his home For this business, he uses one room
exclusively and regularly as a home office In Year 1, $1,450 of depreciation
expense on the home office was deducted on his income tax return In Year 2,
Payton sustained losses in his business, so no depreciation was taken on the
home office Had he been allowed to deduct depreciation expense, his
depreciation expense would have been $1,700 What is the adjusted basis in the
home? (Points : 5)

$295,000

$296,850

$298,550

$300,000

None of the
above

Question 4 4 (TCOs
1, 2, 3, and 11) DeWayne is a US citizen and resident He spends much of each
year in the United Kingdom on business He is married to Petula, a UK citizen
and resident of London DeWayne has heard that it is possible that he can file
a joint income tax return for US purposes If this is so, what are the
constraints he should consider in making any such decision? (Points : 10)

Question 3 3 (TCOs
1, 2, 3, and 11) Travel status requires that the taxpayer be away from home
overnight (1) What does away from home overnight mean? (2) What tax advantages
result from being in travel status? (Points : 10)

Question 2 2 (TCOs
2, 3, and 11) Discuss the criteria used to determine whether a building is
residential or nonresidential realty Also explain the tax consequences
resulting from this determination if the property is placed in service in 20X1
(Points : 15)

Question 1 1 (TCOs
1, 6, 8, and 11) A large municipality is considering the enactment of an ad
valorem tax on personal jewelry What, if any, problem would you anticipate
with such a tax?

Question 4 4 (TCOs
1 and 5) Joe is 50 years old, unmarried, and without children He has earnings
during 20X2 of $8,000 He is not claimed as a dependent on another taxpayer’s
return Does he qualify for the earned income credit? If so, calculate the
amount of credit that is available to him (Points : 20)

Question 3 3 (TCOs
9 and 12) Tom, a calendar-year taxpayer, filed his 2007 federal income tax
return on April 1, 2008 In 20X2, the IRS audits this return and assesses an
income tax deficiency against Tom On the grounds that the statute of
limitations has run out, Tom disputes the assessment Is Tom correct? Why?
(Points : 15)

Question 2 2 (TCOs
1, 3, and 10) In 20X2, Walter had the following transactions

Salary $80,000

Capital loss from a
stock investment ($4,000)

Moving expense to
change jobs ($10,000)

Received repayment of
$10,000 loan he made to his brother in 2007 (includes interest of $1,000) $11,000

Property taxes on
personal residence $2,000

Based on the
information given above, determine Walter’s AGI Be sure to show your work
(Points : 15)

Question 1 1 (TCOs
1, 2, 4, and 7) Dabney and Nancy are married, both gainfully employed, and have
two children who are 3 and 6 years old Dabney’s salary is $35,000 and Nancy’s
salary is $40,000 During the year, they spend $7,000 for child care expenses
that are required so both of them can work outside of the home Calculate the
credit for child and dependent care expenses (Points : 15)

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