Practice Test 1
Indicate whether the statement is true or false.
Kim, a resident of Korea, is a citizen of the U.S. Any income Kim receives from land he owns in Korea is
subject to the U.S. income tax.
In 2008, Sally is 72 and single. If she has itemized deductions of $6,000, she should claim the standard deduc-
Enrique is a citizen of Honduras and a resident of the U.S. If he files a U.S. income tax return, Enrique
claim the standard deduction.
In 2008, Hal furnishes more than half of the support of his ex-wife and her father, neither of whom lives with
him. The divorce occurred in 2007. Hal may claim the father-in-law but not the ex-wife as dependents.
Darren, age 20 and not disabled, earns $4,500 during 2008. Darren’s parents
claim him as a dependent
unless he is a full-time student.
In January 2008, Jake’s wife dies and he does not remarry. For tax year 2008, Jake may
be able to use the
filing status available to married persons filing joint returns.
For tax purposes, married persons filing separate returns are treated the same as single taxpayers.
In 2008, Jimmy, a cash basis taxpayer, was offered $3,000,000 for signing a professional baseball contract.
He rejected the offer in favor of $900,000 per year for 4 years beginning in 2009. Jimmy must recognize
$3,000,000 income in 2008 because it was constructively received by him.
A partner must include in gross income his or her share of the partnership’s income for the year whether or
not the partner withdraws anything from the partnership.
An advantage to operating a business as an S corporation is that the shareholder has no gross income from the
S corporation unless the shareholder makes a withdrawal during the tax year.
If Aeriel gives her son, Fred, the right to collect dividends on stock that she owns, Aeriel is taxed on the di-
vidends. But if Aeriel gives the stock to Fred and then he receives dividends, he is taxed on the dividends.
Paula transfers stock to her former spouse, Fred. The transfer is pursuant to a divorce agreement. Paula’s cost
of the stock was $50,000 and its fair market value on the date of the transfer is $75,000. Fred later sells the
stock for $78,000. Fred’s recognized gain from the sale of the stock is $3,000.
Terri purchased an annuity for $100,000. She was to receive $8,000 per year and her life expectancy was 20
She died after receiving 15 payments. Terri’s final return should reflect a loss of $40,000 (5 payments
Leah works part-time as a waitress in a restaurant. Her employer paid her $5,000 and she received $6,000 in
tips. Because the customers are not required to give her tips, Leah can exclude the $6,000 from her gross in-