Questions 1. Pat purchased a used five-year class asset on March 15, 2009, for $60,000. He did not elect § 179 expensing. Determine the cost recovery deduction for 2009 for earnings and profits purposes. A) $2,000. B) $3,000. C) $6,000. D) $12,000. E) None of the above. 2. Bill is the regional manager for a national chain of auto-parts stores and is based in Salt Lake City. When the company opens new stores in Boise, Bill is given the task of supervising their initial operation. For three months, he works weekdays in Boise and returns home on weekends. He spends $410 returning to Salt Lake City but would have spent $390 had he stayed in Boise for the weekend. As to the weekend trips, how much, if any, qualifies as a deduction? A) $0, since the trips are personal and not work related. B) $0, since Bill’s tax home has changed from Salt Lake City to Boise. C) $390. D) $410. E) None of the above. 3. If a taxpayer has tentative AMT of $60,000 and AMT of $15,000, what is the regular income tax liability? A) $0. B) $15,000. C) $45,000. D) $75,000. E) None of the above. 4. Phil is advised by his family physician that his dependent son, Tony, needs surgery for a benign tumor in his leg. Phil and his son travel to Rochester, Minnesota, for in-patient treatment at the Mayo Clinic, which specializes in this type of surgery. Phil incurred the following costs: Round-trip airfare ($375 each) $ 750 Phil’s hotel in Rochester for four nights ($105 per night) 420 Phil’s meals while in Rochester 150 Tony’s medical treatment 1,500 Tony’s prescription medicine 300 Compute Phil’s medical expenses for the trip (before the 7.5% floor). A) $2,550. B) $2,750. C) $2,970. D) $3,120. E) None of the above. 5. Amy works as an auditor for a large major CPA firm. During the months of September thru and November of each year, she is permanently assigned to the team auditing Garnet Corporation. As a result, every day she drives from her home to Garnet and returns home after work. Mileage is as follows: Miles Home to office 10 Home to Garnet 30 Office to Garnet 35 For these three months, Amy’s deductible mileage for each workday is: A) 0. B) 30. C) 35. D) 60. E) None of the above. 6. Erin owns a mineral property that had a basis of $10,000 at the beginning of the year. The property qualifies for a 15% depletion rate. Gross income from the property was $120,000 and net income before the percentage depletion deduction was $50,000. What is Erin’s tax preference for excess depletion? A) $8,000 B) $10,000. C) $18,000. D) $0. E) None of the above. 7. Byron owned stock in Blossom Corporation that he donated to a museum (a qualified charitable organization) on June 8 this year. What is the amount of Byron’s deduction assuming that he had purchased the stock for $10,500 last year on August 7, and the stock had a fair market value of $13,800 when he made the donation? A) $3,300. B) $10,500. C) $12,150. D) $13,800. E) None of the above. 8. Michael is the city sales manager for “Chick-Stick,” a national fast food franchise. Every working day, Michael drives his car as follows: Miles Home to office 20 Office to Chick-Stick No. 1 15 Chick-Stick No. 1 to No. 2 18 Chick-Stick No. 2 to No. 3 14 Chick-Stick No. 3 to home 30 Michael’s deductible mileage is: A) 0 miles. B) 30 miles. C) 47 miles. D) 77 miles. E) None of the above. 9. For regular income tax purposes, Yolanda, who is single, is in the 35% tax bracket. Her AMT base is $220,000. Her tentative AMT is: A) $57,200. B) $58,100. C) $61,600. D) $77,000. E) None of the above. 10. During its first year of operations, Sherry’s business incurred circulation expenditures of $90,000. Since the income of the business is small, Sherry decides to capitalize the expenditures and to amortize them over 3 years for regular income tax purposes. The AMT adjustment for circulation expenditures for the first year of operations is: A) $0. B) Negative adjustment of $30,000. C) Positive adjustment of $30,000. D) Positive adjustment of $60,000. E) None of the above. 11. On September 3, 2008, Able purchased § 1244 stock in Red Corporation for $6,000. On December 31, 2008, the stock was worth $8,500. On August 15, 2009, Able was notified that the stock was worthless. How should Able report this item on his 2008 and 2009 tax returns? A) 2008—$0; 2009—$6,000 ordinary loss. B) 2008—$0; 2009—$6,000 long-term capital loss. C) 2008—$2,500 short-term capital loss; 2009—$8,500 short-term capital loss. D) 2008—$2,500 short-term capital gain; 2009—$3,800 ordinary loss. E) None of the above. 12. Leigh, who owns a 50% interest in a sporting goods store, was a material participant in the activity for the last fifteen years. She retired from the sporting goods store at the end of last year and will not participate in the activity in the future. However, she continues to be a material participant in an office supply store in which she is a 50% partner. The operations of the sporting goods store resulted in a loss for the current year and Leigh’s share of the loss is $40,000. Leigh’s share of the income from the office supply store is $75,000. She does not own interests in any other activities. A) Leigh cannot deduct the $40,000 loss from the sporting goods store because she is not a material participant. B) Leigh can offset the $40,000 loss from the sporting goods store against the $75,000 of income from the office supply store. C) Leigh will not be able to deduct any losses from the sporting goods store until future years. D) Leigh will not be able to deduct any losses from the sporting goods store until she has been retired for at least four years. E) None of the above. 13. Diane purchased a factory building on November 15, 1993, for $5,000,000. She sells the factory building on February 2, 2009. Determine the cost recovery deduction for the year of the sale. A) $16,025. B) $19,844. C) $26,458. D) $158,750. E) None of the above. 14. In 2009, Ray incurs $60,000 of mining exploration expenditures, and deducts the entire amount for regular income tax purposes. Which of the following statements is incorrect? A) For AMT purposes, Ray will have a positive adjustment of $54,000 in 2009. B) Ray will have a negative AMT adjustment of $6,000 in 2014. C) Over a 10-year period, positive and negative adjustments will net to zero. D) The AMT adjustment for mining exploration expenditures cannot be avoided if the taxpayer elects to write the expenditures off over a 10-year period. E) All of the above are correct. 15. On May 15, 2009, Brent purchased new farm equipment for $40,000. Brent used the equipment in connection with his farming business. Brent does not elect to expense assets under § 179. Brent does elect not to take additional first-year depreciation. Determine the cost recovery deduction for 2009. A) $4,000. B) $6,000. C) $8,000. D) $10,000. E) None of the above. 16. On June 1, 2009, Irene places in service a new automobile that cost $21,000. The car is used 70% for business and 30% for personal use. (Assume this percentage is maintained for the life of the car.) She does elect not to take additional first-year depreciation. Determine the cost recovery deduction for 2010. A) $3,060. B) $3,290. C) $3,360. D) $6,720. E) None of the above. 17. In Shelby County, the real property tax year is the calendar year. The real property tax becomes a personal liability of the owner of real property on January 1 in the current real property tax year, 2009. The tax is payable on June 1, 2009. On April 30, 2009, Julio sells his house to Anita for $230,000. On June 1, 2009, Anita pays the entire real estate tax of $7,300 for the year ending December 31, 2009. How much of the property taxes may Julio deduct? A) $0. B) $2,380. C) $2,400. D) $4,920 E) None of the above. 18. Kim made a gift to Sam of a passive activity (adjusted basis of $50,000, suspended losses of $20,000, and a fair market value of $80,000). No gift tax resulted from the transfer. A) Sam’s adjusted basis is $80,000. B) Sam’s adjusted basis is $50,000, and Sam can deduct the $20,000 of suspended losses in the future. C) Sam’s adjusted basis is $80,000, and Sam can deduct the $20,000 of suspended losses in the future. D) Sam’s adjusted basis is $50,000, and the suspended losses are lost. E) None of the above. 19. Elizabeth has the following items for the current year: Nonbusiness capital gains $ 5,000 Nonbusiness capital losses (3,000) Interest income 3,000 Itemized deductions (including a $20,000 casualty loss) (27,000) In calculating Elizabeth’s net operating loss, and with respect to the above amounts only, what amount must be added back to taxable income (loss)? A) $0. B) $1,000. C) $2,000. D) $20,000. E) None of the above. 20. Janet purchased a new car on June 5, 2009, at a cost of $18,000. She used the car 80% for business and 20% for personal use in 2009. She used the automobile 40% for business and 60% for personal use in 2010. Determine Janet’s cost recovery recapture for 2010. A) $0. B) $928. C) $1,008. D) $1,440. E) None of the above. 21. Sandra is single and does a lot of business entertaining at home. Because Arthur, Sandra’s 80-year old dependent grandfather who lived with Sandra, needs medical and nursing care, he moved to Twilight Nursing Home. During the year, Sandra made the following payments on behalf of Arthur: Room at Twilight $4,500 Meals for Arthur at Twilight 850 Doctor and nurse fees 700 Cable TV service for Arthur’s room 107 Total $6,157 Twilight has medical staff in residence. Disregarding the 7.5% floor, how much, if any, of these expenses qualify for a medical deduction by Sandra? A) $6,157. B) $6,050. C) $5,200. D) $1,550. E) None of the above. 22. James purchased a new business asset (three-year property) on July 23, 2009, at a cost of $50,000. He did not elect to expense any of the asset under § 179, nor did he elect straight-line cost recovery. Determine the cost recovery deduction for 2009. A) $8,333. B) $16,665. C) $33,333. D) $41,665. E) None of the above. 23. Jim had a car accident in 2009 in which his car was completely destroyed. At the time of the accident, the car had a fair market value of $30,000 and an adjusted basis of $40,000. Jim used the car 100% of the time for personal use. Jim received an insurance recovery of 80% of the value of the car at the time of the accident. If Jim’s AGI for the year is $50,000, determine his deductible loss on the car. A) $500. B) $6,000. C) $10,500. D) $30,000. E) None of the above. 24. On June 1, 2009, Sam purchased new farm machinery for $50,000. Sam used the machinery in connection with his farming business. Sam does not elect to expense assets under § 179. Sam has, however, made an election to not have the uniform capitalization rules apply to the farming business. Sam does elect not to take additional first-year depreciation. Determine the cost recovery deduction for 2009. A) $5,000. B) $7,500. C) $10,000. D) $12,500. E) None of the above. 25. Agnes is able to reduce her regular income tax liability from $40,000 to $36,000 as the result of the alternative tax on net capital gain. Agnes’ tentative AMT is $50,000. A) Agnes’ tax liability is reduced by $4,000 as the result of the alternative tax calculation on net capital gain. B) Agnes’ AMT is increased by $4,000 as the result of the alternative tax calculation on net capital gain. C) Agnes’ tax liability is $46,000. D) Agnes’ tax liability is $54,000. E) None of the above. 26. On March 1, 2009, Lana leases and places in service a passenger automobile. The lease will run for five years and the payments are $900 per month. During 2009, she uses her car 20% for business and 80% for personal activities. Assuming the dollar amount from the IRS table is $233, determine Lana’s deduction for the lease payments. A) $0. B) $1,800. C) $2,000. D) $2,330. E) None of the above. 27. Doug purchased a new factory building on January 15, 1987, for $4,000,000. On March 1, 2009, the building was sold. Determine the cost recovery deduction for the year of the sale assuming he did not use the MACRS straight-line method. A) $0. B) $15,870. C) $26,450. D) $126,960. E) None of the above. 28. If a taxpayer has an NOL of $20,000, of which $8,000 is attributable to a theft of personal use property, the taxpayer may: A) Carry all of the NOL of $20,000 back 5 years. B) Carry all of the NOL of $20,000 back 3 years. C) Carry $8,000 of the NOL back 3 years and the remainder of the NOL of $12,000 back 2 years. D) All of the above. E) None of the above. 29. Hans purchased a new passenger automobile on August 17, 2009, for $40,000. During the year the car was used 40% for business and 60% for personal use. Determine his cost recovery deduction for the car for 2009. A) $500. B) $1,000. C) $1,184. D) $1,500. E) None of the above. 30. Norm’s car, which he uses 100% for personal purposes, was completely destroyed in an accident in 2009. The car’s adjusted basis at the time of the accident was $13,000. Its fair market value was $11,500. The car was covered by a $2,000 deductible insurance policy. Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates. His adjusted gross income was $14,000 (before considering the loss). What is Norm’s deductible loss? A) $0. B) $100. C) $500. D) $9,500. E) None of the above. 31. White Corporation, a closely held personal service corporation, has $150,000 of passive losses, $120,000 of active business income, and $30,000 of portfolio income. How much of the passive loss may White Corporation deduct? A) $0. B) $30,000. C) $120,000. D) $150,000. E) None of the above. 32. On June 1 of the current year, Tab converted a machine to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery? A) $70,000. B) $90,000. C) $120,000. D) $140,000. E) None of the above. 33. George purchases used office furniture (seven-year class property) at a cost of $50,000 on April 20, 2009. Determine George’s cost recovery deduction for 2009 for alternative minimum tax purposes, assuming George does not elect § 179 and the maximum cost recovery deduction is taken for regular income tax purposes. A) $2,500. B) $3,750. C) $5,355. D) $6,212. E) None of the above. 34. Three years ago, Sharon loaned her sister $30,000 to buy a car. A note was issued for the loan with the provision for monthly payments of principal and interest. Last year, Sharon purchased a car from the same dealer, Hank’s Auto. As partial payment for the car, the dealer accepted the note from Sharon’s sister. At the time Sharon purchased the car, the note had a balance of $18,000. During the current year, Sharon’s sister died. Hank’s Auto was notified that no further payments on the note would be received. At the time of the notification, the note had a balance due of $15,500. What is the amount of loss, with respect to the note, that Hank’s Auto may claim on the current year tax return? A) $0. B) $3,000. C) $15,500. D) $18,000. E) None of the above. 35. Terry pays $8,000 this year to become a charter member of Mammoth University’s Athletic Council. The membership ensures that Terry will receive choice seating at all of Mammoth’s home basketball games. In addition, Terry pays $2,200 (the regular retail price) for season tickets for himself and his wife. For these items, how much qualifies as a charitable contribution? A) $6,200. B) $6,400. C) $8,000. D) $10,200. E) None of the above. 36. Pedro’s child attends a school operated by the church the family attends. Pedro made a donation of $1,000 to the church in lieu of the normal registration fee of $200. In addition, Pedro paid the regular tuition of $6,000 to the school. Based on this information, what is Pedro’s charitable contribution? A) $0. B) $800. C) $1,000. D) $6,800. E) $7,000. 37. Maria, who owns a 50% interest in a restaurant, has been a material participant in the restaurant activity for the last 20 years. She retired from the restaurant at the end of last year and will not participate in the restaurant activity in the future. However, she continues to be a material participant in a retail store in which she is a 50% partner. The restaurant operations produce a loss for the current year, and Maria’s share of the loss is $80,000. Her share of the income from the retail store is $150,000. She does not own interests in any other activities. A) Maria cannot deduct the $80,000 loss from the restaurant because she is not a material participant. B) Maria can offset the $80,000 loss against the $150,000 of income from the retail store. C) Maria will not be able to deduct any losses from the restaurant until she has been retired for at least three years. D) Assuming Maria continues to hold the interest in the restaurant, she will always treat the losses as active. E) None of the above. 38. Last year, Lucy purchased a $100,000 account receivable for $80,000. During the current year, Lucy collected $85,000 on the account. What are the tax consequences to Lucy associated with the collection of the account receivable? A) $0. B) $5,000 gain. C) $10,000 loss. D) $15,000 loss. E) None of the above. 39. Wes’s at-risk amount in a passive activity is $25,000 at the beginning of the current year. His current loss from the activity is $35,000 and he has no passive activity income. At the end of the current year, which of the following statements is incorrect? A) Wes has a loss of $25,000 suspended under the passive loss rules. B) Wes has an at-risk amount in the activity of $0. C) Wes has a loss of $10,000 suspended under the at-risk rules. D) Wes has a loss of $35,000 suspended under the passive loss rules. E) None of the above is incorrect. 40. Omar acquires used 7-year personal property for $100,000 to use in his business in February 2009. Omar does not elect § 179 expensing or additional first-year depreciation, but does take the maximum regular cost recovery deduction. As a result, Omar will have a positive AMT adjustment in 2009 of what amount? A) $0. B) $3,580. C) $10,710. D) $14,290. E) None of the above.