16. Abner gives his daughter, Melissa, stock (basis of $50,000; fair market value of $44,000). No gift tax is paid. If Melissa subsequently sells the stock for $53,000, what is her recognized gain or loss? (Points : 5) $0. $3,000. $9,000. $53,000.
2. A participant, who is age 38, in a cash or deferred arrangement plan [§ 401(k)] may contribute up to what amount in 2010? (Points : 5)
3. Which of the following qualify as a like-kind exchange? (Points : 5)
Inventory of a retail hardware store for inventory of a plumbing wholesaler.
Investment land for a building to be used in a trade or business.
General partnership interest for a limited partnership interest.
Rental house for a house to be used as a principal residence.
4. During the year, Oscar travels from Raleigh to Moscow (Russia) on business. His time was spent as follows: 2 days travel (one day each way), 2 days business, and 2 days personal. His expenses for the trip were as follows (meals and lodging reflect only the business portion):
Air fare $3,600
Meals and entertainment 1,600
Presuming no reimbursement, Oscar's deductible expenses are: (Points : 5)
5. David, a single taxpayer, took out a mortgage on his home for $300,000 nine years ago. In August of this year, when the home had a fair market value of $550,000 and he owed $225,000 on the mortgage, he took out a home equity loan for $350,000. David used the funds to purchase a yacht to be used for recreational purposes. What is the maximum amount of debt on which he can deduct home equity interest? (Points : 5)
6. Virgil was leasing an apartment from Mauve, Inc. Mauve paid Virgil $1,000 to cancel his lease and move out so that Mauve could demolish the building. As a result: (Points : 5)
Virgil has a $1,000 capital gain.
Virgil has a $1,000 capital loss.
Mauve has a $1,000 capital loss.
Mauve has a $1,000 capital gain.
7. Ron and Tom are equal owners in Robin Corporation. On July 1, 2010, each loans the corporation $20,000 at annual interest of 10%. Ron and Tom are brothers. Both shareholders are on the cash method of accounting, while Robin Corporation is on the accrual method. All parties use the calendar year for tax purposes. On June 30, 2011, Robin repays the loans of $40,000 together with the specified interest of $4,000. How much of the interest can Robin Corporation deduct in 2010? (Points : 5)
8. Which of the following assets held by a retail business is a § 1231 asset? (Points : 5)
A machine used in the business and held less than one year.
A factory building used in the business and held more than one year.
9. The following assets in Jack's business were sold in 2010:
AssetHolding PeriodGain/(Loss)Office Equipment6 years $1,100Automobile8 months($ 800)ABC Stock (capital asset)2 years $1,400
The office equipment had a zero adjusted basis and was purchased for $8,000. The automobile was purchased for $2,000 and sold for $1,200. The ABC stock was purchased for $1,800 and sold for $3,200. In 2010 (the year of sale), Jack should report what amount of net capital gain and net ordinary income? (Points : 5)
$600 LTCG and $300 ordinary gain.
$1,400 LTCG and $300 ordinary gain.
$2,500 LTCG and $800 ordinary loss.
10. Jermaine and Kesha are married, file a joint tax return, have AGI of $82,500, and have two children. Devona is beginning her freshman year at State University during Fall 2010, and Arethia is beginning her senior year at Northeast University during Fall 2010 after having completed her junior year during the spring of that year. Both Devona and Arethia are claimed as dependents on their parents' tax return. Devona's qualifying tuition expenses and fees total $4,000 for the fall semester, while Arethia's qualifying tuition expenses and fees total $6,200 for each semester during 2010. Full payment is made for the tuition and related expenses for both children during each semester. The American Opportunity credit available to Jermaine and Kesha for 2010 is: (Points : 5)
11. Michael is the city sales manager for "Chick-Stick," a national fast food franchise. Every working day, Michael drives his car as follows:
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: (Points : 5)
12. 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? (Points : 5)
13. Emily, who lives in Indiana, volunteered to travel to Louisiana in March to work on a home-building project for Habitat for Humanity (a qualified charitable organization). She was in Louisiana for three weeks. She normally makes $500 per week as a carpenter's assistant and plans to deduct $1,500 as a charitable contribution. In addition, she incurred the following costs in connection with the trip: $600 for transportation, $1,200 for lodging, and $400 for meals. What is Emily's deduction associated with this charitable activity? (Points : 5)
14. Kevin purchased 5,000 shares of Purple Corporation stock at $10 per share. Two years later, he receives a 5% common stock dividend. At that time, the common stock of Purple Corporation had a fair market value of $12.50 per share. What is the basis of the Purple Corporation stock, the per share basis, and gain recognized upon receipt of the common stock dividend? (Points : 5)
$50,000 basis in stock, $10 basis per share for the original stock and $0 basis per share for the dividend shares, $0 recognized gain.
$50,000 basis in stock, $9.52 basis per share, $0 recognized gain.
$53,125 basis in stock, $10 basis per share for the original stock and $12.50 basis per share for the dividend shares, $3,125 recognized gain.
$53,125 basis in stock, $10.12 basis per share, $3,125 recognized gain.
15. Robert and Diane, husband and wife, live in Pennsylvania, a common law state. They purchased land as joint tenants in 2006 for $60,000. In 2010, Diane dies and bequeaths her share of the land to Robert. The land has a fair market value of $88,000. What is Robert's adjusted basis for the land? (Points : 5)
16. Abner gives his daughter, Melissa, stock (basis of $50,000; fair market value of $44,000). No gift tax is paid. If Melissa subsequently sells the stock for $53,000, what is her recognized gain or loss? (Points : 5)
17. An office building with an adjusted basis of $320,000 was destroyed by fire on December 30, 2010. On January 11, 2011, the insurance company paid the owner $450,000. The fair market value of the building was $500,000, but under the co-insurance clause, the insurance company is responsible for only 90 percent of the loss. The owner reinvested $410,000 in a new office building on February 12, 2011, that was smaller than the original office building. What is the recognized gain and the basis of the new building if § 1033 (nonrecognition of gain from an involuntary conversion) is elected? (Points : 5)
$0 and $320,000.
$0 and $410,000.
$40,000 and $320,000.
$130,000 and 410,000.
18. Lonnie developed severe arthritis and was unable to climb the stairs to reach his second-floor bedroom. His physician advised him to add a first-floor bedroom to his home. The cost of constructing the room was $28,000. The increase in the value of the residence as a result of the room addition was determined to be $12,000. In addition, Lonnie paid the contractor $5,000 to construct an entrance ramp to his home and $7,000 to widen the hallways to accommodate his wheelchair. Lonnie's AGI for the year was $80,000. How much of these expenditures can Lonnie deduct as a medical expense? (Points : 5)
19. Tony and Janice have been married and living together in Tony's home for 5 years. He lived in the home alone for 20 years prior to their marriage. They sell the home, which has an adjusted basis of $80,000, for $450,000. Tony and Janice plan to use the § 121 exclusion (exclusion of gain on sale of principal residence). In Janice's prior marriage to Dan, Dan sold his principal residence and used the §121 exclusion. Janice and Dan filed joint returns during their years of marriage. Tony and Janice purchase a replacement residence for $200,000 one month after the sale. What is the recognized gain and basis for the new home? (Points : 5)
20. A worker may prefer to be classified as an employee (rather than an independent contractor) for which of the following reasons: (Points : 5)
To avoid the self-employment tax.
To claim unreimbursed work-related expenses as a deduction for AGI.
To avoid the cutback adjustment on unreimbursed business entertainment expenses.
To avoid the 2%-of-AGI floor on unreimbursed work-related expenses.
21. During 2010, Ted and Judy, a married couple, decided to sell their residence, which had a basis of $225,000. They had owned and occupied the residence for 16 years. To make it more attractive to prospective buyers, they had the outside painted in April at a cost of $10,000 and paid for the work immediately. They sold the house in May for $795,000. Broker's commissions and other selling expenses amounted to $45,000. Since they both are age 68, they decide to rent an apartment. They purchase an annuity with the net proceeds from the sale. What is the recognized gain? (Points : 5)
22. Amber is in the process this year of renovating the office building (originally placed in service in 1976) used by her business. Because of current Federal Regulations that require the structure to be accessible to handicapped individuals, she incurs an additional $18,000 for various features, such as ramps and widened doorways, to make her office building more accessible. The $18,000 incurred will produce a disabled access credit of what amount? (Points : 5)
23. In the current year, Crow Corporation, a closely held C corporation that is not a personal service corporation, has $100,000 of passive losses, $80,000 of active business income, and $20,000 of portfolio income. How much of the passive loss may Crow deduct in the current year? (Points : 5)
24. Nancy paid the following taxes during the year:
Taxes on residence (for the period from March 1 through August 31) $5,250
State motor vehicle tax (based on the value of the personal use automobile) 430
State income tax 3,050
State and local sales tax 3,500
Nancy sold her personal residence on June 30, under an agreement in which the real estate taxes were not prorated between the buyer and the seller. What amount qualifies as a deduction from AGI for Nancy? (Points : 5)
25. Ryan performs services for Jordan. Which, if any, of the following factors indicate that Ryan is an employee, rather than an independent contractor? (Points : 5)
Ryan provides his own support services (e.g., work assistants).
Ryan obtained his own training (i.e., job skills).
Ryan is paid based on tasks performed.
Ryan does not make his services available to others.
26. Ahmad is considering making a $10,000 investment in a venture which its promoter promises will generate immediate tax benefits for him. Ahmad, who normally itemizes his deductions, is in the 28% marginal tax bracket. If the investment is of a type where the taxpayer may claim either a tax credit of 25% of the amount of the expenditure or an itemized deduction for the amount of the investment, what treatment normally would be most beneficial to Ahmad and by how much will Ahmad's tax liability decline because of the investment? (Points : 5)
$0, take neither the itemized deduction nor the tax credit.
$2,500, take the tax credit.
$2,800, take the itemized deduction.
Both options produce the same benefit.
27. In 2009, Juan and Juanita incur $7,800 in legal and adoption fees directly related to the adoption of an infant son born in a nearby state. Over the next year, they incur another $4,500 of adoption expenses. The adoption becomes final in 2010. Which of the following choices properly reflects the amounts and years in which the adoption expenses credit is available.
2009 2010 (Points : 5)
28. During the year, Green Corporation (a U.S. corporation) has U.S.-source income of $1,500,000 and foreign income of $1,000,000. The foreign-source income generates foreign income taxes of $480,000. The U.S. income tax before the foreign tax credit is $850,000. Green Corporation's foreign tax credit is: (Points : 5)
29. Nick, an attorney, owns a separate business (not real estate) in which he participates. He has one employee who works part-time in the business. (Points : 5)
If Nick participates for 500 hours and the employee participates for 520 hours during the year, Nick qualifies as a material participant.
If Nick participates for 600 hours and the employee participates for 1,000 hours during the year, Nick qualifies as a material participant.
If Nick participates for 120 hours and the employee participates for 120 hours during the year, Nick does not qualify as a material participant.
If Nick participates for 95 hours and the employee participates for 5 hours during the year, Nick probably does not qualify as a material participant.
30. Henry entertains several of his key clients on January 1 of the current year. Expenses paid by Henry are as follows:
Cab fare $ 60
Cover charge at supper club 200
Dinner at club 800
Tips to waiter 160
Presuming proper substantiation, Henry's deduction is: (Points : 5)
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