Problem 1. A taxpayer may litigate a tax dispute without first paying the tax in the:
a) U.S. District Court
b) U.S. Tax Court
c) U.S. Court of Federal Claims
d) All of the above
Problem 2. A business bad debt is deductible for tax purposes as a(n):
a) Short-term capital loss
b) Long-term capital loss
c) Ordinary business deduction
d) None of the above
Problem 3. Under the cash method of tax accounting, tax deductions are generally taken when:
a) The liability arises
b) Payment is made
c) The expense is actually incurred
d) None of the above
Problem 4. Which of the following constitutes tax evasion?
a) Arranging your affairs to keep your tax liability as low as possible under the tax law.
b) Avoiding taxes.
c) Failing to disclose a tax liability from a completed transaction.
d) Trying to minimize your tax liability.
Problem 5. Which of the following items is not subject to federal income tax?
a) Interest on U.S. Treasury bonds.
b) Gambling winnings.
c) Interest on loans made in the ordinary course of business.
d) Life insurance proceeds.
Problem 6. Sam owes Bob $8,000. Bob cancels (forgives) the debt. The cancellation is not a gift and Sam is neither insolvent nor bankrupt. Which of the following statements is correct concerning the impact of this transaction?
a) Both Bob and Sam recognize $8,000 of taxable income.
b) Bob recognizes $8,000 of taxable income.
c) Sam recognizes $8,000 of taxable income.
d) Neither Bob nor Sam has any taxable income from this transaction.
Problem 7. Jane purchased an annuity contract that pays her $800 per month. The annuity cost her $60,000 and it has an expected return of $100,000. How much of each monthly annuity payment is includible in Jane's gross income?
a) $400
b) $320
c) $480
d) $0
Problem 8. Section 197 intangible assets such as goodwill are amortized for tax purposes over:
a) 15 years
b) 3 years
c) 6 years
d) Goodwill is not amortized