1. Research and experimental expenditures connected with a trade or business can be capitalized and amortized for tax purposes over a period of not less than:
a. 30 months
b. 60 months
c. 120 months
d. 180 months
2. A calendar-year corporation incurs $53,000 of start-up costs. If the corporation began business on August 1 of the current year, what is the maximum amount of the start-up costs that it can deduct against business income in the current year? (round your answer to the nearest dollar)
a. $3,417
b. $5,000
c. $2,000
d. $6,333
e. none of the above
3. During the current year, a calendar year corporation incurred $52,000 of research and experimental expenditures. The corporation elects to capitalize and amortize the costs over 60 months. If the corporation first realizes benefits from the research and experimental expenditures on November 1 of the current year, its R&E deduction will equal:
a. $4,633
b. $3,544
c. $2,217
d. $1,733
4. Ann Jones uses a dry cleaning machine in her business, and it was completely destroyed by fire. At the time of the fire, the adjusted basis was $20,000 and its fair market value was $18,000. How much is Ann's loss?
a. $18,000
b. $2,000
c. $20,000
d. None of the above
5. Ann Jones uses a dry cleaning machine in her business, and it was partially destroyed by fire. At the time of the fire, the adjusted basis was $20,000 and its fair market value was $18,000. The adjusted basis after the fire is $10,000 and the fair market value after the casualty is $10,000. How much is the casualty loss?
a. $10,000
b. $8,000
c. $18,000
d. $20,000
6. ABC, Inc. of Jasper, Georgia suffered a casualty loss of $150,000 in March 2012. This loss was caused by heavy rains that completely flooded their factory. As a result of these rains, the President declared North Georgia (including Jasper) a disaster area on March 23, 2012. In what year can ABC, Inc. elect to deduct the casualty loss?
a. 2012 or 2013
b. 2011 or 2012
c. 2012
d. 2011
7. Which of the following is not a passive activity?
a. Owning a business and not materially participating
b. Having rental condos
c. Owning a limited partnership interest in a real estate limited partnership
d. Owning a working interest in oil and gas properties
8. All of the outstanding stock of a closely held C corporation is owned equally by Evelyn Humo and Steve Bufusno. In 2012, the corporation generates taxable income of $20,000 from its active business activities. In addition, it earns $20,000 of interest from investments and incurs a $40,000 loss from a passive activity. How much income does the C corporation report for 2012?
a. $10,000 of portfolio income
b. $0
c. $20,000 of portfolio income
d. None of the above
9. All of the outstanding stock of a closely held C corporation is owned equally by Evelyn Humo and Steve Bufusno. In 2012, the corporation generates taxable income of $20,000 from its active business activities. In addition, it earns $20,000 of interest from investments and incurs a $40,000 loss from a passive activity. How much of a passive loss carryover does the corporation have?
a. $20,000
b. $0
c. $40,000
d. None of the above
10. During 2012, Hugh Hughes reported the following income and loss:
Activity X ($50,000)
Activity Y $20,000
Both Activity X and Activity Y are passive to Mr. Hughes. Hugh purchased Activity X in 1987 and Activity Y in 1993. How much is the loss that Mr. Hughes may deduct in 2012?
a. $50,000
b. $30,000
c. $3,000
d. $0
e. none of the above
11. John Mapp dies with passive activity property having an adjusted basis of $50,000, suspended losses of $20,000, and a fair market value at the date of Mr. Mapp's death of $77,000. How much suspended loss can be taken on Mr. Mapp's final Form 1040 return?
a. $20,000
b. $77,000
c. $7,000
d. $0
e. none of the above
12. John Mapp dies with passive activity property having an adjusted basis of $50,000, suspended losses of $20,000, and a fair market value at the date of Mr. Mapp's death of $60,000. How much suspended loss can be taken on Mr. Mapp's final Form 1040 return?
a. $10,000
b. $20,000
c. $0
d. None of the above
13. Billy Ray owns several parcels of rental real estate, and he actively participates in managing the properties. His total loss from these activities in 2012 is $30,000. Assuming that his AGI for 2012 is $110,000, what is the allowable deduction from these properties in 2012?
a. $0
b. $15,000
c. $20,000
d. $30,000
e. none of the above
14. Billy Ray owns several parcels of rental real estate, and he actively participates in managing the properties. His total loss from these activities in 2012 is $30,000 and his AGI for 2012 is $110,000. How much of the disallowed loss from rental real estate activities may be carried over to future years?
a. 0%
b. 10%
c. 50%
d. 100%
e. None of the above
15. Billy Ray owns several parcels of rental real estate, and he actively participates in managing the properties. His total loss from these activities in 2012 is $30,000 and his AGI for 2012 is $110,000. For how many years may the disallowed loss be carried forward?
a. The disallowed loss may not be carried forward.
b. The disallowed loss may be carried forward for 15 years.
c. The disallowed loss may be carried forward for 15 years, but only after it has been carried back for 3 years.
d. The disallowed loss may be carried forward indefinitely.
e. none of the above
16. Fines and penalties paid to the government for the violation of a law are:
a. Generally deductible for tax purposes as business expenses
b. Not deductible for tax purposes
c. Deductible if ordinary and necessary
d. Deductible if reasonable in amount
e. none of the above
17. Which of the following statements is false?
a. Even if an employee has contributed his own taxed dollars to the purchase of an annuity under a qualified plan, his receipts under the annuity, whether variable or fixed, will be fully taxable to him or her as ordinary income.
b. Life benefits (i.e., received during the life of the insured) received under a life insurance policy are subject to tax.
c. The legislative history of the 1954 Code makes it clear that, while sec. 61 omits the phrase "in whatever form paid," the definition of gross income still includes "income realized in any form."
d. Debt discharge that is intended as a gift is treated as a gift rather than under the debt discharge rules.
e. all of the above are true.
18. Jerome Judson's divorce decree calls for him to pay his former wife $200 a month as child support and $200 a month as alimony. This year he paid only $3,600. Jerome may deduct $1,800 as alimony.
a. True
b. False
19. On August 1 of this year, Bart Barnes transferred property to his former spouse in settlement of marital rights, under a divorce instrument effective July 26. The property cost $10,000 and had a fair market value of $20,000 when transferred. Bart will recognize gain on the transfer.
a. True
b. False
20. Cal Cotton, under a divorce instrument, is required to make mortgage payments and pay real estate taxes and insurance premiums on property owned by him but used by his former wife as her residence. Cal may deduct these payments as alimony.
a. True
b. False