Response to the following multiple choice questions:
1. Jojo decided to care for her Uncle Vince in his old age. Jojo was unaware that her uncle had securities valued with a fair market value of $75,000 at the time she started caring for her uncle. Uncle Vince made no promise to Jojo regarding payment for his care. However, the cost of comparable care in a nursing home would have been $50,000. Vince executed a will that gave the securities to Jojo. The fair market value of the securities at the time of Vince's death was $175,000. Jojo was Vince's favorite relative, and Jojo did not need the money. Jojo's gross income from the receipt of the stock is:
$0.
$50,000.
$75,000.
$175,000.
None of the above
2. Upon the recommendation of a physician, Roberto has a therapeutic pool installed in his personal residence. He suffers from severe muscular degeneration disease. If Roberto does not use the pool on a regular basis, his muscles will deteriorate to the point that he will be unable to walk. In connection with this pool, Roberto incurs and pays the following amounts during the current year:
Therapeutic pool and cost of installation $11,000
Increase in utility bills due to the pool $400
Cost of certified appraisal $500
The pool has an estimated useful life of 5 years. The appraisal was to determine the value of Roberto's residence with and without the pool. The appraisal states that the pool increased the value of Roberto's residence by $4,000. Disregarding percentage limitations, how much of the above expenditures qualify for the medical expense deduction in the current year?
$11,900
$11,400
$7,500
$7,400
None of the above
3. The federal income tax applicable to corporations:
requires the determination of adjusted gross income.
allows a deduction for dependency exemptions.
allows a deduction for personal exemptions.
allows a deduction for the standard deduction.
None of the above
4. Jude has a NLTCG of $25,000 and a NSTCL of $30,000. What is Jude's 2011 capital loss deduction if Jude's adjusted gross income for 2011 (before considering capital asset transactions) is $90,000?
$90,000
$30,000
$25,000
$3,000
None of the above
5. Paris is a cash basis landlord. An earthquake destroyed one of his residential rental buildings. Even though the lease required the tenants (all cash basis) to continue to pay rent, Paris accepts a payment of $2,000 in full cancellation of the lease. As a result of these events:
Paris has $2,000 of ordinary income.
Paris has $2,000 of capital gain.
Paris's tenants have $2,000 of ordinary income.
Paris has a $2,000 capital loss.
None of the above
6. Equity considerations can be used to justify:
the foreign tax credit.
the credit for child and dependent care expenses.
the deduction for charitable contributions.
the tax treatment of prepaid subscription revenue.
None of the above
7. During the current year, Carolyn is supported as follows:
Percent of Support
Torie (a son) 24%
Brad (a son) 10%
Rosemary (a daughter) 27%
Jerome (unrelated but a good
friend of the family) 15%
Self-support 24%
During the year, Carolyn lives with Torie in his home for 10 months and in her home for 2 months. Under a multiple-support agreement, who could qualify for the dependency deduction for Carolyn?
Torie or Brad
Torie or Rosemary
Torie, Brad, or Jerome
Torie, Brad, Rosemary, or Jerome
None of the above
8. Which statement is true with respect to letter rulings?
They are issued by the Regional Office of the IRS.
They deal with completed transactions.
They may be requested for any area of taxation.
They are issued at the request of the taxpayer.
None of the above
9. Which, if any, of the following property is subject to § 1245 recapture?
Land
Residential real estate
Goodwill subject to amortization
Nonresidential real estate for which straight-line depreciation is used that is placed in service after 1980 and before 1987
None of the above
10. Leopard Corporation has ordinary income from operations of $50,000, net long-term capital gain of $20,000, and net short-term capital loss of $30,000. What is the taxable income for 2011?
$40,000
$47,000
$50,000
$70,000
None of the above
11. During 2011, taxpayers decided to sell their residence, which had a basis of $350,000. They had owned and occupied the residence for 8 years. To make it more attractive to prospective buyers, they had it painted in April at a cost of $5,000 and paid for the work immediately. They sold the house in May for $500,000. Broker's commissions and other selling expenses amounted to $30,000. They purchased a new residence in June for $250,000. What is the realized gain?
$150,000
$120,000
$115,000
$0
None of the above
12. Herbert exchanges a business machine, which has an adjusted basis of $40,000, for a new machine worth $40,000. In addition, he receives cash of $10,000. What is the recognized gain or loss and the basis of the new machine?
$0 and $10,000
$0 and $50,000
$10,000 and $50,000
$10,000 and $40,000
None of the above
13. Claudia sells property for a sales price of $170,000. In addition, Karma, the buyer, pays $5,000 in property taxes that had accrued during the year while the property was still legally owned by Claudia. Claudia paid $9,000 in commissions and $1,500 in legal fees connected with the sale of her property. What is the amount realized by Claudia from the sale of her property?
$175,000
$173,500
$170,000
$164,500
$159,500