income tax 1

Created by jmdotts 

Upgrade to
remove ads

155 terms

WHICH, IF ANY, OF THE FOLLOWING STATEMENTS BEST DESCRIBES THE HISTORY OF THE FEDERAL INCOME TAX?

IT EXISTED DURING THE CIVIL WAR

WHICH, IF ANY, IS NOT ONE OF ADAM SMITH'S CANONS OF TAXIATION?

SIMPLICITY

WHICH, IF ANY, OF THE FOLLOWING TAXES ARE PROPORTIONAL (RATHER THAN PROGRESSIVE)?

FEDERAL EMPLOYMENT TAXES (i.e., FICA, FUTA)

WHICH, IF ANY, OF THE FOLLOWING TRANSACTIONS WILL INCREASE A TAXING JURISDICTION'S REVENUE FROM THE AD VALOREM TAX IMPOSED ON REAL ESTATE?

A TAX HOLIDAY ISSUED 10 YRS AGO HAS EXPIRED...

WHICH, IF ANY, OF THE FOLLOWING TRANSACTIONS WILL DECREASE A TAXING JURISDICTION'S AD VALOREM TAX REVENUE IMPOSED ON REAL ESTATE?

A LOCAL UNIVERSITY BUYS AN APARTMENT BUILDING FOR USE AS A STUDENT DORMITORY...

WHICH, IF ANY, OF THE FOLLOWING IS A TYPICAL CHARACTERISTIC OF AN AD VALOREM TAX ON PERSONALTY?

THE TAX ON AUTOMOBILES SOMETIMES CONSIDERS THE AGE OF THE VEHICLE...

FEDERAL EXCISE TAXES THAT ARE NO LONGER IMPOSED INCLUDE:

TAX ON JEWELERY...

TAXES NOT IMPOSED BY THE FEDERAL GOVERNMENT INCLUDE:

CAR RENTAL TAX...

TAXES LEVIED BY BOTH STATES AND THE FEDERAL GOVERNMENT INCLUDE:

NONE OF THE ABOVE...

TAXES LEVIED BY ALL STATES INCLUDE:

LIQUOR EXCISE TAX...

A USE TAX IS IMPOSED BY:

MOST OF THE STATES AND NOT THE FEDERAL GOVERNMENT...

BURT AND LISA ARE MARRIED AND LIVE IN A COMMMON LAW STATE. BURT WANTS TO MAKE GIFTS TO THEIR FIVE CHILDREN IN 2011. WHAT IS THE MAXIMUM AMOUNT OF THE ANNUAL EXCLUSION THEY WILL BE ALLOWED FOR THESE GIFTS?

$130,000...

PROPERTY CAN BE TRANSFERRED WITHIN THE FAMILY GROUP BY GIFT OR AT DEATH. ONE MOTIVATION FOR PREFERRING THE GIFT APPROACH IS:

TO TAKE ADVANTAGE OF THE PER DONEE ANNUAL EXCLUSION...

INDICATE WHICH, IF ANY, STATEMENT IS INCORRECT. STATE INCOME TAXES:

NONE OF THE ABOVE...

STATE INCOME TAXES GENERALLY CAN BE CHARACTERIZED BY:

PROVISION FOR WITHHOLDING PROCEDURES...

A CHARACTERISTIC OF FICA IS THAT:

IT APPLIES WHEN ONE SPOUSE WORKS FOR THE OTHER SPOUSE...

A CHARACTERISTIC OF FUTA IS THAT:

COMPLIANCE REQUIERS FOLLOWING GUIDLINES ISSUED BY BOTH STATE AND FEDERAL REGULATORY...

THE U.S. (EITHER FEDERAL, STATE, OR LOCAL) DOES NOT IMPOSE:

EXPORT DUTIES...

THE PROPOSED FLAT TAX:

WOULD SIMPLIGY THE INCOME TAX...

A VAT TAX (VALUE ADDED TAX):

IS REGGRESSIVE IN ITS EFFECT...

CHARACTERISTICS OF THE "FAIR TAX"(I.E., NATIONAL SALES TAX) INCLUDE WHICH, IF ANY, OF THE FOLLOWING:

ABOLITION OF ALL FEDERAL INCOMME AND PAYROLL TAXES AS WELL AS THE FEDERAL ESTATE AND GIFT TAXES...

IN TERMS OF PROBABLILTY, WHICH OF THE FOLLOWING TAXPAYERS WOULD BE LEAST LIKELY TO BE AUDITED BY THE IRS?

TAXPAYER IS AN EMPLOYED ELECTRICIAN...

WHICH OF THE FOLLOWING IS A CHARACTERISTIC OF THE AUDIT PROCESS?

LESS IMPORTANT ISSUES ARE HANDLED BY MEANS OF A CORRESPONDENCE AUDIT...

SCOTT FILES HIS TAX RETURN 65 DAYS AFTER THE DUE DATE. ALONG WITH THE RETURN, SCOTT REMITS A CHECK FOR $50,000 WHICH IS THE BALANCE OF THE TAX OWED. DISREGARDING THE INTEREST ELEMENT, SCOTT'S TOTAL FAILURE TO FILE AND TO PAY PENALTIES ARE:

$7,500...

A CHARACTERISTIC OF THE FRAUD PENALTIES IS:

WHEN NEGLIGENCE AND CIVIL FRAUD APPLY TO A DEFICIENCY, THE CIVIL FRAUD PENALTY PREDOMINATES...

REGARDING PROPER ETHICAL GUIDLINES, WHICH (IF ANY) OF THE FOLLOWING IS CORRECT?

IF THE EXACT AMOUNT OF A DEDUCTION IS NOT CERTAIN (E.G., AROUND MID $600S), IT SHOULD NOT BE RECORDED AS AN ODD AMOUNT (I.E, $649) SO AS TO INCREASE THE APPEARANCE OF GREATER CERTAINTY...

BOTH ECONOMIC AND SOCIAL CONSIDERATIONS CAN BE USED TO JUSTIFY:

VARIOUS TAX CREDITS, DEDUCTIONS AND EXCLUSIONS THAT ARE DESIGNED TO ENCOURAGE TAXPAYERS TO OBTAIN ADDITIONAL EDUCATION...

SOCIAL CONSIDERATIONS CAN BE USED TO JUSTIFY:

ALLOWANCE OF A CREDIT FOR CHILD CARE EXPENSES...

ALLOWING A DOMESTIC PRODUCTION ACTIVITIES DEDUCTION FOR CERTAIN MANUFACTURING INCOME CAN BE JUSTIFIED:

BY ECONOMIC CONSIDERATIONS..

PROVISIONS IN THE TAX LAW THAT PROMOTE ENERGY CONSERVATION AND MORE USE OF ALTERNATIVE (NON FOSSIL) FUELS CAN BE JUSTIFIED BY:

ECONOMIC AND SOCIAL CONSIDERATIONS...

WHICH, IF ANY, OF THE FOLLOWING PROVISIONS CANNOT BE JUSTIFIED AS MITIGAGING THE EFFECT OF THE ANNUAL ACCOUNTING PERIOD CONCEPT?

NONRECOGNITION OF GAIN ALLOWED FOR INVOLUNTARY CONVERSIONS

WHICH, IF ANY, OF THE FOLLOWING PROVISIONS OF THE TAX LAW CANNOT BE JUSTIFIED AS PROMOTING ADMINISTRATIVE FEASIBILITY (SIMMPLIFYING THE TASK OF THE IRS)?

A DEDUCTION IS ALLOWED FOR THE CHARITABLE CONTRIBUTIONS

A LANDLORD LEASES PROPERTY UPON WHICH THE TENANTY MAKES IMPROVEMENTS. THE IMPROVEMENTS ARE SIGNIFICANT AND ARE NOT MADE IN LIEU OF RENT. AT THE END OF THE LEASE, THE VALUE OF THE IMPROVEMENTS ARE NOT INCOME TO THE LANDLORD. THIS RULE IS AN EXAMPLE OF:

THE WHEREWITHAL TO PAY CONCEPT

THE INTERNAL REVENUE CODE WAS CODIFIED IN WHICH OF THE FOLLOWING YEARS?

1954

TAX BILLS ARE HANDLED BY WHICH COMMITTEE IN THE U.S. SENATE?

FINANCE COMMITTEE

WHICH COMMITTEE RECONCILES THE TAX BILLS BETWEEN THE SENATE AND THE HOUSE?

JOINT CONFERENCE COMMITTEE

SUBCHAPTER S COVERS WHICH SPECIFIED AREA OF TAX LAW?

NONE OF THE ABOVE

WHICH IS NOT A CODE SECTION NUMBER

§ 6(a)

WHICH STATEMENT IS FALSE WITH RESPECT TO TAX TREATIES?

TREATIES OVERRIDE THE CODE WHEN IN CONFLICT

WHICH OF THE FOLLOWING IS NOT AN ADMINISTRATIVE SOURCE OF THE TAX LAW?

ALL OF THE ABOVE ARE ADMINISTRATIVE SOURCES

WHICH OF THE FOLLOWING SOURCES HAS THE HIGHEST TAX VALIDITY?

INTERNAL REVENUE CODE SECTION

WHICH OF THE FOLLOWING TYPES OF REGULATIONS HAS THE HIGHEST TAX VALIDITY?

LEGISLATIVE

WHAT STATEMENT IS NOT TRUE WITH RESPECT TO A REGULATION WHICH INTERPRETS THE TAX LAW?

ISSUED BY THE U.S. CONGRESS

IN ASSESSING THE IMPORTANCE OF A REGULATION, AN IRS AGENT MUST:

GIVE EQUAL WEIGHT TO THE CODE AND REGULATIONS

WHICH ITEM MAY NOT BE CITED AS A PRECEDENT?

TECHNICAL ADVISE MEMORANDA

WHAT STATEMENT IS NOT TRUE WITH RESPECT TO TEMPORARY REGULATIONS?

LETTER RULING

WHICH COURT DECISIONS ARE PUBLISHED IN PAPER FORMAT BY THE U.S. GOVERNMENT?

U.S. TAX COURT REGULAR DECISION

WHICH WOULD NOT BE A CITATION TO A DISTRICT COURT CASE?

97 TCM 1488

WHICH TAX SOURCE MEY OVERRIDE A REGULATION SECTION?

U.S. TAX TREATY

WHICH OF THE FOLLOWING JOURNALS IS PUBLISHED BY THE AMERICAN INSTITUTE OF CPA'S?

THE TAX ADVISOR

WHERE CAN A RESEARCHER NOT FIND A U.S. COURT OF APPEALS DECISION?

F. SUPP. 2d SERIES (WEST)

WHICH PUBLISHER OFFERS TAX CENTER THAT PROVIDES THE CODE, REGULATIONS AND MATERIAL FROM MATTHEW BENDER CCH, KLEINROCK, AND THE BUREAU OF NATIONAL AFFIARS?

LEXISNEXIS

WHICH PUBLISHER OFFERS THE STANDARD FEDERAL TAX REPORTER?

COMMERCE CLEARING HOUSE

WHICH IS PRESENTLY NOT A MAJOR TAX SERVICE?

FEDERAL TAXES

WHICH PUBLISHER OFFERS THE UNITED STATES TAX REPORTER?

RESEARCH INSTITUTE OF AMERICA

WHEN SEARCHING ON AN ONLINE TAX SERVICE, WHICH APPROACH IS MORE FREQUENTLY USED?

KEYWORD APPROACH

A RESEARCHER CAN FIND TAX INFORMATION ON HOME PAGE SITES OF:

ALL OF THE ABOVE

TAX RESEARCH INVOLVES WHICH OF THE FOLLOWING PROCEDURES:

ALL OF THE ABOVE

WHICH TAX RELATED WEBSITE PROBABLY GIVES THE BEST POLICY-ORIENTED RESULTS?

TAXANALYST.COM

WHICH COURT DECISION WOULD PROBABLY CARRY MORE WEIGHT?

REVIEWED U.S. TAX COURT DECISION

WHICH REGULATIONS HAVE THE FORCE AND EFFECT OF LAW?

LEGISLATIVE REGULATIONS

WHICH ITEMS TELL TAXPAYERS THE IRS'S REACTION TO CERTAIN COURT DECISIONS?

ACTIONS ON DECISIONS

WHICH COURT DECISION CARRIES LESS WEIGHT?

SMALL CASES DIVISION OF U.S. TAX COURT

WHICH COMPANY DOES NOT PUBLISH CITATORS FOR TAX PURPOSES?

MCGRAW-HILLL

WHICH IS NOT A PRIMARY SOURCE OF TAX LAW?

ALL OF THE ABOVE ARE PRIMARY SOURCES

WHICH STATEMENT IS INCORRECT WITH RESPECT TO TAXATION ON THE CPA EXAM?

THERE ARE NO LONGER CASE STUDIES ON THE EXAM

IN TERMS OF THE TAX FORMULA APPLICABLE TO INDIVIDUAL TAXPAYERS, WHICH IF ANY, OF THE FOLLOWING STATEMENTS IS CORRECT?

IN ARRIVING AT TAXABLE INCOME, A TAX PAYER MUST CHOOSE BETWEEN THE STANDARD DEDUCTION AND DEDUCTIONS FROM AGI

REGARDING THE TAX FORMULA AND ITS RELATIONSHIP TO FORM 1040, WHICH IF ANY, OF THE FOLLOWING STATEMENTS IS CORRECT?

AN "ABOVE THE LINE DEDUCTION" REFERS TO A DEDUCTION FOR AGI

WHICH OF THE FOLLOWING ITEMS, IF ANY, IS DEDUCTIBLE?

SUBSTANTIATED GAMBLING LOSSES (NOT IN EXVESS OF GAMBLING WINNINGS) INCURRED ON A VACATION TO RENO

WHICH, IF ANY, OF THE FOLLOWING IS A DEDUCTION FOR AGI?

ALIMONY PAYMENTS

WHICH, IF ANY, OF THE FOLLOWING IS A DEDUCTION FOR AGI?

NONE OF THE ABOVE

WHICH, IF ANY, OF THE STATEMENTS REGARDING THE STANDARD DEDUCTION IS CORRECT?

SOME TAXPAYERS MAY QUALIFY FOR TWO TYPES OF STANDARD DEDUCTIONS

WHICH, IF ANY, OF THE FOLLOWING STATEMENTS RELATING TO THE STANDARD DEDUCTION IS CORRECT?

IF A TAXPAYER IS CLAIMED AS A DEPENDENT OF ANOTHHER, HIS (OR HER) ADDITIONAL STANDARD DEDUCTION IS ALLOWED IN FULL (I.E. NO ADJUSTMENT IS NECESSARY)

DURING 2011, ESTHER HAD THE FOLLOWING TRANSACTIONS:
SALARY- $50,000
BANK LOAN- 10,000
ALIMONY RECIEVED- 6,000
CHILD SUPPORT RECIEVED- 12,000
GIFT FROM AUNT- 20,000

ESTHER'S AGI IS:

$56,000

DURING 2011, MARVIN HAD THE FOLLOWING TRANSACTIONS:
SALARY- $70,000
INTEREST INCOME ON CITY OF DENVER BONDS- 2,000
INHERITANCE FROM UNCLE- 40,000
CONTRIBUTION TO TRADITIONAL IRA- 5,000
CAPITAL LOSSES- 3,000

MARVIN'S AGI IS:

$62,000

DURING 2011, ANNA HAD THE FOLLOWING TRANSACTIONS:
SALARY- $80,000
INTEREST INCOME ONN IBM BONDS- 2,000
DAMAGES FOR PERSONAL INJURY (CAR ACCIDENT)- 100,000
PUNITIBE DAMAGES(SAME CAR ACCIDENT)- 200,000
CASH DIVIDENDS FROM CHEVRON CORPORATION STOCK- 5,000

ANNA'S AGI IS:

$287,000

IN 2011, JUSTIN HAD THE FOLLOWING TRANSACTIONS:
SALARY- $90,000
CAPITAL LOSS FROM A STOCK INVESTMENT- (4,000)
MOVING EXPENSES TO CHG JOBS- (11,000)
RECIEVED REPAYMENT OF A $20,000 LOAN SHE MADE TO HER BROTHER IN 2006- $20,000
STATE INCOME TAXES- (5,000)

JUSTIN'S AGI IS:

$76,000

SYLVIA, AGE 17, IS CLAIMED BY HER PARENTS AS A DEPENDENT. DURING 2011, SHE HAD INTEREST INCOME FROM A BANK SAVINGS ACCOUNT OF $2,000 AND INCOME FROMM A PART TIME JOB OF $4,200. SYLVIA'S TAXABLE INCOMME IS:

$6,200-4,500= $1,700

TONY, AGE 15, IS CLAIMED AS A DEPENDENT BY HIS GRANDMOTHER. DURING 2011, TONY HAD INTEREST INCOME FROM BOEING CORPORATION BONDS OF $1,000 AND EARNINGS FROM A PART-TIME JOB OF $700. TONY'S TAXABLE INCOME IS:

$1,700-$1,000= $700

MERLE IS A WIDOW, AGE 80 AND BLIND, WHO IS CLAIMED AS A DEPENDENT BY HER SON. DURING 2011, SHE RECEIVED $4,800 IN SOCIAL SECURITY BENEFITS, $2,200 IN BANK INTEREST, AND $1,800 IN CASH DIVIDENDS FROM STOCKS. MERLE'S TAXABLE INCOME IS:

$4,000-$950-$2,900= $150

WILMA, AGE 70 AND SINGLE, IS CLAIMED AS A DEPENDENT ON HER DAUGHTER'S TAX RETURN. DURING 2011, SHE HAD INTEREST INCOME OF $2,400 AND $800 OF EARNED INCOME FROM BABY SITTING. WILMA'S TAXABLE INCOME IS:

NONE OF THE ABOVE

KYLE AND LIZA ARE MARRIED AND UNDER AGE 65. DURING 2011, THEY FURNISH MORE THAT HALF OF THE SUPPRT TO THEIR 18 YR OLD DAUGHTER, MAY, WHO LIVES WITH THEM. MAY EARNS $15,000 FROM A PART TIME JOB, MOST OF WHICH SHE SETS ASIDE FOR FUTURE COLLEGE EXPENSES. KYLE AND LIZA ALSO PROVIDE MORE THAN HALF OF THE SUPPORT OF KYLE'S COUSIN WHO LIVES WITH THEM. LIZA'S FATHER, WHO DIED ON JANUARY 3RD, 2011, AT AGE 90, HAS FOR MANY YEARS QUALIFIED AS THEIR DEPENDENT. HOW MANY PERSONAL ANDDEPENDENCY EXEMPTIONS SHOULD KYLE AND LIZA CLAIM?

5

IN WHICH, IF ANY, OF THE FOLLOWING SITUATIONS MAY THE INDIVIDUAL NOT BE CLAIMED AS A DEPENDENT OF THE TAXPAYER?

A FORMER SPOUSE WHO LIVES WITH THE TAXPAYER (DIVORCE TOOK PLACE THIS YEAR)

DURING 2011, JEN (AGE 66) FURNISHED MORE THAT 50% OF THE SUPPORT OF THE FOLLOWING PERSONS:

JEN'S SCURRENT HUSBAND WHO HAS NO INCOME AND IS NOT CLAIMED BY SOMEONE ELSE AS A DEPENDENT.
JEN'S STEPSON (AGE 18) WHO LIVES WITH HER AND EARNS $6,000 AS A DANCE INSTRUCTOR. HE DROPPED OUT OF SCHOOL A YEAR AGO.
JEN'S EX-HUSBAND WHO DOES NOT LIVE WITH HER. THE DIVORCE OCCURED TWO YEARS AGO.
JEN'S FORMER BROTHER-IN-LAW WHO DOES NOT LIVE WITH HER.
PRESUMING ALL OTHER DEPENDENCY TEST ARE MET ON SEPERATE RETURN HOW MANY PERSONAL AND DEPENDENCY EXEMPTIONS MAY JEN CLAIM?

4

A QUALIFYING CHILD CANNOT INCLUDE:

A GRANDMOTHER

ELLEN, AGE 12, LIVES IN THE SAME HOUSEHOLD AS HER FATHER, GRANDFATHER, AND UNCLE. THE COST OF MAINTAINING THE HOUSEHOLD IS PROVIDED BY HER GRANDFATHER (40%) AND HER UNCLE (60%). DISREGARDING TIE-BREAKER RULES, ELLEN IS A QUALIFYING CHILD AS TO:

ALL PARTIES INVOLVED (I.E., FATHER, GRANDFATHER, AND UNCLE)

MILLIE, AGE 80, IS SUPPORTED DURING THE CURRENT YEAR AS FOLLOWS:
WESTON (A SON)- 10%
FAITH (A DAUGHTER)- 35%
JAKE (A COUSIN)- 35%
BRAYDEN (UNRELATED CLOSE FAMILY FRIEND) - 20%

DURING THE YEAR, MILLIE LIVES IN AN ASSISTED LIVING FACILITY. UNDER A MULTIPLE SUPPORT AGREEMENT, INDICATE WHICH PARTIES CAN QUALIFY TO CLAIM MILLIE AS A DEPENDENT.

NONE OF THE ABOVE

THE HUTTERS FILED A JOINT RETURN FOR 2011. THEY PROVIDE MORE THAN 50% OF THE SUPPORT OF CARLA, MELVIN, AND AARON. CARLA (AGE 20) IS A COUSIN AND EARNS $3,000 FROM A PART TIME JOB. MELVIN (AGE 25) IS THEIR SON AND IS A FULL-TIME LAW STUDENT. HE RECEIVED FROMM THE UNIVERSITY 3,800 SCHOLARSHIP FOR TUITION. AARON IS A BROTHER WHO IS A CITIZEN OF ISRAEL BUT RESIDES IN FRANCE. CARLA AND MELVIN LIVE WITH THE HUTTERS. HOW MANY PERSONAL AND DEPENDENCY EXEMPTIONS CAN THE HUTTERS CLAIM ON THEIR FEDERAL INCOME TAX RETURN?

4

FOR THE QUALIFYING RELATIVE RULE (FOR DEPENDENCY EXEMPTION PURPOSES):

THE DEPENDENT NEED NOT RESIDE WITH THE TAXPAYER CLAIMING THE EXEMPTION

KYLE, WHOSE WIFE DIED IN DECEMBER 2008, FILED A JOINT TAX RETURN FOR 2008. HE DID NOT REMARRY, BUT HAS CONTINUED TO MAINTAIN HIS HOME IN WHICH HIS TWO DEPENDENT CHILDREN LIVE. WHAT IS KYLE'S FILING STATUS ASS TO 2011?

HEAD OF HOUSEHOLD

EMILY, WHOSE HUSBAND DIED IN DECEMBER 2010, MAINTAINS A HOUSEHOLD IN WHICH HER DEPENDENT DAUGHTER LIVES. WHICH (IF ANY) OF THE FOLLOWING IS HER FILING STATUS FOR THE TAX YEAR 2011? (NOTE: EMILY IS THE EXECUTOR OF HER HUSBAND'S ESTATE)

SURVIVING SPOUSE

WHICH OF THE FOLLOWINNG TAXPAYERS MAY FILE AS HEAD OF HOUSEHOLD IN 2011?

RON PROVIDES ALL THE SUPPORT FOR HIS MOTHER, BETTY, WHO LIVES BY HERSELF IN AN APARMENT IN FORT LAUDERDALE. RON PAYS THE RENT AND OTHER EXPENSES FOR THE APARTMENT AND PROPERLY CLAIMS HIS MOTHER AS A DEPENDENT.

TAMMY PROVIDES OVER ONE-HALF THE SUPPORT FOR HER 18 YR OLD BROTHER, DAN. DAN EARNED $4,200 IN 2011 WORKINNG AT A FAST FOOD RESTAURANT AND IS SAVING HIS MONEY TO ATTEND COLLEGE IN 2012. DAN LIVES IN TAMMY'S HOME.

JOE'S WIFE LEFT HIM LATE IN DECEMBER OF 2010. NO LEGAL ACTION WAS TAKEN AND JOE HAS NOT HEARD FROM HER IN 2011. JOE SUPPORTED HIS 6 YR OLD SON, WHO LIVED WITH HIM THROUGHTOUT 2011.

RON, TAMMY AND JOE

NELDA IS MARRIED TO CHAD, WHO ABANDONED HER IN EARLY JUNE OF 2011. SHE HAS NOT SEEN OR COMMMUNICATED WITH HIM SINCE THEN. SHE MAINTAINS A HOUSEHOLD IN WHICH SHE AND HER TWO DEPENDENT CHILDREN LIVE. WHICH OF THE FOLLOWING STATEMENTS ABOUT NELDA'S FILING STATUS IN 2011 IS CORRECT?

NELDA CAN FILE AS A HEAD OF HOUSEHOLD

ARNOLD IS MARRIED TO SYBIL, WHO ABANDONED HIM IN 2009. HE AHS NOT SEEN OR COMMMUNICATED WITH HER SINCE APRIL OF THAT YEAR. HE MAINTAINS A HOUSEHOLD IN WHICH THEIR SON, EVANS, LIVES. EVANS IS AGE 25 AND EARNS OVER $20,000 EACH YEAR. FOR TAX YEAR 2011, ARNOLD'S FILING STATUS IS:

MARRIED, FILING SEPARETELY

REGARDING THE TAX TABLES APPLICABLE TO THE FEDERAL INCOME TAX, WHICH OF THE FOLLOWING STATEMENTS IS CORRECT?

NO CORRECT ANSWER GIVEN

WHICH, IF ANY, OF THE FOLLWOING IS A CORRECT STATEMENT RELATING TO THE KIDDIE TAX?

THE KIDDIE TAX DOES NOT APPLY IF BOTH PARENTS OF THE CHILD ARE DECEASED

DURING THE YEAR, KIM SOLD THE FOLLOWING ASSETS: BUSINESS AUTO FOR A $1,000LOSS, STOCK INVESTMENT FOR A $1,000 LOSS AND PLEASURE YACHT FOR A $1,000 LOSS. PRESUMING ADEQUATE INCOME, HOW MUCH OF THESE LOSSES MAY KIM CLAIM?

$2,000

PERRY IS IN THE 33% TAX BRACKET. DURING 2011, HE HAD THE FOLLOWING CAPITAL ASSET TRANSACTIONS:

GAIN FROM THE SALE OF A STAMP COLLECTION (HELD FOR 10 YEARS)- $30,000
GAIN FROM THE SALE OF AN INVESTMENT IN LAND (HELD FOR 4 YEARS)- $10,000
GAIN FROM THE SALE OF STOCK INVESTMENT (HELD FOR 8 MONTHS)- 4,000

PERRY'S TAX CONSEQUENCES FROM THESE GAINS ARE AS FOLLOWS:

(15% X$10,000) + (15% X $13,000)

FOR THE CURRENT YEAR, DAVID HAS SALARY INCOME OF $80,000 AND THE FOLLOWING PROPERTY TRANSACTIONS:

STOCK INVESTMENT SALES- $9,000
LONG TERM CAPITAL GAIN, SHORT TERM CAPITAL LOSS- (11,000)
LOSS ON SALE OF CAMPER (PURCHASED 4 YEARS AGO AND USED FRO FAMILY VACATIONS)- (2,000)

WHAT IS DAVID'S DAGI FOR THE CURRENT YEAR?

$78,000

DURING 2011, TREVOR HAS THE FOLLOWING CAPITAL TRANSACTIONS:

LTCG
LT- COLLECTIBLE GAIN
STCG
STCL

AFTER THE NETTING PROCESS, THE FOLLOWING RESULTS:

LTCG OF $2,000

ON A PARTICULAR SATURDAY, TOM HAD PLANNED TO PAINT A ROOM IN HIS HOUSE, BUT HIS EMPLOYER HAVEHIM THE OPPORTUNITY TO WORK THAT DAY. IF TOM WORKS, HE MUST HIRE A PAINTER FOR $100. FOR TOM TO HAVE A POSITIVE CASH FLOW ROMM WORKING AND HIRING THE PAINTER:

TOM MUST EARN AT LEAST $150 IF TOM IS IN THE 33% MARGINAL TAX BRACKET

THE TAX CONCEPT AND ECONOMIC CONCEPT OF INCOME ARE IN AGREEMENT ON WHICH OF THE FOLLOWING:

NONE OF THE ABOVE

THE BLUE UTILITIES COMPANY PAID SUE $2,000 FOR THE RIGHT TO LAY AN UNDERGOUND ELECTRIC CABLE ACROSS HER PROPERTY ANYTIME IN THE FUTURE.

SUE IS NOT REQUIRED TO RECOGNIZE GROSS INCOME FROM THE RECEIPT OF THE FUNDS, BUT SHE MUST REDUCE HER COST BASIS IN THE LAND BY $2,000.

FOR THE PURPOSES OF DETERMINING GROSS INCOME, WHICH OF THE FOLLOWING IS TRUE?

A MECHANIC COMPLETED REPAIRS ON AN AUTOMOBILE DURING THE YEAR AND COLLECTS MONEY FROM THE CUSTOMER. THE CUSTOMER WAS NOT SATISFIED WITH THE REPAIRS AND SUED THE MECHANIC FOR A REFUND. THE MECHANIC CANNOT DEFER RECOGNITION OF THE INCOMEUNTIL THE SUIT HAS BEEN SETTLED.

DETROIT CORPORATION SUED CHICAGO CORPORATION FOR INTENTIONAL DAMAGE TO DETROIT'S GOODWILL. DETROIT HAD CREATED ITS GOODWILL THROUGH PROVIDING HIGH-QUALITY SERVICES TO ITS CUSTOMERS. THUS, NO BASIS FOR THE GOODWILL APPEARED ON DETROIT'S BALANCE SHEET. THE SUIT WAS SETTLED AND DETROIT RECEIVED $1,500,000 FOR THE DAMAGES TO ITS GOODWILL.

THE $1,500,000 IS TAXABLE BECAUSEDETROIT HAS NO BASIS IN THE GOODWILL.

THE ANNUAL INCREASE IN THE CASH SURRENDER VALUE OF A LIFE INSURANCE POLICY:

IS NOT INCLUDED INGROSS INCOME EACH YEAR BECAUSE OF THE SUBSTANTIAL RESTRICTIONS ON GAINING ACCESS TO THE POLICY'S VALUE

TURNER, A SUCCESSFUL EXECUTIVE, IS NEGOTIATING A COMPENSATION PLAN WITH HIS POTENTIAL EMPLOYER. THE EMPLOYER HAS OFFERED TO PAY TURNER A $600,000 ANNUAL SALARY, PAYABLE AT THE RATE OF $50,000 PER MONTH. TURNER COUNTEROFFERS TO RECEIVE A MONTHLY SALARY OF $40,000 ($480,000 ANNUALLY) AND A $180,000 BONUS IN 5 YEARS WHEN TURNER WILL BE AGE 65.

IF THE EMPLOYER ACCEPTS TURNER'S COUNTEROFFER, TURNER WILL RECOGNIZE AS GROSS INCOME $40,000 PER MONTH AND $180,000 IN YEAR 5.

MAROON CORPORATION IS CONSIDERING DEFERRRED COMPENSATION PLANS FOR ITS EXECUTIVE EMPLOYEES OVER AGE 55. ALL OF THE EMPLOYEES USE THE CASH METHOD OF ACCOUNTING. ONE PLAN IS TO ALLOW THE EMPLOYEE TO MAKE AN ELECTION AT THE BEGINNING OF THE YEAR TO DEFER 10% OF HIS OR HER SALARY UNTIL RETIREMENT,AT WHICH TIME THE EXECUTIVE WOULD RECEIVE THE DEFERRED PAY PLUS 6% INTEREST

THE SALARY AND THE RELATED INTEREST CAN BE DEFERRED FROM INCLUSION IN GROSS INCOME UNTIL THEY ARE RECIEVED.

THE ANNUAL INCREASE IN THE CASH SURRENDER VALUE OF A LIFE INSURANCE POLICY:

IS NOT INCLUDED IN GROSS INCOME BECAUSE THE POLICY MUST BE SURRENDERED TO RECIEVE THE CASH SURRENDER VALUE.

UNDER THE ORGINAL ISSUE DISCOUNT (OID) RULES AS APPLIED TO A THREE-YEAR CERTIFICATE OF DEPOSIT:

THE ORGINAL ISSUE DISCOUNT MUST BE AMORTIZED USING THE EFFECTIVE INTEREST METHOD.

FREDDY PURCHASED A CERTIFICATE OF DEPOSIT FOR $20,000 ON JANUARY 1, 2011. THE CERTIFICATE'S MATURITY VALUE IN TWO YEARS (DECEMBER 31, 2012) IS $22,050, YIELDING 5% BEFORE- TAX INTEREST.

FREDDY MUST RECOGNIZE $1,000 (.05 X $20,000) GROSS INCOME IN 2011

JERRY PURCHASED A U.S SERIES EE SAVINGS BOND FOR $279. THE BOND HAS A MATURITY VALUE IN 10 YEARS OF $500 AND YIELDS 6% INTEREST. THIS IS THE FIRST SERIES EE BOND THAT HERRY HAS EVER OWNED.

JERRY CAN REPORT ALL OF THE $221 INTEREST INCOME IN THE YEAR THE BOND MATURES.

OFFICE PALACE, INC., LEASED AN ALL IN ONE PRINTER TO A NEW CUSTOMER, ASHLEY, ON DECEMBER 7, 2011. THE PRINTER WAS TO RENT FOR $600 PER MONTH FOR A PERIOD OF 36 MONTHS BEGINNING JANUARY 1, 2012. ASHLEY WAS REQUIRED TO PAY THE FIRST AND LAST MONTH'S RENT AT THE TIME THE LEASE WAS SIGNED. ASHLEY WS ALSO REQUIRED TO PAY A $1,500 DAMAGE DEPOSIT. OFFICE PALACE MMUST RECOGNIZE AS INCOME FOR THE LEASE.

$1,200 IN 2011, IF OFFICE PALACE IS AN ACCRUAL BASIS TAXPAYER

KATHY OPERATES A GYM. SHE SELLS MEMBERSHIPS THAT ENTITLE THE MEMBER TO USE THE FACILITIES AT ANY TIME. A ONE-YEAR MEMBERSHIP COSTS $360 ($360/12 = $30 PER MONTH); A TWO YEAR MEMBERSHIP COSTS $600 ($600/24 - $25 PER MONTH). CASH PAYMENT IS REQUIRED AT THE BEGINNING OF THE MEMBERSHIP PERIOD. ON JULY 1, 2011, KATHY SOLD A ONE YEAR MEMBERSHIP AND A TWO YEAR MEMBERSHIP.
1. IF KATHY IS A CASH BASIS TAXPAYER, HER 2011 GROSS INCOME FROM THE CONTRACTS IS $960 ($360+$600)
2. IF KATHY IS AN ACCRUAL BASIS TAXPAYER, HER 2011 GROSS INCOME FROM THE CONTRACTS IS $330 [(6/12 X $360) + (6/24 X $600)]
3. IF KATHY IS AN ACCRUAL BASIS TAXPAYER, HER 2012 GROSS INCOME FROM THE CONTRACTS IS $630 [(6/12)($360) + ($450)].

1, 2 AND 3 ARE TRUE

ORANGE CABLE TV COMPANY, AN ACCRUAL BASIS TAXPAYER, ALLOWS ITS CUSTOMERS TO PAY BY THE END OF THE YEAR IN ADVANCE ($500 PER YEAR), OR TWO YEARS IN ADVANCE ($950). IN SEPTEMBER 2011, THE COMPANY COLLECTED THE FOLLOWING AMOUNT APPLICABLE TO FUTURE SERVICES:

OCTOBER 2011- SEPT 2013 SERVVICES (2 YR CONTRACTS)- $144,000
OCT 2011-SEPT 2012 SERVICES (1 YR CONTRACTS)- $128,000
TOTAL= $272,000

AS A RESULT OF THE ABOVE, ORANGE CABLE SHOULD REPORT AS GROSS INCOME:

$222,000 IN 2012

WITH RESPECT TO THE PREPAID INCOME FROM SERVICES, WHICH OF HE FOLLOWING IS TRUE?

AN ACCRUAL BASIS TAXPAYER CAN SPREAD THE INCOME OVER THE PERIOD SERVICES ARE TO BE PROVIDED IF ALL OF THE SERVICES WILL BE COMPLETED BY THE END OF THE TAX YEAR FOLLOWING THE YEAR OF RECIEPT.

WITH RESPECT TO INCOME FROM SERVICES, WHICH OF THE FOLLOWING IS TRUE?

IF AN ACCRUAL BASIS TAXPAYER SELLS A 24-MONTH SERVICE CONTRACT ON JULY 1, 2011, FOR $2,000 THE TAXPAYER'S 2012 GROSS INCOME FROM THE CONTRACT IS $1,800

THE GREEN COMPANY, AN ACCRUAL BASIS TAXPAYER, PROVIDES BUSINESS-CONSULTING SERVICES. CLIENTS GENERALLY PAY A RETAINER AT THE BEGINNING OF A 12- MONTH PERIOD. THIS ENTITLES THE CLIENT TO NO MORE THAN 40 HOURS OF SERVICES. ONCE THE CLIENT HAS RECEIVED 40 HOURS OF SERVICES, GREEN CHARGES $500 PER HOUR. GREEN COMPANY ALLOCATES THE RETAINER TO INCOMME BASED ON THE NUMBER OF HOURS WORKED ON THE CONTRACT. AT THE END OF THE TAX YEAR, THE COMPANY HAD $50,000 OF UNEARNED REVENUES FROM THESE CONTRACTS. THE COMPANY ALSO HAD $10,000 IN UNEARNED RENT INCOME RECEIVED FROM EXCESS OFFICE SPACE LEASED TO OTHER COMPANIES. BASED ON THE ABOVE, GREEN MUST INCLUDE IN GROSS INCOME FOR THE CURRENT YEAR:

$10,000

TEAL COMPANY IS AN ACCRUAL BASIS TAXPAYER. ON DECEMBER 1, 2011, A CUSTOMER PAID FOR AN ITEM THAT WAS ON HAND, BUT THE CUSTOMER WANTED THE ITEM DELIVERED IN EARLY JANUARY 2012. TEAL DELIVERED THE ITEM ON JANUARY 4, 2012. TEAL INCLUDED THE SALE IN ITS 201 INCOME FOR FINANCIAL ACCOUNTING PURPOSES.

TEAM MUST RECOGNIZE THE INCOME IN 2011

ON JANUARY 5TH, 2011, JANE PURCHASED A BOND PAYING INTEREST AT 6% FOR $30,000. ON SEPTEMBER 30, 2011, SHE GAVE THE BOND TO TIM. THE BOND PAYS $1,800 INTEREST ON DECEMBER 31. JANE AND TIM ARE CASH BASIS TAXPAYERS. WHEN TIM COLLECTS THE INTEREST IN DECEMBER 2011:

JANE REPORTS $1,350 OF INTEREST INCOME IN 2011, AND TIM REPORTS $450 OF INTEREST INCOME IN 2011.

MIKE CONTRACTED WITH KRAM COMPANY, MIKE'S CONTROLLED CORPORATION. MIKE WAS A MEDICAL DOCTOR AND THE CONTRACT PROVIDED THAT HE WOULD WORK EXCLUSIVELY FOR THE CORPORATION. NO OTHER DOCTOR WORKED FOR THE CORPORATION. THE CORPORATION CONTRACTED TO PERFORM AN OPERATION FOR ROSA FOR $4,000. THE CORPORATION PAID MIKE $6,500 TO PERFORM THE OPERATION UNDER THE TERMS OF HIS EMPLOYMENT CONTRACT.

MIKE'S GROSS INCOME IS $6,500

AS A GENERAL RULE:
1. INCOME FROM PROPERTY IS TAXED TO THE PERSON WHO OWNS THE PROPERTY.
2. INCOME FROM SERVICES IS TAXED TO THE PERSON WHO EARNS THE INCOME.
3. THE ASSIGNEE OF INCOME FROM PROPERTY MUST PAY TAX ON THE INCOME.
4. THE PERSON WHO RECIEVES THE BENEFIT OF THE INCOME MUST PAY THE TAX ON THE INCOME.

ONLY 1 AND 2 ARE TRUE.

ON OCT 1, 2011, BOB, A CASH BASIS TAXPAYER, GAVE DAVE COMMON STOCK THAT PAID A DIVIDEND OF $1,000 ON DECEMBER 15, 2011. ON NOVEMBER 15, 2011, THE CORPORATION DECLARED THE DIVIDEND PAYABLE TO SHAREHOLDERS OF RECORD AS NOVEMBER 22, 2011. THE CORPORATION HAS PAID THE $1,000 DIVIDEND ONCE EACH YEAR FOR THE PAST TEN YEARS, DURING WHICH BOB OWNED THE STOCK. WHEN DAVE COLLECTED THE DIVIDEND ON DECEMBER 15, 2011:

DAVE MUST INCLUDE ALL OF THE DIVIDEND IN HIS GROSS INCOME

DANIEL PURCHASED A BOND ON JULY 1, 2011, AT PAR OF $10,000 PLUS ACCRUED INTEREST OF $300. ON DECEMBER 31, 2011, DANIEL COLLECTED THE $600 INTEREST FOR THE YEAR. ON JANUARY 1, 2012 DANIEL SOLD THE BOND FOR $10,200.

DANIEL MUST RECOGNIZE $300 INTEREST INCOME FOR 2011 AND A $200 GAIN ON THE SALE OF THE BOND IN 2012.

THERESA A CASH BASIS TAXPAYER, PURCHASED A BOND ON JULY 1, 2008, FOR $10,000, PLUS $400 OF ACCRUED INTEREST. THE BOND PAID $800 OF INTEREST EACH DECEMBER 31. ON MARCH 31, 2011, SHE SOLD THE BOND FOR $10,150, WHICH INCLUDED $200 OF ACCRUED INTEREST.

THERESA HAS $200 OF INTEREST INCOME AND A $50 LOSS FROM THE BOND IN 2011.

DARRYL, A CASH BASIS TAXPAYER, GAVE 1,000 SHARES OF COPPER COMPANY COMMON STOCK TO HIS DAUGHTER ON SEPTEMBER 29, 2011. COPPER COMPANY IS A PUBLICLY HELD COMPANY THAT HAS DECLARED A $2.00 PER SHARE DIVIDEND ON SEPTEMBER 30TH EVERY YEAR FOR THE LAST 20 YEARS. JUST AS DARRYL HAD EXPECTED, COPPER COMPANY DECLARED A $2.00 PER SHARE DIVIDEND
ON SEPTEMBER 30TH, PAYABLE ON OCT 15TH, TO STOCKHOLDERS OF RECORD AS OF OCT 10TH. THE DAUGHTER RECIEVED TEH $2,000 DIVIDEND ON OCT 18TH, 2011

THE DAUGHTER MUST RECOGNIZE THE INCOME BECAUSE SHE OWNED THE STOCK WHEN THE DIVIDEND WAS DECLARED AND SHE RECEIVED THE $2,000.

WAYNE OWNS A 25% INTEREST IN THE CAPITAL AND PROFITS OF EMERALD COMPANY (A CALENDAR YEAR PARTNERSHIP). FOR TAX YEAR 2011, THE PARTNERSHIP EARNED REVENUE OF $600,000 AND HAD OPERATING EXPENSES OF $300,000. DURING THE YEAR, WAYNE WITHDREW FROM THE PARTNERSHIP A TOTAL OF $64,000. HE ALSO INVESTED AN ADDITIONAL $20,000 IN THE PARTNERSHIP. FOR 2011, WAYNE'S GROSS INCOME FROM THE PARTNERSHIP IS:

$75,000

HARRY AND WANDA WERE MARRIED IN TEXAS, A COMMUNITY PROPERTY STATE, BUT MOVED TO VIRGINIA, A COMMON LAW STATE. THE CALCULATION OF THEIR INCOME ON A JOINT RETURN:

WILL NOT CHANGE AS A RESULT OF CHANGING THEIR STATE OF RESIDENCE

JIM AND NORA, RESIDENTS OF A COMMUNITY PROPERTY STATE, WERE MARRIED IN EARLY 2009. LATE IN THE 2009 THEY SEPARATED, AND IN 2011 THEY WERE DIVORCED. EACH EARNED A SALARY, AND THEY RECEIVED INCOME FROM COMMUNITY OWNED INVESTMENTS IN ALL RELEVANT YEARS. THEY FILED SEPARATE RETUNS IN 2009 AND 2010.

IN 2010, NORA MUST REPORT ONLY HER SALARY AND ONE-HALF OF THE INCOME FROM COMMUNITY PROPERTY ON HER SEPARATE RETURN.

THE UNDERLYING RATIONALE FOR THE ALIMONY RULE IS THAT:

THE INCOME SHOULD BE TAXED TO THE PERSON WHO ENJOYS THE BENEFITS OF THE INCOME.

TRAVIS AND ANDREA WERE DIVORCED. THEIR ONLY MARITAL PROPERTY COSISTED OF A PERSONAL RESIDENCE (FAIR MARKET VALUE OF $400,000, COST OF $200,000), AND PUBLICLY-TRADED STOCKS (FAIR MARKET VALUE OF $800,000, COST BASIS OF $500,000). UNDER THE TERMS OF THE DIVORCE AGREEMENT, ANDREA RECIEVED THE PERSONAL RESIDENCE AND TRAVIS RECEIVED THE STOCKS. IN ADDITION, ANDREA WAS TO RECIEVE $50,000 FOR EIGHT YEARS.

1. IF THE $50,000 ANNUAL PAYMENTS ARE TO BE MADE TO ANDREA OR HER ESTATE (IF SHE DIES BEFORE THE END OF THE EIGHT YEARS), THE PAYMENTS WILL QUALIFY AS ALIMONY.
2. ANDREA HAS A TAXABLE GAIN FROM AND EXCHANGE OF HER ONE-HALF INTEREST IN THE STOCKS FOR TRAVIS' ONE HALF INTEREST IN THE HOUSE AND CASH.
3. IF TRAVIS SELLS THE STOCKS FOR $900,000, HE MUST RECOGNIZE A $400,000 GAIN.

ONLY 3 IS TRUE

WHICH OF THE OLLWING IS NOT A REQUIREMENT FOR AN ALIMONY DEDUCTION?

THE PAYMENTS MUST BE PURSUANT TO A LEGAL OBLIGATION TO PROVIDE SUPPORT.

TIM AND JANET WERE DIVORCED. THEIR ONLY MARITAL PROPERTY WAS A PERSONAL RESIDENCE WITH A VALUE OF $120,000 AND COST OF $50,000. UNDER THE TERMS OF THE DIVORCE AGREEMENT, JANET WOULD RECEIVE THE HOUSE AND JANET WOULD PAY TIM $15,000 EACH YEAR FOR 5 YEARS, OR UNTIL TIM'S DEATH, WHICHEVER SHOULD OCCUR FIRST. TIME AND JANET LIVED APARTWHEN THE PAYMENTS WERE MADE TO TIM. THE DIVORCE AGREEMENT DID NOT CONTAIN THE WORD "ALIMONY"

JANET IS ALLOWED TO DEDUCT $15,000 EACH YEAR FOR ALIMONY PAID

THELMA AND MITCH WERE DIVORCED. THE COUPLE HAD A JOINT BROKERAGE ACCOUNT THAT INCLUDED STOCKS WITH A BASIS OF $600,000 AND A FAIR MARKET $1,000,000. UNDER THE TERMS OF THE DIVORCE AGREEMENT, MITCH WOULD RECEIVE THE STOCKS AND MITCH WOULD PAY THELMA $100,000 EACH YEAR FOR 6 YEARS, OR UNTIL THELMA'S DEATH, WHICHEVER SHOULD OCCUR FIRST. THELMA AND MITCH LIVED APART WHEN THE PAYMENTS WERE MADE BY MITCH. MITCH PAID THE $600,000 TO THELMA OVER THE SIX YEAR PERIOD. THE DIVORCE AGREEMENT DID NOT CONTAIN THE WORD "ALIMONY". THEN, MITCH SOLD THE STOCKS FOR $1,300,000. MITCH'S RECOGNIZED GAIN FROM THE SALE IS:

$700,000 (1,300,000-$600,000)

THE ALIMONY RECAPTURE RULES ARE INTENDED TO:

PREVENT TAX DEDUCTIONS FOR PROPERTY DIVISIONS

THE ALIMONY RULES

DISTINGUISH CHILD SUPPPORT PAYMENTS FROM ALIMONY

UNDER THE TERMS OF A DIVORCE AGREEMENT, KIM WAS TO PAY HER HUSBAND TOM $3,000 PER MONTH IN ALIMONY AND $2,000 PER MONTH IN CHILD SUPPORT. FOR A 12 MONTH PERIOD, KIM CAN DEDUCT FROM GROSS INCOME (AN TOM MUST INCLUDE IN GROSS INCOME):

$36,000

UNDER THE TERMS OF A DIVORCE AGREEMENT, LANNY WAS TO PAY HIS WIFE JOYCE $2,000 PER MONTH IN ALIMONY AND $500 PER MONTH IN CHILD SUPPORT. FOR A TWELVE-MONTH PERIOD, LANNY CAN DEDUCT FROM GROSS INCOME (AND JOYCE MUST INCLUDE IN GROSS INCOME):

$24,000

UNDER THE THERMS OF A DIVORCE AGREEMENT, RON IS TO PAY HIS FORMER WIFE JILL $12,000 PER MONTH. THE PAYMENTS ARE TO BE REDUCED TO $4,000 PER MONTH WHEN THEIR 15 YR OLD CHILD REACHES AGE 18. DURING THE CURRENT YEAR, RON PAID $144,000 UNDER THE AGREEMENT. ASSUMING ALL OF THE OTHER CONDITIONS FOR ALIMONY ARE SATISFIED, RON CAN DEDUCT FROM GROSS INCOME (AND JILL MUST INCLUDE IN GROSS INCOME) AS ALIMONY:

$48,000

IN THE CASE OF A BELOW MARKET LOAN BETWEEN FAMILY MEMBERS, IF THE IMPUTED INTEREST RULES APPLY:
1. THE BORROWER MUST RECOGNIZE INTEREST INCOME.
2. THE LENDER HAS INTEREST INCOME
3. THE LENDER IS DEEMED TO HAVE MADE A GIFT
4. THE BORROWER HAS INTEREST EXPENSE

2, 3, AND 4 ARE TRUE BUT 1 IS FALSE

ON JANUARY 1, FATHER (DAVE) LOANED DAUGHTER (DEBRA) $100,000 TO PURCHASE A NEW CAR AND TO PAY OFF COLLEGE LOANS. THERE WERE NO OTHER LOANS OUTSTANDING BETWEEN DAVE AND DEBRA. THE RELEVANT FEDERAL RATE ON INTEREST WAS 6%. THE LOAN WAS OUTSTANDING FOR THE ENTIRE YEAR.

IF DEBRA HAS $15,000 OF INVESTMENT INCOME, DAVE MUST RECOGNIZE $6,090 OF IMPUTED INTEREST INCOME

THE EFFECTS OF BELOW MARKET VALUE LOAN FOR $450,000 MADE BY A CORPORATION TO ITS CHEIF EXECUTIVE OFFICER AS AN ENTICEMENT TO GET HIM TO REMAIN WITH THE COMPANY ARE:

THE EMPLOYEE HAS IMMPUTED COMPENSATION INCOME AND INTEREST EXPENSE.

SARAH, A MAJORITY SHAREHOLDER IN TEAL, INC., MADE A $200,000 INTEREST- FREE LOAN TO THE CORPORATION. SARAH IS NOT AN EMPLOYEE OF THE CORPORATION.

SARAH MUST RECOGNIZE IMPUTED INTEREST INCOME AND THE CORPORATION MUST RECOGNIZE IMPUTED INTEREST EXPENSE.

SHARON MADE A $60,000 INTEREST FREE LOAN TO HER SON, TODD, WHO USED THE MONEY TO START A NEW BUSINESS. TODD'S ONLY SOURCES OF INCOME WERE $25,000 FROM THE BUSINESS AND $490 OF INTEREST ON HIS CHECKING ACCOUNT. THE RELEVANT FEDERAL INTEREST RATE WAS 5%. BASED ON THE ABOVE INFORMATION:

SHARON DOES NOT RECOGNIZE ANY IMPUTED INTEREST INCOME AND TODD DOES NOT RECOGNIZE ANY IMPUTED INTEREST EXPENSE.

JAY, A SINGLE TAX PAYER, RETIRED FROM HIS JOB AS APUBLIC SCHOOL TEACHER IN 2011. HE IS TO RECIEVE A RETIREMENT ANNUITY OF $1,000 EACH MONTH AND HIS LIFE EXPECTANCY IS 150 MONTHS. HE CONTRIBUTED $30,000 TO THE PENSION PLAN DURING HIS 35 YEAR CAREER, SO HIS ADJUSTED BASIS IS $30,000. WHAT IS THE CORRECT METHOD FOR REPORTING THE PENSION INCOME?

FOR THE FIRST 150 MONTHS, 20% (30,000/150,000) OF THE AMOUNT RECIEVED IS A NON TAXABLE RECOVERY OF CAPITAL AND THE BALANCE IS INCLUDED IN GROSS INCOME.

IN 2011, TODD PURCHASED AN ANNUITY FOR $200,000. THE ANNUITY IS TO PAY HIM $2,500 PER MONTH FOR THE REST OF HIS LIFE. HIS LIFE EXPECTANCY IS 100 MONTHS. WHICH OF THE FOLLOWING IS CORRECT?

FOR EACH $2,500 PAYMENT RECIEVED IN THE FIRST YEAR, TODD MUST INCLUDE $500 IN GROSS INCOME.

SETH, A CALENDAR YEAR TAXPAYER, PURCHASED AN ANNUITY FOR $50,000 IN 2009. THE ANNUITY WAS TO PAY HIM $3,000 ON THE FIRST DAY OF EACH YEAR, BEGINNING IN 2009, FOR THE REMAINDER OF HIS LIFE. SETH'S LIFE EXPECTANCY AT THE TIME HE PURCHASED THE ANNUITY WAS 20 YEARS. IN 2011, SETH DEVELOPED A DEADLY DISEASE, AND DOCTORS ESTIMATED THAT HE WOULD LIVE FOR NO MORE THAN 24 MONTHS.

IF SETH DIES IN 2012, A LOSS CAN BE CLAIMED ON HIS FINAL RETURN FOR HIS UNRECOVERED COST OF THE ANNUITY.

BETTY PURCHASED AN ANNUITY FOR $24,000 IN 2011. UNDER THE CONTRACT, BETTY WILL RECIEVE $300 EACH MONTH FOR THE REST OF HER LIFE. ACCORDING TO THE ACTURIAL ESTIMATES, BETTY WILL LIVE TO RECEIBE 96 PAYMENTS AND WILL RECEIVE A 3% RETURN ON HER ORGINAL INVESTMENT

IF BETTY LIVES TO COLLECT MORE THAT 96 PAYMENTS, ALL OF THE AMOUNTS COLLECTED AFTER THE 96TH PAYMENT MUST BE INCLUDED IN TAXABLE INCOME.

GORDON, AN EMPLOYEE, IS PROVIDED GROUP TERM LIFE INSURANCE COVERAGE EQUAL TO TWICE HIS ANNUAL SALARY OF $125,000 PER YEAR. ACCORDING TO THE IRS UNIFORM PREMIUM TABLE (BASED ON GORDON'S AGE), THE AMOUNT IS $12 PER YEAR FOR $1,000 OF PROTECTION. THE COST OF AN INDIVIDUAL POLICY WOULD BE $15 PER YEAR FOR $1,000 OF PROTECTION. SINCE GORDON PAID NOTHING TOWARDS THE COST OF THE $250,000 PROTECTION, GORDON MUST INCLUDE IN HIS 2011 GROSS INCOME WHICH OF THE FOLLOWING AMOUNTS?

$2,400

See More

Please allow access to your computer’s microphone to use Voice Recording.

Having trouble? Click here for help.

We can’t access your microphone!

Click the icon above to update your browser permissions above and try again

Example:

Reload the page to try again!

Reload

Press Cmd-0 to reset your zoom

Press Ctrl-0 to reset your zoom

It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.

Please upgrade Flash or install Chrome
to use Voice Recording.

For more help, see our troubleshooting page.

Your microphone is muted

For help fixing this issue, see this FAQ.

NEW! Voice Recording

Click the mic to start.

Create Set