TXX 5772 –

1. The sales tax is the
perfect example of a (or an):
a. direct tax
b. income tax
c. head tax
d. progressive tax
e. none of the above

2. In the McDonell case,
the first determination the Tax Court made was:
a. it excluded the benefit of the trip
from taxpayer’s gross income.
b. that the trip was not
a prize or award under Section 74.
c. it included the
benefit of the trip in the taxpayer’s gross income.
d. that the trip was a
prize or award under Section 74.
e. none of the above.

3. Congress’s purpose in
enacting Section 117 was:
a. to provide a clear-cut
method for distinguishing between taxable and non-taxable educational grants.
b. to include in gross income amounts
received as grants by degree candidates.
c. to clearly define the term
scholarships.
d. to clearly define
educational expenses for purposes of educational grants.
e. none of the above.

4. If an employee
receives an amount from his or her employer for educational assistance, he or
she may exclude a certain amount. The code Section which permits this is
Section:
a. 74
b. 102
c. 132
d. 274
e. none of the above.

5. Which of the following
statements is false?
a. In all situations, the
basis of property in the hands of a done is the same basis the property had in
the hands of the donor.
b. A major revision of
the 1954 Internal Revenue Code occurred in 1969.
c. “Gestalt,” in the context of learning
the Internal Revenue Code “Code” refers to the phase of a person’s
understanding when one begins to understand the structure or pattern of the
Code.
d. Gross income does not include the amount of
any damage received on account of personal injuries.
e. all of the above are
true.

6. Kent Knobe gave Larry
Lawson a gift having a fair market value of $133,000 on February 14, 2012. Kent
had purchased the gift property in 2004 for $93,000, the taxable gift was
$120,000, and paid a gift tax of $15,000. What is Larry’s basis in the
property?
a. $93,000
b. $120,000
c. $98,000
d. $108,000
e. $133,000

7. Starting in 2012, Mr.
West must pay his former spouse $20,000 annually under a divorce decree in the
following amounts:
$1,000 a month for
mortgage payments (including principal and interest) on a jointly owned home
until she dies
$200 a month for tuition
fees paid to a private school until their son attains the age of 18 or leaves
the school prior to age 18
$5,000 a year cash
payment to former Mrs. West until she dies
In addition to the above
amounts, the former Mrs. West also received in 2012 a lump-sum amount of
$150,000 from the sale of their other marital assets.
Assume the parties did
not file a joint return and were not members of the same household. Also,
assume that there were no written statements between the parties as to how the
amounts should be treated. What is the amount of Mr. West’s 2012 alimony
deductions?
a. $20,000
b. $155,000
c. $17,600
d. $11,000

8. Holly and Harp Oaks
were divorced in 2010. The divorce decree was silent regarding the exemption
for their 12-year-old daughter, June. Holly has legal custody of her daughter
and did not sign a statement releasing the exemption. Holly earned $8,000 and
Frank earned $80,000. June had a paper route and earned $3,000. June lived with
Harp 4 months of the year and with Holly 8 months. Who may claim the exemption
for June in 2012?
a. June may, since she
had gross income over $3,000 and files her own return.
b. Since June lived with
both Holly and Harp during the year, they both may claim her as an exemption.
c. Holly may, since she has legal custody and physical
custody for more than half the year.
d. Harp may, since he
earned more than Holly and, therefore, is presumed to have provided more than
50% of June’s support.

9. Based on the following
2012 events, how much should Rachel include in income on her federal income tax
return?

Jury awarded punitive
damages

$10,000

Kickbacks on sale of
goods (not treated as a reduction elsewhere)

5,000

Money borrowed from a
bank

8,000

Increase in the value
of an asset

1,000

a. $10,000
b. $15,000
c. $16,000
d. $24,000

10. Insurance policy
dividends used to purchase additional life insurance are not taxable to the
policyowner.
a. True
b. False

11. Dividend payments
made by an insurance company that are based on an policy and that exceed the
total amount of premiums paid by the insured are taxable to the insured.
a. True
b. False

12. On a business-related life insurance policy, if it is
cashed out during the life of a terminally-ill or chronically-ill person, the
amount is excluded from gross income.

a. True
b. False

13. Which of the
following is false?
a. Taxability of the
recovery of damages can be determined, in part, by identifying the nature of
the injury.
b. An annuity is a
contract that pays a fixed income at set regular intervals for a specific
period of time.
c. Gross income includes
amounts from the forgiveness of loans made by educational organizations to
refinance existing student loans.
d. Insurance policy
dividends used to purchase additional life insurance are not taxable to the
policyowner.
e. all of the above are true.

14. On February 10, 2012,
Rose was in an automobile accident while she was going to work. The doctor advised
her to stay home for six months due to her injuries. On February 25, 2012, she
files a lawsuit. On July 20, 2012, Rose returned to work. On December 15, 2012
the lawsuit was settled received the following amounts:

Compensation for lost
wages

$25,000

Personal injury damages
awarded (none of which was for punitive damages)

40,000

How much of the
settlement must Rose include in ordinary income on her 2012 tax return?
a. $0
b. $25,000
c. $40,000
d. $65,000

15. All of the following
would be excluded from income as a qualified scholarship by an individual who
is a candidate for a degree at a qualified educational institution, except:
a.Tuition
b. Student fees
c. Course books
d. Room and board

16. To be deductible for
tax purposes, trade or business expenses must be:
a. Ordinary and necessary

b. Reasonable in amount
c. Related to an activity
which is deemed to be a trade or business
d. All of the above

17. Business depreciable
property placed in service prior to what year is not eligible for ACRS
depreciation?
a. 1978
b. 1980
c. 1981
d. 1982

18. A nonbusiness bad
debt is deductible for tax purposes as a(n):
a. Short-term capital loss
b. Itemized deduction
c. Long-term capital loss

d. Ordinary business
deduction

19. The IRS takes the
position that a taxpayer’s tax home, for purposes of determining travel
expenses, is at the location of the taxpayer’s:
a. Principal place of business
b. Personal residence
c. Principal place of
business or personal residence, whichever results in a lower tax deduction
d. Personal residence if
located in excess of 50 miles from principal place of business

20. If a taxpayer has two
places of business in different areas, the IRS usually considers the following
factors in determining the taxpayer’s principal place of business: (Choose the
wrong answer.)
a. Taxpayer’s preference for principal place of business
b. Degree of business
activity at each location
c. Amount of income at
each location
d. Amount of time spent
at each location

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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
31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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.

38. 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

39. 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

40. 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

41. In order to limit the
extent that “front-loaded” payments may qualify as alimony, a recapture rule
may apply to the part of the payments made in the first two post-separation
years that exceed $25,000 a year.
a. True
b. False

42. Paul and Joan
divorced in 2012. They have two children, ages five and ten. The divorce decree
requires Joan to pay $300 a month to Paul and does not specify the use of the
money. According to the decree, the payments will stop after the children reach
18. Joan may deduct payments as alimony.
a. True
b. False

43. Bob Bixby gave his
daughter, Jane, his personal residence with an adjusted basis to him of
$260,000 and a fair market value of $250,000. Jane lived in the house for two
years and then sold it for $240,000. As a result of the sale, Jane will:
a. Report no gain or loss
b. Report a $10,000 loss
c. Report a $20,000 loss
d. Have her father report
a $20,000 loss
e. none of the above

44. A Treasury Regulation contains the following
statement: “the price at which the property would change hands between a
willing buyer and a willing seller, neither being under any compulsion to buy
or to sell and both having reasonable knowledge of the facts.” This statement refers to which of the
following concepts?
a. the economic reality test
b. fair allocation of
income and expenses
c. transfer pricing rule
d. fair accounting in
order to reflect true accretion to income
e. none of the above

45. Upon winning an
award, the recipient, and if he or she wants to avoid inclusion in income, he
or she must:
a. disavow the award in
favor of a charitable or governmental entity prior to the award being granted.
b. disavow the award in favor of a
charitable or governmental entity within 30 days of the date the award is
granted.
c. disavow the award in
favor of a charitable or governmental entity within 45 days of the date the
award is granted.
d. disavow the award in
favor of a charitable or governmental entity within 90 days of the date the
award is granted.
e. none of the above.

46. All of the following
statements are true, except:
a. Retroactive income
taxes may not be passed by Congress because they are unconstitutional.
b. In general, the Treasury Department
may not issue retroactive regulations.
c. Robert Hall was one of
the academic proponents of the flat tax.
d. The first
internal-revenue law was enacted in March 1791.
e. all of the above are
true.

47. The formal origin of tax law is a bill which
is introduced in the House of Representatives.
a. Commonly, the bill
passed by the House is passed by the Senate almost identically to the way it
was passed by the House.
b. Commonly, the
president passes the bill, introduced in the House; prior to the House passing
it, but before there is a chance that it be vetoed.
c. Commonly, the Treasury
Department has little to do with the drafting of a bill having to do with
federal taxation.
d. Commonly, the primary
author of a tax bill is the majority leader of the House.
e. none of the above.

48. In 1913, the XVI
Amendment to the U.S. Constitution gives Congress the power to tax.
a. True
b. False

49. Sometimes, albeit
rarely, federal income taxation statutory law can be found in other federal
statutes (other than the Internal Revenue Code). An example of this is
a. deductibility of
office in the home deduction for anesthesiologists
b. deductibility of
moving expenses of armed forces personnel
c. deductibility of
passive real estate losses in excess of revenue
d. deductibility of
excess revenue from oil from excess costs
e. none of the above

50. The text states that
reading the Internal Revenue Code cold is not very productive. They posit that
it must be read:
a. in the abstract
b. with a philosophical
eye
c. with a specific
circumstance in mind
d. with general thoughts
in mind
e. with an open mind

51.Which of the following in not a payment
deductible as alimony?
a. Payments for life
insurance premiums required by the divorce decree.
b. Payments for medical
expenses of your spouse under the terms of the divorce decree.
c. Half of the mortgage
payment on a home jointly owned with your ex-spouse when required by the
divorce decree
d. Payments for child support required
by the divorce decree