Missed Questions Midterm Flashcards
Which statement is true with respect to private letter rulings? A) They cover facts applicable to a particular taxpayer. B) They deal with completed transactions. C) They are not binding on the IRS. D) They are issued at the request of the IRS.
A) All of the statements except A are false regarding letter rulings. Private letter rulings cover facts applicable to a particular taxpayer.
A casualty loss deduction is not allowed for losses resulting in a decline in value rather than an actual loss of property. A) True. B) False
A) True
Which of the following is not an administrative source of law? A) Revenue rulings. B) Treasury regulations. C) Decisions by the U.S. Tax Court. D) Technical Advice Memoranda
C) Decisions by the U.S. Tax Court. This is a judicial source of tax law.
Elton and Elsie are husband and wife and file under joint return for this year. Both are under 65 years of age. They provide more than half of the support of their daughter, Kristie (Age 25) Who is a full-time med student. Kristie receives 5,400 scholarship covering her room and board at college. They furnish all of support of Hattie, who is age 70 and lives in a nursing home. They also support Meg, who is a friend of the family and lives with them. How many personal and dependency exemptions may Elton and Elsie claim? A) Two. B) Three. C) Four. D) Five
C) Four. Elton, Elsie, Hattie, and Meg. Personal exemptions for Elton and Elsie and dependency exemptions for Hattie and Meg. Kristie is not a qualifying child- although a full-time student, she is not under the age of 24. Also Kristie does not meet the qualifying relative category due to the gross income test. Hattie is not a member of the household but satisfies the relationship test.
Emily, whose husband died in December of this year, maintains a household in which her dependent daughter lives. Which of the following is most likely to be her filing status for this year? A) Single. B) Surviving spouse. C) Head of household. D. Married, filling jointly.
D) Married filing jointly. Since she is deemed married in the year, she cannot file as single or head of household. She does not qualify for surviving spouse status until the next year. Therefore, she is most likely going to use the married filing jointly status.
Keith, age 12, has 10,000 in unearned income and 20,000 in earned income in 2016. How much will be taxed in the parents rate? A) 0. B) 7,900. C) 15,800. D) 23,700.
B) 7,900.
Abner owned bonds that paid 750 of interest on the first day of January each year. Exactly one-third of the way through the current year, Abner gave the bonds to his brother Brody. When receives 750 of interest on the first day of January next year, what amount will be included in Brody’s gross income next year? A) 0. B) 250. C) 500. D) 750.
C) 500. Brody owned the bonds for two-thirds of the year. Therefor, he must report two-thirds of the interest in his gross income for the year. in which the interest is received.
Hansel and Gretel, a married couple, manage apartments and they are required to live in the managers’ apartment as a condition of their employment. Instead of providing apartment to Hansel and Gretel rent-free, the owner of the apartment building gives Hansel and Gretel a housing allowance of 600, which they use to pay rent on the managers’ apartment. Hansel and Gretel pay 600 per month in rent. If they did not live in the managers’ apartment, Hansel and Gretel could live in another apartment building where they would only pay 500 in rent. What amount, if any, must be included in Hansel and Gretel’s gross income? A) 0. B) 100. C) 500. D) 600
A) 0. An employee is allowed to exclude form gross income the value of lodging furnished by and employer to the employee if the lodging is furnished 1) on the employer’s business premises, 2) for the convenience of the employer, and 3) the employee is required to accept the lodging as a condition of employment.
Ian, a single taxpayer, received 15,000 of Social Security for retirement benefits this year. He also receives 16,000 of interest income. How much of Ian’s Social Security Benefits must be included in his gross income? A) 0. B) 7500. C) 12,750. D) 15,000
A) 0. Since the total of Ian’s MAGI (16,000) and one-half of his Social Security benefits (7500) is less than the base amount (25,000), none of his Social Security benefits are included in gross income.
If an income tax return is not filled by a taxpayer, there is not statute of limitations on assessments of tax by the IRS. A) True. B) False
A) True
In September of this year, Rudolph refinanced his home. Prior to refinancing, his only outstanding debt was the balance due on his original mortgage of 110,000. Rudolph needed some additional money to pay for his child’s college education and to take advantage of an investment opportunity, so upon refinancing, Rudolph took out a 30 year mortgage for 250,000. To reduce the interest rate on the mortgage down to 5 percent, Rudolph paid 2,500 in points on refinance. Which of the following statements is correct? A) Rudolph can deduct all of the mortgage interest paid on the note. B) Rudolph can deduct the mortgage interest incurred on 110,000. The remaining interest is not deductible. C) Rudolph can only deduct the mortgage interest incurred on 210,000. D) Rudolph can only deduct the mortgage interest paid on 210,000 plus a pro rata portion of the points paid on refinancing.
D) Rudolph can only deduct the mortgage interest paid on 210,000 plus a pro rata portion of the points paid on refinancing. 110,000 of the refinanced amount continues to be treated as acquisition in indebtedness since that was the previous balance on Rudolph’s mortgage. An additional 100,000 will be considered deductible equity indebtedness. The interest on the additional 40,000 (250,000-210,000) will not be deductible since it exceeds the permissible interest expense deduction. Since not all of the new mortgage is considered acquisition indebtedness, only a portion of the points paid on the refinance will be deductible.
Sammy owned a home in south Florida that was severely damaged by a hurricane. Sammy had purchased the home for 150,000 and the fair market value of the home prior to the hurricane was 500,000. His homeowners insurance policy had lapsed one month before the hurricane hit and Sammy had not obtained any other insurance. After the hurricane, the property had a fair market value of 0. Assuming Sammy’s agi was 115,000 this year, what is Sammy’s casualty loss deduction? A) 138,400. BV) 138,500. C) 388,400. D) 500,000.
A) 138,400. Rational- Sammy’s casualty loss is valued at 150,000. which is his adjusted basis less insurance proceeds received. His economic loss is 500,000. Since Sammy had never paid tax on the 250,000 gain in the property, however, he cannot take a tax deduction for the economic loss. If Sammy had the property fully insured, he would have received the full 500,000 less deductible form the insurance company. Sammy’s casualty loss of 150,000 must be reduced by 100 as the result is only deductible to the extent it exceeds 10 percent of AGI. The deductible portion of Sammy’s casualty loss is 138,400. (150,000 -100 -11,500).
In the case of a gift loan greater than 10,000 but less than 100,0000. the imputed interest rules only apply in the donee has net investment income of over 1,000. A) True. B) False.
A) True. The imputed interest rules apply to gift loans. However, if the amount of the loan is for 100,000 or less, the imputed interest cannot exceed the borrower’s net investment income for the tax year. If net investment is 1,000 or less, it is considered to be 0.
During the year, Rick had the follwoing insured personal casualty losses. Rick also had 18,000 AGI for the year. A) Adjusted basis 400 Before 700 After 300 Insurance recover 100. B) Adjusted Basis 3,000 Before 2,000 After 0. Insurance recovery 500C) Adjusted basis 700 Before 900 After 300 Insurance recover 200
Ricks’ loss deduction is: A) 400. B) 600. C) 1,000. D) 1400
A) 400. Asset A 300. Asset B 1500. Asset C 500. Less statutory floor 100. Less AGI limitation 1800.
Under which of the following circumstances is a trip outside the United States considered purely for business? 1. The taxpayer does not have control over the timing or arrangements for the trip. 2, The trip outside United States lasts for less than seven days. 3. Less than 50 percent of the time spent on the trip was personal. 4. Vacation was not a primary consideration for the trip. A) 1 only. B) 2 and 3. C) 1, 2, and 4. D) 1,2,3, and four
C) 1, 2, and four. A trip outside the United States is considered to be purely for business when less than 25 percent of the time spent on the trip was personal. All of the other statements regarding travel outside the United States are correct.
