Sample Exam 1 Flashcards
The distributive share of a partnership’s operating loss that is deductible by an individual partner is limited to .
the adjusted basis of his or her partnership interest
The maximum tax rate on long-term capital gains is generally ___ percent under current law.
20
“Collectibles” gain is taxed at
28 percent maximum rate
The portion of long-term gain attributable to unrecaptured depreciation is subject to a ____ percent maximum rate when real estate is sold
25
Up to $_____of net capital losses ($____ if married filing separately) may be used to offset ordinary income in any given year.
3000/1500
Assets in the 5-year property class are subject to a ______ convention.
half year
The convention for the year the property is placed in service ____ apply in the year in which the property is disposed of.
does
A “_____” convention applies if more than 40 percent of all property placed in service by a taxpayer during the year and otherwise qualifying for the “_____” convention is placed in service during the last 3 months of the taxable year.
Midquarter/half-year
Real estate is subject to a “_____” convention
mid-month
personal exemption amount is
indexed for inflation
kiddie tax is applicable to the ____ of children under a specified age
net unearned income
The _______ is the only court that will hear a tax case without prior payment of the assessed deficiency.
Tax Court
there are no _____ in the Court of Federal Claims
jury trials
prepayment of the assessed deficiency is _____in the District Court.
required
Tax Court ____ have jury trials
does not
Premiums for the first _____ of group term life insurance coverage are tax free to the employee.
$50,000
A nonbusiness bad debt can be deductible only as a
short-term capital loss.
In order to be treated as a “qualifying child” of the taxpayer for dependency exemption purposes, an individual must
be below the age of 19
The total medical expenses applicable floor of adjusted gross income for taxpayers over 65
7,500
The total medical expenses applicable floor of adjusted gross income for taxpayers under 65
10,000
The ____ tax bracket applies to the first $50,000 of corporate taxable income.
15 percent
________ is the only court in which a taxpayer can have a jury trial in a civil tax case.
The U.S. District Court
The maximum charitable deduction that the taxpayer will be allowed for the current year is
one-half of adjusted gross income
This year an individual taxpayer (other than a married individual filing a separate return) has $30,000 of investment interest expense and $1,000 of net investment income. The maximum amount of investment interest expense this taxpayer may deduct this year is
$1,000
In the case of a variable annuity, the annuitant may recalculate the exclusion ratio with respect to future payments if he or she receives a payment that is
less than the currently excludible amount.
A woman purchased a $100,000 whole life insurance policy on her life and designated her husband as beneficiary. Several years later the woman surrendered the policy for its cash value of $50,000. At the time of surrender, the woman had paid gross premiums of $45,000 and had received policy dividends of $10,000. What were the income tax consequences to the woman upon receipt of the cash surrender value?”
She received $35,000 tax free and $15,000 as ordinary income.
The taxpayer must have occupied the residence for an aggregate of ____ out of the previous 5 years to be eligible for the exclusion of gain on the sale of a principal residence
2
The maximum exclusion of gain on the sale of a principal residence for married couples filing jointly is $___
500k
The maximum exclusion of gain on the sale of a principal residence for single taxpayer is $___
250k
The individual AMT rate is ___percent on the first $185,400 of ATMI
26
The individual AMT rate over $185,400 of ATMI is
28%
The individual AMT breakpoint is
185,400
only ___percent of entertainment business expenses are deductible
50
Are fines for violation of law deductible, even if they are incurred in the ordinary course of business
No
Cash dividends from a corporation to its shareholders are generally taxed at a maximum capital gains rate of ____ percent under current law
20
distribution of any type of property in the form of a dividend can be taxed as a dividend and not as a .
capital transaction
The corporation’s payment of premiums on a life insurance policy be taxable to an insured employee if
the employee is the owner of the policy
functions of the federal income tax system
- reduce inflation
2. encourage economic activity
Faith Forrester has the following selected information concerning her interest expenses and investment income for this year: Interest income from corporate bonds = $5,000 Dividend income not eligible for the lower maximum tax rates on qualifying dividends = $10,000 Interest paid to acquire common stock portfolio = $18,000 Interest income from public-purpose municipal bonds = $4,000 Interest paid to acquire the municipal bonds = $2,000 Qualified residence interest paid on principal residence = $10,000 Based on the above information, the total amount of all of Faith’s interest deductions for this year is
Faith can deduct investment interest up to the limit of her net investment income. However, municipal bond interest income or the interest paid to acquire municipal bonds does not qualify as investment income or interest. Thus, the only investment interest that qualifies is the $18,000 paid to acquire the common stocks. Since Faith has only $15,000 of net investment income, she is limited to a $15,000 investment interest deduction. The $10,000 mortgage interest on the home is fully deductible. Faith has total interest deductions this year of $25,000.
What type of corporation cannot have preferred stock
S-Corp
How many shareholders can an s-Corp have
100
How much of a majority of both houses of Congress is needed to override the presidents veto of a tax bill
2/3
Is the IRS bound to follow text court decisions
No
To qualify for a small corporation exemption under the alternative minimum tax is there a quick choir meant to have no more than a certain amount of shareholders
No. There is no requirement concerning the number of shareholders in the corporation
To qualify for the small corporation exemption under the alternative minimum task a new corporation must have an average gross annual receipt of ——- or less for its first three taxable years
5 million
Would interest earned from a reinvestment of insurance policy dividends that are left with in the insurance company be considered constructively received in the current year by a cash basis taxpayer
Yes
Automobiles are depreciated over a —— year recovery period.
5
Payment attributed to inventory and unrealized receivables will be treated as —— to the retiring partner in a service partnership
Ordinary income
Payment for goodwill will be treated as ——- to the retiring partner of a service partnership if the partnership agreement provides for payments for Goodwell
Capital gain
The income tax treatment of disability income insurance benefits received from policy is paid by employer are generally
Included in the employees gross income
Income tax treatment of disability income insurance benefits from policies owned and paid for by the insured are
Not taxable
Can a corporation deduct premiums paid on a policy if the corporation is a beneficiary
No
Organizational expenses for a corporation in excess of the deductible limit permitted under section 195 of the Internal Revenue Code must be amortized
Over a 180 month period
The payment of common stock dividends out of current earnings and profits are ——- by the corporation for the current taxable year
Not deductible
The sale of property at fair market value by corporation to it’s shareholders ——- treated as a dividend or other taxable distribution made with respect to stock ownership
Is not
One requirement to be treated as a personal holding company is that more then ——- of the value of the companies stock must be held by —— or fewer individuals
50% and 5
The personal holding company tax can be avoided by the payment of
Dividends by the company
The limitations on passive activity losses are generally designed to limit text benefits with respect to activities in which the taxpayer
Does not materially participate
Excessive passive losses disallowed under the limitations are allowed
In the year the taxpayer disposes of his entire interest in the passive activity in a taxable disposition
The value of the stock used to qualify for a section 303 redemption most generally exceed ——-of the descendants adjusted gross estate
35%
A corporate distribution is taxable as a —— to the extent of the corporations current and accumulated earnings and profits
Dividend
Are dividends deductible by a corporation
No
Substantially disproportionate redemption :
After the redemption the shareholder must only less than —— the total voting power of the corporation
50%
Substantially disproportionate redemption :
The shareholders percentage ownership of voting stock of the corporation after the redemption must be —— less then his or her percentage ownership of voting stock before the redemption
80%
Substantially disproportionate redemption :
The shareholders percentage ownership of common stock of the corporation after the redemption must be ——- less then of his or her percentage ownership of common stock before the redemption
80%
Accumulations of —— or less will automatically be considered as held for the reasonable needs of the business
250,000
The annual dollar limit on excludable benefits paid from dependent care assistance programs for married tax payers filing jointly is
5,000
When A partner receives a partnership interest in exchange for services the value of the interest maybe taxable to the partner as
Compensation
As a general rule no gain or loss is recognized on the transfer of property or money to a partnership in exchange for
A partnership interest
A partnership generally retains the same basis in contributed property as the property had
In the hands of the contributing partner
Interest on ——-issued last year is considered a preference item for AMT purposes
Non-governmental purpose municipal bonds
The amount of an individual taxpayers exemption is reduced by taxpayers ——- reaches a specified dollar amount
AMTI
——-Maybe used to offset the AMT
Foreign tax credit
Certain —— corporations may be liable for AMT -as a result of owning life insurance
C
Only property in the three-year, five-year, seven year, and 10 year classes can use the
Double declining balance method
Classes of 15 years and 20 years use what type of declining method
150% declining balance
The applicable recovery period for qualified recovery property range from ——, depending on the type of property acquired
3 years to 39 years
Interest on a first mortgage up to ——- of principal secured by the taxpayers residence will generally qualify as deductible qualified residence interest
1 million
All of the following ——- , ——-, ——— deducted in determining the regular income tax are added back to taxable income when calculating AMTI but not
State and local taxes, personal and dependency exemptions, and the standard deduction.
Charitable contributions are not added back
A corporation’s tax return is generally do on the
15th day of the third month following the close of it’s tax year
An automatic extension for filing taxes can be attained by individuals by filing form —— on or before the due date
4868
The medical expense floor for Amt-purposes is —— for all taxpayers regardless of age at the close of the tax year
10%
AMT is imposed upon certain corporations at a rate of
20%
The adoption credit is—— in computing AMT liability
Allowable
The AMT is imposed only if it exceeds the taxpayers
Regular income tax
Courts —— Overturn treasury regulations
Seldom
When a treasury regulation is held to be invalid by court lower than —— the IRS may continue to enforce it against other taxpayers
US Supreme Court
An item of income that is subtracted from an individual taxpayers total income realized during the tax year to determine the taxpayers gross income
Exclusion
An arbitrary amount that is granted to taxpayers under the law to help reduce the net cost of their personal expenses
An exemption
Is a dollar for dollar reduction in the actual tax owed
Tax credit
Is the standard deduction indexed for inflation
Yes
Organizations that are not incorporated under state law would generally be permitted to choose whether to be taxed as —— or ——- under federal law
Corporations or partnerships
The IRS has how many years from the time a return is filed within which to assess additional taxes
3
Tax credits are phased out completely if the taxpayers adjusted gross income is high enough except
Dependent care credit
Is in annuity contract exchange for a life insurance contract permissible exchange under a section 1035
No
Is a life insurance contract exchange for another life insurance contract admissible
Yes
Is an annuity contract exchanged for another annuity contract permissible under section 1035
Yes
Is a life insurance contract exchange for annuity contract admissible under section 1035
Yes
Premiums paid for personal medical reimbursement insurance are
Deductible
Premiums paid for personal life insurance are
Not deductible
Premiums paid on business life insurance are
Not deductible
When A corporation sells property to its shareholders for less than the properties fair market value the excess of the properties fair market value of the sales price is treated as ——— for tax purposes
A dividend
Assessments for betterments are
Not deductible
Qualifying taxpayers may deduct up to —— per year of net losses from the real estate activity against their active or portfolio income if the active participation standard is met.
25,000
If the taxpayers adjusted gross income with certain modifications exceeds 100,000 the 25,000 allowance is reduced by —— of the amount of the AGI which exceeds 100,000
50%
Medical expense floor
7.5%
