Special Deck - Problems 2 Flashcards
Which of the following correctly lists the order, from earliest to latest, that U.S. legislative bodies consider new tax legislation?
House of Representatives, U.S. Senate, Joint Conference Committee.
Joint Conference Committee, House of Representatives, Senate Finance Committee.
U.S. Senate, Joint Conference Committee, House of Representatives.
House of Representatives, Joint Conference Committee, U.S. Senate
House of Representatives, U.S. Senate, Joint Conference Committee.
This answer is correct. Tax legislation usually begins in the House of Representatives. A tax bill passed by the House in then sent to the Senate. If the House- and Senate- passed versions of the bill differ, the tax bill is then sent to the House-Senate Joint Conference Committee for resolution of any differences
In 2015, Roe Corp. purchased and placed in service a used machine to be used in its manufacturing operations. This machine cost $2,200,000. What portion of the cost may Roe elect to treat as an expense rather than as a capital expenditure?
$ 0
$200,000
$300,000
$500,000
$300,000
This answer is correct. For 2015, Sec. 179 permits a taxpayer to elect to treat up to $500,000 of the cost of qualifying depreciable personal property as an expense rather than as a capital expenditure. However, the $500,000 maximum is reduced dollar-for-dollar by the cost of qualifying property placed in service during the taxable year that exceeds $2 million. Here, the maximum amount that can be expensed is [$500,000 − ($2,200,000 − $2,000,000)] = $300,000
In 2015, Roger, who is single, gave an outright gift of $15,000 to a friend, Matt, who needed the money to pay tuition at an accredited university. In filing his 2015 gift tax return, Roger was entitled to a maximum exclusion of
$0
$12,000
$14,000
$15,000
$14,000
This answer is correct. The first $14,000 of gifts made to a donee during the calendar year (except gifts of future interests) is excluded in determining the amount of the donor’s taxable gifts for 2015. Note that Roger does not qualify for the unlimited exclusion for tuition paid on behalf of a donee, because Roger did not pay the $15,000 as tuition to an educational organization on Matt’s behalfThis answer is correct. The first $14,000 of gifts made to a donee during the calendar year (except gifts of future interests) is excluded in determining the amount of the donor’s taxable gifts for 2015. Note that Roger does not qualify for the unlimited exclusion for tuition paid on behalf of a donee, because Roger did not pay the $15,000 as tuition to an educational organization on Matt’s behalf
Gladys Peel owns an 80% interest in the capital and profits of the partnership of Peel & Poe. On July 1, 2016, Peel bought surplus land from the partnership at the land’s fair market value of $10,000. The partnership’s basis in the land was $16,000. For the year ended December 31, 2016, the partnership’s net income was $94,000 after recording the $6,000 loss on the sale of land. Peel’s distributive share of ordinary income from the partnership for 2016 was
$70,400
$75,200
$78,200
$80,000
$80,000
This answer is correct. Recognition of loss is disallowed on a sale or exchange between a partnership and a person who owns (directly or constructively) more than a 50% partnership interest. Therefore, the $6,000 realized loss on the sale of land to Peel must be added back to the partnership’s net income of $94,000. Thus, Peel’s distributive share of ordinary income is $80,000 [80% × ($94,000 + $6,000)]
On March 1 of the previous year, a parent sold stock with a cost of $8,000 to their child, for $6,000, its fair market value. On September 30 of the current year, the child sold the same stock for $7,000 to Hancock, who is unrelated to the parent and child. What is the proper treatment for these transactions?
Parent has a $2,000 recognized loss and child has $1,000 recognized gain.
Parent has $2,000 recognized loss and child has $0 recognized gain.
Parent has $0 recognized loss and child has $1,000 recognized gain.
Parent has $0 recognized loss and child has $0 recognized gain
Parent has $0 recognized loss and child has $0 recognized gain.
This answer is correct. Losses are disallowed on the sale of property between related taxpayers, including a parent and their child. Any gain later realized by the related transferee on the subsequent disposition of the property is not recognized to the extent of the transferor’s disallowed loss. Here, the parent’s realized loss of $6,000 − $8,000 = $2,000 is disallowed because the stock was sold to their child. The child’s basis for the stock is its purchase price of $6,000. On the subsequent sale of the stock, the child realizes a gain of $7,000 − $6,000 = $1,000. However, this realized gain of $1,000 is not recognized because of the parent’s disallowed loss of $2,000
Gomer developed a fraudulent system whereby he could obtain checks payable to the order of certain repairmen who serviced various large corporations. Gomer observed the delivery trucks of repairmen who did business with the corporations, and then he submitted bills on the bogus letterhead of the repairmen to the selected large corporations. The return envelope for payment indicated a local post office box. When the checks arrived, Gomer would forge the payees’ signatures and cash the checks. The parties cashing the checks are holders in due course. Who will bear the loss assuming the amount cannot be recovered from Gomer?
The defrauded corporations.
The drawee banks.
Intermediate parties who endorsed the instruments for collection.
The ultimate recipients of the proceeds of the checks even though they are holders in due course
The defrauded corporations.
This answer is correct. Normally forgeries of the payee’s signature would be sufficient to relieve the defrauded corporations of any liability on these instruments. However, a drawer who voluntarily transfers payment to an imposter (Gomer) must bear the loss if a holder in due course subsequently tries to collect. The rationale for such a result is the fact that the defrauded corporations were in the best position to keep the defense (forgery) from occurring.
Girard Corporation has entered into a written agreement to lease a building from Laird Corporation. This type of contract is referred to as
Implied
Executory
Quasi
Unilateral
Executory
This answer is correct because an executory contract is one that has not been fully performed by both parties. The lessor must provide the building over the term of the lease and the lessee must pay rent
This answer is correct because an executory contract is one that has not been fully performed by both parties. The lessor must provide the building over the term of the lease and the lessee must pay rent
Pine must sell the collateral if Byron has paid more than 60% of the cash price on a purchase money security interest in business equipment.
This answer is incorrect. Pine only has the option of selling the collateral if the debtor has paid 60% of the cash price on a purchase money security interest in consumer goods, not business equipment. Since the collateral is equipment, Pine would still have the option of keeping the collateral as full payment of the obligation if, after giving written notice to Byron of this desire, Byron did not object within 21 days
