Testlet 2 Flashcards
MCQ-12139
Jermaine and Keesha are married, file a joint tax return, have modified AGI of $50,000, and have two children, Devona and Arethia. Devona is beginning her first year at State University this fall and she will be enrolled on a full-time basis.
Arethia is beginning her senior year at Northeast University this fall, but will not be enrolled at least half-time in any academic period. Both Devona and Arethia qualify as dependents on their parents’ tax return. Devona’s qualifying tuition expenses and fees total $3,600 for the fall semester, while Arethia’s qualifying tuition expenses and fees total $4,250 for the fall semester. Full payment is made for the tuition and related expenses for both children during the fall semester. The American opportunity credit and lifetime learning credit, respectively, available to Jermaine and Keesha for the year are:
American Opportunity Credit: $2,400; Lifetime Learning Credit: $850
American Opportunity Credit
2,000 x 100% = 2,000
1,600 x 25%
Total $2,400
Lifetime Learning Credit
4,250 x 20% = 850
MCQ-10598
Louis, the volunteer treasurer of a nonprofit organization and a member of its board of directors, compiles the data and fills out its annual Form 990, Return of Organization Exempt from Income Tax. Under the Internal Revenue Code, Louis is not considered a tax return preparer because:
He is not compensated.
MCQ-08027
Which of the following is not a general requirement for a taxpayer to avoid a tax penalty?
The error did not exceed $1,000
MCQ-10607
Dunn received 100 shares of stock as a gift from Dunn’s grandparent. The stock cost Dunn’s grandparent $32,000 and it was worth $27,000 at the time of the transfer to Dunn. Dunn sold the stock for $29,000. What amount of gain or loss should Dunn report from the sale of the stock?
$0
To determine the amount of gain or loss that should be reported on the sale of gifted property, a determination must be made as to whether the property is sold at a gain or a loss. The stock in this question has a $27,000 value which is less than its $32,000 cost. The basis for gain is the adjusted basis of the donor on the date of gift, or $32,000. However, the stock is sold for $29,000, which is not at a gain. The basis for loss is the lower of the adjusted basis or the fair market value on the date of gift, or $27,000. However, the stock is not sold at a loss. In this situation, neither gain nor loss is recognized, and the “middle” basis of the subsequent sales price is used.
MCQ-01940
Which of the following claims is (are) generally covered under workers’ compensation statutes?
Occupational disease: Yes; Employment aggravated pre-existing disease: Yes
MCQ-10608
Reid, Welsh, and May are equal partners in the RWM partnership. Reid’s basis in the partnership interest is $60,000. Reid receives a liquidating distribution of $61,000 cash and land with a fair market value of $14,000 and an adjusted basis of
$12,000. What gain must Reid recognize upon the liquidation of his partnership interest?
$1,000
Basis before liquidating distribution 60,000
Less: Cash received (61,000)
Cash received in excess of basis (1,000)
Gain to be recognized 1,000
MCQ-10606
Which of the following cannot be amortized for tax purposes?
Stock issuance costs
All costs of issuing stock are not eligible to be deducted or amortized as an organizational expenditure or start-up cost.
MCQ-08053
Following an audit of Mary Anderson’s individual income tax return, the IRS revenue agent determined additional taxes were due. Mary disagreed. The IRS revenue agent and Mary were not able to reach an agreement at the revenue agent level. Mary received a copy of the revenue agent’s report and would like to challenge the findings. Which of the following statements is incorrect regarding the appeals process?
A taxpayer has 60 days to file an appeal in the federal court system upon receipt of a notice of deficiency.
MCQ-14766
Which of the following types of entities is entitled to the net operating loss deduction?
C Corporations
MCQ-12138
Tom, age 66, paid the medical expenses of his mother-in-law, age 86. Although Tom provided more than half the support, his mother-in-law does not qualify as his dependent because her gross income was too high. This expenditure is:
A deduction from adjusted gross income, subject to an AGI floor.
MCQ-10014
On January 2 of the current year, Fran acquires a business from Chuck. Among the assets purchased are the following intangibles: patent with a 10-year remaining life, a covenant not-to-compete for 5 years, and goodwill. Sixty thousand dollars was paid for the patent and $30,000 for the covenant. The amount of the excess of the purchase price over the identifiable assets was $45,000. What is the amount of the amortization deduction for the year?
$9,000
Patents 60,000
Covenant not-to-compete 30,000
Goodwill 45,000
Total intangibles 135,000
Amortization period ÷ 15 yrs.
Amortization 9,000
MCQ-10541
In March of the current year, Star Corporation, a calendar year corporation, purchased and placed into service a building costing $400,000 and land costing $150,000. Later that year, on November 15, the corporation purchased and
placed into service office equipment costing $80,000. No other equipment or real estate was placed into service during the year. Under the MACRS depreciation system, what convention must Star Corporation use?
Mid-quarter convention for the equipment and mid-month convention for the building.
MCQ-10017
Cox engaged Datz as her agent. It was mutually agreed that Datz would not disclose that he was acting as Cox’s agent. Instead he was to deal with prospective customers as if he were a principal acting on his own behalf. This he did, and he made several contracts for Cox. Assuming Cox, Datz, or the customer seeks to avoid liability on one of the contracts involved, which of the following statements is correct?
The third party may choose to hold either Datz or Cox liable
MCQ-10609
A taxpayer is trading in a building used solely for business purposes for another building to be used in his business. The building originally cost $35,000 and he has taken $18,000 in depreciation. The old building is currently worth $20,000 and the new building the taxpayer wants in exchange is worth $22,000. The taxpayer is also assuming a liability secured by the new building of $2,000. What is the gain or loss realized by the taxpayer on this transaction?
$3,000 gain
A $3,000 gain is realized on the transaction [$22,000 amount realized – $17,000 adjusted basis of old building – $2,000 boot paid (liability assumed)].
MCQ-10518
Which of the following can be claimed as an adjustment to arrive at adjusted gross income?
Educator expenses.
