Study Guide TAX

Yolanda buys a house in the mountains for $450,000 which she uses as her personal vacation home. She builds an additional room on the house for $40,000. She sells the property for $560,000 and pays $28,000 in commissions and $4,000 in legal fees in connection with the sale. What is the recognized gain or loss on the sale of the home? a$0 b.$38,000 c.$70,000 d.$110,000 e.None of the above

$38,000

Vertical, Inc., has a 2016 net § 1231 gain of $67,000 and had a $22,000 net § 1231 loss in 2015. For 2016, Vertical's net § 1231 gain is treated as:a. $45,000 long-term capital gain and $22,000 ordinary loss.b. $67,000 ordinary gain.c. $45,000 long-term capital gain and $22,000 ordinary gain.d. $67,000 capital gain.e. None of the above.

$45,000 long-term capital gain and $22,000 ordinary gain.

Molly exchanges land (adjusted basis of $85,000; fair market value of $78,000) used in her business and common stock held for investment (adjusted basis of $10,000; fair market value of $15,000) for a single parcel of land (fair market value of $93,000) to be used in her business in a like-kind exchange. What is Molly's recognized gain or loss

$5,000

When calculating the QBI deduction:a. The QBI is a deduction from AGI.b. There is a limitation that applies to high-income taxpayers.c. The QBI deduction is available whether a taxpayer uses the standard deduction or itemized deductions.d. There is a limitation that applies to certain types of services businesses.e. All of these choices are correct.

All of these choices are correct.

Which, if any, of the following can be an eligible shareholder of an S corporation?a. A child, age 10. b. A voting trust. c. The estate of a deceased shareholder. d. A resident alien. e. All of these choices can own S stock.

All of these choices can own S stock.

Stanley operates a restaurant as a sole proprietorship. Which of the following items are capital assets in the hands of Stanley?a. The restaurant's tables and chairs.b. A portable sound system used to play "theme music" for the restaurant.c. The restaurant building that is an asset of the sole proprietorship.d. An interest-bearing savings account used to keep the restaurant's excess cash.e. None of the above.

An interest-bearing savings account used to keep the restaurant's excess cash.

losses on qualified businesses

If a taxpayer has a qualified business loss in one year, no QBI deduction is allowed.

Like-kind exchanges only apply to business and investment real property. TrueFalse

True

Exchanging unimproved land for a warehouse is not a like-kind exchange. TrueFalse

False

Samantha inherits a home on July 1, 2017, that had a basis in the hands of the decedent at death of $180,000 and a fair market value of $345,000 at the date of the decedent's death. She decides to sell her old principal residence, which she has owned and occupied for nine years, with an adjusted basis of $95,000 and move into the inherited home. On September 16, 2017, she sells the old residence for $490,000. Samantha incurs selling expenses and legal fees of $34,000. She decides to add a pool, deck, pool house, and recreation room to the inherited home at a cost of $85,000. These additions are completed and paid for on November 1, 2017. What is her recognized gain on the sale of her old principal residence and her basis in the inherited home?a. $361,000; $430,000b. $111,000; $430,000c. $0; $180,000d. $361,000; $265,000e. $111,000; $265,000

$111,000; $430,000

Savannah exchanges a rental building that has an adjusted basis of $420,000 for investment land that has a fair market value of $600,000. In addition, Savannah receives $75,000 in cash. What is the recognized gain or loss?a. $180,000b. $255,000c. $0d. $75,000e. $50,000

$75,000

n the current year, the POD Partnership received revenues of $200,000 and paid the following amounts: $50,000 in rent and utilities, and $20,000 as a distribution to partner Olivia. In addition, the partnership earned $6,000 of long-term capital gains during the year. Partner Donald owns a 50% interest in the partnership. How much income must Donald report for the tax year? a. $68,000 ordinary income.b. $78,000 ordinary income.c. $65,000 ordinary income; $3,000 of long-term capital gains.d. $75,000 ordinary income; $3,000 of long-term capital gains.e. None of the above

$75,000 ordinary income; $3,000 of long-term capital gains.

Shane sells property with an adjusted basis of $19,000 to his daughter for $12,000. His daughter subsequently sells the property to her brother for $12,000. Two years later, the brother sells the property to Channing, an unrelated party, for $21,000. What is the brother's recognized gain or loss on the sale of the property?a. $(2,000)b. $9,000c. $0d. $4,000e. $2,000

$9,000

Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2011. He also owns 60% of the stock in a C corporation that earned $150,000 during the year. The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn. How much income must Bjorn report from these businesses? a. $0 income from the S corporation and $30,000 income from the C corporation. b. $90,000 income from the S corporation and $30,000 income from the C corporation. c. $90,000 income from the S corporation and $0 income from the C corporation. d. $30,000 income from the S corporation and $30,000 of dividend income from the C corporation. e. None of the above

$90,000 income from the S corporation and $30,000 income from the C corporation.

Edith sells her personal use automobile for $19,000. She purchased the car three years ago for $35,000. What is Edith's recognized gain or loss?a.$0b.$5,000c.$19,000d.$(16,000)e.$(35,000)

0

In 2018, Dalmatian Foundation, an exempt organization, receives $10,100 in charitable donations from 101 donors. Each donor receives a doggie stamp pad worth $3.00 and a doggie figurine worth $7.10. How much unrelated business income must Dalmatian recognize?

0

Juarez (a calendar year taxpayer) donates a painting to a local art museum (a qualified charity). The painting cost Juarez $2,000 ten years ago and, according to one of Juarez's friends (an amateur artist), now is worth $40,000. On his income tax return, Juarez deducts $40,000 as a Form 1040 charitable contribution. Upon later audit by the IRS, it is determined that the true value of the painting was $30,000. Assuming that Juarez is subject to a 25% marginal Federal income tax rate, his penalty for overvaluation is:a. $10,000 (minimum penalty).b. $5,000.c. $2,500.d. $2,000.e. $0.

0

Lola, a calendar year taxpayer subject to a 40% marginal Federal gift tax rate, made a gift of a sculpture to Redd, valuing the property at $70,000. The IRS later valued the gift at $100,000. The applicable undervaluation penalty is:a. $0.b. $1,000 (minimum penalty).c. $2,400.d. $12,000.

0

Malik, Inc., a calendar year C corporation subject to a 35% marginal income tax rate, claimed a Form 1120 charitable contribution deduction of $30,000 for a sculpture that the IRS later valued at $10,000. The applicable overvaluation penalty is:a. $0.b. $7,000.c. $10,000 (minimum penalty).d. $20,000.

0

Michelle, a calendar year taxpayer subject to a 25% marginal Federal income tax rate, claimed a Form 1040 charitable contribution deduction of $275,000 for a sculpture that the IRS later valued at $200,000. The applicable overvaluation penalty is:a. $0.b. $3,750.c. $7,500.d. $18,750.

0

Anemone, Inc., a qualifying § 501(c)(3) organization, incurs lobbying expenditures of $145,000 during the taxable year. Exempt purpose expenditures are $500,000. If Anemone makes the election under § 501(h) to make lobbying expenditures on a limited basis, its tax liability resulting from the lobbying expenditures is:

11,250.The lobbying nontaxable amount is $100,000 ($500,000 × 20%). Therefore, the ceiling on lobbying expenditures is $150,000 ($100,000 × 150%). Since Anemone did not exceed the ceiling, the tax imposed is only on the amount of the lobbying expenditures in excess of $100,000 ($145,000 - $100,000 = $45,000). The tax is imposed at a rate of 25 percent. Thus, the tax liability is $11,250.

Juanita, who is subject to a 40% marginal Federal gift tax rate, made a gift of a sculpture to Bianca, valuing the property at $150,000. The IRS later valued the gift at $300,000. The applicable undervaluation penalty is:a. $24,000.b. $12,000.c. $10,000 (maximum penalty).d. $0.

12000

Garden, Inc., a qualifying § 501(c)(3) organization, incurs lobbying expenditures of $210,000 during the taxable year. Exempt purpose expenditures are $900,000. If Garden makes the election under § 501(h) to make lobbying expenditures on a limited basis, its tax liability resulting from the lobbying expenditures is:a. $0.b. $12,500.c. $50,000.d. $60,000.e. None of the above.

12500

Georgio, a calendar year taxpayer subject to a 33% marginal Federal income tax rate, claimed a Form 1040 charitable contribution deduction of $300,000 for a sculpture that the IRS later valued at $120,000. The applicable overvaluation penalty is:a. $10,000 (maximum penalty).b. $12,000.c. $24,000.d. $60,000.

24000

Crystal, an S corporation, reported the following items:Sales revenue $720,000Interest income 5,000Long-term capital gain 8,000Cost of goods sold 200,000Wages paid to employees 100,000Charitable contributions 20,000Other operating expenses 30,000How much will Crystal report as nonseparately stated income?a. $733,000.b. $390,000.c. $383,000.d. $403,000.e. $720,000.

390000

Gadsden, who is subject to a 40% marginal Federal gift tax rate, made a gift of a sculpture to Marvin, valuing the property at $150,000. The IRS later valued the gift at $400,000. The applicable undervaluation penalty is:a. $0.b. $20,000.c. $25,000 (maximum penalty).d. $40,000.

40000

If the beginning balance in OAA is zero, and the following transactions occur, what is the ending OAA balance? Section 1245 gain$21,000Payroll tax penalty 4,200Tax-exempt interest 5,300 Nontaxable life insurance proceeds 4,100Insurance premiums paid (nondeductible)2,900a.$1,300. b.$6,500.c.$23,300.d.$27,500.e.None of the above.

6,500.

Lisa, a calendar year taxpayer subject to a 33% marginal Federal income tax rate, claimed a Form 1040 charitable contribution deduction of $250,000 for a sculpture that the IRS later valued at $160,000. The applicable overvaluation penalty is:a. $0.b. $6,000.c. $10,000 (maximum penalty).d. $12,000.

6000

Periwinkle, Inc., a tax-exempt organization, leases a building and equipment to Blue Corporation. The rental income from the building is $160,000 and from the equipment is $12,000. Rental expenses are $100,000 for the building and $11,000 for the equipment. What adjustment must be made to net unrelated business income?

61000

Tan, Inc., a tax-exempt organization, has $65,000 of net unrelated business income. Total charitable contributions (all associated with the unrelated trade or business) are $7,500. Assuming that the $7,500 was deducted in calculating net unrelated business income, what is Tan's unrelated business taxable income? a. $57,500b. $65,250c. $66,000d. $72,500e. Some other amount.

65,250

Which, if any, of the following can be an eligible shareholder of an S corporation? a. A resident alien. b. Limited liability company. c. A foreign corporation. d. A Roth IRA. e. None of the above can own S corporation stock

A resident alien.

The Statements on Standards for Tax Services are issued by the: a. IRS. b. AICPA. c. ABA. d. SE

AICPA.

In determining the basis of like-kind property received, postponed losses are A. Added to the fair market value of the like-kind property received B. Added to the basis of the old property C. Subtracted from the fair market value of the like-kind property received D. Subtracted from the basis of the old property E. None of the above

Added to the fair market value of the like-kind property received.

If boot is received in a § 1031 like-kind exchange and gain is recognized, which formula correctly calculates the basis for the like-kind property received a. Adjusted basis of like-kind property surrendered + gain recognized - fair market value of boot received. b. Fair market value of like-kind property surrendered + gain recognized + fair market value of boot received. c. Two of these statements are correct d. Fair market value of like-kind property received - postponed gain. e. None of these.

Adjusted basis of like-kind property surrendered + gain recognized - fair market value of boot received

Recognized gains and losses from disposition of a capital asset may occur as a result of a:a. Sale.b. Exchange.c. Casualty.d. Condemnation.e. All of the above.

All of the above

Which of the following qualify as exempt organizations? a. Federal and related agencies. b. Religious, charitable, and educational organizations. c. Civic leagues. d. Domestic fraternal societies (e.g., the Eagles Club). e. All of the above can be exempt from tax

All of the above can be exempt from tax

Which of the following statements exemplifies the entity theory of partnership taxation?A) Partnerships are taxable entities. B) Partnerships determine the character of separately stated items at the partnership level. C) Partnerships make the majority of the tax elections. D) Both partnerships are taxable entities and partnerships make the majority of the tax elections. E) Both partnerships determine the character of separately stated items at the partnership level and partnerships make the majority of the tax elections.

Both partnerships determine the character of separately stated items at the partnership level and partnerships make the majority of the tax elections.

In order to qualify for like-kind exchange treatment undeterm-33r § 1031, which of the following requirements must be satisfied In order to qualify for like-kind exchange treatment undeterm-33r § 1031, which of the following requirements must be satisfied The form of the transaction is a sale or exchange. Both the property transferred and the property received are held either for productive use in a trade or business for investment. The exchange must be completed by the end of the second tax year following the tax year in which the taxpayer relinquishes his or her like-kind property. Only choices a. and b. Choices a., b., and c.

Both the property transferred and the property received are held either for productive use in a trade or business or for investment.

An S corporation may be subject to the following tax.a. Federal income tax. b. Alternative minimum tax. c. Built-in gains tax. d. Foreign earnings tax.

Built-in gains tax.

Which, if any, of the following exchanges qualifies for nonrecognition treatment as a § 1031 like-kind exchange? Partnership interest for a partnership interest. Inventory for inventory. Securities for personalty. Business realty for investment realty. None of the above.

Business realty for investment realty.

A tax preparer is in violation of Circular 230 if he or she: a. Files a tax return that includes a math error. b. Charges a fee to prepare an original Form 1120 equal to one-third of the taxpayer's refund due. c. Fails to inform the IRS of an error on the client's prior-year return. d. All of the above are Circular 230 violations

Charges a fee to prepare an original Form 1120 equal to one-third of the taxpayer's refund due.

A tax preparer is in violation of Circular 230 if he or she:a. Files a tax return that includes a math error.b. Fails to inform the IRS of an error on the client's prior-year return.c. Charges a fee to prepare an original Form 1120 equal to one-third of the taxpayer's refund due.d. All of the above are Circular 230 violations.

Charges a fee to prepare an original Form 1120 equal to one-third of the taxpayer's refund due.

A tax-exempt organization with a calendar tax year was required to file Form 990,Return of Organizations Exempt from Income Tax, for Year 1. Disregarding any extensions, when is the return due (do not consider Saturdays, Sundays, or holidays)?A. March 15, Year 2.B. April 15, Year 2.C. June 15, Year 2.D. May 15, Year 2

May 15, Year 2

Brett owns investment land located in Tucson, Arizona. He exchanges it for other investment land. In which of the following locations may the other investment land be located and enable Brett to qualify for § 1031 like-kind exchange treatment a. Mexico City, Mexico.b. Toronto, Canada.c. Paris, France.d. Only a. and b.e. None of the above

None of the above

Which of the following exempt organizations are required to file Form 990 (Return of Organization Exempt from Income Tax)? a. Federal agencies. b. Churches. c. Private foundations. d. None of these entities must file Form 990

None of these entities must file Form 990

Which of the following exempt organizations are required to file Form 990 (Return of Organization Exempt from Income Tax)?a. Federal agencies.b. Churches.c. Exempt organizations whose annual gross receipts do not exceed $50,000.d. Private foundations.e. None of these entities must file Form 990.

None of these entities must file Form 990.

Which of the following are organizations exempt under § 501(c)(3)? a. Girl Scouts of America. b. Washington and Lee University. c. Veterans of Foreign Wars (VFW). d. Only a. and b. are § 501(c)(3) organizations. e. All of the above are § 501(c)(3) organization

Only a. and b. are § 501(c)(3) organizations.

Which of the following is a requirement for exempt status? a. The organization does not exert political influence. b. The organization has not been subject to intermediate sanctions for the past 24 months. c. The organization serves some type of common good. d. Only a. and c. e. a., b., and

Only a. and c.

Circular 230 allows a tax preparer to:a. Take a position on a tax return that is contrary to a decision of the U.S. Supreme Court.b. Avoid signing a tax return that is likely to be audited.c. Charge a $5,000 fee to prepare a Form 1040EZ.d. Operate the "Tax Nerd's Blog" on the Internet.

Operate the "Tax Nerd's Blog" on the Internet.

Copper Corporation sold machinery for $47,000 on December 31, 2016. The machinery had been purchased on January 2, 2013, for $60,000 and had an adjusted basis of $41,000 at the date of the sale. For 2016, what should Copper Corporation report?a. Ordinary income of $6,000.b. A § 1231 gain of $3,000 and $3,000 of ordinary income.c. A § 1231 gain of $6,000.d. A § 1231 gain of $6,000 and $3,000 of ordinary income.e. None of the above.

Ordinary income of $6,000.

Paradise, Inc., receives its support from the following sources:Governmental unit A, for services rendered $18,000General public, for services rendered 45,000Gross investment income 8,000Contributions from individual substantial contributors (disqualified persons) 40,000Which of the following statements is correct?

Paradise, Inc., is not a private foundation because it satisfies both the external support test and the internal support test.

Which of the following is not a correct statement regarding the advantage of the partnership entity form over the subchapter C corporate form? a. A partnership typically has easier administrative and filing requirements than does a C corporation. b. Partnership income is subject to a single level of taxation; corporate income is double taxed. c. Partnerships may specially allocate income and expenses among the partners, provided the substantial economic effect requirements are met; corporate dividends must be proportionate to d. Partners in a general partnership have less personal liability for entity claims than shareholders of a C corporation. e. All of the above are advantages of partnership taxation

Partners in a general partnership have less personal liability for entity claims than shareholders of a C corporation.

What method is used to allocate S corporation income or losses (unless an election to the contrary is made)?a. Per-day allocation. b. LIFO method. c. Any method agreed to by all of the shareholders. d. FIFO method.

Per-day allocation.

Sarah was transferred from Fort Wayne to Houston. She sold her Fort Wayne residence (adjusted basis of $180,000) for a realized loss of $40,000 and purchased a new residence in Houston for $225,000.

Sarah's basis for the residence in Houston is $225,000.

An exempt municipal hospital operates a pharmacy that is staffed by a pharmacist 24 hours per day. The pharmacy serves only hospital patients. Is the pharmacy likely an unrelated trade or business? Explain.

Since the pharmacy only serves hospital patients, the pharmacy is not an unrelated trade or business

Which, if any, of the following is not an eligible shareholder of an S corporation? a. A child, age 9. b. Spouse of a nonresident alien in a community property state. c. A voting trust. d. An estate of a deceased shareholder. e. All of the above can own S corporation stock.

Spouse of a nonresident alien in a community property state.

Which of the following is considered qualified property in the calculation of the deduction for qualified business income (§ 199A)?a.All business property (both tangible and intangible).b.Fully depreciated tangible business property.c.Tangible property placed in service during the year, but not used in the production of qualified business income.d.Tangible business property subject to depreciation.

Tangible business property subject to depreciation.

The usual three-year statute of limitations on additional tax assessments applies in the following situation(s). a. No return at all is filed. b. An investment in a marketable security is worthless. c. Taxpayer inadvertently omits an amount of gross income equal to 30% of the gross income stated on the return. d. Taxpayer discovers an inadvertent overstatement of deductions equal to 30% of gross income

Taxpayer discovers an inadvertent overstatement of deductions equal to 30% of gross income

Third Church operates a gift shop in its parish house. The total income of the church is $800,000. Of this amount, $300,000 comes from offerings and $500,000 comes from the net income of the gift shop. The gift shop operations are conducted by five full-time employees. Which of the following statements is correct? a. The $300,000 is unrelated business income because the gift shop is a feeder organization. b. The $800,000 is unrelated business income. c. The $500,000 of gift shop net income is unrelated business income. d. None of the $800,000 is unrelated business income. e. The unrelated business income tax does not apply to churches.

The $500,000 of gift shop net income is unrelated business income

Ryan has the following capital gains and losses during the tax year: $6,000 short-term capital loss, $5.000 28% gain, $2,000 25% gain, and $6,000 0%/15%/20% gain. Which of the following is correct: a. The net capital gain is composed of $1,000 25% gain and $6,000 0%/15%/20% gain. b. The net capital gain is composed of $5,000 28% gain and $2,000 0%/15%/20% gain. c. The net capital gain is composed of $3,000 28% gain, $2,000 25% gain, and $2,000 0%/15%/20% gain. d. The net capital gain is composed of $1,000 28% gain and $6,000 0%/15%/20% gain.

The net capital gain is composed $1,000 25% Gain and $6,000 0% / 15% / 20% gain

Which of the following statements regarding the unrelated business income tax is not correct?a. Unrelated business income is income from activities not related to the exempt purpose of the exempt organization.b. The unrelated business income tax is levied because the exempt organization is engaging in substantial commercial activities.c. If the unrelated business income tax were not levied, nonexempt organizations would be placed at a substantial disadvantage when trying to compete with the exempt organization.d. The tax rate that is applied to unrelated business taxable income is the highest corporate tax rate.e. All of the above statements are correct.

The tax rate that is applied to unrelated business taxable income is the highest corporate tax rate.

Which of the following statements regarding exempt organization filing requirements is incorrect? a. Churches are required to file Form 990 (Return of Organization Exempt from Income Tax) only if its annual gross receipts exceed $50,000. b. The due date for Form 990 (Return of Organization Exempt from Income Tax) is the fifteenth day of the fifth month after the end of the taxable year whereas for private foundations the due date for Form 990-PF (Return of Private Foundation) is the fifteenth day of the fourth month after the end of the tax year. c. All exempt organizations whose annual gross receipts do not exceed $50,000 can file Form 990- N (the "e-Postcard"). d. Only a. and b. are incorrect. e. a., b., and c. are incorrect.

a., b., and c. are incorrect.

Where is the § 199A deduction taken on Form 1040? a.It is a deduction from AGI, much like the standard deduction or itemized deductions, and is the last deduction taken in determining taxable income.b.It is a business deduction and is taken on Schedule C (Form 1040).c.It is a deduction that reduces self-employment income and is taken on Schedule SE (Form 1040).d.It is an itemized deduction taken on Schedule A (Form 1040).

a.It is a deduction from AGI, much like the standard deduction or itemized deductions, and is the last deduction taken in determining taxable income.

Cherry Corporation, a calendar year C corporation, is formed and begins business on April 1 of the current year. In connection with its formation, Cherry incurs organizational expenditures of $54,000. Determine Cherry Corporation's deduction for organizational expenditures for the current year. either amount expensed or 5,000 less of the excess of 50,0005,000 - 4000 (54,000-50,000) = 1,000rest is multiplied by the amount of months the corporation has been running over 180 months53,000 * 9/180 = 26502,650 + 1,000 = 3,650

either amount expensed or 5,000 less of the excess of 50,000

Which of the following are requirements to be an S corporation? a. limited to a maximum of 100 shareholdersb. has no resident alien shareholdersc. has only one class of stockd. may have no straight debte. cannot have an earnings and profit

the only requirement is that it have one class of stock