Reg ME 2 - MC
Wynn, a single individual age 60, sold Wynn's personal residence for 450,000. Wynn had owned Wynn's residence, which had a basis of 250,000. for six years. Within eight months of the sale, Wynn purchased a new residence for 400,000. What is Wynn's recognized gain from the sale of Wynn's personal residence?
0 450,000 - 250,000 = 200,000 < 250,000 A maximum of $250,000 gain exclusion is provided for all taxpayers other than married couples filing jointly. Married couples filing jointly have a maximum gain exclusion of $500,000
Martin corporation, a calendar year corporation, purchased and placed int service evenly in the current year 3,030,000 of computer equipment. Martin's business establishment was not in an economically distressed area, and Martin made a proper and timely expense election to deduct the maximum amount. What is Martin Corporation's expense deduction under Section 179 assuming the rules i effect for 2017?
0 For 2017, the maximum amount that can be expensed under Section 179 is $510,000, but that amount is reduced, dollar for dollar, for the amount the total related property placed into service in the year exceeds $2,030,000
Grant had adjusted gross income of 55,000. During the year his personal use summer home was completely destroyed by a fire. Pertinent data with respect to the home follows: Cost basis = 135,000 Value before casualty = 140,000 Value after casualty = 123,000 Grant was insured for his actual loss and he received the insurance settlement. What is Grant's allowable casualty loss deduction?
0 The entire loss was covered by insurance
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 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
In general, which of the following debts will be discharged under the voluntary liquidation provisions of the Bankruptcy Code? 1) A debt arising before the filing of the bankruptcy petition due to the debot's negligence 2) Income taxes due from filing a fraudulent return 7 years prior to filing the bankruptcy petition
1 only Bankruptcy discharges most of pre-petition debts. Nondischargeable debts include certain taxes, debts incurred by fraud, unscheduled debts, debts arising from crimes, fines and penalties, alimony/child support debts, and student loans.
Sion, a C corporation had a deficit in accumulated earnings and profits of 50,000 at the beginning of the year and had current earnings and profits of 10,000. AT year end, Simon paid a dividend of 15,000 to its sole shareholder. What amount of the dividend is reported as income?
10,000 dividend income up to the current E&P (plus accumulated if positive)
Jonah, an unmarried individual, gave the following outright gifts during the year: 9,000 to Jordan for the purchase of a new care 19,500 to Krista for college tuition 22,000 to Emma for medical expenses 15,000 to Northside Hospital for Emma's medical expenses 20,000 to Central university for Krista's college tuition Jonah's taxable gifts for the year should total:
13,500 (19,500 - 14,000) + (22,000 - 14,000) = 13,500
Robin, a C corporation, had revenues of 200,000 and operating expenses of 75,000. Robin also received a 20,000 dividend from a domestic corporation and is entitled to a 14,000 dividend-received deduction. Robin donated 15,000 to a qualified charitable organization in the current year. What is Robin's contribution deduction?
14,500 (200,000 - 75,000 + 20,000)*10% Corporations making contributions to recognized charitable organizations are allowed a maximum deduction of 10% of their taxable income. Taxable income is calculated before the deduction of: (1) any charitable contribution; (2) the dividends received deduction; (3) any net operating loss carryback; (4) any capital loss carryback; or, (5) U.S. production activities deduction
Belinda, a cash-basis taxpayer, died on March 11. During the year, the estate's executor made a distribution of 15,000 from estate income to Belinda's sole heir and adopted a calendar year to determine the estate's taxable income. The following additional information pertain t the estate's income and disbursements for the year: Estate income: -taxable interest = 60,000 -net long-term capital gains allocable to corpus = 8,000 Estate disbursements: -administrative expenses attributable to taxable income = 12,000 -charitable contributions from gross income to a public charity, made under the terms of the will = 10,000 -required monthly loan payments made to a creditor (interest only) = 5,000 What is the estate's income distribution deduction?
15,000 The estate's income distribution deduction is the lesser of the actual distributions to the beneficiary reduced by tax-exempt income included in total distributions ($15,000 − $0) or distributable net income less adjusted tax-exempt interest ($33,000 − $0)
On June 1 of the current year, Monte Scott received a 10% interest in the capital of Eve's World, a partnership, fro services rendered. Eve's net assets at June 1 had a bass of 105,000 and a FMV of 150,000. What income must Monte Scott include on his current year tax return for the partnership interest transferred to him by the other partners?
15,000 ordinary income If a person receives an interest in the capital of a partnership as a result of employment service, the fair market value of the interest acquired represents ordinary income to the recipient and becomes his initial basis in the partnership interest acquired
A taxpayer is trading in an automobile used solely for business purposes for another automobile to be used in his business. The automobile originally cost 35,000 and he has taken 18,000 in depreciation. The old automobile is currently worth 20,000 and the new automobile the taxpayer wants in exchange is worth 22,000. The taxpayer s also assuming a liability secured by the new auto of 2,000. What is the gain or loss realized by the taxpayer on this transaction?
3,000 Gain Amount realized = [Fair market value of auto received - Liabilities assumed (boot paid)] - Adjusted basis of auto given up = ($22,000 fair market value new auto - $2,000 boot paid) - ($35,000 cost of old auto - $18,000 accumulated depreciation) = $20,000 - $17,000 = $3,000 gain
During the year, Justin, a self-employed individual, paid the following amounts: Federal income tax = 5,000 State income tax = 3,000 Real estate taxes on land in Europe (held as an investment) = 800 State occupational license fee = 400 What amount can Justin claim as taxes when itemizing deductions from AGI?
3,800 The state taxes of $3,000 and the foreign real estate taxes (held as an investment) of $800 are permitted as itemized deductions ($3,800).
Belinda, a cash-basis taxpayer, died on March 11. During the year, the estate's executor made a distribution of 15,000 from estate income to Belinda's sole heir and adopted a calendar year to determine the estate's taxable income. The following additional information pertains to the estate's income and disbursements for the year: state income: -taxable interest = 60,000 -net long-term capital gains allocable to corpus = 8,000 Estate disbursements: -administrative expenses attributable to taxable income = 12,000 -charitable contributions from gross income to a public charity, made under the terms of the will = 10,000 -required monthly loan payments made to a creditor (interest only) = 5,000 What is the estate's income distribution deduction?
33,000 60,000 + 8,000 - 12,000 - 10,000 - 5,000 = 41,000 - 8,000 = 33,000 Subtract Capital gain allocable to corpus, include any adjusted tax exempt interest
Shontelle and Teodoro are equal partners in the S&T Partnership. ON January 1 of the current year, each partner's adjusted basis in S&T was 50,000 (including each partner's 15,000 share of partnership liabilities). During the current year, S&T sustained an operating loss of 25,000 and earned 5,000 of interest and dividend income from investments. The partnership's liabilities were reduced to 20,000 as of December 31. Assuming the liabilities are shared equally by the partners, the basis of each partner's interest in S&T on January 1 of the next year is:
35,000 35,000 + (5,000/2) - (25,000/2) = 25,000 15,000 - (10,000/2) = 10,000 25,000 + 10,000 = 35,000
This question is based in the following data: Sydney Corporation - Income Statement - for the year ended December 31, Year 5 Sales = 1,800,000 COGS = (1,200,000) GP = 600,000 Operating expenses = (500,000) Operating income = 100,000 Other income: -gain on sale of investments = 30,000 -life insurance policy proceeds = 20,000 -dividends = 6,000 Other expense: -contributions = (18,000) Income before income tax = 100,000 + 56,000 - 18,000 = 138,000 The dividends were declared and received in Year 5 from an unrelated taxable domestic corporation in which Sydney owned less than 1% of the investee's stock. Sydney had no portfolio indebtedness. On its year 5 income tax return, Sydney should claim a dividends-received deduction of:
4,200 6,000*70%
Kerr and Marcus from KM Partnership with a cash contribution of 80,000 from Kerr and a property contribution of land from Marcus. The land has a fair market value of 80,000 and an adjusted basis of 50,000 at the date of the contribution. Kerr and Marcus are equal partners. What is Marcus's basis immediately after formation?
50,000 Generally, no gain or loss is recognized on the contribution of property to a partnership in return for a partnership interest. The basis of the partnership interest is the basis of the property in the hands of the partner upon contribution. The partnership takes on the contributor's basis of the contributed property; however, if the fair market value of the property differs from the basis, the amount of the unrealized gain or loss at the date of contribution is specially allocated to the contributing partner upon the sale of that contributed property
Starr, a self-employed individual, purchased a piece of equipmetn for use in Starr's business. The costs associated with the acquisition of the equipment were: Purchase price = 55,000 Delivery charges = 725 Installation fees = 300 Sales tax = 3,4000 What is the depreciable basis of the equipment?
59,425 The rules for depreciable basis in tax are generally the same as the GAAP rules for capitalizing an asset. The depreciable basis is the cost associated with the purchase of the asset and with getting the asset ready for its intended use. Further improvements are also capitalized, and the basis is reduced for any accumulated depreciation 55,000 + 725 + 300 + 3,400 = 59,425
During the year, Mitchell, a single taxpayer gave the following gifts: 10,000 cash to his nephew 15,000 tuition paid for his 24 year old daughter, paid directly to the State University 20,000 cash to his brother 50 shares of stock to his niece valued at $200 a share In filing his annual gift tax return, what is the amount of his taxable gifts?
6,000 20,000 - 14,000 = 6,000
Decker sold equipment for $200,000. The equipment was purchased for $160,000 and had accumulated depreciation of $60,000. What amount is reported as ordinary income under Code Sec. 1245?
60,000 Under Sec. 1245, ordinary income is recognized on the gain to the extent of the accumulated depreciation. Any gain in excess of the original cost is capital gain (depreciation recapture)
During the year, Donna Nichols, a single taxpayer, had 60,000 in taxable income before personal exemptions. She had not tax preferences, and her itemized deductions included the following: Home mortgage interest on loan to acquire residence = 25,000 Home equity interest on loan used to purchase an automobile = 5,000 State and local income taxes = 4,500 Miscellaneous deductions that exceed 2% AGI = 3,000 What amount would be reported by Donna on her current year income tax return as an alternative minimum taxable income before the AMT exemption?
72,500 60,000+5,000 + 4,500 + 3,000
On January 2 of the current year, Fran acquires a business from Chuck. AMoung 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 (60+30+45)/15 = 9
Jermaine and Keesha are married, file a joint tax return, have modified AGI of 75,000, 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. Arethis is beginning her senior year at Northeast university this fall, but for all academic periods during the current tax year she will not be enrolled at least half-time. Both Devona and Arethia are claimed as dependents on their parent's tax return. Devona's qualifying tuition expenses and fees total 3,600 for the fall semester, while Arehtia'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 (assume 2011-2017 tax law):
American Opportunity Credit = 2,400 Lifetime Learning Credit = 850 American Opportunity Credit (Devona) = (2,000x1) + (1,600x.25) = 2,400 Lifetime Learning Credit (Arethia) = (4,250x.20) = 850 Maximum qualified expenses for the Lifetime Learning Credit are $10,000 per year and the maximum credit per return is $2,000 per year. A taxpayer can claim both credits on the same return, but not for the same student. Arethia's expenses do not qualify for the American Opportunity Credit because she was not enrolled at least half-time for at least one academic period during the tax year
For income to be taxable on a tax return it must be...
Both recognized and realized
When must and s election be made in order to be effective for the current taxable year?
By the 15th day of the third month of the taxable year, otherwise it is effective the following year
Harp entered into a contract with Rex on behalf of Gold. By doing so, Harp acted outside the scope of his authority as Gold's agent. Gold may be held liable on the contract if:
Gold retains the benefits of the contract, knowing all material facts of the transaction
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
Dylan died on March 2, Year 1. Ann his wife, and Lena, their daughter survive. Ann filed a joint return in Year 1. Lena, age 19 in Year 4, is a college student and continues to live at home with her mother. She works part-time, earning wages of less than the personal exemption amount for the year. WHat is Ann's filing statues for Year 4?
Head of household
On January 2, Year 1, Miller and White contributed 8,000 and 12,000 in cash respectively, and formed the Jumbo General partnership. The partnership agreement allocated profits and losses 40% to Miller and 60% to White. During the year, Jumbo purchased property from an unrelated seller for 8,000 cash and a 50,000 mortgage note that was the general liability of the partnership. Jumbo's liability does what to Miller's partnership basis?
Increases Miller's partnership basis by 20,000
Emerald Corporation, a calendar year corporation, began business in Year 1. Emerald made a valid S corporation election on December 8, Year 3, with the unanimous consent of its shareholders. The eligibility requirements for S status continued to be met throughout Year 4. On what date did Emerald's S status become effective?
January 1, Year 4
Randy and Missy are married, but Missy refuses to sign a joint return for the current year. On Randy's separate current year return, an exemption may be claimed for Missy if:
Missy had no gross income and was not claimed as a dependent on another's tax return in the current year
If a manufacturer assigns 90% of its accounts receivable to a factor, can perfection be accomplished by attachement?
No
If a manufacturer assigns 90% of its accounts receivable to a factor, can perfection be accomplished by possession?
No
If an individual fails to pay estimated taxes for a year, is there underpayment penalty due under any circumstances if the balance of tax due at filing is less than $1,000?
No
Does the Securities Exchange Act of 1934 subject all issuers of securities to its registration requirements if the issuer has more than 3 million of assets or more than 400 shareholders?
No, companies with at least 500 shareholders in any outstanding class and at least $10 million in assets
Randy and Missy are married, but Missy refuses to sign a joint return for the current year. On Randy's separate current year return, could an exemption be claimed for Missy if Missy attaches a written statement to Randy's income tax return, agreeing to be claimed as a dependent for the current year?
No, only if the spouse had no gross income and was not a dependent of another
Does the Securities Exchange Act of 1934 only apply to issuers whose securities are traded on a national securities exchange?
No, the act also applies to companies with at least 500 shareholders in any outstanding class and at least $10 million in assets.
If an individual files a tax return with a zero tax liability in the prior year, must the individual pay in at least 90% of the current year's tax to avoid underpayment penalties, as the ability to use the 100% of prior year tax is lost?
No, the individual is allowed to use the 100% or prior year's tax rule (as the "lesser" of 90% of the current year's tax or 100% of the prior year's tax) to avoid underpayment penalties
Shelley celebrates her eighteenth birthday and decides that she no longer wishes to keep a car that she bought when she was seventeen. Her right to disaffirm will depend on whether:
She acts within a reasonable period of time after reaching the age or majority
What professional bodies has the authority to revoke a CPA's license to practice public accounting?
State board of accountancy
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 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? -Datz has no liability once he discloses that Cox was the real principal -Cox must ratify the Datz contract in order to be held liable -The third party may choose to hold either Datz or Cox liable -The third party can avoid liability because he believed he was dealing with Datz as the principal
The third party may choose to hold either Datz or Cox liable
Can the Internal Revenue Service waive the penalty for underpayment of taxes if the failure to pay was due to casualty, disaster, illness, or death of the taxpayer?
Yes
Do issuers whose securities are registered under the Securities Exchange Act of 1934 have to comply with its reporting requirements?
Yes
If a manufacturer assigns 90% of its accounts receivable to a factor, can perfection be accomplished by filing a financing statement?
Yes
If tax payments are withheld from payroll checks, regardless of the dollar amounts withheld at any particular time throughout the year, are the payments deemed to have been paid evenly throughout the year?
Yes
Would the anti-fraud provisions of the Securities Exchange Act of 1934 apply to issuers of securities that are exempt from the Act's registration requirements?
Yes, the anti-fraud provisions of the act apply even if the issue is exempt from the registration requirements
Ben Willis paid self-employment taxes of 3,000 as a result of earnings from his consulting business. The " employer" portion of these taxes are:
a deduction to arrive at adjusted gross income
Under Circular 230, for tax reasons: -a practitioner may rely on client-furnished information under any circumstances. The client is always right -a practitioner must return all client records at the request of the client -a practitioner can advise a client to take a tax position that is frivolous only if the taxpayer is a member of an officially recognized ta protest organization -a practitioner must exercise due diligence in preparing tax returns and other documents, unless such due diligence is waived in writing by the client
a practitioner must return all client records at the request of the client
Which of the following promises is supported by legally sufficient consideration and will be enforceable? -a person's promise to pay a real estate agent 1,000 in return for the real estate agent's earlier act of not charging commission for selling the person's house -a parent's promise o pay one child 500 because that child is not as wealthy as the child's sibling -a promise to pay the police 250 to catch a thief -a promise to pay a minor 500 to paint a garage
a promise to pay a minor 500 to paint a garage To constitute consideration, there must be a bargained for exchange of something of value. A detriment to the promisee or a benefit to the promisor constitutes value
Tim and Rick cannot come to an agreement as to the exact amount Rick owes Tim. They decide to and do form a new agreement that, on fulfillment, will discharge the prior obligation. Rick fulfills the new terms. This is called:
an accord and satisfaction
Tax return preparers can be subject to penalties under the IRC for failure to do any of the following *except*: -sign a tax return as a preparer -disclose a conflict of interest -provide a client with a copy of the tax return -keep a record of returns prepared
disclose a conflict of interest
A penalty for understated corporate tax liability can be imposed on a tax preparer who fails to:
make reasonable inquiries when taxpayer information appears incorrect
Circular 230: -addresses the practice before the IRS of "practitioners", which include only Attorneys, Certified Public Accountants, and Enrolled Agents -prohibits a practitioner from charging a contingent fee -prohibits a practitioner from endorsing or negotiation refund checks issued to the client -prohibits referral or compensation agreements
prohibits a practitioner from endorsing or negotiation refund checks issued to the client
Which of the following cannot be amortized for tax purposes? -stock issuance costs -incorporation costs -temporary directors' fees -organizational meeting costs
stock issuance costs
Which of the following statements is correct with respect to the reorganization provisions of the Bankruptcy code? -the reorganization may not be confirmed unless all creditors accept the plan -a trustee is required to be appointed -a partnership is not eligible to be a debtor -the commencement of a proceeding may be voluntary or involuntary
the commencement of a proceeding may be voluntary or involuntary
Which of the following statements is correct regarding modification of a sales contract under the Uniform Commercial Code? -there must be a writing if the original contract is in writing -the modification must satisfy the Statute of Frauds if the contract as modified is within its provisions -there must be consideration present if the contract is between merchants -the parol evidence rule applies and thus a writing is required
the modification must satisfy the Statute of Frauds if the contract as modified is within its provisions