Exam 6: Deductions and Losses: in General

Amos, a shareholder-employee of Pigeon, Inc., receives a $400,000 salary.The IRS classifies $125,000 of this amount as unreasonable compensation.The effect of this reclassification is to decrease Amos' gross income by $125,000 and increase Pigeon's gross income by $125,000.

For a vacation home to be classified in the personal/rental use category, what attributes must be present?

Albie operates an illegal drug-running business and has the following items of income and expense.What is Albie's adjusted gross income from this operation?

The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.

Melba incurred the following expenses for her dependent daughter during the current year: How much may Melba deduct in computing her itemized deductions?

Sandra owns an insurance agency.The following selected data are taken from the agency balance sheet and income statement prepared using the accrual method. Calculate Sandra's net profit using the cash method for 2012.

Marge sells land to her adult son, Jason, for its $20,000 appraised value.Her adjusted basis for the land is $25,000.Marge's recognized loss is $0 and Jason's adjusted basis for the land is $25,000 ($20,000 cost + $5,000 disallowed loss of Marge).

Which of the following is not a related party for constructive ownership purposes under § 267?

All domestic bribes (i.e., to a U.S.official) are disallowed as deductions.

Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

If a vacation home is determined to be a personal/rental use residence, which of the following statements is correct?

Which of the following is a deduction from AGI (itemized deduction)?

Bob and April own a house at the beach.The house was rented to unrelated parties for 8 weeks during the year.April and the children used the house 12 days for their vacation during the year.After properly dividing the expenses between rental and personal use, it was determined that a loss was incurred as follows: What is the correct treatment of the rental income and expenses on Bob and April's joint income tax return for the current year assuming the IRS approach is used if applicable?

Ralph wants to give his daughter $1,000 for Christmas. As an alternative, she suggests that he pay the property taxes on her residence. If Ralph pays the property taxes, he cannot deduct them.

Generally, a closely-held family corporation is not permitted to take a deduction for a salary paid to a family member in calculating corporate taxable income.

Arnold and Beth file a joint return.Use the following data to calculate their deduction for AGI.

The cost of legal advice associated with the preparation of an individual's Federal income tax return is not deductible because it is a personal expense.

Andrew, who operates a laundry business, incurred the following expenses during the year. What amount can Andrew deduct for these expenses?

For an expense to be deducted as ordinary, it must be recurring in nature.

Which of the following is incorrect?