Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

How can an individual's consultation with a lawyer be classified as a deduction for AGI in some cases and a deduction from AGI in other instances?

Accepted Answer

Legal expenses are deductible when they are directly related to a trade or business (for AGI);an income-producing activity (either for AGI or from AGI);or the determination,collection,or refund of a tax (either for AGI or from AGI).Ordinary and necessary legal expenses incurred in conjunction with a trade/business or in conjunction with rental/royalty property are deductible for AGI.All other deductible legal expenses are deductions from AGI.

Question 3

In a related party transaction where realized loss is disallowed,when can the disallowed loss be used by the buyer on the subsequent sale of the property? In the case of a related party disallowed loss transaction,can the related party seller's disallowed loss be used by a taxpayer other than the related party buyer?

Accepted Answer

The related party buyer is permitted to use as much of the disallowed loss of the seller as is needed to reduce any realized gain on the subsequent sale of the property.If the property in the hands of the buyer appreciates to at least the amount of the seller's adjusted basis at the date of the original sale,all of the disallowed loss can be used by the buyer on the subsequent sale.The related party seller's disallowed loss can be used only by the related party buyer.

Question 4

Which of the following is not deductible?

Accepted Answer

A) Moving expenses in excess of reimbursement. 
B) Tax return preparation fees of an individual. 
C) Expenses incurred associated with investments in stocks and bonds. 
D) Allowable hobby expenses in excess of hobby income. 
E) None of these. 
A) Moving expenses in excess of reimbursement. 
B) Tax return preparation fees of an individual. 
C) Expenses incurred associated with investments in stocks and bonds. 
D) Allowable hobby expenses in excess of hobby income. 
E) None of these.

Question 5

Expenses incurred for the production or collection of income generally are deductions from adjusted gross income.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following can be claimed as a deduction for AGI?

Accepted Answer

A) Personal casualty losses. 
B) Investment interest expenses. 
C) Medical expenses. 
D) Property taxes on personal use real estate. 
E) None of these. 
A) Personal casualty losses. 
B) Investment interest expenses. 
C) Medical expenses. 
D) Property taxes on personal use real estate. 
E) None of these.

Question 9

During the year,Rita rented her vacation home for twelve days for $2,400 and she used it personally for three months.The following expenses were incurred on the home:
   Calculate her rental gain or loss and itemized deductions.

Accepted Answer

Rita excludes the $2,400 of rental incom

Question 10

If a taxpayer operated an illegal business (not drug trafficking),what expenses can be deducted and what expenses are disallowed?

Accepted Answer

The usual expenses of operatin

Question 11

Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?

Accepted Answer

Sham transactions can be structured betw

Question 12

Kitty runs a brothel (illegal under state law)and has the following items of income and expense.What is the amount that she must include in taxable income from her operation?
 $\begin{array}{lr}\text { Income }&\$200,000\
\text { Expenses: }\
\text { Rent } & 8,000 \
\text { Utilities } & 2,000 \
\text { Bribes to police } & 10,000 \
\text { Medical expense } & 5,000 \
\text { Legal fees } & 20,000 \
\text { Depreciation } & 14,000 \
\text { Illegal kickbacks } & 15,000
\end{array}$

Accepted Answer

Income $200,000
Expenses:
Rent $ 8,000
U

Question 13

Jacques,who is not a U.S.citizen,makes a contribution to the campaign of a candidate for governor.Cassie,a
U.S.citizen,also makes a contribution to the same campaign fund.If contributions by noncitizens are illegal under state law,the contribution by Cassie is deductible,while that by Jacques is not.

Accepted Answer

A) True 
 B)False

Question 14

A hobby activity can result in all of the hobby income being included in AGI and no deductions being allowed.

Accepted Answer

A) True 
 B)False

Question 15

Priscella pursued a hobby of making bedspreads in her spare time.Her AGI before considering the hobby is $40,000.During the year she sold the bedspreads for $10,000.She incurred expenses as follows:   Assuming that the activity is deemed a hobby,how should she report these items on her tax return?

Accepted Answer

A) Include $10,000 in income and deduct $11,000 for AGI. 
B) Ignore both income and expenses since hobby losses are disallowed. 
C) Include $10,000 in income,deduct nothing for AGI,and claim $11,000 of the expenses as itemized deductions. 
D) Include $10,000 in income and deduct interest of $500 for AGI. 
E) None of these. 
A) Include $10,000 in income and deduct $11,000 for AGI. 
B) Ignore both income and expenses since hobby losses are disallowed. 
C) Include $10,000 in income,deduct nothing for AGI,and claim $11,000 of the expenses as itemized deductions. 
D) Include $10,000 in income and deduct interest of $500 for AGI. 
E) None of these.

Question 16

Sammy,a calendar year cash basis taxpayer who is age 66,has the following transactions: 
$\begin{array}{lr}
\text { Salary from job } & \$ 90,000 \
\text { Alimony received from ex-wife } & 10,000 \
\text { Medical expenses } & 8,000 \
\text { Based on this information Sammy }
\end{array}$

Accepted Answer

A) $\text { AGI of } \$ 90,000$ 
B) $\text { AGI of } \mathbf { \$ 9 5 , 0 0 0 }$ 
C) $\text { AGI of \$99,500 }$ 
D) $\text { Deduction for medical exaenses of } \$ 0 \text {. }$ 
E) $\text { None of these }$ 
A) $\text { AGI of } \$ 90,000$ 
B) $\text { AGI of } \mathbf { \$ 9 5 , 0 0 0 }$ 
C) $\text { AGI of \$99,500 }$ 
D) $\text { Deduction for medical exaenses of } \$ 0 \text {. }$ 
E) $\text { None of these }$

Question 17

Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.

Accepted Answer

A) True 
 B)False

Question 18

Paula is the sole shareholder of Violet,Inc.For 2014,she receives from Violet a salary of $300,000 and dividends of $100,000.Violet's taxable income for 2014 is $500,000.On audit,the IRS treats $100,000 of Paula's salary as unreasonable.Which of the following statements is correct?

Accepted Answer

A) Paula's gross income will increase by $100,000 as a result of the IRS adjustment. 
B) Violet's taxable income will not be affected by the IRS adjustment. 
C) Paula's gross income will decrease by $100,000 as a result of the IRS adjustment. 
D) Violet's taxable income will decrease by $100,000 as a result of the IRS adjustment. 
E) None of these is correct. 
A) Paula's gross income will increase by $100,000 as a result of the IRS adjustment. 
B) Violet's taxable income will not be affected by the IRS adjustment. 
C) Paula's gross income will decrease by $100,000 as a result of the IRS adjustment. 
D) Violet's taxable income will decrease by $100,000 as a result of the IRS adjustment. 
E) None of these is correct.

Question 19

While she was a college student,Angel lived by a bookstore located near campus.She thinks a bookstore located on the other side of campus would be successful.She incurs expenses of $42,800 (legal fees,accounting fees,marketing survey,etc. )in exploring its business potential.Her parents have agreed to loan her the money required to start the business.What amount of these investigation costs can Angel deduct if:
a.She opens the bookstore on August 1,2014.
b.She decides not to open the bookstore.

Accepted Answer

a.If Angel opens the bookstore on August

Question 20

Which of the following are deductions for AGI?

Accepted Answer

A) Mortgage interest on a personal residence. 
B) Property taxes on a personal residence. 
C) Mortgage interest on a building used in a business. 
D) Fines and penalties incurred in a trade or business. 
E) None of these. 
A) Mortgage interest on a personal residence. 
B) Property taxes on a personal residence. 
C) Mortgage interest on a building used in a business. 
D) Fines and penalties incurred in a trade or business. 
E) None of these.

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

How can an individual's consultation with a lawyer be classified as a deduction for AGI in some cases and a deduction from AGI in other instances?

Which of the following is not deductible?

Expenses incurred for the production or collection of income generally are deductions from adjusted gross income.

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

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.

Which of the following can be claimed as a deduction for AGI?

During the year,Rita rented her vacation home for twelve days for $2,400 and she used it personally for three months.The following expenses were incurred on the home: Calculate her rental gain or loss and itemized deductions.

If a taxpayer operated an illegal business (not drug trafficking),what expenses can be deducted and what expenses are disallowed?

Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?

A hobby activity can result in all of the hobby income being included in AGI and no deductions being allowed.

Priscella pursued a hobby of making bedspreads in her spare time.Her AGI before considering the hobby is $40,000.During the year she sold the bedspreads for $10,000.She incurred expenses as follows: Assuming that the activity is deemed a hobby,how should she report these items on her tax return?

Sammy,a calendar year cash basis taxpayer who is age 66,has the following transactions: Salary from job \ 90,000 Alimony received from ex-wife 10,000 Medical expenses 8,000 Based on this information Sammy

Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.

Paula is the sole shareholder of Violet,Inc.For 2014,she receives from Violet a salary of $300,000 and dividends of $100,000.Violet's taxable income for 2014 is $500,000.On audit,the IRS treats $100,000 of Paula's salary as unreasonable.Which of the following statements is correct?

Which of the following are deductions for AGI?

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Tax Formula and Tax Determination;an Overview of Property Transactions

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, cost Recovery, amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions: Determination of Gain or Loss and Basis Considerations

Property Transactions: Nontaxable Exchanges

Property Transactions: Capital Gains and Losses

Property Transactions: 1231 and Recapture Provisions

Accounting Periods and Methods

Deferred Compensation

Corporations and Partnerships

Filters

Exam 6: Deductions and Losses: in General

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

How can an individual's consultation with a lawyer be classified as a deduction for AGI in some cases and a deduction from AGI in other instances?

Which of the following is not deductible?

Expenses incurred for the production or collection of income generally are deductions from adjusted gross income.

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

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.

Which of the following can be claimed as a deduction for AGI?

During the year,Rita rented her vacation home for twelve days for $2,400 and she used it personally for three months.The following expenses were incurred on the home: Calculate her rental gain or loss and itemized deductions.

If a taxpayer operated an illegal business (not drug trafficking),what expenses can be deducted and what expenses are disallowed?

Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?

A hobby activity can result in all of the hobby income being included in AGI and no deductions being allowed.

Priscella pursued a hobby of making bedspreads in her spare time.Her AGI before considering the hobby is $40,000.During the year she sold the bedspreads for $10,000.She incurred expenses as follows: Assuming that the activity is deemed a hobby,how should she report these items on her tax return?

Sammy,a calendar year cash basis taxpayer who is age 66,has the following transactions: Salary from job \ 90,000 Alimony received from ex-wife 10,000 Medical expenses 8,000 Based on this information Sammy

Legal fees incurred in connection with a criminal defense are not deductible even if the crime is associated with a trade or business.

Paula is the sole shareholder of Violet,Inc.For 2014,she receives from Violet a salary of $300,000 and dividends of $100,000.Violet's taxable income for 2014 is $500,000.On audit,the IRS treats $100,000 of Paula's salary as unreasonable.Which of the following statements is correct?

Which of the following are deductions for AGI?

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Tax Formula and Tax Determination;an Overview of Property Transactions

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, cost Recovery, amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions: Determination of Gain or Loss and Basis Considerations

Property Transactions: Nontaxable Exchanges

Property Transactions: Capital Gains and Losses

Property Transactions: 1231 and Recapture Provisions

Accounting Periods and Methods

Deferred Compensation

Corporations and Partnerships

Filters