Question 1

The period in which an accrual basis taxpayer can deduct an expense is determined by applying the economic performance and all events tests.

Accepted Answer

A) True 
 B)False

Question 2

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?

Accepted Answer

@#IMG-DLM& The bribes to polic

Question 3

What is the appropriate tax treatment for expenditures paid by a taxpayer for another's benefit?

Accepted Answer

To be deductible, an expense must be inc

Question 4

If part of a shareholder/employee's salary is classified as unreasonable, determine the effect on the:
a. Shareholder/employee's gross income.
b. Corporation's taxable income.

Accepted Answer

a. The reclassification of part of a sha

Question 5

Only under limited circumstances can a loss on the sale of a personal use asset be deducted.

Accepted Answer

A) True 
 B)False

Question 6

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 7

The legal cost of having a will prepared is not deductible.

Accepted Answer

A) True 
 B)False

Question 8

Payments by a cash basis taxpayer of capital expenditures:

Accepted Answer

A)  Must be expensed at the time of payment. 
B)  Must be expensed by the end of the first year after the asset is acquired. 
C)  Must be deducted over the actual or statutory life of the asset. 
D)  Can be deducted in the year the taxpayer chooses. 
E)  None of the above. 
A)  Must be expensed at the time of payment. 
B)  Must be expensed by the end of the first year after the asset is acquired. 
C)  Must be deducted over the actual or statutory life of the asset. 
D)  Can be deducted in the year the taxpayer chooses. 
E)  None of the above.

Question 9

Which of the following is not relevant in determining whether an activity is profit-seeking or a hobby?

Accepted Answer

A)  Whether the activity is enjoyed by the taxpayer. 
B)  The expertise of the taxpayers or their advisers. 
C)  The time and effort expended. 
D)  The relationship of profits earned and losses incurred. 
E)  All of the above are relevant factors. 
A)  Whether the activity is enjoyed by the taxpayer. 
B)  The expertise of the taxpayers or their advisers. 
C)  The time and effort expended. 
D)  The relationship of profits earned and losses incurred. 
E)  All of the above are relevant factors.

Question 10

Nikeya sells land (adjusted basis of $120,000) to her adult son, Shamed, for its appraised value of $95,000. Which of the following statements is correct?

Accepted Answer

A)  Nikeya's recognized loss is $25,000 ($95,000 amount realized - $120,000 adjusted basis). 
B)  Shamed's adjusted basis for the land is $120,000 ($95,000 cost + $25,000 disallowed loss for Nikeya). 
C)  If Shamed subsequently sells the land for $112,000, he has no recognized gain or loss. 
D)  Only a. and b. are correct. 
E)  a., b., and c. are correct. 
A)  Nikeya's recognized loss is $25,000 ($95,000 amount realized - $120,000 adjusted basis). 
B)  Shamed's adjusted basis for the land is $120,000 ($95,000 cost + $25,000 disallowed loss for Nikeya). 
C)  If Shamed subsequently sells the land for $112,000, he has no recognized gain or loss. 
D)  Only a. and b. are correct. 
E)  a., b., and c. are correct.

Question 11

Discuss the application of the "one-year rule" on prepayments by a cash basis taxpayer.

Accepted Answer

The Regulations set forth the general ru

Question 12

In 2018, unreimbursed employment related expenses are classified as deductions for AGI.

Accepted Answer

A) True 
 B)False

Question 13

The cost of legal advice associated with the preparation of an individual's Federal income tax return that is paid in 2018 is not deductible because it is a personal expense.

Accepted Answer

A) True 
 B)False

Question 14

None of the prepaid rent paid on September 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

Accepted Answer

A) True 
 B)False

Question 15

Legal expenses incurred in connection with rental property are deductions from AGI.

Accepted Answer

A) True 
 B)False

Question 16

Under what circumstance can a bribe be deducted?

Accepted Answer

Bribes paid to a domestic official are d

Question 17

Can a trade or business expense be deductible if it is necessary but not ordinary?

Accepted Answer

No. To be deductible as a trad

Question 18

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?

Accepted Answer

Albie is allowed to reduce his AGI only

Question 19

On January 2, 2018, Fran acquires a business from Chuck. Among the assets purchased are the following intangibles: patent with a 7-year remaining life, a covenant not to compete for 10 years, and goodwill. Of the purchase price, $140,000 was paid for the patent and $60,000 for the covenant. The amount of the excess of the purchase price over the identifiable assets was $100,000. What is the amount of the amortization deduction for 2018?

Accepted Answer

A)  $10,667. 
B)  $16,000. 
C)  $20,000. 
D)  $32,667. 
E)  None of the above. 
A)  $10,667. 
B)  $16,000. 
C)  $20,000. 
D)  $32,667. 
E)  None of the above.

Question 20

Bobby operates a drug trafficking business. Because he has an accounting background, he keeps detailed financial records. What expenses can Bobby deduct on his Federal income tax return?

Accepted Answer

Bobby cannot deduct any of the expenses

Exam 6: Deductions and Losses: In General

The period in which an accrual basis taxpayer can deduct an expense is determined by applying the economic performance and all events tests.

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?

What is the appropriate tax treatment for expenditures paid by a taxpayer for another's benefit?

If part of a shareholder/employee's salary is classified as unreasonable, determine the effect on the: a. Shareholder/employee's gross income. b. Corporation's taxable income.

Only under limited circumstances can a loss on the sale of a personal use asset be deducted.

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

The legal cost of having a will prepared is not deductible.

Payments by a cash basis taxpayer of capital expenditures:

Which of the following is not relevant in determining whether an activity is profit-seeking or a hobby?

Nikeya sells land (adjusted basis of $120,000) to her adult son, Shamed, for its appraised value of $95,000. Which of the following statements is correct?

Discuss the application of the "one-year rule" on prepayments by a cash basis taxpayer.

In 2018, unreimbursed employment related expenses are classified as deductions for AGI.

The cost of legal advice associated with the preparation of an individual's Federal income tax return that is paid in 2018 is not deductible because it is a personal expense.

None of the prepaid rent paid on September 1 by a calendar year cash basis taxpayer for the next 18 months is deductible in the current period.

Legal expenses incurred in connection with rental property are deductions from AGI.

Under what circumstance can a bribe be deducted?

Can a trade or business expense be deductible if it is necessary but not ordinary?

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?

Bobby operates a drug trafficking business. Because he has an accounting background, he keeps detailed financial records. What expenses can Bobby deduct on his Federal income tax return?

An Introduction to Taxation and Understanding the Federal Tax Law

Working with the Tax Law

Computing the Tax

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

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

Taxing Business Income

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

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