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Exam 6: Deductions and Losses: in General

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Question 21

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Sammy, a calendar year cash basis taxpayer who is age 66, has the following transactions in 2019: $\begin{array}{lr}\text { Salary from job } & \$ 90,000 \\\text { Alimony received from ex-wife } & 10,000 \\\text { Medical expenses } & 7,000\end{array}$ Based on this information, Sammy has:

A) AGI of $90,000.
B) AGI of $95,000.
C) AGI of $99,500.
D) Deduction for medical expenses of $0.
E) None of these.

F) A) and B)
G) None of the above

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Question 22

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Two-thirds of treble damage payments under the antitrust law are not deductible.

A) True
B) False

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Question 23

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Walter sells land with an adjusted basis of $175,000 and a fair market value of $160,000 to his mother, Shirley, for $160,000. Walter reinvests the proceeds in the stock market. Shirley holds the land for one year and a day and sells it in the marketplace for $169,000. a. Determine the tax consequences to Walter. b. Determine the tax consequences to Shirley.

Velma and Bud divorced. Velma's attorney fee of $5,000 is allocated as follows: $\begin{array}{lr}\text { General representation in obtaining the divorce } & \$ 1,500 \\\text { Services in obtaining custody of the child } & 900 \\\text { Services in settlement of martial property } & 600\\\text { Determining the tax consequences of: }\\\text { Dependency deduction for child } & 700 \\\text { Tax Consequences of property settlement } & 1,300\end{array}$ Of the $5,000 Velma pays to her attorney in 2019, the amount she may deduct as an itemized deduction is:

Iris, a calendar year cash basis taxpayer, owns and operates several TV rental outlets in Florida and wants to expand to other states. During 2019, she spends $14,000 to investigate TV rental stores in South Carolina and $9,000 to investigate TV rental stores in Georgia. She acquires the South Carolina operations but not the outlets in Georgia. As to these expenses, Iris should:

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

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

LD Partnership, a cash basis taxpayer, purchases land and a building for $200,000 with $150,000 of the cost being allocated to the building. The gross receipts of the partnership are less than $100,000. LD must capitalize the $50,000 paid for the land but can deduct the $150,000 paid for the building in the current tax year.

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

Rachel operates a sole proprietorship that earns $200,000 of qualified business income after deducting salaries of $60,000. The sole proprietorship is not a specified service business. She files a single tax return for 2019. Assume her taxable income before the QBI deduction is $230,000. Rachel's QBI deduction for 2019 is:

If an activity involves horses, a profit in at least two of seven consecutive years meets the presumptive rule of § 183.

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

Describe the circumstances under which a taxpayer can receive rent income from a personal residence but does not have to report it as gross income.

If a publicly traded corporation hires a new CEO in 2019 and she earns $12,000,000 from a performance-based compensation plan, the corporation can deduct the entire $12,000,000.

Which of the following is incorrect?

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

Sandra sold 500 shares of Wren Corporation to Bob, her brother, for its fair market value. She had paid $26,000 for the stock. Calculate Sandra's and Bob's gain or loss under the following circumstances: a. Sandra sold the shares to Bob for $20,000. One year later, Bob sold them for $18,000. b. Sandra sold the shares to Bob for $30,000. One year later, Bob sold them for $27,000. c. Sandra sold the shares to Bob for $20,000. One year later, Bob sold them for $28,000.

Under what circumstance can a bribe be deducted?

The cost of legal advice associated with the preparation of an individual's Federal income tax return that is paid in 2019 is not deductible because it is a personal expense.

Marsha is single, had gross income of $50,000, and incurred the following expenses: $\begin{array}{lr}\text { Charitable contribution } & \$ 2,000 \\\text { Taxes and interest on home } & 7,000 \\\text { Legal fees incurred in a tax dispute } & 1,000 \\\text { Medical expenses } & 3,000 \\\text { Penalty on early withdrawal of savings } & 250\end{array}$ Her AGI is: