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Exam 5: Business Deductions

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Question 21

True/False

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The cost of a covenant not to complete for 10 years incurred in connection with the acquisition of a business is amortized over 10 years.

A) True
B) False

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Question 22

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Which of the following depreciation conventions are not used under MACRS?

A) Full-month.
B) Mid-month.
C) Half-year.
D) Mid-quarter.
E) All of these are used under MACRS.

F) A) and C)
G) B) and E)

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Question 23

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New and used personal property placed in service in 2019 and used in a trade or business qualifies for additional first-year depreciation.

Indigo Company acquires a new machine (5-year MACRS property) on February 2, 2019 at a cost of $100,000.On November 18, 2019, Indigo also acquires office equipment (7-year MACRS property) at a cost of $50,000.Indigo does not make a § 179 expense election and chooses not to take additional first-year depreciation.What is Indigo's total MACRS deduction for 2019?

Aaron, a shareholder-employee of Pigeon, Inc., receives a $300,000 salary.The IRS classifies $100,000 of this amount as unreasonable compensation.The effect of this reclassification is to decrease Aaron's gross income by $100,000 and increase Pigeon's gross income by $100,000.

A taxpayer must use the alternative depreciation system (ADS) to compute depreciation for earnings and profits.

On January 1, 2019, SymboNet Company completed its acquisition of NetOpen.As part of the acquisition, $2 million was allocated to goodwill.What is SymboNet's amortization deduction related to the goodwill for 2019?

Susan is a sales representative for a U.S.weapons manufacturer.She makes a $100,000 "grease" payment to a U.S.government official associated with a weapons purchase by the U.S.Army.She makes a similar payment to a Saudi Arabian government official associated with a similar sale.Neither of these payments is deductible by Susan's employer.

On June 1, 2019, Norm leases a taxi and places it in service.The lease payments are $1,000 per month.Assuming the dollar amount from the IRS table for such leases is $241, determine Norm's gross income inclusion amount.

Investigation of a business unrelated to one's present business never results in a current-period deduction of the entire amount if the amount of the investigation expenses exceeds $5,000.

Carlos purchased an apartment building on November 16, 2019, for $3,000,000.Determine the cost recovery for 2019.

Paula is the sole shareholder of Violet, Inc.For 2019, she receives from Violet a salary of $300,000 and dividends of $100,000.Violet's taxable income for 2019 is $500,000.On audit, the IRS treats $100,000 of Paula's salary as unreasonable.Which of the following statements is correct?

Simpson Company, a calendar year taxpayer, acquires an apartment building on March 22, 2019 for $900,000.What is the maximum cost recovery deduction it may take for 2019?

White Company acquires a new machine (seven-year property) on January 10, 2019, at a cost of $620,000.White makes the election to expense the maximum amount under § 179, and wants to take any additional first-year depreciation allowed.No election is made to use the straight-line method.Determine the total deductions in calculating taxable income related to the machine for 2019 assuming White has taxable income of $800,000.

Cora purchased a hotel building on May 17, 2019, for $3,000,000.Determine the cost recovery deduction for 2020.

Under MACRS, the double-declining balance method is used for property other than real estate with a recovery period of 15 or 20 years.

For personal property placed in service in 2019, the § 179 maximum deduction is $1,020,000.

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.

The cost of depreciable property is not a research and experimental expenditure.

Land improvements are generally not eligible for cost recovery.