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Exam 6: Deductions and Losses: in General

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Question 81

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What are the relevant factors to be considered in determining whether an activity is profit-seeking or a hobby?

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The nine relevant fa...

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Question 82

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Briefly discuss the two tests that an accrual basis taxpayer must apply before an expense can be deducted.

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Question 83

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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?

Hobby activity expenses are deductible from AGI to the extent of hobby income.Such expenses not in excess of hobby income are not subject to the 2% of AGI floor.

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.

Deriving a profit in three consecutive years is not irrefutable evidence that an activity is profit seeking and not a hobby.

Bruce owns several sole proprietorships.Must Bruce use the same accounting method for each of these businesses?

Hollis operates a lawn care service in southeastern Missouri.He incurs $63,000 of expenses determining the feasibility of expanding the business to southwestern Missouri.If he expands the business,the $63,000 is deductible in the current year.If he does not do so,then he must amortize the $63,000 over a 180-month period.

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

Olive,Inc.,an accrual method taxpayer,is a corporation that is equally owned by Maurice and Alex,who are brothers.The corporation uses the accrual method of accounting and the shareholders use the cash method.To provide Olive with funds to acquire additional working capital,the shareholders each loan Olive $100,000 with a 6% interest rate.At the end of the tax year,there is unpaid accrued interest of $3,000 due to each shareholder.From a timing perspective,when should Olive deduct this $6,000 and when should Maurice and Alex include the $3,000 in gross income? Olive pays the $3,000 to each shareholder early next year.

Rob,a shareholder-employee of Falcon,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 Rob's gross income by $100,000 and increase Falcon's gross income by $100,000.

Which of the following is incorrect?

Which of the following cannot be deducted as a § 162 business expense?

Are there any circumstances under which lobbying expenditures are deductible?