NAME_________________________________

Please indicate the best/correct answer by circling the appropriate letter.

1. Frank is the beneficiary of a $50,000 insurance policy on the life of his mother. Upon her death, Frank has the choice of receiving either the face amount of the policy or six annual installments of $9,000 each. How much income must Frank report if he elects to receive the face value of the policy?

1. $50,000
2. $ 4,000
3. $ -0-
4. $ 9,000

1. Which of the following does not affect the adjusted basis of a house held as a rental property?

1. Addition of a new porch
2. Casualty loss deduction
3. Replace broken windows
4. Depreciation deduction

1. Generally, deductions for adjusted gross income on an individual’s tax return include all the following types of expenses except:

1. incurred in a trade or business
2. incurred in gambling activities
3. incurred in the production of rent income
4. incurred in the production of royalty income

1. Michael received a $6,500 tuition scholarship to attend Salem State College. The dollars of the scholarship was designated as follows: tuition $4,000, fees $500, room and board $1,000, laundry $500 and books $500. Michael also worked in the computer lab and earned $3,000. The amount that must be included in Michael’s earned income is

1. $5,500
2. $9,500
3. $3,000
4. $5,000

1. Benefits covered by Sec 132 which may be excluded from an employee’s gross income do not include:

1. Employee’s use of an employer-owned health club.
2. Employee’s personal use of company automobile
3. Membership fees in professional organizations
4. Coffee provided by the employer.

1. Bob filed his tax return, properly claiming the head of household status. Bob’s employer paid or provided the following to Bob:

How much of this income should Bob report?

1. $40,000
2. $41,000
3. $43,000
4. $44,000

1. For casualty losses on personal-use property to be deductible from AGI, they must be reduced by $100 per casualty and what percentage of AGI?

1. 0%
2. 2%
3. 7.5%
4. 10%

1. Bob, a single individual owns stock with a fair market value of $16,000 and a basis of $20,000. Bob wants to gift the stock to Don. Which of the following statements is correct?

1. Bob’s gift will not be a taxable gift.
2. Bob will have to recognize gain
3. Don will have to recognize gross income
4. Don’s basis will be $16,000 for purposes of determining a loss on the sale or exchange of stock.

1. The Taxpayer’s Relief Act of 1997 reduced one of the maximum tax rates on net capital gains to

1. 10% for those in the 15% tax bracket
2. 28% for those in the 39.6% bracket
3. Taxpayer’s average tax rate
4. Taxpayer’s marginal tax rate

1. Norris has a NSTCL of $10,000 and a NLTCG of $2,800 during the current taxable year. After gains and losses are offset, Norris reports

An offset against

Ordinary income Loss carryforward

a. $2,800 $7,200

b. $3,000 $4,200

c. $5,800 $4,200

d. $7,200 $ -0-

2. During the current year, Nancy had the following transactions:

Short-term capital loss $(2,400)

Short-term capital gain $ 2,000

Short-term capital loss carryover from last year $(1,400)

Long-term capital gain $ 3,800

Long-term capital loss $(8,000)

What is the amount of her capital loss deduction for the current year, and what is the amount and character of her capital loss carryover?

Deduction Carryover

a. $-0- $6,000 long-term

b. $3,000 $3,000 long-term

c. $3,000 $1,600 long-term and $1,400 short-term

d. $3,000 $1,200 long-term and $1,800 short-term

3. Damien paid $22,000 in premiums on a life insurance policy with a face value of $55,000. Upon reaching 65, Damien collected the face value of the policy. In the year of collection, Damien will report

1. $55,000 of income
2. $22,000 of income
3. $33,000 of income
4. No income

1. Rose was in an automobile accident while she was going to work. The doctor advised her to stay home for six months due to her injuries. The resulting lawsuit was settled and Rose received the following amounts:

How much of the settlement must Rose include in ordinary income on her tax return?

1. $-0-
2. $25,000
3. $40,000
4. $65,000

1. Mary is a key employee of Dixie Corporation. The corporation provides Marty with $100,000 of group-term life insurance coverage. The premium attributable to the coverage in excess of $50,000 is $800. The uniform one-month group-term premium is one dollar per $1,000 of coverage. How much must Marty include in income due to the policy?

1. $0
2. $50
3. $600
4. $800

1. Hal, as a part of his regular duties, buys lunch for Sam. If Hal pays for both lunches and is reimbursed under an accountable plan by his employer, he must:

1. include the cost of his lunch on his tax return as income
2. include the cost of both lunches on his tax return as income
3. include fifty percent of the lunch costs on his tax return
4. not report the lunch costs on his tax return

1. Lavanya has been assigned to the Paris office of ABC Corporation. She arrives in Paris on November 1 two years ago and does not return to the U.S. until March 5, this year. During her stay in Paris, Lavanya earned $7,000 two years ago, $42,000 last year, and $8,800 this year. This year, Lavanya may exclude.

1. $ -0-
2. $8,800
3. $12,274

d. $70,000

1. During the current year, Ebony purchased new car wash equipment for use in her service station business. Ebony’s costs in connection with the purchase were as follows:

What is Ebony’s basis in the car wash business?

1. $45,800
2. $46,100
3. $48,800
4. $49,900

1. Donna received land as a gift from her grandfather. At the time of the gift, the land has a FMV of $88,000 and an adjusted basis of $110,000 to Donna’s grandfather. One year later, Donna sold the land for $105,000. What was her gain or (loss) on this transaction?

1. ($5,000)
2. $17,000
3. $22,000
4. No gain or loss

1. Gene is a single person age 35. This year Gene has gross income of $48,000 from his sole proprietorship. Gene also incurs $2,000 of deductible business expenses in connection with his proprietorship. Gene has no itemized deductions. Gene’s taxable income is:

1. $39,200
2. $42,100
3. $43,500
4. $46,000

1. Which of the following is not required in order for expenditure to be deductible as a business or investment expense?

1. Ordinary
2. Necessary
3. Recurring in nature
4. Reasonable

1. Steve, owner of an ice cream shop in New York, is considering a similar (i. e. an ice cream shop) in Boston. After spending $15,000 investigating such possibilities in Boston, Steve decides against opening the store. As a consequence, the $15,000 is

1. Capitalized and amortized over 60 months
2. Not deductible
3. Currently deductible in full
4. Capitalized and deductible over the life of the business

1. Martha owns a condominium on the Cape. During the year, Martha uses the condo a total of 27 days. The condo is also rented to tourists for a total of 73 days and generates rental income of $10,000. Martha incurs the following expenses in the condo:

Using the court method of allocating expenses, the amount of depreciation that Martha may take with respect to the rental property will be:

1. $8,030
2. $6,304
3. $2,700
4. $2,200

1. Which of the following business expenditures is not deductible:

1. A fine paid as a result of a traffic ticket
2. A lunch with a potential customer subject to the 50% limitation
3. Legal and accounting fees related to production of income activities
4. A subscription to a business journal.

1. A taxpayer sells 100 shares of stock on March 1, 1996 resulting in a loss of $5,000. The taxpayer buys 100 shares of identical stock on March 15, 1996 for $10,000. This transaction would be handled as follows:

1. The $5,000 loss is disallowed, but the basis of the new shares is $15,000
2. Taxpayer would recognize a $5,000 capital loss limited to $3,000 in 1996
3. The taxpayer would have a short-term capital loss of $5,000
4. The taxpayer loss is disallowed, and the basis of the new shares is $10,000

1. On February 1, 1997, Mary sells a song for $3,000. Mary is a songwriter, and her basis for the song is $200. Mary would recognize

1. Ordinary income of $3,000
2. Ordinary income of $2,800
3. LTCG of $2,800
4. STCG of $2,800