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Exam 6: Deductions and Losses: in General

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Question 21

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

A) True
B) False

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Question 22

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Graham, a CPA, has submitted a proposal to do the annual audit for a municipality.Owen, the city treasurer, tells Graham that for a $1,000 fee, he will use his influence to have the audit awarded to Graham.What factors are relevant in determining if Graham can deduct the $1,000 payment assuming he pays the fee to Owen?

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The payment from Graham to Owen appears ...

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Question 23

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Which of the following is not deductible?

Petal, Inc.is an accrual basis taxpayer.Petal uses the aging approach to calculate the reserve for bad debts.During 2012, the following occur associated with bad debts. The amount of the deduction for bad debt expense for Petal for 2012 is:

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?

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?

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.

Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.

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

Trade and business expenses should be treated as:

Janice is single, had gross income of $38,000, and incurred the following expenses: Her AGI is:

Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise.If Tommy decides not to acquire the fast food franchise, any investigation expenses are:

Alice incurs qualified moving expenses of $12,000.If she is reimbursed by her employer, the deduction is classified as a deduction for AGI.If not reimbursed, the deduction is classified as an itemized deduction.

Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?

Because Scott is three months delinquent on the mortgage payments for his personal residence, Jeanette (his sister) is going to cover the arrearage. Based on past experience, she does not expect to be repaid by Scott. Which of the following statements is correct?

In applying the $1 million limit on deducting executive compensation, what corporations are subject to the deduction limit? What executives are covered?

Which of the following is a deduction from AGI (itemized deduction) ?

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

For an activity classified as a hobby, the expenses are categorized as follows: (1) Amounts that affect adjusted basis and would be deductible under other Code sections if the activity had been engaged in for profit (e.g., depreciation, amortization, and depletion) . (2) Amounts deductible under other Code sections without regard to the nature of the activity, such as property taxes and home mortgage interest. (3) Amounts deductible under other Code sections if the activity had been engaged in for profit, but only if those amounts do not affect adjusted basis (e.g., maintenance, utilities, and supplies) . If these expenses exceed the gross income from the activity and are thus limited, the sequence in which they are deductible is:

The only § 212 expenses that are deductions for AGI are those related to rent and royalty income.