TAXATION MIDTERM

2. For
2013, the maximum foreign-earned income exclusion is

A) $97,600. B)
$95,100. C) $92,900. D) $91,500.

3. The
discharge of certain student loans is excluded from income if all of the
following are present except for

A) the loan proceeds must have been used to pay the cost of
attending an education institution or used to refinance outstanding student
loans.

B) the loan forgiveness must be contingent upon the
individual’s working for a specified period of time in certain professions.

C) the loan must have been made by governmental,
educational, or charitable organizations.

D) the loan forgiveness is based on age.

4. Arthur
pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays tax
of $12,000 on $120,000. The tax is a

A) proportional tax. B)
progressive tax.

C) regressive tax. D)
None of the above.

5. Which
of the following taxes is progressive?

A) sales tax B)
income tax C) property tax D) excise tax

6. Steve
Greene is divorced, age 66, has good eyesight, and lives alone. He claims his
son Dylan, who is blind, as his dependent. In 2013 Steve had income and
expenses as follows:

Gross income from salary $80,000

Total itemized deductions 5,500

A) $63,100. B)
$64,600.

C) $60,700. D)
$59,200.

7. In
September of 2013, Michelle sold shares of qualified small business stock for
$1,000,000 that had a basis of $200,000. She had held the stock for 7 months.
Forty-five
days after the sale she purchased other qualified small business stock for
$1,100,000. How much of the gain will she recognize?

A) $100,000 B)
$900,000 C) $800,000 D) $ -0-

8. Jacob,
who is single, paid educational expenses of $16,000 in the current year. He
redeemed Series EE bonds and received principal of $8,000 and interest of
$3,000. Jacob has other adjusted gross income of $78,700. The $3,000 exclusion must be reduced by

A) $3,000. B)
$0. C) $1,600. D) $1,400.

9. Which
of the following advance payments cannot qualify for income tax deferral?

A) advance collection of rent with associated services

B) advance collection of rent without associated services

C) advance collection for merchandise

D) advance collection for services

10. Thomas
and Sally were divorced last year. As a result, Thomas must pay Sally alimony
of $100,000 per year starting this year and relinquish the house and car with a
combined value of $170,000 and a combined cost basis of $155,000. The house and
car are given as a property settlement. As a result of these transactions
Thomas has a deduction of

A) $170,000. B)
$100,000. C) $155,000. D) $270,000.

11. While
using a metal detector at the beach during spring break, Toni uncovered some
rare coins with a current fair market value of $9,000. What are her tax
consequences regarding this find?

A) Since she “found” the coins, she does not have
to report any amount of income until she sells the coins.

B) Under the discovery rules in the tax law, she will never
report any amount as taxable since the value is under $10,000.

C) Because it was a “find” she only reports half
of the FMV as income.

D) She reports the entire FMV as income.

12. Annisa,
who is 28 and single, has adjusted gross income of $55,000 and itemized
deductions of $5,000. In 2013, Annisa will have taxable income of

A) $51,100. B)
$45,000. C) $48,900. D) $42,150.

13. Which
of the following types of itemized deductions are included in the category of
miscellaneous expenses that are deductible only if the aggregate amount of such
expenses exceeds 2% of the taxpayer’s adjusted gross income?

A) medical expenses

B) charitable contributions

C) home mortgage interest expense

D) unreimbursed employee business expenses

14. All
of the following items are deductions for adjusted gross income except

A) rent and royalty expenses. B) trade or business expenses.

C) alimony paid. D)
state and local income taxes.

15. Charlie
is claimed as a dependent on his parents’ tax return in 2013. He received
$8,000 during the year from a part-time acting job, which was his only income. What is his
standard deduction?

A) $8,350 B)
$6,100 C) $8,000 D) $1,000

16. Helen,
who is single, is considering purchasing a residence that will provide a
$28,000 tax deduction for property taxes and mortgage interest. If her marginal
tax rate is 25% and her effective tax rate is 20%, what is the amount of
Helen’s tax savings from purchasing the residence?

A) $21,000 B)
$5,600 C) $7,000 D) $22,400

17. Ben,
age 67, and Karla, age 58, have two children who live with them and for whom
they provide total support. Their daughter is 21 years old, blind, is not a
full-time
student and has no income. Her twin brother is 21 years old, has good sight, is
a full-time
student and has income of $4,500. Ben and Karla can claim how many personal and
dependency exemptions on their tax return?

A) 2 B) 3 C) 4 D)
5

18. You
may choose married filing jointly as your filing status if you are married and
both you and your spouse agree to file a joint return. Which of the following
facts would prevent you from being considered married for filing purposes?

A) You were married for several years, but your divorce
became final in December.

B) Your spouse died during the year but the executor of the
estate has agreed to the filing of a joint return.

C) You are married but living apart until some problems can
be solved.

D) None of the above.

19. Sarah
contributes $25,000 to a church. Sarah’s marginal tax rate is 35% while her
average tax rate is 25%. After considering her tax savings, Sarah’s contribution
costs

A) $6,250. B)
$18,750. C) $16,250. D) $8,750.

20. Paul
makes the following property transfers in the current year:

•
$22,000 cash to his wife

•
$34,000 cash to a qualified charity

•
$220,000 house to his son

•
$3,000 computer to an unrelated friend

The total of Paul’s taxable gifts, assuming he does not
elect gift splitting with his spouse, subject to the unified transfer tax is

A) $214,000. B)
$206,000. C) $234,000. D) $279,000.

21. Which
of the following is not a social objective of the tax law?

A) an exclusion for interest earned by large businesses

B) a deduction for charitable contributions

C) creation of tax-favored pension plans

D) prohibition of a deduction for illegal bribes, fines and
penalties

22. Healthwise
Ambulance requires its employees to be on 24-hour call and consequently gives them
$800 per month housing allowance and a $200 per month food allowance. Ron, an
employee of Healthwise, receives a salary of $40,000 per year (this does not
include the allowances). Ron will be taxed each year on

A) $49,600. B)
$40,000. C) $52,000. D) $42,400.

23. Which
of the following is not excluded from income? (Assume that any amounts
received by the taxpayer were kept.

A) gifts and inheritances.

B) fair market value of prize won on a game show.

C) life insurance proceeds paid by reason of death.

D) public assistance payments.

24. Which
of the following statements regarding the qualified tuition plans (QTP) is incorrect?

A) Distributions can be made tax-free to pay for room and board at
college.

B) Distributions made from the QTP for college tuition will
be tax-free
in addition to qualifying for the American Opportunity credit or lifetime
learning credit.

C) Distributions of income not used for qualified higher
education expenses are taxable and subject to a 10% penalty.

D) Katie’s parents had established a QTP for Katie, but she
has received a “full-ride” scholarship.
Katie’s parents can name her sister as a replacement beneficiary of the
QTP.

25. Ms.
Marple’s books and records for 2013 reflect the following information:

What is the amount Ms. Marple should include in her gross
income in 2013?

A) $68,000 B)
$67,000 C) $65,000 D) $66,000

26. During
2013, Christiana’s employer withheld $1,500 from her wages for state income
taxes. She claimed the $1,500 as an itemized deduction on her 2013 federal
income tax return which included $8,000 of itemized deductions. Christiana is
single. On her 2013 state income tax return, her state income tax was $900. As
a result, Christiana received a $600 refund in 2014. What amount must Christiana
include in income in 2014?

A) $0 B) $1,500 C) $900D) $600

27. During
2013, Mark’s employer withheld $2,000 from his wages for state income tax. Mark
claimed the $2,000 as an itemized deduction on his 2013 federal income tax
return. His total itemized deductions for 2013 were $6,000. Mark’s taxable
income for 2013 was a negative $20,000 due to substantial business losses. Mark
received the $2,000 as a refund from the state during 2014. What amount must
Mark include in income in 2014?

A) $0 B) $1,000 C) $6,000 D) $2,000

28. During
2013, Robert and Cassie had $2,600 withheld from their pay for state income
taxes. They file a joint return for 2013 and claimed the $2,600 taxes withheld
as an itemized deduction on their federal tax return. Their itemized deductions
totaled $12,800 on their 2013 tax return. Their 2013 state income tax was only
$1,000 and they received a refund of $1,600 when they filed their state income
tax return in 2014. As a result, Robert
and Cassie must

A) reduce their deduction for state income taxes for 2014
by $1,600.

B) amend 2013’s federal tax return.

C) report income of $1,600 in 2014.

D) report income of $600 in 2014.

29. Michelle
purchased her home for $150,000, and subsequently added a garage costing
$25,000 and a new porch costing $5,000. Repairs to the home’s plumbing cost
$1,000. The adjusted basis in the home is

A) $181,000. B)
$180,000. C) $150,000. D) $151,000.

30. Allison
buys equipment and pays cash of $50,000, signs a note of $10,000 and assumes a
liability on the property for $3,000. Also, Allison pays an installation cost
of $500 and a delivery cost of $800. Allison’s basis in the asset is

A) $63,500. B)
$64,300. C) $63,000. D) $60,000.

31. Edward
purchased stock last year as follows:

In April of this year, Edward sells 80 shares for $250.
Edward cannot specifically identify the stock sold. The basis for the 80 shares
sold is

A) $160. B)
$240.C) $216. D) $184.

32. How
long must a capital asset be held to qualify for long-term treatment?

A) one year B)
6 months

C) one year and one dayD)
same trade date one year from purchase

33. On
July 25, 2012, Marilyn gives stock with a FMV of $7,500 and a basis of $5,000
to her nephew Darryl. Marilyn had purchased the stock on March 18, 2012. Darryl
sold the stock on April 18, 2013 for $7,800. As a result of the sale, what will
Darryl report on his 2013 tax return?

A) $2,800 STCGB)
$2,800 LTCG C) $300 LTCG D) $300 STCG

34. On
July 25, 2012, Karen gives stock with a FMV of $7,500 and a basis of $8,000 to
her nephew Bill. Karen had purchased the stock on March 18, 2012. Bill sold the stock on April 18, 2013 for
$6,000. As a result of the sale, what must Bill report on his 2013 tax return?

A) ($1,500) LTCL B)
($1,500) STCL C) ($2,000)
LTCL D) ($2,000) STCL

35. Rita
died on January 1, 2013 owning an asset with a FMV of $730,000 that she
purchased in 2007 for $600,000. Bert inherited the asset from Rita. When Bert
sells the asset for $800,000 on August 20 of this year, he must recognize a

A) LTCG of $200,000. B)
LTCG of $70,000.

C) STCG of $70,000. D)
STCG of $200,000.

36. Amanda,
who lost her modeling job, sued her employer for age discrimination. She was
awarded $75,000 in lost wages, $25,000 for emotional distress, and $150,000
punitive damages. The amount taxable is

A) $225,000. B)
$150,000. C) $-0-. D) $250,000.

37. Hope
receives an $18,500 scholarship from State University. The university specifies
that $8,500 is for tuition, books, supplies, and equipment, while $10,000 is
for room and board. In addition, Hope works part-time at the campus library and earns
$5,000. Hope’s gross income is

A) $23,500. B)
$15,000. C) $5,000. D) $18,500.

38. Miranda
is not a key employee of AB Corporation. AB provides Miranda with group term
life insurance coverage of $140,000. The premiums attributable to the excess
coverage are $1,300. The uniform one-month group-term premium is one dollar per $1,000 of
coverage. How much must Miranda include in income?

A) $1,300 B)
$1,080 C) $0 D) $1,680

39. Which
of the following item(s) must be included in the income of the respective
employees?

A) ABC Hospital Corporation provides free meals in the
hospital cafeteria to employees while on duty in order that they be available
for emergency calls.

B) More than one, but not all, of the amounts must be
included in income.

C) IBX Corporation requires its employees to work overtime
three evenings each year when the company takes inventory. The corporation pays
to provide catered dinners on its premises on these evenings.

D) The state of California highway patrol organization
provides its officers with a daily meal allowance to compensate them for meals
eaten at any location while they are on duty.

TRUE/FALSE. Bubble “A” for True and “B” for False on the
Scantron

40. Except
as otherwise provided, gross income means all income from whatever source
derived.

41. For
federal income tax purposes, income is allocated between a husband and wife
depending on the state of residence.

42. Ellen,
a CPA, prepares a tax return for Frank, a farmer, in exchange for twenty
bushels of rice. Since no cash changed hands, neither taxpayer reports income.

43. Distributions
in excess of a corporation’s current and accumulated earnings and profits are
treated as a nontaxable recovery of capital unless they exceed the basis of the
stock.

44. Corporate
taxpayers may offset capital losses only against capital gains and may carry
excess losses back three years and then forward five years.

45. The
wherewithal-to-pay concept
provides that a tax should be collected when the taxpayer has the financial
resources to pay the tax.