1.) Liz, who is single, lives in a single family home and owns a second single family home that she rented for the entire year at a fair rental rate. Liz had the following items of income and expense during the current year. Income: Gross salary and commissions from Ace Corporation $50,000 Rent received from tenant in Liz's rental house 13,000 Dividends received on her portfolio of stocks 5,000 Expenses: Unreimbursed professional dues 200 Subscriptions to newsletters recommending stocks 900 Taxes, interest and repair expenses on rental house 3,500 Depreciation expense on rental house 2,300 What is her adjusted gross income for the year? A) $52,700 B) $61,100 C) $62,200 D) $68,000 Page Ref.: I:6-4 2) Pamela was an officer in Green Restaurant which subsequently went bankrupt. Pamela started a new restaurant and, to establish goodwill, paid off the debts of $100,000 of Green Restaurant. She was under no obligation to do so. The $100,000 is A) deductible currently as an itemized deduction. B) capitalized because the expenses are not ordinary. C) deductible currently as a trade or business expense since the expenses are considered ordinary and necessary business expenses. D) None of the above. Page Ref.: I:6-8; Example I:6-6 3) Carole owns 75% of Pet Foods, Inc. As CEO, Carole must travel extensively and does so on the company jet. In addition, she also uses the jet to take several personal vacations. Carole reports the value of the personal use of the jet, $140,000, as additional compensation. Which of the following is true in terms of the corporation? A) The corporation includes $140,000 as miscellaneous income. B) The $140,000 has no impact on the corporation's income tax. C) The corporation takes a deduction of $140,000 for compensation expense. D) The corporation takes a deduction of $140,000 for dividend expense. Page Ref.: I:6-9; Example I:6-10 4) Emeril borrows $340,000 to finance taxable and tax-exempt investments. He incurs $18,000 investment interest expense, allocated equally between the taxable and tax-exempt investments. Ignore any possible investment interest expense limitation. How much of the interest expense is deductible, and where is it deductible? A) $18,000 for AGI B) $18,000 from AGI C) $9,000 for AGI D) $9,000 from AGI Page Ref.: I:6-12; Example I:6-14 5) Jimmy owns a trucking business. During the current year he incurred the following: Gasoline and Oil $ 100,000 Maintenance $ 15,000 Fines for Speeding and Illegal parking $ 8,000 Bribes to Government Inspection Officials $ 21,000 What is the total amount of deductible expenses? A) $115,000 B) $123,000 C) $108,000 D) $144,000 Page Ref.: I:6-14 6) Toby, owner of a cupcake shop in New York, is considering opening a similar business (i.e., a cupcake shop) in Phoenix. After spending $4,200 investigating such possibilities in Phoenix, Toby decides against opening the store. What is the maximum amount of deduction for the current year attributable to these expenditures? A) $-0- B) $420 C) $840 D) $4,200 Page Ref.: I:6-16 7) Ashley, a calendar year taxpayer, owns 400 shares of Yale Corporation stock that she purchased two years ago for $4,000. In the current year Ashley sells all 400 shares of the Yale Corporation stock for $2,400 on December 27. On January 4 of the following year, Ashley purchases 300 shares of Yale Corporation stock for $800. Ashley's recognized loss and her basis in the newly purchased 300 shares of Yale Corporation stock are A) Recognized Loss Basis $0 $3,200. B) Recognized Loss Basis $400 $2,000. C) Recognized Loss Basis $1,200 $2,000. D) Recognized Loss Basis $1,600 $ 800. Page Ref.: I:6-24 and I:6-25; Example I:6-31 and I:6-32 8) Which of the following individuals is not considered a relative for purposes of the loss disallowance rules under Sec. 267? A) brother B) husband C) sister-in-law D) grandfather Page Ref.: I:6-26 9) Donald sells stock with an adjusted basis of $38,000 to his son, Kiefer, for its fair market value of $30,000. Kiefer sells the stock three years later for $32,000. Kiefer will recognize a gain on the subsequent sale of A) $-0-. B) $2,000. C) ($6,000). D) ($8,000). Page Ref.: I:6-28; Example I:6-35 10) Alan, who is a security officer, is shot while on the job. As a result, Alan suffers from a chronic leg injury and must use a wheelchair and undergo therapy to regain and retain strength. Alan's physician recommends that he install a whirlpool bath in his home for therapy. During the year, Alan makes the following expenditures: Wheelchair $ 1,200 Whirlpool bath 2,000 Maintenance of the whirlpool 250 Increased utility bills associated with whirlpool 450 Entrance ramp, various home modifications 7,200 A professional appraiser tells Alan that the whirlpool has increased the value of his home by $1,000. Alan's deductible medical expenses (before considering limitations based on AGI) will be A) $6,000. B) $10,100. C) $7,000. D) $7,700. Page Ref.: I:7-6; Example I:7-4 11) Caleb's medical expenses before reimbursement for the year include the following: Medical premiums $11,000 Doctors, hospitals 3,500 Prescriptions 600 Caleb's AGI for the year is $50,000. Caleb also receives a reimbursement for medical expenses of $1,000. Caleb's deductible medical expenses that will be added to the other itemized deduction will be A) $10,350. B) $11,350. C) $14,500. D) $15,100. Page Ref.: I:7-7 12) Mr. and Mrs. Gere, who are filing a joint return, have adjusted gross income of $50,000. During the tax year, they paid the following medical expenses for themselves and for Mrs. Gere's mother, Mrs. Williams. The Gere's could claim Mrs. Williams as their dependent, but she has too much gross income. Insulin for Mr. Gere $1,000 Health insurance premiums for Mrs. Gere $3,100 Hospital bill for Mrs. Williams $5,200 Doctor bill for Mrs. Gere $4,000 Mr. and Mrs. Gere received no reimbursement for the above expenditures. What is the amount of their deductible itemized medical expenses? A) $6,450 B) $9,550 C) $5,550 D) $13,300 Page Ref.: I:7-2 through I:7-7 13) In February of the current year (assume a non-leap year), Ken and Kelsey received their property tax statement for last calendar-year taxes of $1,600, which they paid to the taxing authority on March 1 of the current year. They had purchased their home on May 1 last year. What amount of property tax on this statement may they claim as an itemized deduction this year? A) $0 B) $1,069 C) $1,074 D) $1,600 Page Ref.: I:7-11 14) Riva borrows $10,000 that she intends to use for purchasing supplies for her business. She temporarily deposits the funds in her personal checking account. Prior to the deposit, the checking account held $40,000 of personal funds. Riva books a vacation for $6,000 and writes a check to the travel agency from her personal account. Later in the month, the business supplies bill arrives and Riva writes a check for $10,000 from the personal account. With respect to the interest expense on the $10,000 loan, A) it will all be treated trade or business expense. B) 60 percent will be treated as personal interest expense and 40 percent as trade or business expense. C) it will all be treated as personal expense. D) 20 percent will be treated trade or business expense. Page Ref.: I:7-13 and I:7-14 15) Wayne and Maria purchase a home on April 1 of the current year. In order to obtain a thirty-year mortgage, they are required to pay $7,200 in points at closing. Charging points is a customary business practice in the area. In addition, they pay $4,400 of interest during the year. What is their current year deduction related to their home? A) $4,400 B) $4,580 C) $7,200 D) $11,600 Page Ref.: I:7-18; Example I:7-19 16) Erin's records reflect the following information: 1. Paid $200 dues to a fraternal organization (such as the Elks Club) 2. Donated stock having a fair market value of $3,500 to a qualified charitable organization. She purchased the stock 2 years earlier for $3,000. 3. Paid $1,600 cash to qualified public charitable organizations Erin's adjusted gross income for this year was $50,000. What is the amount of her charitable contribution deduction for the year? A) $4,600 B) $4,800 C) $5,100 D) $5,300 Page Ref.: I:7-22 through I:7-25 17) Carl purchased a machine for use in his trade or business two years ago for $30,000. During the current year, Carl donates the machine to the local community college. At the time of the contribution, the machine's adjusted basis is $10,000 and its FMV is $15,000. Carl's AGI for the year is $48,000. What is the amount of his charitable contribution deduction? A) $10,000 B) $14,000 C) $15,000 D) $25,000 Page Ref.: I:7-24; Example I:7-28 18) Juan has a casualty loss of $32,500 on investment property after receiving an insurance settlement. This is Juan's only casualty transaction this year. Juan's loss is A) an ordinary loss. B) a capital loss. C) a Sec. 1231 loss. D) a Sec. 1244 loss. . Page Ref.: I:8-5; Example I:8-4 19) Amy, a single individual and sole shareholder of Brown Corporation, sold all of the Brown stock for $30,000. The stock basis was $150,000. Amy had owned the stock for 3 years. Brown Corporation meets the Section 1244 requirements. Amy has A) a $50,000 ordinary loss and $70,000 LTCL. B) a $50,000 STCL and a $70,000 LTCL. C) a $100,000 ordinary loss and a $20,000 LTCL. D) a $100,000 LTCL and a $20,000 ordinary loss. Page Ref.: I:8-5 20) Jeff owned one passive activity. Jeff sold the activity and realized a $2,000 gain on the sale. Prior to the sale, he realized a current year loss from the activity of $6,000. In addition, he has suspended losses from prior years of $7,000. What is the net impact on Jeff's AGI this year due to the passive activity? A) Increase of $2,000. B) No net change. C) Decrease of $4,000. D) Decrease of $11,000. Page Ref.: I:8-8 21) Charlie owns activity B which was considered a passive activity and generated a $17,000 suspended loss. Charlie increases his involvement with activity B so that this year activity B is not considered passive for Charlie. During this year, activity B produces a $9,000 loss. In addition, Charlie acquires an investment in activity X, a passive activity, this year. Charlie's share of activity X's income is $13,000. Charlie's salary this year is $70,000. As a result, this year Charlie must A) offset B's loss carryover against X's current income and carry over $9,000 loss from activity B to next year. B) offset B's carryover loss and current loss against X's income first and then offset any remaining loss against salary. C) offset B's $9,000 loss against X's $13,000 income and offset B's loss carryover against the remaining $4,000 of X's income. D) offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year. Page Ref.: I:8-9; Example I:8-9 22) Which of the following is most likely not considered a casualty? A) fire loss B) water damage caused by a busted water heater C) death of a pine tree due to a two-day infestation of pine beetles D) water damage to the walls and ceiling of a taxpayer's personal residence as the result of gradual deterioration of the roof Page Ref.: I:8-17 23) Nicole has a weekend home on Pecan Island that she purchased in 2005 for $250,000. Recently, the home was appraised at $260,000. After the appraisal, a hurricane hit Pecan Island, severely damaging Nicole's home. An appraisal placed the value of the home at $140,000 after the hurricane. Because of its prohibitive cost, Nicole had no hurricane insurance. Before any reductions or limitations, Nicole's casualty loss amount is A) $0. B) $10,000. C) $120,000. D) $140,000. Page Ref.: I:8-19; Example I:8-21 24) In the current year, Marcus reports the following casualty gains and losses on personal-use property. Assets X and Y are destroyed in the first casualty while Z is destroyed in a second casualty. Asset Reduction in FMV Adjusted Basis Insurance Holding Period X $8,000 $2,000 $7,000 2 years Y 3,000 5,000 2,000 10 months Z 2,500 1,300 1,000 8 months As a result of these losses and insurance recoveries, Marcus must report A) a net gain of $3,700. B) a long-term gain of $4,900 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z. C) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z. D) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $300 on asset Z. Page Ref.: I:8-21; Example I:8-25 25) Constance, who is single, is in an automobile accident in 2012, and her car sustains $6,200 in damages. Because both drivers received tickets in the accident, Constance does not expect to recover any of the loss from her insurance company. Constance's 2012 AGI is $31,000. Her casualty loss is $3,000; she has other itemized deductions of $1,200. In 2013, Constance's insurance company reimburses her $2,800. Constance's 2013 AGI is $28,000. As a result, Constance must A) amend the 2012 return to show the $200 loss. B) do nothing and simply keep the $2,800. C) amend the 2012 return to show $0 loss and file her 2013 return to show $200 loss. D) do nothing to the 2012 return but report $2,800 of income on her 2013 return. Page Ref.: I:8-23; Example I:8-30 26) In 2011 Grace loaned her friend Paula $12,000 to invest in various stocks. Paula signed a note to repay the principal with interest. Unfortunately the market for that industry sector plunged, and Paula incurred large losses. In 2012 Paula declared personal bankruptcy and Grace was unable to collect any of her loan. Grace had no other gains or losses last year or this year. The result is A) Grace deducts a business bad debt of $12,000 in 2012. B) Grace deducts a $12,000 nonbusiness bad debt as a short-term capital loss in 2012. C) Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2012 and carries $9,000 over to subsequent years. D) Grace deducts a business bad debt of $3,000 in 2012 and carries $9,000 over to subsequent years. Page Ref.: I:8-27; Example I:8-36 27) Allison, who is single, incurred $4,000 for unreimbursed employee expenses, $10,000 for mortgage interest and real estate taxes on her home, and $500 for investment counseling fees. Allison's AGI is $80,000. Allison's allowable deductions from AGI are (after limitations have been applied) A) $10,500. B) $12,900. C) $14,000. D) $14,500. Page Ref.: I:9-4; Example I:9-4 28) Ron is a university professor who accepts a visiting position at another university for six months and obtains a leave of absence from his current employer. Ron spends the following amounts at the new location: Furnished apartment $ 4,800 Meals 3,000 Ron has AGI for the year of $100,000. Vincent's deductible travel expenses, after application of any relevant limitations, are A) $5,800. B) $1,900. C) $4,300. D) $7,800. Page Ref.: I:9-6 and I:9-7 29) Gwen traveled to New York City on a business trip for her employer. Gwen spent 4 days in business meetings and conferences and then spent 2 days sightseeing in the area. Gwen's plane fare for the trip was $250. Meals cost $160 per day. Hotels and other incidental expenses amounted to $250 per day. Gwen was not reimbursed by her employer for any expenses. Her AGI for the year is $50,000 and she itemizes but has no other miscellaneous itemized deductions. Gwen may deduct (after limitations) A) $570. B) $890. C) $1,890. D) $1,570. Page Ref.: I:9-8; Example I:9-10 30) Brittany, who is an employee, drove her automobile a total of 20,000 business miles in 2012. This represents about 75% of the auto's use. She has receipts as follows: Parking (business only) $500 Tolls (business only) 200 Repairs $1,000 Brittany's AGI for the year of $50,000, and her employer does not provide any reimbursement. She uses the standard mileage rate method. After application of any relevant floors or other limitations, Brittany can deduct A) $11,100. B) $11,800. C) $11,550. D) $10,800. Page Ref.: I:9-11 and I:9-12 31) Jordan, an employee, drove his auto 20,000 miles this year, 15,000 to meetings with clients and 5,000 for commuting and personal use. The cost of operating the auto for the year was as follows: Gasoline and repairs $7,000 Insurance 1,000 Depreciation 4,000 Jordan submitted appropriate reports to his employer, and the employer paid a reimbursement of $ .50 per mile. Jordan has used the actual cost method in the past. Jordan's AGI is $50,000. What is Jordan's deduction for the use of the auto after application of all relevant limitations? A) $1,500 B) $500 C) $1,000 D) $8,000 Page Ref.: I:9-11 and I:9-12; Example I:9-24 32) Austin incurs $3,600 for business meals while traveling for his employer, Tex, Inc. Austin is reimbursed in full by Tex pursuant to an accountable plan. What amounts can Austin and Tex deduct? A) Austin Tex $0 $1,800 B) Austin Tex $0 $3,600 C) Austin Tex $1,800 $1,800 D) Austin Tex $3,600 $0 Page Ref.: I:9-13; Example I:9-26 33) Brett, an employee, makes the following gifts, none of which are reimbursed: Brett's supervisor $30 Brett's secretary 40 4 customers ($27 each) 108 Gift wrapping customer gifts 10 What amount of the gifts is deductible before application of the 2% of AGI floor for miscellaneous itemized deductions? A) $135 B) $150 C) $170 D) $180 Page Ref.: I:9-16; Example I:9-33 34) In which of the following situations is the taxpayer not allowed a deduction for moving expenses? A) Pam moves from Phoenix to Los Angeles to take a new job. She works at the Los Angeles job for 45 weeks before starting a new job in Las Vegas. B) Paul moves from Boston to Miami to start a new business selling t-shirts. The business is not successful and Paul returns to Boston after 52 weeks. C) Phyllis opens a coffee bar after moving from Seattle to San Francisco. She still owns the coffee bar and lives in San Francisco 90 weeks after her move. D) Marva moves from Dallas to Washington D.C. in her job as an IRS agent. She is still working at the IRS Washington office after one year. Page Ref.: I:9-19 35) Ron obtained a new job and moved from Houston to Washington. He incurred the following moving expenses: Transportation of household goods $3,200 House-hunting trips 1,500 Temporary living expenses (20 days) 3,400 Commissions on new lease 500 Costs of settling old lease 250 Mileage for personal automobile 1,400 miles Assuming Ron is eligible to deduct his moving expenses, what is the amount of the deduction? A) $3,522 B) $6,600 C) $6,922 D) $5,722 Page Ref.: I:9-19 through I:9-21; Example I:9-43 36) Alex is a self-employed dentist who operates a qualifying office in his home. Alex has $180,000 gross income from his practice and $160,000 of expenses directly related to the business, i.e., non-home office expenses. Alex's allocable home office expenses for mortgage interest expenses and property taxes are $14,000 and other home office expenses are $9,000. What is Alex's total allowable home office deduction? A) $9,000 B) $14,000 C) $20,000 D) $23,000 Page Ref.: I:9-26; Example I:9-54 37) Joan bought a business machine for $15,000 on January 1, 2011, and later sold the machine for $12,800 when the total allowable depreciation is $8,500. The depreciation actually taken on the tax returns totaled $8,000. Joan must recognize a gain (or loss) of A) no gain or loss. B) ($3,200). C) $6,800. D) $6,300. Page Ref.: I:10-3; Example I:10-1 38) On January 3, 2009, John acquired and placed into service business tools costing $10,000. The tools have a 3-year class life. No other assets were purchased during that year. The depreciation in 2012 for those tools is (Sec. 179 and bonus depreciation were not applied) A) $-0-. B) $741. C) $1,920. D) $3,333. Page Ref.: I:10-5; Example I:10-6 39) Leo purchases and places in service in 2012 personal property costing $610,000. What is the maximum Sec. 179 deduction that Leo can deduct, ignoring any taxable income limitation? A) $0 B) $50,000 C) $89,000 D) $139,000 Page Ref.: I:10-7; Example I:10-8 40) Elaine owns an unincorporated manufacturing business. In 2012, she purchases and places in service $620,000 of qualifying five-year equipment for use in her business. Her taxable income from the business before any Sec. 179 deduction is $70,000. Elaine takes the maximum allowable deduction under section 179. Which of the following statements is true regarding the Sec. 179 election? A) Elaine can deduct $79,000 as a section 179 deduction in 2012 with no carryover to next year. B) Elaine can deduct $139,000 as a section 179 deduction in 2012. C) Elaine can deduct $70,000 as a section 179 deduction in 2012; $9,000 may be carried over to next year. D) Elaine can deduct $70,000 as a section 179 deduction in 2012 with no carryover to next year. Page Ref.: I:10-7; Example I:10-8 41) In November 2012, Kendall purchases a computer for $4,000. She does not use Sec. 179 or bonus depreciation. She only uses the most accelerated depreciation method possible. The computer is the only personal property which she places in service during the year. What is her total depreciation deduction for 2012? A) $200 B) $572 C) $800 D) $1,000 Page Ref.: I:10-8 and I:10-9; Example I:10-11 42) Lincoln purchases nonresidential real property costing $300,000 and places it in service in March 2011. What is Lincoln's 2012 depreciation on the property? A) $6,099 B) $7,692 C) $8,637 D) $10,908 Page Ref.: I:10-10 43) Eric is a self-employed consultant. In May of the current year, Eric acquired a computer system (5-year property) for $7,000 and used the computer 30% for business. Eric does not use Sec. 179. The maximum depreciation deduction for is A) $210. B) $420. C) $700. D) $2,100. Page Ref.: I:10-12; Example I:10-20 44) In July of 2012, Pat acquired a new automobile for $28,000 and used the automobile 80% for business. No election is made regarding Sec. 179. Assuming her business use remains at 80%, Pat can take a maximum depreciation deduction in 2012 of A) $2,528. B) $3,160. C) $8,928. D) $11,160. Page Ref.: I:10-13 and I:10-14; Example I:10-24 45) Costs that qualify as research and experimental expenditures include all of the following except A) depreciation of laboratory equipment. B) management studies. C) costs incurred in developing product improvements. D) costs of obtaining a patent such as attorney fees. Page Ref.: I:10-20; Table I:10-4 46) This year Bauer Corporation incurs the following costs in development of new products: Laboratory supplies $ 55,000 Laboratory equipment purchased (5-year recovery property) 50,000 Salaries (lab personnel) 90,000 Utilities 20,000 Total $215,000 No benefits are realized from the research expenditures until next year. If Bauer Corporation elects to expense the research expenditures, the deduction is A) $10,000 this year and $175,000 next year. B) $175,000 next year. C) $175,000 this year. D) $215,000 this year. Page Ref.: I:10-20; Example I:10-32 46) Galaxy Corporation purchases specialty software from a software development firm for use in its business as of January 1 of the current year at a cost of $90,000. No hardware was acquired. How much of the cost can Galaxy deduct this year? A) $18,000 B) $15,000 C) $30,000 D) $90,000 Page Ref.: I:10-20; Table I:10-4 47) Joe has $130,000 net earnings from a sole proprietorship. Joe's self-employment tax (rounded) for 2012 is A) $14,932. B) $15,967. C) $17,290. D) None of the above. Page Ref.: I:14-8; Example I:14-9 48) All of the following statements regarding self-employment income/tax are true except: A) The self-employment tax is imposed on net earnings from self-employment over $400. B) Self-employment tax is computed separately for married individuals filing joint returns. C) Independent contractors are subject to self-employment tax on the amount of net earnings from the self-employment activity. D) Employees who have a business in addition to their regular employment are not subject to the self-employment tax since FICA is withheld on their wages. Page Ref.: I:14-8 and I:14-9 48) Max and Alexandra are married and incur $5,500 of qualifying expenses to care for their two children, ages 2 and 5. Max's earned income is $35,000 and Alexandra's earnings from a part-time job are $5,000. What is the amount of the qualifying expenses for purposes of computing the child and dependent care credit? A) $3,000 B) $5,000 C) $5,500 D) $6,000 Page Ref.: I:14-11; Example I:14-16 49) Marguerite and Josephus have two children, ages 13 and 10. Their modified AGI is $120,500.What is their child tax credit? A) $900 B) $1,000 C) $2,000 D) None of the above. Page Ref.: I:14-14 50) The maximum amount of the American Opportunity Tax Credit for each qualified student is A) $1,500. B) $2,000. C) $2,500. D) $3,000. Page Ref.: I:14-14 51) Timothy and Alice, who are married with modified AGI of $90,000, are sending their daughter to her first year of college. Their total tuition and related payments during the year amounted to $13,000. In addition, their daughter received a $10,000 scholarship to cover tuition. They have not taken advantage of any other type of tax benefit related to educational expenses. Their American Opportunity Tax Credit is A) $2,000. B) $2,250. C) $2,500. D) $3,000. Page Ref.: I:14-14 through I:14-16 53) In the fall of 2012, James went back to school to earn a master of accountancy degree. He incurred $7,000 of qualified educational expenses and his modified AGI for the year was $40,000. His Lifetime Learning Credit is A) $1,000. B) $1,400. C) $1,800. D) $2,000. Page Ref.: I:14-15 54) Which of the following is not a qualifying property for the residential energy efficient property (REEP) credit? A) geothermal heat pumps B) residential wind property C) metal or asphalt roofs with special coatings D) solar hot water heaters Page Ref.: I:14-16 55) Kerry is single and has AGI of $19,000 in 2012. During the year he contributes $5,000 to his Roth IRA. What is the amount of qualified retirement savings contributions credit to which he is entitled? A) $200 B) $400 C) $800 D) $1,000 Page Ref.: I:14-17 56) Which of the following statements regarding the Work Opportunity Tax Credit (WOTC) for hiring veterans is not correct? A) The amount of qualifying wages varies based on length of unemployment after leaving active duty. B) The amount of qualifying wages varies based on whether the veteran has a service-related disability. C) Eligibility for the credit is based on whether the veteran served in a combat zone. D) All of the above statements are correct. Page Ref.: I:14-21 57) Kors Corporation has 30 employees and $5 million of gross receipts. Kors spends $15,000 for qualified structural improvements for access for the disabled. The disabled access credit is A) $5,000. B) $5,125. C) $7,375. D) $7,500. Page Ref.: I:14-22; Example I:14-28 58) Which of the following expenditures will qualify as a research expenditure for purposes of the research credit? A) An ice cream producer develops a new type of packaging that will keep ice cream frozen while driving home from the grocery store. B) An ice cream producer develops a new design on the package that will be more pleasing to the culture of a new market it is entering. C) An ice cream producer develops a new marketing campaign to introduce its brand to a new region of the country it is entering. D) All of the above qualify as research expenditures for the research credit. Page Ref.: I:14-23 57) A taxpayer will be ineligible for the earned income credit if he or she has disqualified investment income of more than $3,200. Disqualified income includes all the following except A) net capital gains. B) tax-exempt interest. C) net rental income. D) self-employment income. Page Ref.: I:14-25 58) An individual with AGI equal to or less than $150,000 in the prior year may generally avoid penalties for underpayment of estimated tax in each of the following cases with the exception of A) estimated tax is less than $1,500. B) 90% of the tax due for the current year is paid. C) 90% of the tax due for the current year is paid when computed on an annualized basis. D) 100% of the actual tax liability for the prior year is paid. Page Ref.: I:14-29