43. Harry forms the Nectarine Corporation during the 2015 tax year. To form the corporation, Harry transfers assets having a fair market value of $650,000 to Nectarine Corporation for 100 percent of the corporations stock. Harrys adjusted basis in the assets transferred was $350,000 and Nectarine Corporation assumed a $200,000 mortgage on the assets. If the fair market value of the stock received by Harry is $450,000, what is his basis in the stock received from the corporation?

a.	$150,000
b.	$200,000
c.	$350,000
d.	$450,000
e.	None of the above

44. If a taxpayer makes all of his income from his job and various investments, which office of the IRS would likely investigate his return if it were audited?

a.	Wage & Investment Division (W&I)
b.	Large & Midsize Business Office
c.	Small Business Office
d.	Criminal Investigation Office
e.	None of the above offices would perform the audit

45. Which of the following is not a possible result of an audit by the IRS?

a.	Payment of a refund to the taxpayer
b.	Payment of a deficiency by the taxpayer
c.	An appeal
d.	No change in the liability
e.	All of the above are possible results

46. Which of the following is the calculation of the failure-to-file penalties?

a.	Half of 1 percent (0.5 percent) of the tax due for each month late, limited to 25 percent of the taxes due
b.	5 percent of the tax due for each quarter late, limited to 25 percent of the taxes due
c.	5 percent of the tax due for each month or part of the month that it is late, limited to 25 percent of the taxes due
d.	20 percent of the tax due
e.	5 percent of the tax due

47. If a calendar year taxpayers 2015 individual income tax return is mailed on June 15, 2016, the statute of limitations would normally run out on:

a.	June 15, 2019
b.	June 15, 2018
c.	April 15, 2019
d.	April 15, 2018
e.	None of the above

48. Which of the following is the best definition of tax planning?

a.	Preparing a clients tax return
b.	Planning taxpayers financial affairs in an effort to legally minimize tax liability
c.	Planning taxpayers financial affairs to find the best way to avoid tax by successfully bending tax law
d.	Researching complex tax issues
e.	None of the above are considered tax planning

49. Which of the following taxpayers will benefit most in terms of dollars saved as a result of tax planning to reduce taxes?

a.	An individual taxpayer who has a marginal tax rate of 28 percent.
b.	An individual taxpayer who has an average tax rate of 28 percent.
c.	An individual taxpayer who has a marginal tax rate of 15 percent.
d.	The taxpayers in a. and b. will benefit equally.
e.	None of the above.

50. Craig commits fraud on his tax return. It is found that he was $45,000 deficient in his tax because of the fraud. What would his penalty be?

a.	$45,000
b.	$33,750
c.	$78,750
d.	$0

Problems Portion Show all work for partial credit.

• Polly is a cash basis taxpayer with the following transactions during the year:

Cash received from sales of products	$85,000
Cash paid for expenses (except rent and interest)	$30,000
Rent paid on a leased building for 18 months beginning December 1	$54,000
Prepaid interest on a bank loan, paid on December 1, for the next 3 months	$ 6,000
Four months rent received on a leased building, on October 1	$ 8,000

Calculate Pollys income from her business for this calendar year.

Sales income	$
Rental income	__________
Total income		$
Expenses other than rent and interest	$
Rent	__________
Interest	__________
Total expenses		__________
Net income		$

2. On September 1, 2015, David purchased manufacturing equipment for use in his business. The equipment cost $13,000 and has an estimated useful life and MACRS class life of 7 years. No election to expense or use bonus depreciation is made.

a.	Calculate the amount of depreciation on the manufacturing equipment for 2014 using conventional (financial accounting, not MACRS) straight-line depreciation.
b.	Calculate the amount of depreciation on the manufacturing equipment for 2014 using the straight-line MACRS optional method.
c.	Calculate the amount of depreciation on the manufacturing equipment for 2014 using the accelerated MACRS method.