Juan and Bettyna, ages 34 and 31, are married and file a joint return. In addition to having THREE dependent children (Talha, Maidelin, and Nicholas), Juan and Bettyna have adjusted gross income (AGI) of $80,000 and itemized deductions of $22,000. What is their taxable income for 2013? a. $80,000 b. $58,000 c. $46,300 d. $38,500 2. In 2013, Manuel, age 16, had $600 of interest from a certificate of deposit and $3,000 from working as a waiter. Assume Manuel is claimed by his parents as a dependent. What is Manuels standard deduction for 2013? a. $0 b. $600 c. $3,350 d. $6,100 3. What is Mercedess Taxable Income for 2013? Assume she is 35 years old and is single and has no dependents. Assume further that Mercedess AGI is $60,000 and that she made a charitable contribution of $200 (which would be her only itemized deduction). a. $60,000 b. $59,800 c. $53,100 d. $50,000 4. What is Paulas taxable income for 2013? Assume she is single and claimed THREE dependent children, David, John and Ronide. Assume further that Paulas AGI is $52,000 and that her itemized deductions are $15,000. a. $52,000 b. $37,000 c. $25,300 d. $21,400 5. A few years ago, Julio and Jenny formed a partnership called JJs. Which of the following is most likely TRUE regarding the U.S. income taxation of Julio, Jenny and JJs? a. The JJs entity is required to file an informational tax return b. The JJs entity is required to pay federal income taxes c. Jenny and Julio are NOT required to pay taxes on their respective shares of JJs income unless (and until) JJs distributes its earnings to them d. All of the above 6. Which doctrine will most likely prevent Nicole from reducing her tax liability by voluntarily assigning her income to another taxpayer? a. The constructive receipt doctrine b. The fruit-of-the-tree doctrine c. The economic benefit doctrine d. None of the above 7. During 2013, Johnathan was supported by his three wealthy CPA daughters, in the following percentages: Dinorah: 25.0% Sofia: 9.0% Dawn: 11.0% Which daughter is UNABLE to claim Johnathan as a dependent, even if a multiple support agreement is in place and the other daughters agree NOT to claim Johnathan as a dependent? a. Dinorah b. Sofia c. Dawn d. Each daughter would be eligible to claim Johnathan as a dependent 8. On January 1, 2013, Randolph signed a two year lease to rent office space from Zoff. The lease commenced immediately on January 1, 2013. During 2013, Randolph paid Zoff, $36,000 for the first years rent, $3,000 for the last months rent, and $3,000 as a security deposit. Randolph and Zoff agree that the security deposit will be returned by Zoff at the end of the lease. How much gross income should Zoff report for 2013 as a result of these items? a. $36,000 b. $39,000 c. $42,000 d. $144,000 9. What is Roberts taxable income for 2013? Assume Robert is 36 years old and is single and has no dependents. Assume further that Roberts 2013 AGI is $72,000 and that he has no itemized deductions. a. $62,000 b. $65,900 c. $68,100 d. $72,000 10. John, a single taxpayer, had 2013 wages of $75,000 from his job at Big Company, Inc. What is Johns AGI if he has the following (and only the following) additional items in 2013? Itemized deductions of $12,000 Exemption amount of $3,900 Alimony of $10,000 received by John (from his former spouse, Natalia) Business income of $5,000 from Johns sole proprietorship Ignore any deduction that may relate to self-employment taxes. a. $75,000 b. $80,000 c. $85,000 d. $90,000 11. Assume the same facts as in the previous question (again, ignore any deduction that may relate to self-employment taxes). Johns Taxable Income for 2013 is: a. $59,100 b. $64,100 c. $69,100 d. $74,100 12. Ariadna and Alexander are married taxpayers who file a joint return. In 2012, they had AGI of $600,000 and their preliminary itemized deductions totaled $40,000. In 2013, they also had AGI of $600,000 and preliminary itemized deductions of $40,000. In 2012 and 2013 their itemized deductions include mortgage interest. Which of the following is TRUE? a. When comparing their 2012 and 2013 returns, they will deduct the same amount of itemized deductions on each return b. When comparing their 2012 and 2013 returns, they will deduct more itemized deductions on their 2012 return c. When comparing their 2012 and 2013 returns, they will deduct more itemized deductions on their 2013 return d. They will not deduct any itemized deductions on either their 2012 return or their 2013 return 13. Which of the following statements is TRUE? a. Taxpayers usually prefer deductions FROM AGI to deductions FOR AGI b. The U.S. government always breaks-even with regards to alimony payments (i.e., because the reduction in taxes for the spouse paying the alimony will always equal the increase in taxes for the spouse receiving the alimony) c. A dependents earned income amount could impact the size/amount of his/her standard deduction amount d. The amount of tax-exempt interest received by a taxpayer could never impact the amount of his/her Social Security benefits that are subject to taxation 14. Assume that Mariana received some unique payments in 2013. Which of the following items may Mariana exclude from gross income? a. $15,000 received as a gift from Marianas college buddy b. $75,000 of punitive damages received from a lawsuit against Dangerous Co. c. $500 received from her Fantasy Football league winnings d. None of the above 15. In early 2013, Yuliet received a gift of a home valued at $300,000 (from Yuliets Uncle, Marcus). Marcus also gave Yuliet a $25,000 cash gift. During 2013, Yuliet rented the home to Anne-Emilie. As a result of the lease with Anne-Emilie, Yuliet earned net rental income of $12,000 (for 2013). What amount of income should Yuliets 2013 tax return include from these transactions? a. $0 b. $12,000 c. $37,000 d. $337,000 16. In 2013, Bethsie, a calendar-year taxpayer, purchased business equipment (5-year property) for $700,000. The property was placed in service in January 2013 (and is being used exclusively in Bethsies extremely profitable business). No other personal property is purchased by Bethsie in 2013. What is the most that Bethsie may deduct in 2013 under Section 179 of the Code (ignore any potential deductions resulting from bonus deprecation or MACRS)? a. $140,000 b. $200,000 c. $500,000 d. $700,000 17. Assume the same facts as in the previous question. However, for this question, assume that Bethsie purchased the business equipment for $2,300,000 (instead of $700,000). What is the most that may be deducted in 2013 under Section 179 of the Code (ignore any potential deductions resulting from bonus deprecation or MACRS)? a. $200,000 b. $460,000 c. $500,000 d. $2,300,000 18. Which of the following is most likely deductible FOR AGI (i.e., PRE-AGI)? a. Amounts paid for state income taxes b. Amounts paid for interest on a student loan c. Amounts paid for an employees unreimbursed travel expenses (i.e., the travel was related to taxpayers fulltime position at a large corporation) d. Each of the above items would be deducted FROM AGI (i.e., POST-AGI) 19. Gabriel has AGI of $100,000 in 2013. During 2013, Gabriel also had an uninsured personal casualty loss of $15,000 (after the $100 reduction). The personal casualty loss related to an accident that Gabriel had with Jose. Gabriel carried no collision insurance and Jose was also an uninsured motorist. Assume Gabriel itemizes deductions in 2013. What is the casualty loss amount that Gabriel may deduct on his return? a. $0 b. $5,000 c. $10,000 d. $15,000 20. Refer to the facts in the previous question. However, for purposes of this question assume that Gabriel takes the standard deduction in 2013. What is the casualty loss amount that Gabriel may deduct on his return? a. $0 b. $5,000 c. $10,000 d. $15,000 21. If Suma is insolvent with assets of $30,000 and liabilities of $45,000 and one of Sumas creditors then cancels a debt of $25,000, what amount must Suma recognize as income? a. $0 b. $10,000 c. $15,000 d. $25,000 22. TXX5761 Inc. paid all of the premiums for a $150,000 group-term life insurance policy on its 68-year-old President, Suzy. Assume that pursuant to the applicable table, the cost per $1,000 of protection for a 1-month period is $1.27 (for a person aged 65 to 69). What amount relating to the policy (if any) must be included in Suzys Gross Income for the year (assume Suzy was covered for all twelve months)? a. $0 b. $1,524 c. $100,000 d. $150,000 23. On January 1, 2013, Kimberly purchased a 20-year annuity for $40,000 from MAGDA MUTUAL (an established insurance company). Under the annuity, Kimberly will receive payments of $370 for each month of annuitys life. What amount of the annuity payments may be excluded from Kimberlys Gross Income for 2013 (assume all 12 monthly payments are made in 2013)? a. $4,440 b. $2,440 c. $2,000 d. $0 24. Assuming the same facts as in the previous problem, what amount of the annuity payments from MAGDA MUTUAL must be included in Kimberlys Gross Income for 2013? a. $4,440 b. $2,440 c. $2,000 d. $0 25. In March 2013, Brian, a calendar-year taxpayer, purchased new 7-year property for $1,500,000. The property was immediately placed into service (and is being used exclusively in Brians extremely profitable business). No other personal property will be purchased by Brian in 2013. Brian wants to take the largest possible tax deduction in 2013 relating to the equipment. Compute the largest tax deduction possible in 2013 for the equipment (consider the Section 179 election, Bonus Depreciation, and MACRS, if applicable): a. $142,857 b. $1,000,000 c. $1,071,450 d. $1,500,000 26. During 2013, 7-year MACRS property was placed in service by Stenley, a calendar-year taxpayer. Assume that Stenley does NOT make a Section 179 election or take any bonus depreciation. The property will most likely be depreciated over: a. One calendar year b. Three and one-half calendar years c. Seven calendar years d. Eight calendar years 27. Sophie is a cash-basis taxpayer. Which doctrine will most likely limit Sophies ability to choose the year in which to recognize income? a. The constructive receipt doctrine b. The economic benefit doctrine c. The fruit-of-the-tree doctrine d. None of the above 28. Mazihel contributed some inventory from his sole proprietorship to a public charity for its use. On the date of the contribution, Mazihels basis in the inventory was $15,000 and the fair market value was $25,000. What is the amount of charitable contribution allowed (before considering any potential percentage limitation)? a. $0 b. $10,000 c. $15,000 d. $25,000 29. Which of the following items most resembles an interest free loan from the U.S. government? a. Student loan interest being deducted b. Travel expenses being deducted c. Amounts being deducted under Bonus Depreciation d. Unreimbursed employee business expenses being deducted 30. Which of the following statements is TRUE about Manjus hobby activity? a. A loss from Manjus hobby activity may be used to offset his dividend income b. When compared to Manjus business, Manjus hobby activity is subject to exactly the same tax laws c. Expenses relating to Manjus hobby activity could be deductible d. A loss from Manjus hobby activity may be used to offset wages from his full-time employment 31. What was Olgas Taxable Income for 2013? Assume Olga is single and has THREE dependent children, Yaima, Alisha and Polina. Assume further that Olgas 2013 AGI is $54,000 and that Olga had itemized deductions of $14,000. a. $24,400 b. $28,300 c. $40,000 d. $54,000 32. What was Shalas 2013 Net Operating Loss amount assuming that she had the following items listed on her income tax return? Business Income $52,000 Interest income on personal investments $5,000 Less: Business Expenses ($73,000) Less: Personal exemption ($3,900) Less: Nonbusiness deductions ($7,000) Loss shown on return ($26,900) a. $26,900 b. $21,000 c. $11,000 d. $0 33. Ovidiu incurred the following expenses during 2013. Which expense is Ovidiu LEAST likely to deduct as a medical expense (assume Ovidiu itemizes and that Ovidius medical expenses will exceed 10.0% of Ovidiu AGI)? a. Uninsured expenses relating to back surgery b. Cosmetic surgery (to make Ovidius nose look more appealing) c. Medical insurance premiums (purchased by Ovidiu with Ovidius after-tax dollars) d. Travel expenses to obtain treatment at a clinic in Washington (assume that the potentially lifesaving procedure to be performed can only be performed at that particular clinic) 34. Sascha contributes some common stock that she held long-term to a public charity. On the date of the contribution, Saschas basis in the common stock was $12,000 and the fair market value was $5,000. What is the amount of charitable contribution allowed (before considering any potential percentage limitation)? a. $0 b. $5,000 c. $7,000 d. $12,000 35. Oleksii sold stock Oleksii owned in a small business that was formed as a corporation. Oleksii sold the stock to Danita. Which Section of the U.S. Tax Code might allow Oleksii to convert what would otherwise be a capital loss into an ordinary loss? a. Section 1202 b. Section 1221 c. Section 1231 d. Section 1244 36. Amys business incurred a casualty loss in 2013. Immediately before the casualty, her business truck had an adjusted basis of $35,000 and a fair market value of $40,000. Immediately after the casualty, the truck had a fair market value of $20,000. Because of the truck damage, Amys insurance company provided $10,000 as a reimbursement in 2013. What was Amys 2013 casualty loss deduction? a. $0 b. $10,000 c. $20,000 d. Unknown (because we must know Amy's AGI) 37. In 2006, Satsuki (a single taxpayer) loaned $20,000 to his friend Freda. In 2013, Freda declared bankruptcy, with the result that the debt became totally worthless. How should Satsuki treat the loss relating to this debt (assume that the debt is a nonbusiness debt that is a bona fide debt that arose from a debtor-creditor relationship)? a. As an itemized deduction b. As a long-term capital loss c. As a short-term capital loss d. Satsuki may not take any deduction relating to the debt (it is a nonbusiness debt) 38. Assume the facts stated in the prior question. Assume further that Satsuki has no other capital gains or losses in 2013 (or any prior years). What is the maximum amount (related to the bad debt) that Satsuki can deduct in 2013? a. $0 b. $3,000 c. $17,000 d. $20,000 39. Assume the facts stated in the prior two questions. Assume further that for 2013 Satsuki will offset his wages (with any deduction related to the debt) to the maximum extent permitted by law. What is the amount of Satsukis capital loss carryover to 2014? a. $0 b. $3,000 c. $17,000 d. $20,000 40. Which of the following is most likely deductible FOR AGI (i.e., PRE-AGI)? a. Amounts paid for unreimbursed moving expenses b. Amounts paid for state income taxes c. Amounts paid for property taxes d. Each of the above items would be deducted FROM AGI 41. Sherikas boss gave her two tickets to the 90 Inch Nails concert because she met her sales quota. At the time Sherika received the two tickets, they had a face value of $100 each and were selling on eBay for $200 each (which equaled the fair market value of the tickets). On the date of the concert, the tickets were selling for $300 each. Sherika and her daughter (Xiomara) attended the concert. How much gross income should Sherika report as a result of the tickets? a. $600 b. $400 c. $200 d. $0 42. Iris was a professional basketball player before a career-ending injury caused by a grossly negligent driver. Iris sued the driver and collected $4 million as compensation for lost estimated future income and $5 million for punitive damages. How much gross income should Iris report as a result of the damages he received? a. $9 million b. $5 million c. $4 million d. $0 43. Which of the following is a deduction FROM AGI? a. Jenelle paid alimony to a former spouse b. Rachelle paid real estate taxes levied by the county on her personal residence c. Sharon invested $3,000 in a Roth IRA d. Marcia paid property taxes levied by the county on her car used exclusively for business 44. Compute the casualty loss on Marias uninsured rental property under the following facts: Adjusted basis $300,000 FMV before the loss $200,000 FMV after the loss $0 a. N/A (we need to know Marias AGI to answer this question) b. $100,000 c. $200,000 d. $300,000 45. Batista Corporation acquired new computer equipment on March 13, 2013, for $40,000. Batista did not elect immediate expensing under Section 179. Batista also elects not to take the additional first-year depreciation. Determine Batistas cost recovery for 2013. a. $0 b. $4,000 c. $8,000 d. $40,000 46. On August 5, 2013, Natalia purchased a new office building for $4 million. On October 3, 2013, she began to rent out office space in the building. What is Natalias cost recovery for 2013? a. $4,000,000 b. $102,560 c. $21,400 d. $0 47. Assume the same facts as in the previous problem. Assume further that Natalia sells the office building on July 12, 2017. What is Natalias cost recovery for 2017? a. $102,560 b. $55,553 c. $21,400 d. $0 48. Jeff performs services for Nova Corporation. In determining whether Jeff is an employee or an independent contractor, which factor is MOST likely to suggest that Jeff is an employee? a. Jeff uses his own tools b. Jeff hires his own assistants c. Nova Corporation determines the details of HOW Jeff performs the applicable work d. Jeff performs the services from his home BACKGROUND INFORMATION FOR QUESTIONS 49-50 Mercedes and Manuel recently formed a corporation named MNM Inc. (or MNM). On December 31, 2012, MNM issued 800,000 shares of common stock to Manuel and 800,000 shares of common stock to Mercedes. Manuel and Mercedes each paid $0.01 per share for their stock ($0.01 equaled the per share fair market value on December 31, 2012). Their stock is subject to a 4-year repurchase option (at cost) in favor of MNM. Each MNM repurchase option will lapse over time so that on December 31 (of 2013, 2014, 2015 and 2016), 200,000 shares will be released from the repurchase option. For example, if Manuel quits MNM before December 31, 2016, MNM can repurchase Manuels unvested shares for $0.01 per share (no matter what the fair market value is on that date). QUESTION 49 Assume that Mercedes DID file a timely 83(b) election. On December 31, 2013, Mercedes is still working at MNM and thus 200,000 of Mercedess 800,000 shares are released from the MNM repurchase option (i.e., 200,000 of Mercedess shares vest on December 31, 2013). On that same day, the fair market value of the MNM stock equals $10.01 per share. What 2013 income, if any, must Mercedes report as a result of these events? a. $8,000,000 b. $2,002,000 c. $2,000,000 d. $0 QUESTION 50 Assume that Manuel DID NOT file a timely 83(b) election. On December 31, 2013, Manuel is also still working at MNM and thus 200,000 of Manuels 800,000 shares are also released from the MNM repurchase option (i.e., 200,000 of Manuels shares vest on December 31, 2013). On that same day, the fair market value of the MNM stock equals $10.01 per share. What 2013 income, if any, must Manuel report as a result of these events? a. $8,000,000 b. $2,002,000 c. $2,000,000 d. $0