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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 577
Experience:  10 years experience
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Help with Extra Credit Tax Questions

Customer Question

During 2009, Jen (age 66) furnished more than 50% of the support of the following persons: · Jen’s current husband who has no income and is not claimed by someone else as a dependent. · Jen’s stepson (age 18) who lives with her and earns $6,000 as a dance instructor. He dropped out of school a year ago. · Jen’s ex-husband who does not live with her. The divorce occurred two years ago. · Jen’s former brother-in-law who does not live with her. Presuming all other dependency tests are met, on a separate return how many personal and dependency exemptions may Jen claim?
a. Four.
b. Three.
c. Two.
d. Five.
e. None of the above.

If the taxpayer’s method of measuring income is consistent with GAAP, it will be acceptable for tax purposes.
The annual increase in the cash surrender value of a life insurance policy:
a. Reduces the deduction for life insurance expense.
b. Must be included in gross income each year under the original issue discount rules. c. Is taxed when the individual dies and the heirs collect the insurance proceeds.
d. Is not included in gross income each year because of the substantial restrictions on gaining access to the policy’s value.
e. None of the above.

Tony, age 15, is claimed as a dependent by his grandmother. During 2009, Tony had interest income from Boeing Corporation bonds of $1,000 and earnings from a part-time job of $700. Tony’s taxable income is:
a. $1,700 – $700 – $950 = $50.
b. $0.
c. $1,700 – $1,000 = $700.
d. $1,700 – $950 = $750.
e. None of the above.

The realization requirement applies to taxable income but not to the economist’s concept of income.

Which of the following types of Regulations has the highest tax validity?
a. Legislative.
b. Interpretative.
c. Temporary.
d. Procedural.
e. None of the above.

Under the original issue discount (OID) rules as applied to a three-year certificate of deposit:
a. The interest income for the first year will be greater than the interest income for the second year.
b. All of the income must be recognized in the year of purchase.
c. The OID will not be included in gross income until the end of the third year.
d. The original issue discount must be amortized using the effective interest method.
e. None of the above is correct.

Betty purchased an annuity for $21,000 in 2009. Under the contract, Betty will receive $250 each month for the rest of her life. According to the actuarial estimates, Betty will live to receive 96 payments and will receive a 3% return on her original investment.
a. If Betty lives to collect more than 96 payments, she must amend her prior years’ returns to increase her taxable portion of each payment received in the past.
b. Betty has no gross income until she has collected $21,000.
c. If Betty collects $3,000 in 2009, her gross income is $630 (.03 ´ $21,000).
d. If Betty lives to collects only 60 payments before her death, she will report a loss from the annuity on her final return.
e. None of the above.

If a taxpayer files early (i.e., before the due date of the return), the statute of limitations on assessments begins on the date the return is filed.

For purposes of determining gross income, which of the following is true?
a. A taxpayer who finds a wallet full of money is not required to recognize income because someone will eventually ask for the return of the money.
b. A mechanic completed repairs on an automobile during the year and collects money from the customer. The customer was not satisfied with the repairs and sued the mechanic for a refund. The mechanic cannot defer recognition of the income until the suit has been settled.
c. Embezzlement proceeds are not included in the embezzler’s gross income because the embezzler has an obligation to repay the owner.
d. All of the above are true.
e. None of the above is true.

Regarding the tax formula and its relationship to Form 1040, which, if any, of the following statements is correct?
a. A “page 1 deduction” refers to a deduction from AGI.
b. None of the above.
c. The taxable income (TI) amount appears both at the bottom of page 1 and at the top of page 2 of Form 1040.
d. Most exclusions from gross income are reported on page 2 of Form 1040.
e. An “above the line deduction” refers to a deduction for AGI.

The tax concept and economic concept of income are in agreement on which of the following:
a. The increase in value of assets held for the entire year should be included in income for the year.
b. The fair rental value of an owner-occupied home should be included in income.
c. The decrease in value of assets held for the entire year should reduce income for the year.
d. All of the above.
e. None of the above

In which, if any, of the following situations will the kiddie tax not apply?
a. None of the above.
b. The child is age 24 and a full-time student.
c. The child is married but does not file a joint return.
d. The child has unearned income of less than $3,650.
e. The child has unearned income that exceeds more than half of his (or her) support.

Kirby is in the 15% tax bracket and had the following capital asset transactions during 2009: Long-term gain from the sale of a coin collection $11,000 Long-term gain from the sale of a land investment 10,000 Short-term gain from the sale of a stock investment 2,000 Kirby’s tax consequences from these gains are as follows:
a. (0% ´ $10,000) + (15% ´ $13,000).
b. (15% ´ $13,000) + (28% ´ $11,000).
c. (15% ´ $23,000).
d. (5% ´ $10,000) + (15% ´ $13,000).
e. None of the above.

Which is a primary source of tax law?
a. J. W. Yarbo v. Comm., 737 F.2d 479 (CA-5, 1984).
b. Article by a Federal judge in Harvard Law Review.
c. Letter ruling.
d. Technical Advice Memoranda.
e. All of the above are primary sources.

During 2009, Marie had the following transactions: Salary $40,000 Bank loan (proceeds used to buy personal auto) 10,000 Alimony received 6,000 Child support received 12,000 Inheritance from deceased aunt 50,000 Marie’s AGI is:
a. $46,000.
b. $40,000.
c. $96,000.
d. $52,000.
e. None of the above.

Kyle, whose wife died in December 2006, filed a joint tax return for 2006. He did not remarry, but has continued to maintain his home in which his two dependent children live. What is Kyle’s filing status as to 2009?
a. Single.
b. Surviving spouse.
c. Married filing separately.
d. Head of household.
e. None of the above.

In preparing an income tax return, the use of a client’s estimates is not permitted.

Which of the following sources has the lowest tax validity?
a. Regulations.
b. Letter ruling.
c. Revenue Ruling.
d. Internal Revenue Code section.
e. None of the above.

Enrique is a citizen of Honduras and a resident of the U.S. If he files a U.S. income tax return, Enrique cannot claim the standard deduction.

On January 1, 2009, an accrual basis taxpayer entered into a contract to provide termite inspection service each month for 36 months. The amount received for the contract was $1,800. The taxpayer should report $600 of income each year in 2009, 2010, and 2011.

What administrative release deals with a proposed transaction rather than a completed transaction?
a. Letter Ruling.
b. Determination Letter.
c. Technical Advice Memorandum.
d. Field Service Advice.
e. None of the above.

Peter and Eileen are married and live in a common law state. Peter wants to make gifts to their five children in 2009. What is the maximum amount of the annual exclusion they will be allowed for these gifts?
a. $60,000.
b. $65,000.
c. $120,000.
d. $130,000.
e. None of the above.

In 2009, Al is 76 and single. If he has itemized deductions of $7,200, he should claim the standard deduction alternative.
Submitted: 7 years ago.
Category: Tax