Question

TRUE Or False.

1.   If fraud is involved, there is no time limit on the assessment of a deficiency by the IRS.

____     2.   A Revenue Ruling is a judicial source of Federal tax law.

____     3.   Bree received a scholarship to be used as follows: tuition $8000; room and board $11,000; and books and laboratory supplies $4,000. Bree is required to include only $12,000 in her gross income.

____     4.   Two-thirds of treble damage payments under the antitrust law are deductible.

____     5.   Bill wants to give his son $3,000 for his graduation. As an alternative, he suggests that he pay the sales taxes on his car. If Bill pays the sales taxes, he cannot deduct them.

____     6.   For purposes of the § 267 loss disallowance provision, a taxpayer’s aunt is a related party.

____     7.   A bona fide debt cannot arise on a loan between father and son.

____     8.   The concept of depreciation assumes that the asset has a determinable useful life.

____     9.   Motel buildings are classified as residential rental real estate.

____   10.   A purchased trademark is a § 197 intangible.

____   11.   If startup expenses total $52,000 in 2015, $3,000 is expensed.

____   12.   When contributions are made to a Roth IRA, they are deductible by the participant. Later distributions from a the IRA, however, are fully taxed.

____   13.   Gorgi contributed $3,500 to a qualifying Health Savings Account in 2016. The entire amount qualifies as a medical expense and is potentially deductible from AGI.

____   14.   Sedie mailed a check for $2,200 to a qualified charitable organization on December 30, 2015. The $2,200 contribution is deductible on Sedie’s 2015 tax return.

____   15.   Jim is the sole owner and a material participant in a business in which he has $40,000 at risk. If the business incurs a loss of $45,000 from operations, Jim can deduct $45,000.

____   16.   In the current year, Jan invests $40,000 for a 10% interest in a passive activity. Her share of the loss this year is $20,000. If this is her only passive activity, the $20,000 loss from the activity this year is suspended for use in a future year.

____   17.   Jul’s tentative AMT is $84,000. Her regular income tax liability is $73,000. Jul’s AMT is $22,000.

____   18.   The tax benefit received from a tax credit is affected by the tax rate of the taxpayer.

____   19.   The credit for child and dependent care expenses is an example of a refundable credit.

____   20.   The purpose of the work opportunity tax credit is to encourage employers to hire individuals from specified target groups traditionally subject to high rates of unemployment.

____   21.   Molanda sells a parcel of land for $54,000 in cash and the buyer assumes Molanda’s mortgage of $32,000 on the land. Molanda pays a real estate agent $3,000 on the transaction. Molanda’s amount realized is $86,000.

____   22.   Cassie purchases a sole proprietorship for $130,000. The fair market value of the tangible assets is $110,000 and the agreed to value of goodwill is $15,000. Assuming there are no other intangible assets, Cassie’s basis for the tangible assets is $115,000 and her basis for the goodwill is $15,000.

____   23.   Sam purchased an SUV for $52,000 which he uses 100% for personal purposes. When the SUV is worth $19,000, he contributes it to his business. The gain basis is $52,000, the loss basis is $19,000, and the basis for cost recovery is $52,000.

Answer 1

1. True

When an original tax return was filed fraudulently with the intent to evade tax, there is an unlimited SOL. IRC 6501(c). The IRS bears the burden of proof with respect to the application of the fraud exception to the statute of limitations

2. False

A Revenue Ruling is an administrative source.

3. False

$12000 which include $8000 for tution and $4000 for the books and laboratory supplies are excluded from gross income.

the $110000 for room and board are includible in gross income

4. False

Two-thirds of treble damage payments under the antitrust law are not deductible.

[no deduction shall be allowed under section 162(a) for two-thirds of any amount paid or incurred after December 31, 1969]

5. False

Gifts to individuals are not tax-deductible. Tax-deductible gifts only apply to contributions you make to qualified organizations.

Depending on how much money you are gifting to your adult child, you may have to pay a Federal Gift Tax. The Federal Gift Tax applies to gifts in excess of $14,000 per year, per recipient of the gift. Therefore you may gift your child under $14,000 per year without having to pay tax on the gift.

The IRS allows you to deduct sales tax you paid on a car purchase by itemizing on Schedule A on Form 1040. If you don't itemize, you can't deduct sales tax. You may deduct the tax whether it's charged on a new or used car, and whether you buy from a car dealer or a private party.

6. False

I.R.C. § 267(b) defines a related party to include the following:

Members of a family, including brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, ancestors beyond grandparents) and lineal descendants(children, grandchildren, lineal descendants beyond grandchildren)—but not nieces, nephews, aunts, uncles, cousins, in-laws, and step-relatives

7. False

8. True

A business asset can be depreciated if:

1) It is used for business purposes to produce income

2) It has a determinable useful life that is longer than one year

3) It is an asset that decays, gets used up, wears out, becomes obsolete,

or loses value to the owner from natural causes

9. False

Residential rental property refers to homes that are purchased by an investor and inhabited by tenants on a lease or rental agreement. Residential real estate can be single-family homes, condominium units, apartments, townhouses, duplexes and so on. The term residential rental property distinguishes this class of rental real estate investment from commercial properties where the tenant will generally be a corporate entity rather than a person or family, as well as hotels and motels where a tenant does not live in the property long term.

10. True

The following assets are section 197 intangibles and must be amortized over 180 months.

Goodwill.

Going concern value.

Workforce in place.

Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers.

A patent, copyright, formula, process, design, pattern, know-how, format, or similar item.

A customer-based intangible.

A supplier-based intangible.

Any item similar to items (3) through (7).

A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals).

A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business.

Any franchise, trademark, or trade name.

A contract for the use of, or a term interest in, any item in this list.