Chapter 2

Question 1

Donations of short-term capital gain property are deductible to the donor to the extent of the

Answer 1

adjusted basis

Question 2

Long term appreciated property is limited to the lesser of

Answer 2

30% of AGI or the remaining amount to reach 50% after cash contributions

Question 3

Donation of general property is deducted at

Answer 3

lesser of basis or FMV

Question 4

Individual taxpayers may deduct the ______ of PROPERTY donated to charity?

Answer 4

FMV- 30% of AGI is the limit

Question 5

How do you calculate a casualty loss?

Answer 5

FMV before - FMV after - - NOTE the loss cannot exceed the adjusted basis. the amount should also be reduced by insurance recovery.

Question 6

Casualty loss calculation

Answer 6

Lesser of 1. lost cost/adjusted basis 2. Decreased FMV

Taxpayer’s Loss

Eligible Loss

Deductible Loss

Question 7

Appreciated property held over one year is deductible at

Answer 7

its FMV (up to lesser of 30% of AGI or the remaining amount to reach 50% after cash contributions)

Question 8

Cash donated to charity can be deducted up to

Answer 8

full 50% of AGI

Question 9

State and local income taxes withheld from cash basis tax payer are deductible

Answer 9

in the year withheld.

Question 10

Estimated tax liability is

Answer 10

deductible in year paid

Question 11

Federal income tax withheld is not deductible in calculating federal income tax

Answer 11

true

Question 12

Types of deductible medical expenses

Answer 12

medice and drugs, doctors, medical and accident isnurance, required surgery, transport to medical facility, physically disabled costs

Question 13

What are non deductible moving costs?

Answer 13

meals, pre moving house hunting, expense of breakin a lease, temporary living expenses

Question 14

A personal service corporation is an entity whose principal activities involve

Answer 14

performing personal services in the areas of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting.

Question 15

PCS tax

Answer 15

Restrictions on tax years available (IRC Section 441(i))

Taxed at a flat 35% rate (IRC Section 11(b)(2))

Question 16

Ordinary and necessary administration expenses are deductible on either the

Answer 16

fiduciary income tax return (Form 1041) or the federal estate tax return (Form 706) but not both.

Question 17

When a debtor moves collateral subject to a perfected security interest to another jurisdiction, the original creditor retains the status of a perfected creditor for up to four months after the collateral is moved.

Answer 17

x

Question 18

Since Tom had the option to receive either cash or the ABC Corp. stock with a fair market value of $1,000, the fair market value of the stock received is included in income by Tom. The Internal Revenue Code states that if a distribution (or series of distributions) results in the receipt of cash or other property by some shareholders in the corporation’s assets or earnings and profits, then stock or stock rights distributed to a shareholder on the common stock of the corporation must be treated as a taxable distribution.

Answer 18

x

Question 19

Since Tom had the option to receive either cash or the ABC Corp. stock with a fair market value of $1,000, the fair market value of the stock received is included in income by Tom. The Internal Revenue Code states that if a distribution (or series of distributions) results in the receipt of cash or other property by some shareholders in the corporation’s assets or earnings and profits, then stock or stock rights distributed to a shareholder on the common stock of the corporation must be treated as a taxable distribution.

Answer 19

x

Question 20

Wages paid for domestic services are subject to special rules for determining whether they are subject to payroll taxes. When are domestic wages subject to federal unemployment tax?

Answer 20

Over $1,000 in wages per quarter

Question 21

Fred Berk bought a plot of land with a cash payment of $40,000 and a purchase money mortgage of $50,000. In addition, Berk paid $200 for a title insurance policy. Berk’s basis in this land is:

Answer 21

Cash payment       $40,000
  Mortgage            50,000
  Title insurance        200
                     -------
  Total basis        $90,200

Question 22

Under the Securities and Exchange Act of 1934, which of the following types of instruments is excluded from the definition of “securities”?

Answer 22

Certificate of desposit

Question 23

What is a security?

Answer 23

Under Securities and Exchange Act of 1934 they are an investment in a common enterprise with the expectation of profit( investment contracts and both convertible and nonconvertible debentures.)

Question 24

Which of the following securities is exempt from the registration requirements of the Securities Act of 1933?

Answer 24

Bonds issued by a charitable foundation, securities issued by municipalities and governmental entities, securities issued by any type of charitable organization.

Question 25

Under the Secured Transactions Article of the U.C.C., which of the following security agreements does not need to be in writing to be enforceable?

Answer 25

A security agreement where the collateral is in the possession of the secured party

Question 26

What security agreements needs to be in writing to be enforceable?

Answer 26

1) A security agreement collateralizing debt under $500
2) collateral is highly perishable or subject to wide price fluctuations
3) involves a purchase money security interest (PMSI)

Question 27

What security agreements needs to be in writing to be enforceable?

Answer 27

1) A security agreement collateralizing debt under $500
2) collateral is highly perishable or subject to wide price fluctuations
3) involves a purchase money security interest (PMSI)

Question 28

What is a draft under UCC?

Answer 28

A draft is a type of commercial paper. It is an instrument (written order) addressed (drawn) by one party (the drawer) to another party that orders that party (drawee) to pay a certain sum of money to the order of a third party (payee).

Question 29

What are specific types of drafts?

Answer 29

1. Time draft:
2. Money order:
3. Banker’s acceptance
4. . Checks
5. Trade acceptance

Question 30

What are the characteristics of drafts?

Answer 30

1. Three-party: drawer, drawee, payee.
2. Is an order to the drawee to pay.
3. The party who drafts the draft is the drawer.
4. No one party is primarily liable.
5. The drawer and the endorser(s) are secondarily liable.

Question 31

If the subject matter of the contract involves the sale of goods for a price of $500 or more, then the contract must be

Answer 31

in writing

Question 32

A limited partnership must have both? Who is 100% liable for the debts?

Answer 32

Both a general partner and limited partners.

The general partner is 100% personally liable for the debts of the partnership.

Question 33

Is limited partnership recognized as a taxable entity for federal income tax purposes?

Answer 33

It is not recognized as a taxable entity.

Question 34

Does a limited partnership have a definite life?

Answer 34

limited partnerships must have definite life—only corporations are permitted to have perpetual existence.

Question 35

What is scienter?

Answer 35

Actual intent to deceive

Question 36

What are the characteristics of a holder in due course?

Answer 36

The holder in due course (HDC) is the party who (1) holds (is a holder of) an instrument and takes the instrument (2) for value, (3) in good faith (according to the subjective test) and (4) without notice (knowledge) of any claim, dishonor, or defense against it (U.C.C. 3-302):

Question 37

A CPA can be held liable for damages under common law only for

Answer 37

fraud, negligence, or breach of contract.

Question 38

What issuances are exempt from the provisions of the Securities Act of 1933?

Answer 38

1) securities issued by not-for-profit, charitable organizations,
2) securities issued by domestic governmental organizations, and
3) securities issued by savings and loans and similar financial institutions.

Question 39

Under the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934, a CPA may be liable if the CPA acted:

Answer 39

without good faith-guilty of scienter

Question 40

What makes an instrument negotiable?

Answer 40

1) be in writing,
2) contain an unconditional promise or order to pay a sum certain in money,
3) be payable on demand or at a definite time,
4) be payable to the order of or to bearer,
5) contain no promise other than the payment of money, and
6) be signed by the maker or drawer.