1. When IRS needs a taxpayer to change accounting methods:
a. Taxpayer may be subject to penalties and interest.
b. Taxpayer generally is required to make the change as of the beginning of the current tax year.
c. Adjustments due to the change can be spread over subsequent years.
d. All of the above are right.
e. None of the above is right.
2. Instalment method applies to which of the given sales with payments being made in year following the year of sale?
a. Automobile dealer's sale of an SUV.
b. Cash basis individual's sale of General Electric common stock.
c. Manufacturer's sale of fully-depreciated equipment.
d. All of the above.
e. None of the above.
3. Abby sold property and reported gain by instalment method. Her basis in property was $120,000 and it was subject to $30,000 of depreciation recapture. Abby sold property for $80,000 cash on date of sale, June 30, 2008, and note for $170,000 (plus interest at Federal rate) due on June 30, 2009. Abby's gain to be reported in 2008 (exclusive of interest) is:
a. $30,000.
b. $41,600.
c. $62,000.
d. $130,000.
e. None, as she had not recovered her cost as of end of 2007.
4. Jay sold land (a capital asset) to an unrelated party for $20,000 cash and a 9% note for $100,000 due in two years. His basis in land was $40,000. Which of the given statements is right?
a. If Federal rate is 6%, interest will be imputed at rate.
b. If Federal rate is 7%, interest will not be imputed.
c. If Federal rate is 9%, interest will be imputed at 10%.
d. All of the above.
e. None of the above.
5. Related-party instalment sales include all of given except first seller's:
a. Brothers and sisters.
b. Controlled corporations.
c. Lineal descendants.
d. Partnerships in which seller has interest.
e. All of the above would be considered related parties.
6. Father sold land to Son for $100,000 in 2008. Father's basis in land was $40,000.Son paid Father $25,000 and gave Father a note for $75,000 due in 2010. In 2009, Son sold land for $80,000 cash and a note for $80,000 due in 2011. Notes all bore interest at suitable Federal rate and both Father and Son held land as investment.
a. Father should recognize $60,000 of income in 2008.
b. Father's gain is all ordinary income.
c. Father should recognize a $45,000 gain in 2009.
d. Son is not allowed to use instalment method to report his gain.
e. None of the above.