Each of the following is worth 6 points. Please highlight your response below in bold.
1. Taxpayers appeal adverse decisions by the U.S. Tax Court to the U.S. Supreme Court.
a. True
b. False
2. Legislative regulations are accorded greater deference by courts than are interpretive regulations.
a. True
b. False
3. Taxpayers must pay an IRS assessment first, before they are eligible to go into federal district court.
a. True
b. False
4. Taxpayers may not rely on private letter rulings as IRS precedent unless the ruling is specifically addressed to the taxpayer.
a. True
b. False
5. This year Amanda paid $749 in Federal gift taxes on a gratuitous transfer to her nephew. Amanda lives in Texas and does not pay any state or local income taxes. Which of the following is a true statement?
a. Amanda cannot deduct Federal gift taxes.
b. Amanda can deduct Federal gift taxes for AGI.
c. Amanda can deduct Federal gift taxes paid as an itemized deduction.
d. Amanda must include Federal gift taxes with other miscellaneous itemized deductions.
e. None of these is true.
6. In year 1, the Bennetts' 25-year-old daughter, Jane, is a full-time student at an out-of-state university. In previous years, Jane has never worked and her parents have always been able to claim her as a dependent. In year 1, a kind neighbor offers to pay for all of Jane's educational and living expenses. Which of the following statements is most accurate regarding whether Jane's parents would be allowed to claim an exemption for Jane in year 1 assuming the neighbor pays for all of Jane's support?
a. No, Jane must include her neighbor's gift as income and thus fails the gross income test for a qualifying relative.
b. Yes, because she is a full-time student and does not provide more than half of her own support, Jane is considered her parent's qualifying child.
c. No, Jane is too old to be considered a qualifying child and fails the support test of a qualifying relative.
d. Yes, because she is a student, her absence is considered as "temporary." Consequently she meets the residence test and is a considered a qualifying child of the Bennetts.
7. William and Charlotte Collins divorced in November of year 1. William moved out and Charlotte remained in their house with their 10-month-old daughter Autumn. Diana, Charlotte's mother, lived in the home and acted as Autumn's nanny for all of year 1. William provided 70% of Autumn's support, Diana provided 20%, and Charlotte provided 10%. When the time came to file their tax returns for year 1, William, Charlotte, and Diana each wanted to claim Autumn as a dependent. Their respective AGIs for year 1 were $50,000, $35,000, and $52,000. Who has priority to claim Autumn as a dependent?
a. William.
b. Charlotte.
c. Diana.
d. They must negotiate amongst themselves.
8. Rhett made his annual gambling trip to Uwin Casino. On this trip Rhett won $250 at the slots and $1,200 at poker. Also this year, Rhett made several trips to the race track, but he lost $700 on his various wagers. What amount must Rhett include in his gross income?
a. $1,450
b. $1,200
c. $750
d. $250
e. Zero - gambling winnings are not included in gross income
9. Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of social security payments. What amount must Bernie include in his gross income?
a. $250,000
b. $255,000
c. $258,500
d. $260,000
e. Zero
10. Glenn is an accountant who races stock cars as a hobby. This year Glenn was paid a salary of $80,000 from his employer and won $2,000 in various races. What is the effect of the racing activities on Glenn's taxable income if Glenn has also incurred $4,200 of hobby expenses this year? Assume that Glenn itemizes his deductions but has no other miscellaneous itemized deductions.
f. increase in taxable income of $2,000
g. increase in taxable income of $1,640
h. no change in taxable income
i. decrease in taxable income of $560
j. decrease in taxable income of $2,200
Solve Each of the following.
1. Cindy recently died, and her will contains bequests for both Carl and Candy. Cindy's will directs that land that she owns should be transferred to Carl. The land was purchased by Cindy years ago for $80,000, and it has a FMV of $120,000 on Cindy's death. Her will also directs, however, that the rent paid by the tenant farmers working the land should be paid to Candy (rather than Carl) until the current lease term ends in two years. When Candy receives the first lease payment of $2,000, she asks you whether she can exclude the receipt under § 102(a), as she received this rent as a bequest under Cindy's will. While § 102(b)(1) does not apply on these facts, see § 102(b)(2).
2. After turning age 65, Robert retired from his long-time job, and his employer presented him with a gold watch at a retirement dinner. The watch cost the employer $200. While $200 might not seem de minimis within the meaning of § 132(e), the 1984 legislative history accompanying the enactment of § 132 gave as an example of an excludable de minimis fringe the gold watch presented to an employee at his retirement, so Robert excludes the $200 value from his Gross Income. How much can Robert's employer deduct under § 162?
3. Bea owns a life insurance policy on which she paid premiums for many years. Upon her death at age 89, her daughter Beulah collects $500,000. How much must Beulah include in Gross Income? See § 101.
4. At age 74, Bea needs money and sells her life insurance policy to Investor for $100,000, who continues to pay premiums totaling $50,000 before Bea dies at age 89 and Investor collects $500,000. How much must Investor include in Gross Income? See § 101.