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Exam 16: Introduction to the Taxation of Individuals

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Question 31

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Karen,a calendar year taxpayer,made the following donations to qualified charitable organizations in 2013: The land had been held as an investment and was acquired 4 years ago.Shortly after receipt,the City of Terre Haute sold the land for $210,000.Karen's AGI is $450,000.The allowable charitable contribution deduction is:

A) $84,000 if the reduced deduction election is not made.
B) $100,000 if the reduced deduction election is not made.
C) $165,000 if the reduced deduction election is not made.
D) $170,000 if the reduced deduction election is made.
E) None of the above.

F) C) and E)
G) D) and E)

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Question 32

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Ashley received a scholarship to be used as follows: tuition $6,000; room and board $9,000; and books and laboratory supplies $2,000.Ashley is required to include only $9,000 in her gross income.

A) True
B) False

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Question 33

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In determining whether the gross income test is met for dependency exemption purposes,only the taxable portion of a scholarship is considered.

Brooke works part-time as a waitress in a restaurant.For groups of 7 or more customers,the customer is charged 15% of the bill for Brooke's services.For parties of less than 7,the tips are voluntary.Brooke received $11,000 from the groups of 7 or more and $7,000 in voluntary tips from all other customers.Using the customary 15% rate,her voluntary tips would have been only $6,000.Brooke must include $18,000 ($11,000 + $7,000)in gross income.

Expenses that are reimbursed by a taxpayer's employer under a dependent care assistance program canalso qualify for the credit for child and dependent care expenses.

Leona borrows $100,000 from First National Bank and uses the proceeds to purchase City of Houston bonds.The interest Leona pays on this loan is deductible as investment interest subject to the investment interest limits.

Evan and Eileen Carter are husband and wife and file a joint return for 2013.Both are under 65 years of age.They provide more than half of the support of their daughter,Pamela (age 25) ,who is a full-time medical student.Pamela receives a $5,000 scholarship covering her tuition at college.They furnish all of the support of Belinda (Evan's grandmother) ,who is age 80 and lives in a nursing home.They also support Peggy (age 66) ,who is a friend of the family and lives with them.How many dependency exemptions may the Carters claim?

After the divorce,Jeff was required to pay $18,000 per year to his former spouse,Darlene,who had custody of their child.Jeff's payments will be reduced to $12,000 per year in the event the child dies or reaches age 21.During the year,Jeff paid the $18,000 required under the divorce agreement.Darlene must include the $12,000 in gross income.

Barry and Larry,who are brothers,are equal owners in Chickadee Corporation.On July 1,2013,each loans the corporation $10,000 at an annual interest rate of 10%.Both shareholders are on the cash method of accounting,while Chickadee Corporation is on the accrual method.All parties use the calendar year for tax purposes.On June 30,2014,Chickadee repays the loans of $20,000 together with the specified interest of $2,000.How much of the interest can Chickadee Corporation deduct in 2013?

In which,if any,of the following situations will the kiddie tax not apply?

Which of the following statements concerning the credit for child and dependent care expenses is not correct?

Nelda is married to Chad,who abandoned her in early June of 2013.She has not seen or communicated with him since then.She maintains a household in which she and her two dependent children live.Which of the following statements about Nelda's filing status in 2013 is correct?

John told his nephew,Steve,"if you maintain my house when I cannot,I will leave the house to you when I die.Steve maintained the house and when John died Steve inherited the house.The value of the residence can be excluded from Steve's gross income as an inheritance.

The Hutters filed a joint return for 2013.They provide more than 50% of the support of Carla,Melvin,and Aaron.Carla (age 18) is a cousin and earns $2,800 from a part-time job.Melvin (age 25) is their son and is a full-time law student.He received from the university a $3,800 scholarship for tuition.Aaron is a brother who is a citizen of Israel but resides in France.Carla and Melvin live with the Hutters.How many personal and dependency exemptions can the Hutters claim on their Federal income tax return?

For purposes of computing the deduction for qualified residence interest,a qualified residence includes only the taxpayer's principal residence.

Under the terms of a divorce agreement,Ron is to pay his former wife Jill $10,000 per month.The payments are to be reduced to $7,000 per month when their 15 year-old child reaches age 18.During the current year,Ron paid $120,000 under the agreement.Assuming all of the other conditions for alimony are satisfied,Ron can deduct from gross income (and Jill must include in gross income) as alimony:

George and Erin are divorced,and George is required to pay Erin $20,000 of alimony each year.George earns $75,000 a year.Erin is required to include the alimony payments in gross income although George earned the income.

A qualifying child cannot include:

The Dargers have itemized deductions that exceed the standard deduction.However,when they file their joint return,they choose the standard deduction option.

Which of the following statements regarding the adoption expenses credit is not true?