Reference no: EM131272002

Case Study

Clarence V. Morton

Client Information Taxpayer name: Taxpayer SSN: Taxpayer DOB: Health care coverage: Address: Living arrangement: Cell phone: Taxpayer email: Taxpayer occupation:

Clarence V. Morton 746-63-XXXX October 30, 1968 12 months through individual market 0 months of no coverage 2657 Oakley Lane Your City, YS XXXXX Taxpayer rents home (XXX) 555-6334 [email protected] Financial Planner

OK to call anytime; FCC no; preferred

Clarence is a single U.S. citizen, and is not blind, disabled, or a student. He may not be claimed as a dependent by anyone else, and wants to designate $3 for the Presidential Election Campaign Fund. The IRS has not issued an Identity Protection ID Number for his return.

Business Information

For several years, Clarence has run a financial planning business, CVM Financial, from his home. It is a sole proprietorship, reported on Schedule C. In April 2015, he won a $10,000,000 State Lottery and closed his business. On April 11, 2015, Clarence sold all the items he had been depreciating for his home business.

He used 300 square feet of his 2,100-square-foot rented loft exclusively and regularly for business.

Clarence used the cash accounting method and had the following income and expenses for his financial planning business:

Gross sales:	$35,200
Expenses:
Advertising:	$75
Business insurance:	$650
Business license:	$100
Office supplies:	$72
Rent:	$9,000
Renter's insurance:	$1,005
Second phone line, exclusively for business:	$336
Tax preparation:	$275
Utilities:	$2,172

Depreciation includes bonus depreciation, when available. All items are 100% business use:

Item New computer New printer Used desk and chairs

Date in Service June 15, 2012 June 15, 2012 June 15, 2012

Basis ($) 1,555 300 1,200

Clarence disposed of his business assets in the following manner:
• Computer - sold for $200.
• Printer - junked at the hazardous waste center.
• Used desk and chairs - sold for $350.
After return preparation has been completed, return to the exam and answer the associated questions.

Schedule E Case Study
Julia B. Adams Cu-f(z.
Use SSN 746-59-XXXX, where X= is the iLt four digits of your PeopleSoft number, to prepare a Schedule E for Julia B. Adams.
Client Information
Taxpayer name: Taxpayer SSN:
Taxpayer DOB:
Health care coverage:
Address:
Living arrangement: Cell phone: Julia B. Adams 746-59-XXXX
January 23, 1971
12 months through Individual Market
0 months of no coverage 656 East Claflin
Your City, YS XXXXX Taxpayer owns home (XXX) 555-3434 OK to call anytime, FCC no; preferred

Taxpayer email: [email protected]
Taxpayer occupation: Landlord
Julia is a single U.S. citizen, and is not blind, disabled, or a student. She may not be claimed as a depen¬dent by anyone else, and wants to designate $3 for the Presidential Election Campaign Fund. The IRS has not issued an Identity Protection ID Number for her return. Julia does not own or have any interests in any foreign accounts or assets.

Rental Information

Julia has rented a single family home at 1947 Pinnacle Street, Your City, YS =DX, to the same tenant since September 1, 2011, when she converted the house from personal to rental property. At that time, the adjusted basis of the house was $175,000, including land value of $13,000, and the fair market value (FMV) of the house was $168,000, including land value of $13,000. Julia does not meet the statutory requirements to be considered a real estate professional, and materially participated in the rental activ¬ity. She received $980 per month in rent for all 12 months during the tax year. The back yard fence fell in disrepair in June, and she replaced it for an advertised special of $7,999 on June 24, 2015. She also replaced the hot water heater for $468 on September 22, 2015.

Julia also incurred the following expenses associated with the rental property:
Yard maintenance: $480
Insurance: $2,400
Tax preparation fees: $500
Mortgage interest: $3,388
Repairs: $650
Real estate taxes: $1846
Exterminator: $84
Rental license: $55

After return preparation has been completed, return to the exam and answer the associated questions.

Part -2:

Question 1 
Larry is a sole proprietor who has not elected any particular tax year. Generally, when is Larry's federal income tax return due?
m April 15.
m June 15.
m August 15.
m December 15.
CI

Question 2 
In 2015, Rowland decided he needed to be a healthier person. To help achieve that goal, he tried to grow all of his own vegetables organically. The vegetables did not grow well, and Rowland was able to harvest nothing from his garden. Which of the following is most accurate?
m Rowland should definitely deduct the cost of his gardening as a business expense.
m Rowland cannot deduct any of his expenses.
fp Rowland needs to set up a corporation for his food-growing, then it will qualify as a business.
m Rowland can deduct half of his expenses because the crops did not grow well.
D

Question 3 
Elena has sponsored, and participated in, a barbeque team for the last ten years. The team enters several contests a year, but has never come close to turning a profit. Elena has told you she doesn't really care if the team makes any money, she just enjoys being able to get away from work and unwind at the contests. Which of the following is most accurate?
m Elena may deduct all of the expenses associated with the team.
m Elena may only deduct her proportional share of the expenses of the team.
m Elena may never deduct any of the expenses of the team.
m This activity is likely a hobby for Elena, and her deductions may be limited.

Question 4 
For which of these client scenarios do you need to prepare a Schedule C?
m Joshua has a Form W-2G showing $15,000 in winnings from playing blackjack. He has records showing he spent $20,000 playing blackjack.
m Sandra has a Form 1099-MISC showing $1,000 in box 3 for winning a neighborhood fundraising raffle. She bought six raffle tickets for $5.
m Lelia has a Form 1099-MISC showing $800 in box 7 as compensation for distributing product samples at neighborhood festivals. She incurred no expenses.
m Dustin sold his car to his neighbor for $2,500 cash. He bought the car ten years ago for $21,000.
q 

Question 5 
Quinton has always enjoyed sailing. In 2015, he entered several regattas and managed to win prize money of $1,200. His expenses associated with the regattas exceed $25,000. Which of the following statements is correct?
• Quinton may absolutely not deduct any of these expenses.
0 Quinton should only deduct 50% of these expenses.
m Quinton's expenses far exceed his winnings. Therefore, he needn't worry about reporting the winnings on his 2015 income tax return.
m The fact that Quinton derives significant personal enjoyment from the activity may be a factor in determining if all of his expenses are deductible.
q 

Question 6 
Which of the following is a disadvantage of operating as a sole proprietorship?
• Sole proprietorships have complex legal and accounting requirements.
m The owner of a sole proprietorship generally carries unlimited liability for the debts and liabilities of the business.
m A sole proprietorship has only limited flexibility in choosing a tax year.
m A sole proprietorship may consist of one or many individuals.
q 

Question 7 
A sole proprietor with a calendar-year tax year generally must file his or her return by:
m March 15.
m April 15.
o May 15.
m June 15.
El 

Question 8 
A sole proprietorship that began business May 1, 2015 incurred $7,000 of start-up expenses. If the business elects to report the maximum amount of start-up costs as an current expense, what is the amortization amount reported as an "other expense" on Schedule C?
m $44
o $67
m $89
m $133 

Question 9 
Clarence uses an accrual method of accounting and a calendar year. On December 30, 2015, he completed work for a client and submitted his bill. The client had no dispute with the work done or the amount of the bill. The client paid Clarence's bill in 2016. In which year should he report the income
from this project? *
m He should report the income in 2016.
m He may choose to report the income in either 2015 or 2016.
m He should report the income in 2015.
m He should report half of the income in 2015 and half in 2016.

Question 10 
Sam owned a cottage on the lake that he bought in Year 1. In Year 2, he rented the cottage for 10 days to a stranger and used the cottage for 20 days for his own personal use. The cottage was not used the rest of the year. Sam had rental income of $1,000, and he paid $600 for repairs. How should he report these activities on his Year 2 return?
m $0 income, $0 expense.
m $333 income, $200 expense.
m $667 income, $400 expense.
m $1,000 income, $600 expense.

Question 11 
Which of the following statements is correct with regard to Unrecaptured §1250 gain? Unrecaptured § 1250 gain is:
m Taxed at 28% capital gains tax rate or the taxpayer's lower tax rate, if applicable.
m Taxed at 25% capital gains tax rate or the taxpayer's lower tax rate, if applicable.
m Taxed at 15% capital gains tax rate or the taxpayer's lower tax rate, if applicable.
m Taxed at 0% capital gains tax rate or the taxpayer's lower tax rate, if applicable. El  Question 12 
Nonrecaptured § 1231 losses are applied against the net § 1231 gain beginning with:
m Last year's loss and ending with losses from the fifth previous year.
m The earliest loss in the five-year period.
m The next future year's losses.
m Last year's loss and ending with losses from the third previous year.

Question 13 
Which of the following situations involving an exchange of business property exemplifies a fully nontaxable exchange?
m Giving up a lot for another lot and the other person pays $2,000 expense of the exchange.
m Giving up a machine in exchange for another machine and $5,000.
m Giving up a truck for a machine.
m Giving up a machine and $5,000 for another machine.
(=Nark for follow up
Question 14 
Which convention is used for the year of disposition for a warehouse?
m Mid-quarter.
m Straight-line.
m Half-year.
m Mid-month.
CI
Question 15 
A taxpayer, in the 25% bracket before considering the sale, sold for a gain of $10,000 a residential rental building, purchased and put into service in March 2010. (The sale of land is not included in this question.) No other residential real property was sold in this tax year. The depreciation taken or allowed is $15,635. What is the amount and nature of the gain or loss?
m $10,000 gain taxed at a maximum of 15%.
m $10,000 gain taxed at a maximum of 25% (or 33% if the gain pushes the taxpayer into a higher tax bracket).
m $10,000 gain taxed at a maximum of 25%.
m $15,635 gain taxed at a maximum of 25%.
0 

Joyce sold land she had purchased three months earlier for use in her business. Her cost (and adjusted basis) in the land is $50,000. She incurred selling expenses of $4,000. The buyer paid $60,000 cash and assumed Joyce's $20,000 mortgage on the property. What is the amount of her gain, and where on Form 4797 will she report the sale?
m $26,000 on Part II.
m $26,000 on Part I.
m $30,000 on Part IV.
m $30,000 on Part III.
q  Question 17 
Sue purchased a van for $18,000 to use exclusively in her delivery business. She sold it four months later in the same year for $12,500. What is the amount of gain or loss, and where on Form 4797 does Sue report the sale?
m $3,700 loss, Part 1.
m $5,500 gain, Part II.
m $5,500 loss, Part II.
m $5,500 loss, Part 1. Question 18 
Which of the following statements regarding the installment sale of an entire business is FALSE? The sale price and expense of sale of an entire business must be allocated because:
m Real and personal property can be reported on the installment method but inventory cannot.
m Any depreciation recapture income from the sale of depreciable property cannot be reported on the installment method.
m Assets sold at a loss cannot be reported using the installment method.
m Intangible property cannot be reported using the installment method.
q 1\4ark for follow up Question 19 
All of the following taxpayers would like to report the sale as an installment sale. Which of the following taxpayers may do so?

m Raul, who sold his entire inventory valued at $12,000 to Quentin for $20,000. Quentin intends to pay him back $7,000 per year for the next three years.
m Zack, who sold a backhoe to Glen for $4,000, paid in two annual installments. Zack paid $5,000 for the equipment when it was new and had fully depreciated it before he sold it.
m Judy, who sold a rental condo for $100,000. She had purchased it for $60,000 and had claimed $20,000 depreciation. Her buyer intends to pay $20,000 per year plus 6% interest for five years.
Reiko, who sold a plot of land for $48,000. She purchased it for $35,000 and paid $20,000 for improvements. Her buyer intends to pay for the land over five years.
O
Question 20 
Which of the following taxpayers would be most likely to benefit from an installment sale? A taxpayer who sold:
m Business-use land, sold for a gain.
m A business-use car, sold at a net gain which was less than the amount of depreciation claimed.
m Rental property, sold at a gain less than the amount of depreciation allowed.
m A fishing boat, sold at a net loss.
Question 21 
Emma operates a computer store. Which of the following should be included in her inventory?
:14
m General office supplies.
m Goods sold for which title has passed to the buyer.
m Goods consigned to the client.
0 Goods held for sale away from the place of business.

Question 22 
Under FIFO, which items of inventory are considered to be the first sold?
m The items which cost the most.
m The items which cost the least.
m The items purchased closest to the date of the sale,

0 The first items purchased.
q  Question 23 
David reorganized his office and purchased a new office desk for $3,300 on March 17, 2015. He wanted to depreciate the desk over a longer period of time, so he chose the Alternative straight-line method and did not claim bonus depreciation. Using the half-year convention, compute his 2015 depreciation.
0 $165
0 $236
0 $289
$413

q  Question 24 
Denise is a sole proprietor and wishes to use the simplified method for business use of home expenses. Her mortgage interest for 2015 is $3,500, and real estate taxes are $975. Her home office is 400 square feet, and her total home square footage is 1,800 square feet. What is the home office expense deduction?
0 $4,475
0 $2,000
0 $1,500
0 $994

q  Question 25 
Which depreciable property listed below is not eligible for the § 179 expense deduction?
m Office furnishings.
m A computer used exclusively in an office setting.
m A machine used in a manufacturer's warehouse.
m Furnishings purchased for use in a rental lodging.

q  Question 26 
Short-year depreciation does not affect which of the following conventions?
m Mid-month.
m Half-year.
m Mid-quarter.
m Mid-year.
q  Question 27 
Which of the following clients is NOT required to meet the exclusive-use test to deduct business-use-of-home expenses?
m Architect with his office and living room combined with no space identified as an office.
m Cosmetics salesperson using her home to store product samples and inventory.
m Daycare provider using the entire home for daycare purposes; state certification requirements have not been met.
m An attorney with her office and guest bedroom combined, with no space identified as an office.
q  Question 28 
Braxton purchased a vacation house on June 1, 2015. During the year, he spent 25 days there and rented it at fair rental value for 125 days. The house was vacant for the remainder of the year. Using the Tax Court method, what is the applicable percentage for expenses that may be deducted on his Schedule E?
m 34.25%
m 58.41%
m 66.66%
m 83.33%
q 

Question 29 
Mary Beth owns a duplex. She resides in one unit and rents out the other. Her expenses need to be categorized as indirect (partly deductible) or direct (fully deductible). Which of the following expenses are direct?
o Replacement sidewalk leading up to the building.
o County property tax bill for entire building.
o Repair of water heater in the tenant's unit.
o City water bill for entire building.

Question 30 
When a taxpayer owns a part rental/part personal-use property, how is mortgage interest on that property treated on the tax return?
o Prorated deduction on Schedule E and Schedule C.
o Prorated deduction on Schedule E and Schedule A.
o The taxpayer can choose to deduct the full amount on either Schedule E or Schedule A.
m Fully deducted on Schedule E.
D
Question 31 
Foster has a rental house that was rented beginning January 1 in the current tax year. On January 1, the tenant paid Foster a $1,200 security deposit plus $950 rent for January and $950 rent for the last month, whenever that occurs. The tenant timely paid the $950 monthly rent each of the remaining eleven months. How much rental income will Foster report for the current year?
o $11,400
m $12,350
o $12,600
m $13,550
0

When a taxpayer owns a part rental/part personal-use property, how are real estate taxes on that property treated on the tax return?
m Prorated deduction on Schedule E and Schedule C.
m Prorated deduction on Schedule E and Schedule A.
m Chosen deduction of full amount on either Schedule E or Schedule A.
m Fully deducted on Schedule E.

Question 33 
In 2015, Sandi sold an efficiency apartment after renting it out for several years. She purchased it in 2004 for $65,000 and lived in it until January 1, 2012, when she got her first tenant. (In January 2012, the FMV was greater than the basis.) In December 2012, she received $2,500 insurance reimbursement for windows that were damaged in a storm. She then purchased new windows for $3,000 in January 2013. She claimed $5,515 depreciation on the apartment and $146 depreciation on the windows. What is the adjusted basis of the apartment she sold?
is
0 $58,839
0 $59,839
0 $62,339
0 $65,000

Question 34 
Every year, a college basketball tournament is held in Janet's city. She rents out her condominium during the week-long tournament while she goes out of town on vacation. She receives $1,000 rental income for the week. As her Tax Professional, how do you report this income?
m The income and expenses are reported on Schedule E.
m The income is reported on Schedule E, but no expenses are allowed, because Janet is not in the rental business.
a The income is reported on Form 1040, line 21, and rental expenses, up to the amount of income, are deducted on Schedule A.
m The income is not reported because the property was rented for fewer than 15 days.

Question 35 
Chris is a single taxpayer with modified AGI of $135,000 and an active participation rental real estate loss of $30,000. Assuming he has no other source of passive income, what is his adjusted special loss allowance?
0 $0
0 $5,000
0 $7,500
0 $25,000

Question 36 
Gregory owns a rental house, which he rents at $200 per month. Similar houses in the neighborhood rent for $600 per month. As Gregory's Tax Professional, how should you treat his rental income?
• The income is reported, and all expenses deducted, on Schedule E.
m The income is not reported because Gregory is operating the property as a charity.
a The income is reported on Form 1040, line 21, and rental expenses, up to the amount of income, are deducted on Schedule A.
a A charitable contribution of $400 is reported on Schedule A for every month Gregory rents the property at $200.

Question 37 
The safe harbor election allows taxpayers to elect to expense improvements if the total amount paid during the year on the eligible property does not exceed the lesser of: 2% of the unadjusted basis of the eligible building property, or $10,000. Amounts eligible for this election include all of the following EXCEPT:
m Utilities.
m Repairs.
m Maintenance.
m Improvements.
q 

Question 38 
Thomas purchased a rental house for $250,000. He put down $50,000 cash and took out a mortgage for the balance of $200,000. At closing, he paid $4,000 in points, $3,500 for transfer taxes and legal fees, and $8,500 for delinquent property taxes left unpaid by the seller. What is Thomas's basis in the rental house?
m $250,000 CD $257,500
m $262,000
m $266,000

Question 39 
DeLisa purchased a rental house on April 1 of last year. It was vacant when she bought it. She decided to paint the interior and install new carpeting before showing the property to potential tenants. The work was completed on May 11. That same day, DeLisa put out a vacancy sign and began showing the property to prospective tenants. She received a signed lease from a new tenant on May 28, and the tenant moved in on June 1. For depreciation purposes, what is the date DeLisa placed this rental property in service?
m April 1.
m May 11.
m May 28.

Question 40 
In the year of disposition, how is the depreciation deduction calculated for real rental property that has been depreciated using the mid-month convention?
m The depreciation in the year of disposition will be the same as the depreciation in a regular year.
m The deductible amount will be determined by the month in which the asset is disposed.
m No deduction is allowed in the year of disposition.
m Only the amount of depreciation actually claimed in prior years is allowable.

Question 41 
Which of the following is passive income?
m Salaries and wages.
m Income from real estate ventures for a non-real estate professional.
m Winnings from gambling.
m State and local refunds.

Question 42 
Under the vacation home rules, rental property expenses are deducted in a specific order. What is the order?
m Rental portion of Schedule A expenses, depreciation, carryover of depreciation, indirect operating expenses, carryover of indirect operating expenses, and direct expenses.
m Rental portion of Schedule A expenses, direct expenses, indirect operating expenses, carryover of indirect operating expenses, depreciation, and carryover of depreciation.
m Direct expenses, rental portion of Schedule A expenses, depreciation, indirect operating expenses, and carryover expenses.
m Direct expenses, depreciation, rental portion of Schedule A expenses, indirect operating expenses, and carryover expenses.

Question 43 
Marilyn owns a rental house. Her current tenant, Colby, signed a two-year lease and moved into the house in January of last year. At that time, Colby paid Marilyn $1,500 for the first month's rent, $1,500 for the last month's rent, and $1,500 as a security deposit. Colby paid the $1,500 monthly rent in cash on the first of each month during the year, except in November when he replaced the water heater in exchange for his rent. The water heater would have cost Marilyn $1,300 to purchase and install. How much rental income must Marilyn report for last year?
m $19,300
m $19,400
m $19,500
m $20,800

Question 44 
Robert has income from several sources. Which one is considered passive income?
• Dividends paid on shares of a mutual fund in his 401(k) account.
m Dividends paid on shares of a mutual fund in his Roth IRA.
m Unemployment benefits received during a one-month layoff.
m Rent received from the full-year rental of his house in the country.

Question 45 
Izzie sold residential rental property he had owned for three years. As part of this sale, Izzie realized gain on the sale of the rental house he was depreciating using regular MACRS. Which Code section describes the gain on the LAND?
§1231.
• §1245.
• §1250.
• §1254.

Question 46 
Rents received as payment for use of real estate in which personal services are provided as an incidental part of a real estate dealer's business is:
m Farm income, reported on Schedule F.
m Not-for-profit income, reported on Form 1040, line 21.
m Investment income, reported on Schedule E.
m Business earned income, reported on Schedule C.
q Nark for follow up

Question 47 
While reviewing last year's tax return for a new client, you see an entry for rental income on Form 1040, line 21, and deductions for rental expenses on the Other Expenses section of the Schedule A. What was the client's situation regarding this rental property?
o The property was rented for less than fair market value.
m The property was rented for fewer than 15 days.
m The property was rented in exchange for maintenance services on the property.
m The property was fully depreciated, so Schedule E was not necessary. Question 48 
Luke is an ordained minister. Luke's salary from his employing church last year was $31,000. The church did not designate any of his salary as housing allowance. Luke spent $10,000 to rent his home last year. How much of Luke's salary must be included when figuring net income for self-employment tax?
*
0 $21,000
0 $31,000
0 $41,000
o $51,000

Question 49 
Reverend Isaiah receives an annual salary of $16,000 as a full-time minister. This includes $4,000 designated as rental allowance to pay utilities. Rev. Isaiah is not exempt from self-employment tax. How much must he include when figuring net income for self-employment tax?
0 $4,000
0 $12,000
0 $16,000
o $20,000

Question 50

Father Sheets received $40,000 in ministerial earnings; $28,000 salary for ministerial services, $2,000 for performing weddings, and $10,000 tax-free parsonage allowance. Father Sheets incurred $5,000 of unreimbursed expenses connected with his ministerial earnings - $4,500 related to his ministerial salary and $500 related to the weddings performed as self-employed. How much of the expense related to his self-employed earnings is deductible when figuring net income for income tax after allocation to the tax-free parsonage allowance?
o $5,000
o $500
o $375 CD $125

Question 51 
Which table in Publication 901, U.S. Tax Treaties, is used to determine the treaty rate for personal service income?
o Table 1.
o Table 2.
o Table 3.
o Table 4. 

Question 52 
Isabel (a citizen of Peru who is in the U.S. on a B-1 visa) and her husband, William (a U.S. citizen), moved to the U.S. on October 15, 2014. In August 2015, Isabel separated from her husband and moved into her own apartment in the Washington, D.C. suburbs. For 2015 Isabel filed her tax return as a U.S. resident because:
CD Her husband is a U.S. citizen.
o She intends to live in the D.C. area for the next 183 days.
o She holds a B-1 visa.
o She meets the requirements of the substantial presence test.

Question 53 
Certain taxpayers can exclude income earned in foreign countries. For 2015, this amount cannot exceed:

o $100,800
o $100,000
m $99,200
o $95,100

Question 54 
Joey was physically present in the United States for 110 days in 2015, 180 days in 2014, and 120 days in 2013. Under the substantial presence test formula, how many days is Joey deemed physically present in the United States in 2015 for purposes of determining if he is a resident alien?
o 110
o 180
o 190
o 360

Question 55 
To qualify for the foreign earned income exclusion, an expatriate employee must meet one of the following requirements:
o The physical presence test only.
o The bona fide residence test only.
o The physical presence test and the bona fide residence test together.
o Either the physical presence test or the bona fide residence test.

Question 56 
If married taxpayers file a joint return for all years involved in creating or deducting a NOL:
m The full amount of the NOL is deducted based on the spouse's income that incurred the NOL.
o The full amount of the NOL is deducted based on combined income.
o Both A and B.
m None of the above.

Question 57 
Which forms or schedules should be attached to Form 1045?
m Schedule C or F.
m Form 3800, General Business Credit.
m Form 6251, Alternative Minimum Tax-Individuals.
m All of the above.

Question 58 
The NOL year is:
m The year in which the NOL is used up.
0 The year in which the NOL is carried.
m The year in which the NOL occurred.
m The first carryback year.

Question 59 
John and Sally are married and file a joint return for 2015. They have a NOL of $5,000. They carry the NOL back to 2013, a year in which John and Sally filed separate returns. Figured separately, Sally's 2015 deductions were more than her income, and John's income was more than his deductions. Which one of the following statements is true?
m John does not have any NOL to carry back. Sally can carry back the entire $5,000 NOL to her 2013 separate return.
m Sally does not have any NOL to carry back. John can carry back the entire $5,000 NOL to his 2013 separate return.
m John and Sally can each carry back $2,500 to their separate 2013 returns.
m None of the above.

Question 60 
What Form 1040, Schedule A, expenses CANNOT create or increase a net operating loss (NOL)?
m Medical expenses in excess of 10% (or 7.5%) of AGI.
m Casualty and theft losses.
m Employee business expenses.
m State and local income taxes arising from business income.

Question 61 
Fill in the blank. For 2015, the IRS will process Form 1045 within days from the later of the date the complete application is filed or the last day of the month that includes the due date (including extensions) for filing the 2015 income tax return.
0 30
0 60
0 90
0 120

Question 62 
Which of the following items may NOT create an NOL?
m Sole proprietorship loss.
m Employee business expense.
m Casualty loss.
m Medical expense.

Question 63 
When should the alternative minimum tax NOL be computed?
m Any time there is a NOL.
m Any time a casualty or theft loss has occurred.
m Whenever a taxpayer has any minimum tax adjustments or preference items in the loss year or in any year to which the loss is carried.
m Whenever the taxpayer's AGI is greater than $150,000.

Question 64 
After you have completed a return and determined that the taxpayer has a NOL, what is the next step for claiming a NOL?
m Deduct the NOL in the carryback or carryforward year.
m Determine the amount of the taxpayer's unused NOL.
m Decide either to carry the NOL back to a past year or to waive the carryback period and carry the NOL forward to a future year.
m Carry over the unused NOL to the next carryback or carryforward year.

Question 65  Which taxpayer is NOT able to deduct NOLs incurred by its entity?
m A shareholder in a C corporation.
m A partner in a partnership.
m A partner in an LLC.
m A sole proprietor.

Question 66 
Which of the following is business income for purposes of computing an NOL?
m Personal casualty gains.
m Taxable pension income.
m Active-participation rental income from Schedule E.
m Royalty income from Schedule E.

Question 67 
Use Form 1045, Schedule B, to determine:
m The capital loss carryover.
m The NOL carryover.
m The amount of the NOL for AMT purposes.
m The relative advantage of carrying the NOL back or forward.

Question 68 
How is an alternative tax net operation loss deduction (ATNOLD) determined?
m By using regular taxable income.
m By using regular taxable income reduced by AMT income.
m By using AMT income reduced by regular taxable income.
m By using AMT income.

Question 69 
What happens to credits in the carryback or carryover year?
m Credits that are dependent on AGI, MAGI, or tax liability must be recomputed.
m No adjustment is needed.
m All credits must be recomputed.
m None of the above.

Question 70

A taxpayer may elect to waive the carryback period for a NOL by:

O Attaching a statement to the return for the carryforward year.
0 Filing an amendment for the NOL year return.
10 Attaching an statement to the tax return for the loss year, filed on or before the due date, including extensions.
0 Filing an amendment claiming the election for the carryback year.

Question 71 
What is the total amount of gain/loss that Clarence recognizes from the disposition of his business assets?
0 ($114)
0 ($135)
0 $21
0 $112

Question 72 
If Clarence elects to use actual office in home (01H) expenses, what is the amount of his Schedule C net profit/loss?
0 $31,319
0 $31,824
0 $31,861
0 $32,064

Question 73 
If Clarence elects to use actual office in home (01H) expenses, the amounts on lines 5 and 6 on Schedule
SE are and
0 $4,497 and $2,249
0 $4,297 and $2,149
0 $4,097 and $2,049
0 $3,897 and $1,949

Question 74 
If the office in home (0111) simplified method is elected, what is the amount of Clarence's 0111 deduction?
m $335
m $375
m $1,500
m $415

Question 75 
If Julia elects to opt out of special depreciation for the new fence, what is the amount of current depreciation for this asset?
m $79
m $158
m $200
m $400 O

Question 76 
If Julia elects to opt out of special depreciation for the new fence, what is the amount on Form 4562, line 22?
0 $5,236
0 $5,636
0 $6,036
0 $6,436

Question 77 
If Julia elects to use special depreciation for the new fence, what is the amount of current depreciation for this asset?