Question 1

Generally,Section 267 requires that the deduction of unpaid (accrued)expenses be deferred until the year in which the related payee recognizes the amount as income.

Accepted Answer

Section 267 of the Internal Revenue Code does require the deferral of deductions for unpaid expenses until the year in which the related payee recognizes the amount as income.

Question 2

Losses on the sale of property between a taxpayer and his/her more than 50-percent-owned corporation are disallowed.

Accepted Answer

This is true according to the IRS code Section 267(b).

Question 3

On July 1 of the current year,Marcia purchases a small office building to use in her business and borrows $320,000.Marcia is required to pay two points on the loan.The loan is secured by the property and the charging of points is an established business practice in the area.The term of the loan is 20 years,beginning on July 1 of the current year.How much,if any,of the points may Marcia deduct in the current year?

Accepted Answer

Marcia can deduct the points as prepaid interest over the life of the loan (20 years). The yearly amount of prepaid interest is $320,000 x 0.02 = $6,400. Therefore, the amount that can be deducted in the current year is $6,400/20 = $320.

Question 4

Which of the following is not required for an accrual method taxpayer to currently deduct the cost of services received?

Accepted Answer

The answer of Which of the following is not required...

Question 5

Hobby expenses are deductible as for AGI deductions.

Accepted Answer

Hobby-related expenses,to the extent allowed,are itemized deductions.

Question 6

Losses on sales of property between a taxpayer and his/her siblings are disallowed.

Accepted Answer

According to IRS rules, losses on sales between related parties, including siblings, are generally disallowed. This rule is meant to prevent taxpayers from trying to take advantage of family relationships to benefit from tax deductions or losses.

Question 7

Losses incurred on wash sales of stock or securities are generally disallowed in the year of sale.

Accepted Answer

Losses incurred on wash sales are generally disallowed in the year of sale and are added to the basis of the replacement securities. This rule is meant to prevent taxpayers from claiming artificial losses by selling securities at a loss only to immediately repurchase them.

Question 8

If an activity produces a profit for at least two years during a consecutive five-year period,the burden of proof shifts to the IRS to show that the activity is not profit-motivated.

Accepted Answer

The answer of If an activity produces a profit for...

Question 9

If a loss is disallowed under Section 267,a gain on a subsequent sale of the property by the related purchaser may be offset by the previously unrecognized loss.

Accepted Answer

This is known as the "anti-churning" rule and is stipulated in Section 1245 of the Internal Revenue Code. It prevents taxpayers from artificially generating losses by selling depreciable property to related parties and then repurchasing it to claim the loss. If such a loss is disallowed under Section 267, any subsequent gain on the sale of the property by the related party will be subject to recapture and offset by the previously unrecognized loss.

Question 10

Brienne sells land to her brother,Abe,at a loss.A few years later,Abe sells the land to an unrelated party for a substantial gain.Brienne can recognize her realized loss on the land when Abe sells the land to an unrelated party.

Accepted Answer

Brienne cannot recognize her realized loss on the land when Abe sells the land to an unrelated party. The loss belongs to Abe at that point and he can use it to offset any gains he has made.

Question 11

In which of the following situations are points paid on a home mortgage loan not deductible in the year of payment?

Accepted Answer

Points paid on a home mortgage loan for a refinance are not fully deductible in the year of payment. The points must be amortized over the life of the loan. Points paid on a purchase, construction, or improvement of a home are typically deductible in the year of payment.

Question 12

A wash sale occurs when a taxpayer realizes a loss on the sale of stock or securities and the taxpayer acquires substantially identical stock or securities within a 61 day period after the date of sale.

Accepted Answer

The answer of A wash sale occurs when a taxpayer...

Question 13

On August 1 of this year,Sharon,a cash method taxpayer,signs a lease for office space and begins business.The lease is for 3 years.At the time the lease is signed,Sharon pays the $12,600 rent for the entire 36-month lease term.How much can Sharon deduct this year?

Accepted Answer

The answer of On August 1 of this year,Sharon,a cash...

Question 14

Which of the following statements is false?

Accepted Answer

The answer of Which of the following statements is false?
...

Question 15

Under the wash sale rule,if all of the sold shares are not repurchased within the relevant time period,a portion of the loss on the sale is allowed.

Accepted Answer

This is correct. If all of the sold shares are not repurchased within the relevant time period, a portion of the loss on the sale is allowed under the wash sale rule. The disallowed portion of the loss is added to the basis of the new shares purchased.

Question 16

Discuss when expenses are deductible under the accrual method of accounting.

Accepted Answer

The answer of Discuss when expenses are deductible under the...

Question 17

Under the accrual method,recurring liabilities may be deducted currently and paid in the next period if all of the following are present except for

Accepted Answer

According to the accrual method, recurring liabilities may be deducted currently and paid in the next period if the following conditions are met: the all-events test is met, the expense is recurring, and economic performance occurs within the shorter of 8 1/2 months after the close of the year or a reasonable period after the close of the year. The materiality of the expense is not a condition for deduction under the accrual method.

Question 18

On December 1,Robert,a cash method taxpayer,borrows $10,000 from the bank for use in his business.Under the terms of the loan,the bank discounts the loan by $300,paying Robert the $9,700 cash proceeds.If Robert repays the loan next year,he may deduct

Accepted Answer

The answer of On December 1,Robert,a cash method taxpayer,borrows $10,000...

Question 19

On July 1 of the current year,Marcia purchases a new home and borrows $320,000.Marcia is required to pay two points on the loan.The loan is secured by the residence and the charging of points is an established business practice in the area.The term of the loan is 20 years,beginning on July 1 of the current year.How much,if any,of the points may Marcia deduct in the current year?

Accepted Answer

The answer of On July 1 of the current year,Marcia...

Question 20

On August 1 of the current year,Terry refinances her home and borrows $240,000.Terry is required to pay two points on the loan.The loan is secured by the residence and the charging of points is an established business practice in the area.The term of the loan is 20 years,beginning on August 1 of the current year.How much,if any,of the points may Terry deduct in the current year?

Accepted Answer

The answer of On August 1 of the current year,Terry...

Quiz 6: Deductions and Losses