Question 1

Briefly discuss the disallowance of deductions for capital expenditures.

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Question 2

In applying the $1 million limit on deducting executive compensation,what corporations are subject to the deduction limit? What executives are covered?

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Question 3

Can a trade or business expense be deductible if it is necessary but not ordinary?

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Question 4

Why are there restrictions on the recognition of gains and losses resulting from transactions between related parties?

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Question 5

Sid bought a new $1,210,000 seven-year class asset on August 2,2013.On September 12,2013,he purchased $860,000 of used five-year class assets.Sid does take additional first-year depreciation if available.If Sid elects § 179,what is the maximum write-off for these purchases for 2013?

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Question 6

Briefly discuss the two tests that an accrual basis taxpayer must apply before an expense can be deducted.

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Question 7

Bruce owns several sole proprietorships.Must Bruce use the same accounting method for each of these businesses?

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Question 8

Norm purchases a new sports utility vehicle (SUV)on October 12,2013,for $50,000.The SUV has a gross vehicle weight of 6,200 lbs.It is used 100% of the time for business and it is the only business asset acquired by Norm during 2013.Compute the maximum deduction with respect to the SUV for 2013.Norm does take additional first-year depreciation.

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Question 9

In a related party transaction where realized loss is disallowed,when can the disallowed loss be used by the buyer on the subsequent sale of the property? In the case of a related party disallowed loss transaction,can the related party seller's disallowed loss be used by a taxpayer other than the related party buyer?

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Question 10

Rustin bought used 7-year class property on May 15,2013,for $728,000.Rustin elects § 179 and straight-line cost recovery.Rustin's taxable income would not create a limitation for purposes of the § 179 deduction.Determine the maximum write-off Rustin can take in 2013.

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Question 11

Red Company is a proprietorship owned by Sally,a single individual.Red manufactures and sells widgets.During 2013,an examination of Red's records shows the following items:
  Determine Sally's domestic production activities deduction for 2013.

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Question 12

Bobby operates a drug trafficking business.Because he has an accounting background,he keeps detailed financial records.What expenses can Bobby deduct on his Federal income tax return?

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Question 13

Are there any circumstances under which lobbying expenditures are deductible?

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Question 14

If part of a shareholder/employee's salary is classified as unreasonable,determine the effect on the:

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Question 15

Olive,Inc.,an accrual method taxpayer,is a corporation that is equally owned by Maurice and Alex,who are brothers.The corporation uses the accrual method of accounting and the shareholders use the cash method.To provide Olive with funds to acquire additional working capital,the shareholders each loan Olive $100,000 with a 6% interest rate.At the end of the tax year,there is unpaid accrued interest of $3,000 due to each shareholder.From a timing perspective,when should Olive deduct this $6,000 and when should Maurice and Alex include the $3,000 in gross income? Olive pays the $3,000 to each shareholder early next year.

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Question 16

Max opened his dental practice (a sole proprietorship)in March 2013.At the end of the year,he has unpaid accounts receivable of $62,000 and no unpaid accounts payable.Should Max use the accrual method or the cash method for his dental practice?

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Question 17

Under what circumstances may a taxpayer deduct the expenses of investigating a possible business acquisition,if (1)the business is not acquired; and (2)the business is acquired?

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Question 18

If a taxpayer operated an illegal business (not drug trafficking),what expenses can be deducted and what expenses are disallowed?

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Question 19

Graham,a CPA,has submitted a proposal to do the annual audit for a municipality.Owen,the city treasurer,tells Graham that for a $1,000 fee,he will use his influence to have the audit awarded to Graham.What factors are relevant in determining if Graham can deduct the $1,000 payment assuming he pays the fee to Owen?

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Question 20

Abner contributes $2,000 to the campaign of the Tea Party candidate for governor,$1,000 to the campaign of the Tea Party candidate for senator,and $500 to the campaign of the Tea Party candidate for mayor.Can Abner deduct these political contributions?

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Quiz 5: Business Deductions