21 A taxpayer works in a foreign country beginning April 1, 2012 through May15, 2013. If the tax payer’s foreign earned income for 2012 is $77900, his foreign earned income exclusion for 2012 is A 71455 B 34818 C 0 D95100 E 77900 22 Nondeductible taxes include all of the following except A federal gift taxes B real estate tax paid on behalf of the taxpayer’s son C Social security taxes D All of these are nondeductible taxes E Gasoline taxes 23 Supporting evidence to justify a casualty loss deduction includes all the following except A the cost to repair the property to its pre-incident condition B all of these provide supporting evidence to justify a casualty loss deduction C the FMV immediately before and after the loss D pictures taken before and after the casualty E appraisal of the property before and after the casualty 24A maximum deduction limitation of 30% of AGI applies to charitable contributions to public charities of which one of the following types of properties. A appreciated capital gains property that is not reduced by any amount of appreciation B cash or property other than appreciated capital gains property C contributions of inventory D none of the other choices E Cash contributions 25A tornado damaged Angela’s home. Prior to the storm, her living expenses were $1200 a month, Angela had to move out of her home for three months while it was being fix. During that time, her living expenses increased by $800 a month. The insurance company reimbursed Angela $1000 a month during the three months to cover her living expenses. The amount that Angela must include in gross income is A 2400 B 3000 C 0 D600 E none of the other choices 26Which of the following is not a factor considered in determining whether an activity is a business or a hobby A relative amount of pleasure derived from the activity B time and effort devoted to the activity C all of these are factors considered in determining whether all activity is a business or a hobby. D extent of dependence on the activity for financial support E Locating the activity in the taxpayer’s home 27a tax attorney uses a country club to entertain clients and spends the following amounts : annual dues, $1000; personal meals, $1500; business meals,$2500 . He uses the country club 30% for business. What is the deductible expenses? A 750 B 1550 C 375 D 1250 E none of the other choices 28what is the standard mileage rate for computing the deductible cost of operating a car for business purposes during 2012. A 0.555 B 0.23 C 0.14 D 0.19 E 0.50 29A taxpayer reports $35000 as net profit on schedule C. the taxpayer also report wage income of $15000. The taxpayer’s deduction for AGI for the employer’s share of the self-employment tax in 2012 is A none of the other choices B2677 C 2472 D 2150 E4229 30the maximum amount that a 54-year-old sole proprietor can contribute to his simple plan in 2012 is A 14000 B5000 C 17000 D 11500 E 22500 .

1. 21 A taxpayer works in a foreign country beginning April 1,
2012 through May15, 2013. If the tax payer’s foreign earned
income for 2012 is $77900, his foreign earned income exclusion
for 2012 is
A 71455 B 34818 C 0 D95100 E 77900
22 Nondeductible taxes include all of the following except
A federal gift taxes
B real estate tax paid on behalf of the taxpayer’s son
C Social security taxes
D All of these are nondeductible taxes
E Gasoline taxes
23 Supporting evidence to justify a casualty loss deduction
includes all the following except
A the cost to repair the property to its pre-incident condition
B all of these provide supporting evidence to justify a casualty
loss deduction
C the FMV immediately before and after the loss
D pictures taken before and after the casualty
E appraisal of the property before and after the casualty
24A maximum deduction limitation of 30% of AGI applies to

2. charitable contributions to public charities of which one of the
following types of properties.
A appreciated capital gains property that is not reduced by any
amount of appreciation
B cash or property other than appreciated capital gains property
C contributions of inventory
D none of the other choices
E Cash contributions
25A tornado damaged Angela’s home. Prior to the storm, her
living expenses were $1200 a month, Angela had to move out of
her home for three months while it was being fix. During that
time, her living expenses increased by $800 a month. The
insurance company reimbursed Angela $1000 a month during
the three months to cover her living expenses. The amount that
Angela must include in gross income is
A 2400 B 3000 C 0 D600 E none of the other choices
26Which of the following is not a factor considered in
determining whether an activity is a business or a hobby
A relative amount of pleasure derived from the activity
B time and effort devoted to the activity
C all of these are factors considered in determining whether all
activity is a business or a hobby.
D extent of dependence on the activity for financial support

3. E Locating the activity in the taxpayer’s home
27a tax attorney uses a country club to entertain clients and
spends the following amounts : annual dues, $1000; personal
meals, $1500; business meals,$2500 . He uses the country club
30% for business. What is the deductible expenses?
A 750 B 1550 C 375 D 1250 E none of the other choices
28what is the standard mileage rate for computing the
deductible cost of operating a car for business purposes during
2012.
A 0.555 B 0.23 C 0.14 D 0.19 E 0.50
29A taxpayer reports $35000 as net profit on schedule C. the
taxpayer also report wage income of $15000. The taxpayer’s
deduction for AGI for the employer’s share of the self-
employment tax in 2012 is
A none of the other choices B2677 C 2472 D 2150 E4229
30the maximum amount that a 54-year-old sole proprietor can
contribute to his simple plan in 2012 is
A 14000 B5000 C 17000 D 11500 E 22500
31the maximum number of employees that an employer can
have to be able to offer a simple plan is
A 50 B25 C 200 D none of the other choices E 100
32If a 45-year-old employee contribute $11500 to his
employer’s 401k plan during 2012. How much can be contribute
to his employer’s ROTH 401k

4. A 11500 B5500 C 0 D 11000 E 17000
33In the year a child is born, exemption for the newborn child
must prorated
A True Bfalse
34An abandoned spouse is someone who is married on the last
day of the year but qualifies to file as a single taxpayer and uses
the single tax rates ( instead of the married filling separately
rates) to compute tax liability
A True B false
35under the abandoned spouse rules if one spouse qualifies an
abandoned spouse then the other spouse must file as single
A true B false
36the initial child tax credit equals $1000 for each dependent
child under the age 17
A True B false
37when a married taxpayer with $80000 of taxable income files
a separate income tax return, he will have a larger tax liability
than another taxpayer with the same taxable income who files as
a single taxpayer
A true Bfalse
38the tax table is more difficult to use than the tax rate
schedules
A True B false

5. 39for purposes of the child and dependent care credit, a
dependent child who is not incapacitated must be under age13
A True B False
40 only distributions from a corporation’s earning and profit(
E&P) produce ordinary dividends
A true B false
41taxpayers with less than $1500 of dividend income can file
form1040EZ
A true B false
42 In a compensation-related loan, the lender is taxed on the
amount of imputed interest, but the amount of taxable interest
income is offset by a deduction for wage expense.
A true B false
43 the discrimination rules do not apply to on-promise athletic
facilities
A true B false
44 a penalty charged by a commercial bank on the early
withdrawal of money from a certificate of deposit account can
be deducted for adjusted gross income
A true B false
45 self-employed taxpayers deduct qualified moving expenses
for AGI assuming they pass the distance and employment tests.
A True B false

6. 46 when taxpayer are charged an early withdrawal penalty they
reduce the amount of interest they include in gross income
A True B false
47 Deductible interest includes interest paid on a qualified
home equity loan
A True B False
48 A taxpayer is allowed to take an itemized deduction for a
loss resulting from damage to the taxpayer’s automobile caused
by a collision, even if the taxpayer was at fault
Atrue B false
49 To be deductible as an itemized deduction. Personal property
taxes must be ad valorum taxes
A ture B false
50 When an activity ( excluding horse activities) shows a profit
in any three of five consecutive years, it is assumed to be a
business rather than a hobby
A true B false
51 If a taxpayer’s business expense does not exceed $100, the
taxpayer will not be required to keep supporting documents to
verify the deductions claimed.
A true B false
52 When employees drive their personal cars from one job to a
second job, they can take a deduction for the mileage driven

7. between the two jobs.
A True B false
53 taxpayers can deduct costs they pay to tax professional to
help them contest income taxes assessed by the IRS
A true B false
54 cash method taxpayers who prepay expenses to be incurred
in a subsequent tax year are allowed to deduct the expense in
the year of payment
A true B false
55 An accrual basis taxpayer in a qualified service business is
required to accrue service revenue that has been earned but not
yet collected, even if , based on experience, it is probably not
collectible.
A true Bfalse
56 If a self-employed taxpayer has employees he can establish a
SEP plan for himself without offering the plan to all full-time(
eligible employees)
A True B false
57 sole proprietors deduct amount paid to workers classified as
independent contractors as wage expense on schedule C.
A True B false
Multiyear tax case

8. Susan owns a snowmobile manufacturing business, and Bruce
owns a mountain bike manufacturing business. Because each
business is seasonal, their manufacturing plants are idle during
their respective off-seasons. Susan and Bruce have decided to
consolidate their businesses as one operation. In so doing, they
expect to increase their sales by 15% annually and cut their
costs initially by 30%. Susan and Bruce own their businesses as
sole proprietors and provide the following summary of their
2011 taxable incomes:
Susan Bruce
Business income
Sales $600,000 $450,000
Cost of goods sold (400,000) (300,000)
Other expenses (100,000)( 75,000)
Business taxable income $100,000 $ 75,000
Other taxable income
(net of allowable deductions) 20,000 35,000
2011 taxable income $120,000 $110,000
Susan and Bruce don’t know what type of entity they should use
for their combined business. They would like to know the tax
implications of forming a partnership versus a corporation.
Under either form, Susan will own 55% of the business and
Bruce will own 45%. They each require $70,000 from the
business initially and would like to increase that by $6,000 per
year.
Based on the information provided, do a three-year projection
of the income of the business and the total taxes for a
partnership and for a corporation. In doing the projections,
assume that after the initial 30% decrease in total costs, their
annual costs will increase in proportion to sales. Also, assume
that their nonbusiness taxable income remains unchanged. Use

9. the 2011 tax rate schedules to compute the tax for each year of
the analysis. (page 98 in http://www.irs.gov/pub/irs-
pdf/i1040gi.pdf)