income taxation

COMPREHENSIVE VOLUME--CHAPTER 7--DEDUCTIONS AND LOSSES: CERTAIN BUSINESS EXPENSES AND LOSSES Student: ___________________________________________________________________________ 1. James is in the business of debt collection.  He purchased a $20,000 account receivable from Green Corporation for $15,000.  During the year, James collected $17,000 in final settlement of the account.  James can take a $2,000 bad debt deduction in the current year.  True    False

 
2. If a business debt previously deducted as partially worthless becomes totally worthless this year, only the amount not previously deducted can be deducted this year.  True    False
 
3. Last year, taxpayer had a $10,000 nonbusiness bad debt.  Taxpayer also had an $8,000 short-term capital gain and taxable income of $35,000.  If taxpayer collects the entire $10,000 during the current year, $8,000 needs to be included in gross income.  True    False

 
4. A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.  True    False
 
5. If an account receivable written off during a prior year is subsequently collected during the current year, the amount collected must be included in the gross income of the current year to the extent it created a tax benefit in the prior year.  True    False

 
6. A nonbusiness bad debt deduction can be taken any year after the debt becomes totally worthless.  True    False
 
7. A business bad debt is a debt unrelated to the taxpayer’s trade or business either when it was created or when it became worthless.  True    False
 
8. In determining whether a debt is a business or nonbusiness bad debt, the debtor’s use of the borrowed funds is important.  True    False
 
9. A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.  True    False
 
10. A nonbusiness bad debt can offset an unlimited amount of long-term capital gain.  True    False
 
11. The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.  True    False
 
12. A bona fide debt cannot arise on a loan between father and son.  True    False
 
13. A bond held by an investor that is uncollectible will be treated as a worthless security and hence, produce a capital loss.  True    False
 
14. A loss from a worthless security is always treated as a short-term capital loss.  True    False
 
15. A loss is not allowed for a security that declines in value.  True    False
 
16. Several years ago, John purchased 2,000 shares of Red Corporation § 1244 stock from Mark for $40,000.  Last year, John sold one-half of his Red Corporation stock to Mike for $12,000.  During the current year, John sold the remaining Red Corporation stock for $3,000.  John has a $17,000 ($3,000 – $20,000) ordinary loss for the current year.  True    False

 
17. If a taxpayer sells their § 1244 stock at a loss, all of the loss will be ordinary loss.  True    False
 
18. Al, who is single, has a gain of $40,000 on the sale of § 1244 stock (small business stock) and a loss of $80,000 on the sale of § 1244 stock. As a result, Al has a $40,000 ordinary loss.  True    False

 
19. An individual may deduct a loss on rental property even if it does not meet the definition of a casualty loss.  True    False
 
20. “Other casualty” means casualties similar to those associated with fires, storms, or shipwrecks.  True    False
 
21. A father cannot claim a loss on his daughter’s rental use property.  True    False
 
22. A personal casualty loss deduction may be allowed for losses resulting from termites.  True    False
 
23. If the amount of the insurance recovery for a theft of business property is greater than the asset’s fair market value but less than it’s adjusted basis, a gain is recognized.  True    False
 
24. A theft loss is taken in the year of the theft. 
True    False
 
25. Last year, Amos had AGI of $50,000. ...