1. During the year, Garbin Corporation (a calendar-year corporation that manufactures furniture) purchased the following assets:
Date Asset Cost
February 15 Tools $40,000
March 3 Machines 50,000
October 6 Office Building 110,000
In computing depreciation of these assets, which of the following averaging conventions will be used?
a. Half-year and mid-month
b. Mid-quarter and mid-month
c. Half-year, mid-quarter, and mid-month
d. Mid-quarter only
2. All of the following result in nontaxable income except:
a. Stock dividend
b. Interest on municipal bonds
c. Capital gain distribution reinvested in the mutual fund
d. Distribution identified as a return of capital
3. The business purpose doctrine:
a. Requires a transaction to be initiated by a business
b. Requires a transaction to benefit the business owner
c. Requires the transaction to have an economic purpose other than tax avoidance
d. Requires the treatment of a transaction to be based on reality not appearances
4. The statute of limitations for a return that inadvertently overstates expenses by 30 percent of gross revenues is
a. 3 years
b. 6 years
c. 10 years
5. Which of the following is not a requirement to qualify for innocent spouse relief?
a. The individual electing innocent spouse relief must have been abandoned by her spouse for more than 6 months.
b. The individual establishes that she did not know and had no reason to know that there was an understatement
c. It would be inequitable to hold the individual liable for the deficiency attributable to the understatement when all facts and circumstances are considered
d. The individual elects innocent spouse relief no later than 2 years after collection activities against the person seeking relief have begun.
1. b. mid quarter for the assets purchased in the first quarter of the year, and mid month for the 39 year building.
2. d. Distribution is repayment of money invested and would not be taxable unless it was a total distribution of the taxpayer's interest in the investment.
3. c. A transaction must serve ...
Five multiple choice questions discuss various tax subjects including depreciation, non-taxable income, business purpose, statute of limitations and innocent spouse relief. The 200 word solution provides explanations for the choice of answers.