Discipline Test Option 3: Tax Compliance and Planning (TCP)

Sally has the following sources of income for the year ending 2023:

W-2 wages totaling $62,000
Dividend income of $500
Interest income of $60
Employer-paid contributions into a 401(k) retirement plan of $3,000

Which statement is incorrect?

Employer contributions in the retirement plan are taxable and included in gross income.

Julie has the following sources of income for the year ending 2023:

W-2 wages totaling $65,000
Dividend income of $500
Rental income of $5,000
Sole proprietor business profit reported on Schedule C of $20,000

Which statement is incorrect?

Business profit income is reported on the business tax return.

Patty has the following expenses for the year ending 2023:

Charitable contributions of $8,000
State income taxes paid of $3,000
Interest paid on home mortgage of $4,000

Assume that the standard deduction for a single taxpayer is $13,850 for 2023 and that Patty files as a single taxpayer.

Which statement is incorrect?

Total itemized deductions are less than the standard deduction.

Scott has the following expenses for the year ending 2023:

Charitable contributions totaling $5,000
State income taxes paid of $2,000
Interest paid on home mortgage of $4,000

Assume that the standard deduction for a single taxpayer is $13,850 for 2023, and that Scott files as a single taxpayer.

Which statement is incorrect?

Total itemized deductions are more than the standard deduction.

Bob’s 2023 federal income tax liability is $30,000. $20,000 in income tax was withheld through wages earned at a full-time job. In addition, Bob made $4,000 estimated tax payments.

Which statement is incorrect?

Bob will receive a tax refund after filing this tax return.

Joe’s 2023 federal income tax liability is $22,000. $20,000 in income tax was withheld through wages earned at a full-time job. In addition, Joe made $4,000 in estimated tax payments.

Which statement is incorrect?

Joe needed to pay $6,000 in estimated payments to fully pay their tax liability.

During 2023, Susie invests $4,000 in a 401(k) retirement plan offered through work. Susie’s employer matches and invests another $4,000. Susie earns $800 in dividend income, interest income, and capital gains in the 401(k) retirement plan during 2023.

Which statement is incorrect?

Earnings on Susie’s 2023 investment are not taxed, but the employer’s $4,000 contribution is taxable to Susie in 2023.

During 2023, Dana invests $2,000 in a 401(k) retirement plan offered through work. Dana’s employer matches and invests another $1,500. Susie earns $500 in dividend income, interest income, and capital gains in a Charles Schwab joint account owned with Susie’s spouse during 2023. The Charles Schwab joint account is not a retirement plan.

Which statement is incorrect?

The dividend income is taxable on Susie’s 2023 tax return, but the interest income is not.

During 2023, Mark had the following transactions:

Owns 100 shares of IBM. The company issues a 2:1 stock split.
Owns 200 shares of Microsoft. The business paid a 10 percent stock dividend.
Owns a $5,000 corporate bond and was repaid the $5,000 face amount during 2023.

Which statement is incorrect?

Mark receives 100 additional shares of IBM and is taxed on the fair market value of the additional shares.

During 2023, Greg had the following transactions:

Owns 100 shares of IBM. The company issues a 3:1 stock split.
Owns 100 shares of Microsoft. The business paid a 10 percent stock dividend.
Owns a $4,000 corporate bond and was repaid the $4,000 face amount during 2023.

Which statement is incorrect?

Greg receives 20 additional shares of Microsoft and is not taxed on the fair market value of the additional shares.

During 2023, Jill had the following transactions:

Sold 100 shares of IBM at $46 per share. Jill’s cost basis was $38 per share.
Sold 200 shares of Microsoft at $62 per share. Jill’s cost basis was $68 per share.

The first two transactions were in Jill’s Charles Schwab brokerage account, which is not a retirement plan.

Jill also had a $3,000 capital gain in a 401(k) retirement plan through work.

Which statement is incorrect?

Jill has a $3,000 realized gain on stock sales in the retirement account.

During 2023, Angie had the following transactions:

Sold 200 shares of IBM at $46 per share. Angie’s cost basis was $52 per share.
Sold 300 shares of Microsoft at $62 per share. Angie’s cost basis was $48 per share.

The first two transactions were in Angie’s Charles Schwab brokerage account, which is not a retirement plan.

Angie also had a $4,000 capital loss in a 401(k) retirement plan through work.

Which statement is incorrect?

Angie has a $4,000 realized loss on stock sales in the retirement account.

During 2023, Bill had the following transactions:

Sold 200 shares of IBM at $48 per share. Bill's cost basis was $34 per share.
Bill owns 300 shares of Microsoft, and the company completed a 2:1 stock split.
Bill owns 400 shares of Apple, and the company issued a 10 percent stock dividend.

The first three transactions were in Bill’s Charles Schwab brokerage account, which is not a retirement plan.

Bill also had a $2,500 capital loss in a 401(k) retirement plan through work.

Which statement is incorrect?

Bill now owns 480 shares of Apple.

Prestige Furniture, a C corporation, owns 15 percent of Acme Supply Corporation. Acme paid a $4,000 cash dividend to Prestige. What is the amount of Prestige’s dividend‐received deduction (DRD) for Acme’s dividend payment?

$2,000

Standard Corp., which had earnings and profits of $600,000, made a nonliquidating distribution of property to its stockholders during 2023. This property had an adjusted basis of $20,000 and a fair market value of $35,000 at the date of distribution. The property was subject to a liability of $17,000, which its stockholders assumed. How much gain did Standard have to recognize because of this distribution?

$15,000

Don and Linda Kressin, U.S. citizens, were married for the entire 2023 calendar year. In 2023, Linda gave an $80,000 cash gift to her sister. The Kressins made no other gifts in 2023. They each signed a timely election to treat the $80,000 gift as a $40,000 gift made by each spouse. Disregarding the unified credit and estate tax consequences, what amount of the 2023 gift is taxable to the Kressins for gift tax purposes?

$12,000

The Franklin Trust reported distributable net income of $120,000 for the current year. The trustee is required to distribute $80,000 to Mary and $100,000 to Paul each year. If the trustee distributes these amounts, what amount is includable in Paul's gross income?

$66,667

Connor Smith, a cash‐basis taxpayer, owns an apartment building. The following information was available for 2023:

An analysis of the 2023 bank deposit slips showed recurring monthly rents received totaling $64,000.

On March 1, 2023, the tenant in apartment 10B paid Smith $3,000 to cancel the lease expiring on December 31, 2024. The lease of the tenant in apartment 3F expired on December 31, 2023, and the tenant left improvements valued at $2,000. The improvements were not in lieu of any rent required to have been paid.

In computing net rental income for 2023, Smith should report gross rents of

$67,000

Brad and Neil are equal partners in B&N Associates, a general partnership. B&N borrowed $25,000 from a bank on an unsecured note, thereby increasing each partner’s share of partnership liabilities. As a result of this loan, the basis of each partner’s interest in B&N was

Increased

During 2023, Mark had the following transactions:

Sold 300 shares of IBM at $45 per share. Mark’s cost basis was $58 per share.
Mark owns 400 shares of Microsoft, and the company completed a 3:1 stock split.
Mark owns 800 shares of Apple, and the company paid a 10 percent stock dividend.

The first three transactions were in Mark’s Charles Schwab brokerage account, which is not a retirement plan.

Mark also had a $4,300 capital loss in a 401(k) retirement plan through work.

Which statement is incorrect?

Mark now owns 1,000 shares of Microsoft.