1. Look at the Form 1040 you prepared for Raul Beltrán. What is the amount on Form 1040, Line 8a?

A. $0.
B. $6,000.
C. $(8,000). 
D. $(14,000).

2. Look at the Form 1040 you prepared for Raul Beltran. What is the amount on Form 1040, Line 40a?

A. $14,471.
B. $5,700.
C. $6,471. 
D. $14,000.

3. Common kinds of distributions by a corporation to shareholders are:

A. Ordinary dividends.
B. Capital gain distribution.
C. Nontaxable distribution.
D. All of the above.

4. Edwards owns 5 of the 1,000 outstanding shares of Wasco, Inc. stock. Edward purchased his 5 shares in 2004 for $500 per share. During 2009, Wasco, Inc. stock trades at a high of $2,000 per share. At the end of 2009, Wasco, Inc. has earnings and profits of $1,000,000. Wasco, Inc. redeems all of Edward's 5 shares at the end of 2009 for $1,500 per share. What amount of capital gain in 2009 must Edward report from the redemption of his Wasco, Inc. stock?

A. $2,500.
B. $0.
C. $7,500.
D. $5,000.

5. In 2004, Ralph received 10 shares of White Corporation stock as a gift from his father. Ralph's father had originally paid $10 per share for this stock. The stock was trading for $20 per share at the time of the gift. In 2007, Ralph purchased an additional 20 shares of White Corporation stock for a price of $30 per share. Ralph was charged a $20 transaction fee on this purchase. In October of 2009, Ralph sold 20 shares of his White Corporation stock. Ralph cannot adequately identify the shares he disposed of. What is Ralph's basis in the White Corporation shares he still owns?

A. $100.
B. $200.
C. $310.
D. $360.

6. In 2005, Mark purchased 100 shares of Roman, Inc. for $10 per share. In 2009 Roman, Inc. completely liquidated and distributed $8,000 to Mark. Mark must report income from this distribution as:

A. Ordinary other income.
B. Dividends.
C. Capital gains.
D. Return of capital.

7. The basis of property you buy is usually its cost. In determining the acquisition basis in C corporation stock, a shareholder must know:

A. The amount paid in cash or property.
B. The amount paid in cash and debt obligations.
C. The value of provided services and debt obligations assumed.
D. All of the above.

8. Warren purchased stock in 2007 for $10,000. In 2008 Warren sold this stock to his sister Gail for $8,000. In 2009 Gail sold this stock to an unrelated party for $11,000. How much gain must Gail recognize in 2009 on the sale of this stock?

A. $0.
B. $1,000.
C. $2,000.
D. $3,000.

9. Arnold acquired 10 shares of Klesco, Inc. stock in 2005 for $50 per share. Klesco, Inc. decided in 2009 to reacquire all of its outstanding stock, which it did for $200 per share. What amount of capital gain in 2009 must Arnold report on the redemption of his Klesco, Inc. stock?

A. $0.
B. $500.
C. $1,500.
D. $2,000.

10. Sandra sold her Lavender Corporation stock to her mother Beth for $8,000. Sandra's cost basis in the stock was $15,000. Beth later sold this stock to Harry, an unrelated party, for $20,000. What is Sandra's recognized gain or loss?

A. $2,000.
B. $7,000.
C. $7,500.
D. $-0-.

11. Wargo Corporation has two equal shareholders, Karen and Bob. Each shareholder owns 10 shares of Wargo stock and has owned the stock for several years. Each share has a $100 basis and a $150 FMV. Wargo, which has sufficient E&P, redeems 5 shares from Bob at the $150 FMV. What income, if any, does Bob recognize as a result of the redemption?

A. $750.
B. $250.
C. $500.
D. $1,000.

12. Which of the following is an example of nonqualified preferred stock in a Section 351 transactions?

A. The holder of the stock has the right to require the issuer or a related person to redeem or buy the stock.
B. The issuer of the stock is required to redeem or buy the stock.
C. The dividend rate on the stock varies with reference to interest rates, commodity process, or similar indices.
D. All of the above.    

13. Karen transferred property with an adjusted basis of $45,000 and fair market value of $50,000 to Holiday Corporation in exchange for 65% of Holiday Corporation's only class of stock. At the time of the transfer, the stock Karen received has a fair market value of $55,000. What is Holiday Corporation's basis in the property after the exchange?

A. $0.
B. $45,000.
C. $55,000.
D. $60,000.

14. Robert sold his Lebec Corporation stock to his sister Karen for $8,000. Robert's cost basis in the stock was $15,000. Karen later sold this stock to Dana, an unrelated party, for $15,000. What is Karen's realized gain?

A. $500.
B. $7,000.
C. $7,500.
D. $0.

15. Frank sold his Ranier Corporation stock to his sister Bernie for $8,000. Frank's cost basis in the stock was $15,000. Bernie later sold this stock to Wendy, an unrelated party, for $15,000. What is Bernie's recognized gain or loss?

A. $500.
B. ($7,000).
C. ($7,500).
D. $0.

16. You must attach Schedule B (or Schedule 1 for Form 1040A) to your return if your interest or dividend income is more than

A. $400
B. $600
C. $1,500
D. $1,800

17. You must give your name and ____________to any person required by federal law to make a return, statement, or other document that relates to you. This includes payers of interest and dividends.

A. SSN
B. Telephone number
C. Work address
D. Email address

18. You will be subject to a penalty if, when required, you fail to

A. Include your SSN on any return, statement, or other document.
B. Give your SSN to another person who has to include it on any return, statement or other document.
C. Include the SSN of another person on any return, state or other document.
D. Any of the above.

19. Your investment income is subject to 28% backup withholding to ensure that income tax is collected on the income. Backup withholding applies if

A. You do not give the payer your identification number in the required manner.
B. The Internal Revenue Service (IRS) notifies the payer that you gave an incorrect identification number.
C. The IRS notifies the payer that you are subject to backup withholding because you under reported interest or dividends on your return.
D. Any of the above

20. In determining the tax treatment of different types of interest income, the following interest income is taxable.

A. Exempt interest dividends
B. Interest on insurance dividends that you leave on deposit with the Department of Veterans Affairs.
C. Interest on a Roth IRA
D. Interest from bank or loans you make to others.

21. If you receive non-cash gifts or services for making deposits or for opening an account in a savings institution, you

A. May have to report the value as interest.
B. Don't have to report the gift on your tax return because you only have to report it if it is in cash.
C. Don't report the value because it is considered non-taxable interest income.
D. None of the above.

22. Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is

A. Not taxable.
B. Taxable in year it is credited to your account.
C. Taxable in year you withdraw it.
D. Taxable on the due date of the policy.

23. The following interest income is not taxable.

A. Interest income on insurance dividends that can be withdrawn annually.
B. Interest income on U.S. Obligations.
C. Interest income on tax refunds.
D. Interest income on frozen deposits.

24. If you make a below-market gift or demand loan, you

A. Don't need to report any interest income because loan was a gift loan.
B. You may have to report this forgone interest as taxable income.
C. May be able to deduct the forgone interest.
D. Generally must treat as transferring the additional payment back to the lender as interest. 

25. This amount of interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus any interest actually payable on the loan for the period.

A. Interest income on frozen deposits
B. Forgone interest.
C. Installment sale interest
D. Interest on U.S. obligations

26. Interest on these bonds is payable when you redeem the bonds. The difference between the purchase price and the redemption value is taxable interest.

A. Series EE and Series I bonds
B. Series HH bonds and Series II bonds
C. Series H bonds and Series M bonds
D. Series M bonds and Series LL bonds.

27. Series I bonds were first offered in 1998. These are inflation-indexed bonds issued at their face amount with a maturity period of 30 years. The face value plus all accrued interest is

A. Payable each tax year.
B. Payable every 3 years.
C. Payable to you at maturity.
D. Payable when they mature in 20 years.

28. You can deduct expenses you incur to produce tax-exempt income and you can deduct interest on money you borrow to buy tax-exempt securities or shares in a regulated investment company that distributes only exempt-interest dividends.

True False

29. You open a savings account at your local bank and deposit $800. The account earns $20 interest. You also receive a $15 calculator. You must report how much interest income on your tax return?

A. $ 20.
B. $ 35.
C. $ 820.
D. $ 15.

30. This debt instrument is issued for a price that is less than its stated redemption price at maturity. This form of interest income is the difference between the stated redemption price at maturity and the issue price.

A. Original Issue Discount (OID).
B. Certificates of Deposit (CDs).
C. Inflation-indexed debt instruments.
D. Market Discount bonds.

31. If you received ordinary dividends that are in your name but actually belong to someone else, you

A. Need to report that income on your taxes because it's in your name.
 B. Include them on line 5 of Schedule B and file Form 1099-div with the IRS.
C. Call the issuer and tell them that there is a mistake and give them the correct name and social security number of the person it belongs to.
D. Include them on line 5 of Schedule B and below a subtotal of all interest income listed, enter "Nominee Distribution" and the amount that actually belongs to someone else.

32. If you use your dividends to buy more stock at a price equal to its fair market value, you

A. Still must report the dividends as income.
B. Must consider it an even exchange transaction.
C. Don't need to report the dividends as income.
D. Consider them stock dividends and you don't report them on your return.

33. An investment that yields tax benefits with losses that produce little or no benefits to society, or tax benefits are exaggerated beyond those intended.

A. Abusive tax credits.
B. Abusive tax shelters.
C. Abusive tax rates.
D. Abusive tax regulations.

34. If you borrow money to buy property you hold for investment, the interest you pay is

A. Portfolio interest
B. Investment interest
C. Passive interest
D. All of the above

35. If you sold or traded investment property, you must determine your holding period for the property. You holding period determines whether any capital gain or loss was a

A. Long-term capital gain.
B. Short-term capital gain.
C. Investment property.
D. Both A and B above.

36. Basis is a way of measuring your investment in property for tax purposes. You must know the basis of your property to determine whether you have a gain or loss on its sale or other disposition. The basis of property you buy is usually

A. Its purpose.
B. Its cost.
C. Its appearance.
D. Its future worth.

37. The basis of stocks or bonds you own generally is the purchase price plus the costs of purchase, such as commissions and recording or transfer fees.  However, if you acquired stock or bonds other than by purchase, you basis is usually determined by

A. Fair market value.
B. The previous owner's adjusted basis.
C. The price the customer is willing to pay. 
D. Either A or B above.

38. With a Section 1202 Exclusion, you generally can exclude from your income up to 50% of your gain from the sale or trade of qualified small business stock held by you for more than

A. 5 years.
B. 1 year.
C. 6 months. 
D. 2 years.

39. If you hold investment property less than 1 year, any capital gain or loss is a

A. Long-term capital gain or loss.
B. Short-term capital gain or loss.
C. Nontaxable short-term gain. 
D. Nontaxable long-term gain.

40. In 2009, your father gave you a gift of property with a fair market value (FMV) of $75,000. His adjusted basis was $50,000. The gift tax paid was $10,000. What is your basis in the property?

A. $60,000.
B. $75,000.
C. $50,000.
D. $53,968.

41. Stock dividends are distributions made by a corporation of its own stock. You own one share of stock that you bought for $90. The corporation distributed 5 new shares of common stock for each share held. What is your basis for each share of stock?

A. $90.
B. $30.
C. $20.
D. $15.

42. Which of the following determines the basis of property received in exchange for services?

A. The value of services rendered.
B. The basis of the property received.
C. The fair market value of the property received.
D. None of the above.

43. The basis of stock must be adjusted for certain events that occur after purchase. For example, if you receive more stock from nontaxable stock dividends or stock splits, you must

A. Increase the basis on your original stock.
B. Reduce the basis on your original stock.
C. Increase the basis of the of the nontaxable stock dividends.
D. None of the above.