Question

In which of the following situations does a cash-basis taxpayer have a fully deductible expense during the current tax year?

1. Prepayment of 3 months of insurance in September.

2. Prepayment of 24 months of rent in July.

3. Both taxpayers have a fully deductible expense during the current tax year.

4. Neither taxpayer has a fully deductible expense during the current tax year.

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Which of the following is a true statement concerning MACRS?

1. MACRS creates temporary book and tax differences.

2. Taxpayers can use any recovery periods that they choose.

3. Recovery periods tend to be longer than useful lives.

4. Residential realty is recovered over 39 years.

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What can taxpayers do after they take their cases to the U.S. Tax Court and lose?

1. Nothing, and they must pay the proposed tax deficiency.
2. They may only appeal their cases to the one specific U.S. Circuit Court of Appeals that is appropriate for their geographic location.
3. They may only appeal their cases directly to the U.S. Supreme Court.
4. They may only appeal their cases to any one of the thirteen U.S. Circuit Courts of Appeals.

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In which of the following payment situations is there an allowable tax deduction?

1. $500 penalty for illegal gambling
2. $500 fine for speeding
3. $500 payment of a legal kickback
4. $100 failure to pay tax penalty

Answer 1

1. option 3 (A cash basis taxpayer gets the deduction in the year in which expenses are paid)

2. option 1 (MACRS result into Deferred Taxes over Time. Deferred taxes caused by timing differences are temporary, because they reverse over time).

3. option 2. (they can move next higher level from district court which is called called circuit courts, hear appeals from the district courts located in their geographic circuit)

4. option 4 (illegal kickbacks are not deductible but legal kickbacks are)