AICPA REG : CPA Regulation

A cash basis taxpayer should report gross income:

• A. Only for the year in which income is actually received whether in cash or in property.
• B. For the year in which income is either actually or constructively received in cash only.
• C. For the year in which income is either actually or constructively received, whether in cash or in
  property.
• D. Only for the year in which income is actually received in cash.

Cobb, an unmarried individual, had an adjusted gross income of $200,000 in 1990 before any IRA
deduction, taxable social security benefits, or passive activity losses. Cobb incurred a loss of $30,000 in
1 990 from rental real estate in which he actively participated. What amount of loss attributable to this
rental real estate can be used in 1990 as an offset against income from nonpassive sources?

• A. $0
• B. $12,500
• C. $30,000
• D. $25,000

Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in taxable
income. During 1994, Tom's daughter Laura, age 16, resided with Tom. Laura had no income of her own
and was Tom's dependent.
Determine the amount of income or loss, if any that should be included on page one of the Moores' 1994
Form 1040.
The Moores had no capital loss carryovers from prior years. During 1994, the Moores had the following
stock transactions, which resulted in a net capital loss:

• A. $1,500
• B. $1,000
• C. $75,000
• D. $1,300
• E. $0
• F. $10,000
• G. $2,500
• H. $1,250
• I. $900
• J. $500
• K. $55,000
• L. $2,000
• M. $3,000
• N. $25,000
• O. $50,000

Hall, a divorced person and custodian of her 12-year old child, filed her 1990 federal income tax return as
head of a household. She submitted the following information to the CPA who prepared her 1990 return:
. The divorce agreement, executed in 1983, provides for Hall to receive $3,000 per month, of which $600
is designated as child support. After the child reaches 18, the monthly payments are to be reduced to
$ 2,400 and are to continue until remarriage or death. However, for the year 1990, Hall received a total of
only $5,000 from her former husband. Hall paid an attorney $2,000 in 1990 in a suit to collect the alimony
owed.
. In June 1990, Hall's mother gifted her 100 shares of a listed stock. The donor's basis for this stock, which
she bought in 1970, was $4,000, and market value on the date of the gift was $3,000. Hall sold this stock
in July 1990 for $3,500. The donor paid no gift tax.
. During 1990, Hall spent a total of $1,000 for state lottery tickets. Her lottery winnings in 1990 totaled
$ 200.
. Hall earned a salary of $25,000 in 1990. Hall was not covered by any type of retirement plan, but
contributed $2,000 to an IRA in 1990.
. In 1990, Hall sold an antique that she bought in 1980 to display in her home. Hall paid $800 for the
antique and sold it for $1,400, using the proceeds to pay a court-ordered judgment.
. Hall paid the following expenses in 1990 pertaining to the home that she owns: realty taxes, $3,400;
mortgage interest, $7,000; casualty insurance, $490; assessment by city for construction of a sewer
system, $910; interest of $1,000 on a personal, unsecured bank loan, the proceeds of which were used
for home improvements. Hall does not rent out any portion of the home.
What amount should be reported in Hall's 1990 return as alimony income?

• A. $5,000
• B. $0
• C. $28,800
• D. $36,000

Don Wolf became a general partner in Gata Associates on January 1, 1989, with a 5% interest in Gata's
profits, losses, and capital. Gata is a distributor of auto parts. Wolf does not materially participate in the
partnership business. For the year ended December 31, 1989, Gata had an operating loss of $100,000.
In addition, Gata earned interest of $20,000 on a temporary investment. Gata has kept the principal
temporarily invested while awaiting delivery of equipment that is presently on order. The principal will be
used to pay for this equipment. Wolf's passive loss for 1989 is:

• A. $5,000
• B. $0
• C. $4,000
• D. $6,000