If an individual taxpayer's suspended passive losses and
credits from an activity other than rental real estate cannot be
used in the current year, they may be carried
A. Back 2 years, but they cannot be carried forward.
B. Forward up to a maximum period of 20 years, but they cannot
be carried back.
C. Back 2 years or forward up to 20 years, at the taxpayer's
D. Forward indefinitely or until the property is disposed of
in a taxable transaction.
 Kilgore is a self-employed flight instructor who assists
in the writing of aviation books. She uses a room in her apartment
as an office for her writing, and it constitutes her place of
business. It is also used to store personal effects and as an
occasional second bedroom. It takes up 25% of the space of the
apartment and is used 50% of the time as an office. Kilge month and
utilities are $50 per month. How much may Kilgore deduct for this
 Pierre, a headwaiter, received tips totaling $2,000 in
December of Year 1. On January 5, Year 2, Pierre reported this tip
income to his employer in the required written statement. At what
amount, and in which year, should this tip income be included in
Pierre's gross income?
A. $2,000 in Year 1.
B. $2,000 in Year 2.
C. $1,000 in Year 1 and $1,000 in Year 2.
D. $167 in Year 1 and $1,833 in Year 2.
 In the current year, Mr. A started a business that rents,
sells, and repairs video recorders. Mr. A uses the accrual method
of accounting and the calendar year as his tax year. The current
year business receipts included payments for 1-year service
contracts and payments for prepaid rent on video recorders. The
video recorders are offered for sale without service contracts in
the normal course of business. Which of the following statements
regarding Mr. A's reporting of gross income is true?
A. He must include the payments for prepaid rent in gross
income for the current year, but may include the payments for
1-year service contracts as he earns them over the periods of the
B. He may include the payments for prepaid rent and 1-year
service contracts in gross income as he earns them over the periods
of the contracts.
C. He must include the payments for 1-year service contracts
in gross income for the current year, but may include the payments
for prepaid rent over the periods of the rental contracts.
D. He must include the payments for prepaid rent and for
1-year service contracts in gross income for the current
 All of the following statements with respect to effective
recordkeeping are true, except
A. Records should identify the source of income in order to
determine if an income item is taxable or nontaxable.
B. If an individual cannot provide a canceled check to prove
payment of an expense item, (s)he may be able to prove it with
certain financial account statements.
C. Records that support the basis of property should be kept
until the statute of limitations expires for the year that the
property was acquired.
D. Records should show how much of an individual's earnings
are subject to self-employment tax.
 Which of the following items represents sufficient
documentary evidence to substantiate expenditures for travel,
entertainment, or gift expenses?
A. A canceled check written to pay a motel bill on a business
B. A statement from the taxpayer's employer.
C. An account book maintained daily by the taxpayer for her
business meals (no meal was over $10).
D. Memos on a desk calendar.