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

a. $ 5,350.
b. $ 6,501.
c. $ 6,524. 
d. None of the above.

2. Look at the Form 1040 you prepared for Raul Beltran. What is the amount on Form 1040, Line 74a?

a. $ 76.
b. $ -0- owe $ 96.
c. $ 1,126. 
d. None of the above.

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

a. $405
b. $600
c. $1,500
d. $1,800

4. 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. Social Security Number
b. telephone number
c. work address
d. E-mail address

5. 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. all of the above.

6. You 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. all of the above

7. 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.

8. 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.

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 Interest on insurance dividends left on deposit with an insurance company that can be withdrawn annually is

a. not taxable.
b. is taxable in year it is credited to your account.
c. is taxable in year you withdraw it.
d.  is taxable on the due date of the policy.

10. 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.

11. 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. must report as interest income any forgone interest.
c. may be able to deduct the forgone interest.
d. generally must treat as transferring the additional payment back to the lender as interest. 

12. The 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

13. 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.

14. 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.

15. 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

16. 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. None of the above.

17. 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.

18. 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 1 or 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. don't need to do anything because this income is not taxable to you anyways.

19. 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.

20. 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 regulation.

21. An accurate-related penalty of 20% can be imposed for underpayments of tax due to:

a. negligence or disregard of rules or regulations.
b. substantial understatement of tax.
c. substantial valuation misstatement.
d. all of the above.

22. In general, you are liable for a 20% penalty for a substantial valuation misstatement if the following is true:

a. The value or adjusted basis of any property claimed or the return is 150% or more of the correct amount.
b. You underpaid your tax by more than $5,000 because of the misstatement.
c. You cannot establish that you had reasonable cause for the understatement and that you acted in good faith.
d. All of the above.

23. 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

24. You borrow $10,000 and use $6,000 to buy stock. You use the other $4,000 to buy items for your home. Since 60% of the debt is used for, and allocated to, investment purposes, ____ of the interest on that debt is investment interest.

a. 60%
b. 40%
c. 100%
d. 20%

25. To be deductible, investment expenses must be ordinary and necessary expenses paid or incurred to produce or collect income, or to manage property held for producing income. Which of the following is not deductible?

a. attorney or accounting fees.
b. clerical help and office rent.
c. fees to collect income and investment counsel.
d. state and local transfer taxes.

26. You can deduct expenses as an investor. However, you cannot deduct

a. Fees you pay for counsel and advice about investments that produce taxable income.
b. Safe deposit box to store taxable income-producing stocks.
c. interest you incur to produce tax-exempt income.
d. all of the above.

27. You do not have to complete Form 4952 or attach it to your return if

a. Your investment interest expense is not more than your investment income from interest ordinary dividends.
b. You do not have any other deductible investment expenses.
c. you have no carryover of investment interest expense from 2006.
d. all of the above.

28. Generally, your deduction for investment interest expense is limited to the amount of your net investment income. You can carry over the amount of investment interest that you could not deduct because of this limit to the next year. You can carry over disallowed investment interest to the next year even if

a. The disallowance is due to fraud or reckless disregard to the rules.
b. You do not have any taxable income in the year the interest is carried over to.
c. It is more than your taxable income in the year the interest was paid or accrued.
d. None of the above.

29. Income or expenses that you used in computing income or loss from a _______________ are not included in determining your investment income or investment expenses.

a. personal activity.
b. passive activity.
c. gainful activity.
d. profitable activity.

30. Ted is a partner in a partnership that operates a business. However, he does not materially participate in the partnership's business. Ted's interest in the partnership is considered a

a. personal activity.
b. passive activity.
c. gainful activity.
d. profitable activity.

31. Look at the Form 540 you prepared for Raul Beltran. What is the amount on Form 540, Line 18?

a. $ 6,000.
b. $ 14,000.
c. $ 6,501. 
d. $ 6,524.

32. Look at the Form 540 you prepared for Raul Beltran. What is the amount on Form 540, Line 66?

a. $ 344.
b. $ 284.
c. $ 23. 
d. $ -0- owe $37.

33. Interest on U.S. savings bonds is _____ for California.

a. taxable
b. non-taxable
c. treated same as federal
d. none of the above.

34.  For California, do not make an entry on Schedule CA (540) if you received

a. U.S. savings bonds interest
b. Series EE U.S. savings bonds issued after 1989 that qualified for the Education savings Bond Program exclusion.
c. U.S. Treasury bills, note and bonds.
d. Any bonds or obligations of the United States and its territories.

35. No adjustments need to be made if you received interest income on

a. Federal National Mortgage Association Bonds.
b. Government National Mortgage Association bonds.
c. Federal Home Loan Mortgage Corp. Securities.
d. all of the above.

36. Interest income that you identified as tax-exempt interest on your Federal return is taxable to California if the interest you received is from

a. Non-California State bonds.
b. Non-California Municipal bonds.
c. Obligations of the District of Columbia issued after December 27, 1973.
d. all of the above.

37. California taxes dividends that are derived from other states and their municipal obligations.

True False

38. Certain mutual funds pay "exempt-interest dividends". If the mutual fund has at least 50% of its assets invested in tax-exempt U.S. Obligations and/or in California or its municipal obligations, that amount of dividend is

a. Taxable California income.
b. Exempt from California tax.
c. Added to California income.
d. No different than Federal treatment.

39. Subtract from California income the following dividends:

a. portion of exempt interest dividends from mutual funds that meets the 50% rule.
b. non-cash patronage dividends from farmer's cooperatives or mutual fund association.
c. both a and b.
d. none of the above.

40. Add to California income the following dividends:

a. Federal exempt interest dividends from other states.
b. Controlled foreign corporation dividends in the year distributed.
c. Regulated investment company capital gains in year distributed.
d. all of the above.