1. Look at the Form 1040 you prepared for Juan Carlos. What is the amount on Form 1040, Line 40a?

A. $15,996.
B. $16,058.
C. $16,016. 
D. $15,837.

2. Look at the Form 1040 you prepared for Juan Carlos. What is the amount on Form 1040, Line 43?

A. $374.
B. $27,713.
C. $8,067. 
D. $0.

3. You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. However, once the choice is made, you cannot change your choice for other tax years.

True False

4. Even if you claim a credit for other foreign taxes, you can deduct any foreign that is not allowed as a credit if

A. You paid the tax to a country for which a credit is not allowed because the U.S does not have diplomatic relations with it or recognize the government of such country.
B. You paid taxes in connection with the purchase or sale of oil or gas.
C. You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time.
D. Any of the above.

5. The foreign tax credit is intended to relieve you of a double tax burden when your foreign sources income is taxed by both the United States and the foreign country. The foreign tax credit can

A. Reduce U.S. taxes on U.S. source income.
B. Only reduce U.S. taxes on foreign source income.
C. Generally be less advantageous than deducting the taxes paid as itemized deductions.
D. Any of the above.

6. You can claim the credit for a qualified foreign tax in the year in which you pay it or accrue it, depending on the method of accounting. "Tax year" refers to

A. The tax year for which your U.S. return is filed.
B. The tax year for which your foreign return is filed.
C. For whichever happens first of A or B above.
D. None of the above.

7. If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must

A. Not make any adjustment for any fluctuations in the value between both currencies.
B. Not include these in figuring your foreign tax itemized deduction or credit.
C. Translate the foreign currency into U.S. dollars.
D. Stamp taxes.

8. A foreign tax redetermination is any change is your foreign tax liability that may affect your U.S. foreign tax credit claimed. A redetermination of your U.S. tax liability is required if

A. The accrued taxes when paid differ from the amounts claimed as a credit.
B. The foreign taxes you paid are not refunded at all.
C. The change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuations and is less than the smaller of $10,000 or 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U.S. tax year.
D. Any of the above.

9. The source of a foreign tax reimbursement fringe benefit is determined based on the location of the jurisdiction that imposed the tax for which you are reimbursed.

True False

10. You can deduct a limited amount of state and local sales or excise taxes you paid on the purchase of a new motor vehicle.

True False

11. An Indian tribal government that is recognized by the Secretary of the Treasury as performing substantial government functions will be treated as a

A. Separate nation for purposes of claiming a deduction for taxes.
B. Separate nation for legal purposes.
C. State for purposes of claiming a deduction for taxes.
D. Casino territory for purposes of claiming a deduction for taxes.

12. As an employee, you can deduct mandatory contributions to state benefit funds withheld from your wages that provide protection against loss of wages. Mandatory payments made to the following state benefit funds are deductible as state income taxes on Schedule A (Form 1040), except

A. Alaska Unemployment Compensation Fund.
B. Employee contributions to private or voluntary disability plans.
C. California Nonoccupational Disability Benefit Fund.
D. New York Nonoccupational Disability Benefit Fund.

13. These are taxes imposed by a foreign country or any of its political subdivisions.

A. Foreign taxes.
B. General sales taxes.
C. Income taxes.
D. Stamp taxes.

14. Generally, you can deduct only taxes that are

A. A cost-of-living allowances.
B. Exempt from federal taxes.
C. Exempt from state taxes.
D. Imposed on you.

15. Generally, you can deduct property taxes

A. Only if you are an owner of the property.
B. Of a property that your spouse owns and you are filing separately.
C. Of a property owned by your dependents.
D. Of a property owned by your family members.

16. If you are a cash basis taxpayer, you can deduct

A. Only those taxes you paid with cash.
B. Those taxes which you incurred a liability for during your tax year.
C. Only those taxes you actually paid during your tax year.
D. All of the above.

17. You cannot deduct state and local income taxes you paid on income that is exempt from federal income taxes, unless the exempt income is interest income.

True False

18. Lola made an estimated state income tax payment. The estimate of her state tax liability shows that she will get a refund of the full amount of her estimated payment. Lola had no reasonable basis to believe that she would have any additional liability for state income taxes.

A. Lola cannot deduct the estimated tax payment.
B. Lola can deduct the estimated tax payment.
C. Lola can deduct the estimated tax payment for the following year.
D. Since Lola is getting a refund for this year, she can apply the estimated payment to a prior year in which she had a liability.

19. You can deduct any part of a refund of a prior year state or local income taxes that you chose to have credited to your 2009 estimated state or local income taxes. Reduce your deduction by

A. Any state or local income tax refund (or credit) you expect to receive in 2009.
B. Any refund of (or credit for) prior-year state and local income taxes you actually received in 2009.
C. Either of A or B above.
D. None of the above.

20. If you and your spouse file joint state and local returns and  separate federal income tax returns, you can

A. Each deduct only the amount of your own state and local income taxes that you paid during the tax year.
B. Each choose who will deduct the total of state and local income taxes that you paid during the tax year.
C. Each deduct part of the total amount of state and local income taxes that you both paid during the year.
D. None of the above.

21. Deductible real estate taxes are any state, local, or foreign taxes on real property levied for the general public welfare. You can deduct these taxes

A. Only if they are based on the assessed value of the real property.
B. Only if charged uniformly against all property under the jurisdiction of the taxing authority.
C. Both A and B above.
D. Charged for local benefits and improvements that increase the value of the property.

22. Divide delinquent taxes between the buyer and seller that are for real property tax years before the one in which the property is sold.

True False

23. Service charges used to maintain or improve services (such as trash collection or police and fire protection) are deductible as real estate taxes if

A. The fees or charges are imposed at a like rate against all property in the taxing jurisdiction.
B. The funds collected are not earmarked; instead, they are commingled with general revenue funds.
C. Funds used to maintain or improve services are not limited to or determined by the amount of these fees or charges collected.
D. All of the above

24. For any tax to be deductible by you, the taxes

A. Must be imposed on you.
B. Must be paid by you during the year.
C. Both A and B above.
D. None of the above.

25. When a property is sold, the seller pays for his part of real estate taxes and decides that he is going to be nice and also pays the buyer's allocated portion of taxes. Who can deduct the buyer's portion of the taxes?

A. The seller can deduct the taxes because he paid for them.
B. The buyer because the taxes were imposed on him.
C. Either A or B above.
D. Neither the buyer because although the taxes were imposed on him, he didn't actually pay them, nor the seller because although he actually paid the taxes, it was not his obligation to do so.

26. You can deduct certain taxes only if they are ordinary and necessary expenses of your trade or business or of producing income. These taxes fall under the category of

A. Income taxes.
B. Personal property taxes.
C. Business taxes.
D. General sales taxes.

27. You can deduct any part of a refund of prior-year state or local income taxes that you chose to have credited to your 2009 estimated state or local income taxes. Do not

A. Reduce your deduction by any state or local income tax refund you expect to receive for 2009.
B. Reduce your deduction by any refund of prior year state and local income taxes you actually receive in 2009.
C. Reduce your deduction by any state or local income tax credit you expect to receive for 2009.
D. Any of the above.

28. The taxes that are deductible as itemized deductions include all of the following except:

A. Real estate taxes based on the assessed value of the property and charged uniformly against all property.
B. General sales taxes.
C. Taxes you paid on property owned by someone else such as your uncle.
D. Personal property taxes based on the value of the personal property.

29. Your applicable optional sales tax table amount is based on the state where you live, your income, and the number of exemptions claimed on your tax return. Your income is

A. Your adjusted gross income plus any tax-exempt interest.
B. Your adjusted gross income plus any veteran's benefits, nontaxable combat pay, or workers compensation.
C. Your adjusted gross income plus any nontaxable items such as the non taxable part of social security and railroad retirement benefits, nontaxable part of IRA, pension, or annuity distributions (excluding rollovers) and public assistance payments.
D. Any of the above.

30. Income taxes, real estate taxes, and personal property taxes that you paid to an Indian tribal government are

A. Allowed because Indian tribes are located within this country and that is all that matters.
B. Allowed only if recognized by the Secretary of the Treasury as performing substantial government functions.
C. Not allowed because Indian tribes are considered another nation and they don't accept our government as theirs.
D. None of the above

31. You cannot deduct federal excise taxes such as tax on gasoline, unless

A. You get permission from the IRS to deduct the taxes.
B. You are the property owner of that exempt property.
C. The taxes are ordinary and necessary expenses of an income producing activity.
D. None of the above

32. Personal property taxes are deductible on Schedule A, if they are state or local taxes that are

A. Charged on personal property.
B. Based only on the value of the personal property.
C. Charged on a yearly basis, even if it is collected more or less than once a year.
D. All of the above.

33.  If you elect to deduct state and local general sales taxes on your Schedule A

A. You don't need to check box b on Schedule A, line 5.
B. You can deduct both general sales taxes and state/local income taxes.
C. You can deduct state and local general sales taxes instead of state and local income taxes, but not both.
D. None of the above.

34. Many federal, state, and local government taxes are not deductible because they do not fall within certain categories. Other taxes and fees, such as federal income taxes, are not deductible because the tax law specifically prohibits a deduction for them. The following taxes and fees are generally not deductible on schedule A except

A. Estate, inheritance, gift, legacy or succession taxes.
B. General sales taxes.
C. License fees such as marriage, driver's, and dog license.
D. Social security and other employment taxes for household workers.

35. To figure you state and local general sales taxes deduction on Schedule A,

A. You can use your actual taxes you paid for.
B. You can use the optional sales taxes tables.
C. Both A and B above.
D. You can use your state and local income taxes withheld.

36. Your general sales tax applicable table amount is based on the state where you lived. If you lived in different states during the same tax year, you use the table in the state where you lived the most part of the year.

True False

37. If you are a minister or a member of the military and receive a housing allowance that you can exclude from income, you

A. Don't need to file a return because ministers get everything free of charge from their congregation.
B. Don't need to file Schedule A because military personnel don't usually itemize.
C. Cannot deduct any of the real estate taxes you pay on your home.
D. Still can deduct all of the real estate property taxes that you pay on your home.

38. Even if you are self employed and have a qualified business unit, your functional currency is the U.S. dollar if

A. The principal place of business is located in the United States or you conduct your business in dollars.
B. You choose to or are required to use the dollar as your functional currency.
C. The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted.
D. Any of the above.

39. If you fail to notify the IRS of a foreign tax redetermination and cannot show reasonable cause for the failure, you may have to pay a penalty

A. Of 5% of the tax due resulting from a redetermination of your U.S. tax for each month, or part of a month, that the failure continues.
B. Up to 50% of the tax due resulting from a redetermination of your U.S. tax.
C. As high as 65% of the tax due resulting from a redetermination of your U.S. tax.
D. Of 25% of the tax due resulting from a redetermination of your U.S. tax for each month, or part of a month, that the failure continues.

40. If you are a U.S. citizen, you are taxed by the United States on your worldwide income as long as you have not lived in the foreign country for more than a year.

True False

41. If you are a nonresident alien, you generally cannot take the credit unless

A. You were a bona fide resident of Puerto Rico during your entire tax year.
B. You pay or accrue tax to a foreign country that is effectively connected with a trade or business in the United States.
C. You pay or accrue tax to a U.S. possession that is effectively connected with a trade or business in the United States.
D. Any of the above.

42. If you find that you paid or accrued a larger foreign tax than you claimed a credit for, you have ________ to file a claim for refund of U.S. tax.

A. 1 year.
B. 3 years.
C. 10 years.
D. Until April 15.

43. Generally, to qualify to take the foreign tax credit,

A. You must have paid or accrued the tax that is imposed on you.
B. The tax must be the legal and actual foreign tax liability.
C. The tax must be an income tax or tax in lieu of an income tax.
D. All of the above.

44. A controlled foreign corporation is a foreign corporation in which U.S. shareholders own more than 50% of the voting power or value of the stock. You are considered a U.S. shareholder if you own, directly or indirectly _______ of the total voting power of all classes of the foreign corporation's stock.

A. 50%.
B. 10%.
C. 100%.
D. Any of the above.

45. A soak-up tax generally does not qualify as a tax in lieu of an income tax. However, if the foreign country imposes a soak-up tax in lieu of an income tax, the amount that does not qualify for foreign tax credit is

A. The soak-up tax.
B. The foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax.
C. The lessor of A or B above.
D. None of the above.

46. The following are foreign taxes which you can take a foreign tax credit for.

A. Taxes on excluded income.
B. A portion of taxes on combined foreign oil and gas income.
C. Taxes of U.S. persons controlling foreign corporations and partnerships who fail to file required information returns.
D. None of the above.

47. If only part of your wages is excluded from income, you

A. You can take a credit for the foreign income taxes allocable to the excluded part.
B. You cannot take a credit for the foreign income taxes allocable to the exclude part.
C. You cannot take a credit for any of the foreign taxes paid or accrued on these wages.
D. You are disqualified from claim a credit for foreign taxes paid.

48. You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period during which

A. The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism.
B. The United States has severed or does not conduct diplomatic relations with the country.
C. The United States does not recognize the country's government, unless that country is eligible to purchase defense articles or services under the Arms export Control Act.
D. Any of the above.

49. You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a sanction period, unless

A. The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism.
B. The government that the Unites States does not recognize is eligible to purchase defense articles or services under the Arms Export Control Act.
C. The United States has severed or does not conduct diplomatic relations with the country.
D. Any of the above.

50. If you have operations in or related to boycotting country or with the government, a company, or a national of a boycotting country, you must file a report with the IRS if you are a

A. Foreign corporation in which you own 10% or more of the voting power of all voting stock but only if you own the stock of the foreign corporation directly or through foreign entities.
B. Partnership in which you are a partner.
C. Trust you are treated as owning.
D. Any of the above.

51. If you have operations in or related to boycotting country or with the government, a company, or a national of a boycotting country, you may have to file a report with the IRS. If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. If you willfully fail to make a report, you may be fined

A. $1,000.
B. 10% of the foreign income taxable income.
C. $25,000.
D. $10,000.

52. You will not be subject to the set limit and will be able to claim the foreign tax credit without using Form 1116 if

A. Your only foreign source gross income for the tax year is passive category income.
B. Your qualified foreign taxes for the tax year are more than $300 ($600 if married filing a joint return).
C. Some of your gross foreign income and foreign taxes are reported to you on a payee statement such as 1099-DIV or 1099-INT.
D. If you do not make the election to be exempt from foreign tax credit limit.

53. You may have to make the following adjustment to your foreign source capital gains and losses.

A. U.S. capital loss adjustment.
B. Capital gain rate differential adjustment.
C. Both A and B above.
D. None of the above.

54. You must allocate foreign losses among the separate limit income categories in the same proportion as each category's income bears to total foreign income.

True False

55. In figuring an overall foreign loss in a give year, you don't consider the

A. Net operating loss deduction.
B. Foreign expropriation loss not compensated by insurance or other reimbursement.
C. Casualty or theft loss not compensated by insurance or other reimbursement.
D. All of the above.

56. You must recapture part (or all) of an overall foreign loss in tax year in which you deduct, rather than credit, your foreign taxes. You recapture

A. The balance in the applicable overall foreign loss account.
B. The foreign source taxable income of the same separate limit category that resulted in the overall foreign loss minus the foreign taxes imposed on that income.
C. The lesser of A and B above.
D. The fair market value of the property that is more than your adjusted basis in the property.

57. If you have an overall foreign loss for any tax year and use the loss to offset U.S. source income, part of your foreign source taxable income (in the same separate limit category as the loss) for each succeeding year is treated as U.S. source taxable income. The part that is treated as U.S. source taxable income is

A. The total amount of maximum potential recapture in all overall foreign loss accounts.
B. 50% (or more, if you choose) of your total taxable income from foreign sources.
C. The lesser of A or B above.
D. The balance in the overall foreign loss account for that category.

58. If you have an unused foreign tax that you are carrying back to the first preceding tax year, you should file Form 1040X for that year and attach

A. A revised Form 1116.
B. Form 1040 or Form 1040A.
C. A revised Schedule A (Form 1040).
D. None of the above.

59. In a given year, you must either claim a credit for all foreign taxes that qualify for the credit or claim a deduction for all of them. This rule is applied with the carryback and carryover procedure such as in the following.

A. You can claim a credit carryback or carryover from a year in which you deducted qualified foreign taxes.
B. You can deduct unused foreign taxes in any year to which you carry them, even if you deduct qualified foreign taxes actually paid in that year.
C. You cannot claim a credit for unused foreign taxes in a year to which you carry them unless you also claim a credit for foreign taxes actually paid or accrued in that year.
D. You can carry back or carry over any unused foreign taxes to or from a year for which you elect not to be subject to the foreign tax credit limit