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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses
1. One indicia of independent contractor (rather than employee) status is when the individual performing the services is
paid based on time spent (rather than on tasks performed).
a. True
b. False
ANSWER: False
RATIONALE: What is described is a criterion for employee classification.
POINTS: 1
DIFFICULTY: Easy
QUESTION TYPE: True / False
HAS VARIABLES: False
LEARNING OBJECTIVES: CMPV.SWFT.LO: 9-01 - LO: 9-01
NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension
STATE STANDARDS: United States - AK - AICPA: FN-Measurement -
AICPA: FN-Measurement
KEYWORDS: Bloom's: Comprehension
OTHER: Time: 2 min.
DATE CREATED: 11/28/2016 3:32 PM
DATE MODIFIED: 5/11/2017 1:07 PM
2. In some cases it may be appropriate for a taxpayer to report work-related expenses by using both Form 2106 and
Schedule C.
a. True
b. False
ANSWER: True
RATIONALE: A taxpayer with two jobs may be both an employee (Form 2106) and self-employed
(Schedule C).
POINTS: 1
DIFFICULTY: Easy
STATE STANDARDS: United States - AK - AICPA: FN-Reporting
OTHER: Time: 2 min.
3. The IRS will issue advanced rulings as to whether a worker’s status is that of an employee or an independent contractor.
a. True
b. False
ANSWER: True
RATIONALE: A ruling from the IRS can be obtained by filing Form SS–8.
POINTS: 1
DIFFICULTY: Easy
Copyright Cengage Learning. Powered by Cognero. Page 1

KEYWORDS: Bloom's: Knowledge
OTHER: Time: 2 min.
4. Jake performs services for Maude. If Maude provides a helper and tools, this is indicative of independent contractor
(rather than employee) status.
a. True
b. False
ANSWER: False
RATIONALE: Because Jake does not provide his own helper and tools, this indicates that he is probably
not an independent contractor.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
5. A statutory employee is not a common law employee but is subject to Social Security tax.
a. True
b. False
ANSWER: True
RATIONALE: A statutory employee is subject to Social Security tax.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.

6. For tax purposes, a statutory employee is treated the same as a common law employee.
a. True
b. False
ANSWER: False
RATIONALE: Among other differences, statutory employees claim their expenses as deductions for AGI
on Schedule C.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
7. If an individual is subject to the direction or control of another only to the extent of the end result but not as to the
means of accomplishment, an employer-employee relationship does not exist.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
8. The work-related expenses of an independent contractor will be subject to the 2%-of-AGI floor.
a. True
b. False
ANSWER: False
RATIONALE: The expenses are deductions for AGI. Only certain itemized deductions are subject to the
2% limitation.
POINTS: 1
DIFFICULTY: Easy

CMPV.SWFT.LO: 9-11 - LO: 9-11
OTHER: Time: 2 min.
9. After she finishes working at her main job, Ann returns home, has dinner, then drives to her second job. Ann may
deduct the mileage between her first and second job.
a. True
b. False
ANSWER: True
RATIONALE: The deduction is based on the mileage between the first and the second job.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
10. A taxpayer who maintains an office in the home to conduct his only business will not have nondeductible commuting
expense.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.

11. After the automatic mileage rate has been set by the IRS for a year, it cannot later be changed by the IRS.
a. True
b. False
ANSWER: False
RATIONALE: In the past and because of rising fuel costs, the IRS has raised the rates in midyear.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
12. In choosing between the actual expense method and the automatic mileage method, a taxpayer should consider the
cost of insurance on the automobile.
a. True
b. False
ANSWER: True
RATIONALE: If taxpayer lives and works in a metropolitan area and a significant commute is involved,
car insurance premiums could be quite costly.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
13. A taxpayer who uses the automatic mileage method to compute auto expenses can also deduct the business portion of
tolls and parking.
a. True
b. False
ANSWER: True
RATIONALE: Such costs are deductible under both methods.

POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
14. A deduction for parking and other traffic violations incurred during business use of the automobile is allowed under
the actual cost method but not the automatic mileage method.
a. True
b. False
ANSWER: False
RATIONALE: No such deduction is allowed under either method.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
15. A taxpayer who uses the automatic mileage method for the business use of an automobile can change to the actual cost
method in a later year.
a. True
b. False
ANSWER: True
RATIONALE: An adjustment to the basis of the automobile will have to be made for the depreciation
deemed taken under the automatic mileage method.
POINTS: 1
DIFFICULTY: Easy

OTHER: Time: 2 min.
16. Once the actual cost method is used, a taxpayer cannot change to the automatic mileage method in a later year.
a. True
b. False
ANSWER: False
RATIONALE: A change is permitted if MACRS (statutory percentage method) depreciation has not been
used or the § 179 election to expense was not made.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
17. For tax purposes, “travel” is a broader classification than “transportation.”

a. True
b. False
ANSWER: True
RATIONALE: Travel expenses include transportation expenses and meals and lodging while away from
home in the pursuit of a trade or business.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES:CMPV.SWFT.LO: 9-02 - LO: 9-02
OTHER: Time: 2 min.
18. Amy lives and works in St. Louis. In the morning she flies to Boston, has a three-hour business meeting, and returns to
St. Louis that evening. For tax purposes, Amy was away from home.
a. True
b. False
ANSWER: False
RATIONALE: The absence must be a period substantially longer than an ordinary day’s work and must
require rest.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
19. James has a job that compels him to go to many different states during the year. It is possible that James was never
away from his tax home during the year.
a. True
b. False
ANSWER: True
RATIONALE: This could be the case of a long-haul truck driver where his tax home goes with
him.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
20. Marvin lives with his family in Alabama. He has two jobs: one in Alabama and one in North Carolina. Marvin’s tax
home is where he lives (Alabama).
a. True
b. False
ANSWER: False
RATIONALE: Marvin’s tax home is where his principal job is located. This is determined by considering
numerous factors, among which are the level of income earned and the amount of time
spent. Thus, it is incorrect to resolve the tax home issue without more facts.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
21. A taxpayer who lives and works in Kansas City is sent to Chicago on an eight-day business trip. While in Chicago,
taxpayer uses the hotel valet service to have some laundry done. The valet charge is a nondeductible personal travel
expense.
a. True
b. False
ANSWER: False
RATIONALE: Valet service is part of the travel expense deduction.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
22. The tax law specifically provides that a taxpayer cannot be temporarily away from home for any period of
employment that exceeds one year.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy

OTHER: Time: 2 min.
23. A taxpayer who lives and works in Tulsa travels to Buffalo for five days. If three days are spent on business and two
days are spent on visiting relatives, only 60% of the airfare is deductible.
a. True
b. False
ANSWER: False
RATIONALE: For domestic mixed travel (i.e., both business and personal), no allocation of transportation
is required.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
24. Bob lives and works in Newark, NJ. He travels to London for a three-day business meeting, after which he spends
three days touring Scotland. All of his air fare is deductible.
a. True
b. False
ANSWER: True
RATIONALE: Bob meets the seven-days-or-less exception.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
25. Eileen lives and works in Mobile. She travels to Rome for an eight-day business meeting, after which she spends two
days touring Italy. All of Eileen’s airfare is deductible.
a. True
b. False
ANSWER: True
RATIONALE: Eileen meets the less-than-25%-personal-time exception.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
26. Liam just graduated from college. Because it is his first job, the cost of moving his personal belongings from his
parents’ home to the job site does not qualify for the moving expense deduction.
a. True
b. False
ANSWER: False
RATIONALE: There is no prohibition against claiming moving expenses if the first job is involved.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
27. Sick of her 65 mile daily commute, Edna purchases a condo that is only four miles from her job. Edna’s moving
expenses to her new condo are not allowed and cannot be claimed by her as a deduction.
a. True
b. False
ANSWER: True
RATIONALE: Edna does not have qualified moving expenses since she did not change job locations.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
28. In November 2017, Katie incurs unreimbursed moving expenses to accept a new job. Katie cannot deduct any of these
expenses when she timely files her 2017 income tax return since she has not yet satisfied the 39-week time test.
a. True
b. False
ANSWER: False
RATIONALE: The deduction can be claimed even if the time test has not yet been met.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
29. In May 2017, after 11 months on a new job, Ken is fired after he assaults a customer. Ken must include in his gross
income for 2017 any deduction for moving expenses he may have claimed on his 2016 tax return.
a. True
b. False
ANSWER: False
RATIONALE: Since Ken worked for 11 months, he has already satisfied the 39-week time test.
POINTS: 1
DIFFICULTY: Easy


OTHER: Time: 2 min.
30. A moving expense deduction is allowed even if at the time of the move the taxpayer did not have a job at the new
location.
a. True
b. False
ANSWER: True
RATIONALE: As long as the taxpayer ultimately satisfies the time test, it does not matter when the work
assignment is obtained.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
31. Kelly, an unemployed architect, moves from Boston to Phoenix to accept a job as a chef at a restaurant. Kelly’s
moving expenses are not deductible because her new job is in a different trade or business.
a. True
b. False
ANSWER: False
RATIONALE: For moving expenses to be deductible, a taxpayer need not remain in the same trade or
business.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
32. Alexis (a CPA) sold her public accounting practice in Des Moines and accepted a job with the Seattle office of a
national accounting firm. Her moving expenses are not deductible because she has changed employment status (i.e., went

from self-employed to employee).
a. True
b. False
ANSWER: False
RATIONALE: The change does not matter for purposes of the moving expense deduction.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
33. Qualified moving expenses include the cost of lodging but not meals during the move.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
34. Qualified moving expenses of an employee that are not reimbursed are a deduction for AGI.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy

OTHER: Time: 2 min.
35. At age 65, Camilla retires from her job in Boston and moves to Florida. As a retiree, she is not subject to the time test
in deducting her moving expenses.
a. True
b. False
ANSWER: False
RATIONALE: Camilla is not an expatriate and does not come under that exception.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
36. After completing an overseas assignment in Oslo (Norway), Daniel retires from Pelican Corporation and moves to a
retirement community in Key West (Florida). Daniel’s moving expenses from Oslo to Key West are deductible as they are
exempt from the time test.
a. True
b. False
ANSWER: True
RATIONALE: A special exception for retiring expatriates applies.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
37. An education expense deduction may be allowed even if the education results in a promotion or pay raise for the
employee.
a. True
b. False
ANSWER: True
RATIONALE: There is no prohibition as to this result in deducting education expenses.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
38. Lloyd, a practicing CPA, pays tuition to attend law school. Since a law degree involves education leading to a new
trade or business, the tuition is not deductible.
a. True
b. False
ANSWER: False
RATIONALE: A deduction might be available under the § 222 qualified tuition for higher education
provision. Here, it does not matter that a new skill is being acquired.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
39. Under the right circumstances, a taxpayer’s meals and lodging expense can qualify as a deductible education expense.
a. True
b. False
ANSWER: True
RATIONALE: If the education involves the taxpayer being away from home (i.e., in travel status).
POINTS: 1
DIFFICULTY: Easy


OTHER: Time: 2 min.
40. There is no cutback adjustment for meals and entertainment as to employees who are subject to regulation by the U.S.
Department of Transportation.
a. True
b. False
ANSWER: False
RATIONALE: The cutback adjustment applies, but at a reduced rate.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
41. Mallard Corporation pays for a trip to Aruba for its two top salespersons. This expense is subject to the cutback
adjustment.
a. True
b. False
ANSWER: False
RATIONALE: The cost of the trips to Aruba are additional compensation to the employees involved.
Consequently, they are not subject to the cutback adjustment and are fully deductible by
Mallard Corporation. They are also taxed as income to the employees.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.

42. Flamingo Corporation furnishes meals at cost to its employees by means of a cafeteria it maintains. The cost of
operating the cafeteria is not subject to the cutback adjustment.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
43. A taxpayer takes six clients to an NBA playoff game. If all of the tickets (list price of $120 each) are purchased on the
Internet for $1,800 ($300 each), only $60 ($120 × 50% cutback adjustment) per ticket is deductible.
a. True
b. False
ANSWER: True
RATIONALE: $60 ($120 × 50% cutback adjustment) per ticket is deductible.
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's: Application
OTHER: Time: 5 min.
44. Ethan, a bachelor with no immediate family, uses the Pine Shadows Country Club exclusively for his business
entertaining. All of Ethan’s annual dues for his club membership are deductible.
a. True
b. False
ANSWER: False
RATIONALE: Dues to country clubs are not deductible.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
45. Jackson gives his supervisor and her husband each a $30 box of chocolates at Christmas. Jackson may claim only $25
as a deduction.
a. True
b. False
ANSWER: False
RATIONALE: As gifts to supervisors and spouses are not deductible, Jackson has no deduction.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
46. On their birthdays, Lily sends gift certificates (each valued at $25) to Caden (a key client) and to each of Caden’s two
minor children. Lily can deduct only $25 as to these gifts.
a. True
b. False
ANSWER: True
RATIONALE: These gifts will be aggregated in applying the $25 limit.
POINTS: 1
DIFFICULTY: Easy


OTHER: Time: 2 min.
47. Travis holds rights to a skybox (containing 10 seats) at Memorial Stadium which he uses to entertain key clients. At
one sporting event, he took only six clients since three were ill. Even so, Travis may still deduct the appropriate cost of all
ten seats.
a. True
b. False
ANSWER: True
RATIONALE:
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
48. In the case of an office in the home deduction, the exclusive business use test does not apply when the home is used as
a daycare center.
a. True
b. False
ANSWER: True
RATIONALE: Mixed use (i.e., business and personal) of the home is permitted in daycare situations.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
49. If a taxpayer does not own a home but rents an apartment, the office in the home deduction is not available.
a. True
b. False
ANSWER: False
RATIONALE: The only difference would be a substitution of rent expense for depreciation. Otherwise, the
deduction is equally available.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
50. A taxpayer who claims the standard deduction will not be able to claim an office in the home deduction.
a. True
b. False
ANSWER: False
RATIONALE: The office in the home deduction will be allowed if the taxpayer is self-employed.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
51. Under the regular (actual expense) method, the portion of the office in the home deduction that exceeds the income
from the business can be carried over to future years.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy

OTHER: Time: 2 min.
52. For tax year 2016, Taylor used the simplified method of determining her office in the home deduction. For 2017,
Taylor must continue to use the simplified method and cannot switch to the regular (actual expense) method.
a. True
b. False
ANSWER: False
RATIONALE: A new choice is available each year. Taylor cannot, however, change the choice
she made for 2016.
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's: Comprehensive
OTHER: Time: 2 min.
53. Under the simplified method, the maximum office in the home deduction allowed is the greater of $1,500 or the office
square feet × $5.
a. True
b. False
ANSWER: False
RATIONALE: The deduction is office square feet x $5 but not to exceed $1,500 or the net
income from the business.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.

54. If the cost of uniforms is deductible, their maintenance cost (e.g., laundry, dry cleaning, alterations) also is deductible.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
55. Tired of renting, Dr. Smith buys the academic robes she will wear at her college’s graduation procession. The cost of
this attire does not qualify as a uniform expense.
a. True
b. False
ANSWER: False
RATIONALE: These robes do qualify as they are not adaptable for ordinary wear.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
56. Frank, a recently retired FBI agent, pays job search expenses to obtain a position with a city police department.
Frank’s job search expenses do qualify as deductions.
a. True
b. False
ANSWER: True
RATIONALE: It appears that Frank is seeking a job in the same trade or business (i.e., law enforcement).
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
57. After graduating from college with a degree in chemistry, Alberto obtains a job as a chemist with DuPont. Alberto’s
job search expenses qualify as deductions.
a. True
b. False
ANSWER: False
RATIONALE: Job search expenses incurred in obtaining the first job are not deductible.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
58. Qualifying job search expenses are deductible even if the taxpayer does not change jobs.
a. True
b. False
ANSWER: True
RATIONALE: No job change requirement exists.
POINTS: 1
DIFFICULTY: Easy

OTHER: Time: 2 min.
59. Madison is an instructor of fine arts at a local community college. If she spends $600 (not reimbursed) on art supplies
for her classes, $250 of this amount can be claimed as a deduction for AGI.
a. True
b. False
ANSWER: False
RATIONALE: The $250 special rule for school supplies applies only to elementary and secondary school
teachers.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
60. Both traditional and Roth IRAs possess the advantage of tax-free accumulation of income within the plan.
a. True
b. False
ANSWER: True
RATIONALE: In the case of a traditional IRA, however, the income will be taxed when distributed to the
participant.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
61. When contributions are made to a traditional IRA, they are deductible by the participant. Later distributions from the
IRA upon retirement are fully taxed.

a. True
b. False
ANSWER: True
RATIONALE: Contributions are deductible, while distributions are taxable.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
62. By itself, credit card receipts will not constitute adequate substantiation for travel expenses.
a. True
b. False
ANSWER: True
RATIONALE: The credit card receipts establish the date, place, and amount of the expenditure. Because
neither the business relationship nor the business purpose is established, the
substantiation is incomplete.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
63. The Federal per diem rates that can be used for “deemed substantiated” purposes are the same for all locations in the
country.
a. True
b. False
ANSWER: False
RATIONALE: The Federal per diem rates are different for different locations in the United States.
POINTS: 1
DIFFICULTY: Easy

OTHER: Time: 2 min.
64. For self-employed taxpayers, travel expenses are not subject to the 2%-of-AGI floor.
a. True
b. False
ANSWER: True
RATIONALE: For self-employed taxpayers, travel expenses are deductions for adjusted gross income.
The 2%-of-AGI floor applies only to certain deductions from AGI, such as unreimbursed
employee expenses.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
65. A taxpayer who claims the standard deduction will not avoid the 2%-of-AGI floor on unreimbursed employee
expenses.
a. True
b. False
ANSWER: False
RATIONALE: The 2%-of-AGI floor applies only to miscellaneous itemized deductions. A taxpayer who
claims the standard deduction will not be itemizing.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.

66. Employees who render an adequate accounting to the employer and are fully reimbursed will shift the 50% cutback
adjustment to their employer.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
67. Aiden performs services for Lucas. Which, if any, of the following factors indicate that Aiden is an employee, rather
than an independent contractor?
a. Aiden provides his own support services (e.g., work assistants).
b. Aiden obtained his training (i.e., job skills) from his father.
c. Aiden is paid based on hours worked.
d. Aiden makes his services available to others.
e. None of these.
ANSWER: c
RATIONALE: Choices a., b., and d. reflect independent contractor status.
POINTS: 1
DIFFICULTY: Easy
QUESTION TYPE: Multiple Choice
OTHER: Time: 2 min.

68. Jordan performs services for Ryan. Which, if any, of the following factors indicate that Jordan is an independent
contractor, rather than an employee?
a. Ryan sets the work schedule.
b. Ryan provides the tools used.
c. Jordan files a Form 2106 with his Form 1040.
d. Jordan is paid based on tasks performed.
e. None of these.
ANSWER: d
RATIONALE: Choices a., b., and c. reflect employee status.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
69. Which, if any, of the following factors is not a characteristic of independent contractor status?
a. Work-related expenses are reported on Form 2106.
b. Receipt of a Form 1099 reporting payments received.
c. Workplace fringe benefits are not available.
d. Services are performed for more than one party.
e. None of these.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
70. A worker may prefer to be treated as an independent contractor (rather than an employee) for which of the following
reasons:
a. Avoids the cutback adjustment as to business meals.

b. All of the self-employment tax is deductible for income tax purposes.

c. Work-related expenses are not subject to the 2%-of-AGI floor.
d. A Schedule C does not have to be filed.
e. None of these.
ANSWER: c
RATIONALE: Independent contractors are also subject to the cutback adjustment (choice a.). All of the
self-employment tax is not deductible (choice b.). Because all work-related expenses are
deductions for AGI, the 2%-of-AGI reduction is avoided (choice c.). Work-related expenses
will have to be reported on Schedule C (choice d.).
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
71. A worker may prefer to be classified as an employee (rather than an independent contractor) for which of the
following reasons:
a. To claim unreimbursed work-related expenses as a deduction for AGI.
b. To avoid the self-employment tax.
c. To avoid the cutback adjustment on unreimbursed business entertainment expenses.
d. To avoid the 2%-of-AGI floor on unreimbursed work-related expenses.
e. None of these.
ANSWER: b
RATIONALE: The self-employment tax is twice the Social Security equivalent imposed on employees
(choice b.). Most unreimbursed employee expenses are deductions from AGI (choice a.)
and will be subject to the 2%-of-AGI adjustment (choice d.). Unreimbursed entertainment
expenses will be subject to the cutback adjustment (choice c.).
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
72. Statutory employees:

a. Report their expenses on Form 2106.
b. Include common law employees.
c. Are subject to income tax withholdings.
d. Claim their expenses as deductions for AGI.
e. None of these.
ANSWER: d
RATIONALE: Their expenses are reported on Schedule C, not Form 2106 (choice a.). Although subject
to Social Security tax, they are not subject to income tax withholdings (choice c.). Statutory
employees are not common law employees (choice b.). Expenses are deductions for AGI
(choice d.).
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
73. Corey is the city sales manager for “RIBS,” a national fast food franchise. Every working day, Corey drives his car as
follows:
Miles
Home to office 20
Office to RIBS No. 1 15
RIBS No. 1 to No. 2 18
RIBS No. 2 to No. 3 13
RIBS No. 3 to home 30
Corey’s deductible mileage is:
a. 0 miles.
b. 50 miles.
c. 66 miles.
d. 76 miles.
e. None of these.
ANSWER: e
RATIONALE: 15 miles + 18 miles + 13 miles = 46 miles. The mileage for driving from his home to the
office (20 miles) and from the last worksite to home (30 miles) is not deductible.
POINTS: 1
DIFFICULTY: Easy


OTHER: Time: 5 min.
74. Amy works as an auditor for a large major CPA firm. During the months of September through November of each
year, she is permanently assigned to the team auditing Garnet Corporation. As a result, every day she drives from her
home to Garnet and returns home after work. Mileage is as follows:
Miles
Home to office 10
Home to Garnet 30
Office to Garnet 35
For these three months, Amy’s deductible mileage for each workday is:
a. 0.
b. 30.
c. 35.
d. 60.
e. None of these.
ANSWER: d
RATIONALE: The round trip from home to Garnet (at temporary job site) of 60 miles (30 miles × 2) is the
mileage that is deductible.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
75. Aaron is a self-employed practical nurse who works out of his home. He provides nursing care for disabled persons
living in their residences. During the day he drives his car as follows.
Miles
Aaron’s home to patient Louise 12
Patient Louise to patient Carl 4
Patient Carl to patient Betty 6
Patient Betty to Aaron’s home 10
Aaron’s deductible mileage for each workday is:
a. 10 miles.
b. 12 miles.
c. 20 miles.
d. 22 miles.
e. 32 miles.
ANSWER: e
RATIONALE: Since Aaron’s office is in his home, he has no nondeductible commuting mileage—all of
the mileage is deductible.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
76. When using the automatic mileage method, which, if any, of the following expenses also can be claimed?
a. Engine tune-up.
b. Parking.
c. Interest on automobile loan.
d. MACRS depreciation.
e. None of these.
ANSWER: b
RATIONALE: Choices a., c., and d. would be allowed under the actual cost method.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
77. In which, if any, of the following situations is the automatic mileage available?
a. A limousine to be rented by the owner for special occasions (e.g., weddings, high school proms).
b. The auto belongs to taxpayer’s mother.

c. One of seven cars used to deliver pizzas.
d. MACRS statutory percentage method has been claimed on the automobile.
e. None of these.
ANSWER: e
RATIONALE: Multiple vehicles (5 or more) cannot qualify (choice c.) nor can vehicles held for hire
(choice a.). The car must be owned or leased by the taxpayer (choice b.).
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
78. Under the actual cost method, which, if any, of the following expenses will not be allowed?
a. Car registration fees.
b. Auto insurance.
c. Interest expense on a car loan (taxpayer is an employee).
d. Dues to auto clubs.
e. All of these will be allowed.
ANSWER: c
RATIONALE: Interest on a car loan is deductible only by a self-employed taxpayer (not an employee)—
choice c. (This assumes the car financing is not handled with a home equity loan—see
Chapter 10.)
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
79. Dave is the regional manager for a national chain of auto-parts stores and is based in Salt Lake City. When the
company opens new stores in Boise, Dave is given the task of supervising their initial operation. For three months, he
works weekdays in Boise and returns home on weekends. He spends $350 returning to Salt Lake City but would have
spent $410 had he stayed in Boise for the weekend. As to the weekend trips, how much, if any, qualifies as a deduction?
a. $0, since the trips are personal and not work related.
b. $0, since Dave’s tax home has changed from Salt Lake City to Boise.
c. $60
d. $350
e. $410
ANSWER: d
RATIONALE: Dave’s assignment in Boise is temporary, so his tax home has not changed (choice b.).
Dave’s deduction is limited to the lesser of what he actually spent and what he would have
spent had he not returned home (choice d.).
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
80. Allowing for the cutback adjustment (50% reduction for meals and entertainment), which of the following trips, if
any, will qualify for the travel expense deduction?
a. Dr. Jones, a general dentist, attends a two-day seminar on developing a dental practice.
b. Dr. Brown, a surgeon, attends a two-day seminar on financial planning.
c. Paul, a romance language high school teacher, spends summer break in France, Portugal, and Spain improving
his language skills.
d. Myrna went on a two-week vacation in Boston. While there, she visited her employer’s home office to have
lunch with former co-workers.
e. All of these.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.

81. During the year, John went from Milwaukee to Alaska on business. Preceding a five-day business meeting, he spent
four days vacationing at the beach. Excluding the vacation costs, his expenses for the trip are:
Air fare $3,200
Lodging 900
Meals 800
Entertainment 600
Presuming no reimbursement, deductible expenses are:
a. $3,200.
b. $3,900.
c. $4,800.
d. $5,500.
e. None of these.
ANSWER: c
RATIONALE: $3,200 + $900 + $700 [50%($800 + $600)] = $4,800. No allocation is required for domestic
transportation costs (i.e., the airfare) since the trip is primarily business related.
POINTS: 1
DIFFICULTY: Moderate
OTHER: Time: 10 min.
82. During the year, Sophie went from Omaha to Lima (Peru) on business. She spent four days on business, two days on
travel, and four days on vacation. Disregarding the vacation costs, Sophie’s unreimbursed expenses are:
Air fare $3,000

Lodging 800
Meals 600
Entertainment 400
Sophie’s deductible expenses are:

a. $4,300.
b. $3,100.
c. $2,800.
d. $2,500.
e. None of these.
ANSWER: b

RATIONALE: $1,800 [60% (6 days business/10 day trip) × $3,000 (air fare)] + $800 + $500 [50%($600 +
$400)] = $3,100. The air fare has to be allocated as Sophie did not meet either the seven
days (or less) or less than 25% personal use exceptions for foreign travel.
POINTS: 1
83. During the year, Walt travels from Seattle to Tokyo (Japan) on business. His time was spent as follows: 2 days travel
(one day each way), 2 days business, and 2 days personal. His expenses for the trip were as follows (meals and lodging
reflect only the business portion):
Air fare $3,000
Lodging 2,000
Meals and entertainment 1,000
Presuming no reimbursement, Walt’s deductible expenses are:
a. $3,500.
b. $4,500.
c. $5,500.
d. $6,000.
e. None of these.
ANSWER: c
RATIONALE: $3,000 + $2,000 + (50% × $1,000) = $5,500 . Since the 7-days-or-less exception applies,
the full airfare ($3,000) is allowed.
POINTS: 1
84. In terms of meeting the distance test for purposes of deducting moving expenses, which of the following statements is
correct?
a. The taxpayer’s new job location must be at least 50 miles away from the old job.
b. The taxpayer’s new residence must be at least 50 miles away from the new job.
c. The taxpayer’s new residence must be at least 50 miles away from the old residence.
d. The taxpayer’s new job location must be at least 50 miles farther from the old residence than the old residence
was to the old job.
e. None of these.
ANSWER: d
RATIONALE: The distance comparison is between the old residence to the old job and old residence to
new job (choice d.). In this regard, the location of the new residence is immaterial (choices
b. and c.), as is the distance between the old and new jobs (choice a.).
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
85. As to meeting the time test for purposes of deducting moving expenses, which of the following statements is correct?
a. Work at the new location must involve a full-time job—part-time job will not suffice.
b. The taxpayer has two years in which to satisfy the 39-weeks or 78-weeks requirement.
c. The time test is waived for persons whose move follows retirement.
d. The moving expense deduction cannot be claimed if the taxpayer has not yet met the time test.
e. None of these.
ANSWER: a
RATIONALE: Full-time status (not part-time) is required (choice a.). The two-year limitation applies only
to the 78-week option—twelve months is required for the 39-week option (choice b.). The
retirement waiver applies only to expatriates (choice c.).
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.

86. Due to a merger, Allison transfers from Miami to Chicago. Under a new job description, she is reclassified from
employee to independent contractor status. Her moving expenses, which are not reimbursed, are as follows:
Transportation $1,400
Meals 400
Lodging 500
Cost of moving household goods 4,000
Penalty for breaking lease on Miami 3,000
apartment
Allison’s deductible moving expense is:
a. $0.
b. $5,900.
c. $6,100.
d. $8,900.
e. $9,300.
ANSWER: b
RATIONALE: $1,400 (transportation) + $500 (lodging) + $4,000 (moving household goods) = $5,900
(choice b.). Meals are not qualified moving expenses (choices c. and e.) nor are penalties
for breaking a lease (choices d. and e.). It is immaterial that Allison’s status as an
employee changed to that of an independent contractor (choice a.).
POINTS: 1
87. Rachel is single and has a college degree in finance. She is employed as a loan officer at a bank; her yearly AGI
approximates $50,000. During the year, she enrolled in a weekend MBA program and incurred the following
nonreimbursed expenses: $4,100 (tuition), $300 (books), $200 (other school supplies), and $200 (transportation to and
from campus). Disregarding the 2%-of-AGI limitation, as to the MBA program, Rachel has a:
a. Deduction for and deduction from AGI of $0.
b. Deduction for AGI of $4,000 and deduction from AGI of $800.
c. Deduction for AGI of $4,000 and deduction from AGI of $700.
d. Deduction for AGI of $4,100 and deduction from AGI of $700.
e. None of these.
ANSWER: b
RATIONALE: Section 222 allows up to $4,000 for qualified tuition and related expenses. As Rachel spent
$4,100, she can claim only $4,000 as a deduction for AGI. The remaining expenses of
$800 ($100 + $300 + $200 + $200) can be claimed as deductions from AGI.
POINTS: 1
88. The § 222 deduction for tuition and related expenses is available:
a. Only if the taxpayer itemizes deductions from AGI.
b. To deduct that portion of the tuition in excess of that allowed under the lifetime learning credit.
c. To cover the tuition of a son who does not qualify as taxpayer’s dependent.
d. Only if job related.
e. None of these.
ANSWER: e
RATIONALE: The § 222 deduction is a deduction for AGI (choice a.). The deduction is not available
when the lifetime learning credit is used (choice b.). The student involved is not a
dependent of the taxpayer (choice c.). The education need not be job related (choice d.).
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
89. The § 222 deduction for tuition and related expenses is available:
a. Regardless of the amount of a taxpayer’s MAGI.
b. To cover room and board expenses to attend college.
c. To a married taxpayer filing a separate return.
d. Even if a taxpayer does claim the standard deduction.
e. None of these.
ANSWER: d
RATIONALE: No deduction at all is allowed if the taxpayer has AGI in excess of $80,000 ($160,000 in
the case of a joint return) (choice a.). Section 222 does not cover room and board (choice
b.). In order to claim a deduction under § 222, a married taxpayer must file a joint return
(choice c.). Since § 222 provides for a deduction for AGI, it does not matter if a taxpayer
claims the standard deduction.

POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
90. Which, if any, of the following is subject to a cutback adjustment?

a. An airline pilot for an executive jet rental company who pays his own travel expenses.
b. Meals provided at cost to employees by a cafeteria funded by the employer.
c. Fourth of July company picnic for employees.
d. A trip to Bermuda awarded to the company’s top salesperson.
e. None of these.
ANSWER: a
RATIONALE: Although a reduced rate is in effect, the cutback adjustment still applies to persons subject
to regulation by the U.S. Department of Transportation.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
91. Robert entertains several of his key clients on January 1 of the current year. Expenses paid by Robert are as follows:
Cab fare $ 60
Cover charge at supper club 200
Dinner at club 800
Tips to waiter 160
Presuming proper substantiation, Robert’s deduction is:
a. $610.
b. $640.

c. $740.
d. $1,220.
e. None of these.
ANSWER: b
RATIONALE: $60 + [50% × ($200 + $800 + $160)] = $640.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
92. Tracy, the regional sales director for a manufacturer of exercise equipment, pays $2,500 to rent a skybox for a visiting
performance of the Harlem Globetrotters. The skybox holds 10 seats, and Tracy invites 7 clients to the event. Nonluxury
seats range in price from $80 to $120. The refreshments provided during the event cost $600. If Tracy meets all of the
requirements for deductibility (i.e., business discussion, substantiation), she may deduct:
a. $900.
b. $1,100.
c. $1,260.
d. $1,500.
e. $1,550.
ANSWER: a
RATIONALE: 50% × [(10 × $120) + $600] = $900.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
93. Ralph made the following business gifts during the year.
To Robert (a key client) at Christmas $50
To Angel (Robert’s 8-year old daughter) on her birthday 20
To Art (Ralph’s secretary) on his birthday ($3 was for gift wrapping) 30
To Paige (Ralph’s boss) at Christmas 40
Presuming proper substantiation, Ralph’s deduction is:
a. $0.
b. $53.
c. $73.
d. $78.
e. $98.
ANSWER: b
RATIONALE: $25 (Robert) + $28 (Art) = $53. The gift to Angel counts as a gift to Robert (whose $25 limit
already has been reached). Gifts to superiors (Paige) cannot be deducted.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
94. Which, if any, of the following is an advantage of using the simplified method for determining the office in the home
deduction?
a. No depreciation on the personal residence has to be computed.
b. The exclusive use requirement does not have to be met.
c. Allows the expense to be classified as a deduction for AGI.
d. Can also be used for a residence that is rented (not owned) by the taxpayer.
e. None of these.
ANSWER: a
RATIONALE: The exclusive use requirement (choice b.) always has to be met for an office in the
home deduction to be available. The method chosen for arriving at the deduction
has no relevance to how it is classified (i.e., deduction for or from AGI)--choice c.
Either the simplified method or the regular method can be used for rented property
(choice d.).
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
95. Which of the following expenses, if any, qualify as deductible?

a. Contributions to a Coverdell Education Savings Account (CESA).
b. Contributions to a qualified tuition program (§ 529 plan).
c. Job hunting expense of FBI agent who applies for the job of city manager of Beaumont (TX).
d. Contribution to a traditional IRA.
e. None of these.
ANSWER: d
RATIONALE: Although the benefits paid out are nontaxable, neither the contribution to CESAs (choice
a.) nor § 529 plans (choice b.) are deductible. Since being an FBI agent and a city
manager do not appear to be in the same trade or business (law enforcement), the job
hunting expense does not qualify (choice c.).
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
96. Which, if any, of the following expenses is subject to the 2%-of-AGI floor?
a. Qualified tuition expenses under § 222.
b. Contribution to traditional IRA.
c. Cost of a CPA exam review course—taxpayer just began employment with an accounting firm.
d. Office in the home deduction for a self-employed taxpayer.
e. None of these.
ANSWER: e
RATIONALE: Choices a., b., and d. are deductions for AGI. Choice c. is not deductible.
POINTS: 1
DIFFICULTY: Easy

OTHER: Time: 2 min.
97. Which, if any, of the following expenses is subject to the 2%-of-AGI floor?
a. Gambling losses (to the extent of gambling gains).
b. Moving expenses (not reimbursed by employer).
c. Teaching supplies (in excess of $250) purchased by a fifth grade teacher.
d. Union dues of self-employed machinist.
e. None of these.
ANSWER: c
RATIONALE: Moving expenses and teaching supplies (up to $250) are deductions for AGI (choice b.).
Likewise, the union dues of a self-employed taxpayer are classified as a deduction for AGI.
Gambling losses are miscellaneous itemized deductions but are not subject to the 2%
adjustment (choice a.).
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
98. Which, if any, of the following expenses are not subject to the 2%-of-AGI floor?
a. Safety shoes purchased by an plumber employed by a company.
b. Reimbursed employee expenses. Taxpayer-employee renders an adequate accounting to the employer.
c. Unreimbursed employee expenses.
d. Tax return preparation fee paid by a non-employed retiree.
e. None of these.
ANSWER: b
RATIONALE: Being employed, all job-related expenses are deductions from AGI (choice a.). All
employee expenses, unless reimbursed pursuant to an adequate accounting, are subject
to the 2%-of-AGI floor (choices a. and c.).
POINTS: 1
DIFFICULTY: Easy


OTHER: Time: 5 min.
99. In contrasting the reporting procedures of employees and self-employed persons regarding job-related transactions,
which of the following items involve self-employed?
a. Schedule C of Form 1040.
b. Form 2106.
c. Form W-2.
d. Schedule A of Form 1040.
e. None of these.
ANSWER: a
RATIONALE: Form 2106 is used by those employees who do not account to their employer(s) or are not
wholly reimbursed (choice b.). Schedule C is used to list the job-related income and
expenses of self-employed taxpayers (choice a.). Form W-2 reports the wages earned by
employees (choice c.). Income earned by self-employed persons is often shown on Form
1099. The results of Form 2106 (see choice b.) are transferred to Schedule A (choice d.)
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 3 min.
100. One of the tax advantages of being self-employed (rather than being an employee) is:
a. The self-employment tax is lower than the Social Security tax.
b. The cutback adjustment does not apply.
c. The actual cost method for deducting the business use of an automobile can be selected.
d. Job-related expenses are deductions for AGI.
e. A deduction for an office in the home is available.
ANSWER: d
RATIONALE: The self-employment tax is double what the employee pays (choice a.). The cutback
adjustment also applies to self-employed taxpayers (choice b.). Job-related expenses are
reported on Schedule C (rather than Schedule A) which results in deduction-for-AGI
treatment (choice d.). The actual cost method and the deduction for office in the home are
equally available to both employees and self-employed persons (choices c. and e.).
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 3 min.
101. Meredith holds two jobs and attends graduate school on weekends. The education improves her skills, but does not
qualify her for a new trade of business. Before going to the second job, she returns home for dinner. Relevant mileage is
as follows:
Home to first job 9 miles

First job to second job 13 miles
Home to second job 15 miles
Home to university 7 miles
How much of the mileage qualifies for deduction purposes?

ANSWER: 27 miles. The mileage from the first job to the second job, 13 miles, qualifies. Also, round
trip mileage to the university (14 miles) can be claimed if the education Meredith is
obtaining is deductible.
POINTS: 1
DIFFICULTY: Easy
QUESTION TYPE: Subjective Short Answer
OTHER: Time: 5 min.
102. Paul is employed as an auditor by a CPA firm. On most days, he commutes by auto from his home to the office.
During one month, however, he has an extensive audit assignment closer to home. For this engagement, Paul drives
directly from home to the client’s premises and back. Mileage information is summarized below:
Home to office 12 miles
Office to audit client 15 miles
Audit client to home 10 miles

If Paul spends 20 days on the audit, what is his deductible mileage?
ANSWER: 400 miles [20 miles (each day) × 20 days].
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
103. During 2017, Eva used her car as follows: 12,000 miles (business), 1,400 miles (commuting), and 4,000 miles
(personal). In addition, she spent $440 for tolls (business) and $620 for parking (business). If Eva uses the automatic
mileage method, what is the amount of her deduction?
ANSWER: $7.480. (12,000 miles × $0.535) + $440 + $620 = $7,480.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
104. Elsie lives and works in Detroit. She is the regional sales manager for a national fast-food chain. Due to unusual
developments, she is compelled to work six straight weeks in the Cleveland area. Instead of spending the weekend there,
she flies home every Friday night and returns early Monday morning. The cost of coming home for the weekend
approximates $600. Had she stayed in Cleveland, deductible meals and lodging would have been $700. How much, if any,
may Elsie deduct as to each weekend?
ANSWER: $600 for each weekend, the lesser of the $600 cost of returning home or the $700 cost of
staying in Cleveland.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
105. Alfredo, a self-employed patent attorney, flew from his home in Chicago to Miami, had lunch alone at the airport,
conducted business in the afternoon, and returned to Chicago in the evening. His expenses were as follows:
Airfare $900
Airport parking (Chicago) 60
Lunch 30
Taxis (Miami) 42
What is Alfredo’s deductible expense for the trip?
ANSWER: $1,002 ($900 + $60 + $42). As Alfredo was not away from home, his lunch is not
deductible.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
106. Rod uses his automobile for both business and personal use and claims the automatic mileage rate for all purposes.
During 2017, his mileage was as follows:
Miles Driven
Personal 4,000
Business 8,000
Qualifying moving expense 3,500
Medical 1,800
Charitable 1,500
Qualifying education (MBA program) 800
How much can Rod claim for mileage?

ANSWER: $5,819 [(8,800 miles × $0.535, business and education) + (3,500 miles × $0.17, moving) +
(1,800 miles × $0.17, medical) + (1,500 miles × $0.14, charitable)].
POINTS: 1
DIFFICULTY: Easy

OTHER: Time: 5 min.
107. Lily went from her office in Portland to Lisbon, Portugal on business. While there, she spent part of the time on
vacation. How much of the air fare of $5,000 can she deduct based on the following assumptions:
a. Lily was gone five days (i.e., three business and two personal).
b. Lily was gone five weeks (i.e., four business and one personal).
c. Lily was gone five weeks (i.e., three business and two personal).
ANSWER: a. $5,000.
b. $5,000.
c. $3,000. (60% × $5,000).
Transportation costs for mixed use (i.e., both business and personal) need not be allocated
as long as domestic trips are involved. Such allocation is necessary, however, for foreign
trips unless one of two exceptions applies. One exception deals with trips lasting seven
days or less and covers part a. (but not part b. or part c.) above. The second exception, less
than 25% of the time was for personal use, applies to part b. but not to part c. Thus, in part
b. no allocation is necessary, while in part c. the air fare must be allocated.
POINTS: 1
108. Noah moved from Delaware to Arizona to accept a better job. He incurred the following unreimbursed moving
expenses:
Transportation $3,000
Lodging 400
Meals in route 500
Penalty for breaking apartment lease 1,000
Forfeiture of athletic club membership 500
Moving company cost 7,000
What is Noah’s moving expense deduction?
ANSWER: $10,400 ($3,000 + $400 + $7,000). Meals ($500), lease penalty ($1,000), and membership
forfeiture ($500) are not qualifying moving expenses.
POINTS: 1
109. After graduating from college, Clint obtained employment in Omaha. In moving from his parents’ home in Baltimore
to Omaha, Clint incurred the following expenses:
Transportation $ 700
Meals 380
Lodging 400
Cost of moving household goods 3,500
a. How much may Clint deduct as moving expense?
b. Would any deduction be allowed if Clint claimed the standard deduction for the year of the
move? Explain.
ANSWER: a. $4,600 ($700 + $400 + $3,500). No deduction is allowed for meals.
b. Yes. Moving expenses are deductions for AGI and can be claimed regardless of
whether a taxpayer takes the standard deduction or chooses to itemize.
POINTS: 1
110. Arnold is employed as an assistant manager in the furniture division of a national chain of department stores. He is a
recent college graduate with a degree in marketing. During 2017, he enrolls in the evening MBA program of a local
university and incurs the following expenses: tuition, $4,200; books and computer supplies, $800; transportation expense
to and from the university, $450; and meals while on campus, $400. Arnold is single and his annual AGI is $64,000. As to
these expenses, what are Arnold’s:
a. Deductions for AGI?
b. Deductions from AGI?

ANSWER:
a. $4,000. Although the tuition was $4,200, § 222 imposes a limitation of $4,000.
b. $1,450. $200 (excess tuition not allowed under § 222) + $800 (books and computer
supplies) + $450 (transportation) = $1,450. No deduction is allowed for meals, since
Arnold is not in travel status. Further adjustment will be required due to the 2%-of-
AGI limitation on certain itemized deductions.
POINTS: 1
111. Cathy takes five key clients to a nightclub and incurs the following costs: $320 limousine rental, $460 cover charge,
$920 drinks and dinner, and $200 tips. Several days after the function, Cathy mails each client a pen costing $25. In
addition, Cathy pays $4 for gift wrapping and mailing each pen. Assuming adequate substantiation and a business
justification, what is Cathy’s deduction?
ANSWER: $1,255. $320 + [($460 + $920 + $200) × 50%] = $1,110. Also allowed are the gifts of $145
(5 × $29). The cost of gift wrapping and mailing each pen ($4) can be added to the
maximum amount of gift allowed ($25).
POINTS: 1
112. For the current football season, Tern Corporation pays $40,000 for a skybox (containing 12 seats) at Veterans
Stadium for eight home games. Regular nonskybox seats at each game range from $120 to $150 a seat. In November, a
Tern employee and ten clients use the skybox to attend a game. The event is preceded by a bona fide business discussion,
and Tern spent $1,000 for food and drinks during the game. What is Tern’s deduction?
ANSWER: $1,400. (12 seats × $150) + $1,000 = $2,800 × 50% (cutback adjustment) = $1,400. Even
though only ten clients attended, all available seats are considered. The highest cost of a
regular seat ($150) is used in the computation.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
113. Brian makes gifts as follows:
Cost of
Recipient
Gift
Mr. Brown (a client) $27 *
Mrs. Brown (Mr. Brown’s wife) 15
Ms. Smith (Brian’s receptionist) 30
Mr. Jones (Brian’s boss) 40
* Includes $2 for gift wrapping

Presuming adequate substantiation and no reimbursement, how much may Brian deduct?
ANSWER: $52 ($27 + $25). The deduction for Mr. Brown’s gift can include nominal costs for gift-
wrapping and engraving. No deduction is allowed for the gift to Mrs. Brown unless she is
in a separate business. Otherwise, she falls under the $25 limit applicable to Mr. Brown.
The deduction for Ms. Smith’s gift is limited to $25. No deduction is allowed for Brian’s
gift to his boss.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.

114. In the current year, Bo accepted employment with a Kansas City law firm after graduating from law school. Her
expenses for the year are listed below:
Cost of bar review course $1,500
Qualified moving expenses 2,100
Job hunting expenses 1,800
Subscriptions to legal journals 450
Membership dues in bar associations 620
State bar dues 300
Since Bo worked just part of the year, her salary was only $32,100. In terms of deductions from AGI, how much does Bo
have?
ANSWER: $770. AGI is $30,000 [$32,100 (salary) – $2,100 (moving expenses)]. Thus, the 2%-of-
AGI floor is $600 ($30,000 × 2%). Qualifying itemized deductions are $1,370 ($450 +
$620 + $300). Thus, $1,370 – $600 = $770 is the allowable itemized deduction. No
deduction is allowed for the bar review course and the job hunting expenses. In this case, it
is apparent that Bo should claim the standard deduction and not itemize.
POINTS: 1
115. Rocky has a full-time job as an electrical engineer for the city utility. In his spare time, Rocky repairs TV sets in the
basement of his personal residence. Most of his business comes from friends and referrals from former customers,
although occasionally he runs an ad in the local suburbia newspaper. Typically, the sets are dropped off at Rocky’s house
and later picked up by the owner when notified that the repairs have been made.
The floor space of Rocky’s residence is 2,500 square feet, and he estimates that 20% of this is devoted exclusively to the
repair business (i.e., 500 square feet). Gross income from the business is $13,000, while expenses (other than home office)
are $5,000. Expenses relating to the residence are as follows:
Real property taxes $4,500

Interest on home mortgage 8,000
Operating expenses of residence 3,000
Depreciation (based on 20% business use) 1,000
What is Rocky’s net income from the repair business
a. If he uses the regular (actual expense) method of computing the deduction for office in the home?
b. If he uses the simplified method?
ANSWER: a. Business income $13,000

Less: Expenses (5,000)
Net business income before office in the home expenses $ 8,000
Less: Real property taxes ($4,500 (900)
× 20%)
Mortgage interest ($8,000 × (1,600)
20%)
Operating expenses($3,000 (600)
× 20%)
Depreciation (1,000)
Net income fro m business $ 3,900
Net business income before office in the home expense (see part $ 8,000
b.
a. above)
Office in the home expense (1,500) *
Net income from business $ 6,500
*As no more than 300 square feet can be considered, the
maximum allowed is $1,500 (300 square feet x $5).
POINTS: 1
116. For the current year, Wilbur is employed as a deputy sheriff of a county. He has AGI of $50,000 and the following
unreimbursed employee expenses:
Attendance at a law enforcement conference ($800 for travel and $220 for meals) $1,020
Uniforms (does not include $300 for laundry and dry cleaning) 1,000
Professional dues and journals 300
Contribution to sheriff’s reelection campaign (highly recommended by Wilbur’s boss) 400
How much of these expenses are allowed as deductions from AGI?
ANSWER: $1,510. $910 + $1,300 + $300 = $2,510 – (2% × $50,000) = $1,510. A cutback adjustment
of $110 ($220 × 50%) is required for the meals obtained during the conference. No
deduction is available for the campaign contribution.
POINTS: 1

117. If a business retains someone to provide services, that person may either be an employee or be self-employed (i.e.,
independent contractor).
a. What are the tax advantages to the business of having the service provider classified as self-employed?
b. What are the advantages and disadvantages to the service provider of self-employed status?
ANSWER:
a. Self-employed persons do not have to be included in various fringe benefits programs
(e.g., group-term life insurance, accident and health plans) and retirement plans.
Because they are not covered by FICA and FUTA, these payroll costs are avoided.
The advantages are that expenses qualify as deductions for AGI. Consequently,
b. deductibility is not affected by the choice of the standard deduction, and no reduction
is required for the 2%-of-AGI floor. In terms of disadvantages, being self-employed
can lead to other state and local taxes (e.g., license fees, franchise taxes, occupation
taxes, gross receipts levy). The most significant, however, is the self-employment tax
that the taxpayer is subject to.
POINTS: 1
DIFFICULTY: Easy
QUESTION TYPE: Essay
NATIONAL STANDARDS: United States - BUSPROG: Technology: Technology: - BUSPROG: Technology
118. In terms of income tax treatment, what is the difference between common law and statutory employees?
ANSWER: Although subject to Social Security tax, statutory employees are not subject to Income tax
withholding. Statutory employees may claim all of their unreimbursed expenses as
deductions for AGI. For common law employees, such expenses are deductions from AGI.
POINTS: 1
DIFFICULTY: Easy


OTHER: Time: 5 min.
119. Myra’s classification of those who work for her as independent contractors is being questioned by the IRS. It is the
position of the IRS that these workers are really employees. What type of factors can Myra utilize to justify her
classification?
ANSWER: Myra needs to show that she has a reasonable basis for not treating her workers as
employees. In this regard, can she prove reliance on any of the following?
∙ Judicial precedent, published ruling, or technical advice.

∙ A past IRS audit that resulted in no employment tax assessment.
∙ A longstanding practice of independent contractor status in the same industry.
∙ Has Myra consistently treated these workers as independent contractors?
∙ Has she reported their earnings by filing Form 1099-MISC?
POINTS: 1
120. Taylor performs services for Jonathan on a regular basis. There exists considerable doubt as to whether Taylor is an
employee or an independent contractor.
a. What can Jonathan do to clarify the matter?
b. Suppose Jonathan treats Taylor as an independent contractor but Taylor thinks she is an
employee. What is Taylor’s recourse, if any?
ANSWER:
a. Jonathan can obtain a ruling from the IRS by filing Form SS–8 (Determination of
Worker Status for Purposes of Federal Employment Taxes and Income Tax
Withholding).
b. Taylor should file a Form 8919 (Uncollected Social Security and Medicare Tax on
Wages) with the IRS.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
121. Jacob is a landscape architect who works out of his home. He wonders whether or not he will have nondeductible
commuting expenses when he drives to the locations of his clients. Please comment.
ANSWER: Jacob has no commuting expenses since his tax home is his residence. Thus, his mileage to
and from the premises of his clients should be fully deductible.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
122. Under the automatic mileage method, one rate does not cover every type of expense. For 2017, what are the rates for
business use, education, moving, charitable, and medical?
ANSWER: $0.535 (business use); $0.535 (education); $0.17 (moving); $0.14 (charitable); and $0.17
(medical).
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
123. Christopher just purchased an automobile for $40,000 which he plans to claim 100% as being for business use. In
order to take advantage of MACRS and § 179, he plans to use the actual cost method for determining his deduction in the
first year. In subsequent years, he will switch to the automatic mileage method. Comment on Christopher’s proposed
approach.
ANSWER: First, limitations are imposed on how much depreciation can be claimed over each year of
the five-year write-off period. In most cases, such limitations significantly reduce the
depreciation normally allowed. Second, the use of MACRS and/or § 179 precludes later
converting to the automatic mileage method. Lastly, how many automobiles does
Christopher own? If just one, 100% business use could be almost impossible to justify
since it negates any personal use.
POINTS: 1
124. Once set for a year, when might the IRS change the rate for the automatic mileage method?
ANSWER: Changes in the past have been justified by significant increases or decreases in fuel prices.
Such a change places a premium on keeping track of mileage on a monthly basis.
POINTS: 1
OTHER: Time: 5 min.
125. Travel status requires that the taxpayer be away from home overnight.
a. What does “away from home overnight” mean?
b. What tax advantages result from being in travel status?
ANSWER: a. “Home” for this purpose is the place of taxpayer’s principal employment. “Overnight”
need not be a 24-hour period, but it must be a time duration substantially longer than
an ordinary day’s work such as to require rest or sleep.
b. If “travel status” exists, many otherwise nondeductible expenses (e.g., meals, lodging,
transportation) become deductible.

POINTS: 1
126. When is a taxpayer’s work assignment in a new locale temporary? Permanent? What difference does it make?
ANSWER: Temporary indicates that the assignment’s termination is expected within a reasonably
short period of time. In no event can the period of absence exceed one year. If the
taxpayer’s assignment is indefinite, and not temporary, his or her tax home changes and
travel status ends.
POINTS: 1
OTHER: Time: 5 min.
127. Nick Lee is a linebacker for the Baltimore Ravens (a professional football club). During the football season he rents
an apartment in a Baltimore suburb. The rest of the time he lives with his family in Ann Arbor (MI) and works at a local
bank as a vice president in charge of public relations. Can Nick deduct his expenses while away from Ann Arbor?
Explain.
ANSWER: Probably not. Although his personal residence is in Ann Arbor, Nick’s tax home is likely to
be the Baltimore area. Considering the salaries of professional football players, Nick’s
income from the Ravens must heavily outweigh that received from an Ann Arbor bank.
Furthermore, his principal activity and the time spent (e.g., conditioning, training, playing)
is that of a player and not a banker.
POINTS: 1

128. How are combined business/pleasure trips treated for travel within the United States as opposed to foreign travel?
ANSWER: The major difference is that transportation charges are fully deductible if the trip is
primarily for business and within the United States. If the foreign trip is primarily business,
transportation expenses must be allocated between business and personal unless (1) the
taxpayer was away from home for seven days or less or (2) if less than 25% of the time
was spent on personal pursuits.
POINTS: 1
DIFFICULTY: Easy
129. Concerning the deduction for moving expenses, what circumstances, if any, will excuse a taxpayer from meeting the
time test of 39 or 78 weeks?
ANSWER: The time test will be disregarded if the taxpayer dies, becomes disabled, or is discharged
(other than for willful misconduct) or transferred by the new employer. Under certain
conditions, expatriates who retire while overseas are exempt from the time test.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 5 min.
130. A taxpayer just changed jobs and incurred unreimbursed moving expenses.
a. What are his (or her) options if an income tax return has to be filed before the time test is
met?
b. What happens if the moving expense deduction has been claimed and the time test is not
later satisfied?
ANSWER:
a. The taxpayer may claim the deduction right away or wait until the time test is met and
file an amended return for the year of the move.
b. If the moving expense is claimed and the time test is not later met, a taxpayer has two
options. First, he can increase the income for the following year by the amount of the
deduction claimed. Second, he can file an amended return for the year of the move in
which the deduction is not claimed.
POINTS: 1
131. Nicole just retired as a partner in a Philadelphia law firm. She moved to San Francisco where she took a job as an
adjunct professor at a local law school. Can Nicole deduct her moving expenses? Explain
ANSWER: She can deduct her moving expenses if her status as an adjunct professor is full-time
employment. She cannot if her status is regarded as part-time employment.
POINTS: 1
DIFFICULTY: Easy
132. In terms of IRS attitude, what do the following expenses have in common?
a. Cost of a CPA exam review course.
b. Cost of a review course for the bar exam.
c. Cost of a law degree by a taxpayer who does not intend to practice law.
ANSWER: It is the position of the IRS that the costs associated with becoming a CPA are
a. incurred in order to acquire a basic skill and thus are not deductible as education
expenses.
b. The same reasoning as noted in part a. above applies to review course taken to pass
the bar exam.
c. Regardless of a taxpayer’s career goals, the IRS considers a law degree to be the
acquisition of a basic skill.
POINTS: 1
DIFFICULTY: Easy
133. Madison and Christopher are staff accountants at a major public accounting firm. Both are pursuing a law degree in a
night program at local law school. Madison contends that the cost of the program is a deduction for income tax purposes,
while Christopher maintains that it is not. Who is correct and why?
ANSWER: Both are partly correct and incorrect. The IRS takes the position that pursuing a law degree
is not maintaining or improving existing skills but results in acquiring a new job skill.
Thus, a legal education is not job related to accounting but constitutes a new trade or
business. However, § 222 allows a deduction for tuition (up to $4,000 or less) even if the
education is not job related. This provision allows some or all of the law school tuition to
be deductible but not other associated expenses (e.g., textbooks, transportation). In
summary, some costs can be claimed and some cannot.
POINTS: 1
DIFFICULTY: Easy
KEYWORDS: Bloom's: Analysis
134. Logan, Caden, and Olivia are three unrelated parties who claim the standard deduction. All are married and attend
Citron University and each pays tuition of $6,100. Of this payment, Logan can claim a deduction of $4,000; Caden a
deduction of $2,000; and Olivia no deduction at all. Explain.
ANSWER: The most apparent explanation is the limitation imposed on the § 222 tuition deduction.
Logan’s MAGI must be less than $130,000, while Caden’s MAGI is more than $130,000
but not more than $160,000. Lastly, Olivia’s MAGI must be in excess of $160,000.
POINTS: 1
DIFFICULTY: Easy
135. Meg teaches the fifth grade at a local school. During the year, she spends $1,200 for school supplies for use in her
classroom. On her income tax return, some of this expense is not reported and the balance is deducted in two different
places. Explain what has probably happened.
ANSWER: Meg probably has been reimbursed for some of these expenses. If she renders an adequate
accounting to her employer, the reimbursement is not reported in her income nor is the
expense involved deducted. As to the remaining expenses, she has claimed $250 as a
deduction for AGI and the balance as a miscellaneous itemized deduction.
POINTS: 1
136. In connection with the office in the home deduction, comment on the following:
a. Mixed use (i.e., business and personal) of the portion of the home allocated to business.
b. The difference between direct and indirect expenses for deduction purposes.
c. The classification of the expense (i.e., dfor or dfrom AGI).

ANSWER:
a. In most cases, mixed use of the portion allocated to business is not allowed.
Consequently, the office must be exclusively used for business. An exception is made,
however, when the home is used as a daycare center. Here, mixed use is allowed.

b. Direct expenses (e.g., painting the office) are deductible in full because they only
benefit the office area. Indirect expenses (e.g., homeowners casualty insurance) must
be allocated since they relate to both the business and personal portions of the home.
In the case of the simplified method of determining the deduction, the distinction
between direct and indirect expenses is not relevant.
c. Like most job-related expenses, the taxpayer’s status (i.e., employed, self-employed)
governs the classification of the expense. Thus, an office in the home expense to an
employee is a deduction from AGI, while that of a self-employed taxpayer is a
deduction for AGI.
POINTS: 1
137. Regarding the new simplified method of computing the office in the home deduction, comment on the following
independent factors.
a. Taxpayer has set aside 400 square feet for use as an office.
b. Taxpayer has repainted and recarpeted the office area.
c. In past years, taxpayer has always taken the deduction using the regular (actual expense) method.
d. The net income from the business is not large.
ANSWER:
a. Unfortunately, the deduction is limited to 300 square feet--so the maximum allowed is
$1,500 (300 × $5).
b. Direct expenses cannot be claimed under this method.
c. As the choice allowed is annual, the method used in the past does not matter. However,
no carry over of unused deduction can be claimed. Also, a prior choice cannot be
changed but is binding on the taxpayer.
d. The deduction cannot exceed the net income from the property. Furthermore, any
unused deduction amount cannot be carried over to future years.
POINTS: 1

138. Faith just graduated from college and she needs advice on the tax treatment of the costs she incurs in connection with
her first job (a sales person for a pharmaceutical company). Specifically, she wants to know about the following items:
a. Job search costs.
b. Business wardrobe cost.
c. Moving expenses.
d. Deduction for office in the home.

ANSWER:
a. Not deductible as it involves Faith’s first job.
b. Not deductible since the clothes are suitable for street wear.
c. As long as the time and distance requirements are met, the moving expenses are
deductible.
Unless Faith’s employer has an office available for her in the locale where she
d.
works, she can qualify for an office in the home deduction. This result is consistent
with the convenience of the employer requirement applicable in the case of
employees. Because she is just starting, Faith will probably rent and not buy a
residence. As a renter, she will not have many indirect expenses attributable to an
office (e.g., property taxes, interest on home mortgage). Consequently, Faith might
wish to choose the simplified method of determining the office in the home expense.
POINTS: 1
DIFFICULTY: Easy
139. Regarding tax favored retirement plans for employees and self-employed persons, comment on the following:
a. The exclusion versus deduction approaches as to contributions by participants.
b. Tax-free accumulation of earnings.
c. The deferral of income tax consequences.
d. Employee versus self-employed status.
ANSWER: a. Contributions by employees to retirement plans that are qualified provide a tax benefit
either in the form of an exclusion from gross income or as a deduction for AGI. The
traditional IRA takes the deduction approach. This is also the case of contributions by
a self-employed person to a Keogh (H.R. 10) plan.
b. A characteristic of all tax-favored retirement plans is that income accumulates free of

tax. This allows for a greater accumulation to take place up to the point of distribution.
c. Except in the Roth IRA, the main objective of retirement plans is to defer taxation
until distributions are made.
d. Keogh (H.R. 10) plans are, in effect, the self-employed version of employee
retirement plans.
POINTS: 1
140. Ashley and Matthew are husband and wife and both are practicing CPAs. On a joint return, Ashley gets to deduct her
professional dues but Matthew does not. Explain.
ANSWER: Most likely Ashley is self-employed, while Matthew is employed. Thus, Ashley’s expenses
are deductions for AGI and Matthew’s are itemized deduction subject to the 2% floor. If
they do not itemize (or if they do and cannot exceed the 2% floor), Matthew loses the
deduction for his professional dues.
POINTS: 1
OTHER: Time: 5 min.
141. Isabella is a dental hygienist who works for five different dentists. She spends one day a week (i.e., Monday through
Friday) with each. All of the dentists except Dr. Stanki (the Wednesday assignment) treat her as an employee. Dr. Stanki,
however, classifies her as being self-employed. Comment on this discrepancy in treatment.

ANSWER: Unless Isabella’s Wednesday duties are significantly different than the rest of the week, Dr.
Stanki has placed himself in a vulnerable position. In terms of the proper work
classification of a service provider, one key consideration is how they are treated by other
comparable businesses. In all likelihood, therefore, Dr. Stanki will have a tough time
convincing the IRS that Isabella is an independent contractor when four of his colleagues
consider her to be an employee. More likely, Dr. Stanki desires to save on payroll taxes
and avoid covering Isabella in any fringe benefits offered to other employees.
POINTS: 1
DIFFICULTY: Easy
142. Felicia, a recent college graduate, is employed as an accountant by an oil company. She would like to continue her
education and obtain a law degree. Discuss Felicia’s tax status if she attends a local law school on a:
a. Part-time basis.
b. Full-time basis.
ANSWER: Regarding the usual education expense justification of maintaining and improving on
a. existing skills, Felicia will not succeed. The IRS has successfully maintained that
obtaining a law degree leads to a new trade or business. Reliance on § 222, however,
is appropriate since the education need not be job related. Unfortunately, § 222 only
covers tuition, is limited to $4,000, and may be reduced (or eliminated) by an AGI
limitation.
b. If Felicia quits her job and returns to college on a full-time basis, she no longer is in a
trade or business. A temporary break in employment status (e.g., leave of absence),
however, will cure this problem if properly structured. However, Felicia will still
encounter the new trade or business provision.
POINTS: 1
143. Discuss the 2%-of-AGI floor and the 50% cutback limitation in connection with various employee expenses under
the following arrangements:
a. The employee is not reimbursed by the employer.
b. The employee is fully reimbursed under a nonaccountable plan.
c. The employee is partially reimbursed under an accountable plan.
d. The employee is fully reimbursed under an accountable plan.
ANSWER:
Any cutback adjustment and the 2%-of-AGI floor are imposed on the employee. The
a. employee has the burden of being able to substantiate the expenses involved.
Furthermore, no deduction is available if the employee does not itemize deductions
from AGI.
The reimbursement must be reported as income. Deductions are handled as in part a.

b. above.
c. Unless the reimbursement identifies the expenses covered, it must be allocated

between the items that are and are not subject to the cutback adjustment.
d. A washout results. In effect the expenses are treated as deductions for AGI and fully
offset the reimbursement. As far as the employee is concerned, the expenses are not
subject to the cutback adjustment or the 2%-of-AGI floor.
POINTS: 1
144. Ramon and Ingrid work in the field of public relations and incur sizable entertainment expenses. Ramon is employed
by a consumer products company, while Ingrid is a self-employed consultant. Regarding the tax treatment of the
entertainment expenses, when would:
a. Ramon be better off than Ingrid?
b. Ingrid be better off than Ramon?
ANSWER: a. If Ramon renders an adequate accounting to his employer and is fully reimbursed. In
such a case, the employee reports no income or deduction as to these expenses. The
cutback adjustment is suffered by the employer.
b. If Ramon does not render an adequate accounting to his employer, he will have to
recognize any reimbursement as income and substantiate any deduction. Even worse,
he will be subject to the cutback adjustment and the deduction will be a miscellaneous
itemized deduction upon which the 2%-of-AGI limit is imposed. Although Ingrid also
will be subject to the cutback adjustment, she has a deduction for AGI upon which the
2% rule does not apply.
POINTS: 1
KEYWORDS: Bloom's: Analysis
Sue performs services for Lynn. Regarding this arrangement, use the legend provided to classify each statement.
a. Indicates employee status.
b. Indicates independent contractor status.
DIFFICULTY: Easy
QUESTION TYPE: Matching
OTHER: Time: 2 min.
145. The services are performed at Sue’s premises.

ANSWER: b
POINTS: 1
146. Sue does not work for other parties.

ANSWER: a
POINTS: 1
147. Lynn determines when the services are to be performed.

ANSWER: a
POINTS: 1
148. Sue has unreimbursed expenses.

ANSWER: b
POINTS: 1
149. Sue was trained by Lynn.

ANSWER: a
POINTS: 1
150. Sue uses her own helpers.

ANSWER: b
POINTS: 1
151. Sue charges by the hour for her work.

ANSWER: a
POINTS: 1
152. Sue files a Form 2106 with her Form 1040.

ANSWER: a
POINTS: 1
153. Sue files a Schedule SE with her Form 1040.

ANSWER: b
POINTS: 1
154. Sue uses her own tools.

ANSWER: b
POINTS: 1
Match the statements that relate to each other. (Note: Choice L may be used more than once.)
a. Must involve the same trade or business
b. Must be for the convenience of the employer
c. Meals while in route
d. Lodging while in route
e. Out-of-town job assignment lasts for more than one year
f. Can include actual cost of parking
g. Payment for services rendered based on tasks performed
h. Excludes use of MACRS depreciation
i. Taxpayer has tools and helper provided for him
j. Transportation must be allocated if taxpayer spends two weeks on business and one week sightseeing
k. Paralegal obtains a law degree
l. Correct match not provided
DIFFICULTY: Easy

United States - AK - AICPA: FN-Reporting

OTHER: Time: 2 min.
NOTES: According to the IRS, a law degree does not maintain or improve existing skills but
leads to the creation of a new skill.
Allocation is necessary since the taxpayer meets neither of the two exceptions
(i.e., trip lasts 7 days or less, or less than 25% of time was for personal purposes).
Also includes F.
155. Characteristic of a taxpayer who has the status of an employee

ANSWER: i
POINTS: 1
156. Characteristic of a taxpayer who is self-employed

ANSWER: g
POINTS: 1
157. Actual cost method of determining auto expense

ANSWER: f
POINTS: 1
158. Automatic mileage method

ANSWER: h
POINTS: 1
159. Deductible moving expense

ANSWER: d
POINTS: 1
160. Nondeductible moving expense

ANSWER: c
POINTS: 1
161. Mixed use (both business and pleasure) foreign travel

ANSWER: j
POINTS: 1
162. Education expense that is not deductible to maintain or improve existing skills
ANSWER: k
POINTS: 1
163. Tax home has changed

ANSWER: e
POINTS: 1
164. Deductible job-hunting expenses

ANSWER: a
POINTS: 1
165. Deduction by an employee of unreimbursed office-in-the-home expenses

ANSWER: b
POINTS: 1
166. Mixed use (both business and pleasure) domestic travel.

ANSWER: l
POINTS: 1
Match the statements that relate to each other. (Note: Choice L may be used more than once.)
a. Cover charge paid to entertain client at a night club.
b. Deductible even if taxpayer does not take the new job
c. Company picnic sponsored by employer
d. Use of Federal per diem allowance to substantiate meals while in travel status
e. Does not have to be job related
f. Can include cost of car insurance and automobile club dues
g. Distribution from plan is taxable
h. Distribution from plan is not taxable
i. Expatriate (U.S. person who is employed overseas) returns home to retire
j. Taxpayer moves to a new residence 55 miles closer to his present job
k. Country club membership fee
l. Correct match not provided
DIFFICULTY: Easy
United States - AK - AICPA: FN-Reporting

OTHER: Time: 2 min.
NOTES: Taxpayer did not change jobs, so no moving expense deduction is allowed.
However, withdrawals are subject to tax.
Also includes A.
Taxpayer need not accept any employment offers that result from the job search.
One of the major advantages of § 222 is that the education need not be job
related.
167. Actual cost method of determining car expense

ANSWER: f
POINTS: 1
168. Distance test (for moving expenses) not satisfied

ANSWER: j
POINTS: 1
169. Time test (for moving expenses) waived

ANSWER: i
POINTS: 1
170. Roth IRAs

ANSWER: h
POINTS: 1
171. Keogh (H.R. 10) plans

ANSWER: g
POINTS: 1
172. Cutback adjustment applies

ANSWER: a
POINTS: 1
173. Cutback adjustment does not apply

ANSWER: c
POINTS: 1
174. Deemed substantiation

ANSWER: d
POINTS: 1
175. Job hunting expenses

ANSWER: b
POINTS: 1
176. Qualified tuition and related expenses (under § 222)

ANSWER: e
POINTS: 1
177. Club dues deductible

ANSWER: l
POINTS: 1
178. Club dues not deductible

ANSWER: k
POINTS: 1
179. Traditional IRA contributions made after an individual reaches the age of 65 are treated as excess contributions and
are subject to a nondeductible 6% excise penalty tax.
a. True
b. False
ANSWER: False
RATIONALE: Such treatment is applicable if contributions are made after the individual reaches age 70
1/2.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.
180. If an employer’s contribution to a SEP IRA is less than $54,000 in 2017 (or 25% of the employee’s earned income, if
less), the employee can contribute the difference.
a. True
b. False
ANSWER: False
RATIONALE: A SEP is a qualified plan. The limit on an employer’s contribution for a particular
employee is the smaller of $54,000 (in 2017) or 25% of the employee’s earned income.
However, elective employee deferrals are subjected to a statutory ceiling of $18,000 (in
2017).
POINTS: 1
DIFFICULTY: Easy

OTHER: Time: 5 min.
181. A participant has an adjusted basis of $0 in any nondeductible contributions to a traditional IRA.
a. True
b. False
ANSWER: False
RATIONALE: For deductible contributions, the adjusted basis is zero. For nondeductible contributions,
the basis for a traditional IRA is equal to the amount of the contributions.
POINTS: 1
DIFFICULTY: Easy
OTHER: Time: 2 min.

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This island did not tempt us to stay long, so we steered for
Cagayan Sulu, which is a gem in the ocean; it has three peaks,
wooded, but varied by grassy glades, groves of cocoa-nuts and fruit-
trees, partly concealing and partly revealing scattered houses and
villages. It is, indeed, a picturesque island from every view. Our first
intercourse appeared likely to be unfriendly. Steering round to the
south-west side, we landed at a place where we saw some houses
close to the beach, and as we pulled ashore, we could see the
inhabitants gathering in armed groups; however, we were received
with great civility, and explained the object of our visit, which was to
inquire what fresh provisions could be procured there. We did not
stay long, as they promised to bring us down next day a good
supply.
When we landed on the following morning, we found a very large
party assembled with several fine bullocks for sale; while the
bargaining was going on I wandered inland with a companion to
have a look at the country. Wherever we went we found plantations
of cocoa-nuts and plantains, and round the houses were small
vegetable gardens, while between the dwellings were occasionally
extensive tracks of long coarse grass, on which were herds of
bullocks feeding.
At length we came to a spot which tempted us to rest. It was a
rock overhanging a tiny bay, thrown into deep shade by the tall
graceful palms which bent over it; while looking inland across the
gently sloping fields of long high grass interspersed with groves, we
could see parties of natives marching in Indian file, with their bright
spear-heads flashing in the sun, winding their way down to the
extemporized market. We sat under the shade of some areca palms;
which, though young, and not twenty feet in height, were yet covered
with fruit and freshly expanded blossoms, which shed a delicious
perfume through the whole grove.
Our bargaining prospered, as fine cattle were secured at thirty
shillings a piece, ducks for two wine bottles, fine cocks and hens for
one; as well as a couple of pretty ponies, cocoa-nut oil and nuts,
plantains, limes, ginger, onions, and fruits. This island, though
formerly a dependency of Sulu, is now independent, and is governed
by some of those half-bred Arabs who corrupt and weigh heavily on
these countries. It is finely situated in the Sulu seas, and it is both
healthy and fertile. The inhabitants appear much the same as those I
had seen about Maludu Bay, and, with the exception of some
strangers, were civil. The latter were traders who had visited
Samboañgan, Manilla, and other Spanish ports, and were there
corrupted, by intercourse with the low Europeans and dissipated
classes who usually frequent such places; and at one time these
men were so insolent that I thought their conduct would become
unbearable, till they were quieted by my shooting down a cocoa-nut,
as mentioned in my Limbang journal.
The most singular spot in this island is near the old crater-looking
harbour, mentioned by Sir Edward Belcher, which we entered over a
reef. It is almost circular, and is surrounded by lofty rocks clothed
with trees, bushes, and hanging creepers, presenting a magnificent
wall of evergreen. Rowing to the west side of the bay, and climbing
to the top of a lofty bank, we had a splendid view of a remarkable
almost circular, lake. The place where we stood was a gap between
the lofty cliffs that rose on either hand, and appeared to have been
formed by the inner waters bursting their boundary, and overthrowing
the upper defences of this natural dam. The wooded cliff’s continue
all round, forming a perfect barrier, now rising to a great height, then
sinking to some fifty or sixty feet. The waters, elevated more than
forty feet above the sea, lay in undisturbed repose, and presented
for upwards of half a mile a clear mirror, reflecting back the rays of
the sun and the deep shadow of the tall trees.
I mounted with some difficulty the top of the left-hand cliff, and had
an extensive view through the tangled bushes. On one side were the
waters of the crater, on the other the serene lake with the sea
appearing beyond. We heard from the natives that alligators swarm
in this secluded water, so that fish must be plentiful also, as few pigs
could descend here. In the interior they say there is another more
extensive lake of the same formation; this one was found to be eight
fathoms deep at the edges, and forty in the centre.
Started from Cagayan Sulu, and after encountering rougher
weather than we expected to find in this usually calm sea, lay to, as
we thought we were not far from the island we were intending to
visit.
At daylight the two peaks of Sulu were visible; and as we
approached, the summits of the other hills appeared, while all the
rest of the island lay enveloped in mist; but the sun soon dispelled
this, and showed us the west coast of the lovely island of Sulu. The
slopes of the hills presented alternate patches of cleared grassy
land, with clumps of trees scattered over its face, reminding one of a
noble English park; while a long dense line of cocoa-nut palms
skirted the beach, among which were seen many houses and groups
of inhabitants, who were no doubt watching our approach with much
anxiety, as they had already suffered from the attacks of the Dutch
and Spaniards; but the sight of the English flag no doubt restored
their confidence.
Anchored off Sugh, the capital of Sulu, which is situated at the
bottom of a bay, and appears small; but among the existing
dwellings we could distinguish blackened piles, the remains of
portions of the city burnt by the Dutch. On the right of the town is a
high hill, curiously peaked and well wooded. Farther off to the left,
and at the back, are many high mountains, some peaked, others
rounded; but, as a whole, forming a beautiful view. A white flag, with
a castle represented on it, waved over the fort, and a pilot jack
marked the residence of Mr. Wyndham, an Englishman, settled here
for the purposes of trade.
Very few natives came off, until at length a messenger arrived
from the sultan to know who we were; we returned a suitable and, no
doubt, a satisfactory reply, as the Sulus were in a state of great
excitement, having suffered considerably from the recent shots of
the Dutch ships. Having communicated with Mr. Wyndham, we went
to see the watering-place about a mile to the west of the town,
situated near the great tree to which I have alluded in my second
account of Kina Balu, where we found the water bursting out of the
sand, clear as crystal, and pleasant to the taste.
The tree is very fine, being at least thirteen feet in diameter, with a
very sinewy stem. Mr. Wyndham walked with us a little way into the
country, and showed us some of the houses, having much the same
appearance as those of the Malays. These people are better-looking
than most other inhabitants of the archipelago; but appeared to be
suspicious, watching us at every point; in fact, we afterwards heard
the fugitives from Balignini were scattered among them, and they
had had no time to forget what they had suffered from the well-
deserved attacks of the Spaniards. We then pulled to Mr.
Wyndham’s house, a mere rough building, raised near the site of his
former one, burnt by the Dutch—why or wherefore is inconceivable.
The whole night after our arrival the country was in an uproar,
reports spreading of the advent of innumerable ships, which made
the inhabitants hurry their women, children, and goods up to the
mountain. In the evening we took a friendly letter to the sultan.
28th.—Went with the watering-party, but were unable to penetrate
far, on account of heavy rain and the incivility of the natives, who
waved us back. No answer, as yet, from the sultan.
30th.—Landed at the watering-place, where the mountaineers
were assembled at a sort of market, bartering, buying, and selling.
We walked about a little, and then returned to the beach, where we
were surrounded by some scores of men, women, and children from
the mountains and neighbourhood; the former are said to be of a
different race, but we saw little signs of it. The women, on the whole,
are better-looking than the Malays, and some of the little girls were
quite pretty; they are civil enough, but anxious to know our business.
In the afternoon we went to an audience with the sultan. Having
landed at Mr. Wyndham’s, who led us by a long shaky platform to the
shore, where we found numbers of armed natives assembled, an
officer from the sultan led the way along a broad rough road with a
high stockade on the left, and houses on the right. We passed in,
through ever-increasing crowds, to a market-place, where the
women were selling fowls, fish, and vegetables, till we came to a
creek, over which a rude bridge took us to the palace. Before
crossing, we observed a large brass 24-pounder showing through an
embrasure. The stockade continued on the left, until we passed a
large gate, where on a green were assembled some hundreds of
men, armed with muskets, spears, heavy Lanun swords, and krises,
and defended by shields, and some brass armour, and old Spanish-
looking helmets.
The audience hall was on the right, and the house of prayer on
the left. The crowd opening, we mounted some steps, and crossing a
verandah thronged with armed men, found ourselves in the presence
of the sultan. The audience hall is large, but perfectly bare of
ornament, as all their valuable silks and hangings were packed up,
and mostly sent to the hills, on account of an absurd report spread
by the mate of the Spanish brig we found anchored near, which,
when we came in sight, began to get under weigh, and stand out to
sea.
On being questioned by the Chinese passengers, he said that we
had given him notice to get out of the way, as we were about to
bombard the town. The rumour having spread, the natives packed
up their valuables, and spent the night in carrying their goods off to
the hills, and in removing their women and children. This caused the
suspicious behaviour of the people, and what tends to keep up their
apprehensions a little is that the Spanish brig has not yet returned to
her proper anchorage.
But to return to the hall. In the centre stood a round table; on the
opposite side sat the sultan surrounded by his datus, and around
were a number of empty chairs, on which we took our seats. After
shaking hands, a few questions were asked, as, “What was the
news? Was France quiet?” The sultan was very like the picture in Sir
Edward Belcher’s book, and was dressed in light-flowered silk, with a
very broad gold belt round his waist, a handsome kris, and gold
bracelets, sparkling with jewels. Some of the datus were splendidly
dressed in silks, gold brocades, handsome turbans and head-
dresses, like golden tiaras; the young men were, as usual, the most
gaudily decorated, while the old were in plain white jackets, and
crowds of the better class sat behind and around us.
Observing that Sir James Brooke, who had lately suffered much
from fever, looked hot and tired, the sultan politely broke up the
audience, and we returned by the same path we came, and after
sitting a short time with Mr. Wyndham, went on board to dine with
Captain Keppel, where our Sulu acquaintance amused us with
stories about the natives.
Went on shore to Mr. Wyndham’s to meet datu Daniel; very little
conversation passed. He appears to be a quiet, good-natured man;
his brothers are very fine fellows, and very fair; with them we went to
see the race-course. Passing through a portion of the town, we came
to an open grassy field, where a few men were trying their horses by
trotting them over the sward. None of the chiefs being present, there
were no trials of speed.
2nd.—On shore early with our guide, but the people not appearing
to like our penetrating into the country, we returned to Mr.
Wyndham’s house, and as we passed the stockades, the Sulus
laughingly pointed to some indentations in the wood where the shot
from the Dutch ships had struck, but had done little damage.
3rd.—Weighed anchor and stood along the coast for Tulyan Bay;
but wind and tide being against us, we let go our anchor; sailing
again at three, we found ourselves towards seven in Tulyan Bay,
much to the discomfort of the villagers, whose shouts and screams
could be distinctly heard on board. At last a couple of men came off
and returned on shore after a few reassuring words from Mr.
Wyndham, which appeared sufficient to pacify the inhabitants, as the
noises ceased. Tulyan Bay is rather deep, and appears to be well
protected, and takes its name from a pretty-looking island in the
offing, which was ceded to the English in Dalrymple’s time—in fact,
the inhabitants thought we were come to take possession.
4th.—I must now endeavour to give the little information I
collected concerning Sulu. The government is carried on by a sultan,
with his council of datus; at the present time the principal power is
held by datu Molok, an elder but illegitimate brother of the sultan—a
shrewd-looking man with quick, inquiring eyes. The sultan is said to
be well-intentioned; but, being weak in character, is totally unable to
subdue the turbulent aristocracy by whom he is surrounded. In
despair he is reported to give way to his fondness for opium-
smoking.
The laws are but little respected, and ancient customs are fast
falling into disuse, particularly one resembling a voluntary poor-rate.
Every Sulu trader used to present five per cent. of his yearly profits
to a fund, which was divided among the poor of the island. The
mountaineers acknowledge the supremacy of the sultan, but refuse
to pay tribute, and a government which cannot enforce that is not
likely to be able to suppress feuds, or effectually to put down
disturbances. Mr. Wyndham pointed out a man who was notorious
as a murderer, and one instance he had himself witnessed of his
bloodthirstiness.
Again, two mountaineers, bargaining for a slice of fish, quarrelled;
they mutually seized each other’s weapons; one held the handle of
his opponent’s kris, the other his spear shaft; they struggled, a fight
ensued, the crowd collected, some took one side, some the other,
and in a few minutes seven men lay gasping on the ground. It is not
to be expected that the dependencies of the island will obey, when
all is in such confusion. The sultan’s power is very limited, though
the datus still send parties to raise contributions from the
neighbouring towns, villages, and islands. In all decaying states we
find religion neglected, and here, I imagine, it is held but in slight
respect; their houses of prayer being like a tumble-down barn, and
the inhabitants indulging in the use of wine, and occasionally pork.
Mr. Wyndham told us an amusing story of an old datu, who, going
on business to a Chinese trader, began to find a delicious odour
insinuatingly creeping over his senses.
“Ah,” said he, “what is this? some cooking, what is it?”
“Pork.”
“Pork?” said he; “ah!”
“Would you like to taste some?”
“Why,” he answered in a low voice, but cautiously surveying the
room to see if he were watched, “yes, bring me a little.”
On tasting it, and finding it very good, he began to eat some more.
Mr. Wyndham living next door, and hearing the old fellow’s noise,
had removed some of the partition, and was watching him. He now
coughed.
“Oh, I am ruined,” cried the datu; “who lives in the next house?”
“Signor Wyndham.”
“Then he has me in his power.”
Our informant then went in, and, laughing, shook the Mahomedan
chief by the hand, and congratulated him on his freedom from
prejudice. He ever after had much influence with the old man, who
feared being exposed. The inland inhabitants call themselves
Islamites, but are very lax and ignorant.
The Sulu language is soft; it contains, I believe, many Malay
words and expressions, but it is essentially different; though the
upper classes understand Malay, and also many of the lower, there
being here numerous slaves from Borneo. The population, they say,
is 200,000; it is probably 100,000; not less, from the numerous towns
and villages along the coast, and the number of houses detached in
twos and threes. On an extraordinary occasion, they say they could
bring some 15,000 or 20,000 men into the field; but, in general,
5,000 would be as many as they could assemble. In fact, when the
day of trouble came, they had not, perhaps, 2,000 to defend the
town; and this may be readily accounted for, as a large proportion of
the population is in servitude, which is, however, generally an easy
state of existence.
The slaves are collected from all parts of the archipelago, from
Acheen Head to New Guinea, and from the south of Siam to the
most northern parts of the Philippines: it is a regular slave market.
The Sulus themselves are a better-looking people than any I have
yet seen; they are daring and independent, and the mountaineers,
particularly, are a wild but polite people. Their young women and
little girls are dark-eyed and good-featured, with easy figures; free,
though not obtrusive, in their ways.
Bold and daring as the datus appear, they have much politeness
in their manners, particularly datu Daniel and his brother; and on
proper occasions their carriage is dignified and commanding. The
lower orders are outwardly rough, violent, and fierce, yet have an
inherent politeness, which, when inclined to show confidence, they
display to much advantage. On state occasions the young men
appear in splendid dresses, while the elder content themselves with
plain clothes. The dress is the same as the rest of the archipelago—
a jacket, trousers, sarong, and occasionally a shirt or under-vest.
They all wear krises, and most of them also carry either muskets or
spears.
The Balignini near the watering-places were the worst we met—
insolent and inclined to pilfer; indeed, there was nearly a quarrel
about some of the seamen’s clothes they tried to appropriate. To
show their dislike, they planted sharp fish-bones round the watering-
place, in the hope that our men, landing in the dark, might cut their
feet. The Dutch burnt about two hundred houses, but did little injury
to the stockades, which are, however, sadly out of repair. In proper
order, well mounted with guns, they could make a good defence, as
the walls facing the sea are about fifteen feet thick of mud and stone,
encased with teak stockades. The rampart around the sultan’s
palace is in the best repair, but not so thick as the others; and datu
Daniel’s is by no means contemptible. The men, too, would fight
bravely, as they did against the Dutch; but their guns, except the
brass ones, are mostly dismounted, and they have no carriages
ready; the iron ones are said to be those taken at Balambañgan,
when they surprised and captured our settlement.
The appearance of the country from the sea is very beautiful,
many of the hills rising to a peak some 2,000 feet above the level of
the sea; while others are lower and wooded, and form an agreeable
contrast. Several of these eminences are forest-covered to the
summit, while many present alternate patches of rice cultivation,
pasture land, groves of cocoa-nut, palms, gardens, and detached
clumps of forest trees. It is by far the most beautiful island I have
seen. Sulu, in good hands, might be made to produce every tropical
production, and become the centre of the commerce in these seas.
Ships, by staying a little time, may obtain bullocks, fowls, ducks,
vegetables, fruits, cocoa-nuts, and very fine water at a very good
watering-place. The duties on goods are high; nevertheless, Mr.
Wyndham and the Spaniards carry on a profitable commerce.
Tulyan is rather a small island, with hills to the north, but low land
on the south: the former with a few trees and some bananas, with
cocoa-nut palms at the foot; the latter a little woody. Dalrymple gives
some account of it. In his time the Spaniards had driven the natives
away, burnt their houses, and cut down their fruit-trees; but there is
now a large village along the beach, with many cocoa-nut groves.
The inhabitants are pearl fishers.
Next day anchored off two woody islets; the captain, as usual,
shelling and dredging. Islands are to be seen in the distance all
around us.
6th.—Anchored off Basilan. High hills and lowlands covered with
woods, showing but few clearings. We counted eighteen islands at
one time; among which were the late pirate haunts of Balignini and
Tonquil. Beat about, and anchored off Samboañgan after dark.
We remained seven days at Samboañgan, walking and exploring
in every direction, and enjoyed our stay there very much.
Magindanau, as far as we have seen it, is very hilly and woody, with
the exception of the neighbourhood of the Spanish settlement of
Samboañgan, which has been cleared for some miles; though, for an
old colony, not so much as might have been expected.
The town is situated on the west point of Lanun Bay, and from the
sea appears much smaller than it is in reality. It presents no very
striking features; the long, low, dark fort and whitewashed houses,
intermixed with a few groves of cocoa-nuts, with forest on either
side, and the hills, some cleared and some wooded, rising about
seven miles inland, suggest a rough idea of this pleasant little town.
The plain around is very well cultivated; as you walk along the roads
—very much like English country ones—you have a continual series
of large rice fields, cocoa-nut groves, now swelling into extensive
plantations, then a few round a detached cottage, and intermixed
with these are great quantities of bananas. Many small streams
intersect the plain, adding much to its fertility, and are spanned by
covered bridges.
The fort is to the right of the town, and has rather low walls,
mounted with a good many guns; against a native force it must be
impregnable, but a little shelling would soon subdue it. It is
garrisoned by about two hundred and fifty native soldiers. Leaving its
gate, you cross a large green, beyond which lies the principal portion
of the town, laid out in a rectangular shape, with streets intersecting
each other at equal distances. The houses are in general mere
native ones; others a little superior; and perhaps a couple of dozen
of a better class, in which reside the Governor, Lieutenant-Governor,
Commandant, and other officers. Almost every other house has a
shop, in which cigars, spirits, chocolate, sugar, and various other
articles are sold. The most respectable class keep retail shops, as
well as the little traders.
Beyond this portion of the town is a little green, with the church—a
long barn-like building. Seen within by the imperfect light of evening,
it appeared destitute of ornaments, except round the altar, and
beyond this are some more streets. The houses I entered had very
little furniture; a small table, some chairs, a bedstead, and a kind of
drawers, with a few shelves, complete the whole.
The people themselves are well worthy of notice. They are a
mixture of Spaniards and natives; a few of pure blood, in the
Government offices; the rest half-castes, mestiches, and natives.
The men exhibit no remarkable features, except the Governor,
Colonel Cayelano de Feguaroa, who was an agreeable man, and
spoke French. We were much pleased with his liberal ideas and
gentlemanly manners, and the other officers were equally polite and
attentive. The generality of the native men are kind and civil, but with
fat, unmeaning faces. The women are much better. The Lieutenant-
Governor’s wife, the only pure Castilian in the place, was a very
pretty woman, with fine eyes and regular features. The mestiches
have in general good eyes and dark hair; but, with the exception of a
few, their faces are too broad.
There was a famous corner shop opposite the church, which
contained good specimens of the race:—Gabriella, likewise called
Romantica, one of the handsomest women in the town, with pleasing
features, and her sister, with the usual flat face. Every one visiting
Samboañgan made that shop their place of call, as the staid old
mother and the girls were very civil and hospitable.
In the country one could always obtain cocoa-nuts, and many of
us were invited in to eat fruit and drink chocolate and gin by the
obliging residents, whose pretty houses, embowered in fruit-trees,
were an ornament to the road side.
The officers of the Meander gave a ball. The quarter-deck was
cleared of guns and surrounded with flags on all sides, and
ornamented with green boughs. All the Spanish officers came, and
about fifty of the townswomen, some young, others old. We danced
quadrilles, waltzes, and polkas: the first caused much confusion, the
second was well danced, while the third was quite new to most of
them. The commandant gave one in return, which was kept up with
greater spirit. Many of the girls were fairer and better-looking than
those we saw on board, and a few were in European costumes, with
shoes and stockings, while the rest had Malay petticoats, and little
jackets with scarfs. Dancing the polka with them was found to be
very difficult, as, few having chemises on, the hand constantly
coming in contact with the skin, it was impossible to obtain a hold;
and their little slippers were flying in every direction.
Their own band played waltzes very well by ear; but nothing else.
Indeed, it is almost the only dance they care for, as the girls find it
difficult to try any other, on account of their wearing slippers without
heels, some of which are very prettily ornamented with gold and
silver embroidery.
Supplies were scarce, though I saw a great many oxen and cows,
some goats, fowls, and ducks; but its being a penal settlement, trade
is obstructed and carefully watched to prevent the escape of
convicts, and none could come to the ship without a pass. The
ponies are very good, except the hacks; the water buffaloes are
large, and employed to draw a peculiar sledge along the smooth
roads. The chief amusement of the men on Sundays is cock-fighting:
crowds assemble to witness this cruel sport; and then they show
some money, which at other times appears so scarce that few shops
could give change for a dollar. We observed that the rice was
trodden out by the buffaloes, on hard beaten ground. Washing was
dear, being eleven dollars a hundred.
16th.—Started on our return voyage. Lay-to off a sand-bank not
marked in the chart. A grave was found there with four bamboos
stuck round, one at each corner, in the midst of thousands of birds,
with immense numbers of eggs, some of which were brought off, and
proved good eating. I will omit the ground we went over on our
return, and give an account of a second visit we paid this
archipelago.
CHAPTER IX.
THE SULU ISLANDS.
SECOND VISIT.
Reach Sugh—Mr. Wyndham comes on board—His News—

Commercial Rivalry—The Stockades—Visit the Audience Hall—
Appearance of the Sultan—Visit Datu Daniel’s Stockaded House
—Guns—Datu Daniel—Appearance of the principal Chamber—
The Bed—Boxes—Property—General look of Discomfort—
Spittoons—Dismounted Iron Guns—Taken from the English—
Excitement in the Town—Hereditary Hatred of the Sulus to the
Spaniards—Their Treaty with Spain—Sandakan Bay—Supplies—
Variegated Wood—Salute—English popular—An Exception—
Death of a Sulu Lady from Grief—The Rumah Bechara—A Ship
taken—Interview with the Sultan—Hope—Character of Datus—
The Balignini—Capture an English Ship—Captives brought to
Sulu—Result of the Action of the Nemesis—The Lanuns—At
Magindanau and Cape Unsang—A narrow Escape—Mate to Lord
Cochrane—Capture of the Maria Frederica—Cold-blooded
Murder of the Captain—Jilolo Prahus—Their Rencontre with Sir
Edward Belcher—Pirates off the Arru Group—Sulu Justice—
Appearance of the People—Attack on the Spanish Gunboats—
Public Audience with the Sultan—Private Visit to the House of his
Bride—The Women—Opium-smoking—Invitation to revisit Sulu—
The Spanish Gunboats—Samboañgan—The Corner Shop—
Sunday’s Amusements—Appearance of the Neighbourhood—A
Breakfast in the Country—Long Walks—People comfortable—
Story of the Loss and Re-capture of the Dolphin—The Dolphin
sails for Maludu Bay—Quarrels—Surprised—Death of Mr. Burns
and the Captain—Murder of a Woman—Injury to Trade—Datu
Badrudin’s Monopolies—The Tungku Pirates—Visit the chief
Town of Maludu—Sherif Husin’s Account of the Surprise of the
Dolphin—The Re-capture of the Vessel by Sherif Yasin—Arrival
at Benggaya—Dolphin delivered up—Visit the Village of Sherif
Yasin—His Appearance—His Account of the Re-capture—His
Position—Smoking over Powder—Delivery of the Cargo—Return
to the Ship—Argus Pheasants—Meet with Baju Boats—Pearl
Fishers—Retaliation—Fishing for Pearls—Mr. Edwardes’s Pearl
—Story of the Datu, and his great good Fortune—The Mermaid
Pearl—Present State of Piracy on the North-West Coast—Cruise
of the Balignini in 1861—Ransom of Inchi Ngah—Names of
present Haunts of the Balignini—A Mangrove Swamp—Present
System of Balignini—Escape of a Native—The Lanuns—A
Dayak’s Experience—A Slave Mart—Spanish Attack on Sugh—
Severe Fight—Bravery of the Sulus—Capture of the Town—The
Sulu Government retire to the Hills, and refuse to submit—A Teak
Forest burnt—No Teak in Borneo—Elephants extinct in Sulu.
Started from Labuan in the steamer Nemesis; and passing over
our old ground soon found ourselves in the Sulu seas. It is difficult
navigation, but we passed safely among the shoals, steering south
of Cagayan Sulu, and between the islands of Ubian and Peñgaturan,
where there is a deep channel. The latter is a long and low island, of
great extent, with a few small villages, palm groves, and near it we
observed many fishermen’s canoes. The sea is studded with shoals
and little islands, and I counted eleven at one time from the deck. It
was misty weather when the island first appeared; but as we
approached Sugh the weather cleared, and by the time we had
anchored it was tolerably fine. Since our last visit many houses have
been built, and the town is gradually assuming its ancient
appearance.
A quarter of an hour after our arrival Mr. Wyndham, whom we had
met on our previous visit, came on board, and brought us the little
news he possessed, that Sulu was perfectly tranquil, and that the
Dutch, with two small vessels, were gradually extending their claims
along the east coasts of Borneo, that the Governor of Manilla had
protested against the Dutch interference in Sulu, and that the pirates
of Balignini were utterly rooted out of their old haunts on the islands
of Tonquil and Balignini. But it was a mistake to imagine that the
Spaniards had killed or taken prisoners the whole number, for very
many escaped and retired to Sulu. Mr. Wyndham was startled on
hearing of the expected arrival of an European enemy, and uttered
many exclamations as to the injustice and barbarity of attacking an
inoffensive people, and asked many questions as to the profit of
making this aggression, though he was scarcely surprised, as he
had known they had long desired the eastern coast of Borneo, and
that they are endeavouring to obtain a show of right for its seizure,
as by them our ancient claim is no longer remembered.
At four, we left the Nemesis with Mr. Wyndham, to visit datu
Molok, the prime minister. We pulled in for the little creek in the
centre of the town, passing many new houses lately built by the
Chinese. Mr. Wyndham told us that he found them very troublesome
competitors; as, spreading themselves over all the neighbouring
islands, they offered apparently higher prices for produce than he
could possibly do; so he obtained from the sultan an order for their
recall to the capital. I say apparently higher prices, for by means of
false weights and the tricks usually practised by the Chinese, they
were enabled to outbid the honest European. Yet I fear that in this
there is much commercial jealousy, and that the injury done to the
general trade by the restriction is much greater than the profit to the
individual.
As we passed before the fort I could see numerous guns
displaying their adamantine lips through the embrasures; and I
learned from our companion that the Sulus possess about 150 brass
guns, besides innumerable iron ones. In the market-place, crowds of
armed men were assembled, looking eagerly and anxiously at us.
We landed at the little bridge, and learning that Molok was at the
sultan’s palace, we proceeded thither, escorted by about half a
dozen men armed with long spears, and followed by a crowd of men,
women, and children. We soon arrived at the fort, and then entering
the old audience hall, found it in much the same condition as before,
quite as bare of ornament, with the old round table and white cloth,
and the chairs arranged around. Datu Molok was present, with a few
others; and we had nearly arranged about the salute when the sultan
entered, and it was settled that it should be given the next day.
The news of the Dutch having taken Bali made them all look at
each other with marks of great disquietude, and when they heard of
the amount of the Dutch force which was expected to visit Sulu, their
uneasiness was clearly to be seen under their assumed quietude.
The sultan appeared in better health, but the heaviness of the lower
part of his face gives him a stupid look, and his long jacket of white
silk did not suit his pale appearance. Having taken our leave, we
retired, and returned to the ship; but Sir James Brooke, being
anxious to see some of the datus that evening, sent us on shore
again to arrange a meeting with Mr. Wyndham: but Molok, being
then with the sultan, smoking opium, we went to datu Daniel’s.
For a couple of hundred yards from the shore the water was so
shallow, that we were compelled to be dragged along over the sand
in Mr. Wyndham’s flat-bottomed boat. Walking a few hundred yards
inland to the left of the town, on the road to the race-course, we
came to the house. It is surrounded by a stockade some thirty feet
high; there were two long iron eighteen-pounder guns to defend the
approaches, but only one was mounted, though there were two
brass ones ready for service in his verandah. A wretched-looking
pony, and a man with a chain round his neck pounding rice, were the
most remarkable features of the place.
Having mounted some high steps, we entered the house, where
we found datu Daniel lying down on his bed, suffering from an attack
of intermittent fever. He sat up, however, and talked a little,
expressed his regret that he was unable to come on board and see
the Rajah, but sent one of his people to Molok to arrange a meeting.
The room we entered was large, some fifty feet long by twenty
broad, with a raised recess on one side fifteen feet square. A native
bed, thirty feet long and twelve broad, occupied the greater portion of
the room; it was divided in two by a curtain, and resembled more a
large raised room than a bed. At the end were long shelves filled
with packets of goods, small boxes, and innumerable articles which I
could not distinguish, while around were hung the datu’s handsome
jackets, sarongs, trousers, krises, and other finery for state
occasions. Four gun-cases were piled at the side of the bed, while in
the recess above mentioned, and about the room, were forty or fifty
boxes, containing his valuable property; there was a ladder, also,
which led to the loft.
Chairs were provided for us; but, with the exception of the bed
covered with beautiful mats and the handsomely-ornamented
pillows, the whole place had an air of discomfort, a sort of musty
look. The bed itself is no doubt the datu’s chief residence; we could
only just see the head of the farther half, as a blue curtain was drawn
across, concealing its beauties and its treasures. Around the room
were arranged several dozen brass spittoons, as if the chief were
accustomed to give large parties. Some of the women and young
girls came to the doors to look at us; a few were tolerably good-
looking, with their dark eyes and black hair, but the generality were
like the Malays.
Returning, we were, as usual, very much stared at, but little
followed. We walked behind some of the stockades, but saw that
nothing had been done either to repair them, or to mount the guns,
which lay grass-covered in every direction. As they were those
captured from the English when Balambañgan was taken, it is
probable they were too honeycombed to be of any use. We
remained at Mr. Wyndham’s house waiting for Molok’s answer, which
came at length, mentioning nine as the hour.
The news of the intended visit of their last European enemy must
have spread very rapidly; boats were plying to and fro from the
palace and outside houses, bringing all the valuables on shore. As
Molok sent a message that he could not come, we had a long talk
with Mr. Wyndham, who frankly confessed he was a Spaniard in
heart, as he thought they were more likely to settle the affairs of
these countries than the English, but added, for some reason he
could not fathom, there was an unconquerable prejudice among the
Sulus against the Spaniards. It is no doubt an hereditary feeling, for
these islanders and the Castilians have been constantly at war for
the last three hundred years; the latter endeavouring to subject
them, and the former supporting their independence with great
determination.
By the treaty of September 23rd, 1836, the Spaniards offered their
protection and the assistance of their army and navy to support the
sultan and repel any enemies who might attack him, and the sultan
of Sulu accepted their friendship and protection. This article the
Sulus considered the Spaniards had failed to carry into effect, as the
spirit and letter of the treaty bound Spain and Sulu to consider their
respective enemies as perpetual foes, except that the Sulus were
not required to support Spain in an European war.
Mr. Wyndham said that Sandakan Bay is exceedingly unhealthy,
and that the whole eastern coast bears the same character during
the south-west monsoon; but nearly every tropical place is
insalubrious until cleared and drained. Sandakan is reported to be
one of the noblest harbours in the world, perfectly sheltered, with
eight fathoms of water. Innumerable boats came around the steamer
with vegetables, cocoa-nuts, eggs, fowls, fruit, krises, Sulu knives,
Dutch 32-pounder shot, cattle, and excellent fish, particularly the red
mullet; eggs on the whole very good; mangoes and plantains; but
krises of indifferent quality; the Sulu knives, of very peculiar shape,
are mostly made in China for this market; a tolerable one, with a
sheath of clouded wood, and a handle with an Arabic inscription, I
tried to buy, but they asked too much for it. The upper portion of the
sheath was of the Kayu Kamuning, a beautiful wood from the island
of Magindanau, which, if it could be obtained of large size, would be
invaluable for furniture; but the natives said it was only the knots of
the trees which were beautifully marked.
At one, we saluted the sultan with twenty-one guns. The echo
seemed to commence at the first hill, and gradually, now with a
deeper, then with a lighter sound, rolled round over the whole circle
of hills and valleys. The sultan returned the salute from his various
stockades.
The English appear very popular in Sulu, their only enemy being
datu Boyak, the rajah Mudu, who was away. He felt aggrieved with
the English on account of Sir Thomas Cochrane’s attack on Maludu
Bay. His sister had married sherif Usman, its chief, who, during the
fight, was shot in the stomach with grape, as he, being one of those
whom they deem invulnerable, exposed himself to every fire, and
fought to the last. His wife was inconsolable for his loss, refused to
return to Sulu, retired into the country, fell ill, and died. Her brother
keeps this as a sort of canker in his bosom. The way these men
prepare themselves to be invulnerable is different from that practised
in Sarawak: here they rub their whole bodies with some preparation
of mercury.
I asked Mr. Wyndham about the Rumah Bechara, or House of
Discussion, mentioned by the American navigator Wilkes, but he

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QUESTION TYPE: True / False

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QUESTION TYPE: True / False

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RATIONALE: Such costs are deductible under both methods.

NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension

17. For tax purposes, “travel” is a broader classification than “transportation.”

DATE MODIFIED: 5/11/2017 1:07 PM

NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension

DATE MODIFIED: 5/11/2017 1:07 PM

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KEYWORDS: Bloom's: Comprehension

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KEYWORDS: Bloom's: Knowledge

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HAS VARIABLES: False

OTHER: Time: 2 min.

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NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension

LEARNING OBJECTIVES: CMPV.SWFT.LO: 9-07 - LO: 9-07

OTHER: Time: 2 min.

KEYWORDS: Bloom's: Knowledge

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QUESTION TYPE: True / False

OTHER: Time: 2 min.

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b. All of the self-employment tax is deductible for income tax purposes.

72. Statutory employees:

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LEARNING OBJECTIVES: CMPV.SWFT.LO: 9-02 - LO: 9-02

b. The auto belongs to taxpayer’s mother.

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Air fare $3,000

Sophie’s deductible expenses are:

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claims the standard deduction.

90. Which, if any, of the following is subject to a cutback adjustment?

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95. Which of the following expenses, if any, qualify as deductible?

STATE STANDARDS: United States - AK - AICPA: FN-Reporting

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NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension

Home to first job 9 miles

How much of the mileage qualifies for deduction purposes?

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How much can Rod claim for mileage?

HAS VARIABLES: False

a. Deductions for AGI?