Question 1: (Please explain your answer) (Please note all questions are for USA Federal Income Taxation)

When deciding whether an activity is a hobby or profit-seeking, which of the following is not considered?

A.

The relationship of profits earned and losses incurred

B.

The time and effort expended by the taxpayer

C.

All of these are relevant factors

D.

The expertise of the taxpayers or their advisers

E.

Whether the taxpayer derives pleasure from the activity

Question 2: (Please explain your answer) (Please note all questions are for USA Federal Income Taxation)

In 2021, Miranda works at Gold Company's call center. Which of the following factors points towards her believing that she is an independent contractor rather than an employee?

A.

Gold sets the work schedule

B.

Miranda avoids the overall limitation as to business meals.

C.

Miranda's work-related expenses are above-the-line deductions

D.

Gold provides the necessary tools such as the headset and computer that are necessary for Miranda to use to perform her duties.

E.

Miranda is paid based on the number of hours she worked

Question 3: (Please explain your answer) (Please note all questions are for USA Federal Income Taxation)

In 2018, Allen (who is single) had watches worth $11,000 (basis $7,000) stolen from his home. His insurance company told him that his policy did not cover the theft. In 2018, Allen's other itemized deductions were $1,000, and he had AGI of $40,000. In March 2021, after Allen threatened legal action, his insurance company decided that his policy did cover the theft of the watches and they paid Allen $4,000. Determine the tax treatment of the $4,000 received by Allen in 2021.

A.

$4,000 should be included in gross income.

B.

None of these.

C.

None of the $4,000 should be included in gross income.

D.

Last year's return should be amended to include the $4,000

E.

$3,900 should be included in gross income.