a. Briefly explain the tax benefit rule. b. Is a taxpayer required to report the reimbursement of a medical expense by insurance as income if the reimbursement is received in the year following the year of the expenditure?
> Peter Baumann, your client, wants to sell a printing press to Chamberlain Corporation for $50,000. Pete has used the press in his business for two years and its adjusted basis is $90,000. The Coxmann Partnership; Chloe International, Inc.; Watts, Inc., a
> Deductible business or investment expenses must be related to a profit-motivated activity. a. What are the factors used in determining whether an activity is profit-motivated? b. Why are these factors so important in making this determination?
> Bala and Ann purchased as investments three identical parcels of land over a several-year period. Two years ago they gave one parcel to their daughter, Kim, who is now age 16. They have an offer from an investor who is interested in acquiring all three p
> Assume that it is December 31, and that Jake is considering making a $1,000 charitable contribution. Jake currently is in the 39.6% tax bracket, but expects that his tax bracket will be 28% next year. How much more will the deduction for the contribution
> a. Explain the principal difference in the tax treatment of an S corporation and a C corporation. b. Why would a C corporation be used if an S corporation is generally exempt from tax?
> Explain the purpose of the multiple support agreement.
> Tax rules are often very precise. For example, a taxpayer must ordinarily provide “over 50%” of another person’s support in order to claim a dependency exemption. Why is the threshold “over 50%” as opposed to “50% or more?”
> a. What determines who must file a tax return? b. Is an individual required to file a tax return if he or she owes no tax?
> Consider the four independent situations below for an unmarried individual, and analyze the effects of the capital gains and losses on the individual’s AGI. For each case, determine AGI after considering the capital gains and losses.
> Mr. and Mrs. Dunbar have taxable income of $260,000 without considering the following sales. Consider the following independent cases where capital gains are recognized and determine the marginal tax rate for the capital gain in each case. Ignore the eff
> An investor in a 28% tax bracket owns land that is a capital asset with a $50,000 basis and a holding period of three years. The investor wishes to sell the asset at a price high enough so that he will have $120,000 in cash after paying the income taxes.
> Beth acquired only one tract of land seven years ago as an investment. In order to sell the land at a higher price, she decides to subdivide it into 20 lots. She pays for improvements such as clearing and leveling, but the improvements are not considered
> Martha Lou owns 100 shares of Blain Corporation common stock. She purchased the stock on July 25, 1986, for $4,000. On May 2 of the current year, she receives a nontaxable distribution of 100 stock rights. Each stock right has a $10 FMV, and the FMV of t
> An individual taxpayer has realized a $40,000 loss on the sale of an asset that had a holding period of eight months. Explain why the taxpayer may be indifferent as to whether the asset is a capital asset.
> Tally owns a house that she has been living in for eight years. She purchased the house for $245,000 and the FMV today is $200,000. She is moving into her friend’s house and has decided to convert her residence to rental property. Assume 20% of the prope
> Three years ago, Paul Wilde exercised all his stock options in the start up company he helped establish and walked away with over $100 million. Since that time, he has spent all his energy, time, and effort in managing his portfolio. His investment philo
> In reference to tax research, what is meant by the best possible defensibly correct solution?
> Daniel receives 400 shares of A&M Corporation stock from his aunt on May 20, 2017, as a gift when the stock has a $60,000 FMV. His aunt purchased the stock in 2007 for $42,000. The taxable gift is $60,000 because she made earlier gifts to Daniel during 2
> The Internal Revenue Code is the most authoritative source of income tax law. In trying to resolve an income tax question, however, a tax researcher, also consults administrative rulings (Income Tax Regulations, Revenue Rulings, etc.) and court decisions
> Bud received 200 shares of Georgia Corporation stock from his uncle as a gift on July 20, 2016, when the stock had a $45,000 FMV. His uncle paid $30,000 for the stock on April 12, 2001. The taxable gift was $45,000, because his uncle made another gift to
> Without considering the following capital gains and losses, Charlene, who is single, has taxable income of $460,000 and a marginal tax rate of 39.6%. During the year, she sold stock held for nine months at a gain of $10,000; stock held for three years at
> Martha owns 500 shares of Columbus Corporation common stock at the beginning of the year with a basis of $82,500. During the year, Columbus declares and pays a 10% nontaxable stock dividend. What is her basis for each of the 50 shares received?
> Sergio owns 200 shares of Palm Corporation common stock, purchased during the prior year: 100 shares on July 5, for $9,000; and 100 shares on October 15, for $12,000. When Sergio sells 50 shares for $8,000 on July 18 of the current year, he does not iden
> Vincent pays $20,000 for equipment to use in his trade or business. He pays sales tax of $800 as a result of the purchase. Must the $800 sales tax be capitalized as part of the purchase price?
> Kamal is starting a new business which will operate as an S corporation. This means that income earned by the corporation will be reported by shareholders even if they do not receive distributions. Kamal has $180,000 of income from other sources, and ite
> Juan and Maria, who have two young children, are in the process of obtaining a divorce. Juan expects to have $200,000 of income each year while Maria expects to have $60,000 of income each year. Assume the children will live with Maria after the divorce
> What is the first day that an individual could sell a capital asset purchased on March 31, 2017 and have a holding period of more than one year?
> If property is sold at a loss to a related taxpayer, under what circumstances can at least partial benefit be derived from the disallowed loss?
> Why did the Supreme Court rule in Arkansas Best that the stock of a corporation purchased by the taxpayer to protect the taxpayer’s business reputation was a capital asset?
> Distinguish between taxpaying entities and flow through entities from the standpoint of the federal income tax law.
> Amir, who is single, retired from his job this year. He received a salary of $25,000 for the portion of the year that he worked, tax-exempt interest of $3,000, and dividends from domestic corporations of $2,700. On September 1, he began receiving monthly
> Bob is a single individual and received a salary of $27,000 before he retired in October of this year. After he retired, he received Social Security benefits of $3,000 during the year. a. What amount, if any, of the Social Security benefits are taxable
> Lucia is a 69-year-old single individual who receives a taxable pension of $10,000 per year and Social Security benefits of $7,000. Lucia is considering the possibility of selling stock she has owned for years and using the funds to purchase a summer hom
> Dan and Diana file a joint return. Dan earned $31,000 during the year before losing his job. Diana received Social Security benefits of $5,000. a. Determine the taxable portion of the Social Security benefits. b. What is the taxable portion of the Soci
> Tim retired during the current year at age 58. He purchased an annuity from American National Life Company for $40,000. The annuity pays Tim $500 per month for life. a. Compute Tim’s annual exclusion. b. How much income will Tim report each year after
> Susan’s salary is $44,000 and she received dividends of $600. She received a statement from SJ partnership indicating that her share of the partnership’s income was $4,000. The partnership distributed $1,000 to her during the year and $600 after yearend.
> Ed owns Oak Knoll Apartments. During the year, Fred, a tenant, moved to another state. Fred paid Ed $1,000 to cancel the two-year lease he had signed. Ed subsequently rented the unit to Wayne. Wayne paid the first and last months’ rents of $800 each and
> Stan rented an office building to Clay for $3,000 per month. On December 29, 2016, Stan received a deposit of $4,000 in addition to the first and last months’ rent. Occupancy began on January 2, 2017. On July 15, 2017, Clay closed his business and filed
> Brad owns a successful corporation that has substantial earnings and profits. During the year, the following payments were made by the corporation: a. Salary of $250,000 to Brad. Officers in other corporations performing similar services receive between
> As a result of their divorce, Fred agrees to pay alimony to Tammy of $20,000 per year. The payments are to cease in the event of Fred’s or Tammy’s death or in the event of Tammy’s remarriage. In addition, Tammy is to receive their residence, which cost t
> If the objectives of the federal tax system are multifaceted and include raising revenues, providing investment incentives, encouraging certain industries, and meeting desired social objectives, is it possible to achieve a simplified tax system? Explain.
> In 2013, Harry and Mary purchased Series EE bonds, and in 2017 redeemed the bonds, receiving $500 of interest and $1,500 of principal. Their income from other sources totaled $30,000. They paid $2,200 in tuition and fees for their dependent daughter. The
> Carmen opens a retail store. Her sales during the first year are $600,000, of which $30,000 has not been collected at year-end. Her purchases are $400,000. She still owes $20,000 to her suppliers, and at year-end she has $50,000 of inventory on hand. She
> Ken and Lynn paid $5,000 to purchase Series EE bonds in the name of their 11-year-old son. The son has no other income, and they are in the 28% tax bracket. The taxable interest this year will be $400 if an election is made to accrue the interest on an a
> State Construction Company is owned equally by Andy, Bill, and Charlie. Andy works in the corporation full-time, and Bill and Charlie work elsewhere. Andy’s employment contract with State specifies a $50,000 annual salary. This year, Andy felt that the c
> Larry’s Art Gallery sells oil paintings, lithographs, and bronzes to collectors and corporations. Customers often come to Larry looking for special pieces. In order to meet customer needs, Larry often accepts orders and then travels looking for the desir
> Lisa and her daughter Jane are equal shareholders in Lisa’s Flooring, Inc. Lisa founded the corporation and was the sole owner for over twenty years. The company is very successful and Lisa has accumulated a fairly large estate. When Jane turned age 25 l
> George, a wealthy investor, is uncertain whether he should invest in taxable or tax-exempt bonds. What tax and nontax factors should he consider?
> What opportunities are available for a taxpayer to defer the recognition of certain types of prepaid income? That is, what advice could you give someone who wishes to defer the reporting of prepaid income?
> a. Are items of income not listed in Sec. 61 taxable? Explain. b. Because there is no specific exclusion for unrealized income, why is it not taxable? c. Can income be realized even when a cash method taxpayer does not receive cash? d. Does a cash bas
> The primary objective of the federal income tax law is to raise revenue. What are its secondary objectives?
> Explain the relationship between dividends and earnings and profits.
> Corporations are taxed on the income they earn, and shareholders are taxed on the dividends they receive. What provisions in the tax law reduce this “double tax” burden?
> a. Is the interest received from government obligations taxable? Explain. b. What impact does the fact that some bond interest is tax exempt have on interest rates? c. Is an investor always better off buying tax- exempt bonds? Explain.
> Under what conditions is an accrual-basis taxpayer allowed to defer reporting amounts received in the advance of the delivery of goods?
> a. Explain the difference between the treatment of prepaid income under the tax law and under financial accounting. b. Why are the two treatments so different? c. What problem does this treatment create for taxpayers?
> Ricardo owns a small unincorporated business. His 15-year-old daughter Jane works in the business on a part-time basis and was paid wages of $3,000 during the current year. Who is taxed on the child’s earnings: Jane or her father? Explain.
> Under present-day tax law, community property rules are followed in allocating income between husband and wife. Is this consistent with Lucas v. Earl? Explain.
> Explain the significance of Lucas v. Earl and Helvering v. Horst.
> A landlord who receives prepaid rent is required to report that amount as gross income when the payment is received. Why would Congress choose to do this? What problem does this create for the taxpayer?
> Explain the meaning of the term wherewithal to pay as it applies to taxation.
> Two commonly-recognized measures of the fairness of an income tax structure are “horizontal equity” and “vertical equity.” a. Discuss what is meant by horizontal equity and vertical equity as it pertains to the income tax. b. Why is it so difficult to d
> Contrast the accounting and economic concepts of income.
> Jack and June are retired and receive $10,000 of social security benefits and taxable pensions totaling $25,000. They have been offered $20,000 for an automobile that they restored after they retired. They did most of the restoration work themselves and
> George, a wealthy investor, is uncertain whether he should invest in taxable or tax-exempt bonds. What tax and nontax factors should he consider?
> What opportunities are available for a taxpayer to defer the recognition of certain types of prepaid income? That is, what advice could you give someone who wishes to defer the reporting of prepaid income?
> a. Briefly explain the tax benefit rule. b. Is a taxpayer required to report the reimbursement of a medical expense by insurance as income if the reimbursement is received in the year following the year of the expenditure?
> a. Are items of income not listed in Sec. 61 taxable? Explain. b. Because there is no specific exclusion for unrealized income, why is it not taxable? c. Can income be realized even when a cash method taxpayer does not receive cash? d. Does a cash bas
> Explain the relationship between dividends and earnings and profits.
> Corporations are taxed on the income they earn, and shareholders are taxed on the dividends they receive. What provisions in the tax law reduce this “double tax” burden?
> a. Is the interest received from government obligations taxable? Explain. b. What impact does the fact that some bond interest is tax exempt have on interest rates? c. Is an investor always better off buying tax- exempt bonds? Explain.
> Under what conditions is an accrual-basis taxpayer allowed to defer reporting amounts received in the advance of the delivery of goods?
> A “good” tax structure has five characteristics. a. Briefly discuss the five characteristics. b. Using the five characteristics, evaluate the following tax structures: 1. Federal income tax 2. State sales tax 3. Local ad valorem property tax
> a. Explain the difference between the treatment of prepaid income under the tax law and under financial accounting. b. Why are the two treatments so different? c. What problem does this treatment create for taxpayers?
> Ricardo owns a small unincorporated business. His 15-year-old daughter Jane works in the business on a part-time basis and was paid wages of $3,000 during the current year. Who is taxed on the child’s earnings: Jane or her father? Explain.
> Under present-day tax law, community property rules are followed in allocating income between husband and wife. Is this consistent with Lucas v. Earl? Explain.
> Explain the significance of Lucas v. Earl and Helvering v. Horst.
> A landlord who receives prepaid rent is required to report that amount as gross income when the payment is received. Why would Congress choose to do this? What problem does this create for the taxpayer?
> Explain the meaning of the term wherewithal to pay as it applies to taxation.
> Contrast the accounting and economic concepts of income.
> Jack and June are retired and receive $10,000 of social security benefits and taxable pensions totaling $25,000. They have been offered $20,000 for an automobile that they restored after they retired. They did most of the restoration work themselves and
> Matt and Sandy reside in a community property state. Matt left home in April 2017 because of disputes with his wife, Sandy. Subsequently, Matt earned $15,000. Before leaving home in April, Matt earned $3,000. Sandy was unaware of Matt’s whereabouts or hi
> Gary earned $57,000 as an executive. Gary, who is single, supported his half sister, who lives in a nursing home. Gary received the following interest: $400 on City of Los Angeles bonds, $200 on a money market account, and $2,100 on a loan made to his br
> The three different levels of government (federal, state, and local) must impose taxes to carry out their functions. For each of the types of taxes below, discuss which level of government primarily uses that type of tax. a. Property taxes b. Excise ta
> John and Mary have two small children and are looking for ways to help fund the children’s college education. They have heard that Series EE bonds are a tax-favored way of saving and have requested your opinion on the tax consequences. They have asked yo
> Jim and Linda are your tax clients. They were divorced two years ago, and the divorce decree stated that Jim was to make monthly payments to Linda. The court designated $300 per month as alimony and $200 per month as child support, or a total of $6,000 p
> Andrea, who is in the 39.6% tax bracket, is interested in reducing her taxes. She is considering several alternatives. For each alternative listed below, indicate how much tax, if any, she would save? (For this problem, ignore additional taxes or phase-o
> Jack is starting a business that he expects to produce $60,000 of income this year before compensating Jack for his services. He has $1,000 of other income and itemized deductions totaling $10,000. He wants to know whether he should incorporate or operat
> Larry has severe vision problems and, in the past, he has claimed the additional standard deduction available to blind taxpayers. This year Larry’s doctor prescribed a new type of contact lens that greatly improved his vision. Naturally, Larry was elated
> Bob and Sue were expecting a baby in January, but Sue was rushed to the hospital in December. She delivered the baby but it died the first night. Are Bob and Sue entitled to a dependency exemption for the baby? Research sources include Rev. Rul. 73-156,
> Ed has supported his stepdaughter, her husband, and their child since his wife’s death three years ago. Ed promised his late wife that he would support her daughter from a former marriage and her daughter’s husband until they both finished college. They
> Which tax form is used by the following individuals? a. Anita is single, age 68, and has a salary of $22,000 and interest of $300. b. Betty owns an apartment complex that produced rental income of $36,000. Expenses totaled $38,500. c. Clay’s wife died l
> In 2017, Lana, a single taxpayer with AGI of $85,400, claims exemptions for three dependent children, all under age 17. What is the amount of her child credit?
> Joe and Joan divorce during the current year. Joan receives custody of their three children. Joe agrees to pay $5,000 of child support for each child. a. Assuming no written agreement, who will receive the dependency exemption and child credit for the c
> Carolyn operates a consulting business as a sole proprietor (unincorporated). Carolyn has been approached by one of her major clients to become an employee. If she accepts the new job, she would no longer operate her consulting business. From the standpo
> Ralph and Tina (husband and wife) transferred corporate bonds worth $30,000 to Pam, their 12-year-old daughter. Pam received $3,500 of interest on the bonds in the current year. Ralph and Tina file jointly and have taxable income of $83,000. a. Compute R
> Maria is a single taxpayer. Her salary is $51,000. Maria realized a short-term capital loss of $5,000. Her itemized deductions total $4,000. a. Compute Maria’s adjusted gross income. b. Compute her taxable income. c. Compute her tax liability.
> Virginia is a cash-basis, calendar-year taxpayer. Her salary is $20,000, and she is single. She plans to purchase a residence in 2018. She anticipates her property taxes and interest will total $7,200. Each year, Virginia contributes approximately $1,000
> Bob and Anna are in the 39.6% tax bracket for ordinary income and the 20% bracket for capital gains (ignore the 3.8% additional tax on investment income for higher-income taxpayers.) They have owned several blocks of stock for many years. They are consid
> Georgia, a single taxpayer, operates a business that produces $100,000 of income before any amounts are paid to her. She has no dependents and no other income. She has itemized deductions of $18,000. Compute the total income tax that would be paid assumi
